The real measure of performance-based financing

September, 21, 2011

What began in Latin America with a small cash transfer program has today emerged into a widely popular approach of financing health and education programs. Performance-based financing or results-based financing — the idea that programs should be funded based on the achievement of pre-determined outcomes and indicators- has almost become the modus operandi of aid agencies and development organizations.

While this ensures that aid money flows into countries that meet the targets to improve health outcomes, it does not compel governments to shell more money from their coffers. As a result many countries like Kenya, Ethiopia, Namibia, Pakistan, Bangladesh, Afghanistan have lowered their share of health spending between 2000 to 2009 while external resources have increased during the same period. On the other hand are countries that have increased their share of health spending even though external resources have increased and have also improved health outcomes.

Sample this: In 2000, Rwanda’s share of government expenditure as a percentage of total expenditure stood at 39.2%. The figure had increased to 43.2 percent in 2009. At the same time, external resources for aid as a percentage of total health expenditure had increased marginally by one percent to 53%. Contrary to some other countries which improved both their government expenditure as well as the share of t external resources, Rwanda was able to improve its health indicators and outcomes in a much greater proportion in comparison to some other countries. The country brought down its under five mortality rate from 106 in a span of decade, improve measles coverage from 74-92, lower maternal mortality rate from 1100 to 540 by 2009- the highest improvement among the 15 countries that are the top recipients of USAID.

Kenya’s story is almost the opposite of Rwanda if not completely. While it lowered government’s share of health expenditure from 45% to 33%, external aid shot up from 8.8 to 36% between 2000 to 2009 based on WHO’s data. Yet, health outcomes improved modestly. Under 5 mortality rate was lowered from 69-55, measles coverage declined from 78-74% and maternal mortality rate was reduced marginally by 30 to 530.

The contrasting tale of Rwanda and Kenya also reveals the contrast in fiscal management and dependence of many of the recipient countries. Some have been able to improve their resource allocation for health, lower their dependence on external aid or have seen an improvement in both internal and external resources. Others have not been able to do so, and some despite of an increased share of external resources have seen modest gains. Now this requires not just performance-based financing but strategically working with recipient countries to improve their fiscal capacity. Clearly, if more countries have to replicate what Rwanda has been able to do, it would be a real measure of not just performance-based financing but performance-based budgeting.

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