With rigorous economic research and practical policy solutions, we focus on the issues and institutions that are critical to global development. Explore our core themes and topics to learn more about our work.
In timely and incisive analysis, our experts parse the latest development news and devise practical solutions to new and emerging challenges. Our events convene the top thinkers and doers in global development.
Economic development, institutional analysis, health systems, corruption, evaluation
Bill Savedoff is a senior fellow at the Center for Global Development where he works on issues of aid effectiveness and health policy. His current research focuses on the use of performance payments in aid programs and problems posed by corruption. At the Center, Savedoff played a leading role in the Evaluation Gap Initiative and co-authored Cash on Delivery Aid with Nancy Birdsall. Before joining the Center, Savedoff prepared, coordinated, and advised development projects in Latin America, Africa and Asia for the Inter-American Development Bank and the World Health Organization. As a Senior Partner at Social Insight, Savedoff worked for clients including the National Institutes of Health, Transparency International, and the World Bank. He has published books and articles on labor markets, health, education, water, and housing including “What Should a Country Spend on Health?,” Governing Mandatory Health Insurance, and Diagnosis Corruption.
“World No Tobacco Day” is coming again — May 31 — but instead of celebrating, I’m shaking my head at the snail’s pace of global action. Each year I learn more horrifying facts about the tobacco epidemic that don’t seem to sink into our global conscience. And until the enormity of these facts is absorbed, I have the sense that I’ll be writing another blog four years from now, just like we did four years ago, calling on the World Bank and IMF to do more about tobacco.
The number of daily smokers increased from 721 million to 967 million between 1980 and 2012 (Ng et al. 2014).
The Tobacco Epidemic is deadly
On average smokers lose 10 years of life compared to nonsmokers (Jha et al. 2013).
So the World Bank and IMF need to take stronger action
The single most cost-effective way to save lives in developing countries — raising tobacco taxes — is in the hands of developing countries themselves. However, the World Bank and IMF provide expertise to help those countries adopt effective taxes and to improve tax administration. Of even greater importance, the World Bank and IMF provide political and technical support for countries to combat misinformation and pressure from the tobacco industry. But the last prominent push against tobacco by the World Bank was in 1999. The Asian Development Bank made a high-profile push for tobacco taxes in 2012. Where are the other institutions?
The level of action against tobacco at the World Bank and the IMF is simply inadequate. To my knowledge, neither organization has a single full-time staff person dedicated to tobacco control. Furthermore, most of their tobacco control activities are supported by external foundations rather than their own administrative budgets. The IMF said it would release a policy paper on tobacco tax policies over two years ago, but the document remains unpublished. The most recent item about tobacco on the World Bank’s website appears to be outdated (once again) and is no more than a brief note. The World Bank and IMF could accelerate progress against the tobacco epidemic with a relatively small investment of time and money.
What are they waiting for?
Thanks to Albert Alwang for co-researching tobacco with me this year and to Rachel Silverman for spot-on advice.
In July, countries will gather in Addis Ababa to adopt an agreement on Financing for Development (FFD). A recently issued “Zero Draft” for an Addis Ababa Accord lays out a framework that goes beyond looking at funding sources to reaffirm the goals, principles, challenges, and policies that are required to meet the Sustainable Development Goals (SDGs).
Yet the one financing source that meets all of the FFD’s aspirations has so far been left off the table: tobacco taxation.
Omitting tobacco taxes is a big mistake because it addresses key aspirations stated in the Zero Draft to improve health and mobilize more domestic revenues. Raising tobacco taxes also addresses the document’s other proposals related to efficient regulations; official development assistance for improved tax administration; and protecting public health measures from abuse of trade agreements.
On health, the draft supports funding modalities that “guarantee social protection and essential public health services” (para. 11) as well as calling to “guarantee access to essential health care” (para. 31). Tobacco taxes are themselves an essential public-health service because they reduce the incidence of smoking-related diseases. In turn, this reduce demands on health-care systems, making it easier to address other illnesses.
On Revenue Mobilization, the draft calls for countries to raise at least 20 percent of GDP for public goods and equity-promoting policies that form the core of national sustainable development strategies (paras. 17–20). Tobacco taxes generate proportionally more health benefits for the poor than for the rich, while most of the revenues come from the rich instead of the poor. Currently, countries generate US$145 billion each year from tobacco taxes — mostly in the OECD — and spend barely US$1 billion annually on tobacco control efforts. Increasing tobacco taxes by 50 percent would raise an additional US$101 billion. Countries such as Brazil, the Philippines, and South Africa already demonstrate the health and revenue benefits of higher tobacco taxes.
