Why government didn’t convert Sh537bn pending bills into bond - Business Daily

Kenya's decision to forgo converting its substantial 537 billion Kenyan shilling (approximately €3.8 billion) backlog of pending government bills into tradeable bonds represents a significant inflection point in the country's fiscal management approach. This choice reflects deeper structural challenges within East Africa's largest economy and carries important implications for European entrepreneurs and investors operating across the region. The Kenyan government's accumulation of pending bills—unpaid invoices to suppliers, contractors, and service providers—has long served as a shadow financing mechanism. Rather than securing additional external debt, the government effectively borrowed from its suppliers by delaying payments. Converting these arrears into bonds would have transformed this informal credit system into formal market-based financing, providing suppliers with liquidity while allowing the government to manage repayment schedules more systematically. The decision not to pursue this conversion likely stems from multiple considerations. First, formalizing 537 billion shillings in additional debt would have further strained Kenya's already challenging debt-to-GDP ratio, currently exceeding 65 percent. The International Monetary Fund has flagged Kenya's fiscal sustainability concerns, making additional formal borrowing politically and economically problematic. Second, converting pending bills into bonds would have required transparent disclosure of the full scope of government payment delays—information that could have triggered rating downgrades