Parastatals fail to pay 122 billion shillings supplier bills
- The backlog of unpaid bills surged despite the Treasury’s repeated issuance of circulars to state entities from 2019 to prioritize debt payment.
- Rising supplier debt at the national and county levels has compounded cash flow problems for businesses, especially micro and small businesses, forcing some of them to close.
- Treasury statistics show that supplier debts accumulated by state-owned companies accounted for 88.7% of the 434.5 billion shillings pending nationally at the end of March, compared to 307.8 billion shillings a year earlier.
Parastatals, including public universities, racked up an additional 122.7 billion shillings in arrears to contractors, suppliers and regulators in the 12 months to March, signaling a worsening cash position of managed entities by the state.
Data released by the Treasury shows pending bills from state-owned companies jumped to 385.6 billion shillings from 262.9 billion shillings in March 2021.
The backlog of unpaid bills surged despite repeated issuance of Treasury circulars to state entities from 2019 to prioritize payment of debts, particularly to contractors and suppliers, to support economic growth and to maintain jobs.
Rising supplier debt at the national and county levels has compounded cash flow problems for businesses, especially micro and small businesses, forcing some of them to close.
“National government policy on clearing pending bills continues to be in effect,” the Treasury wrote in the Expenditure and Budget Review Report for the third quarter of the current year ending in June. “All MDAs [ministries, departments, and agencies] should therefore continue to prioritize the payment of pending invoices by settling them as the first charge in the budget for the financial year 2021/22 in accordance with Treasury Circular No. 7/2019.
The circular followed President Uhuru Kenyatta’s directive in June 2019 that ministries and parastatals should prioritize verified arrears in their spending plans.
Treasury statistics show that supplier debts accumulated by state-owned companies accounted for 88.7% of the 434.5 billion shillings pending nationally at the end of March, compared to 307.8 billion shillings a year earlier.
The remainder of the 48.9 billion shillings was due from Ministries, Departments and Agencies (MDAs), a growth of 8.9% from 44.9 billion shillings the previous year.
Outstanding obligations include payments to Crown project contractors, suppliers of goods and services as well as unpaid statutory deductions such as payroll taxes, pension contributions and medical coverage.
Treasury data shows about 227.89 billion shillings of parastatal arrears are owed to public project contractors and suppliers of goods and services, a jump of 38.91% from 164.05 billion shillings l ‘last year.
The remaining debts of 157.71 billion shillings are in the form of statutory and other unremitted deductions, which jumped 59.54% from 98.85 billion shillings a year earlier.
These include Pay As You Earn taxes to the Kenya Revenue Authority, pension contributions to the National Social Security Fund and other private pension schemes as well as medical cover arrears to the National Fund hospital insurance and other insurers, among other obligations.
“Continued delays in the payment of pending invoices to entities that provide goods and services to national and county governments have affected the liquidity and operations of these entities. In a number of cases, this has led to the closure businesses, affecting the livelihoods of suppliers,” Treasury Cabinet Secretary Ukur Yatani said on April 7.
In February, Mr. Yatani rejected a resolution by lawmakers ordering the Treasury to borrow money to clear accumulated debts to suppliers and contractors as well as court fines on the grounds that it would burst the government’s debt ceiling. country of 9 trillion shillings.
Human rights violations
The Treasury wrote in the supplementary budget report tabled in the House on February 1 that Kenya had no ability to borrow more than 500 billion shillings to settle pending bills for goods and services rendered as well as court decisions for breach of contract, unlawful dismissals and human rights violations. .
The National Assembly’s budget and appropriations committee had decided last June that the Treasury would create a special fund financed by long-term debt to reimburse pending verified bills and court decisions.
“Payment of existing pending bills and court rulings through the issuance of long-term bonds may not be sustainable at this time given the prevailing fiscal environment given the magnitude of these bills” , said Mr. Yatani.
“Establishing a fund for this purpose will require clear justification as provided for in Section 2017(b) of the Public Financial Management (PFM) Regulations 2015 which requires that functions and other public services to provided through a fund are those that cannot be executed through the budget appropriation structure.
However, some state entities have in recent sector budget proposal reports accused the Treasury of not allocating sufficient funds to clear pending bills despite their request to treat them as a first charge in the budget.
The Association of General Public Sector Suppliers said earlier in the year that 3,400 of its 4,100 members owed cash as of 2014.
“The lack of clear sanctions and personal accountability from government procurement and payment staff is to blame,” said lobby secretary general Simon Gichuki.
Mr. Yatani said that the Treasury is considering drafting a legal framework that would penalize accountants for failing to deliver verified invoices for goods supplied or services rendered to state entities in the first place.
“The government is exploring legal mechanisms to address the issue of pending bills,” Treasury officials wrote in the 2022 Budget Policy Statement (BPS) against the accountants’.