From Raj Nallari and Breda Griffith's lecture notes on Economic Policies for Poverty Reduction.
Source: World Development Indicators
Despite the very real challenge from AIDS, which has undone earlier progress made in health in some regions (exhibit above) the challenges to improve health indicators further are not insurmountable. CMH note that the “epidemiological evidence conveys a crucial message: the vast majority of the excess disease burden is the result of a relatively small number of identifiable conditions, each with a set of existing health interventions that can dramatically improve health and reduce the deaths associated with these conditions”.
While corruption, mismanagement and a weak public sector do hinder improvements in health, the basic factor is that the poor simply lack the financial resources to obtain coverage of essential interventions. CMH (2001) estimated that the cost of these health interventions would amount to between US$30 and US$40 per person per year to cover essential interventions including those needed for AIDS. Average health spending in least developed countries is approximately US$13 per person per year in total health expenditures of which budgetary outlays are US$7 (average health spending in high income countries is at least US$2000 per person per year). More efficient and greater resource mobilization among poor countries will not bridge the gap in financing and donor finance is needed. CMH (2001) suggests a scaling up of health investments would require US$27 billion per year in donor grants by 2007. Currently US$6 billion is being provided.
As noted in previous postings, the macroeconomic impact of rapidly scaling up aid flows may generate inflation, macroeconomic instability, increase the debt burden where the aid comes in the form of loans rather than grants, and short-term volatility in the exchange rate and interest rate. In particular, where aid is used to purchase local goods and services, their costs may rise faster than their supply. This issue would affect the health sector where “local costs are typically 70-75 percent of total spending and where the number of skilled staff cannot be increased quickly” (WHO). However, not increasing aid is not an option. Moreover, in an environment in which aid flows are predictable and persistent, where timing of disbursements matches national budget cycles and where the country has already initiated improvements in health and macroeconomic stability should make for fewer problems with a scaling up of aid. In addition, increased aid inflows may target other sectors—road construction and sanitation—that indirectly affect health and that have less potential for inflationary and macroeconomic instability.