Editorial

Fiscal or Financial Sustainability?

Should low- and middle-income countries strive to secure fiscal or financial sustainability in their health sector?

Financial sustainability should certainly be a goal. Total money going out should not exceed total money taken in. Financial flows should be predictable with minimal volatility in funding sources from year to year. And cyclical growth and contraction should be manageable.

In essence, financial sustainability means that expenditures on all categories should not exceed revenue from all sources. Expenditure categories include curative and preventive health services, other allied health services such as rehabilitation, long term care, population-based public health programs, and activities related to medical education, research and development. Sources of funding include public financing (taxes and mandated health insurance), private financing (direct out-of-pocket payment, insurance, returns on investment and gifts), and international aid, loans and grants.

Fiscal sustainability is a much more restrictive concept limited to public sources of revenue and expenditure. To be fiscally sustainable, public funding of health services and other categories of public expenditure in the health sector should not exceed resources available to central and local governments through various taxation instruments and money received by the government from development banks, bilateral grants and other sources of public money.

Both financial and fiscal sustainability require a balance between income and expenditure. Therefore, is there any real difference between financial and fiscal sustainability? The answer is yes. There is a huge difference.

In most low- and middle- income countries, a high priority has recently been placed on achieving the Millennium Development Goals (MDGs), including major reductions in child and maternal mortality and in most of the major infectious diseases that affect the poor and low- income level countries such as HIV/AIDS, TB and malaria.

The cost of achieving these targets has been estimated at around US$34 per capita by various independent researchers. In a handful of Sub Sahara African countries, spending on HIV/AIDS has now exceeded spending on the remainder of the health sector. As described in this month’s viewpoint, many developing countries would have to spend up to 80 or 90 percent of their consolidated public budgets to achieve such expenditure targets, if financed exclusively through the public sector. Achieving the MDG targets is therefore fiscally unsustainable in most low-income countries.

In many low-income countries, spending through the private sector is often as high as 80 percent of total spending on health care. The money is there and households are spending it on health care. Programs that are fiscally unsustainable may therefore be financially sustainable if governments worked more closely with the private sector. Countries should therefore strive for financial sustainability in the health sector even if fiscal sustainability is not achievable.