Govt Says SHIF Contributions Are Too Low to Fund SHA

In Summary

• KRA is under pressure to explain the loss of 9.68 million excise stamps, sparking fears of tax evasion and a rise in counterfeit goods.
• Ksh46 billion from the housing levy has been invested in Treasury bills as project implementation faces delays.
• The Co-operative Bank has lowered its base lending rate to 14.5%, aligning with CBK’s push for cheaper loans.
• The Ministry of Health says a funding shortfall has slowed down the rollout of SHIF, forcing many patients to pay for treatment.
• Delays in paying pending bills have worsened business conditions, with Treasury planning to clear verified SME debts soon.
• MPs want foreign lenders to stop selecting contractors for projects funded by loans, arguing it unfairly locks out Kenyan firms.
• Pension funds saw a record 28.8% return in 2024, boosted by strong gains in equities and fixed income investments.

In a report by The Business Daily, the Kenya Revenue Authority (KRA) is facing scrutiny over the disappearance of 9.68 million excise stamps, raising concerns about potential tax evasion and the sale of counterfeit goods such as alcohol, cigarettes, and cosmetics. Auditor-General Nancy Gathungu flagged the loss in a new audit for the financial year ending June 2024, noting that no evidence was provided on the type of stamps lost, when they went missing, or any investigations into the matter. The Kenya Association of Manufacturers has warned that the lost stamps could fuel the rise of counterfeit goods, further hurting local manufacturers. Kenya has long struggled with illicit trade, which accounts for 40 percent of all traded goods, with some products disguised as low-value imports or diverted from transit to evade taxes. Excise tax collections have been growing, but the influx of counterfeit goods has hindered revenue from alcohol and cigarettes. The missing stamps add to concerns raised by President William Ruto in 2022 when he questioned the discrepancy between the government’s sale of 2.9 billion excise stamps against a projected 12 billion.

According to Capital Business, the Ministry of Health has cited funding shortfalls as the main reason for the delayed implementation of the Social Health Authority (SHA), with only 4 million out of 18 million registered contributors actively financing the Social Health Insurance Fund (SHIF). The fund, which requires 2.75% contributions from workers in both formal and informal sectors, is struggling due to low remittances, especially from informal sector workers facing income instability. Medical Services Principal Secretary Harry Kimutai highlighted that 30% of Kenyans rely on government subsidies for medical cover, prompting the ministry to explore sustainable financing solutions. Meanwhile, patients seeking treatment for chronic and critical illnesses in public hospitals are being forced to pay out-of-pocket due to financial constraints, with SHIF only partially operational and currently covering emergency services for the first 24 hours after admission. Despite transitioning from NHIF to SHIF in October 2023, delays in implementing key benefit packages have left many patients stranded.

The Co-operative Bank of Kenya has lowered its base lending rate by two percentage points to 14.5%, marking its first major cut since the central bank started reducing its benchmark rate in August last year. The new rate, down from 16.5%, takes effect immediately, with loans now priced at the base rate plus a margin of up to four percent per year depending on the customer’s credit profile. Co-op Bank's decision follows the Central Bank of Kenya’s move to cut the Central Bank Rate (CBR) to 10.75% from 11.25% last week, with a warning to banks that fail to lower their lending rates. The lender, whose loan book stood at Ksh381.3 billion as of September last year, aims to boost credit growth, especially for micro, small, and medium enterprises. According to The Business Daily, CBK has been pushing for lower lending rates, conducting on-site inspections of banks and warning of penalties for those that fail to comply. 

The government has invested Ksh46 billion of the Affordable Housing Levy in three-month Treasury bills due to delays in implementing housing projects, according to the Affordable Housing Board. In a report by Money254, this amount, which has doubled from Ksh20 billion in May 2023, represents 51.8% of the Ksh88.7 billion collected since the levy’s inception in August 2023. The Affordable Housing Act 2024 ensures the funds are strictly used for housing development, preventing diversion to other projects. However, the Controller of Budget has raised concerns over project delays despite the accumulating funds.

Local businesses continue to struggle due to high taxes, poor infrastructure, and expensive electricity, but pending bills from government contracts remain the biggest challenge, forcing some firms to shut down or lay off workers. The government owes businesses billions, with the Treasury estimating the amount at Ksh650 billion, while private sector claims exceed Ksh1 trillion. The Pending Bills Verification Committee, chaired by former Auditor General Edward Ouko, has found that nearly half of the claims reviewed so far could be fraudulent. Treasury CS John Mbadi has announced plans to clear verified SME bills in the upcoming supplementary budget, with significant payments in the roads sector expected in February, as reported by The Standard. However, delays in settling these debts have eroded business confidence, slowed economic growth, and encouraged corruption, as only firms willing to pay bribes are willing to work with the government.

Parliamentarians are considering reforms to prevent foreign lenders from selecting contractors and consultants for projects financed by their loans, following concerns over the Ksh7.74 billion Bus Rapid Transit (BRT) project along Outering Road. The Star reports that the agreement between Kenya and South Korea allows only South Korean firms to bid, a move MPs argue is unconstitutional as it excludes Kenyan taxpayers, who will repay the loan, from benefiting. Roads and Transport PS Joseph Mbugua defended the clause, saying concessional loans often come with conditions set by the lending country. However, MPs want the financing agreement renegotiated to ensure fairness and compliance with Kenyan procurement laws. 

Pension funds recorded a 28.8% return in 2024, the highest in 12 years, driven by strong performance in equities and fixed income investments, according to a survey by fund administrator Zamara. Equities yielded 51.6% returns, while fixed income securities such as bonds and Treasury bills returned 26.8%, comfortably outpacing the 4.52% average annual inflation. Pension funds, which manage assets worth Sh1.117 trillion, benefited from rising share prices of major NSE-listed firms like Safaricom, Equity Group, EABL, and KCB. Although offshore assets posted a negative return of 2%, pension schemes increased their allocation in this category, alongside equities, while reducing exposure to property and fixed income, in a report by The Business Daily.