The spike in pending bills is pushing a lot of businesses into defaults, the World Bank has said.
According to the global lender, government arrears, which had risen to Sh537.2 billion by the end of March, curtailed the flow of cash to the private sector, leaving a lot of companies without the cash to meet their obligations.
“Pending bills in Kenya and non-performing loans have been trending in the same direction for the last two years,” said the World Bank in its latest Kenya Economic Update report.
Non-performing loans (NPLs), or loans which have not been serviced for more than three months, as a percentage of total loans rose to 14.6 percent, the highest since June last year.
In the last four years, pending bills by the national government increased from Sh64.7 billion to Sh537.2 billion as at the end of March this year.
Counties had pending bills of Sh159.9 billion at the end of December 2022. A big chunk of the national government’s pending bills, 80 percent, is from State corporations compared to ministries and State departments.
Outgoing Central Bank of Kenya (CBK) Governor Patrick Njoroge in his last press briefing noted that the spike in NPLs was due to the delay in payment of pending bills by state corporations.
This, Njoroge noted, has an element of collateral damage that is likely to further weaken the economy.
“So it is important to actually create positive dynamics, so you have a virtuous cycle beginning with the payment of the delayed payments,” said Njoroge, adding that the government should use the huge inflows it has received to clear some of its pending bills.
While the cash-strapped Kenya has made a lot of progress on stocktaking, verification and prioritisation the World Bank could consider various approaches such as scheduling payments.
“On prevention, in addition to adherence to PFM rules, the government could enhance oversight of State corporations, given that State corporations account for a large share of Kenya’s pending bills, and improve cash management to avoid late payments at the end of the fiscal year.”
Most of the pending bills were owed to contractors or suppliers and emanated from challenges in cash management, and non-adherence to PFM systems including delayed payments, lack of commitment controls, and unrealistic budgets.