Despite the recent introduction of new taxes, the government is still finding itself in a deep hole as operations of agencies funded by the Exchequer come to a halt.
In its first budget, the Kenya Kwanza administration went out to raise revenue base by introducing new taxes, such as the housing levy, and increasing others, such as the VAT on fuel from 8 to 16 percent and income tax on the high-income earners with Sh500,000 or more in gross pay.
Yet the increase in revenue has yet to make the situation any better. If you take the first quarter, public-funded agencies only accumulated more debts as the National Treasury failed to disburse the full quarter allocation.
Instead, the National Treasury published a circular directing state agencies to spend the little first quarter releases to pay pending bills, which the government has accumulated over time due to little or no Exchequer disbursements. The National Treasury made disbursements to state agencies twice in the first quarter, which was hardly enough.
The effect of this has been that state agencies were left with very little room for operation as the bare minimum releases were gobbled up by pending bills. As the second quarter begins, the pending bills are yet to be paid in full due to the National Treasury’s failure to disburse the entire quarter one allocation.
It means that even as the second quarter starts, state agencies will still be significantly hampered in their operations and programmes as the little money that comes through goes into paying debtors.
With no money flowing from the National Treasury, what has been happening in government offices is that publicly-funded institutions, since they have to run operations, continue to accumulate more debts, which will very likely not be paid within the current financial year and will instead become pending bills, thus adding up to already existing hundreds of billions owed to suppliers.
Pending bills have been growing at an alarming rate, with the latest Quarterly Economic and Budgetary Review for the fourth quarter of the financial year 2022/23 indicating that money owed to suppliers grew by Sh128.3 billion in the first nine months of the 2022/2023 financial year.
Pending bills stood at Sh567.5 billion by the end of June 2023, translating to a 29.2 percent growth. More pending bills mean more businesses hurting as they remain unpaid for goods or services delivered to government entities.
“The national government policy on clearance of pending bills continues to be in force. The National Treasury is developing a comprehensive strategy to clear outstanding stock of verified pending bills of the national government over the medium term,” said the Treasury in the Quarterly Economic and Budgetary Review.
Despite the Kenya Revenue Authority (KRA) employing aggressive tax collection methods, including enlisting recently recruited Revenue Service Assistants with paramilitary training acquired from the Kenya Defence Forces (KDF), revenue flows to fund government agencies have been anything but inconsistent and grossly inadequate.
Kenya’s debt has grown to Shh10.19 trillion ($70.84 billion), a growth of 18.08 percent over Sh8.63 trillion ($59.99 billion) a year ago, and debt-service costs are estimated to take up to 59% of the nation’s tax revenues.
National Treasury seems to have prioritised State House and Deputy President’s office with what is left as the two offices have been bursting budgets, and just seven months in, the two offices had spent the entire year’s budget. Domestic and foreign travel and hospitality have been taking up most of the expenditures of the two offices.
Similarly, the numerous consultants and advisors the Kenya Kwanza administration hired when they took office are costing the taxpayer dearly in terms of salaries and allowances, office space, and motor vehicles, among other costs. For instance, State House has recently acquired office space for the economic advisors led by Dr. David Ndii at a private building that charges rent at a premium. The economic team will relocate from State House to the 316 Upperhill Chambers, where rent will be over Sh30 million yearly.
As these get prioritized, several state agencies remain in limbo regarding implementing their work plans. It will likely get worse for the institutions as the National Treasury is currently preparing the Supplementary Estimates I, which could be tabled in parliament in late October or early November.
As with previous supplementary budgets, several agencies will lose huge portions of their budgets as the government comes up with perennial ‘austerity’ measures that have often failed to meet its goals.
Soon after the Kenya Kwanza took power, President William Ruto instructed the National Treasury to institute deep budget cuts that heavily contributed to the huge pending bills as the government sought to save Sh300 billion. Even with that, it didn’t help as the State House and Deputy President’s Office blew their budgets while other state agencies suffered.
The forthcoming supplementary bill could institute such budget cuts, which will again add to the pending bills and continue the cycle of unpaid supplier bills. (