At the beginning of every financial year, the 47 counties have traditionally, four sources of revenue to spend for the year.
For the financial year 2022/23 for instance, the counties had a combined total budget of Ksh.512.92 billion to spend comprising an Equitable share of Ksh.37 billion, projected Own Source Revenue of Ksh.62.10 billion, Ksh.36.72 billion as opening balances from 2021/22 FY and a combined Ksh.22.42 billion as conditional grants from the National Government and Development Partners.
According to a report from the office of the Controller of Budget, the National and County Governments have a combined total pending bill of over Ksh.639 billion being goods and services procured, with the 47 Counties contributing Ksh.159.73 billion as per County Budget Implementation Review and Report for the period July 2022 to March 2023.
Both the National and County Governments have been making efforts to pay-off these bills but the facts on the ground are that the bills continue soaring even after the ‘efforts’ with Ksh.152 billion worth of pending bills recorded for the previous year.
The MSMEs who provided goods and services to the counties have continued to suffer greatly facing closure of businesses due to liquidity issues thus leading to loss of jobs, reduced incomes leading to lower purchasing power and thus pushing more Kenyans into poverty.
The lenders have also suffered a great deal for the non-payment of the pending bills. A report by the apex bank on the MSME access to credit released in May this year, puts the total loans and advances to MSMEs at Ksh783.3 billion with Ksh.90.4 billion classified as non-performing.
Dr. Kamau Thuge, the governor of the Central Bank of Kenya (CBK) while giving his MPC press briefs of June 26 this year alluded that the pending bills play a role in increasing the non-performing loans of the banks and expected both the Counties and National Governments to settle the bills to relieve the pressure of the portfolio at risk to the lenders.
But why do the county pending bills keep souring?
First, the counties keep on appropriating for more goods and services in their subsequent budgets and bluntly ignoring or just failing to appropriate for the pending bills.
Naturally, the opening balance for the year should equal to the opening pending bills for the year.
The counties for instance owed KEMSA a total of Ksh.3.118 billion, an insider report of May 30 this year reveals, with over 50% of the bills being more than 90 days old, yet counties continued to receive disbursements from the National Treasury while additionally collecting revenue for the health facilities, but not respecting their obligations to pay KEMSA.
Second, counties have perpetually not been able to attain their Own Source Revenue projections, and have continued to budget and subsequently appropriate for the projected revenues.
To demonstrate this, the total combined revenue target for 2021/22 financial year was Ksh 60 billion but the counties collected a total of Ksh.35.9 billion failing to hit the target by Ksh.24.5 billion as per the recent own source revenue study report by the CRA.
Third, the unwillingness of successive county executives to honour the obligations for goods and services procured by their predecessors has been a critical contributor.
There has been a back-and-forth game where the executives, both at the National and County Government levels have been creating different committees to vet the bills, classifying the same as eligible and ineligible.
Case example, an audit report for the FY 2021/22 by the National Treasury on the county pending bills of Ksh.152 billion revealed that only Ksh.45.5 billion were eligible for payments of less than half of this amount was paid by the closure of the FY. What happens to the Ksh.107 bills classified as ineligible?
A road for instance graveled or graded more than five years ago has weathered and its committee finding would probably show an ineligible pending bill.
The Office of Controller of Budget has been putting efforts to ensure the payments of the bills including getting the payment plans of the pending bills from the counties but this has not worked, as the entity lacks sufficient enforcement ability.
To save the MSMEs from this menace, the National and County governments should treat the pending bills as the first charge and invoke Article 207 (2)(a) of the constitution.
This, in turn, will bring a workable solution where the bills will no longer be at the mercy of being appropriated by the National or County Governments, and for any subsequent financial year of governments, the bill shall always be honoured until full payment.