The pending bills in all levels of government including the government agents have continued to soar to some uncontrollable levels breaking the half a trillion mark and growing.
The report on the budget implementation for the financial year 2023/24 by the office of the controller of budget (OCOB) has shown a spike in the pending bills to Ksh.664.7 billion with 114,376 claimants. The national government is leading with Ksh.516.3 billion by June 2024 composed of Ksh.379.8 billion from the state corporations while the state ministries owing the balance of Ksh.136.5 billion
The devolved units have also shown their inability to control their consumption appetite leading to the pending bills raising from KSh. 160 billion in 2022/23 financial year to over Ksh.181.9 billion for the financial year 2023/24. The county executives arm lead with bills worth Ksh.179.9 billion not paid while the county assemblies owe Ksh.2.11 billion.
The ‘creditors’ of these pending bill, especially within the counties are unfortunately the local SMEs who either supplied goods and services or did constructions of various infrastructures – which the citizens are enjoying and the governments boasting of financing them. This has continued to push the SMEs out of operations leading to closure of their businesses and in some instances devastations leading to death.
Ironically, the government has been busy supporting these enterprises but on the other hand – shocking them into their death beds. But who is caring to address the plight of these enterprises?
Having spent half a decade in county governance – and specifically in a docket relating to budget, allow me to highlight a few causes of the soaring pending bills within the counties and the possible remedies to the same.
At the county budget making process, the counties have continued to put unrealistic own source revenue targets in their budget estimates. These targets have been motivated by counties having expenditures beyond their available revenue envelops and the only expandable source is the own source revenue. A county will for instance have an expenditure of Ksh.250 million without necessarily identifying the corresponding revenue source.
This expenditure is then accommodated by increasing the own source revenue by the same amount. For the financial year 2023/24 for instance, all the 47 counties projected to raise a total of Ksh.80.95 billion but ended up raising Ksh.58.95 billion.
The Ksh.21.99 billion deficit has probably been utilized. Unfortunately, when the financial year ends, this deficit is forgotten and never realized, the Ksh.21.99 billion remains as spent and no corresponding fund for payment. A new projection with corresponding expenditures is then budgeted for the next financial year and the sequence continues.
Counties have traditionally three main sources of revenues: the equitable share from the national government and the conditional grants both sources guided by acts of national parliament and third the own source revenue projected by the county government – with comments from the Commission on Revenue Allocation.
Usually, there are unspent funds from the previous financial year that is treated as the opening balance for the current year. Case example for the financial year 2023/24 the opening balance for the year was Ksh.42.96 billion. The allocated equitable share was Ksh.385.42 billion while conditional grants stood at Ksh.35.97 billion. The projected own source revenue was Ksh.80.95 billion. The total projected money available for expending for the FY 2023/24 financial year was about KSh 555 billion for all the 47 counties.
The opening balance usually should be treated to specifically settle the pending bills for goods and services rendered and not paid by the closure of previous financial year. In most instances, the counties will end up re-allocating the opening balance for other new projects for the current year.
Third, a sample of programme based budgets from 15 counties taken, there was only three counties that endevoured to allocated money within the 2024/25 budgets to pay pending bills. This therefore means that the pending bills remain just like that – pending.
The legislation requires that no procurement should be done beyond the month of May. The drafters anticipated a situation where procuring entities hurriedly rushes into procurement. Within the planning cycle, the counties are required to give the county budget and implementation Review and Outlook Paper. This guides on the performance of actual against budget and helps the county to do a change where there is under or over performance against the budget in a supplementary budget.
Lastly, the change of administrations has continued to play a great role in contributing into soaring pending bills. In most instances, we find new administrations avoiding to pay the previous administration’s pending bills accusing the same of various ills which in most instances do not exist. The new administrations goes ahead to launch new projects and budgeting the same. The first-in-first-out principle fails to exist.
I would offer a few recommendations to help reduce the pending bills as well as have a way of clearing the same, by first making sure that the pending bills form a first charge as per the law.
The counties should willingly refrain from using the own source revenue as a budget balancing figure. This practice has only caused more harm into the economy. The oversight arm of the county which is usually the ultimate approvers of these revenues should point out and as well disapprove highly projected and unexplained own revenue sources. The own source revenue projections is shared to the Commission on Revenue Allocation (CRA) who give their comments but have no other authority beyond commenting.
The Commission on Resource Allocation in their County Tax Gaps and Potential report of 2022, showed that the 47 counties have a potential to collect over Ksh.216 billion annually from selected 16 top revenue streams. In the financial year 2023/24 which has been the best year in own source revenue performance, counties collected Ksh.58 billion which is a 27% performance against the potential. This means that the counties are actually underperforming in this area.
It is the high time that counties conducted an independent own source revenue diagnostic to help identify what is ailing and fix the system. With better own source revenue performance, counties would be able to finance their budgets to clear the pending bills within a cycle or two.
The counties should care to conduct supplementary budgets and do timely approvals of the same, where there is an obvious underperformance of the own source revenue against the projection. This will help avert a situation of continued budget commitment against an obvious unattainable revenue target. Meanwhile, no commitments should be done after the month of May as stipulated by law.
The Senate through the County Public Accounts Committee (CPAC) and other county oversight institutions should be in the forefront supporting better governance within the counties as well as compliance with the legislation. This would for instance, ensure transitions do not impact negatively to the services providers and contractors who did business with the previous regimes.
Lastly, it is the high time counties make use of the alternative and innovative sources of revenues and project financing options available that would help ease cash flow and avail funds for payment of pending bills. These would include issuance of infrastructure bond, Project financing models, annuity arrangements, leasing programs, public private partnership as well as entering into strategic partnership with financial institutions to support the MSMEs within their counties.
The government – which is the single biggest spender, should not hurt the local enterprises by delaying their payments. This impacts negatively into the economy and the SMEs are considered the ‘missing middle’ as they lose credit worthiness leading to no funding by the banks or very high cost of funding as they are seen as riskier. The government should not contribute to business closures but in the contrary, should support and enhance the growth of the SMEs for economic growth and development.
