DEBT HEADACHE

Parliament seeks special fund to clear pending bills

This could be financed by a long-term bond.

In Summary

•The fund will help to clear over Sh150 billion in pending bills owed by government. 

•Some pending payments date back to 2004 and have accrued interest over time.

The National Treasury building
The National Treasury building
Image: FILE

The National Treasury has been asked to set up a fund to be financed through local borrowing to clear over Sh150 billion in government pending bills.

The amount is mainly from supply of goods and services by the private sector and compensations by different state departments (including court and land awards).

Some pending payments date back to 2004 and have accrued interest over time.

According to the Budget and Appropriation Committee, the fund which should be in place by October 1, this year, may be financed through a long-term bond.

A long-term bond for the fund is likely to see the Central Bank float a 25-year and above treasury bond, currently with a coupon rate of 12.7 per cent.

This will allow investors and individuals to lend the government for the kitty similar to long-term bonds used to raise funds for infrastructure development.

“The committee has noted that despite presidential directives in June 2019 that all pending bills by government agencies be cleared (immediately), they continue to present a significant challenge in almost all sectors of the budget,” it said in its report ahead of today's budget reading.

The huge pending bills are mostly occasioned by poor planning, budget cuts and expenditure adjustments during the supplementary budget process, the Kieni MP Kanini Kega led committee noted.

“No clear road map has been provided by the National Treasury on how to effectively conclude these matters,” the committee said in a report tabled on Tuesday evening.

Some of the ministries and state departments with huge pending bills include infrastructure which had accumulated pending bills worth Sh99 billion as of April 2021, of which Sh31 billion is for land compensation.

The Ministry of Defence has accumulated pending bills amounting to Sh8.1 billion.

The Ministry of Lands and Physical planning has pending bills amounting to Sh7.2 billion arising from court arbitration awards.

According to the committee, these bills were not reflected in the previous financial years despite the cases dating back to 2005.

“This casts doubt on the authenticity of the pending bills and will necessitate thorough investigation,” the committee says. 

Water, Sanitation and Irrigation ministry has accumulated pending bills worth Shh7.08 billion.

There are pending bills amounting to Sh6.3 billion at the State Department of Regional and Northern Development which includes Sh2.9 billion relating to the Lake Basin Development Authority mall.

This has accumulated interest amounting to Sh1 billion, as of the end of the third quarter of the financial year 2020/2021.

The correctional services (prisons) has historical pending bill claims amounting to Sh6.2 billion where Sh3.5 billion has been verified, with only Sh1.7 billion paid.

The environment ministry has Sh4.7 billion in pending bills while the State Department for ICT has a pending bill of Sh771 million owed to Oracle, Microsoft and IBM, for the supply of software for a World Bank project that was closed in 2016.

The State Department for East African Community has a long-standing pending bill of Sh4.5 million which has not been settled due to “lack of supportive documents.”

The State Department for Livestock has a historical pending bill of Sh4 billion relating to Halal Meat Products Ltd and Associated Architects (Sh 25.9 million).

Sports, Culture and Tourism have an estimated development-pending bill of Sh1.1 billion with another Sh56.5 million (State department) and Sh151.6 million (Sports Kenya), in recurrent pending bills.

Under the State Department of Culture and Heritage, verified pending bills amount to Sh3.45 million.

The National Museum of Kenya requires Sh398.96 to clear pending bills and other obligations in the next financial year, with its collections affected by the closure of the facility during the Covid-19 pandemic.

The Institute of Primate Research which has been involved in Covid testing and research has accumulated pending bills worth Sh88.8 million related to suppliers and import taxes.

Tourism on the other hand has a pending bill amounting to Sh82 million owed to Tele News Africa and Atlantic Region that dates back to 2004.

The push to clear pending bills started with a Presidential directive in 2019, with private sector saying more needs to be done despite some payments being made.

The private sector players and businesses have been calling for payment of pending bills and VAT refunds to boost their cash-flow, which has been hard-hit by the pandemic.

To address delays in paying withholding VAT, manufacturers want an amendment to the Public Finance Management (PFM) Act 2012 to establish a Tax Refund Fund.

Manufacturers also want an amendment to the Public Finance Management (PFM) Act 2012 to establish a Tax Refund Fund, in a move to adress delays in paying withholding VAT.

Increase monthly budgetary allocation for VAT and excise tax refunds to about Sh5.5 billion.Make a one-off payment to clear all outstanding withholding VAT and Excise Tax refunds. Refund interests accrued through pending bills and outstanding VAT refunds,” KAM chief executive Phylis Wakiaga said.