State agencies’ payment delays push penalties to Sh25.28 billion

Penalties arising from delayed payments by government institutions have risen sharply, with State agencies incurring an additional Sh3.7 billion in fines and interest in the year ending June 30, 2025.

The surge has been linked to persistent struggles in settling bills owed to contractors and suppliers.

Data from the Controller of Budget (CoB) shows that charges on overdue payments increased to Sh25.28 billion from Sh21.58 billion the previous year, largely driven by obligations at the Kenya Rural Roads Authority (Kurra) and the Kenya National Highways Authority (KeNHA).

The growing burden has added more strain on State-owned enterprises, corporations, and Semi-Autonomous Government Agencies that are already grappling with mounting bills.

Contractors who have supplied goods and services to government bodies continue to face long waits for payment, with the CoB highlighting this as one of the biggest obstacles to effective budget implementation.

“To address the challenges, the Controller of Budget recommends that the National Treasury fast-tracks the settlement of verified pending bills,” CoB, Margaret Nyakang’o, notes in the latest budget review.

The review reveals that Kurra’s penalties and interest climbed to Sh12.34 billion from Sh9.72 billion, while KeNHA’s rose by Sh2.3 billion to Sh7.81 billion.

This comes despite expectations that both agencies would ease their debt burden following a Sh73 billion loan secured earlier this year to clear contractors’ dues. The loan is scheduled to be repaid through a Sh175 billion bond to be issued before year-end.

Other agencies showed some improvement, with the National Oil Corporation of Kenya reducing its penalties and interest bill to Sh1 billion after paying Sh2.58 billion.

The delay in payments has left businesses that deal with the government struggling to remain afloat. Many have scaled back operations, suspended growth plans, or turned to bank borrowing to keep running.

“Accumulation of pending bills restrains cash flows to businesses, resulting in liquidity constraints, especially for Small and Medium-sized Enterprises, as they have to endure the long wait for settlement of overdue payments. This forces such businesses to either scale back operations, lay off workers, or even shut down operations,”  Nyakang’o added.

Pending bills overall have also continued to rise, with the CoB report showing that the principal amount owed to contractors reached Sh379.04 billion in June 2025, up from Sh358.3 billion the previous year.

This growth comes even as National Treasury directives to clear the debts remain largely ignored by many public entities, further tightening cash flow within the private sector.