National and county governments should fast-track payment of arrears to contractors and suppliers to stimulate the slowing economy.
The economy grew five per cent in the first half of last year, falling short of a full-year government revised forecast of 5.5 per cent. The 2017 full year forecast has since been trimmed to under five per cent.
“The only stimulus package required is for the governments (national and counties) to pay their bills. Nothing more, nothing less,” said NIC Bank Group #ticker:NIC managing director John Gachora.
Mr Gachora, who is also the vice chair of the Kenya Bankers Association (KBA), said the release of funds owed to suppliers will provide a strong tailwind for the economy.
“The economy is very slow, bank customers are suffering, SMEs are closing in large numbers, and jobs are being lost. We need a stimulus package,” he said. “But not in the old sense of the word, we need debts to be repaid.”
Controller of Budget Agnes Odhiambo lists 43 counties as having accumulated bills worth Sh35.84 billion in the 2016/17 financial year.
A stimulus package usually works by injecting government funds directly into key economic sectors with the aim of boosting employment and spending.
Last November KCB’s #ticker:KCB head of corporate and regulatory affairs, Judith Sidi Odhiambo, said most bank customers who have difficulties servicing loans had blamed county governments for failure to pay contractors.
“Low business volumes and difficulty in getting new contracts have led to a decline in business fortunes,” Ms Odhiambo said. She said KCB was talking to debtors and in some cases structuring repayment to ensure debts are paid in good time.
“We also have other options such as administration or receiverships, negotiated settlements, sale of assets through private treaty and auctions.”