Payment of pending bills big relief for suppliers, economy

Friday, April 17th, 2020 00:00 | By
Former Central Bank of Kenya Governor Prof Njuguna Ndung’u at a past event. Photo/PD/FILE

Lewis Njoka @Lewis Njoka

The move by the Treasury to pay billions of shillings owed to suppliers of services and goods to the government— both national and county— will be a big relief to the individuals whose businesses had suffered over pending bills. 

And the proposal to set aside Sh44 billion through a Supplementary Budget to settle the contentious bills in the infrastructure department, comes at a critical time for small-scale enterprises, whose fortunes have been compounded by the coronavirus pandemic.

Many suppliers have not been paid for years by various government agencies, a situation that former Central Bank of Kenya Governor Prof Njuguna Ndung’u partly blames for the economic recession.

Ndung’u, who was speaking in a recent interview on K24 TV, said failure to clear pending bills had weakened the economy just before Covid-19 set in.

“Recession which set in in 2016, was triggered by national and county governments failure to pay suppliers and contractors.

This had three effects; constrained liquidity in the economy, collapse of the retail trade, and the collapse of the SME sub-sector,” said Ndung’u.

He added: “At times we need to take cognisance of the initial conditions. The pandemic found Kenya already speeding downhill for factors that should have been contained. In that case, the pandemic does not halt the declining economic performance but accelerates it downwards.” 

Government measures, including dusk-to-dawn curfew and partial lockdown of  Nairobi and three counties; Mombasa, Kilifi and Kwale to tame the deadly respiratory flu, which by yesterday had infected 234 people and claimed 11 lives in the country, have affected economic activities and hurt the ordinary citizens, most of whom live from hand to mouth.

With Covid-19 threatening to throw the fragile economy into depression, the supplementary budget tabled in Parliament on Tuesday, proposed to increase infrastructure budget from Sh193.8 billion to Sh237.9 billion— a Sh44.1 billion increment.

Cushion country

“The increment will go to budget rationalisation and payment of outstanding bills,” Treasury said in the report.

The budget, if approved by Parliament, will see the department’s capital expenditure increase from Sh132.5 billion to Sh176.6 billion.

Current expenditure, on the other hand, will have a marginal decline from Sh61.3 billion to Sh61.2 billion. 

“The decrease in current expenditure is on account of reduction in compensation to employees to reflect the actual trends, while the increase in capital expenditure is mainly on account of budget rationalisation and payment of outstanding pending bills,” said Treasury.

Economic experts say clearing pending bills is critical in cushioning the country against the effects of the Covid-19 pandemic as it will put more money in circulation and help protect jobs especially in the Small and Medium Enterprise (SMEs) sector.

Surging pending bills forced President Uhuru Kenyatta to publicly declare during the last Madaraka Day celebrations that ministries and government agencies must pay pending bills without audit queries.

At the time, it was estimated that the central government had pending bills amounting to Sh350 billion with another Sh100 billion owed to traders by the counties. 

Last month, Infrastructure Principal Secretary Paul Maringa admitted that unpaid bills was pulling back economic growth, saying it affected suppliers, contractors, and caused late payment of taxes and wages. Maringa spoke when he presented the Budget Policy Statement (BPS) 2020/21 to the National Assembly Transport Committee. 

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