## How to Heal Health Financing

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### Daunting diagnosis: constraints on health financing in low- and middle-income countries
- Public spending on health has stagnated at below 2 percent of GDP recently.
- Health spending is about half what these countries spend on education.
- Spending increased during COVID-19, but many countries have since cut it back to prepandemic levels (preliminary data).
- Underspending in the health sector is estimated to lead to a loss of $4 per person (constant 2020 prices); that loss equals what low-income sub-Saharan African countries spend on primary health care per person.
- Tax revenue in some low-income countries is less than 10 percent of GDP, below the 15 percent recommended by the IMF.
- Some developing economies spend over a third of the tax revenue they collect servicing domestic and foreign debt.
- Health aid remained stuck at about 1 percent of low- and middle-income countries’ GDP for the two decades before the pandemic, with only a small increase afterward.
- Over the past 15 years, the number of donors of all types of aid has doubled, and the number of donor agencies has tripled, while donor financial flows have grown only by 50 percent and the size of both official grants and official flows has decreased.
- Fragmentation and proliferation of disease-specific “vertical” programs have led to duplication, inefficiency, and burdensome donor requirements that raise the cost of absorbing external resources.
- “Localization” through channeling aid to local NGOs can prolong dependence on foreign aid, draw essential health workers away from local health ministries, and create coordination challenges.
- Health outcomes remain well short of Sustainable Development Goals:
  - Over 287,000 women died from pregnancy and childbirth complications in 2020.
  - Nearly 5 million deaths in 2022 were from neonatal conditions, pneumonia, diarrhea, and other preventable problems.
  - 59 countries are expected to miss the target for under-five child mortality.

### Integrated approach: priorities for reform and alignment
- Shift from single-focus, disease-specific interventions toward integrated approaches that align global initiatives with national health systems and primary health care.
- Align donor efforts with countries’ priority of achieving universal health coverage to reduce fragmentation and spending inefficiency.
- Implement the principles of the 2005 Paris Declaration and the 2023 Lusaka Agenda to improve alignment of global health initiatives with country health strategies.
- Gradually expand benefits under coordinated, country-aligned programs rather than maintaining parallel vertical funds.
- Encourage donors to adapt reporting systems to facilitate pooled procurement and harmonized financing with national strategies.

### Domestic financing and revenue mobilization
- Countries should progressively rely more on domestic resources to finance all or most core health activities; domestic resources are more stable than external aid.
- IMF estimates indicate countries could raise an additional 5–9 percent of GDP over time by strengthening domestic tax systems, broadening tax bases, and improving tax compliance.
- In the short term, many countries consider raising taxes on tobacco to generate revenue quickly; this is acknowledged as temporary because consumption is expected to decline over time (a policy goal).

### Coordination, procurement, and budget execution
- Establish a permanent global health and finance coordinating body modeled on the Group of Twenty Joint Finance and Health Taskforce to improve coordination and accountability among finance ministries, health ministries, and global health actors; cooperation with the World Bank and WHO is suggested.
- Use pooled procurement systems for donor funds to reduce inefficiency and strengthen recipient countries’ public financial and procurement systems.
- Start consolidation by adapting reporting and procurement practices in organizations such as the Global Alliance for Vaccines and Immunization and the Global Fund; over time, extend pooled procurement to UNICEF, WHO, and other procuring entities.
- Strengthen public financial management and emphasize better budget execution within the health sector so finance ministers will increase allocations only when health ministries can effectively spend budgets.

### Policy implications and final recommendations
- Prioritize strengthening country health systems and integrating global initiatives into national strategies for sustainable impact.
- Reduce dependence on donor funds by mobilizing domestic revenue and improving the efficiency and absorptive capacity of health spending.
- Improve donor alignment with universal health coverage goals to lower duplication and enhance accountability.
- Build transparency and collaboration through a permanent finance–health coordination forum and pooled procurement mechanisms.
- Commitment and collaboration across governments, donors, and multilateral institutions are necessary to build integrated, sustainable health systems aligned with broader economic and development goals.

*Victoria Fan and Sanjeev Gupta, "How to Heal Health Financing," F&D, December 2024.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2024/12/fan.pdf_