Treasury taskforce recommends bond-funded trust to clear Sh421 billion pending bills
The fund would raise money by issuing securities secured by future government payments, with the proceeds being used to pay contractors, suppliers, and other creditors.
A Treasury-appointed task force has proposed the creation of a special fund to clear the country’s Sh421.6 billion verified pending bills through the issuance of government-backed bonds.
The task force, chaired by Hosea Kiili, President of the Association of Pension Trustees and Administrators of Kenya, recommends establishing a Public Pending Bills Liquidation Trust Fund.
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The fund would raise money by issuing securities secured by future government payments, with the proceeds being used to pay contractors, suppliers, and other creditors.
As reported by Business Daily, according to the taskforce report, the growing backlog of verified but unpaid bills has shaken confidence among investors, suppliers, and financial partners, leading to mistrust in the government’s ability to meet its obligations.
“The persistent accumulation of verified but unpaid pending bills by public sector entities has created a perceived and growing trust deficit between the government of Kenya and its suppliers, contractors, investors and financial partners,” the report states.
The fund is envisioned as a structured vehicle that will help clear the backlog using market-based solutions.
Investors who buy into the proposed bonds would be repaid once the government settles the pending bills. This approach, the report says, will unlock cash flow for creditors and inject liquidity into the economy.
“To systematically address this challenge and strengthen investor confidence, it is proposed that a public pending bills liquidation trust fund be established. Securitisation provides a proven mechanism for unlocking liquidity tied to verified government payables, converting future payment commitments into tradable securities that provide immediate cash to creditors,” the report reads.
While the idea has been floated before, this proposal marks a renewed push to formalise a securitisation model similar to those used in Brazil, Colombia, Mexico, Spain, and India.
In Mexico, for instance, a reverse factoring programme allows financial institutions to issue bonds backed by government payables, giving small businesses much-needed cash while the government continues to manage its cash flow.
Despite laying out the concept, the task force does not provide full details on how the securities would be priced or how long they would run.
It also does not explain what protections would be in place if the government delays payments further.
Currently, the Kenya Roads Board is separately working on a Sh135 billion bond to address arrears in the roads sector, signalling wider interest in market-driven approaches to solving public debt challenges.
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