NAIROBI, Kenya – Mounting government arrears are choking cash flow for small and medium-sized enterprises (SMEs) and could trigger job losses if left unresolved, Controller of Budget Margaret Nyakang’o has cautioned.
Appearing before the Budget and Appropriations Committee on Tuesday, Nyakang’o urged the Treasury to urgently clear Sh524.84 billion in unsettled bills to ease pressure on the private sector, warning that the arrears risk destabilising the wider economy.
“Unpaid bills are causing liquidity challenges, potential business closures, job losses, and increased government expenditure through penalties, interest charges, and eroded trust from the private sector,” she said during her presentation of the Budget Implementation Review Report for the 2024/25 financial year.
State corporations biggest culprits
The report shows pending bills have climbed from Sh516.27 billion last year to Sh524.84 billion by June 30, 2025.
State corporations accounted for the bulk, owing Sh404.33 billion (77 percent), largely to contractors, suppliers, pensions and statutory deductions.
Ministries, Departments and Agencies (MDAs) carried Sh120.51 billion (23 percent), mostly tied to recurrent and development arrears.
Nyakang’o urged the Treasury to accelerate the verification and settlement of genuine arrears to restore confidence in government payment systems.
Weak financial planning flagged
She also criticised Treasury’s overreliance on Article 223 of the Constitution, which permits withdrawals for ongoing programmes without prior parliamentary approval.
“In FY 2024/25, a total of Sh83.96 billion in withdrawals were authorised by the CS National Treasury under Article 223, of which the Controller of Budget authorised Sh66.54 billion,” Nyakang’o told lawmakers, warning that the practice contravenes the Public Finance Management Regulations, 2015.
Central Bank defends new credit model
During the same session, Central Bank Governor Kamau Thugge updated MPs on the rollout of the new Risk-Based Credit Pricing Model, effective September 1, 2025.
“With this model, all banks shall have a common reference rate that will make borrowing more transparent and lending rates more responsive to monetary policy decisions,” Thugge explained.
He projected the economy would remain on a growth path, with real GDP expected to expand 5.2 per cent in 2025 and 5.4 per cent in 2026, buoyed by agriculture, services, and industrial output.
However, he warned that continued delays in paying contractors could dampen momentum.
