A New Compact for Health Aid: Integrating Evidence-Informed Priority-Setting and Public Financial Management – World

Key messages

• There are important public financial management (PFM) considerations for the New Compact, across all budget cycle phases, but particularly budget formulation.

• Providing most health aid as budget support is expected to maximise the New Compact’s transformative potential. Realising this vision will take time and will depend on the current relationship between donor and government financing, current PFM and prioritisation capacity. Substantial benefits, however, can be achieved in more mixed donor financing environments.

• Potential PFM benefits of the New Compact include strengthening the credibility and predictability of the health budget, as well as improving budget execution and monitoring by reducing unnecessary complexity in health funding flows and the burden on country systems.

• Potential PFM risks of the New Compact include high data requirements for prioritising health services and the potential to burden country systems with new responsibilities, at least in the short run.

• Implementing the New Compact will need to play on the country’s PFM strengths while circumventing (or not exacerbating) its weaknesses. It will need to be a phased approach, whilst health system and political constraints are resolved gradually.

• We recommend that the practical application of the New Compact is further explored with countries and donors and that a blueprint for implementing the New Compact is co-developed by a working group of interested parties across governments and development actors.

Introduction

The Lusaka Agenda envisages fundamental shifts in the role of health aid towards sustainable domestically financed health services, country ownership, and donor alignment with country priorities and systems. In a previous policy paper CGD proposed a New Compact for health aid which is fully aligned with this vision. At the heart of the New Compact is the notion that existing power imbalances are redressed by countries setting a national package of health priorities and financing the core of this package, and donors align behind this by expanding what can be provided at the margin. Potential challenges with implementing the New Compact are not yet known, and so the aim of this note is to is explore the practical considerations for realising the New Compact in terms of public financial management (PFM), using the budget cycle—formulation, execution, monitoring—as a guiding framework. We find that the New Compact approach can support and promote the “one plan, one budget” vision, but need not be tied to a particular financing model such as direct budget support. The main PFM implications relate to budget formulation activities, although there are relevant considerations for execution and monitoring as well. The note goes on to explore PFM-related benefits and risks and argues that the New Compact is a promising concept whose implementation can be adaptable and pragmatic from a PFM perspective. While the approach holds potential for contributing to strengthening PFM systems, its implementation would have to carefully balance reality with aspiration.

Health aid is volatile and fragmented, tends to displace domestic finance, relies on ineffective prioritisation, and lacks coherent transition planning and country ownership. These challenges, equally relevant to aid for sectors other than health, have long been recognised and have led to various calls for improvements. Most recently, the Lusaka Agenda (December 2023) calls for health aid to have a “catalytic role towards sustainable, domestically financed health services and public health functions” while emphasising country ownership and donor alignment with country priorities and systems. CGD has outlined a potential New Compact for health aid that addresses some of the long standing challenges and is aligned with the aspiration of the Lusaka Agenda.

The New Compact has implications for domestic health financing, however these haven’t been explored to date. This note aims to explore these implications with a focus on PFM systems and capabilities, that is, the ability for health system to clearly formulate budgets, to execute payments based on those budgets, to appropriately track agreed spending, and to monitor and evaluate spending performance.