Wamuzi News Ke
A mind-boggling fiscal debacle is taking place at the National Treasury as it is made known through official reports that the Kenyan government has had to pay a staggering Sh26 billion as penalties only due to its default on payments.
This sensational amount is equated to “dead “money”—funds that are of no use to the public and thus only go to the settlement of interest and fines that have accrued due to the government’s inability to make timely payments to its suppliers.
This change in events has marked a very dark night in the nation’s debt management, signaling a total collapse in the official payment system. While the government is still struggling with the crisis of pending bills that are ever-increasing, economists are seeing the Sh26 billion penalty as a self-inflicted wound that is effectively devouring the national budget.
The Sh26 billion in penalties is not included in the main debt that is owed to contractors and service providers; it is just the punishment for delaying payment. SMEs have been voicing their complaints for a long time that government contracts, which once were considered lucrative opportunities, have now turned into “death traps” that eventually cause bankruptcy and auctioneer visits.
Papers seen concerning the latest fiscal updates indicate that these penalties are increasing at an alarming rate. The National Treasury is giving priority to the servicing of debt to foreign lenders so that it does not fall into the category of a sovereign default; thus, local contractors have been relegated to the bottom of the queue.
This intentional postponement has turned against them, as the interest clauses in the contracts trigger daily increases in the total amount due, creating a nightmare for budget planners.
The ‘twist’ in this fiscal drama is the absurdity of the government’s tax collection campaign. The Kenya Revenue Authority (KRA) is bringing in the private sector for taxes in order to get the government budget funded, but, at the same time, the government is drying up the private sector’s cash flow through delaying payments.
By the time the government disburses money to a supplier, often a large chunk of that cash has already been swallowed up by the bank interest that the supplier had to pay while he was waiting for the state to keep its promise.
The economic pundits declare that the Sh26 billion that has been lost to penalties could have been spent on building modern hospitals of level five, or on school feeding programs, or on thousands of new classrooms. All the same, this money is being consumed by the legal fees and aggravated interest.
The situation on the ground is nothing short of a disaster. The whole saga of desperation is told from the story of construction companies to suppliers of stationery. When government orders were placed, many companies took out loans, and now they are being pursued by the banks for the repayments.
The government’s non-payment has caused a chain reaction: suppliers can’t pay their workers, workers can’t spend in the local market, and the overall growth of GDP remains sluggish.
The Sh26 billion that has been lost is predicted to keep increasing unless the National Treasury puts in place a payment system that is urgent, transparent, and automated—hence state-of-the-art. The manual bottlenecks now being used are still liable to corrupt practices and “facilitation fee” demands.
The Auditor General and international financial organizations are putting the government under increasing pressure to make its accounts payable department professional. The present levels of debt, which have “broken all records,” imply that the government is now working with more than it can afford and is no longer treating the private sector just as a cheap—and now heavily charged—credit source.
