The Government of Kenya is committed to providing universal coverage of quality health services to its population without subjecting them to financial hardship. This requires a substantial increase in public spending. However, fiscal resources have become increasingly scarce. Greater value for money in spending can be achieved through efficiency gains in sector operations, which holds promise to reduce the financing gap. This study explores opportunities to do so through better public financial management (PFM). The study’s main objective was to analyze the opportunity cost of debt financing over health expenditure. The three specific objectives of the study included a detailed analysis of Kenya’s debt since FY 2017/2018 financial year, an analysis of the opportunity cost of debt financing to health care provision and financing in Kenya, and a detailed review of the current policies affecting debt financing and health financing in Kenya and to provide policy recommendations. The study adopted a stepwise methodology to analyze the opportunity cost analysis of debt financing. The steps were as follows: (i) Review of current policy environment; (ii) Analysis of Kenya’s debt stock; (iii) Analysis of debt financing; (iv) Analysis of health sector financing; (v) Analysis of opportunity cost of debt financing of health care provision using Regression analysis. The trend analysis of both National and County expenditures on health have been increasing while debt servicing has been fluctuating since FY 2015/16. This revealed that there was no direct correlation. The study established a positive relationship between growth rates in aggregate debt financing and health expenditure both at the national and county governments. However, the effect is felt more at the national level (65 percent) compared to the county (13.7 percent). This implies that the two governments equally prioritize health expenditure just as it does when servicing the debt over expenditures in other sectors and departments, despite an upsurge in debt financing. This may also be an indication that revenues from debt are used to finance health expenditure - but with no additional information to support this, this is an hypothesis at this stage. The study also showed a negative effect (10.6 percent) of external interest servicing on health expenditure. It can be argued that, since counties receive funds from the national government on a monthly basis as per the cash disbursements schedule, there are possibilities that national revenues are affected by external interest payouts which are made more frequent and fluctuating based on market rates. This leads to late disbursement which derails the expenditures. The Analysis also revealed a negative correlation between health sector expenditure growth rate and other sector expenditures. This could be as a result of in-year reallocations. Conversely, from an execution perspective, the growth rate for health sector expenditure could be lagged by internal challenges, for example, institutional gaps as other sector expenditures expand typically. It is a zero-sum game, if the government allocates more to health, the government by default has to take away from other sectors. Some of the recommendations derived from the study include but not limited to: the government should minimize its debt accumulation and intensify efforts towards servicing the outstanding debt, it should borrow smartly by pursuing low-cost loans and exercising caution in tapping international private debt markets, both levels of governments should enhance institutional and development frameworks in the health sector to increase their absorption rates, the National Government should leverage on the Own-Source Revenue Potential and Tax Gap Studies to enhance county OSR collections, the government should carefully scrutinize and control expenditure reallocations initiated through the supplementary budgets, the government should increase the budget allocations to the Health Sector to match the Abuja declaration commitment of 15 percent

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chronic povertyaccountabilitybasic services