On efficient regulation, the draft commits governments “to regulate harmful activities and incentivise behavioral change” (para. 15). The measures that 180 countries have endorsed in the Framework Convention on Tobacco Control are perfect examples of coherent and cost-effective measures that would fulfill this commitment — if countries were to adopt them more comprehensively.
On tax administration, the draft calls upon countries to improve the fairness of taxes and to strengthen tax administration (para. 20). It also calls for international cooperation to combat tax evasion (para. 25) and for using overseas development aid to help countries improve tax administration (paras. 19 and 58). Poor tax administration and enforcement is the only real obstacle in the way of making tobacco taxes an effective instrument for reducing smoking-related diseases and raising revenues. Harmonizing tobacco taxes regionally and strong enforcement make smuggling less attractive and give tobacco taxes more punch.
On trade policies, the draft calls for a range of measures to facilitate trade. But the document also indirectly acknowledges that some corporations try to abuse international agreements and infringe on domestic policies that address social and environmental protections. The Zero Draft calls for “governments to support and assist WTO members who use flexibilities in these agreements” to assure access to medicines and respond to climate change (para. 78). The possibility that corporations will abuse intellectual property protections and investor-state dispute settlement mechanisms is nowhere more apparent than in the anti-social behavior of tobacco companies, and the draft should specifically add tobacco control measures under the FCTC as worthy of supporting through flexible provisions.
The one place in the Zero Draft that mentions tobacco taxes places them in a category of innovative modalities (which they are) but also within a list of international taxes (which until now they have not been). Increasing participation in taxes on international financial transactions, carbon emissions, and transportation fuels (para. 62) are good ideas; but tobacco taxes should be treated as their own innovative modality — something set by domestic policies but coordinated and supported internationally.
If I could have my fondest wish, it would be for a new paragraph to be added to the Addis Ababa Accord, stating:
Recognizing that, without concerted action, tobacco consumption will lead to 1 billion premature deaths in this century; that 180 countries are parties to the Framework Convention on Tobacco Control; that proven cost-effective measures exist to reduce the prevalence of tobacco use; and that tobacco taxes are a financial instrument which is extremely effective at reducing tobacco consumption while mobilizing revenues for public action to address health and other social needs; we commit to support and assist countries in raising inflation-adjusted specific excise taxes to at least double the price of tobacco products by 2020.
But I would be happy with even a few smaller changes such as those below (additions are indicated by bold lettering; deletions are in brackets):
Para 62: We encourage additional countries to voluntarily join in implementing the agreed mechanisms and to help develop and implement additional innovative modalities, including a widening of countries participating in a financial transaction tax, carbon taxes or market-based instruments that price carbon, or taxes on fuels used in international aviation and maritime activities [or additional tobacco taxes]. We further commit to support and assist countries in raising inflation-adjusted specific excise taxes to at least double the price of tobacco products by 2020.
Para 78: “We support and will assist WTO members to take advantage of the flexibilities in the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) to further the public interest in sectors of vital importance for sustainable development, including public health, in particular to provide access to affordable essential medicines and vaccines for all [, ] and implement tobacco control measures, and responses to climate change. All countries should ensure that they provide these flexibilities in their bilateral trade and investment agreements as well.”
Para 25: “We thus commit to a global campaign to substantially reduce international tax evasion through more concerted international cooperation. We agree to work together to strengthen transparency and adopt pending policy innovations, including: public country-by-country reporting by multinational enterprises; public beneficial ownership registries; regional agreements to raise tobacco taxes in neighboring countries; and multilateral, automatic exchange of tax information, with assistance to developing countries, especially the poorest, as needed to upgrade their capacity to participate.
Para 58: An important use of ODA is to catalyze additional resource mobilization from other sources, public and private. ODA can support improved tax collection — including from taxing “bads” like tobacco and carbon — and help strengthen domestic enabling environments.
What better way to demonstrate the commitment to good governance and rational policies that promote human welfare on a global scale while generating the very resources needed to sustain that future? Yes! tobacco taxes are the perfect fit for the Addis Ababa Accord!
“Is learning the only result worth financing in education?”
That was the question posed to me at a recent World Bank debate about results-based financing in education. The question is germane because the World Bank has a large program of results-based financing in health and a new modality of Program for Results lending operations, and it is negotiating a new trust fund for performance programs in education.
Nevertheless, the question is a little bizarre since no agency is contemplating programs that would finance only learning. What I posed instead as a truly relevant and challenging question was the opposite extreme: “Why don’t we ever finance learning in education?” As strange as it sounds, aid agencies rarely, if ever, “finance learning.” I likened education aid programs to a strange football team that tracks players hired, time spent training, and time controlling the ball … but fails to pay attention to goals and wins.
