Worst ministries, agencies in supplier payments revealed

The PBO says in a report that Nairobi, the seven ministries, the IEBC and the land commission can only pay Sh267.6 billion over a five-year period from the Sh402.6 billion they owe suppliers.

This reveals the ministries and commissions that are unfavourable for business among suppliers in an economic setting where State tenders are viewed as the easiest and quickest route to riches.

The haul of arrears has hit many small and medium-sized businesses that bid for government contracts because the State is the biggest spender in the country and tap loans to close the supply deals.

The late payments are in turn hitting the financial sector, where non-performing loans linked to State suppliers have surged.

The PBO report says that Nairobi is unable to pay 72 percent of its Sh83 billion pending bills while the State departments for Energy and Roads can’t pay Sh25.2 billion and Sh19.5 billion respectively.

“The national government should consider providing a budgetary allocation amounting to Sh75 billion in FY 2026/27 to the 10 MDAs [Ministries, Departments and Agencies], and a conditional allocation amounting to Sh12 billion annually between FY 2026/27 – 2030/31 to the Nairobi County to supplement their efforts in settlement of the pending accruals,” the budget office said.

The PBO, which advises MPs on fiscal and economic issues, measured agencies’ ability to pay existing debts between July 2026 to June 2031 through creating space in their budgets and ring-fencing 10 percent for pending bills.

The analysis shows that while City Hall owed suppliers Sh82.9 billion by end of September 2025, it can only pay Sh22.9 billion over the five years.

The State Department for Energy owed suppliers Sh56.9 billion but can only pay Sh31.7 billion, the State Department for Roads is unable to pay Sh19.5 billion of the Sh130.4 billion owed, and the State Department for Broadcasting & Telecommunications can’t pay more than three-quarters of the Sh15 billion debts.

Read: Wage bill, revenue arrears blur counties’ ambitions

President William Ruto’s office is also still stuck with a Sh13.6 billion debt, largely from the Nairobi Metropolitan Service (NMS) bills. It can only pay Sh2.78 billion in five years, leaving it with a Sh10.8 billion bill unless Treasury injects an additional budget.

At the State Department for Public Service, about a third of the Sh15.8 billion pending bills cannot be settled through budget reorganisation. For its part, the IEBC will need an extra Sh740 million to fully clear its Sh5.4 billion bills.

Overall, the budget office proposes Sh135 billion in extra allocations by the Treasury to the 11 institutions to enable them to clear their debts before June 2031.

“The benefit of this approach is that it will shorten the period for settlement of arrears for the MDAs and the Nairobi County,” the PBO says.

“However, the downside is that it puts a strain on the resources of the national government. However, this is the most feasible solution to address the arrears of the 10 MDAs and Nairobi County.”

The accumulation of pending bills in national and county governments has affected thousands of businesses across the country, drying up their cash flows and triggering a burst of non-performing loans (NPLs) among enterprises that borrowed money from banks to undertake public contracts.

A growing share of small businesses have decided that the financial pain that comes with late payments, for everything from PR campaigns to supplies of construction materials, is too much to bear.

Several business people who have contracts with the government say they have ended up being blacklisted by credit reference bureaux after falling behind on loan repayments or defaulting.

Auctioneers previously said repossessions among government suppliers had increased.

The PBO says even if Nairobi ring-fences a tenth of its budget to pay pending bills over the next five years, it will still owe suppliers Sh60 billion of the current debts by 2031, while the 10 MDAs will be unable to pay Sh75 billion.

“Even if they (the 10 MDAs) ring-fence 10 percent of their annual budget for settlement of pending accruals over the next 5 financial years, they will still have outstanding accruals totaling to Sh75 billion in FY 2030/31,” the PBO says.

The office estimates that by the State clearing existing pending bills over the next five years, it can increase annual GDP by 0.5 percent over the period.

It wants other counties and agencies, whose pending bill levels have not reached alarming levels, to be forced to allocate 10 percent of their budgets for settlement of the current pending bills until they are fully cleared.

“Most national government MDAs and county governments have pending accruals equivalent to between 0 - 50 percent of their FY 2025/26 budgetary allocation thus they can adequately settle their accruals within their annual budgetary allocations over the next five financial years provided they ring-fence up to a maximum of 10 percent of their annual allocations,” says the PBO.

The office has also proposed that the national and county assemblies consider treasuries’ allocation of the 10 percent pending bills settlement amounts before approving their budgets.

“Further, the Controller of Budget should be tasked not to release funds for any MDA or county government that has outstanding government pending accruals but has not provided for the 10 percent annual provision in their budgets,” the PBO says.

The office reckons that this policy will unlock stalled projects, restore supplier confidence, and free up future fiscal space currently shadowed by legacy liabilities.

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