The Crisis of Pending Bills in Kenya’s Public Sector

By Simon Gichuki (An analysis from the Auditor General Report 2023/24 on National Government, Ministries Departments and Agencies)

Pending bills in Kenya’s public sector have once again come under scrutiny, as highlighted in the latest financial report on National Government Ministries, Departments, and Agencies for the 2023/2024 fiscal year. The report paints a dire picture of a government struggling to honor its financial obligations to suppliers and contractors, with billions of shillings in unpaid bills carried forward year after year. This growing backlog not only distorts government budgeting but also stifles economic growth, cripples small and medium-sized enterprises (SMEs), and erodes trust in public financial management.

The Scale of the Problem

According to the financial report, as of June 30, 2024, various government entities owed staggering amounts to suppliers and service providers. Key highlights include:

• Kenya Transport Sector Support Project reported pending bills amounting to Kshs.7.14 billion, with some dating back to 2016.
• State Department for Public Service had accumulated Kshs.1.54 billion in unpaid bills, including Kshs.158 million from as far back as the 2018/2019 financial year.
• Parliamentary Joint Services carried forward Kshs.1.5 billion in unpaid invoices, impacting suppliers who had already delivered services.
• Maize and Fertilizer Subsidy Programs owed suppliers over Kshs.3.4 billion, significantly affecting agricultural supply chains.
• Kenya National Highways Authority had outstanding bills of Kshs.4.58 billion, including amounts for civil works and land compensation.
• Overall pending bills for national government ministries and agencies have increased by 18% from Kshs.98 billion in 2022/2023 to Kshs.115.6 billion in 2023/2024, indicating a worsening trend.

These are just a few examples of the widespread issue affecting government operations and the private sector alike.

Implications for Suppliers and the Economy

The continued delay in settling these bills has far-reaching consequences:

1. Financial Strain on Businesses: Many public sector suppliers, particularly SMEs, rely on timely payments to maintain cash flow. Delayed payments result in businesses struggling to meet operational costs, pay salaries, and service loans, increasing the risk of closures and job losses.
2. Distorted Government Budgeting: The failure to clear pending bills in the year they arise means that they become a first charge in the following year’s budget, affecting planned development projects and service delivery.
3. Increased Costs Due to Interest and Penalties: Some government entities have accrued significant interest and penalties due to delayed payments. For instance, accrued interest on pending bills in the transport sector alone amounted to Kshs.615 million, further escalating costs for taxpayers.
4. Erosion of Trust in Public Financial Management: Suppliers are losing confidence in government contracts, leading to increased demands for upfront payments, higher service costs, and reluctance to engage in government procurement processes.

Root Causes and Government Inaction

While the government attributes the delay in payments to inadequate budgetary allocations, exchequer funding delays, and lapsing financing agreements, these excuses have been repeated for years. The reality points to deeper systemic issues, including:

• Poor financial planning and misallocation of funds.
• Weak enforcement of the Public Finance Management Act, 2012, which mandates prompt payment of suppliers.
• Lack of political will to prioritize supplier payments over other recurrent expenditures.
• Weak procurement policies that allow contracts to be awarded without guaranteed funding.

The Way Forward: Policy Recommendations

To address the pending bills crisis, the government must take immediate and concrete actions, including:

1. Prioritizing Payment of Verified Pending Bills: The National Treasury should ensure that all verified pending bills form the first charge in subsequent budgets, preventing accumulation of debts.
2. Strengthening Budgetary Discipline: Ministries and agencies must adhere to strict budgeting processes that ensure financial commitments match available resources.
3. Automating Payment Systems: The adoption of real-time payment tracking systems can enhance transparency and reduce bureaucratic inefficiencies in payment processes.
4. Introducing Supplier Protection Legislation: The government should consider enacting laws that impose penalties on agencies that fail to clear bills within stipulated timelines, similar to private sector contractual obligations.
5. Establishing a Public Sector Suppliers’ Fund: A government-backed fund should be created to provide short-term financial relief to suppliers affected by delayed payments, reducing the risk of business collapse.
6. Mandating Timely Financial Audits: Public sector entities should be required to undergo quarterly audits on pending bills to ensure accountability and transparency in payments.
7. Enforcing Sanctions on Non-Compliant Entities: Accounting officers and heads of procurement in government agencies should face strict penalties, including suspension or removal from office, if they fail to clear verified bills within the required timeframe.

The pending bills crisis is a ticking time bomb for Kenya’s economy. If left unchecked, it will continue to cripple businesses, distort government budgeting, and erode investor confidence in public procurement. The government must act decisively to honor its financial commitments and ensure that no supplier suffers due to inefficiencies within the public sector. The time for rhetoric is over—only concrete action will restore trust and financial stability in government dealings.

About the Author: This opinion piece is written for the Association of Public Sector Suppliers as part of efforts to highlight critical issues affecting government suppliers in Kenya.