The first thing to keep in mind is that World Bank programs (and those of most aid agencies and development banks) set up systems to transfer money to governments on the basis of something — typically for planned activities or inputs. So this part of the debate is not whether teachers or schools should be paid in relation to student learning but whether funding for governments should vary with improvements in learning.
The second thing to consider is how frequently debates over national education policies fail to engage on learning. When I was in Malawi in 2009, we heard a glowing presentation from the government and funders about a recently completed education sector review. It concluded the country was implementing its education strategy successfully. However, no one openly discussed the decline in enrollment over the previous two years or asked whether student learning had improved or worsened. Malawi is not unique. Education policy discussions regularly emphasize the importance of learning but rarely engage over trends in basic measures like student literacy and numeracy.
Of the World Bank projects that were presented at last week’s debate, one of them monitors whether the government’s Annual Review “reports comprehensively on … outcomes.” But there is nothing in the implementation performance report that would tell a finance minister or World Bank manager whether children who leave the program are better prepared for the next level of schooling than before. Another project tracked whether or not student achievement tests were administered but, again, had no high-level reporting on scores.
The only project presented at the debate that linked disbursements to learning measures was a recently approved project in Tanzania. The implementation status on that project tracks whether the country “has demonstrated an increase in student learning outcomes” — defined in terms of literacy and numeracy measures. The scores haven’t been reported yet. That awaits validation of the test and its application later in the program. But, as far as I know, this is the first education program at the World Bank that will draw attention of high-level policymakers to learning as a critical outcome of the education system. It should become the norm.
The World Bank’s experimentation with Program for Results modalities and linking disbursements to indicators is a welcome one. It fits with an incipient trend among aid agencies to improve management and implementation of jointly programmed operations by clarifying and focusing on milestones. But unless either (1) some of those indicators include public dissemination of test results or (2) a portion of funding is tied to changes in learning outcomes themselves — as done in the Tanzania program — aid agencies and banks will continue to finance education procedures rather than student learning.
In other words, they’ll continue to play the education program game … without knowing the score.
Recently, I sent out the final Evaluation Gap Update – a newsletter about impact evaluations and the institutions that fund them, implement them, or are supposed to be influenced by them. After 10 years, it seemed the right time to move on to other projects, particularly since numerous other resources have sprung up over this decade (many listed below!). Yet there is pushback on the growth of impact evaluations that sometimes worries me. I hear people say too many impact evaluations are being conducted (despite the need for the information they provide). I hear others claim that impact evaluations are irrelevant (based on a faulty model of how policymaking happens).
We started the Evaluation Gap Updates in 2005 to accompany the work of CGD's Evaluation Gap Working Group which concluded in 2006 with its report "When Will We Ever Learn." At that time, we documented how few impact evaluations were being conducted on public policies in low- and middle-income countries and recommended greater investment in this kind of research. Several foundations and a few aid agencies picked up the challenge to create 3ie. In this way, our work joined existing initiatives in developing countries, research centers, and aid agencies that were seeking to address the same problem. Today, more impact evaluations are being conducted than ever before.
This very success in mobilizing resources for learning has created a target for people arguing that we now have too many impact evaluations. Yet the numbers of studies are stillveryfew relative to the questions we are asking and to the myriad programs underway around the world in multiple sectors. We certainly need other kinds of studies and different approaches to policy, but the specific need for impact evaluations is still, in my view, nowhere near being met. If anything, the world needs to commit more resources to impact evaluation than it is doing today.
The other criticism that I hear is that impact evaluations are not relevant to policies. This may be true if you expect a one-to-one correspondence between a particular study and a specific decision – granted, occasionally you can find such a link. However, evaluations do not really influence policy in such a reductionist way. Rather such influence occurs through a complex process of interpretation and knowledge. Studies enter a social space of debate, along with other kinds of information, and gradually alter the frames within which people think and act. In other words, for the topics addressed by these impact evaluations, better understanding filters into discussions and from there into the minds of policymakers, agency staff, and project implementers.
Even though the evaluation gap is closing and our Updates are finished, I believe the value of impact evaluations will be increasingly recognized. In part, I recall interviewing an evaluator with many years of experience who assured me that fluctuating support for evaluations was less like a pendulum and more like a spiral – each cycle left us at a somewhat higher level of capacity and learning. I’m also hearted by the growth in the number and quality of information sources that I perused for the Evaluation Gap Updates. The following list includes links to many good newsletters, blogs and databases which I have used and which can help you stay current on this dynamic field. And you can always follow what my colleagues and I are doing at the Center by subscribing to other related CGD Newsletters and checking our CGD Policy Blogs.
