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Supplier arrears in parastatals up Sh108bn in six months

The National Treasury building in Nairobi. PHOTO | SALATON NJAU | NMG

Kenya’s parastatals, including public universities, accumulated Sh108.6 billion in additional arrears to contractors and suppliers in six months to September, signalling their worsening cash positions.

Pending bills by the State corporations jumped to Sh371.5 billion in September from Sh262.9 billion in March, provisional data from the Treasury show.

Small and medium-sized businesses are feeling the financial pain that comes with years of late payments on everything from PR campaigns to supplies of construction materials.

The late payments are in turn hitting the financial sector, where non-performing loans have jumped this year to their highest level in more than a decade.

The delayed payments underline the cash flow crises in State-owned corporations beset with mismanagement and corruption.

Mounting supplier debt at the national and county levels has compounded cash flow challenges for firms, especially micro-and small-sized ones, forcing some of them out of business.

The Treasury estimates that arrears owed to contractors and suppliers by State corporations as well as ministries, departments and agencies hit Sh423.1 billion in September from Sh359.5 billion six months earlier.

This is despite a presidential directive that ministries and parastatals treat verified arrears as the first charge in their expenditure plans.

Treasury statistics show Sh371.5 billion or 87.8 percent of the pending bills at the national government level as at end of September were held by State corporations.

The remainder Sh51.6 billion is owed by ministries, departments and agencies (MDAs).

“The SC [State corporations] pending bills include payment to contractors/projects, suppliers, unremitted statutory and other deductions, pension arrears for Local Authorities Pension Trust, and others,” the Treasury wrote in the report.

About Sh204.3 billion of the parastatals’ arrears are owed to contractors of public projects and suppliers of goods and services.

The other bills [Sh167.2 billion] are in the form of unremitted statutory and other deductions such as Pay As You Earn taxes to the Kenya Revenue Authority as well as medical cover and pension arrears for workers, among other obligations.

An earlier report by the Treasury suggested that more than half of Kenya’s 247 parastatals posted either a deficit or a loss in the financial year ended June 2020.

Some of the poorly managed parastatals reporting losses or deficits in their books have over the years turned to commercial loans to meet obligations on strength of their assets such as land.

Treasury Principal Secretary Julius Muia has argued that parent ministries have little legal control over some of the parastatals which are governed by semi-autonomous boards.

“It’s a matter for the boards because State corporations have got a life of their own. They are corporate institutions with boards which are supposed to sort out their case,” Dr Muia said in a past interview.

“Of course given that some of them are 100 percent owned by the government, then the government is the one which bails them out especially where there are indications they will not have money in the near future.”

Business lobbies such as the Kenya Private Sector Alliance (Kepsa) and the Kenya Association Manufacturers (KAM) have warned that accumulating State to State suppliers and contractors were slowing down recovery from the Covid-19 economic fallout and hindering job creation.

KAM said via email the accumulation of bills was “adding excessive strain to businesses that are already balking under other local and global market factors particularly as a result of Covid-19 pandemic”.

“To ease cash flow constraints, businesses are forced to borrow from banks, which raises the cost of production. Inadequate cash flow is a huge impediment to the growth of the manufacturing sector,” the manufacturing sector lobby said.

“MDAs usually cite lack of budgetary allocations as a reason for the delayed payment.”

The Treasury says the government is considering a legal framework that will penalise accounting officers for failure to honour verified bills for goods supplied or services rendered to the devolved units as a first charge.

“Government is exploring legal mechanisms to resolve the issue of pending bills,” Treasury officials wrote in the draft Budget Policy Statement (BPS) for 2022. “The accounting officers will be compelled to clear pending bills and failure do so, penalties will be charged against the accounting officers.”

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