The Kenyan government and its agencies, including county governments and State corporations, owes over Sh650 billion in unpaid bills, according to the Office of the Controller of Budget.
Pending bills have become a matter of national interest for several reasons. They negatively impact local enterprise, causing an undesirable ripple effect. Businesses suffer, more so MSMEs, as aggregate demand shrinks and they are unable to sustain operations with low working capital.
One unpaid invoice could easily account for the bulk of an MSME’s revenue — eroding liquidity and subsequently the chances of remaining a going concern. Business owners are left with negative cash flows and a tinge of hope from occasional promises of payment.
The ultimate consequences of pending bills are businesses shutting down, jobs are lost, purchasing power shrinks, lenders suffer increases in non-performing loans, poverty increases and inequality widens, leading to dwindling of individual and national savings. Economic growth slows down. The government is then hit by delays in tax remittances leading to fiscal imbalances and reduction in borrowing capacity.
Paying off these bills will break the vicious cycle and hasten the much-needed resuscitation of our economy. The new administration appears keen to address this matter, indicating that a pending bills payment plan will be rolled out once they have their executive team in place, including forming a team to review the bills.
For the eligible bills, diverse solutions can be explored. Creditors can be offered the option to take up tax credits to offset tax liabilities. Intergovernmental and intragovernmental balances can be offset and only net balances reported, which would reduce arrears by significant amounts. Raising long-term funding through the capital markets for both the national government and county governments is a viable option.
For instance, Laikipia County has received most of the approvals to float a Sh1.16 billion infrastructure bond. The recent Head of State’s visit to the Nairobi Securities Exchange points to willingness to work with the private sector and capital markets in the resolution of fiscal challenges.
Perhaps the next important step would be putting in place systems to prevent the ballooning of outstanding government payables. Prudent fiscal management is the sustainable solution.
The writer is a senior research associate at Standard Investment Bank (SIB).