Written By John Mutiso 📝
In the year to March, parastatals, including public universities, accumulated Sh122.7 billion in additional arrears to contractors, suppliers, and regulators, indicating worsening cash positions for State-run entities.
According to Treasury data, pending bills for State corporations increased to Sh385.6 billion from Sh262.9 billion in March 2021.
The accumulation of unpaid bills increased despite the Treasury repeatedly issuing circulars to State entities beginning in 2019 to prioritize debt payment, particularly to contractors and suppliers, to support economic growth and job creation.
Rising supplier debt at the national and county levels has exacerbated cash flow challenges for firms, particularly micro and small-sized ones, forcing some to close.
“The national government policy on clearance of pending bills continues to be in force,” the Treasury wrote in the expenditure and budget review report for the third quarter of the current year ending June. “All MDAs [ministries, departments, and agencies] are, therefore, expected to continue with prioritisation of payment of the pending bills by settling them as a first charge in the FY 2021/22 budget in line with the Treasury Circular No. 7/2019.”
Treasury data show that supplier debts accumulated by State corporations accounted for 88.7 percent of the Sh434.5 billion pending bills at the national level by end of March, up from Sh307.8 billion the previous year.
The remaining Sh48.9 billion was owed by ministries, departments, and agencies (MDAs), representing an 8.9 percent increase over the previous year’s Sh44.9 billion.
Unresolved obligations include payments to State project contractors, suppliers of goods and services, and unremitted statutory deductions such as payroll taxes, pension and medical coverage contributions.
According to Treasury data, Sh227.89 billion of the parastatals’ arrears are owed to contractors of public projects and suppliers of goods and services, a 38.91 percent increase from Sh164.05 billion the previous year.
The remaining Sh157.71 billion in debts are made up of unremitted statutory and other deductions, which increased by 59.54 percent from Sh98.85 billion the previous year.
These include, among other things, Pay As You Earn taxes to the Kenya Revenue Authority, pension contributions to the National Social Security Fund and other private retirement schemes, and medical cover arrears to the National Hospital Insurance Fund and other insurers.
“Continued delays in payment of pending bills to entities that provide goods and services to both national and county governments have affected liquidity and operations of these entities. In a number of cases, this has led to the closure of businesses, affecting livelihoods of the suppliers,” Treasury Cabinet Secretary Ukur Yatani said on April 7.
Mr. Yatani rejected a resolution by lawmakers in February directing the Treasury to borrow money to clear accumulated debts to suppliers and contractors, as well as court fines, on the grounds that it would breach the country’s Sh9 trillion debt ceiling.
Mr. Yatani also stated that the Treasury was considering drafting a legal framework that would penalize accounting officers as a first charge for failing to honor verified bills for goods supplied or services rendered to State entities.
“Government is exploring legal mechanisms to resolve the issue of pending bills,” Treasury officials wrote in the Budget Policy Statement (BPS) for 2022. “The accounting officers will be compelled to clear pending bills and failure to do so, penalties will be charged against the accounting officers.”
