Governor Mutahi Kahiga breaks down how Nyeri manages to pay its bills on time

Economic managers at the National Treasury recently termed the mountain of pending bills as a ‘fiscal risk’ that might derail the turnaround of the battered economy and scuttle efforts to improve the livelihoods of Kenyans.

A fiscal risk is the possibility that an event at an industry level could severely hurt the economy.

Consequently, the Ruto administration is alarmed by the potentially massive damage that the pending bills - seen by the Treasury as a ticking time bomb - could do to the economy.

The Cabinet recently approved the establishment of a special committee on pending bills. The Pending Bills Verification Committee will be tasked with the auditing of liabilities for the period between 2005 and 2022 which are estimated at Sh481 billion at the national level and Sh159.9 billion amongst the devolved units.

The Pending bills have, nonetheless, continued to rise despite successive circulars by the Treasury directing ministries, parastatals and counties to prioritise payment of verified arrears in their budgets. This will help ease cash flow challenges for suppliers, some of whom have had to close down and be auctioned by banks for defaulting on loans, resulting in job losses.

However, there are a select few public institutions and devolved units that have managed to keep arrears to suppliers low.

Nyeri County, for instance, has been hailed by the Controller of Budget as among the few counties running a tight ship devoid of the pending bills challenges. The Standard caught up with Nyeri Governor Mutahi Kahiga for insights on how the Central Kenya devolved unit has managed to be an outlier. Excerpts of the interview below.

We understand from audit reports that Nyeri County has consistently defied the trend of pending bills and regularly settles its obligations on time rarely reporting overdue pending bills. How do you manage to do this?

Maybe I need to give you a sense of where we have come from. I took over in the year 2018, just after the elections, and my Governor sadly passed on three months later. I, therefore, had to take over. As a new governor, the shock I received was to be ‘greeted’ by pending bills amounting to Sh712,444,170 and 13 cents. I immediately set up a committee to review and establish the validity of the pending bills because we were taking over as a new administration. But I guided the team that we should not be punitive. I gave the committee just one month and a half and asked them to be extremely thorough and go through every documentation, and every process, and even physically go to the grounds where necessary. They did so and they came back with a report recommending that we should proceed to pay without question about Sh598,292,000.

So, we proceeded to clear the amount, and in subsequent years, we have continued to ensure that we are strictly within budget.

How do you manage to sustain the payments?

It starts right from budget-making, which as you know, is a process. You must identify first your resource envelope, what is the source of your envelope, what size is it you have in the equitable share, which is a fixed amount, you have what we call donor funds, which are fixed. And then you have one core thing that keeps sticking out around called own source revenue projection, which projection you are told that you have the capacity to raise for instance Sh4 billion. If you are stupid enough you shall take that huge projection as what you shall use for your budgeting. You will be in a lot of trouble, my brother. Nyeri has never realised this (own source revenue). This is going to be the first year we have realised about Sh1.2 billion. So, I could say Sh4 billion will allow me to engage contractors because it's in the budget, but I will never have that money at the end of the year. So that is a challenge.

You say your success story was in setting up that so-called pending bills verification committee. Some critics have said that some country regimes use them to delay payments. How did you manage to have such a very quick turnover?

That processes must be driven as the government has a lot of bureaucracy, so you have to circumvent those bureaucratic issues. Here in Nyeri, I am driving it myself. We have a very strong Audit Committee, which is made up of independent professionals. I get reports continuously and we have a work plan where even today I will ask them to give me a report on who has been paid what and how. If we are CEOs, let's get involved. As CEOs, you know, don't just sit there and listen to stories.

What other processes have you deployed to manage this?

We have ensured that projects and programmes are implemented early in the financial year. We already know the projects we are going to do this year.

So you bring us the projects early enough, and we do the review collaboratively, and then we tender. When we approach the end of the financial year, we always take stock of existing ones before we can do a new one. And since these are public funds, you must complete the project, irrespective of who started it. Actually, the law demands that you prioritise payment of pending bills, so we treat them as debt and settle them as priority.

The second thing we look at is all of our projects, for instance, a Level Four Hospital we have built right from the ground. This is a multi-year project we began in 2019. Now we are in the final stages. Since it's multi-year, you must continue providing money for it year-to-year. If you don't, it becomes another pending bill.

We also have a principle we call FIFO, which means first-in first-out. What FIFO does is that it encourages contractors to complete work faster so that they get paid early. Recently one contractor came over and told me, you know I'm shocked about your government, I asked him why and he said, ‘I saw some work advertised and I applied, I was given the tender, I did the work. And in three weeks I had been paid.’ Then I asked him, whom did you see? Nobody, he said. I have never said to my people ‘Please, fast-track this payment.’ Why? Because I have no personal interest in procurement. Therefore, the most important thing is to ensure you let systems work.