Why Kenya should now shift to investment-driven development

With nearly half of Kenya’s population under 18 years and 29 percent of youths aged 15 to 24 years old making up two-thirds of Kenya's population, there are substantial growth opportunities by investing early in their education, health, and well-being as rights enshrined in the Constitution, laying the foundation for a prosperous Kenya.

However, this vision is threatened by a shifting financial landscape marked by reduced global aid and limited domestic resources, putting the most vulnerable at risk. Without strong financial strategies, Kenya risks losing momentum due to its high debt burden, youth unemployment, recurring climate shocks, and persistent inequality.

To address these challenges, Kenya must rethink its financing model across key social sectors - health, education, social protection, nutrition, water, sanitation, and hygiene. A more balanced allocation of resources between national and county levels is essential for financing devolved services and promoting inclusive development.

Designating specific budget lines for the social sector will ensure delivery of essential services, shield citizens from hardship, and align with Kenya’s Bottom-Up Economic Transformation Agenda

Official Development Assistance (ODA), a vital tool for development, has dwindled, signaling priority shifts and leaving critical gaps in development financing. In 2013, according to the World Bank, Kenya received Sh393.5 billion in net ODA by 2023; this amount decreased by 57 percent to Sh167.7 billion.

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With this financing gap projected by the World Bank for the 2025/2026 financial year, the measures taken to bridge the deficit, through heightened taxation and reduced spending, threaten to dismantle the systems designed to safeguard the most vulnerable.

Countries dealing with debt problems are more financially at risk. The burden of servicing debt redirects resources away from critical social investments, impacting children's well-being.

While infrastructure investments - roads, railways, and power plants - serve as critical drivers of development, their debt-funded nature has contributed to a significant rise in debt, now at 61.7 percent of GDP, according to World Bank estimates, surpassing the 55 percent threshold for financial stability.

Over the last decade, this increase has come with drawbacks, as a large part of local revenue now goes to paying debt, as opposed to investments in the social sectors.

However, amidst economic strain, there is a glimmer of progress. The World Bank estimates that Kenya's social sector funding has risen from Sh957 billion in the 2022/23 financial year to Sh1.13 trillion in 2024, with tax revenue projected to rise to Sh3.4 trillion by 2026, up from Sh1.85 trillion in 2022.

However, debt repayments will consume much of these gains, starving social programmes of funds, while the trade tariff war further heightens economic uncertainty.

Kenya stands at a crossroads. The health system, already strained by Covid-19's lingering impacts, is in crisis due to reduced donor funding. World Bank estimates show that a Sh75 billion funding gap jeopardises critical sectors—health, education, water, sanitation, and nutrition—lifelines for our children and the nation's future. This gap has contributed to shortages in essential health commodities and disrupted programmes for HIV/Aids, malaria, tuberculosis, and maternal and child health. These translate to families losing access to care, children missing vaccinations, and exposure to preventable diseases.

Child nutrition faces a critical threat of reduced supplies, exacerbating food insecurity. In arid regions and refugee camps, the shortage of Ready-to-Use Therapeutic Food endangers the lives of children suffering from wasting.

A preliminary assessment by the Education Donor Coordination Group, composed of development organisations and donors, found that Kenya's education system is struggling from a Sh6.6 billion funding gap in primary education. This shortfall risks disrupting education programmes in Turkana, Garissa, and Tana River counties and refugee settlements.

Water and sanitation face dire challenges, with reduced funding and deeper cuts anticipated. Projects critical to hygiene and water access, like the Sustainable Transformational and Accessible Water and Sanitation initiatives, are faltering, risking the health of high-burden counties and Nairobi's informal settlements. Without intervention, the ripple effects will deeply affect public health.

Social protection systems, critical shields for families against poverty and shocks, are at a breaking point. From 2022 to 2025, the reduction of ODA will impact emergency cash assistance, worsening poverty in climate-affected regions. Kenya's safety nets supporting low-income households are overwhelmed as demand outpaces resources. Without social services, labour productivity declines, growth stagnates, and poverty deepens.

Shifting from development financing to investment-driven development is imperative. Through domestic revenue mobilisation -  public-private partnerships, social bonds, and improved fiscal management- reliance on aid can be mitigated. Debt restructuring could ease repayment burdens, freeing resources to invest now in people rather than creditors.

Lawmakers must prioritise high-impact interventions. Efficiency must take centre-stage: Cut waste, streamline spending and allocate funds adequately and wisely.

Kenya's children are the heartbeat of its future. Their well-being and potential rest on decisions made today. Let's act with urgency and unity, prioritising sustainable investments over short-term fixes. We can secure a thriving, resilient future for the next generation—and the Kenya they deserve to inherit.

The sooner we confront this new reality, the more effectively we can realign our needs with funding mechanisms that are inclusive, sustainable, and equitable. Being optimistic is not a risk—it's a necessity for progress.

Dr Nilofer is the UNICEF Representative to Kenya. Dr Rugo is Executive Director, Bajeti Hub