A Looming Crisis of Public Finances Spells Trouble for Universal Health Coverage in Low- and Middle-Income Countries

During the COVID-19 pandemic, health spending⁠—domestic and external⁠—increased in most low- and middle-income countries (LMICs) (136 countries), as governments sought to mitigate the devastating impacts of the pandemic on health and the economy. To give one example, the cost of the health response in Burkina Faso was equivalent to a 43 percent increase in the country’s health expenditure, using 2018 as a baseline. This was one of the largest single-year increases in health sector resources seen in several decades. Development Assistance for Health (DAH) also increased significantly: in 2020, an estimated $13.7 billion or 35.7 percent increase compared to 2019 was targeted in response to the pandemic. These resources were essential to mounting a response at the country, regional and global level–and for the world to move towards a recovery phase.

However, as the world faces multiple crises and the economic and health scars left by the pandemic are still evident, it is clear that governments are unlikely to sustain pandemic-era health spending increases in this recovery phase.

Failure to cope adequately with the new fiscal realities is likely to stunt recovery from the pandemic by harming the present and future provision of essential health services, further delay the progress and attainment of health-related Sustainable Development Goals, increase the burden placed on households through greater out-of-pocket payments, and undermine global health security efforts that will leave the world vulnerable to emerging pathogens. This will result in loss of life and increased poverty and disability, especially within marginalized and vulnerable populations who will likely bear the brunt of the crisis. If countries embark on fiscal tightening (in absence of external financing) to make their debt more sustainable, budgets are likely to come under further pressure with consequences for long-term growth.

This blog discusses the main drivers of fiscal pressure and type of policies that relieve such pressures in LMICs to mitigate their negative impact on health.

The main drivers of fiscal pressure

Fiscal pressure (in the health sector) occurs when “per capita levels of public spending on health do not rise to meet increased demand for health services or fall while demand remains stable or increases.” This is what we are starting to see in many LMICs and it is attributable to the following factors:

What policy options are available to countries?

It is essential that LMICs align their plans and discourse around universal health coverage (UHC) with this new reality; and the global health community can support LMICs in navigating challenges.

First, it will be essential to map out policy levers in the context of LMICs. A big effort was carried out by Thomson and colleagues in Europe to address the global financial crisis of 2008, but the results may not be transferrable for LMICs. From literature reviews, we roughly map out LMICs’ options from the perspective of public finances. Example policy options are shown in the red boxes (the list is not exhaustive):

Dealing with lower economic outputs compared to pre-pandemic: framing the impact from the perspective of public finances


In blue, the chain of events in the absence of policy intervention; in red, policy tools

Each option should be reviewed using key criteria such as feasibility, relevance, and potential fiscal space generated for LMICs. A recent study showed that 70 percent of budgetary space for health is driven by overall expenditures and 30 percent by the share of budget allocated to health. The growth of overall expenditures depends on revenue collections, borrowing and external grants. Those estimates shouldn’t underestimate the role of the Ministry of Health: in particular, strengthening public finance management practices (e.g., working towards full budget execution, reducing unnecessary funding by exploring flexible budget structures) is in the current climate one of the most effective way to expand existing budgetary space for health. Reforms towards better public finance management will also result in more comprehensive, effective, and balanced budgetary dialogues between health and finance authorities.

In general, a focus on essential services will need to be adopted in the short run, in countries poised to see their health budgets decline in real terms. One policy option to consider is the deprioritization or disinvestment in services that are deemed low value or simply non-essential. A recent paper discusses how such policies are often widely contested by the general public, and need to be supported by a strong evidence base, which takes time and resources. This may be a challenge, especially as the approval ratings for governments have been shaken by the recent crises, and the appetite for such unpopular measures will undoubtedly be low.

Systematically reviewing and learning from country experience and best practice from the recent pandemic, as well as the management of past crises is essential. Some LMICs may have already initiated thinking on this topic, others will have already implemented policies during the pandemic to cope with the demands of COVID-19 care on their already overstretched health systems. For instance, countries in Latin America and the Caribbean have experienced high levels of pressure on their healthcare system; stemming from the high burden of COVID-19 and disruptions in routine health services, as well as the enormous social and economic impact of the crisis. Documenting those can support learning at the country level and will also hold lessons globally.

Finally, health ministries at this juncture cannot overlook policies that are crucial for curtailing inefficiencies in the health system. Of course, the question arises whether they should keep the resulting savings. Certain conditions can help health ministries in this regard, thereby increasing their budget space. The resource base for the health sector should expand as tax compliance with the existing tax regime improves after the public sees an improvement in public services.

A recovery that works for all countries

There is a widespread agreement that even in the most optimistic scenarios of global recovery, most LMICs will experience fiscal pressures and will need support to contextualize the different policy options available to their own systems and fiscal challenges. An ambitious research and learning agenda combining approaches from public finance, health systems and political economy will be vital to address this gap.


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.