In the world of international aid, performance payments are a hot topic. But when it comes to signing performance payment agreements, most funders have been reticent. One of the reasons is a fear of “Double Counting” – paying once for investments to achieve outcomes and a second time when the outcomes are delivered. This concern ignores the complexity of achieving development goals and the intangible assets invested by recipient countries. When funders do agree to performance agreements, they end up ignoring the burden on recipients of “Double Demanding” – disbursing when outcomes are achieved and then setting restrictions on the use of those funds. All this confusion gets in the way of designing effective aid programs.
“I’d rather pay twice and get the result I’m after than pay once and get nothing”
That was my reply at a conference in Oslo when asked whether performance payments lead funders to end up paying twice for an outcome – once for the technical assistance and investments and a second time when the outcomes are achieved. While I stand by that answer, I also recognize that it is an unsatisfying answer to people who believe you actually can pay once and get something.
But those who think you can pay once and get something are only thinking about small projects with relatively simple (not complex) solutions. Most performance agreements to governments are aimed at complex problems which require much more than Technical Assistance (TA) and investments that fit in a Gantt Chart. They also require the recipients to apply a lot of political, managerial and financial inputs of their own in ways that are not recognized by most project designs except as “risks” to be managed. The funder’s payments for achieving outcomes should be based on the funder’s own willingness to pay for the outcome and is better conceived as a bonus to solve political and managerial problems than something that reimburses technical assistance and investments.
Essentially Funders need to be more humble about the contribution of their investments of time and money, recognizing that the recipient country brings a lot of intangible assets to the solution. And funders need to be bolder at asserting how much they value the actual deliverable – which includes not disbursing the performance payment when there’s no performance.
So much for Double Counting. But what about Double Demanding?
Though Double Counting is a false concern, Double Demanding by funders is a real one. The new crop of performance programs which pay governments for improved outcomes should liberate funders and recipients alike from the transaction costs and design rigidities that arise when you insist on tracking exactly how money is spent.
The irony is that funders who are innovating by paying for outcomes frequently undermine this advantage by requiring that recipients track how the performance disbursements are used. Essentially they are demanding the recipient work twice as hard for each Dollar, Euro, or Pound – a Double Demand. It doesn’t look like Double Demanding because funders are so habituated to tracking the uses of funds. But performance payments are ex post, and the demand to track uses of performance payments after the outcome is achieved ignores the upfront political, managerial and financial resources that the recipient had to apply in order to deliver the outcomes.
In practice, most performance agreements that we’ve analyzed have tried to make the second demand – tracking disbursements – less onerous. DFID and the IDB achieved this in their programs by treating performance payments like sector budget support – still restricted but easier to justify and report. Norway’s agreement with Brazil for emissions reductions contributes to a fund established by the Brazilians themselves which is dedicated to rain forest projects – tied but at least tied in a form that is governed and managed by the recipient. By contrast, the Norwegian agreement with Guyana faltered in part because the institutions they needed to control and manage the use of funds were unable to satisfy typical overseas development aid restrictions. Arguably, those restrictions shouldn’t have been applied because they are Double Demanding.
Performance programs are not the solution to everything but funders will never do enough of them if they worry about problems that aren’t real – like Double Counting. Once they get past such hurdles, the performance agreements need to be designed to pay on the basis of the funder’s willingness to pay and without restrictions on the uses of funds – otherwise they’re Double Demanding.
I’m always a little anxious introducing a topic at a workshop without knowing if the presentations that follow will support or contradict my points. So it was with some trepidation that I spoke earlier this month at a SIDA workshop in Stockholm, associated with the Swedish International Development Cooperation Agency’s launch of “Results Based Financing Approaches (RBFA) — What Are They?”.
I emphasized two aspects of pay-for-results programs which I have come to see as essential to effective design and implementation:
the need to independently verify results, and
the importance of recipient autonomy.
The workshop was intended to introduce the idea of paying for results — a concept which is still unfamiliar to a lot of people working on development issues. Conventional aid programs tend to plan a series of activities and then disburse money on completion of those activities, whether or not they achieve intended outcomes. Paying for results turns this equation around and disburses funds when results are achieved. The details of the program design will vary depending on the goals, sectors, availability of information, and recipients, but the basic logic is very different from conventional approaches. In my research, I’ve come to see the independent verification of results and recipient’s autonomy to be key features of a well-designed and implemented program because these features are most consistent with the way development, innovation and progress typically occurs.
All three presentations explained why independent verification of results is essential. For one thing, the credibility of the program depends on whether or not the results are real. But more than that, the benefits of a pay-for-results program depend on recipients having feedback on how well their efforts are succeeding. If information about results is inaccurate, the feedback loop is severed and progress is less likely.
