When Every Dollar Counts: Why Budget Execution Reform is Urgent for 37 Countries Facing US Aid Cuts

In a dramatic shift in U.S. foreign aid policy, the Trump administration eliminated approximately 83 percent of the U.S. Agency for International Development’s programs, with 37 low- and middle-income countries (LMICs) particularly affected. According to a recent CGD blog, these countries are considered “highly exposed,” losing $4.9 billion in bilateral health aid.

For many of these countries, U.S. global health aid has played a significant role relative to domestic health financing (Figure 1). In 20 countries, U.S. assistance equaled more than 10 percent of domestic health expenditure. The most exposed countries included Afghanistan, where U.S. health aid amounted to more than 300 percent of domestic health expenditure, followed by Yemen (69%) and Liberia (41%). In countries such as Uganda, Malawi, and Haiti, U.S. support made up between 30–38 percent of domestic health spending. Even in relatively less exposed countries like Rwanda and Myanmar, U.S. health aid equaled 6–9 percent of domestic health expenditure.

Figure 1. U.S. health official development assistance as a percentage of domestic health expenditure

The void left by the United States is unlikely to be filled by other donors. The United Kingdom’s recent reduction in official development assistance (ODA) from 0.5 percent to 0.3 percent of gross national income is driven by a shift toward increased defense spending amid evolving geopolitical dynamics. Similarly, France and Germany have also scaled back their aid budgets in recent years and may implement further cuts due to growing pressure to boost military expenditures, in the presence of rising health and pension outlays. As a result, LMICs that previously relied heavily on U.S. health aid are likely to experience significant declines in the availability and quality of health services.

This blog post argues that countries experiencing a decline in donor assistance can expand their budget space for health by focusing on strengthening their budget systems. While these efforts may not fully compensate for the loss of external funding, they can still generate additional resources for the health sector at this critical juncture —recognizing that the impact of budget system reforms will materialize gradually.

The case for budget execution reform

Given the magnitude of these aid cuts and the significance of their budgetary implications, how countries spend their existing allocations becomes even more important. A joint report by the World Bank and the World Health Organization (WHO) found that LMICs underspend their approved health budgets by an average of 13 percent, amounting to an annual loss of $4 per capita, measured in constant 2020 international dollars. This under execution of existing budgets is especially concerning in the context of diminishing external support.

Even when health budgets are approved, delays or inefficiencies in execution often prevent funds from translating into actual services—leading to stockouts of medicines, unpaid health workers, and deteriorating infrastructure. It is therefore vital for countries to identify and address the most acute weaknesses in their budget systems to maximize the impact of existing allocations. These reforms will require technical and financial support from international institutions to be effective and sustainable.

Analyzing budget execution weaknesses

To better understand the challenges of budget execution, we analyzed country-level budget systems using the Public Expenditure and Financial Accountability (PEFA) Framework—a standardized methodology for assessing the strengths and weaknesses of a country’s public financial management (PFM) systems. The PEFA framework has been applied in over 155 countries, many of which have undergone multiple assessments over time. The latest version of the framework, introduced in 2016, includes 31 performance indicators that assess core public financial management functions. From these, we identified 19 specifically related to budget execution. Each indicator is scored from A (strong) to D (weak); for analytical purposes, we converted these to a numeric score ranging from 4 to 1. To ensure comparability across countries—particularly where some indicators were missing or not rated—we normalized the scores and calculated an average execution score to serve as a standardized performance benchmark. While PEFA assessments evaluate PFM systems across all government ministries, for the purposes of this analysis, we assume that the ratings are broadly reflective of conditions within ministries of health.

Table 1. PEFA Execution Scores

Figure 2. Median score for PEFA budget execution indicators

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*For each median score tier, the indicators are sorted by the number of weak (D and D*) scores. A “D” score indicates performance below the basic level. A “D*” score also reflects performance below the basic level but specifically indicates that there is insufficient information to determine whether a higher score is warranted.

Figure 2 illustrates the distribution of median PEFA across 19 budget execution indicators for the 33 identified countries. The variation in scores highlights specific areas of concern. Indicators such as timely in-year budget reports, procurement monitoring, and procurement methods exhibit the lowest median scores—indicating persistent challenges in timely financial reporting and the effectiveness of procurement processes.

Figure 3. Relationship between budget execution scores and domestic health spending (% of GDP)

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Figure 3 examines the relationship between domestic general government health expenditure (as a percentage of GDP) and PEFA budget execution scores. The trend line suggests a weak positive correlation—countries with weak budget execution systems tend to allocate less of their budget to health, further constraining the sector’s financial capacity. For instance, countries such as Haiti and Nigeria exhibit both low execution capacity and minimal domestic health spending. Even for countries such as Malawi and Mali, which allocate relatively more to health, there remains significant potential to expand budget space for health through improved budget execution.

To better understand where improvements in budget execution are most urgently needed, we focus on the subset of countries with normalized execution scores below 2.5, as displayed in Figure 4. Compared to the broader sample of countries, this group shows consistently lower performance across nearly all budget execution dimensions. While the general sample had median scores of 3 or higher in several areas, countries with weaker execution rarely exceed a median score of 2.

Figure 4. Most acute budget execution weaknesses in countries with execution score < 2.5

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The most critical weaknesses in budget execution in countries with relatively low scores are found in core operational areas such as payroll management, procurement monitoring, and internal controls. These weaknesses are particularly concerning because they directly undermine the government’s ability to deliver health services reliably, efficiently, and transparently. For example, low scores in procurement monitoring and internal control raise concerns about the effective use of public funds including diversion of funds from health, while weak payroll systems can lead to delayed or inconsistent payments to health workers—impacting service delivery and staff motivation. In contrast, certain PFM functions—such as revenue collection, procurement complaints management, and cash forecasting—perform relatively better, even in low-performing countries. This suggests there are institutional strengths that can serve as entry points for broader reform. However, the stark performance gap between this subset of countries with weaker scores and the broader group of 37 countries underscores the urgent need for targeted reforms with external technical support.

Several international financial institutions, including the International Monetary Fund and World Bank, are actively providing technical assistance to countries currently facing reductions in donor health funding, with a focus on strengthening their overall PFM systems. Targeted support for improving budget execution within ministries of health would be especially valuable, given that the World Bank/WHO report suggests that ministries of education do not face similar execution challenges.

We wish to thank Sailendra Pattanayak for helpful discussions and Benedict Clements for insightful comments.