State contractors to wait longer for payment as pending bills audit drags

National Treasury and Economic Planning CS John Mbadi speaks during 2025/2026 Deloitte Kenya National Budget Analysis. [Wilberforce Okwiri, Standard]

The large sums of money that the government owes to businesses continue to be a thorny issue despite the National Treasury having committed to resolving it. The State continues to delay the repayment while allocating paltry amounts, with observers now noting the government is not really committed to clearing pending bills.

National Treasury Cabinet Secretary John Mbadi on Thursday, however, insisted that the State is committed to resolving pending bills dating back to 2005, but noted that this is pegged on the outcome of an audit that is being undertaken by a committee that was launched in September 20223.

He said the committee had done much of the work and is expected to submit a final report by the end of June this year. The report will then be taken to the cabinet for approval, meaning more waiting for businesses before they finally get their money.

Analysts, however, question Treasury’s commitment, going by the paltry amount it has allocated to clear the outstanding pending bills. The Controller of Budget (CoB) in a recent report said both national and county governments owe supplies a combined Sh684.26 billion.

The government has, however, allocated Sh2.75 billion for pending bills for the 2024/25 financial year, a reduction from Sh10 billion it had allocated in the budget for the current financial year.

“The government has allocated Sh2.747 billion to clear arrears, including pending bills. This is a reduction from the financial year 2024/25 budget allocation of Sh10 billion (73 per cent reduction),” said analysts from PwC in a report on the budget last Friday.

“The paltry allocation to clear pending bills raises uncertainty regarding the government’s commitment and timelines to clear pending bills.”

Cliffe Dekker Hofmeyr (CDH) noted that pending bills remained a major concern in the execution of the 2025/26 budget, adding that government entities needed to exercise discipline in their spending to clear money owed to suppliers but also slow down the accumulation of more debt.

“Unresolved pending bills from previous years... threaten to stretch the fiscal envelope, making robust institutional discipline essential for effective delivery,” said CDH in a post-budget analysis. 

Pending bills have been blamed as among the factors that have seen some firms shut down, while many others that have survived closure have had to face auctioneers sent by lenders as the companies remain unable to service loans, they borrowed to deliver on the State jobs, while others are shedding jobs.

“The government remains committed to resolving the longstanding issues of pending bills dating back to 2005 as part of broader efforts to strengthen public financial management and restore confidence in the government process,” said Mbadi when he read the Budget Statement in the National Assembly last week.

“The pending bills verification committee appointed in September 2023 is finalising its report for submission by the end of this month. Since inauguration, the committee received a total of 65,627 pending bill claims valued at over Sh571.6 billion.”

“The committee has analysed 57 per cent of the bills received, valued at Sh522.9 billion. Out of this, a total of Sh229 billion has been recommended for settlement. Once the committee submits its report, we shall submit the recommendations to Cabinet for approval to settle the pending bills.”

Fraudulent claims

The committee’s recommendation for the government to settle Sh229 billion, which is less than half of the Sh522.9 billion pending bills analysed, could be an indication of the level of fraudulent claims or the firms owed money by the government, including other charges like interest and penalties.

According to the Controller of Budget, the national and county governments owe different businesses a combined Sh684.26 billion as of March this year. The bulk of this is owed by the State, at Sh511.75 billion, while counties’ pending bills stood at Sh172.51 billion, with Nairobi County accounting for the largest share of Sh115.69 billion or 67 per cent of the counties’ pending bills.

CS Mbadi has in the past said more than 95 per cent of the pending bills that the committee had reviewed are claims of amounts below Sh10 million, which are mostly owed to small and medium-sized enterprises (SMEs).

“Accumulation of pending bills restrains cash flows to businesses, resulting in liquidity constraints, especially for SMEs, as they have to endure the long wait for settlement of overdue payments,” said the office of COB in its latest report. 

“This forces such businesses to either scale back operations, lay off workers, or even shut down operations. It also leads to high government costs of doing business due to the accumulation of interest charges and penalties on unpaid invoices, and it erodes trust between the government and the private sector.”

“The National Treasury should fast-track the verification of all pending bills of the government and implement the pending bills verification report, including hastened settlement of all bills assessed and cleared for payment.”

The formation of the pending bills verification committee in September brought a degree of optimism among businesses that the government would finally deal with the challenge of pending bills conclusively. 

The committee, chaired by former auditor general Edward Ouko, has, however, taken longer than expected to complete its verification process and hand its report to the Treasury. It was expected to hand over its report by the end of September Last year, but had its term extended by six months to March 31 this year.  Mbadi on Thursday said the committee is now expected to hand in its report to Treasury by the end of June.

The establishment of the Pending Bills Verification Committee, which deemed ineligible 57 per cent (Sh268 billion) of the pending bills, is an indication of systemic gaps in the enforcement and effectiveness of procurement laws.

“These unpaid obligations continue to undermine fiscal discipline, service delivery, and the growth of local enterprises. To address the persistent challenge of pending bills in county governments, it is recommended that counties institutionalise robust commitment control systems,” said PwC.

“The Controller of Budget should intensify oversight on expenditure approvals to enforce compliance with budgeted allocations. Additionally, the adoption of accrual-based accounting should be accelerated to enhance transparency in reporting liabilities.”

The government itself acknowledges the impact that pending bills have on the economy. 

“The delay in clearance of arrears has led to deterioration of financial positions of businesses and, in particular, the MSEs, including businesses owned by women, youth, and persons with disabilities. This has had a negative impact on the economy, including less than optimal levels of employment and escalation of poverty,” Treasury had said in May 2024 in a strategy that laid out how it would verify and clear pending bills.