Amb. Ukur Yatani, Acting Cabinet Secretary / National Treasury & Planning
November 19th, 2019
1. The Constitution of Kenya establishes a devolved system of governance comprising of the National Government and 47 County Governments, with the objective of taking decision making on planning and budgeting as well as implementation of public services closer to the citizens.
2. The Constitution further sets out a framework for planning and managing the fiscal affairs of the two levels of government which is further elaborated by various laws. These include the Public Finance Management Act (PFMA) of 2012 which establishes the National Treasury as contemplated under Article 225 of the Constitution. The PFMA assigns the National Treasury the responsibility to exercise overall control of public finance management at the two levels of government.
3. Further, the Constitution has given the National Treasury powers to intervene by way of stopping transfers to State Offices and public entities of National and County Governments in case of material and persistent breaches of the laws governing public finance management. Material breaches that may attract stoppage of funds in the manner contemplated under Article 225 of the Constitution have been elaborated in section 94 of the PFMA.
4. Despite the good strides made in efforts towards improving service delivery and unlocking growth of the rural economy, we have observed that Ministries, Departments and Agencies of the National and County Governments have persistently failed to pay for goods and services provided by the private sector, including small and micro enterprises (SME) as well as firms owned by vulnerable segments of the Kenya population including women, youth and persons with disability (referred to as AGPO). Some of the outstanding bills have remained unpaid for long periods (some even over five years).
5. This delayed payment for goods and services procured by National Government MDAs and County Governments have led to deterioration of financial positions of businesses and in particular the SMEs, including businesses owned by the special segment (women, youth and persons with disabilities). This has led to negative impact on the economy, including less than optimal levels of employment and escalation of poverty levels. Cases of individuals and firms experiencing unmet financial obligations including failure to repay loans are widespread all-over the country.
6. Despite numerous engagements and circulars issued to the National Government MDAs and the County Governments to settle the pending bills, the situation has not only persisted but in many cases amounts increasing drastically
2.0 Status of Pending Bills in the County Governments
7. With regard to the County Governments, a special audit by the Office of the Auditor General (OAG) sometime in the 2018 verified and approved payments of an amount of Kshs. 51.2 billion out of a total Kshs. 88.98 billion pending bills presented for audit, while a total of Kshs. 37.7 billion were to be reviewed further subject to production of full documentation in support of the claim. It’s important to note that these pending bills were for the period after the roll-out of the devolved system of government and therefore do not include pending bills accumulated by the defunct local authorities. The mechanisms for verification of the latter were handled/processed on a transitional basis by the Devolved Governments and the Intergovernmental Relations Technical Committee (IGRTC).
8. The National Treasury’s repeatedly re-enforced its directives that all genuine pending bills without any audit query and appropriately supported by documentation be paid by end of the financial year 2018/19 without fail. Towards this end, national treasury released Kshs. 65 billion to County Governments by 30th june 2019, which was indeed the final disbursement on the understanding that this will be utilized to pay off all pending bills. Further, In the current financial year 2019/20, the National Treasury has to-date released the full amounts of equitable share of revenue due to counties for the period ending 31st October 2019. Our analysis, however, shows that only the following 12 County Governments commendably complied with the directive and cleared their eligible bills;
1. Elgeyo Marakwet
12. Uasin Gishu
Further, the following 20 Counties (20) demonstrated some efforts towards payments of their pending bills though are yet to fully comply;
1. Taita Taveta
16. West Pokot
However, the following 15 County Governments have not made any effort to clear their pending Bills in FY 2019/20 since their reported eligible pending bills have remained static between 1st of July and 31st October 2019 and sadly holding huge proportion of the pending bills.
3. Nairobi City
6. Tana River
Establishment of Committees on Pending Bills
At a meeting of Intergovernmental Budget and Economic Council (IBEC) held on 18th June 2019, it was resolved that each County Government as a matter of urgency establishes Pending Bills Resolution Committee to develop a framework for resolving ineligible bills contained in the special report of the OAG. We note that out of the 47 Counties, 19 counties are yet establish these Committees as at 28th October 2019.
3.0 Status of Pending Bills in National Government
As per updated returns submitted by National Government MDAs, pending bills as at the end of the FY 2018/19 amount to Ksh.96.1 billion of which AGPO pending Bills were Ksh.2.6 billion and Non-AGPO were Ksh.93.5 billion. As guided in Treasury Circular No.7/2019 of 28th June 2019, these should form a first charge on FY2019/20 budgetary allocation before entering into any new commitments. There shouldn’t be a discretion on this directive given the need to enforce strict financial compliance.
In addition, certain MDAs reported historical pending bills relating to prior years amounting to Kshs.42.7 billion. These historical pending bills shall be dealt with by the Pending Bills Closure Committee (PBCC) once reconstituted as set out in the guidelines spelt out in Gazette Notice 297 of 14th January 2005.
PENDING BILLS SUMMMARY AS AT 31st OCTOBER 2019
Category Pending Bills as at
31st October 2019 Amount Funded To date Balance Outstanding
(I) AGPO 2,577,163,688 57,279,159 2,519,884,529
(II) NON – AGPO 93,535,825,184 782,729,825 92,753,095,360
(III) HISTORICAL 42,667,288,435 – 42,667,288,435
TOTAL 138,780,277,307 840,008,984 137,940,268,323
Of all the National Government MDAs, 6 had no outstanding bills; 14 made some effort to clear the pending bills between 1st July and 31st October 2019, while others did not make significant effort to clear the same by 31st October 2019.
4.0 National Treasury Decision
Under section 94 of the PFMA, failure by National Government MDAs and County Governments to pay bills that are authentic and due is a material breach of the PFMA which warrants National Treasury intervention in the manner contemplated under Article 225 of the Constitution.
In this regard National Government MDAs and County Governments that have not made any effort to settle the outstanding bills in the financial year 2019/20 are in material breach of the PFMA by persistently failing to pay bills when due pursuant to section 94(1)(a) of the PFMA. In this regard, Cabinet Secretary, National Treasury and Planning has decided as follows:
First, with regard to County Governments:
a) to invoke the powers under section 97 of the PFMA to stop with effect from 1st December, 2019 transfers of the FY 2019/20 equitable share of revenue due to the defaulting counties starting with the 15 county governments earlier mentioned given that they have not demonstrated any effort to clear the stock of their eligible pending bills in accordance with the law. These counties have persistently failed the pay eligible pending bills which in practice should be a first charge before on the subsequent financial year. The 15 county governments are:
3. Nairobi City
6. Tana River
b) to stop the transfer of Conditional Grants to the 15 Counties for this Financial Year 2019/2020.
c) to continue monitoring the stock of eligible pending bills estimated at Ksh. 28 billion and take appropriate measures to ensure prompt payment.
d) to monitor the process of establishment of ineligible Pending Bills Resolution Committees by the county governments as directed by the IBEC as well as the verification of the ineligible pending bills and status reports of the ineligible pending bills submitted.
Second, with regard to National Government MDAs:
a) to invoke the powers under section 97 of the PFMA to stop transfers to all the 53 National Government MDAs that have not demonstrated any effort to clear pending bills by 1st December, 2019 until the concerned MDAs either:
(i) settles the pending bills; or
(ii) agrees with the National Treasury on a pending bills payment plan.
Hon (Amb.) Ukur Yatani,
Ag. Cabinet Secretary / National Treasury and Planning