Economy

Late payment to suppliers will soon be an offence

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Central Bank of Kenya Governor Patrick Njoroge. FILE PHOTO | NMG

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Summary

  • The President has agreed to the fast-tracking of all pending payments and have a 60–day cap for payments included in next week’s Finance Bill, the summary showed.
  • The Finance Bill will further make it a criminal offence for any government official to intentionally divert funds meant to settle suppliers.
  • Kepsa had asked for the introduction of interest on all pending bills and hefty fines for non-compliance officers.

Kenya is seeking to make it a criminal offence for government to delay payments to suppliers beyond 60 days in a fresh bid to curb rising pending bills.

This is contained in the summary of recent roundtable between President Uhuru Kenyatta and Kenya Private Sector Alliance (Kepsa) representatives that could boost the fortunes of many small businesses hit by unpaid supplies in an environment of credit crunch.

The President agreed to the fast-tracking of all pending payments and have a 60–day cap for payments included in next week’s Finance Bill, the summary showed.

The Finance Bill will further make it a criminal offence for any government official to intentionally divert funds meant to settle suppliers.

If adopted, this will mean business transactions between private sector and government will be settled promptly starting 2019/2020 financial year that starts next month with legal action taken against State officials who defy it.

The President had directed last Saturday that all pending payments that do not have audit queries be cleared by June 30.

The latest bid comes at a time private sector, already faced with credit crunch, is owed billion of shillings by government for goods supplied or services offered. For instance, the 47 counties had by end of last financial year in June 2018 accumulated Sh108.41 billion claims from contractors and suppliers, a steep climb from Sh35.84 billion the year before, according to the office of Controller of Budget data. Findings by the 2018 enterprise survey for Kenya had approximated that 12 percent of the 1,001 firms surveyed have had a contract with government that was in arrears.

Kepsa had asked for the introduction of interest on all pending bills and hefty fines for non-compliance officers. Prompt payments is expected to inject liquidity into the economy, enhance survival for SMEs and lower non-performing loans (NPLs).

Banking sector’s NPLs stood at 12.9 per cent in April compared to 12.8 per cent in February, with Central Bank of Kenya (CBK) governor Patrick Njoroge citing the State’s pending bill as part of the drivers.

“Prompt settlement of delayed payments by government and private sector entities will curtail a further increase in NPLs and support economic growth,” Dr Njoroge said in last week’s Monetary Policy Statement.

The total value of pending bills rose from 0.9 percent of the gross domestic product (GDP) in financial year 2015/16 to 1.6 percent in the 2017/18 fiscal period, according to recent World Bank analysis which warned that this was strangling the economy by limiting liquidity flow.

Other issues that have bedeviled Kepsa members in the recent past include delayed pre and post shipment verification process, delayed Value added tax refunds from Kenya Revenue Authority and high power costs.