Financing healthcare in new middle income countries: Lessons from Kenya

Release of "Who Pays for Progress?"

Report authors Steve Lewis and Evelyn Kibuchi presented their findings on the report, Who Pays for Progress? at the Third Financing for Development Conference in July. They were joined by representatives from the World Bank and other global organizations as well as Yvonne Chaka Chaka, UNICEF Ambassador and Princess of Africa Foundation. Photo credit: Steve Lewis/RESULTS UK

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>>Authored by Theo Fievet, State of the Campaign Report Intern

A step to climb

Despite economic growth over the last decade, healthcare outcomes in Kenya remain weak. Rates of maternal mortality and stunting among children have barely changed…

— World Bank, Financial Report (Kenya), June 2014

Is a vibrant, fast-growing economy enough to improve the performance of the public health sector? A case study in Kenya published recently by RESULTS UK and partners KANCO and WACI shows that the correlation between economic growth and public health is not simple, nor automatic. Even though Kenya’s growth in recent years averaged 6 percent per annum, 25 percent of the population still lacks quality healthcare.

Kenya’s improved economic performance helped the country cross the line separating low-income countries (LIC) from lower-middle-income countries (LMIC), and this shift in status has a considerable impact on Kenya’s situation on the international stage. Kenya’s new standing as a MIC threatens its income from international aid and donations. The country faces a contradictory situation: while its economic position has improved, the country’s health sector remains typical of an LIC. For example, only 28 percent of infants are fully immunized.

The Government of Kenya is working to on a plan for universal health coverage (UHC), providing all citizens with the health services they need and saving them from financial hardship. According to the World Bank, Kenya’s rate of “out-of-pocket” expenditures (the amount paid by the patient’s household) was greater than 50 percent. For poor families, this often means selling business assets or pulling their children out of school. Kenya’s challenge is to figure out how to revolutionize a health system to include even the poorest Kenyans, while international aid possibly decreases in the coming years.

In the report, Who Pays for Progress?, the authors (Steve Lewis and Evelyn Kibuchi) suggest that a balance between domestic resource mobilization (DRM, otherwise known as taxes) and official development assistance (ODA) will be the way toward a sustainable and independent healthcare system.

Alliance of public funders

RESULTS UK argues in the report that cooperation between internal (domestic) and external (international) actors is necessary since both solutions have inconveniences that the other can counterbalance.

ODA could and has declined and follows unpredictable trends. Australia, for example, decided to cut 70 percent of its aid for developing countries. International aid institutions such as the World Bank and GAVI (the Vaccine Alliance) have a variety of complex criteria from which it is difficult to determine what will be the final aid amount disbursed. Furthermore, relying on DRM instead of ODA provides greater maneuverability for countries because ODA is often conditional and subject to donor priorities. Kenya cannot risk being totally dependent on the varying ODA and its requirements.

On the other hand, ODA that is earmarked for healthcare comes with direction on how to be spent; it is thus a way to assure funding is provided for health services. Tax income, meanwhile, may be siphoned off for debt repayment or subject to a lack of political will or a lack of trust in health sector efficiency. Furthermore, while DRM currently accounts for 55 percent of Kenya’s budget, it covers only a fraction of many of the country’s healthcare needs.

Finding the most sustainable way to finance UHC

In the medium-term, ODA may fall faster than Kenya is able to increase tax revenue. In 2012, Kenya collected 15.9 percent of their GDP in tax revenue (World Bank data). According to the UNDP, this number needs to increase to 20 percent to smooth the transition from a donor- and tax revenue-financed health sector to a tax revenue- and loan-financed health sector. This is a sustainably financed health sector.

The report recommends tax reforms that combat illicit financial flows in order to a) facilitate predictability of tax income and prioritization; b) create a sense of participation to appear responsible to donor nations, which will then be obligated and/or encouraged to continue their aid; and c) gain recognition in the international finance markets for replacing grants with loans.

In the shorter term, responsible health spending (regarding the implementation of UHC) requires that ODA has to be invested in a profitable way. Investment could occur directly in some key aspect of the health sector regarding maternal health, delivery or child nutrition, as “every dollar invested in nutrition to reduce stunting yields a benefit of more than $16” [1]. Investment could also take place indirectly, for example, to reform and modernize Kenya’s tax system, as “an OECD pilot project in Kenya found that every $1 invested in tax administration, $1,650 was returned” [2].

The report concludes that Kenya should work toward a tax system suitable to an LMIC country. Kenya is not unique in its transition from an LIC to an LMIC, and this report can easily be adapted to other countries that fall in between these two categories. A close look at this group of countries would benefit other countries who are on the way to being in the same position between LIC and MIC.

Read the full report.


[1] “Who Pays for Progress?” page 13

[2] Page 30

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