Kenya May Rely on Borrowing for Healthcare Amid Funding Gap

Kenya’s classification as a lower-middle-income country (LMIC) is creating challenges for its healthcare system. A new report indicates that the transition away from donor-funded grants is occurring faster than the country can compensate with domestic tax revenues, leading to increased reliance on concessional loans and a growing public debt.

Impact of Funding Shifts

A report by the Centre for Epidemiological Modelling and Analysis (CEMA) at the University of Nairobi, titled Immediate Impact of External Funding Withdrawal On Kenya’s Health Sector, details a significant shift in health funding sources. For the period 2019/20-2025/26, Kenya has received more loans than grants for external health funding through on-budget support. In the 2021/22 financial year, 83.2 percent of on-budget external health support was provided as loans. This borrowing increases Kenya’s public debt and negatively impacts its international creditworthiness, as healthcare investments do not generate immediate returns.

LMIC Status and Grant Access

The report identifies Kenya’s LMIC status as a barrier to accessing grants. The categorization implies that the country should finance its healthcare primarily through loans. This is impacting programs such as vaccine procurement, with Kenya gradually transitioning out of Gavi support. Negotiations are underway to secure continued donor support for family planning products for three more years.

Funding Shortfalls and International Agreements

Total external funding for health is projected to decrease significantly, falling to Sh54 billion in FY 2025/26, a substantial drop from Sh126 billion the previous year. This decline is due to the withdrawal of major donors, including the US government. In December 2025, Kenya and the United States signed a five-year, $2.5 billion Health Cooperation Framework intended to facilitate a transition toward self-reliance. The agreement stipulated that the US would provide up to $1.6 billion in support, contingent on Kenya increasing its domestic health spending by $850 million over five years.

Legal Challenges to US Framework

The implementation of the Health Cooperation Framework is currently suspended. Last month, Kenya’s High Court froze the agreement following a petition by Senator Okiya Omtatah. Concerns were raised regarding clauses granting the US access to Kenyan genomic data and biological specimens, with petitioners arguing the deal lacked sufficient public participation.

Recommendations for the Future

The CEMA report warns that continued reliance on loans for essential health services like HIV treatment and vaccinations could exacerbate Kenya’s debt burden. Researchers recommend exploring innovative financing mechanisms, such as sin taxes, hypothecated levies, impact bonds, and debt swaps. They also suggest negotiating for increased grant financing and aligning external support with national health priorities. The report, authored by David Khaoya, Loice Omba, Mutono Nyamai, Purity Nyaikamba, Oumaima Laraj, Brian Njuguna, Ryan Musasia, Austine Omondi, and Thumbi Mwangi, concludes that Kenya’s health sector is highly vulnerable to external funding shocks.