Declining Aid and Weak Revenues Push Global Health Systems to a Critical Crossroads

The report warns that low- and lower-middle-income countries face shrinking health budgets as domestic revenues stagnate and global aid declines sharply, threatening progress toward universal health coverage. It argues that only bold reforms—improving efficiency, prioritizing primary care, and expanding fiscal space through measures like health taxes—can prevent widening service gaps and rising preventable deaths.

A report produced by the World Bank with analytical inputs from the IMF, WHO, OECD, and the Institute for Health Metrics and Evaluation, paints a sharp, unsparing picture of the tightening fiscal vise facing health systems across low- and lower-middle-income countries. The report's central argument is clear: health is not only a moral imperative but a high-return investment in human capital and long-term economic growth. Each job created in the health sector, it notes, generates 3.4 jobs elsewhere, reinforcing why strong public financing remains vital for development. Yet the very foundations supporting these investments are under strain.

Budgets Under Pressure and Health Losing Priority

Countries entering the mid-2020s are weighed down by slow economic recovery, anaemic revenue collection, and a steep rise in public debt servicing. In 2024, the median low-income country spent 7.5 percent of its government budget on interest payments, more than the 6 percent spent on health. Lower-middle-income countries reveal similar patterns, reflecting deepening fiscal stress. The priority given to health has eroded steadily: LMICs cut health's share of government expenditure from 7.1 percent in 2018 to 6.3 percent in 2024, while LICs remained stuck at low levels. The report stresses that such declines stem not just from macroeconomic turbulence but from political choices that deprioritize health even as needs grow.

Despite these constraints, government health expenditure is projected to rise modestly through 2030, 13 percent in the median LIC and 17 percent in the median LMIC if current allocation shares are maintained. Yet with LICs spending less than US$10 per capita on health and LMICs around US$40, this incremental growth barely dents the universal health coverage financing gap. Underfunding translates directly to persistent service deficits, preventable mortality, and weaker workforce productivity in the long term.

Aid Cuts Reshaping the Health Landscape

The most dramatic shift comes from outside national borders: the steep decline in development assistance for health. Major donors, including the United States, United Kingdom, France, and Germany, have signalled sharp reductions in aid budgets, with overall DAH projected to fall by at least 20 percent from 2025 onward. The United States alone is expected to cut global health and family-planning programs by an estimated 60 percent. More than 90 percent of these reductions will hit off-budget channels that fund critical frontline programs: HIV/AIDS, maternal and child health, malaria, supply chains, and health information systems.

For LICs, the impact is seismic. Off-budget DAH was equal to total government health spending in 2024; its decline means combined government and donor funding is expected to fall in more than 80 percent of LICs by 2030. LMICs fare somewhat better, but spending is still projected to decline in 40 percent of them. Modelled estimates cited in the report warn that abrupt cuts, such as withdrawing USAID support, could result in 2.5 million additional deaths annually, a third among children under five.

Reform Stories That Prove Change Is Possible

Even amid these constraints, the report highlights countries that have used policy ingenuity to change their fiscal and service delivery trajectories. Burkina Faso nearly doubled domestic health spending between 2013 and 2017 while simultaneously removing user fees for maternal and child services, despite stagnant revenues and halved aid. India's Ayushman Bharat expanded primary care packages and channelled new financing into frontline facilities. Indonesia saved up to 50 percent on medical equipment through new procurement models, while Ethiopia raised budget execution rates to an impressive 95 percent through strong public financial management.

These cases illustrate the power of "spending better": strengthening primary healthcare, shifting resources toward high-impact interventions, curbing procurement waste, aligning donor funds with national priorities, and resolving chronic under-execution of health budgets.

The Narrow Window to Spend More and Spend Smarter

But efficiency alone cannot bridge the magnitude of the financing gap. The report urges governments to raise health's budgetary priority, eliminate poorly targeted subsidies, and expand fiscal space through health taxes on tobacco, alcohol, and sugary beverages. Such taxes could generate between $260–$420 billion annually across LMICs and, if allocated to health, could increase government health spending by as much as 40 percent. Encouragingly, a third of LICs and LMICs already have the macro-fiscal conditions to do more.

The report concludes on a cautiously optimistic note: despite daunting headwinds, countries that choose bold, well-designed reforms, strengthening primary care, aligning aid, raising revenues, and re-prioritizing health, can protect millions of lives, shore up human capital, and steer their development paths back toward universal health coverage.