Small businesses struggle as government pending bills surge to Sh684 billion

Small businesses struggle as government pending bills surge to Sh684 billion

In her latest report covering the first nine months of the 2024/25 financial year, Nyakang'o reveals that the national government is responsible for Sh511.75 billion of the total debt, while counties account for Sh172.51 billion.

Unpaid bills across national and county governments have soared to Sh684.26 billion, with state corporations bearing the bulk of the debt at Sh421.63 billion.

According to the Controller of Budget (CoB) Margaret Nyakang'o, the growing arrears are crippling suppliers, deepening cash flow problems for small businesses, and undermining public confidence in the government’s financial management.

In her latest report covering the first nine months of the 2024/25 financial year, Nyakang'o reveals that the national government is responsible for Sh511.75 billion of the total debt, while counties account for Sh172.51 billion.

“To address the challenges, the Controller of Budget recommends that the National Treasury fast-track the verification and settlement of pending bills and adopt more realistic revenue projections to reduce reliance on borrowing,” reads the report by Nyakang’o.

“There is a need for improved fiscal planning and enhanced revenue collection, particularly from Appropriations-in-Aid.”

The findings follow recent remarks by National Treasury Cabinet Secretary John Mbadi, who told Parliament that the government had verified Sh229 billion for payment.

While presenting the 2025/26 budget estimates, Mbadi said that the Pending Bills Verification Committee had received 65,625 claims worth Sh571.6 billion, with 57 per cent, equivalent to Sh322 billion, already analysed.

“The government remains committed to resolving the long-standing issues of pending bills dating back to 2005 as part of a broader effort to strengthen public resource management and restore public confidence in government processes,” he said.

The report details that the national government’s outstanding bills include Sh421.63 billion (82 per cent) owed by state corporations and Sh90.12 billion (18 per cent) by ministries, departments and agencies (MDAs).

Ineligible bills declared as of March 31, 2025, amounted to Sh39.75 million.

Business operations disrupted

Nyakang’o warned that the accumulation of unpaid bills continues to severely disrupt business operations.

“This forces such businesses to either scale back operations, lay off workers, or even shut down operations. It also leads to high government costs of doing business due to the accumulation of interest charges and penalties on unpaid invoices, and it erodes trust between the government and the private sector,” reads the report.

Despite the alarming figures, the national government’s pending bills recorded a modest decline of Sh4.52 billion, dropping from Sh516.27 billion as of June 30, 2024.

However, State Corporations saw a sharp rise in their obligations, with pending bills increasing by Sh16.35 billion from the Sh405.28 billion reported during the same period in the 2023/24 financial year.

Ministries, departments and agencies (MDAs) also recorded a Sh8.61 billion increase, up from Sh81.51 billion in the previous year.

State corporations’ liabilities include payments owed to contractors, suppliers, development projects, pension arrears under the Local Authorities Pension Trust, and statutory deductions.

Of their total Sh421.63 billion in unpaid bills, Sh259.67 billion (62 per cent) is tied to development projects, while nine per cent relates to consumables and general supplies.

Historical pending bills

For MDAs, most pending bills are historical, comprising Sh67.13 billion (74 per cent) for recurrent expenditure and Sh22.99 billion (26 per cent) for development.

Nonetheless, MDAs managed to reduce their overall outstanding bills by Sh46.32 billion during the first nine months of FY 2024/25—Sh33.60 billion in recurrent and Sh12.72 billion in development spending.

Among the worst-hit government entities is the State Department for Public Service, weighed down by Sh14.3 billion in unpaid obligations linked to the National Youth Service (NYS) programme.

The Executive Office of the President also remains under pressure, primarily due to Sh13.5 billion in liabilities inherited from the defunct Nairobi Metropolitan Service (NMS).

The Ministry of Defence follows with Sh6.9 billion in unpaid bills, while the State Department for Medical Services owes Sh4.3 billion.

At the county level, pending bills have reached Sh172.51 billion—Sh139.88 billion for recurrent expenses and Sh32.63 billion for development.

The Controller of Budget raised concerns that several county governments have failed to follow through on their debt repayment plans, despite commitments submitted at the start of the financial year.

“While county governments were required to submit a pending bill payment plan to the Controller of Budget at the beginning of the financial year, as stipulated in the guidelines for approval to withdraw funds from the County Revenue Fund, several County Governments did not follow their plans to pay pending bills,” reads the report.

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