Smooth and Predictable Aid for Health

I just read this fairly interesting article on global health financing.

Smooth and Predictable Aid for Health: A Role for Innovative Financing? - Brookings Institution

The paper's thesis is that financial aid flow to developing world health sectors are volatile - the terms of making and delivering future commitments of financial aid from donors to donor recipient is uncertain, and therefore makes it poorly suited to fund recurrent health care costs. In english - Cameroon might get $120M one year in aid and $20M in aid the next year, making it hard to know when to buy vaccines, when to invest in human capital, etc - without a predictable flow, health ministers have a hard time allocating funds to projects to ensure they are sustainable.

Another interesting observation in the paper is that when external aid falls in a country, internal expenditures in health fall to an even greater extent. For example - if external aid falls 10%, the country's government will spend 15% less of its own budget on health than the previous year.

The paper argues that there are opportunities to use interesting financial vehicles to smotth out aid flos to make them more predictable. The author suggests that the potential (1) smoothing of irregular aid commitments through securitization of aid receivables; (2) health endowment funds; (3) a swing donor facility; and (4) a “health debit card” for financing shortfalls.

Financial tools have become increasingly sophisticated, and I like the idea of securitizing and creating financial cushions that can help smooth aid flows for countries that have reliable financial and health track records. This is happening already, but I have to imagine not as much as could happen to prevent these unfortunate consequences.