Kenya’s public sector continues to strangle small and medium sized enterprises (SMEs) and slow economic growth. Several government ministries, departments, commissions, and Nairobi County fail to pay billions of shillings owed to suppliers. Their chronic inability to settle obligations on time exposes systemic weaknesses in public financial management and harms businesses that rely on government contracts.
The Parliamentary Budget Office (PBO) reports that key state entities, including the presidency, seven ministries, the Independent Electoral and Boundaries Commission (IEBC), the National Land Commission (NLC), and Nairobi County, collectively owe suppliers more than Sh135 billion. While these institutions owe a total of Sh402.6 billion, the PBO calculates that they can pay only Sh267.6 billion over the next five years. The remaining obligations will remain unsettled unless the government injects additional funds. This gap between owed and payable amounts highlights serious failures in budgeting and prioritisation.
The Human and Business Cost of Delayed Payments
Government arrears directly harm thousands of businesses across Kenya. Many companies that secure government contracts borrow from banks to fund projects, assuming that the state will pay promptly. When the government delays payments or settles only part of what it owes, suppliers experience cash-flow crises, default on loans, and suffer damaged credit records.
Credit reference bureaus have blacklisted numerous businesses that struggle to repay loans tied to government contracts. Auctioneers report increased repossessions among government suppliers who cannot meet financial obligations without expected state payments. The financial sector also suffers. Non-performing loans (NPLs) linked to government contracts surge, forcing banks to tighten credit. Higher borrowing costs and reduced access to finance ripple across the economy, discouraging investment and innovation. What begins as unpaid bills escalates into a broader threat to business growth.
Disturbing Figures from Key Government Entities
The PBO provides detailed figures showing how government arrears threaten both suppliers and economic stability. Nairobi County owes Sh82.9 billion but can pay only Sh22.9 billion over the next five years, leaving Sh60 billion still unpaid by 2031. The State Department for Energy owes Sh56.9 billion but can settle only Sh31.7 billion, while the State Department for Roads cannot pay Sh19.5 billion of its Sh130.4 billion debt within the same period. The Office of the President carries Sh13.6 billion in arrears, mostly from the Nairobi Metropolitan Service, yet it can settle only Sh2.78 billion without additional budget allocations.
The State Department for Public Service cannot pay one-third of its Sh15.8 billion debt using current funds, and the IEBC, critical for election management, requires an additional Sh740 million to clear its Sh5.4 billion owed to suppliers fully. These figures reveal that government entities continue to commit to spending without realistically budgeting for payment obligations, a failure of fiscal responsibility that threatens businesses, jobs, and economic stability
Proposed Solutions and Treasury Challenges
The Parliamentary Budget Office (PBO) recommends urgent measures to tackle the government arrears crisis. It calls on the National Treasury to allocate an additional Sh135 billion to the 11 struggling entities, enabling them to settle debts fully by June 2031. This funding would relieve suppliers, restore confidence in public procurement, and prevent further financial stress on small and medium-sized enterprises. The PBO also advises both national and county entities to ring fence 10 percent of their annual budgets specifically for pending bills. By dedicating funds each year, institutions can significantly reduce arrears within five years. The office estimates that clearing these debts could increase Kenya’s annual GDP by 0.5 percent, showing how timely government payments support economic growth.
The arrears crisis exposes systemic weaknesses in public financial management, including poor budget planning, weak procurement discipline, a lack of accountability, and poor coordination with the treasury. Many ministries and departments commit to expenditures without realistically accounting for payment obligations, while slow invoice processing, delayed approvals, and bureaucratic bottlenecks leave bills unpaid. Few institutions face consequences for accumulating large debts, and better alignment between spending agencies and the treasury could prevent arrears. The PBO urges counties and agencies with lower arrears to allocate 10 percent of their budgets to clear outstanding obligations. Most ministries, departments, and agencies with arrears equal to 0–50 percent of their 2025/26 allocations could clear debts within five years if they follow this approach. However, ring-fencing alone will not solve the problem; the government must enforce stronger expenditure controls, monitor performance, and impose penalties for repeated fiscal mismanagement to ensure accountability and financial stability.
Economic and Business Implications
Unpaid government bills threaten more than suppliers; they undermine the broader economy by reducing investor confidence and discouraging businesses from bidding for contracts, even when opportunities appear lucrative. Delays in payment limit competition, stifle innovation, and slow public service delivery. The arrears also directly affect employment, as SMEs employ a large share of the workforce. When these businesses cannot pay staff or collapse under financial pressure, unemployment rises, consumer spending drops, and economic growth slows. Government arrears represent business closures, damaged credit records, lost jobs, and weakened economic stability.
The state’s failure to pay suppliers on time constitutes a governance crisis with far-reaching consequences for Kenya’s economy. Addressing this challenge requires sustained fiscal reforms, transparent budgeting, and strong accountability mechanisms. Timely supplier payments are not optional; they are an economic imperative that strengthens business confidence, stabilizes credit markets, and drives national growth. Unless the government tackles the root causes of arrears and enforces these reforms, Kenya risks prolonged economic instability and diminished trust in public institutions. Prompt action today can prevent widespread financial distress tomorrow and ensure that the public sector supports, rather than hinders, economic development.