Multiple sources of independent information to verify performance of Solar Home Systems in Bangladesh, from presentation by S.M. Monirul Islam, IDCOL, on Oct. 8, 2015, in Stockholm.
The three presentations also explained how recipient autonomy is critical to success. Centralized programs can certainly encourage and support the expansion of a market for solar energy systems or the delivery of health-care services, but they cannot fully realize these aims without relying on local agency and innovation. The presenters showed how well-designed programs that pay for results opened space for exactly this kind of decentralized action and local response to feedback.
The importance of recipient autonomy highlighted by E. Schoffelen, Cordaid, on Oct. 8, 2015, in Stockholm with regard to results-based financing for healthcare in Africa.
In the discussion that followed, I noticed that the most common concerns related to the possibility of manipulating the reported results and constraining local autonomy. These are valid concerns. However, if the solar energy and health-care programs presented at the SIDA workshop are any indication of the future, new programs will increasingly incorporate independent verification and strengthen local autonomy — which bodes well for the future.
The President’s Budget Request for FY 2015 proposes flat funding for international affairs but it contains priorities and policy reversals that have led at least one observer to describe it as edgy! And indeed, it is edgy on a number of fronts, including a proposal by the Millennium Challenge Corporation (MCC) to pilot Cash on Delivery Aid (COD Aid).
If the budget proposal for MCC is approved, it will receive $1 billion in base funding, a significant increase over last year and the highest amount since FY2010. As Sarah Rose has explained, this could mean more money for eligible countries; assure that MCC will play a role in the administration’s flagship Power Africa initiative; and encourage experimentation with innovative financing arrangements. On this last point, the executive summary of MCC’s Congressional Budget Justification states:
MCC also plans to explore creative financing mechanisms in new MCC compacts to link payments more directly to development results. Such mechanisms could include pay-for- performance, cash-on-delivery or other outcome-based payment approaches that fit within MCC’s operational model. [emphasis added].
“Cash-on-Delivery” refers to COD Aid which is a foreign aid approach proposed by the Center to untangle the mixed accountability relationships of current aid modalities. Funders pay for independently verified outcomes in a hands-off fashion – say $100 for every additional 12-year-old who can read and write or $25 for every additional household with regular and reliable access to electricity. Britain’s Department for International Development (DFID) is already piloting some COD Aid programs. While COD Aid has been discussed within the US government’s foreign aid agencies and on Capitol Hill, this is the first time it has been explicitly proposed in Washington, placing it clearly on the horizon … but how far away is that horizon?
The President’s Budget Request is only the first step of a long budget process that involves dozens of Congressional committees during a year in which midterm elections will be on politicians’ minds. But that may only be a small part of the distance that needs to be covered. One way or another, MCC is likely to have enough funds to explore these innovative funding mechanisms. The real question is whether these pay-for-performance proposals will simply repackage existing grant mechanisms or truly pioneer new approaches.
The key test will come when these programs are designed.
Will they pay for outcomes or will they pay for outputs or policy changes? Most aid programs pay for inputs, outputs or policy changes. While they sometimes rename these, calling them “results,” the truth is that most initiatives link disbursements to things that are only weakly related to program goals – paying for textbooks when the goal is students with skills or paying for electricity connections when the goal is access to reliable electrical power. Linking payments to progress on the real goals, can avoid the perverse incentives that arise from trying “to complete the plan” and align incentives toward problem-solving that is focused on what everyone really wants to achieve. Focusing on measuring and responding to changes in outcomes opens space for experimentation and for developing approaches that are more consistent with context.
Will they give recipients flexibility to experiment and adapt or will they require rigid plans? Most aid programs insist on elaborate plans in the hope of ensuring that the recipient can achieve success. Yet, when such plans impose external perspectives, resist adaptation in the face of changing circumstances, or keep recipients from learning through experimentation, they are much less likely to work. For these performance programs to be different from traditional approaches and really be innovative, they need to experiment with giving recipients primary responsibility, valuing recipients’ initiative, and giving recipients full discretion.
Will they demand detailed accounting of how funds are applied or will they recognize the delivery of outcomes as sufficient evidence that money was used well? Frequently, aid agencies introduce results-based approaches by adding new demands – tracking outputs in addition to all the existing reporting required for procurement, use of funds, and auditing. While these functions are important in any public system, the demands that recipient countries follow procedures and report in ways that conform with aid agencies’ needs can be a burden. By contrast, paying for appropriately defined and independently verified outcomes actually lessens the need for tracking money.
