For years, Kenya has proudly embraced its designation as a “Lower Middle-Income Country” (LMIC). However, within the health sector, this classification increasingly appears more as a burden than a boon, driving the nation deeper into debt.
A recent report from the Centre for Epidemiological Modelling and Analysis (CEMA) at the University of Nairobi underscores this alarming trend, revealing that as Kenya has ascended the economic ladder, it has concurrently lost access to vital grants that once bolstered its healthcare system.
In lieu of these grants, the country now finds itself reliant on concessional loans, a financial strategy that threatens to undermine the very sector it aims to support.
International development principles suggest that as a nation’s income rises, it should naturally reduce its dependency on donor funding. Yet for Kenya, this transition is occurring at a pace that outstrips the growth of domestic tax revenues, as detailed in the report titled *Immediate Impact of External Funding Withdrawal On Kenya’s Health Sector*.
The report paints a stark picture of the evolving landscape of health funding, highlighting a shift from grants to debt: “The on-budget support is provided in the form of grants or concessional loans and is recorded in the national budget as either Appropriations-in-Aid or as direct revenue to finance government expenditure. For the period 2019/20-2025/26, the country cumulatively received more loans than grants in external funding for health through on-budget support.”
In the financial year 2021/22, an astonishing 83.2 percent of on-budget external health support was provided as loans. Given that healthcare does not yield immediate cash returns for debt repayment, this borrowing exacerbates Kenya’s public debt and jeopardizes its international credit rating.
The report further identifies the LMIC status as a significant obstacle to securing the essential funding Kenya requires to maintain its health advancements: “Access to grants is however hampered by the categorization of the country into a lower middle-income country (LMIC), which implies that the country is expected to finance its healthcare through more loans than grants… Furthermore, loans borrowed to invest in healthcare do not have a direct and immediate return on borrowed money invested.”
For instance, Kenya is gradually phasing out Gavi support for vaccine procurement and has recently negotiated donor agreements to secure family planning products for an additional three years.
Dr. David Khaoya, the lead author of the report, emphasizes the urgent need for critical discussions. “External funding has long played a significant role in Kenya’s health sector, but it is unpredictable and unsustainable,” he states. “This funding shock serves as a wake-up call. While the challenges are considerable, Kenya and other African nations now have the chance to rethink health system financing and cultivate long-term resilience.”
Kenya’s financial challenges are further compounded by the withdrawal of major donors. Projections indicate that total external funding for health could plummet to Sh54 billion in FY 2025/26, a stark decline from Sh126 billion just a year earlier. As the US government and other partners withdraw, they leave a considerable gap that the Kenyan government is struggling to fill with its own budget.
In December 2025, Kenya and the United States entered a landmark five-year, $2.5 billion (Sh 325 billion) Health Cooperation Framework in Washington DC. This agreement aims for a “phased transition” to bolster Kenya’s self-reliance. Under this framework, the US pledged up to $1.6 billion in support, contingent upon Kenya increasing its domestic spending by $850 million over the next five years.
However, the implementation of this agreement is currently on hold. Last month, the High Court froze the framework following a petition from Senator Okiya Omtatah. The petitioners expressed concerns regarding clauses that would grant the US access to Kenyan genomic data and biological specimens, arguing that the deal was finalized without the necessary public participation for such a significant national commitment.
The CEMA report warns that if Kenya continues to depend on loans for essential health services, such as HIV treatment and vaccinations, the Debt Trap will only tighten. The researchers advocate for a new direction: “The report also emphasizes the need to explore innovative financing mechanisms such as sin taxes, hypothecated levies, impact bonds, and debt swaps, as well as to negotiate for more grant financing and better alignment of external support with unfunded national priorities,” the authors assert.
The analysis concludes with a sobering reminder: “Overall, the analysis highlights that Kenya’s health sector is highly exposed to external funding shocks.”
