Penny Mordaunt, the UK’s Secretary of State for International Development, announced last month that decisions around allocation of aid to education and health services will take into account how much potential recipient countries can afford to pay for these services. ODI analysis suggests that none of the major recipients of UK development aid could pay for all these costs themselves but half could contribute at least 40% of them. There is a link between how much a country can afford to pay towards health and education and how much Department for International Development (DFID) aid it receives but the principle is not yet applied consistently.
In 2015, ODI undertook a major study of future financing needs in all developing countries. The report noted that, in many countries, universal education and health provision are still distant prospects. It made the case for a strengthened commitment to international public finance that is focused on the poorest countries – those least able to fund education and health spending themselves.
ODI is now updating this study using latest research and data from other organisations. Tax potential – the maximum amount of tax a developing country could raise if it increased its tax effort to the same extent as all countries in the Organisation for Economic Co-operation and Development (OECD) – has been explored by the International Monetary Fund and the International Growth Centre. The Education Commission and UNESCO have researched the costs of providing education, whilst the World Bank and World Health Organisation have examined the cost of providing universal health care.
Our preliminary analysis infers from the available data that the maximum a typical low income country could afford to spend on health and education is $40 per person but the typical cost of these services is more than $120 per person. To put this in perspective, the UK spends about $5,000 per person. A key assumption in this analysis is that 35% is the maximum proportion of a country’s revenues that is available for spending on education and health. This is the share in the UK and in many other developed countries. It is also the target proportion that many developing countries have agreed to aspire to.
Our calculations lead to the conclusion that most low income countries and some lower middle income countries cannot afford to finance health and education costs from their own resources. Somalia, Sierra Leone and Malawi cannot even afford to pay 20% of the costs.
When we mapped countries’ ability to pay onto the aid flows planned by the Department for International Development (DFID) (in 2018/2019) we saw that there does seem to be a link between DFID’s aid and a country’s ability to cover costs. On average, the countries more able to pay, tend to receive less funding. Two of the three countries least able to pay (Sierra Leone and Somalia) receive some of the highest levels of aid. But current allocation of aid isn’t entirely consistent with this principle. It will be interesting to see the if the next DFID spending round shifts the balance to bring aid allocations more in line with a country’s ability to pay.
We are now refining these cost and revenue estimates and extending the analysis to look at the cost of cash transfers that target extreme poverty. We will consider cash for work programmes and direct payments for those, including children, who are unable to work. If you would like to receive a copy of the final report – or have suggestions as to how to improve this analysis – please do contact me ([email protected]).