Will they learn from other agencies who have been exploring results-based aid approaches? Britain’s Department for International Development (DFID) has programs in Ethiopia and Rwanda; the Inter-American Development Bank has a regional health program in Central America; Norway and Brazil have the Amazon Fund;and the World Bank has some interesting initiatives under its Program for Results. The different institutional arrangements, methods of verification, approaches to negotiation, and relationships demonstrate that many fears about results-based aid are unwarranted but also demonstrate a number of pitfalls and challenges for the concept. By listening to other organizations, new results-based aid initiatives can avoid old mistakes.
MCC has really broken the mold on US foreign assistance in terms of selectivity of recipients, long-term funding commitments, transparency, and one of the most comprehensive approaches to impact evaluation by any aid agency in the world. This gives me good reason to think that the horizon for creative financing mechanisms in this US agency, and a pilot of COD Aid in particular, may not be so far off.
Thanks to Erin Collinson for her inputs to this blog.
Your Excellency, Finance Minister
Director of Policy & International Affairs
October 10, 2017
World Bank Annual Meeting Tobacco Tax Event
This Wednesday, you will be attending an event on tobacco taxes at the World Bank’s annual meetings, where President Jim Kim and Mayor Michael Bloomberg will be speaking. You will be attending this high-level discussion along with about 14 other Finance Ministers. While the meeting may look routine, it is actually one of the most important you will attend this week. You will be discussing how the Finance Ministry can save more lives than the Minister of Health—by raising tobacco taxes in a way that best discourages smoking.
Documentation shows that raising tobacco taxes has always led to reduced smoking and higher revenues. However, you may recall that the last time our Ministry debated this issue, the tobacco industry lobbied you to raise taxes slowly, to be cautious about the impact on evasion, and not to penalize the poor.
The report published by the World Bank last week—Tobacco Tax Reform: At the Crossroads of Health and Development—explains why the cigarette company advice we received made our tobacco taxes ineffective at reducing smoking. Indeed, the IMF’s guidelines on this topic left us with a great deal of uncertainty about what to do. By contrast, the World Bank report is forthright in explaining how to make tobacco taxes effective by designing them to alter smoking behavior and discourage young people from starting. What we need is to “go big, go fast” (implement large increases in tobacco taxes), “attack affordability” (raise taxes with inflation, or better yet, incomes), “change expectations” (make a long-term commitment), and “tax by quantity” (for simpler administration and more effective behavior change).
The report also provides us with answers to the tobacco lobby’s deceptions next time they show up:
The poorest people in our country are the ones who suffer most from the effects of smoking—reducing their life spans and household income. They are more likely than the rich to reduce cigarette consumption when faced with these taxes, and therefore more likely to benefit.
Cigarette companies have colluded to smuggle and evade taxes in Canada and elsewhere. When we raise tobacco taxes, the World Bank report explains how we can manage the risk of illicit trade and evasion. A key part of this will be monitoring the cigarette companies closely because large-scale smuggling is difficult without their complicity.
When you meet President Jim Kim, I suggest asking him the following questions.
Will the World Bank:
make tobacco taxes a regular part of the annual fiscal policy dialogue with member countries who have signed the Framework Convention on Tobacco Control?
promote regional action to improve tax enforcement?
provide backing to resist pressure from the tobacco industry?
include increased tobacco tax implementation in our next fiscal policy loan?
It is rare for our Ministry to have an opportunity to have such a big win on population health and still raise revenues. Now that the World Bank has come out with such clear and forceful advice, it will prove much easier to do.
“For though change is inevitable, change for the better is a full-time job.”
When Adlai E. Stevenson made this statement in 1956 he wasn’t thinking about healthcare. But it is actually a good summary of historical trends in health spending, which we analyzed recently in “The health financing transition: A conceptual framework and empirical evidence” (also available here as a CGD Working Paper). It is almost inevitable that health spending will rise in most countries, but the character, efficiency and equity of that spending are something we can alter – if we take that full-time job seriously.
In the paper, we show that health spending in most countries is very likely to increase – and for some very good reasons. Most countries are experiencing rising incomes, people are living longer, and medical care technologies continue to expand. In other words, much of that money is buying more health. It is also likely, but hardly inevitable, that most of that increased spending will be channeled through taxes or insurance premiums rather than out-of-pocket. If countries work for that to happen, health spending will be less burdensome to the sick and the poor.
These two common trends – a rise in per capita health spending and a decline in the share out-of-pocket spending – comprise what we describe as a “Health Financing Transition.” Just like the demographic and epidemiological transitions, the health financing transition provides a conceptual framework for thinking about long term trends which are not inevitable but still remarkably widespread. Like these other two transitions, timing varies for different countries regarding when they start the transition and how quickly they move through it. They may even regress. Some of the determinants are influenced by economic or technological factors but others can be affected by public policy.
