The Kenya Medical Supplies Agency (Kemsa) is grappling with a severe financial crisis that threatens to exacerbate drug shortages in public hospitals. The Ministry of Health has urgently requested the National Treasury to allocate Sh5 billion to the agency to address stock shortages and ensure a stable supply of essential medicines and health products.
Appearing before the National Assembly’s Health Committee, Health Principal Secretary Harry Kimtai underscored the urgency of Kemsa’s funding needs. The Treasury has so far allocated Sh1.5 billion, which will be included in Supplementary Budget II for the 2024/25 financial year. However, this falls short of the Sh5 billion requested to stabilize Kemsa’s operations and break the cycle of debt and low stock availability.
Currently, the agency’s stock of essential health products stands at 56 percent, well below the optimal levels required to support universal health coverage (UHC). Kemsa is also struggling with significant outstanding debts amounting to Sh6.1 billion, with county governments alone owing Sh3.5 billion. These financial constraints have affected its ability to procure and distribute essential medicines efficiently.
Kemsa has faced persistent issues in fulfilling hospital orders due to its limited financial capacity. According to Kimtai, the agency processes back orders only when stocked-out products are replenished. The ongoing tendering process for the 2024/25 financial year aims to improve stock availability, but without adequate funding, shortages are expected to persist.
“To support recapitalization, the Ministry of Health has requested a budget allocation of Sh5 billion to replenish deteriorated capital and break the vicious cycle of debt, pending bills, and low order fill rates,” Kimtai stated.
Despite the Cabinet’s approval of a Sh199.9 billion Supplementary Budget II for the 2024/25 financial year, it remains unclear how much, if any, will be allocated to Kemsa. The funds in the supplementary budget are intended to cater to government and externally financed projects, personnel emoluments, budget realignments, and revenue adjustments.
Kemsa’s financial difficulties can be traced back to disruptions caused by the Covid-19 pandemic. During the 2019/20 financial year, the agency’s procurement strategy shifted towards acquiring personal protective equipment (PPE) and other Covid-19 response products amid global shortages.
However, as pandemic-related restrictions were lifted, demand for these items plummeted. Simultaneously, increased donations from development partners and the private sector flooded the market, making it difficult for Kemsa to sell its stock at cost-effective prices. Consequently, the agency suffered impairment losses exceeding Sh3.5 billion due to product expiries.
Kimtai explained that these losses, coupled with delayed payments from counties and government facilities, have severely impacted Kemsa’s cash flow, reducing its ability to meet supplier obligations.
The agency’s liquidity issues are further exacerbated by delayed payments, with more than Sh6 billion in receivables tying up capital. Kemsa has warned that the prolonged conversion cycle has hindered its ability to make timely payments to suppliers, ultimately affecting service delivery.
As of the second quarter of the financial year, the availability of essential medical supplies had dropped to 45 percent, far below the 90 percent target. A significant portion of Kemsa’s debts originates from county governments, which owe a total of Sh3.5 billion. Of this, Sh2.7 billion has been overdue for more than 90 days. Other outstanding payments include:
Sh1.4 billion owed by the Ministry of Health
Sh686.47 million from government facilities
Sh385 million from the Supplementary Service Division
Sh12 million from customer operations
Sh21.92 million from development partners
Kimtai noted that counties often collaborate with Kemsa to generate forecasts for stocked items, but when it comes to procurement, they sometimes choose to purchase supplies elsewhere. This inconsistent procurement behavior has further strained Kemsa’s financial stability.
To address these challenges, Kemsa is actively engaging with county governments to clear outstanding debts and improve cash flow. The agency is also working on improving its procurement processes to enhance efficiency and reduce delays in stock replenishment.
The Ministry of Health has emphasized that securing the requested Sh5 billion is crucial to restoring Kemsa’s financial health and ensuring a steady supply of essential medicines to healthcare facilities across the country. Without immediate intervention, hospitals could face worsening drug shortages, threatening the delivery of critical healthcare services.
As the government finalizes budget allocations for the coming financial year, the focus remains on whether Kemsa will receive the much-needed financial boost to overcome its crisis and stabilize Kenya’s medical supply chain.
