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As external support plateaus and debt burdens rise, sustaining core health entitlements will require governments to expand fiscal capacity, rethink spending priorities, and build political coalitions for reform
Image Source: Freepik
A recent World Bank report, At a Crossroads: Prospects for Government Health Financing Amidst Declining Aid (At a Crossroads henceforth), appears at a moment when global health spending is under visible strain. It reveals a divergence that threatens to leave the world’s poorest populations behind. It asks a blunt question that matters for low-income countries (LICs) and lower-middle-income countries (LMICs): who will pay to keep health systems running as external support plateaus or falls away?
The convergence of debt distress, geopolitical fragmentation, and inward-looking policies in donor nations has created a perfect storm. For some LMICs, projected economic growth and domestic revenue mobilisation could, in principle, offset part of the decline in external assistance for health. Yet once the numbers are set alongside recent evidence on development assistance for health (DAH), the balance looks far more fragile.
The report is the first in the World Bank’s annual Government Resources and Projections for Health series, combining macro-fiscal projections with baseline government health expenditure to trace likely paths to 2030. Its starting point is that domestic public spending already carries most of the weight in LIC and LMIC health financing. Grants and concessional loans form only a small share of government health budgets in most of these countries, with a few low-income and fragile states constituting exceptions.
It asks a blunt question that matters for low-income countries (LICs) and lower-middle-income countries (LMICs): who will pay to keep health systems running as external support plateaus or falls away?
This picture is consistent with recent WHO global health expenditure updates, which show domestic government spending dominating total health expenditure even in many LMICs, while DAH has stopped growing and is declining in relative terms. Read together, these sources make it difficult to frame health financing debates simply as more-aid-versus less-aid.
At the same time, the report is clear about the risks associated with the current aid environment. WHO has described the present period as the “greatest disruption” to global health financing in memory, as major donors cut contributions and WHO itself faces proposals to reduce its core budget by more than one-fifth. The United Kingdom’s reported decision to cut its contribution to the Global Fund to Fight AIDS, Tuberculosis and Malaria by 15 percent for the 2027–29 cycle, from £1 billion to £850 million, is one prominent example of this cooling of support for multilateral health funding.
At a Crossroads asks whether, under these conditions, domestic health budgets in low-income countries (LICs) and LMICs can rise fast enough, and be used well enough, to sustain even a basic set of entitlements. Its answer is cautious. Without deliberate fiscal and political choices, many LICs remain on a spending path that leaves per capita government health outlays at very low levels by 2030, far below what is needed to fund an essential package of services.
The report’s projections sit alongside a growing body of work on DAH and domestic spending. A recent Lancet article by Apeagyei and colleagues tracks DAH from 1990 to 2030 and finds that reductions in assistance from historically large donors risk widening health disparities unless domestic resource mobilisation accelerates and existing spending is used more efficiently. A complementary review in BMJ Global Health by Xie and co-authors examines DAH in transition and documents what happens when countries cross income thresholds: external support often falls sharply, and the adjustment to domestic budgets is often a path marked by uncertainty.
On the domestic side, a Lancet Global Health meta-analysis by Lastuka and colleagues covers 201 countries between 1995 and 2022, estimating health-care inefficiency as the gap between actual health-adjusted life expectancy and what could be achieved at each country’s level of spending. The study finds that inefficiency declined steadily until 2019, worsened during the pandemic, and has since only partly reversed. Better governance and a higher share of pooled government financing, as opposed to fragmented aid or out-of-pocket spending, are associated with more efficient resource use.
At a Crossroads makes several points that are particularly important for LICs and LMICs. One is that the binding constraint in many countries is fiscal rather than technical. A substantial group of LICs still collects taxes amounting to less than 15 percent of GDP, a threshold widely cited as a minimum for sustaining core social spending.
Against this background, At a Crossroads makes several points that are particularly important for LICs and LMICs. One is that the binding constraint in many countries is fiscal rather than technical. A substantial group of LICs still collects taxes amounting to less than 15 percent of GDP, a threshold widely cited as a minimum for sustaining core social spending. Without broader, progressive revenue reforms, there is simply not enough public money available for health, education, or social protection, regardless of how well ministries of health design their plans.
