External Sources for Health Care

External sources account for 8 per cent of health spending in low income countries and less than 1 per cent in middle income countries. Studies focusing on examining the effectiveness of health expenditure received from donor countries record a range of effects: from no impact to limited impact and to impacts limited to specific interventions. The association of stronger institutions and higher investments in other health related sectors (e.g. education and infrastructure) to improved health outcomes is established by many studies. While the impact of developmental assistance on under-five mortality is found to be direct, that on maternal mortality is indirect. The latter is linked to government health spending (through budgetary support). A study of 14 countries receiving development assistance for health has found that 30 per cent of external aid was not reflected in the balance of payments (BoP), while another 20 per cent entered the BoP but not through government budget. Of the remaining 50 per cent, only 20 per cent was routed through general budget support.

The off-budget nature of a significant amount of external aid, the exclusion of much aid from the BoP etc., are, however, considered essential features in funds management. Such flexibilities are needed for the recipient countries to implement their country-owned programmes effectively. Referred to as ‘aid’s fungibility’, such features of fund’s management/accounting, is described to imply that governments may divert domestic resources to other uses in the presence of donor funding in areas like primary healthcare.

Although at one level flexibility features in accounting practices are considered essential, concern on the future implications of budgetary shortfalls have also been raised. For instance, it is pointed out that analysis must take into consideration that higher levels of spending in a sector, when financed from external grant flows, may have a ripple effect on spending in other sectors. As grant financing may not be available for those sectors, the demand needs to be met through internal resources. Also, increases in expenditures at a point of time may need to be limited as funds may not be available to cover the increased expenditures when grant financing becomes unavailable at a later time point. Changes in accounting practices cannot, by themselves, create additional scope for expenditure by providing increased fiscal space. In the light of these possibilities, it is necessary that fiscal analysis at the country level must take into consideration the spill over effects of expenditure decisions. This can be done either by strict adherence to ‘sector expenditure ceilings’ or by meeting the additional offshoot expenditures through internal financing.