This can be illustrated by looking at a particular country. According to WHO, Myanmar is among the countries that spend the least on health – about US$18 per capita in 2011. It is also among those countries with the highest shares of out-of-pocket spending – over 80% of that money is paid by individuals when they are sick and need health care services rather than as insurance premiums or taxes when they’re feeling well.
Yet, Myanmar has demonstrated that it is like many countries in the way its health care spending is evolving. Even before it made its recent commitment to move toward Universal Health Coverage by 2030, Myanmar was increasing its per capita spending on health and reducing its reliance on out-of-pocket expenditures (see Figure 1).
Source: Author’s calculations from World Health Organization data.
In our paper, we showed that this trajectory is apparent among wealthy countries over the past half century and discernible in a majority of countries over a 15-year period for which data is available
The first part of the Health Financing Transition – rising per capita health spending – is extremely likely in most low- and middle-income countries for perfectly sensible reasons. More people are earning more income and as their incomes rise, they will seek out medical care that was previously unaffordable or inaccessible. The literature demonstrates that health spending is substantially driven by rising income, to a lesser degree by population aging, and additionally by some combination of prices, technologies, and institutional change. Public policies can influence how that money gets spent by regulating private providers, structuring health insurance options, or providing public health care services.
The second part of the health financing transition – the declining share of out of pocket spending – is less predictable because it depends more directly on public policy. In our analysis, the out-of-pocket share of total health spending was not related to changes in income. It was, however related to changes in a country’s mobilization of public revenues which we interpret as demonstrating the importance of public policies in reducing out-of-pocket spending. We also found a small secular downward trend in the out-of-pocket share which may reflect the ubiquity of social movements – from Ghana to Myanmar – which want to protect people from having to pay for care when they are sick and most vulnerable. Historical accounts provide plenty of evidence to support such a hypothesis.
Countries progress more rapidly through the health financing transition when the pooled share of health spending (i.e. money for health care that is paid through insurance premiums or taxes) is rising faster than out-of-pocket spending. This diagram from our paper shows that countries like Colombia and Thailand moved rapidly along this trajectory between 1995 and 2011; countries like Brazil and India moved slowly; and countries like the Philippines and Uzbekistan regressed.
The last decade in Myanmar puts it firmly in the lower right quadrant of this diagram – countries that are progressing rapidly through the health financing transition. But this progress is not inevitable. While pressures for rising health spending are going to continue, progress on increasing the share of pooled spending will require public commitments and good policies. For countries like Myanmar, the commitment to universal health coverage is a commitment to continue to spend more on health and to finance it with pooled funds. Whether it stays on this trajectory or not is in their hands … and it is a full-time job.
The World Bank's Program-for-Results (PforR) financing instrument was approved in January 2012 to complement the two existing financing instruments of the Bank: the Policy Financing instrument (DPL), which focuses on discrete policy actions within the direct control of governments, and the Project Financing instrument (IL), the Bank's main instrument to finance investment projects. PforR has been developed to enable the Bank to support the performance of a government program using the government's own systems, and when the risks to achieving the program's objectives relate to the capacity of the systems to achieve better results.
Shortly after its approval, CGD hosted an event to discuss the potential advantages and risks of this new results-based approach, including the approach to social, environmental and fiduciary safequards. Nearly a year later, CGD will welcome back Joachim von Amsberg for an update on early experiences with PforR. Since the instrument's approval, a number of PforR operations have been prepared, with several in the early stages of implementation. Representatives from some of these operations will be in attendance. Initial commentary will be followed by open discussion.
Health aid pays for life-saving medicines, products, and services in the poorest countries in the world. Funding for such uses needs to be smooth and uninterrupted. But when fraud is detected, funds are subject to sudden stops and starts—the result of a sequence of events set off by the scandal cycle in health aid. We examine this idea in a new CGD policy paper.
To understand the scandal cycle, we looked at four cases of fraud and response involving the World Bank in India, USAID in Afghanistan, the Global Fund in Mali, Djibouti and Mauritania, and European donors in Zambia. While corruption is discovered in different ways, scandals tend to erupt when the press publicizes it or a funder reacts strongly. Once allegations are in the public eye, funders typically react by suspending aid. Then, they work with recipients to create action plans for improving financial management systems, and eventually resume funding.
This scandal cycle is, unfortunately, all too common. In May, the Global Fund published an investigation that tracked down $3.8 million in fraudulent expenditures at Nigeria’s Department of Health Planning, Research & Statistics. The Fund’s executive director issued a statement reaffirming the Fund’s “zero tolerance of corruption” policy, underscoring that the Fund has frozen disbursements to several Nigerian agencies, and calling for reforms to government control measures.