Another is that the composition of public budgets matters. The report shows that in some LICs, a modest but sustained increase in health’s share of total public spending can, over a decade, alter the long-term picture. It is not only the volume of resources that counts, but also the priority attached to health within constrained budgets.
Finally, the report resists treating efficiency as a purely technical issue that can be dealt with after financing questions are settled. Global evidence makes clear that inefficiency is evident in underused facilities, poorly targeted subsidies, and the neglect of primary care, public health and frontline workers. When both aid and domestic fiscal space are under pressure, these misallocations have sharper consequences for equity and outcomes.
For policy communities in LICs and LMICs, the report points to two difficult but necessary conversations. One concerns the terms on which external partners support domestic health strategies. Recent DAH research shows that poorly managed aid transitions can destabilise essential programmes, particularly where systems are fragile and fiscal space is narrow. As donors retrench, there is a responsibility to be more transparent and predictable, and to align remaining funds with national plans rather than shifting risks onto governments and communities that have little room to manoeuvre.
The other conversation is domestic. In many countries, health is still treated as a residual sector, crowded out by debt service, subsidies, and security spending. Human Rights Watch and others have begun to highlight the distributional consequences of this underinvestment, documenting how low levels of public spending translate into harmful implications for access and equity.
Here, the emphasis in At a Crossroads on government health spending as a share of total public expenditure, and on how that money is allocated across levels of care, matters as much as the forward projections. When health is recognised as part of the core social contract rather than a discretionary line item, the politics of taxation, earmarking, and reprioritisation begin to look different.
Furthermore, the fiscal conversation must expand beyond the health ministry. The case for "health taxes,” or heavier taxes on tobacco, alcohol, and sugar, is stronger than ever. These are not to be seen as mere revenue generators but public health interventions that reduce the long-term burden of non-communicable diseases. Yet, the political economy of implementing such taxes remains fraught, requiring health leaders to build coalitions with finance ministries and civil society to overcome industry opposition.
India enters the report almost as an outlier. For large emerging economies such as India, external grants and concessional loans form a negligible share of government health expenditure. The World Bank’s analysis, in clear terms, indicates that reductions in aid volumes will have little direct effect on India’s aggregate health spending.
For LICs and LMICs more broadly, this recent World Bank report is best read as an early warning. The period in which rising aid and modest domestic co-financing could deliver incremental gains is coming to an end.
Other assessments point in the same direction. The PHSSR (Partnership for Health System Sustainability and Resilience) country report for India, prepared by the Observer Research Foundation (ORF) in 2024, found that more than one-third of total health spending still comes from out-of-pocket payments. The main levers for change lie in domestic public financing, infrastructure investment and governance reform, not in aid flows. In that context, At a Crossroads is a reminder that India’s health future will be shaped primarily by its tax system, intergovernmental fiscal transfers, and budgetary choices rather than by the size of its aid envelope, which keeps shrinking.
The report remains relevant for India for other reasons as well. India’s development cooperation with other countries in the Global South is expanding. A clearer sense of the fiscal and aid constraints facing LICs can help design steadier, more partnership-oriented health cooperation, particularly in neighbouring and African countries exposed to DAH cuts. The turbulence documented in the report will also affect multilateral institutions central to India’s own health security, from the WHO to the Global Fund. The combination of fiscal realism and long-term health-system vision that the report argues for aligns closely with the trajectory outlined in the PHSSR India findings.
For LICs and LMICs more broadly, this recent World Bank report is best read as an early warning. The period in which rising aid and modest domestic co-financing could deliver incremental gains is coming to an end. What follows will depend on how countries choose to tax, spend and govern, and on whether a different, more stable form of global health solidarity can be built in time.
Oommen C. Kurian is Senior Fellow and Head of the Health Initiative at the Observer Research Foundation.
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Oommen C. Kurian is Senior Fellow and Head of the Health Initiative at the Inclusive Growth and SDGs Programme, Observer Research Foundation. Trained in economics and ...
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