Public financing of health in developing countries

Summary of published research¹

Increasing amounts of international aid have been given to health sectors in developing countries. Development assistance for health (DAH) has risen steadily since 1995 from about US$8 billion to nearly $19 billion in 2006. In addition to direct health aid from donors, debt relief to low-income and middle-income countries allows recipient governments to redirect funds from debt servicing to health spending. Certain debt relief initiatives - the Heavily Indebted Poor Countries and Multilateral Debt Relief initiatives - have conditioned debt relief on spending intended to benefit low-income populations in developing countries, especially government expenditures on health and education.

Government spending on health from domestic sources is an important indicator of a government's commitment to the health of its people. It is also essential for the sustainability of health programmes. A recent study aimed to systematically analyse all data sources available for government spending on health in developing countries and describe trends in public financing of health. The study also tested the extent to which spending trends were related to changes in gross domestic product (GDP), government size, HIV prevalence, debt relief and DAH to governmental and non-governmental sectors.

The study systematically analysed all data sources available for government expenditures on health as agent (GHE-A) in developing countries, including government reports and databases from the World Health Organisation (WHO) and the International Monetary Fund (IMF). GHE-A consists of domestically and externally financed public health expenditures. The researchers assessed the quality of the sources and used multiple imputation to generate a complete sequence of GHE-A. With these data and those for DAH to government, they estimated government spending on health from domestic sources. Panel-regression methods were used to estimate the association between government domestic spending on health and GDP, government size, HIV prevalence, debt relief, and DAH disbursed to governmental and non-governmental sectors. Robustness of conclusions was tested using various models and subsets of countries.

The study found that in all developing countries, public financing of health in constant US dollars from domestic sources increased by nearly 100% (IMF 120% and WHO 88%) from 1995-2006. Overall, this increase was the product of rising GDP, slight decreases in the share of GDP spent by government, and increases in the share of government spending on health. At the country level, while shares of government expenditures to health increased in many regions, they decreased in many sub-Saharan African countries. The statistical analysis showed that DAH to government had a negative and significant effect on domestic government spending on health. This meant that for every US dollar of DAH to government, government health expenditures from domestic resources were reduced by $0.43 (p=0) to $1.4 (p=0). However, DAH to the non-governmental sector had a positive and significant effect on domestic government health spending. Both results were robust to multiple specifications and subset analyses. Other factors, such as debt relief, had no detectable effect on domestic government health spending.

The authors conclude with recommendations to address the negative effect of DAH on domestic government health spending. There is a need for strong standardised monitoring of government health expenditure and government spending in other health-related sectors. Establishment of collaborative targets to maintain or increase the share of government expenditures going to health and investment in the capacity of developing countries to effectively receive and use DAH are needed. Careful assessment of the risks and benefits of expanded DAH to non-governmental sectors and investigation of the use of global price subsidies or product transfers as mechanisms for DAH are warranted.

¹Lu. C et al (2010). Public financing of health in developing countries: a cross-national systematic analysis. www.thelancet.com, vol 375, April 17th, 2010.