Why World Bank is pushing Kenya to clear pending bills
The World Bank has asked the government to settle pending bills to ease the strain of non-performing loans and help stimulate the country’s economic growth.
As of March 2024, the national government’s pending bills had reached Sh489.9 billion, equivalent to 3.3 per cent of gross domestic product (GDP), the bank said in its latest report on Kenya.
“Settling existing pending bills could unlock cash flow to government contractors and suppliers, reduce non-performing loans, stimulate the growth of small and medium enterprises, and reduce government arrears, which constitute another form of domestic debt,” the World Bank added.
Preventing further accumulation of these bills requires adherence to Public Financial Management (PFM) measures and improved cash management to avoid late payments at the end of the fiscal year.
The fiscal outturn in the first nine months of financial year 2023/24 shows the government’s ongoing efforts to remain on a fiscal consolidation path.
The planned transition to the Treasury Single Account (TSA), approved by the Cabinet and supported through the recently approved Development Policy Operation (DPO), will enhance the government’s ability to manage cash flow effectively.
In February 2024, the government established a pending bills verification committee to review and verify bills accumulated from July 1, 2005, to June 30, 2022. Despite these efforts, suppliers continue to exert pressure on the State for payment.
Steady revenue growth, driven by the implementation of tax administration and policy measures in the Finance Act 2023, along with efforts to contain the growth of primary expenditures, has resulted in an increased primary surplus.
Achieving fiscal consolidation targets requires realistic revenue forecasting. Revenue mobilisation has consistently fallen below targets, undermining the credibility of the budget process. The Bretton Woods institution warns that shortfalls can lead to unjustifiably large expenditure allocations, and without adequate revenues, it can result in the accumulation of pending bills. As a result, accumulated pending bills remain elevated to date.
Revenue targets
This is even as the international budget think tank told county governments that they must also align procurement plans with the disbursement of funds and expected revenue targets.
Appearing before the Senate Finance and Budget Committee earlier this year, Abraham Rugo, Country Manager and Executive Director of International Budget Partnership called for transparency and accountability regarding the pending bills, urging county governments to settle eligible bills as a first charge, as required by the Public Finance Management (PFM) (County Governments) 2015.
“The accuracy and completeness of the pending accounts payable need close monitoring to ensure that unauthorized and unsupported expenditures are not part of the pending bills,” he said.
Rugo informed the committee, led by Ali Roba, that the pending bills have been repeatedly highlighted by the Office of the Controller of Budget (OCOB) as a challenge to effective budget execution. He added that pending bills have led to negative consequences such as litigation and a loss of trust in government.
“Delay and accumulation of pending bills mean many county services are not budgeted or prioritised due to the focus on settling these bills. There have been untimely approvals of supplementary budget estimates to adopt prior year pending bills into the current budget, leading to payment delays,” he said.
According to Rugo, some pending bills accrued by county governments result from not considering cash brought forward from previous financial years, leading to a deficit budget and eventually unplanned pending bills at the end of the financial year.
