How to Heal Health Financing
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- Authors: VICTORIA FAN, SANJEEV GUPTA
- Published: December 3, 2024
Daunting diagnosis
- Root causes of weak health systems in many developing economies:
- Combination of weak public finances, insufficient external assistance, and poor coordination between national governments and international donors.
- Small and unspent budgets:
- Public spending on health in low- and middle-income countries has stagnated at below 2 percent of GDP recently, 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 suggest.
- Underspending in the health sector is estimated to lead to a loss of $4 per person, based on constant 2020 prices.
- Low revenue, high debt:
- Tax revenue in some low-income countries is less than 10 percent of GDP; IMF recommends 15 percent.
- Some developing economies spend over a third of the tax revenue they do collect servicing domestic and foreign debt.
- Stagnant donor assistance:
- Health aid remained stuck at about 1 percent of low- and middle-income countries’ GDP for the two decades or so before the pandemic, with only a small increase afterward.
- Outlook for future aid looks bleak amid fiscal pressure on donor countries and shifting geopolitical dynamics.
- Fragmentation and localization:
- Proliferation of disease-specific “vertical funds” has created a fragmented donor landscape.
- Over the past 15 years, the number of donors of all types of aid has doubled, and the number of donor agencies has tripled, yet donor financial flows have grown only by 50 percent.
- Donor requirements to ensure proper use of funds increase the cost of absorbing external resources and can impede development of government capacities in health agencies.
- “Localization” through NGOs can prolong dependence on foreign aid, draw essential health workers away from local health ministries, and create coordination challenges.
Integrated approach
- Principle: Shift from single-focus, disease-specific interventions toward integrated approaches that align health, economic, and social factors.
- International alignment:
- Global health initiatives should be aligned with country health systems and primary health care (echoes the 2023 Lusaka Agenda and the 2005 Paris Declaration on aid effectiveness).
- Donors should align efforts with countries’ priority of universal health coverage to reduce fragmentation and inefficiency.
- Domestic resource mobilization:
- Countries should progressively rely more on domestic resources to finance core health activities.
- IMF estimates countries could raise an additional 5–9 percent of GDP over time by strengthening domestic tax systems (broadening the tax base and improving tax compliance).
- Short-term revenue options such as higher tobacco taxes may provide near-term funds but are not a long-term solution because consumption will likely decline over time.
Sustainable systems and coordination
- Permanent global coordination:
- A permanent global health and finance coordinating body—modeled on the Group of Twenty Joint Finance and Health Taskforce—could improve coordination, accountability, and reduce duplication when working with the World Bank and WHO.
- Procurement and pooled financing:
- Pooled procurement systems for donor funds can reduce inefficiency and strengthen recipient countries’ public financial systems and procurement capacity.
- Consolidation could begin with organizations such as the Global Alliance for Vaccines and Immunization and the Global Fund adapting reporting systems for pooled procurement and later include UNICEF, WHO, and other procurers.
- Budget execution and public financial management:
- Emphasize better budget execution within the health sector; finance ministers may not increase allocations if health ministries cannot spend existing budgets.
- IMF and multilateral development banks should emphasize budget execution and public financial management improvements specific to health.
Key statistics and outcomes
- Public health spending: below 2 percent of GDP in low- and middle-income countries.
- Relative education spending: health spending about half of what these countries spend on education.
- Underspending loss: $4 per person (constant 2020 prices).
- Tax revenue: less than 10 percent of GDP in some low-income countries; IMF target is 15 percent.
- Debt service burden: some countries spend over a third of tax revenue on servicing domestic and foreign debt.
- Health aid: stuck at about 1 percent of low- and middle-income countries’ GDP for roughly two decades before the pandemic.
- Donor landscape changes: number of donors doubled and donor agencies tripled over 15 years; donor financial flows grew only by 50 percent.
- Domestic revenue potential: countries could raise an additional 5–9 percent of GDP over time.
- Maternal mortality and child health:
- Over 287,000 women died from pregnancy and childbirth complications in 2020.
- Nearly 5 million deaths in 2022 from neonatal conditions, pneumonia, and diarrhea.
- 59 countries are expected to miss the target for under-five child mortality.
Policy recommendations
- Strengthen country health systems and integrate global initiatives with national strategies to support universal health coverage.
- Increase domestic revenue mobilization through tax-base broadening and improved tax compliance to finance core health activities domestically.
- Align donor financing with national priorities, move from vertical funds to integrated support, and use the Paris Declaration framework to improve aid impact.
- Create a permanent global health and finance coordinating body (building on the G20 Joint Finance and Health Taskforce model) with World Bank and WHO participation.
- Implement pooled procurement and consolidate donor reporting to lower transaction costs and strengthen local procurement capacity.
- Focus technical assistance on budget execution and public financial management in health to ensure existing allocations are fully and efficiently spent.
How to Heal Health Financing, F&D Magazine, December 2024 — Victoria Fan and Sanjeev Gupta.
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