Aid to the Health Sector is Fungible. Is That a Problem?

A new paper from The Lancet demonstrates that health assistance doesn’t always increase the amount of money a country’s government spends on health. Instead, health aid causes governments to decrease the amount of money they spend on the health sector. Overall health sector funding goes up but the total amount provided by the recipient goes down. On the assumption that this is a bad thing, the paper makes five recommendations for how to prevent this effect:

  • strong standardized monitoring of government health expenditures and government spending in other health-related sectors;
  • establishment of collaborative targets to maintain or increase the share of government expenditures going to health;
  • investment in the capacity of developing countries to effectively receive and use development assistance for health (DAH);
  • 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

But is it actually a problem? Development economist Owen Barder argues against both the paper’s conclusions and its recommendations. He calls the last three recommendations irresponsible, and states that:

It is far from clear that the behaviour of developing countries described in the paper is anything we should be concerned about.  Of course health advocates who earn their living from health spending in developing countries are up in arms at the news that their various wheezes to capture a big chunk of available development finance and redirect it to their cause may not have been a complete success.   But those of us who take a more objective view of the relative priorities of different types of development spending can be more sanguine.

He goes on to posit that by using health aid to move government money out of the health sector, governments are reprioritizing their spending in light of the aid they receive. This, he says, is a good thing. Governments are allowed to set their own priorities. He points out that moving money between sectors lets recipient governments compensate for shifting trends in aid provision, and that using aid to force donor priorities on governments is in direct contradiction to the Paris Declaration. Finally, Barder says that

Making, passing and executing budgets is the very heart of a capable and accountable state…If resource allocation priorities are determined elsewhere, then the government is one in name only.  We cannot expect governments to be accountable to their citizens for decisions that they have not made.  If we want accountable states rather than puppet client states, we should rejoice, not complain, when they demonstrate a willingness to make choices of their own.

It’s a convincing argument, and deeply reassuring. But it is predicated on the idea that a government wants what is best for the people of the country. That is simply not always true. There are plenty of countries run by venal kleptocracies – governments devoted to enriching their leaders and staying in power at any cost. There are times when donors need to be able to push their own priorities. On the other hand, Barder is right that setting budget priorities is at the very heart of what governments do. If we genuinely want to build capacity, sending our aid through NGOs or as pre-purchased supplies is not the way to go about it.

I think it comes down to this: not all governments are created equal, and we can’t treat them all the same way. Some governments will use aid funding for health to free up money for offshore banks accounts and private jets. Others will use it to protect agriculture or education budgets. The Lancet’s data doesn’t tell us what they are doing with the money once it leaves the health budget. Without that information, we don’t know if it’s a problem or not.