In our previous blog, we note that one reason people may not opt for health insurance in low- and middle-income countries (LMICs) is because they do not see enough value in the coverage being offered. Low valuation, in turn, is often based on low perceived quality of healthcare – a supply-side problem. When it comes to strengthening public health systems, the starting point of the discourse tends to be sufficient finance. Indeed, the per capita public spending on universal health coverage (UHC)1, including government expenditure and off-budget development assistance, falls far below the minimum benchmarks in LMICs (Figure 1).
Figure 1. Per capita public spending on universal health coverage versus minimum benchmarks, 2018 and 2024
Source: World Bank (2025).
As a percentage of GDP (gross domestic product), the health expenditure gap between LMICs and high-income countries has narrowed from 2.05 percentage points in 2000 to 1.68 percentage points in 2023. While this may suggest that LMICs are “catching up”, in per capita terms the gap has in fact expanded from US$1,118 to US$3,528 over this period (Figure 2).
Figure 2. Current health expenditure (CHE), % of GDP (Panel A) and per capita US$ (Panel B)
Source: WHO Global Health Expenditures Database, 2025.
Over the years, “development assistance for health” (DAH) has played a critical role in supplementing national budgets in LMICs. The amount of such aid peaked in 2021 at US$80.3 billion, during the Covid-19 pandemic (Figure 3).
Figure 3. Sources of total health expenditure (%), 1995-2021
Source: Institute for Health Metrics and Evaluation (IHME).
Public sources for health spending are drying up
However, the trend of increasing DAH reversed sharply post-pandemic. Further, in early 2025, the US – a country that has historically contributed around 35% of all DAH globally per year – announced cuts to the tune of 67% to its foreign assistance program. The UK, France, and Germany followed suit, with cuts of 39%, 33%, and 12%, respectively. Given the current policies of donor nations, it is expected that DAH will continue to decline through 2030 (Apeagyei et al., 2025). As per estimates of the OECD (Organisation for Economic Co-operation and Development), health funding could drop by up to 60% from its 2022 peak (Center for Global Development, 2025). Sub-Saharan Africa, which is the most dependent on external funding for health and the least able to substitute with domestic sources, was hit with the largest absolute reduction (25%) in 2025, with a further 7% decline projected over the following five years (Think Global Health, 2025).
Moreover, world military expenditure increased by 9.4% between 2023 and 2024, the steepest year-on-year rise at least since the end of the Cold War (Stockholm International Peace Research Institute (SIPRI), 2025). Empirical analysis across LMICs shows that a 1% increase in military expenditure as a share of GDP is associated with a near-equal reduction in health expenditure (IPI Global Observatory, 2025).
At the same time, national budgets are strained due to rising public debt and its costs. Global public debt reached a record figure of US$102 trillion in 2024, with developing countries accounting for US$31 trillion of this total. Since 2010, the public debt of developing countries has grown twice as fast as that of advanced countries. In 2024, developing countries paid a record US$921 billion in net interest payments in public debt – leaving less for other needs including health (UNCTAD, 2024).
So, it is unlikely that more public money will flow into health systems anytime soon. Within this context, we take a step back and ask: how effective has public health spending been so far, in achieving better health outcomes?
“State spending saves no lives”
Conventional estimates of the cost effectiveness of health interventions suggest that the minimum required cost to avert a death for most childhood conditions is not too high. This implies that increasing public spending on health holds significant potential in bringing down child mortality rates. Yet, Filmer and Pritchett (1999) demonstrate that cross-national differences in public spending on health account for practically none (one-seventh of 1%) of the differences in health status across countries, as captured by the incidence of child mortality. Even if the share of GDP that is allocated to public spending on health is doubled (from 3%to 6%, on average), the resulting improvement in child mortality will only be 9-13%. Why the disconnect, and what can be done? The authors highlight three broad areas: (i) the composition of public health spending matters, and more ought to be spent on health services that are cost effective; (ii) it may be the case that even if public funds are being spent on cost-effective health services, this is simply ‘crowding out’ services that would have been consumed anyway. The government should seek to supplement and not replace the market for low-cost services; and (iii) it is imperative to improve the operational performance of public-sector health providers, in order to see the desired impacts on health outcomes.
Filmer, Hammer and Pritchett (2000) add that “the net effect of government health services depends on the severity of market failures—the more severe the market failures, the greater the potential for government services to have an impact. Evidence suggests that market failures are the least severe for relatively inexpensive curative services, which often absorb the bulk of primary health care budgets.”
Drawing on data from India – a country that accounts for 1 in 5 deaths in the under-five age group – from the period 1998-1999 (NHFS, National Family Health Survey), Bhalotra (2007) echoes the main finding of Filmer and Pritchett (1999): “State spending saves no lives.” However, when the sample is restricted to rural areas only, there is evidence of a lagged effect of public health expenditure on child mortality at the state level. Besides, the impact varies by social group – with more vulnerable groups in terms of gender, religion, parents’ education, and so on, benefiting less. The researcher indicates that this is likely attributable to attitudes and information, and recommends carrying out interventions in this regard.
Governance matters
In the late 1990s, there was emphasis on the idea that good governance plays a key role in development effectiveness. Among the first empirical studies in this context was conducted by Rajkumar and Swaroop (2002), with a focus on public health spending. Using data from a cross-section of countries over two years, they find that public health spending lowers child and infant mortality in countries with good governance in terms of corruption levels and bureaucracy quality. As the level of corruption goes down or the quality of bureaucracy goes up, public health spending becomes more effective in lowering child and infant mortality. Hence, simply increasing public spending on health in a context of poor governance is less likely to improve health outcomes.
