With the Addis Financing for Development Conference just around the corner, domestic resources and public spending have been thrown back into the spotlight. Governments will be focusing on how best to plug the financing gaps that, 15 years after the first development goals were endorsed, still create a barrier to the universal provision of basic public services in some of the world’s poorest countries.

Take health services: with an astonishing 88 countries still "seriously off target" to meet the Millennium Development Goal for improving maternal health and a harrowing 77 countries nowhere near reducing their child mortality rates, the sector—and its funding—is under increasing scrutiny. Many low- and middle-income countries suffer from the double burden of low financial capacity and high mortality and morbidity rates, resulting in a vicious cycle of unmet resource need. While international aid can help alleviate this need in the short-term—as noted by World Health Organisation (WHO)—government spending still remains critical to achieving universal coverage that is truly sustainable.

The importance of domestic spending was recognised when African Union countries met in Abuja in 2001 and pledged to increase funding for health to at least 15% of total public expenditure.  Fourteen years on, however, just six of the original 57 Abuja signatories have met this target and the question of how to increase the budgetary envelope for health remains a pressing priority.  Yet it’s one we need to address if we are serious about meeting the third proposed Sustainable Development Goal: ensuring healthy lives and promoting wellbeing for all. 

Innovative financing methods

With this in mind, it’s encouraging to see the  outcome document for the Addis conference emphasising the use of additional "innovative" domestic finance for health. An increasingly hot topic within the development community, innovative finance refers to any non-conventional, previously unexplored source of public funds, such as special levies on airlines and alcohol or taxes on tourism, carbon emissions and financial transactions. Nationally, a number of African countries have successfully implemented such methods to raise revenues earmarked for tackling HIV and AIDS.

Despite their allure, however, it’s important to remember that innovative financing methods are just one part of the domestic financing mix. We mustn’t ignore less glamorous—but equally important—approaches to raising public revenues.

While the revenue potential of innovative financing methods varies widely across different member states of the Southern African Development Community (SADC), they can generate up to 0.5% of GDP for health in any given country. As the equivalent of 5% of GDP is widely considered the minimum expenditure necessary for ensuring national coverage of basic health services, it’s clear that governments will also need to look to other, more traditional sources to plug their funding gaps.

Exploring other options

What are the other options? Perhaps one of the most over-looked, yet effective ways of creating fiscal space for healthcare is through efficiency improvements. Though notoriously hard to measure in monetary terms, inefficiencies in service delivery can amount to significant revenue leakages—both on the demand side and on the supply side. The WHO highlights the use of branded drugs, inappropriate hospital admissions and the poor geographical distribution of health workers as just some of the causes of this "haemorrhaging". In SADC countries, efficiency savings could raise more than US$300 per capita by 2025– or around 10% of the region’s GDP.

Debt is also an option. Although there are no widely known examples of countries borrowing specifically for basic health programmes, the potential does exist—especially in countries such as Botswana where the debt-to-GDP ratio is low enough to allow for sustainable levels of borrowing over a long period of time.

Governments can also look at tapping into their existing sources of finance, increasing their more traditional tax base and diverting the revenues to health. Ghana has been leading the way in this regard, being the first African country to earmark increases in value-added tax for its national health insurance scheme.

Finally, and perhaps, crucially, aid still has an important role to play in some health financing strategies. In fact, the only way that low-income states with high disease burdens will realistically create enough fiscal space to offer a basic package of healthcare services to their entire population is through increased contributions from international donors.

There’s no one-size-fits-all silver bullet: in most low- and middle-income countries, no single intervention, however innovative, will create enough fiscal space to plug the funding gap on its own. Moreover, while universal health coverage is a national-level goal for most states, health financing remains a global issue, with donor countries continuing to play an important role as part of a holistic financing strategy. We must consider all the options.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Economist Intelligence Unit Limited (EIU) or any other member of The Economist Group. The Economist Group (including the EIU) cannot accept any responsibility or liability for reliance by any person on this article or any of the information, opinions or conclusions set out in the article.