National Treasury Cabinet Secretary John Mbadi has revealed that government debts owed to contractors have accrued significant interest, inflating total liabilities to alarming levels. With pending bills in the sector reaching Sh150 billion, largely driven by interest fees from delayed payments, the government is negotiating to cap interest charges by contractors.

“Some contractors were demanding 30 per cent interest, while the government was offering 50 per cent. They’ve now settled at around 35 percent. Once finalized, we will begin paying a uniform amount to contractors owed up to Sh50 million,” Mbadi stated during a press briefing.

Government Prioritizes Stalled Projects

The government is implementing a phased payment plan to revive stalled infrastructure projects, with contractors receiving:

• 40% upfront payment upon signing agreement to resume work
• 60% disbursed within one month, contingent on project progress

The payment crisis has created ripple effects throughout Kenya’s economy, with many businesses struggling to access credit due to unpaid government invoices. Kenya Bankers Association (KBA) CEO Raymond Molenje warned parliament that this has led to increased loan defaults in the private sector.

Economic Impact of Pending Bills

The burden of pending bills combines with other economic pressures:

• High taxation reducing purchasing power
• Shrinking external financing forcing increased domestic borrowing
• Private sector credit access declining despite CBK rate cuts

According to Controller of Budget reports, state corporations and ministries accounted for 78% of Sh528.36 billion pending bills as of September 30 last year, with the Ministry of Roads and Transport leading at Sh180.90 billion in outstanding payments.

Credit Market Challenges

Despite Central Bank of Kenya (CBK) measures to stimulate lending:

• Base rate cuts totaling 225 basis points (June 2024-February 2025)
• Cash Reserve Ratio reduction to 3.25%
• Average lending rates remain high at 16.4%

The situation particularly affects SMEs, which comprise 90% of private businesses and employ 88% of Kenya’s workforce. Financial analysts emphasize the need for policy reforms to diversify funding sources beyond traditional bank credit.