Analysing a more comprehensive database2 covering 136 countries over the period 1960-2005, Hu and Mendoza (2012) contend that both public health spending and governance quality have a bearing on child mortality rates. Controlling for governance quality, more public spending on healthcare does lead to significantly lower infant and child mortality rates. Likewise, the study reveals that if the general quality of governance is improved, child mortality rates would fall. However, the impact of the interaction between public health expenditure and governance quality on child mortality is found to be negative and insignificant. This is counterintuitive and in contrast to what has been seen in prior literature (Rajkumar and Swaroop 2002) – raising doubts about the measurement of the key explanatory factors.
For future studies, the authors believe that it would be useful to have better measures of governance, particularly public finance management (PFM), which refers to the mechanisms that governments have in place to collect, allocate, use, and account for public services. Besides, it is imperative to consider the relationship between public spending and governance at the sub-national level, given the rising decentralization of public service delivery.
Spend what is allocated, and on the right things
Health budgets in LMICs are executed at around 85-90% – rates that are lower than that for the general budget and for education. This effectively means that there is a deprioritization of health at the implementation stage of budgets (Piatti-Funfkirchen et al. 2021). Hence, a first-order issue is to fully spend what is allocated to health.
In a mixed methods study in Kenya, Musiega et al. (2023) explore the influence of budget execution on the efficiency of health systems. They identify issues around poor budget credibility and cash disbursement delays; limited involvement of the health department during budget execution leading to reduced staff motivation and low accountability; poor procurement practices causing reduced value for health system resources; and rigid controls affecting provider autonomy. These factors impinge on the capacity of the health system to deliver services. The authors conclude that while a well-formulated budget is a good starting point for efficiency in the health system, desired outcomes will only be achieved if the budget is implemented well. They highlight aspects such as the role of various actors in budget execution, public participation, flexibility of health budgets in responding to unforeseen circumstances, and value for money in procurement for further research.
Piatti-Funfkirchen et al. (2021) also put forth that the budget execution rates vary across expenditure categories: while wage and salary budgets tend to be implemented in full, there is underspending on goods and services – as a result of which workers are not well-equipped to deliver quality healthcare.
More broadly, there is a choice to be made in terms of which levels of healthcare are prioritized in public health spending. Countries seem to be underspending on primary or preventive healthcare while focusing on secondary and tertiary care, which are less cost-effective (Hanson et al. 2022, Bhalotra 2007, Amnoko et al. 2026). According to a 2025 World Bank report, in the Gambia, Nigeria, and Sierra Leone, less than one-fifth of government health spending is allocated to primary healthcare, with most of the funds going towards secondary and tertiary care, and administrative functions.
The case of infectious diseases
In a recent study, Khan, Mohammad and Rabbani (2025) seek to understand the nuanced relationship between public health expenditure and universal health coverage (UHC). They consider four components of UHC separately: reproductive, maternal, newborn, and child health (RMNCH); infectious diseases; non-communicable diseases (NCD); and service capacity and access. Analyzing data from World Bank’s World Development Indicators and the World Health Organization’s Global Health Expenditure Database, covering 169 countries during 2000-2022, it is found that per capita domestic health expenditure significantly improves health outcomes with regard to infectious diseases. The key mechanism is the increased access to necessary services and reduced disease incidence. In the case of infectious diseases, targeted interventions like vaccinations and treatments are particularly relevant and these can be provided with increased health spending. Improving access to basic sanitation facilities also has the strongest effect on infectious diseases as there is a direct link to reduced transmission of waterborne and sanitation-related infections.
However, the impact of overall health spending on other segments such as RMNCH and NCDs remains minimal, pointing towards the importance of strategic allocation of the spending. As the population ages, there is a need to increase resources to manage chronic conditions and provide service capacity and access for the elderly.
Public health spending and longevity
Focusing on longevity as an indicator of health, Obrizan and Wehby (2018) examine how country health expenditures vary across the life expectancy distribution worldwide. They note that previous work in this context considers either the group of developed or developing countries – producing mixed results on the effects of population-level health expenditures on average life expectancy across countries, possibly mediated by population characteristics and economic factors. Overall, in developed countries, the association is found to be largely positive. On the other hand, the relationship is less certain in LMICs.
Based on data on life expectancy from 175 countries for the period 2006-2011, the researchers find that increasing health spending has the largest positive effects in countries with low life expectancy, that is, those that have the greatest need for increase in health spending. This may be attributable to the higher prevalence of acute health problems in these countries (say, infectious diseases caused by poor sanitary conditions) – while these have an adverse impact on life expectancy, healthcare interventions can be effective in preventing and treating certain kinds of illnesses. Further, it is seen that the effect of health spending on life expectancy differs by gender, with greater benefits for males as they tend to have lower life expectancy than females.
The authors put forth that economic theory would also imply that at low levels of life expectancy, an increase in health spending would lead to greater marginal return as healthcare can substitute for lower levels of other enabling factors in population health. Hence, the additional spending on health helps reduce global inequality in this important measure of economic development and human well-being. As more comprehensive data become available, a future direction for research suggested by the authors is to assess the effects of health spending on life expectancy with a longer lag, as it likely accumulates and lasts over a long span of time.
In our next blog, we will look at public investments in infrastructure such as gender-sensitive transport, to complement stronger health systems in LMICs.
FOOTNOTES
1According to the WHO, UHC means that “all people have access to the full range of quality health services they need, when and where they need them, without financial hardship.”
2Data sources include World Development Indicators, International Country Risk Guide, and Open Budget Index.
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