Navigating the Fiscal Shock: How PFM Can Anchor Sustainable Health Financing in Africa

Our Health Economist Stefy Karugu explores the shift from aid dependence to fiscal resilience.

She outlines how Public Financial Management (PFM) reforms can anchor sustainable health financing across Africa.

Executive Summary

This report examines how PFM can stabilize health systems amid a sharp contraction in global health aid and the broader shift beyond aid in African health financing. For decades, many African countries relied heavily on external financing, with more than half of HIV, malaria, and TB spending funded by just two donors. That model is now under strain. Projections indicate that total health spending will decline in most low-income countries by 2030 unless domestic financing expands.

These pressures compound rising debt service costs and fiscal constraints, reinforcing the importance of aligning reforms with debt sustainability in Africa.
The report argues that transitioning from vulnerability to fiscal confidence requires strengthening domestic resource mobilization, protecting health budgets, and improving efficiency through robust public financial management systems.

PFM reforms such as program-based budgeting, multi-year expenditure frameworks, digital financial management systems, and strategic purchasing improve budget credibility and ensure funds reach frontline services. Evidence from Ghana, Rwanda, and Tanzania shows that sustained PFM reforms enhance accountability, equity, and value for money. Embedding these reforms within sustainable investment strategies for African health systems is essential for long-term fiscal resilience.

Key Takeaways

• The aid-dependent health financing model is contracting rapidly, accelerating the transition from aid dependency to fiscal resilience.
• Health spending is projected to decline in most low-income countries unless domestic resource mobilization increases.
• Weak PFM systems contribute to fragmentation, inefficiency, and misaligned health spending across the budget cycle.
• Low-income countries waste an estimated 13 percent of health budgets annually due to inefficiencies.
• Program-based budgeting and multi-year frameworks strengthen alignment between health priorities and fiscal allocations.
• Strategic purchasing and costed benefits packages improve efficiency and value for money.
• Digital PFM systems enhance transparency, real-time tracking, and accountability.
• Donors should shift from vertical program funding toward strengthening national systems and institutions.
• Aligning PFM reforms with National Health Insurance reforms in Africa can improve pooling, purchasing, and financial protection outcomes.
• Sustainable health financing in Africa depends on strong governance, fiscal discipline, and integration of donor funds into national budgets.

The End of the Aid-Led Model—and the Systemic Shock

For decades, many African health systems relied heavily on external aid. “Donor funding has financed essential services and major disease programs, significantly expanding access to care services. In 2023, more than half of Africa’s HIV, malaria, and TB spending came from just two donors—the United States and the United Kingdom (McKinsey & Company 2024); however, this aid-dependent model is rapidly shifting. As of 2025, sharp reductions in official development assistance (ODA) have triggered one of the steepest contractions in global health financing in recent years. The World Bank estimates that total health spending will decline in 80% of low-income countries by 2030, as the external funding falls faster than domestic budget growth (Kumar et al. 2025). Countries already off-track on UHC targets now risk reversing hard-won gains.

These shocks are hitting economies that were already under strain. African countries face weak economic growth, limited fiscal space, rising debt service costs and persistent underinvestment in health. Essential programs—from maternal health to immunization—are at risk of disruption (WHO 2025).  Years of aid dependence led to fragmented, parallel financing systems that undermined national ownership. Together, these pressures expose the structural fragility of many health systems and underscore the urgency to shift from aid dependence to fiscal resilience and a more domestically anchored health financing.

From Vulnerability to Fiscal Resilience

This moment calls for a strategic reset: a shift from vulnerability to resilience. That shift requires:

• Strengthening domestic resource mobilization (DRM) as the engine of long-term sustainability;
• Protecting and prioritizing health budgets despite fiscal constraints; and
• Improving efficiency and rationalizing expenditure in the short and medium term.

But none of these reforms will succeed without strong public financial management systems. What, then, is PFM? Public financial management (PFM) refers to the rules, institutions, and processes through which governments plan, allocate, spend, and oversee public resources to achieve policy objectives. In other words, it is the backbone that determines whether public money translates into actual services and tangible outcomes.

Achieving this reset requires strengthening domestic resource mobilisation as a long-term strategy, while in the short term protecting health budgets, improving efficiency, and rationalizing spending. Central to these efforts are robust PFM systems, which translate policy into health services through credible, predictable, and aligned budgets; reduced fragmentation in revenue streams and funding flows; timely budget execution; and stronger financial accountability and transparency (WHO, 2019). ​This is not a rejection of external aid, but rather a rebalancing—towards stronger institutions, greater sovereignty, and more sustainable health financing. In this transition, PFM serves as a key enabler, ensuring that health investments deliver sustained programmatic impact and financial sustainability.

PFM is fundamental to how health systems function; yet in many LICs, weak PFM systems have constrained health spending at every stage of the budget cycle. Budgets are often disconnected from sector planning and costing processes, allocations are frequently misaligned with priorities, and expenditure marked by inefficiencies and poor spending performance. LICs waste an estimated 13% of their health budgets annually—a loss equivalent to US$4 per capita (WHO and World Bank 2025). PFM reforms such as multi-year expenditure frameworks, budget structure reforms, including program-based budgeting (PBB), and digital financial management systems can help improve budget credibility, strengthen execution, and ensure resources flow more efficiently to frontline services.

What Works: Evidence, Efficiency, and Digital Reforms

The transformative potential of PFM is evident in countries where PFM’s reforms have been sustained. In Ghana, integrating the National Health Insurance (NHIA) Fund into the government’s PFM system ensured transparent, disciplined fund flows while giving the NHIA flexibility to use output-based payments to pay service providers strengthen accountability and value for money. Colombia and Chile demonstrated how decentralization reforms, when paired with well-designed formula-based budgeting, can significantly improve equity in health resource allocation—especially for primary health care. (Cashin et al. 2017).

