Suppliers to wait longer for dues in debt swap proposal

Suppliers anxious to get paid after the government started settling pending bills may have to wait longer following a proposal to convert their dues into long-term State debt.

The National Assembly’s Budget and Appropriations Committee (BAC) has mooted a plan to convert the bills into bonds to ease cash flow constraints facing the National Treasury.

MPs instructed the Treasury to come up with debt swaps for loans of more than Sh500 million the bulk of which are held by the national government.

This will offer a huge relief to the Treasury, reducing the amounts needed to settle the debts and stretching the time it will take to make payments.

While suppliers may not get all their cash at once, they will have assets that are tradable and will earn interest on the instruments over time.

"The committee recommends that pending bills that have been established as legally payable and above Sh500 million be settled through a long-term instrument including establishment, where necessary, of debt swaps for intergovernmental bills," said Kimani Ichung’wah, who chairs BAC, in a report on the scrutiny of the Budget Policy Statement (BPS) for financial year 2020/21.

The government has been unable to clear pending bills worth Sh88.9 billion and has been buying time by disputing some of them while paying off a portion.

A special audit by the Auditor-General only approved Sh51 billion for payment and as of January 8, the government only paid Sh30.3 billion meaning Sh20.9 billion cleared bills are still outstanding.

Those disputed over insufficient documentation to support services rendered or work done may still be cleared pilling the pressure on overdue payments.

According to the International Monetary Fund report on Kenya’s fiscal state, the State Department of Infrastructure, was holding a further Sh78 billion by June 2019.

To deal with this, the government last year approved a controversial law allowing the Kenya Roads Board borrow up to Sh360 billion for road repairs and maintenance that will not appear in the debt register.

It gave the State agency, which manages road maintenance levy and transit tolls, power to issue a roads bond backed by taxes on fuel imports and annual budget for roads.

President Uhuru Kenyatta said government would float a Sh150 billion roads bond for the completion of all ongoing road and infrastructure projects including paying pending bills.

Public Debt Management Office Director-General Harun Sirima, however, said this would have to be approved before it is procured.

“Borrowing from the roads board is purely public borrowing. They will have to raise it through Treasury but as to whether we will approve that is a different thing,” he said.