Kenya’s devolved governments are increasingly relying on facility-generated health revenues to plug widening budget gaps, raising concerns among policy makers over the sustainability of the country’s healthcare financing model.
- •New data from the Office of the Controller of Budget shows Facility Improvement Financing (FIF) has become a critical funding stream for county health systems, even as broader revenue performance falls short and expenditure pressures mount.
- •In the first half of the 2025/26 fiscal year, counties generated KSh 26.94 billion in own-source revenue, just 27% of their annual target of KSh99.73 billion: of that, KSh 12.70 billion came from FIF and Appropriation-in-Aid, underlining the outsized role of health facility collections in sustaining operations.
- •Revenues collected directly at hospitals and health centres, through user fees, insurance reimbursements and other charges, are increasingly being used to offset delays in disbursement of the equitable share from the national government.
Total funds available to counties stood at KSh 227.15 billion during the period, with KSh172.73 billion coming from the equitable share and KSh26.40 billion carried forward from the previous financial year. But delays in transfers and underperformance in local revenue mobilisation have intensified pressure on internally generated funds.
The Controller of Budget has flagged the growing dependence on FIF as a fiscal risk, warning that overreliance on a single, service-linked revenue stream could undermine budget stability and planning.
That strain is already visible in rising arrears. Outstanding FIF receivables reached KSh8.29 billion by the end of December 2025, contributing to total county revenue arrears of KSh143.04 billion. The backlog is constraining liquidity and limiting counties’ ability to meet both operational and development commitments.
At the same time, spending patterns reveal a persistent imbalance. Counties spent KSh192.59 billion during the six-month period, equivalent to 31% of their annual budgets, with the bulk directed toward recurrent expenditure. Development spending remained subdued at KSh32.49 billion, just 14% absorption of the annual development budget.
The trend suggests that while FIF is helping counties keep health facilities running, it is doing little to support long-term investments in infrastructure, equipment and service expansion, areas critical to improving healthcare outcomes.
The reliance on facility-level revenues follows the implementation of the Facilities Improvement Financing Act, 2023, which allows public health facilities to retain and utilise revenue collected at source. The framework was designed to improve efficiency and responsiveness in service delivery, but its growing role as a primary financing mechanism is now drawing scrutiny.
Governance challenges are also emerging. Delays in the submission of financial and non-financial reports, despite statutory deadlines, have slowed the compilation of budget implementation data, complicating oversight and policy response.