As with the cases we analyzed in our paper, the focus on fraud often comes at the expense of considering the scale of corruption and the impact of disruption on health programs. While $3.8 million is no small number, it represents less than one percent of the $889 million in grants to Nigeria that the Global Fund audited in a companion report. Furthermore, the impact of international support on improving health has been rather large; the Global Fund’s own statement indicates that international support has helped Nigeria reduce deaths from malaria by 62 percent since 2000.
Halting disbursements to health programs can have serious consequences for service delivery, health outcomes, and institutional development. In light of the scale of fraud and the potential health impact, is suspending aid an effective response? And without information on health impact, how would we know?
We argue that funders may be able to escape the scandal cycle—and reduce such disruptions—by paying greater attention to information on program achievements. Currently, funders pay a lot of attention to procedural issues. For example, a 2013 report from the Special Inspector General for Afghanistan Reconstruction (SIGAR) documented weak accounting systems at the Afghan Ministry of Health. Even though the report had no direct evidence of fraud and the health program was successfully delivering services, SIGAR recommended USAID suspend the program.
By contrast, the World Bank’s 2008 Detailed Implementation Review of the Indian health sector not only included evidence of procedural failures, such as bid rigging, but also documented results failures, like continuing high malaria rates and inoperative hospitals. If the World Bank and India had reported these results failures earlier, the cases where corruption was big enough to affect programs would have come to light much sooner.
We think results on service delivery, population health, and institutional development are the key piece of information that could change the dynamics of the scandal cycle. This kind of information can help funders communicate more effectively about why they are deciding to suspend or continue aid, set appropriate standards for when aid should be halted, and establish new funding mechanisms that make it more difficult to divert funds.
We recommend the following three steps to improve funder response:
Communicate using results. When a scandal erupts, communicating the funder’s actions to control or prevent corruption to stakeholders, the media, and the broader public is important. But emphasizing whether health aid programs are achieving intended results is also an essential component of the communications strategy. If a program is achieving results, stakeholders and constituents would better understand a funder’s decision not to suspend aid when a scandal erupts (while investigating abuse and working with the recipient to address the problem).
Differentiate responses by results. In addition to responding to corruption allegations (which typically come from whistleblowers), tracking program results could help funders detect corruption. If a program is falling short of achieving results, corruption might be a contributing factor and an investigation could help determine whether and how much. Moreover, results data would allow funders to determine whether corruption is—or is not—hampering program implementation, and to recalibrate anti-corruption controls accordingly.
Disburse in proportion to results. Where feasible, paying for results in health could help ensure that funds are only paid out when results are achieved. This approach makes it harder to divert funds because payments only occur after the program’s impact is measured. In programs that pay for results, dishonest people can only skim off funds if they have been very efficient at generating impact. In practice, they are likely to simply set their sights elsewhere.
The Global Fund’s recent statement recognizes the importance of communicating the results of its health grants to Nigeria, but it doesn’t address whether it is helpful to suspend aid over a relatively small amount of fraud or lack of supporting documentation. Our paper encourages funders to incorporate information about program results into their risk management strategies so they can communicate better, detect corruption sooner, and make more considered choices about creating or responding to scandals.
A billion premature deaths this century—that’s the estimated toll of smoking. As 80% of the world’s smokers live in low- to middle-income countries, that’s a huge problem for the developing world. That's a lot of not only lost lives but also lost economic output, and increased strain on already-overburdened health budgets.
So what’s the solution? You’ve
Cmd+Click or tap to follow the link">heard before from CGD senior fellow Bill Savedoff that increasing tobacco taxes can actually help turn people away from nicotine; on this week’s podcast for World No Tobacco Day, you’ll hear another idea.
University of Ottawa professor David Sweanor, who helped develop Canada’s tobacco control laws, believes that smokers should be encouraged to switch to less harmful nicotine delivery systems, like e-cigarettes. But does switching our focus to harm reduction mean letting go of the “endgame”—a completely tobacco-free future?
That’s the question that Sweanor and Savedoff tackle in this week’s podcast. In the clip below, Sweanor argues that nicotine itself is not particularly hazardous. But, Savedoff asks, if “puffing” on e-cigarettes becomes the norm, will that undo all the progress we’ve made towards eradication?
What should tomorrow’s aid agencies look like in a landscape where the global goal is to ensure sustainable development? In the past, the role of aid has mainly been to “finance” specific projects or services, with a strong sense of donor identity and marked projections of donor interests. A modern approach to development assistance, however, focuses on the catalytic role of institutions and their capacity to mobilize expertise and resources towards shared objectives.