IMPACT OF SELECTED MACROECONOMIC VARIABLES ON PUBLIC HEALTHCARE FINANCING IN KENYA

Abstract

Healthcare financing is a critical aspect of ensuring access to quality healthcare services for individuals and populations worldwide. However, macroeconomic factors have posed challenges like eroding the real value of medical finances through inflation, low tax revenues collection and high public debt that attract high interest repayments that crowd out funds meant for social sectors like healthcare and thereby affecting sustainable financing of healthcare systems. This has resulted to inadequate and inconsistent healthcare funding, as well as wasteful use of existing resources leading to disastrous out of-pocket medical expenses that drive the country's populace into poverty. Despite efforts to achieve sustainable Development Goal number 3 (SDG 3) which aims to achieve universal health coverage across the world, Kenya still allocates inadequate resources on healthcare falling below the Abuja Declaration of 2001. In this regard, the study examined the impact of selected macroeconomic variables on public healthcare financing in Kenya. Specific objectives of the study were to: determine the impact of inflation on public healthcare financing in Kenya, examine the impact of public debt on public healthcare financing in Kenya, determine the impact of Gross Domestic Product (GDP) growth on public healthcare financing in Kenya and establish the impact of tax revenue on public healthcare financing in Kenya. The study was anchored on Grossman theory of Health demand which states that quality healthcare system guarantees a healthy populace that is more productive and spur economic growth, other theories are the Wagner’s theory, Resource allocation theory and the Human capital theory. There are limited studies conducted on this topic and mainly focused on specific counties with qualitative analysis which did not represent Kenya at large and did not provide robust quantitative inferences. Quarterly time series data was collected, cleaned, coded through standardization and log transformation then arranged in table form before subjecting it to pre-diagnostic tests for normality, unit root, multicollinearity, bounds cointegration and Optimum lag length to ensure its reliability and consistency. The data was analysed using Vector Error Correction Model (VECM) method. From the results, all the tests met the required threshold for reliability. Post diagnostic tests for normality, autocorrelation, heteroskedasticity and CUSUM model stability were carried out and all of them met the required respective threshold for analysis. The study adopted descriptive and correlational research design. VECM results confirmed a long-run equilibrium between macroeconomic variables and healthcare financing. Inflation exerted a negative long-run effect (β = –0.1069, p < 0.05) but showed short-run positive adjustments (Δβ = 0.0477, p = 0.03). GDP growth (β = 0.2748, p < 0.001) and tax revenue (β = 0.6634, p < 0.001) significantly enhanced health allocations, while public debt displayed a weaker long-run effect (β = 0.1262, p = 0.059) with delayed short-run benefits (Δβ = 0.0892, p = 0.069). The study concluded that Inflation weakens real health budgets, public debt offers delayed benefits, GDP growth expands fiscal space, and tax revenue provides the most sustainable foundation for healthcare financing. The study recommended that Kenya should stabilize inflation, adopt strategic debt management, and link GDP growth to health allocations. Expanding domestic tax capacity through digitization, formalization, and earmarked health taxes will enhance sustainable financing. Strengthening procurement efficiency and local pharmaceutical production can mitigate inflationary pressures, ensuring predictable, equitable, and long-term funding for universal healthcare.