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

Abstract

This paper presents evidence that aid flows to the health sector are volatile in terms of observed outcomes and uncertain in terms of making and delivering future commitments. The aid is therefore poorly suited to fund recurrent costs associated with achieving the Health Millennium Development Goals, particularly funding of Primary Health Care (PHC) facilities that are key to achieving maternal and child health goals. Recent aid financing innovations have begun to address some of the inadequacies of the health aid architecture through more stable and long-term financing for health. These represent a small though rising share of aid. Additional financing mechanisms that could contribute to more stable and predictable flows are proposed in the context of funding integrated PHC: (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. To be effective, these mechanisms would need to complement ongoing efforts to improve the efficiency of interactions between donors and recipients in the disbursement of aid through greater transparency in aid transactions and mutual accountability in defining aid objectives.