Will pending bills expand Kenya’s debt burden?

Last week was awash with news that the National Treasury will start paying pending bills owed to businesses owned by women, youth and people with disabilities.

The report stated that the Treasury was to pay off the Sh300 billion owed to these private business owned by the marginalised groups.

Assuming that this represents a tenth of all those owed money by both national and county governments, then we are talking of unpaid bills of over Sh3 trillion.

If you add this to the amount reported as the national debt, the conclusion that Kenya is heavily indebted is not farfetched. Owing to large amounts to businesses slows down economic growth and has the potential of sending many businesses into insolvency.

SEE ALSO :Pressure mounts on State to pay suppliers Sh400b

This explains why there is no cash to oil the economy.

That is why many businesses are closing down leaving most Kenyans jobless. Doing business with the government should be less risky compared to transacting with private companies; however, this is not to the case. Delayed payments are costly.

The State should lead by example. Government, whether county or national should demonstrate to other businesses the importance of doing clean deals that include paying suppliers of goods and services on time.

Interest rate

This money, running into billions of shillings that are tied up in unpaid bills was either borrowed or was someone’s savings.

SEE ALSO :Judges and Ruto's office big winners in reviewed budget

If it was borrowed, then the borrower is paying interest on it. If the interest rate is ten per cent annually, then the total interest charges reach Sh3 billion per annum. It is such an increase in the cost of doing businesses that has the potential of pushing the firms into losses. The issue with this additional interest cost is that if you fail to service the loan, then the lender will heavily punish you and your business, possibly sending auctioneers to you.

Even if the funds were from savings that do not require payment of interest to the lender, the owner’s missed income that would have been earned by investing the amount tied in pending bills elsewhere or the opportunity cost.

The pending bills valued at Sh300 billion is worrisome because it is owed to the marginalised groups. It makes them incur extra costs, in terms of interest cost, for that defeats the objective of affirmative action.

Affirmative action is about supporting the disadvantaged group to bridge inequalities in the quality of life with others.

Unpaid bills have the effect of furthering inequality. This Sh300 billion “loan” is a concern because nobody explains how and why such a large amount is outstanding. For example, those conversant with government procurement procedures will tell you that State purchases are anchored against approved budgets, supported by the availability of cash.

SEE ALSO :Governor Mandago hits out at Treasury

This means that the government must have had cash before putting a request to a supplier, hence after receiving goods and services, the payments must be immediate. I doubt whether the State has credit approval officers as is the case of private business.

Affirmative action

The other big questions emanating from this large outstanding bill are: what is the true position of government debt?

Is the national debt far much larger than what is in the public domain? Furthermore, while we should support affirmative action, we need to interrogate this model of the selective settlement of unpaid bills.

The affirmative action should be allowed up to the point when contracts are awarded. Thus, payment to suppliers should be undiscriminating and specifically made on the first in first out basis because interest on amounts borrowed by suppliers to support goods and services supplied are paid on a time basis.

SEE ALSO :Sh6.5b hospital 'delayed' by State

Be aware affirmative action can be a challenge, more so in the face of financial indiscipline and might open up abuses.

The huge bill is an indicator of absences of financial discipline.

Financial discipline is about obeying our spending and savings plans, and for government, it is about how she observes her spending plans; therefore, to avoid wastage, the governments must operate within the budget approved by parliament.

The huge ‘debt’ is also an indicator that the State could be doing more business than it should. This ought to be addressed. The State must focus on what it should do best, supervise businesses on behalf of the citizens. Government involvement in the business is always problematic due to the incentives traced to a political process.

State failure is more pronounced in the weaker institutional environment and concentrated political power. However, concentrated political power is the hallmark of impunity, which partly explains the delay in settling debt to suppliers.

-The writer teaches at the University of Nairobi

We are undertaking a survey to help us improve our content for you. This will only take 1 minute of your time, please give us your feedback by clicking HERE. All responses will be treated with the confidentiality that they deserve.

National TreasuryNational DebtChina loansEurobond