Controller of Budget pushes to list counties’ pending bills more than a year old as public debt

Controller of Budget Margaret Nyakang’o has called for any unpaid bills older than one year to be formally recognised as debt under the law to compel counties to prioritise repayment and avoid further accumulation.

In her report on counties’ budget implementation for the year ending June 2025, Nyakang’o said leaving unpaid bills outside the legal definition of public debt has allowed counties to accumulate dues uncontrollably, threatening prudent financial management in devolved units.

She is now pushing for a legal review to include pending bills in the definition of public debt, alongside loans and securities as currently stipulated.

“Section 2 of the Public Finance Management (PFM) Act 2012 defines County Public Debt as ‘all financial obligations associated with loans raised and securities issued by the county government.’ When this section is examined alongside Sections 140 to 144 of the PFM Act 2012, it becomes clear that pending bills or payables are excluded from this definition of public debt,” Nyakang’o said.

She argues that excluding pending bills has led many counties to neglect debt management strategies, assuming they have no debts, while accumulating unpaid bills worth billions of shillings. She recommends that any pending bills remaining unpaid for more than one year be classified as public debt.

“The controller recommends amending the PFM Act 2012 to broaden the definition of county public debt to include pending bills (payables) beyond one financial year,” reads the report.

Recognising pending bills as public debt, the CoB notes, would prevent counties from allowing unpaid bills to exceed 20 per cent of their revenues and obligate them to settle these debts as a first charge on the County Revenue Fund (CRF), under strict oversight.

The PFM Act, 2012, states that “debt service payments shall be a first charge on the County Revenue Fund (CRF), and the Accounting Officer shall ensure this is done to the extent possible so that the county government does not default on debt obligations.”

The CoB approves all withdrawals by counties from CRFs after receiving detailed requests, allowing her office to monitor compliance in settling pending bills.

The recommendations come as counties’ pending bills reached Sh176 billion in June 2025, about a third of the Sh533 billion collected in total revenues during the year. During the period, counties added Sh48.88 billion in new unpaid bills while failing to honour initial payment plans. If the proposal is adopted, Sh127.9 billion of pending bills would be counted as part of the counties’ public debt.

Of the Sh176.8 billion in pending bills, 28 per cent accumulated within the past year, 12 per cent had been pending between one and two years, and 48 per cent had remained unpaid for over three years.

“The significant amount of bills under one year is concerning, especially since full disbursement of the Equitable Share for the financial year 2024/25 had been provided,” the CoB said.

Nyakang’o also criticised counties for incurring commitments late in the financial year without available revenue, causing unpaid bills to pile up.

“County treasuries are advised to settle outstanding debts using the first-in-first-out principle, in line with Regulation 55 (1) (b) of the Public Finance Management (County Governments) Regulations 2015,” she said.

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