GS Paper: GS2

Mentor’s Comment

As donor countries reduce health aid and developing countries face rising debt repayments, increasing health funding for low- and middle-income countries (LMICs) is not a realistic option in the near future. The focus has therefore shifted to using existing health budgets more effectively through full utilisation of funds, greater investment in preventive and public health, and better governance. However, while improving efficiency is essential, it cannot fully overcome the basic problem of inadequate per-person health spending.

Why does the LMIC health financing gap appear to be narrowing but is actually widening?

1. GDP-share convergence: The health expenditure gap between LMICs and high-income countries as a share of GDP narrowed from 2.05 percentage points in 2000 to 1.68 percentage points in 2023.
2. Per capita divergence: In per capita terms, the same gap has expanded more than three-fold over the same period.
3. Absolute shortfall: Per capita public spending on universal health coverage in LMICs, including government expenditure and off-budget aid, is about half the minimum benchmark identified by the World Bank.
4. Misleading metric: A GDP-share comparison understates the real resource gap. LMIC economies and populations are growing, so per capita spending is the more accurate measure of unmet need.

Why can LMICs no longer count on external aid or fiscal headroom to close this gap?

1. DAH peak and reversal: Development assistance for health (DAH) peaked in 2021 during the COVID-19 pandemic and has declined sharply since.
2. US cuts: The United States, historically the source of over a third of global DAH, announced a 67% cut to foreign assistance in early 2025.
3. Allied cuts: The United Kingdom, France, and Germany followed with cuts of 39%, 35%, and 12% respectively.
4. Projected decline: The OECD projects health funding could fall by up to 60% from its 2022 peak.
5. Debt burden: Global public debt reached $102 trillion in 2024. Developing countries owed $31 trillion of this, growing twice as fast as advanced-country debt since 2010.
6. Crowding out: Developing countries paid a record $921 billion in net interest payments in 2024, leaving less fiscal space for health.

Why does allocated health money not reach the ground in LMICs?

1. Execution rates: LMIC health budgets are executed at 85-90%, lower than execution rates for the general budget and for education.
2. Deprioritisation at implementation: Underspending against allocation amounts to a deprioritisation of health at the implementation stage, even when the budget itself was adequate on paper.
3. India infrastructure mission: A parliamentary panel found only about two-thirds of the allocation for the flagship health infrastructure mission was spent in 2024-25.
4. India disease programmes: Within the National Health Mission, only 26% of the money earmarked for communicable and non-communicable disease programmes was used that year.
5. Category-wise variation: Wage and salary budgets are implemented in full. Spending on goods and services is underutilised. Health workers are left without adequate supplies and equipment.

Why does the composition of health spending matter as much as its volume?

1. Curative bias: A large share of public health spending goes to curative care at the secondary and tertiary levels rather than preventive, primary care.
2. India preventive share: India spends less than one-fourth of public health money on preventive care, per London School of Hygiene & Tropical Medicine estimates.
3. Public goods logic: Public health money delivers the highest impact when spent on classic public goods such as infectious disease control or sanitation, where market failure prevents private provision.
4. Evidence on outcomes: Public health spending markedly improves infectious disease outcomes through access, vaccination, and sanitation. It does far less for maternal, child, and non-communicable disease outcomes.
5. Emerging pressure: Ageing populations will increase the need for spending on chronic disease risk factors, early detection, and management.

How does governance quality determine whether health spending converts into health outcomes?

1. Governance-spending interaction: Countries with lower corruption and stronger bureaucratic quality see greater positive effects of public health spending on outcomes such as child mortality.
2. Converse risk: Increasing spending where governance is weak does not reliably improve outcomes.
3. Decentralisation challenge: Growing decentralisation of service delivery makes subnational governance quality increasingly central to health outcomes.
4. PFM components: Budget credibility, timely cash disbursement, and flexible budgets that can respond to unforeseen circumstances such as pandemics are central to good public finance management.
5. Provider involvement: Involving public health providers in budget processes improves both their accountability and motivation.
6. Procurement: Improving procurement processes helps achieve greater value for money in health-sector resources.

Does spending health money better substitute for spending more, or does it merely defer the underlying financing question?

1. Efficiency as necessity, not choice: With external aid contracting and fiscal space shrinking, efficiency reforms are being pushed as the primary lever, not because they are sufficient but because more money is currently unavailable.
2. Limits of efficiency: Even full execution and optimal prioritisation cannot close a financing gap that stems from an absolute shortfall in per capita resources relative to benchmarks.
3. Equity argument: Returns to health spending are greatest exactly where outcomes are poorest. Underfunded LMICs stand to lose the most from a financing pullback that efficiency measures alone cannot offset.
4. Unresolved question: The article does not specify how the residual financing gap, after full execution and reprioritisation, will eventually be closed.

Conclusion

The contraction of development assistance for health and the fiscal squeeze from rising public debt have made the additional-financing pathway to closing LMIC health gaps unreliable. The immediate policy response must be to spend existing health budgets more fully, reprioritise toward preventive and public-goods spending, and strengthen governance and public finance management. These measures improve outcomes per rupee spent but do not eliminate the underlying financing shortfall. Since returns to health spending are highest where outcomes are worst, the case for restoring adequate financing remains unresolved.