Beyond enhancing financial mechanisms, PFM also drives efficiency—an imperative at a time when fiscal space is shrinking. Program-based budgeting aligns resources with health sector priorities as opposed to input-based, improving both budget allocation and execution. Strategic purchasing allows governments to buy services based on value, not historical patterns. Costed health benefits packages introduce transparency around what can realistically be financed. Collectively, these reforms create an environment in which every dollar has greater impact, reducing waste and directing spending toward interventions that save the most lives.

Technology is accelerating this transformation. Digital PFM systems—from budget formulation tools to e-procurement, financial management dashboards, and real-time expenditure tracking—offer unprecedented visibility into how resources flow through the system. Rwanda offers a clear example of how sustained digital PFM reforms can strengthen fiscal discipline and service delivery. Its Integrated Financial Management Information System now connects nearly all government entities and is fully integrated with e-Tax, e-Procurement, payroll, and banking systems, enabling seamless digital processing. External assessments show improved accountability, stronger budget execution, and more timely financial reporting. Tanzania’s integrated digital ecosystem, which includes planning, budgeting, reporting, and facility-level expenditure data, (Binyaruka  2024), demonstrates how digital tools can close leakages and improve accountability from planning to spending. In an era of shrinking aid, the ability to demonstrate efficient use of public funds becomes not just good governance but a survival strategy.

A New Role for Partners—and the Politics of Reform

The transition to fiscal resilience also reshapes the role of donors. Rather than financing vertical programs indefinitely, development partners must increasingly invest in system strengthening—supporting countries to build their PFM systems, data, and governance capacities that enable long-term sustainability. Donor resources should reinforce, not bypass, national systems. Transition compacts, co-financing arrangements linked to PFM benchmarks, and multiyear commitments aligned with national budget calendars and national priorities can reduce volatility and improve predictability. The future of global health cooperation must be rooted in partnership models that strengthen institutions and countries’ systems rather than perpetuate dependencies.

Yet fiscal resilience is ultimately a domestic agenda. Governments must integrate donor funds into national budgets, strengthen budget execution, protect current investments, and prioritise primary health care. They must also embed efficiency and equity into allocation decisions. Expanding domestic resource mobilization—through stronger tax administration, insurance reforms, and other innovative financing—will be essential. Above all, governments must invest in governance and transparency to build public trust, because without trust, neither revenue mobilization nor PFM reforms can succeed.

From Aid Dependency to Fiscal Confidence

The world is entering a new and uncertain global order. Aid will continue to decline. Fiscal pressures will intensify. Climate shocks, demographic pressures, the growing burden of non-communicable diseases, and economic volatility will reshape priorities. In this context, health systems must be built not on the shifting sands of external generosity but on the solid foundations of domestic institutions. PFM is not the only solution, but it is a critical one—anchoring domestic health financing in credibility, sustainability, and national ownership.

The shift from aid dependency to fiscal confidence is not merely a financial transition; it is a political one. It reflects a broader aspiration for sovereignty, resilience, and the ability to chart a country’s own health future. If governments and partners act decisively now, the current crisis can become an inflection point—transforming vulnerability into opportunity and uncertainty into a path toward sustainable, sovereign health financing.

The choice now is clear: Maintain fragmented, donor-dependent systems that falter under fiscal pressure—or build coherent, resilient health systems anchored in strong PFM, capable of protecting health gains and sustaining investment. Countries that act decisively today will be the ones that secure stronger and more equitable health outcomes tomorrow.

References

McKinsey & Company. 2024. A generational shift: The future of foreign aid. McKinsey Global Institute. https://www.mckinsey.com/industries/social-sector/our-insights/a-generational-shift-the-future-of-foreign-aid.

Kumar, A., Gabani, J., Marino, A., Julio Cesar, J., Ramirez, M., and Hoang-Vu Eozenou, P. 2025. Government resource projections for health financing (At a crossroads: prospects for government health financing amid declining aid). World Bank.
https://www.worldbank.org/en/topic/health/publication/government-resources-projections-health-financing-report.

Cashin, C., Bloom, D., Sparkes, S., Barroy, H., Kutzin, J., and O’Dougherty, S. 2017. Aligning Public Financial Management and Health Financing Sustaining Progress Toward Universal Health Coverage. WHO and R4D. https://iris.who.int/server/api/core/bitstreams/707220f7-3054-42c8-8a9d-77604cc6200c/content.

WHO, 2019. Leveraging public financial management for better health in Africa: key bottlenecks and opportunities for reforms. WHO.
https://www.who.int/publications/leveraging-public-financial-management-for-better-health-in-africa-key-bottlenecks

WHO, 2024. Global spending on health: Emerging from the pandemic. World Health Organization. https://www.who.int/publications/i/item/9789240104495.

WHO, 2025. Countries are already experiencing significant health system disruptions. WHO News Release, 10 April 2025. https://www.who.int/news/item/10-04-2025-countries-are-already-experiencing-significant-health-system-disruptions—who.

WHO and World Bank. 2025. Budget execution in health: From bottlenecks to solutions. World Bank Group. https://www.worldbank.org/en/topic/health/publication/budget-execution-in-health-from-bottlenecks-to-solutions.

Binyaruka, P. 2024. Blog: Digital Innovations in PFM and Health Financing in Tanzania: Strengthening Efficiency and Accountability from Planning to Spending
https://www.pfm4health.net/blog/digital-innovations-in-pfm-and-health-financing-in-tanzania-strengthening-efficiency-and-accountability-from-planning-to-spending