Businesses demanding payments from the government for working capital are facing tougher times after the National Treasury did not allocate funds to pay outstanding bills running into hundreds of billions of shillings in the latest supplementary budget despite earlier promises to do so.
Private sector players have pinned their hopes on the second supplementary budget to partially settle their entitlements following comments made by Principal Treasurer Chris Kiptoo earlier this year that the government would start paying claims once they were verified by a special committee set up by President William Ruto. In June 2023.
The Pending Bills Verification Committee submitted its first report last month, stating that it has so far certified outstanding bills worth Sh110 billion.
By September last year, the national and county governments owed suppliers and contractors Sh631.56 billion. State enterprises were the largest debtors at Sh509.37 billion, with the balance owed by county governments, ministries, departments and agencies (MDAs).
The failure to make provisions for these receivables in the second mini-budget of the financial year now threatens to hurt companies that are struggling to service their obligations to their creditors due to cash flow constraints.
These liabilities include bank loan servicing, where the stock of bad loans rose to an 18-year high of 16.1 per cent of the banking sector loan book by the end of April from 15.5 per cent in February, translating to more than Sh630 billion in defaults. About payment.
Last week, the Central Bank of Kenya (CBK) said increases in non-performing loans were observed in the agriculture, real estate, tourism, restaurants, hotels, trade and building and construction sectors.
Financially distressed companies also resorted to laying off employees or freezing hiring, which negatively affected economic growth and the government's ability to collect enough taxes to cover the specified budget expenses.
The National Assembly Committee on Budget and Appropriations, in its report on the supplementary budget, criticized the Treasury for failing to make a provision to pay part of the outstanding bills, describing it as a major risk to the stability of the affected companies.
“This shortfall in allocations is worrying because budget adjustments are likely to lead to a backlog of outstanding bills. Such a scenario has significant implications for the balance sheet and economic growth, as it increases liquidity pressure on companies,” the committee said in its report.
“A backlog of outstanding invoices could hamper the financial health of these companies, which could lead to cash flow challenges and impact their operational stability.”
The accumulation of outstanding bills indicates that state agencies are not adhering to the treasury’s directives to settle old debts before committing to new projects.
The Public Finance Management (National Government) Regulations 2015 require state agencies to settle outstanding bills as the first charge in their budgets.
In a statement to the National Assembly on the second supplementary budget, the Treasury cited challenges in revenue collection that have led to delays in the release of the treasury, escalating debt servicing costs, and the adjustment of carryover expenditures from the 2022/2023 fiscal year and debt settlement. Pending invoices.
The Supplementary Appropriations Bill, approved by the President on Monday, sets the total budget for 2023/2024 at Sh3.848 trillion.
This was an increase of Sh102 billion compared to the original estimate set in the June 2023 budget but also reflects a reduction of Sh133 billion from the revised expenditure of Sh3.981 trillion identified in the November 2023 first supplementary budget.
Treasury also noted spending pressures resulting from increased demands on resources to meet emerging priority spending interventions such as El Niño and security operations.
In the 10 months to April, the government collected total revenue of Sh2.179 trillion against a proportional target of Sh2.402 trillion, thus running a deficit of Sh222.2 billion, according to disclosures in the Budget Committee report.
Taxes, or regular revenues, generated Sh1.826 trillion against a target of Sh2.094 trillion, indicating a deficit of Sh267.9 billion. This tax shortfall was partially offset by an overperformance of Sh45.4 billion in ministerial aid appropriations.
The revenue shortfall has been seen in the current year even though the government has put in place enhanced tax measures aimed at increasing tax revenue by Sh530 billion to Sh2.57 trillion in the 2023/2024 financial year.
However, the initial revenue estimate contained in the June 2023 budget was reduced by Sh119 billion in the second supplementary budget, which now expects taxes to generate Sh2.45 trillion.