A Parliamentary Budget Office report has exposed a worrying pattern of unpaid supplier bills across key government ministries, the presidency, Nairobi County, and two constitutional commissions, raising alarm over the health of public finances and the survival of businesses reliant on State contracts.
According to the report, several ministries, the Independent Electoral and Boundaries Commission, the National Land Commission, and Nairobi County collectively owe suppliers Sh402.6 billion.
Of this, only Sh267.6 billion is projected to be paid over the next five years, leaving a shortfall that threatens the stability of small and medium-sized enterprises that depend on timely payments to manage loans and operations.
The PBO warns that these arrears make these public entities increasingly unattractive to suppliers, in an environment where government tenders are considered the fastest route to growth.
Small and medium businesses have borne the brunt of delayed payments, with many forced to borrow from banks to deliver goods and services. This has contributed to a surge in non-performing loans as companies struggle to meet their financial obligations.
The PBO report shows that Nairobi County, for instance, cannot pay 72 percent of its Sh83 billion outstanding bills. The State Department for Energy owes Sh25.2 billion that cannot be cleared under current budgets, while the State Department for Roads is unable to settle Sh19.5 billion of its pending debts.
“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 PBO stated.
The analysis covered the period from July 2026 to June 2031 and assumed that affected institutions would allocate 10 percent of their annual budgets toward clearing the arrears.
Despite this, the gap remains wide. By September 2025, Nairobi County owed suppliers Sh82.9 billion but could only pay Sh22.9 billion over five years.
The State Department for Energy’s Sh56.9 billion liability is projected to reduce to Sh31.7 billion, while the Roads department will still leave Sh19.5 billion unsettled from Sh130.4 billion owed. The State Department for Broadcasting & Telecommunications is also unable to pay more than three-quarters of its Sh15 billion debt.
The office of President William Ruto is carrying Sh13.6 billion in outstanding bills, mainly linked to the Nairobi Metropolitan Service. Under current projections, it can only pay Sh2.78 billion over five years, leaving Sh10.8 billion unpaid without additional Treasury support.
At the State Department for Public Service, a third of Sh15.8 billion in pending obligations cannot be addressed through budget reshuffles, and the IEBC requires Sh740 million more to fully clear its Sh5.4 billion debts. Overall, the PBO recommends Sh135 billion in extra funding for these 11 institutions to settle arrears 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. 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 report notes.
Businesses across the country have been hard hit, many seeing their cash flow dry up as late payments disrupt operations. Several suppliers have been blacklisted by credit bureaus after defaulting on loans, while auctioneers report rising repossessions of assets among government contractors.
Even with a 10 percent budget allocation over the next five years, Nairobi County will remain Sh60 billion short, and the 10 affected MDAs will collectively leave Sh75 billion unpaid.
“Even if they (the 10 MDAs) ringfence 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 warns.
Clearing these pending bills could boost the economy, with the PBO estimating an annual GDP increase of 0.5 percent over the five-year period. For counties and agencies whose debts are not yet critical, the PBO urges they allocate 10 percent of their budgets to settle arrears until 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,” the report says.
The PBO further recommends that both national and county assemblies closely review budget proposals to confirm allocations for clearing arrears, aiming to prevent recurring debt and ensure financial accountability.
