WHO reports decreased local spending on health in presence of donor aid – so what does this mean?

By Laura Downey, Alec Morton, Kalipso Chalkidou Jul. 27, 2017

Over the past decade there has been a noticeable shift in global health analyses from a macro focus on achievement of key metrics such as the Millennium (now Sustainable) Development Goals, to micro-level scrutiny of discrete aspects of health system functioning. One recent example is the WHO report “towards UHC – thinking public”, published online recently. This report explores the role of domestic public funds in financing health in LMICs by assessing the changing relationship between domestic public financing for health and the economy, the budget and overall sector financing. The report describes a reduced sensitivity of public expenditure on health to macro-fiscal expansion, which in turn contributes to a potentially reduced role for domestic public funds in financing the sector. The authors conclude by calling for a renewed emphasis on domestic public funds as the core of future health financing policy and for more closely tracking domestically funded public expenditure to better inform decision making.

According to the WHO report, public expenditure in health decreases as a percentage of total public expenditure in the presence of donor aid, and does not increase in line with fiscal growth. But what does this mean in relation to improving population health and economic productivity? This answer to this question is not easily extracted from the report. In fact, the single methods page gives little detail as to data provenance and how it was analysed – necessary requisites of any academic paper submitted for peer-reviewed publication. The document also reports patterns of spending as proportional to total investment, which in the absence of absolute figures can be misleading, though the authors do recognise this as a caveat within the report. The underlying assumption here seems to be the myopic belief that the healthcare sector should be taking up an ever-greater share of public expenditure in all circumstances. But what does analysing and tracking percentage of public expenditure on health really tell us about whether monies are allocated appropriately and systems are operating efficiently?

The WHO report focuses heavily on the question of fungibility and whether development assistance crowds out domestic funding for the healthcare sector. However, an argument can be made that investing in areas such as infrastructure, sanitation, or education may be an even better use of scarce country resources than healthcare, since it has a direct impact on alleviation from poverty and an indirect positive impact on health. There is perhaps some value in a country trying to ensure access to safe drinking water and adequate sanitation before investing in the rotavirus vaccine for all its children. Indeed, a recent study examining the fungibility of development assistance in Tanzania found that fungibility of external funds was in fact beneficial to the country’s development, with evidence suggesting that the ‘displaced’ funds were reallocated towards education. It is obvious that the opportunity cost of spending finite, scare resources in LMIC unwisely has implications beyond health, so fiscal elasticity in this context is not necessarily detrimental, but potentially beneficial.

In recent years, a number of econometric studies have been carried out to address the question of the fungibility of development assistance. However, results of these analyses have been shown to be highly sensitive to the methods used, and are usually based on weak and divergent data sources.

The real problem with the question of fungibility and how to capture and analyse it, is that we’re asking the wrong questions. What we should be asking is not where the money is going, but instead ‘are those monies allocated appropriately and spent efficiently to maximise value?’, where allocative efficiency is dependent on the presence of effective priority setting and governance. Answering this question involves looking beyond the expenditure databases at priority setting mechanisms within particular countries and what financing and governance models can be made to work best for donors and, more importantly, for countries, in their quest to improve health and wellbeing for their populations. Indeed, the emergence of pay for performance incentive schemes and Development Impact Bonds is evidence of a growing trend towards results-based health financing (for more information, see Centre for Global Development’s extensive literature on the potential and pitfalls of these kinds of financing models).

Aside from the substantial technical, statistical, and data quality issues of fungibility-focused econometric studies, it is very difficult to extract the answer to the ‘So what?’ question of how to make things better. One way to address this question experimentally is to design a well-structured, responsive, and flexible co-financing system which facilitates a shift of focus on fungibility to productivity gains. Such a system was recently put forward by Morton and Colleagues, which is founded in the assumption that a list of ‘best buys’ can be relatively easily generated for countries. These high-benefit and low cost interventions could be paid for by the country and more costly interventions higher up the list could be paid for by donors, either in full or as part of a cross-subsidy agreement. The question is then targeted at the point at which an intervention becomes cost effective, within the confines of the domestic budget, and whether donors should subsidise up to this point at the assumption (or agreement) that local policymakers will pay for interventions at the point at which they become cost effective for them. This kind of alignment of donor and local priorities has also proved successful in the form of sector wide approach to payments (SWAp), where recent analyses suggest that $0.52 more cents of domestic government revenues is spent in the health sector when health aid is channelled to settings where there is a SWAp in place. Such co-payment mechanisms focus more on a reciprocal relationship and open conversations between donors and local governments to enter into mutually beneficial contractual arrangements, which significantly reduces the importance of fungibility. To take the argument one step further, we should aspire towards non-siloed donor budgets which can look not only beyond vertical programs, but also beyond health towards pan social-sector relevance – then fungibility loses its meaning entirely.

As countries progress they should be establishing robust mechanisms for evidence-based priority setting to ensure that value is maximised for every rupee, peso or rand spent. Whether health spending as a share of public spending increases or decreases is of secondary importance to the question of whether money is spent wisely. In the context of a rapidly changing development assistance landscape, policymakers and donors alike should be focussing on the ‘so what’ question – what will the transition from external to domestic financing mean for health outcomes? How can donors and policymakers work together to facilitate a smooth transition? And how can domestic resources be most effectively prioritised to ensure best value health buys? The global health community needs to rise to the challenge and support policymakers across the world to spend their money better, and ensure that adequate governance mechanisms are in place to protect these finite resources against waste.

Laura Downey1, Alec Morton2, Kalipso Chalkidou1,3

1 – Global Health and Development, Institute of Global Health Innovation, Imperial College London, London UK
2 – Strathclyde Business School, University of Strathclyde, Strathclyde UK
3 – Global Health and Policy, Centre for Global Development, London UK