Economy

SMEs’ pain as State firms defy pending bills order

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National Treasury building. FILE PHOTO | NMG

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Summary

  • A majority of State corporations and agencies have not honoured a directive by the Treasury to pay over Sh346.2 billion owed to suppliers and contractors.
  • President Uhuru Kenyatta had in June 2019 directed State corporations, ministries, agencies and the 47 county governments to clear pending bills that had been approved for payment.
  • Treasury Secretary Ukur Yatani admitted that the State firms had failed to comply with the pending bills directive.

A majority of State corporations and agencies have not honoured a directive by the Treasury to pay over Sh346.2 billion owed to suppliers and contractors, piling pressure on businesses already weighed down by debt and the negative economic effects of the Covid-19 pandemic.

President Uhuru Kenyatta had in June 2019 directed State corporations, ministries, agencies and the 47 county governments to clear pending bills that had been approved for payment.

Treasury Secretary Ukur Yatani admitted that the State firms had failed to comply with the pending bills directive.

“Despite numerous reminders to State corporations to prioritise settlement of pending bills, it is noted that the level of compliance to these directives is very low,” Mr Yatani said in a circular to all ministries, State corporations and agencies.

Treasury data shows that pending bills by State corporations and agencies amounted to Sh346.2 billion as at September last year, with the debts increasing the financial pain of SMEs that are struggling to make sales in an economy ravaged by the Covid-19 pandemic.

“It was agreed that they should be paid within 60 days, but then enforcement has not been done to make sure that suppliers get the money within this period,” said Carole Karuga, the chief executive of the Kenya Private Sector Alliance (Kepsa).

The pending bills date back several years, highlighting the challenges that SMEs face in getting payments for goods and services delivered to the State.

As at September 2020, the total pending bills by ministries, departments and agencies (MDAs) stood at Sh346.2 billion, having risen from Sh334.2 billion in June, Treasury data shows. Parastatals accounted for Sh284 billion of the unpaid bills while ministries had Sh61.7 billion, up from Sh48.3 billion in June.

Some contractors and suppliers have linked the non-payments to the collapse of their businesses and auction by banks over loan defaults.

Kepsa — a lobby for businesses — in 2019 pushed to have the State make it compulsory for corporations and agencies to pay suppliers within 60 days to ease the cash flow constraints facing SMEs.

Mr Yatani directed the State corporations and agencies to prioritise payment of the billions of shillings in the financial year starting July but did not disclose disciplinary action to be taken on the accounting officers who continue to defy the directive.

Past warnings by the Treasury have gone unheeded — raising questions about the commitment to pay the debt to suppliers and contractors. Section 96 of the Public Finance Management Act and Article 225 of the Constitution give Mr Yatani powers to withhold cash transfers to counties that persistently breach financial commitments.

In November last year, the Treasury threatened to stop releasing funds to scores of State agencies and ministries until they started paying the amount owed to their suppliers and contractors.

The warning came after unpaid bills by MDAs rose by Sh13.4 billion in the three months to September, hurting cash flow in firms that have suffered from reduced demand following the pandemic and triggering mass job losses and pay cuts.

The 47 devolved units owe SMEs over Sh113.85 billion for supplies made and services provided despite calls by the Treasury to clear the debts.

While releasing Sh24 billion to the counties, being part of their equitable share, last Thursday, Mr Yatani once again urged the devolved units to prioritise payment of all monies owed to suppliers.

“It is our hope that county governments will prioritise the settlement of pending bills to suppliers as well as other statutory dues to enable the concerned institutions discharge their mandates effectively,” Mr Yatani said.

Failure to settle the bills highlights a dire state of finances at the State corporations and agencies, which are also grappling with billions of shillings in unremitted statutory deductions.

The Treasury had directed the State corporations to settle all unremitted sacco staff and loan deductions, all statutory deductions (PAYE, NSSF, NHIF and pension arrears) by June 30 last year. It, however, did not disclose any action taken on those who failed to comply.