Costing and Financing Additional Spending for the MDGs
Additional health spending will be required in many countries to accelerate progress toward the health goals (see chapter 12). What will it cost, and how will extra spending be financed?
Cost of Achieving the MDGs Globally
The global estimates of what it would cost to achieve the MDGs range from an additional US$20 billion to US$70 billion a year. A World Bank study (http://www.worldbank.org/html/extdr/mdgassessment.pdf) estimates that the additional official development assistance required to meet the health goals is in the range of US$20 billion to US$25 billion per year, which is roughly four times the current amount of official development assistance spending for health in 2002 (US$6.5 billion) and three times all external financing, including that of foundations and loans from multilateral sources (see chapter 13). The dramatic shortfalls in resources required to achieve the MDGs were emphasized during the 2002 Monterrey Conference on Financing for Development, which brought significant attention to issues concerning the estimation of the cost of achieving the health MDGs.
Another analysis conducted by the Commission on Macroeconomics and Health (2001) of the World Health Organization estimated that an additional US$40 billion to US$52 billion annually would be required until 2015 to scale up the coverage for malaria, tuberculosis, HIV/AIDS, childhood mortality, and maternal mortality (Kumaranayake, Kurowski, and Conteh 2001). A third study using the production frontiers approach estimated that between US$25 billion and US$70 billion of additional spending was needed to bring poorly performing countries up to the level of high performers (Preker and others 2003). A fourth study prepared by the World Bank for the Development Committee estimated at least US$30 billion annually in additional aid was needed to accelerate all the MDGs, including health (Development Committee 2003). Whatever the method of analysis, all global estimates show that reaching the MDGs will require significant additional resources compared with the current levels of funding for health.
Cost of Achieving the MDGs in Countries
Global estimates of what it costs to achieve the health MDGs are not very useful for countries wanting to plan and budget in order to reach the MDGs. The substantial range of estimates between US$20 billion and US$75 billion per year to achieve the MDGs at a global level has led to debates over the most appropriate costing method for country-specific analysis and to the development of new costing methodologies for obtaining consistent and reliable estimates to use for policy dialogue and decision making at the country levels. Some of the methods are summarized in box 9.2.
[Box 9.2]
Preliminary Country Cost Estimates
Table 9.2 provides a set of preliminary country-level estimates for the cost of removing bottlenecks and accelerating progress toward the health MDGs (MBB method) and for the cost of achieving the health MDGs (Millennium Project tools) in selected countries. The estimates are presented for illustration of orders of magnitude and should not be used for intercountry comparison.
[Table .]
Financing Extra Health Spending
The additional resources needed to reach the MDGs are large at both country and global levels, as discussed in the previous section. The key question is how to finance the extra spending that is needed.
Encouraging Risk Pooling Rather Than Out-of-Pocket Spending
Health spending can be broken down into three categories:
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private (out-of-pocket expenditures and private insurance)
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public (financing from general revenues and social insurance contributions)
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external sources (development assistance).
Private spending absorbs a larger share of income in poorer countries. In low-income countries, it absorbs a larger share of GDP, on average, than domestically financed public spending. In low-income and lower-middle-income countries, it invariably means out-of-pocket expenditures rather than private insurance (Musgrove, Zeramdini, and Carrin 2002). This situation leaves many near-poor households heavily exposed to the risk of impoverishing health expenses. The risk is clearly greater the poorer the country, because poorer countries tend, on average, to have larger shares of poor people (World Bank 2000). Governments thus have a major role to play in helping shape effective risk-pooling mechanisms, in addition to increasing their own spending and targeting it to services for the poor that will have a large positive effect on the MDGs.
Getting Governments to Spend What They Can Afford
Government spending is an important part of the picture, and the issue is how much they can afford. Unlike private spending, government spending as a share of GDP is higher in richer countries. However, at any given per capita income, a surprising amount of variation occurs across countries in the share of GDP allocated to government health programs. Countries that appear able to spend similar shares of GDP on government health programs end up spending quite different amounts.
How can extra domestic resources be mobilized if countries are spending less than they can afford? Domestically financed government health spending comes from general revenues, social insurance contributions, or both. The amount of general revenues flowing into the health sector is the product of the amount of general (tax and nontax) revenues collected by the government (the general revenue share) and the share of general revenues allocated to the health sector (the health share of government spending) (Hay 2003). Low government health spending could be attributable to either share or both shares being low. In poorer countries, both shares are typically lower than they are in richer countries. However, differences exist across countries that cannot be explained by per capita income alone.
Countries need to ascertain whether their low spending is caused by unduly low general revenues or by unduly low allocations to health and explore ways of making appropriate adjustments. Bolivia managed to raise its general revenue share consistently in the 1990s as the result of a sustained reform process begun in 1983. The health sector there has been one of the beneficiaries of this growth of tax revenues: government health spending as a share of GDP grew at an annual rate of nearly 10 percent in the 1990s.
Although raising domestic resources takes time, countries that can apparently afford to spend more out of their own resources should be encouraged to start the process. Development agencies have a role here—in providing technical support of tax reform, in helping develop government commitment to health in public expenditure allocations, and in giving financial assistance, both to ease the adjustment costs and to provide support while the gap is being closed between current and affordable spending.
Recognizing the Limits of Development Assistance
Official development assistance tends to account for a larger share of government health spending in poorer countries. Development assistance for health is especially important in Sub-Saharan Africa. Twelve countries in Sub-Saharan Africa had external funding exceeding 35 percent of total health expenditures in 2000 (World Bank 1998).
Increased development assistance is needed to achieve the MDGs. Development assistance, however, is not without its drawbacks. Many donors require that assistance be kept in parallel budgets outside the ministry of finance, which risks undermining government efforts to appropriately plan and target expenditures. Such off-budget expenditures make it difficult in some countries to properly target resources to particular interventions, geographic locations, or population groups, even though such targeting may be essential for improving the effect of expenditures on outcomes and the probability of reaching the health goals. Donors often require recipient governments to maintain separate accounts and to provide separate progress reports, thereby increasing the administrative burden on weak health ministries. Most important, donor commitments of expenditures in health are short term, whereas the needs are permanent. Thus, any external financing must at some point be substituted with additional domestic revenues or expenditure reallocations. This substitution or transition to domestic sources of funding has typically been difficult to achieve, leading to a dropoff in effort in important health programs, such as immunizations and reproductive health services.
Consensus on how to improve aid effectiveness is growing among development partners, and partners at the High Level Forum on Health MDGs (http://www.hlfhealthmdgs.org). This agenda includes supporting countries in developing more MDG-responsive Poverty Reduction Strategy Papers, tracking resource flows, strengthening monitoring and evaluation, and more effectively dealing with the human resources crisis in health. Effective monitoring can help ensure that increased external funds do not simply lead to reduced domestic financing (the fungibility problem) but actually boost overall spending for health. In concert with moves affecting all development assistance, donors and governments are trying to see that in the health area external funds are pooled and that ministries can use a common management and reporting format. In addition, a research agenda to support acceleration toward the health MDGs is being proposed; it needs to focus on how to translate knowledge into action and on how to remove health systems constraints to scaling up coverage of cost-effective interventions that are available but do not reach those who need them (Claeson and others 2004; Task Force on Health Systems Research 2004).
Notes
1. Intervention in this chapter refers to the direct action that leads to prevention or cure.
