The World Bank has urged the Kenyan government to reassess the rollout and funding approach of the Social Health Insurance Fund (SHIF), warning that its implementation under current conditions could impose unsustainable financial burdens on citizens and further strain the country’s fragile fiscal environment.
In its latest Public Finance Review (PFR) report released on May 27, the global lender flagged serious concerns about Kenya’s ability to meet its ambitious SHIF financing targets. The bank noted that the informal nature of the country’s labour market poses a significant challenge to effective revenue collection under the new health insurance framework.
SHIF Revenue Projections Far Below Target
According to the World Bank, SHIF is expected to raise approximately Ksh67 billion annually, a figure that falls drastically short of the projected Ksh157 billion required for full implementation. This shortfall, the bank argues, highlights deep-rooted structural issues in Kenya’s economic landscape—chiefly the dominance of informal employment, which complicates tax collection and insurance premium contributions.
The World Bank warns that if the current trajectory is maintained, the funding gap will hinder the government’s ability to offer universal healthcare, one of President William Ruto’s key policy priorities under the Universal Health Coverage (UHC) agenda.
Call to Exempt Low-Wage Formal Workers
The report recommends that the government exempt low-income earners in the formal sector from mandatory SHIF contributions. This move, according to the bank, would prevent further distortions in the labour market, where over-taxation of low-wage earners could incentivize informal work over formal employment.
“Exempting these workers will not only reduce pressure on households but also promote formalisation of employment,” the report states. “In turn, this would enable the state to finance healthcare coverage for the poor, informal sector workers, and low-wage formal employees through allocations from the national budget.”
Strategic Use of Government Subsidies
In a bid to promote equity in healthcare access, the World Bank also advised that SHIF collections be focused on the formal workforce, while the government assumes the responsibility of subsidising contributions for vulnerable and informal populations. This dual-track approach, the bank argues, could improve compliance and ensure broader population coverage without overburdening Kenya’s already strained working class.
Prioritising Health Funds Amid Donor Exit
Beyond SHIF, the World Bank underscored the urgent need for the full financing of two critical health funds: the Primary Health Care Fund (PHCF) and the Emergency, Chronic and Critical Illness Fund (ECCIF). These facilities are considered essential in covering underserved populations and handling the nation’s rising burden of non-communicable diseases.
The bank noted that with donors accelerating their withdrawal from key health programmes—including HIV/AIDS interventions previously funded by the US government and immunisation initiatives underwritten by Gavi, the Vaccine Alliance—the Kenyan government must step in to plug emerging financing gaps.
“Failure to do so risks undoing years of progress in critical health areas,” the report warns.
Strengthening Health System Capacity
The report places a strong emphasis on capacity building in Kenya’s health sector. It calls on the government to resolve staffing shortages, ensure a consistent supply of essential medicines and equipment, and enhance the quality of care in rural and underserved regions.
According to the World Bank, improving service delivery infrastructure will be crucial in realising SHIF’s promise of universal and equitable access to healthcare.
Governance and Efficiency Reforms
To enhance overall efficiency, the World Bank proposed a range of governance and administrative reforms. These include:
- Better coordination between national and county governments to avoid duplication of functions and improve accountability.
- Greater autonomy for public hospitals, enabling them to make strategic decisions and retain a portion of their revenues.
- Pooled procurement of medical supplies through KEMSA (Kenya Medical Supplies Authority) to leverage economies of scale and reduce corruption.
- Performance-based funding to incentivise outcomes-based healthcare delivery.
- A rationalised SHIF benefits package that aligns with current fiscal capabilities to avoid overpromising and underdelivering.
Mounting Public Debt and Fiscal Pressures
While the report highlights the potential of reforms to improve healthcare financing, it also delivers a sobering assessment of Kenya’s broader fiscal health. Public debt remains at high risk of distress, with interest payments consuming nearly a third of all tax revenues, a situation the bank describes as “precarious.”
As of 2024, Kenya’s public debt stood at 68% of Gross Domestic Product (GDP), well above the threshold considered sustainable for developing economies. The bank attributes this situation to a combination of poor revenue performance, slow economic growth, and an increasing reliance on domestic borrowing.
“Kenya’s fiscal position is increasingly untenable without significant reforms in revenue collection and public spending,” the report notes.
A Critical Juncture for Kenya
The World Bank’s report presents both a cautionary tale and a roadmap. While Kenya’s vision for a universal health insurance scheme is laudable, the institution argues that without addressing core structural challenges—especially those related to revenue generation, informal employment, and public sector efficiency—the SHIF programme may falter under its own weight.
The path forward, according to the bank, lies in targeted subsidies, focused collections, stronger governance, and healthcare system improvements, all supported by a stable macroeconomic framework.
Conclusion
The World Bank’s Public Finance Review serves as a wake-up call to policymakers. At a time when Kenya is grappling with deep fiscal pressures and rising social needs, aligning policy ambitions with economic realities has never been more critical.
For SHIF to succeed and for Kenya to stay on course toward achieving Universal Health Coverage, the government must be willing to adapt, prioritize, and innovate. The message from the international lender is clear: there is no one-size-fits-all solution, but there is a sustainable path—if bold, evidence-based actions are taken now.