Development Assistance for Health
Development assistance, wisely focused, has the potential for unusual effect. First, because health gains for the poor can be relatively inexpensive (compared to the cost of achieving significant effect in other sectors), development assistance itself can achieve much, particularly if it serves as a channel for diffusion of new technologies and best practices. Second, evidence suggests that development assistance in health can be more effective than other development assistance in poor policy and weak institutional environments. Third, the economic benefits of investing in health can be exceptionally high. Finally, because research and development have had high impact (chapter 7) and are an international public good, development assistance has a particular comparative advantage in ensuring their finance.
Those conclusions point to a proactive strategy within development assistance agencies and governments for achieving major shifts in staffing and budgetary allocations toward specific high-payoff investments in health. They also point to the need, in order to achieve the potential benefits, for a focused concentration of health system development on a limited set of priority health goals—for example, controlling AIDS, controlling smoking, meeting the health-related MDGs, and—for middle-income countries—implementing finance reforms that lead toward universal public financing. The section argues that although financial fungibility—the capacity to redirect government resources away from areas supported by external financing—can dilute the effect of development assistance in health, as in other sectors, designing development assistance for health that minimizes the fungibility problem is possible. Performance-based budget support will be one instrument.
In 2003, the world committed to ODA of almost US$100 billion, and news reports in May 2005 suggested the possibility of substantial increases by European donors. Approximately 10 percent of ODA is spent for health, a percentage that has grown rapidly. Table 13.1 in chapter 13 shows recent trends in external financing for health, of which ODA (that is, grant or highly concessionary loans) is only a part: these numbers are for commitments, not actual disbursements, which are smaller and lag behind commitments. (The Global Fund to Fight AIDS, Tuberculosis, and Malaria is one of the few providers of developmental finance that reports disbursements as well as commitments.) External financing for health has grown from about US$6.7 billion in 1998 to US$9.3 billion in 2002 (Michaud 2003). For some countries, development assistance constitutes a significant and growing fraction of health expenditures. Economists have recently returned to the question of the returns to expenditures on development assistance, and several recent trends have important potential implications for health.
Aid Effectiveness
Recent work has been reassessing aid effectiveness and has focused on the following questions: Is there any evidence that infusions of development assistance have affected economic growth rates? Is there any evidence that infusions of economic assistance have affected mortality rates or levels of poverty? These questions are clearly not easy to answer. Nonetheless, some data provide insights. Burnside and Dollar (2000) conclude, for example, that development assistance does seem to work in countries where a good policy environment and a good institutional environment exist, but not in countries lacking those elements. Recent work focuses on aid directed to economic development and greatly strengthens the inclusiveness of the conclusion that aid boosts growth (Clemens, Radelet, and Bhavnani 2004). The effect of development assistance on growth is quantitatively important even in countries with poor policies and institutions, although the effect is stronger in countries with better policies. Interestingly, aid's effect appears larger in countries with higher life expectancy. That development assistance contributes broadly to growth does not, of course, imply that development assistance for health will accelerate health improvements. However, it is certainly suggestive of the potential in health to know that development assistance works for growth.
Even if development assistance is viewed as working better in strong institutional and policy environments, a dilemma exists in that the countries that most need aid are often ones that have weak policies and weak institutions (Radelet 2003, 194). Experiences with ODA in health complement the recent research on aid for growth in suggesting that ODA can pay off despite limited institutional or absorptive capacity. Polio has certainly been eliminated in countries with good health systems, but it has also been eliminated from most countries with weak ones. No smallpox exists today in countries with bad policies and bad institutions. A number of those countries have immunization rates of 60 or 70 percent, or as high as in the United States. An important question concerns the extent to which other development assistance for health, particularly highly targeted development assistance, can be as successfully implemented as immunization programs where health systems are weak.
Project Support versus Budget Support
Development assistance is tending to move away from project support—for example, of an immunization program, an AIDS control program, or an extension of a road network—and toward general budgetary support, often to be provided through pooling of donor assistance. There are many reasons for this tendency, some of which are good (Kanbur and Sandler 1999, 106). The usefulness (and even propriety) of budget support is contingent, however, on adequacy of the policy and institutional environments. Chapter 3 points to arguments that as health systems evolve, development assistance should move from project assistance toward program assistance. The Global Alliance for Vaccines and Immunization (GAVI) is pointing to ways that support for immunization programs can be advanced within the context of this tendency to move toward general budget support. GAVI's innovation is to support immunization programs based on performance—US$20 for a fully immunized child. The country gets the US$20 for immunizing the child in whatever way it decides; thus, GAVI provides general budget support that is conditioned on performance. GAVI's concern has been with transitional financing (rather than with sustained assistance), but its approach points the way for designing long-term budget support conditioned on measurable performance with respect to specific health goals. Jamison (2004) outlined design of long-term development assistance for health that could meet this objective, maintaining incentives for countries to increase coverage (or performance) while scaling back the volume of aid as a country's income increased. Adequate measurement underpins assessment of performance and can be difficult even for immunization coverage. Measurement requires resources that must be planned for and budgeted.
Macroeconomic Consequences of Aid
Another concern in the aid community—particularly in the International Monetary Fund—is that development assistance could have adverse domestic macroeconomic consequences—essentially inflationary consequences (see WHO 2002, chapter 8). This argument needs to be taken seriously. It is in essence an argument about the generation of domestic inflationary pressures—of projects chasing after those few good engineers or doctors with an increasing amount of foreign money and creating an inflationary spiral in that way. However, if the principal proposed use for the money is for drugs or vaccines—for example, the US$10 increment for adding Hib and HepB vaccines to the Expanded Program on Immunization schedule—that money is almost all foreign exchange, and the macroeconomic arguments about inflationary consequences simply would not apply. Careful project design can respond to what on the whole are serious concerns from the macroeconomic part of the development assistance community. Economic analysis can provide information—such as this volume attempts to provide—on getting the maximum health and financial protection outcomes from the development assistance available and for designing interventions (tradable and commodity intensive) that will minimize potentially adverse macroeconomic consequences.
The Millennium Development Goals
An additional and significant direction in thinking about ODA concerns achievement of the MDGs (chapter 9). The MDGs are very specific targets for improvement in education, health, and income-related poverty. Interestingly, focusing development assistance on achieving the MDGs stands in at least partial opposition to the move toward budget support.
These considerations point to several directions for the design of development assistance for health. Radelet (2003, 194) provides detailed quantitative examples to show that, even under very favorable circumstances, in a lower-middle-income country development assistance is likely to be needed for decades. Some conclusions follow that are drawn from the preceding discussion and from the need for predictability and long time horizons in donor behavior. ODA should move toward the following:
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providing aid over long-term perspectives (10 or more years)
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ensuring predictability in assistance commitments
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emphasizing demand-side support (with concomitant country control of resources)
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providing incentives for countries to maintain high coverage for cost-effective programs
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avoiding perverse incentives
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including a transparent exit strategy (for example, reduced grant support with per capita GDP growth).
There is a strong analogy to within-country programs like Mexico's Progresa, which provides cash transfers to poor households contingent on getting children immunized or into school. Gertler (2004) has reported evaluation results indicating a high degree of effectiveness. The effectiveness of coverage incentives is well exemplified by the Bill & Melinda Gates Foundation in its work on polio with both GAVI and the World Bank in providing a financial incentive for enhanced coverage (chapter 13). Although donors increasingly state a commitment to providing aid predictably and over long periods, the reality for many countries is that aid flows will be volatile and of uncertain duration. Jamison and Radelet (2005) point to ways of using such aid that can be minimally disruptive.
