In the period from the 13th to the 16th of July 2015, the Third International Conference on Financing for Development, organized by the UN, was held in Addis Ababa, Ethiopia.
174 United Nations member states sent delegations; 28 heads of State, vice presidents and heads of government attended. Governments were joined by the heads of the United Nations, the International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO), prominent business and civil society leaders, and other stakeholders.
As an outcome, heads of states and governments adopted the Addis Ababa Action Agenda known also as AAAA. The text of the document was endorsed by the General Assembly in its resolution 69/313 of 27 July 2015.
The Action Agenda establishes a strong foundation to support the implementation of the 2030 Agenda for Sustainable Development. It provides a new global framework for financing sustainable development by aligning all financing flows and policies with economic, social and environmental priorities.
The Addis Ababa Action Agenda defines four main sources of financing for development:
- Domestic
- International
- Public
- Private
Main sources of financing
Let’s have a look on the sources of finance:
Domestic Public
This category of finance refers to a country’s own domestic public resources, such as government income from taxes and its budget. For most countries, domestic public finance is the largest resource to fund their national development and infrastructure plans.
International Public
This refers to aid, grants, and concessional finance provided by Advanced and Middle-Income Economies to help support development in Emerging markets and developing economies.
Domestic Private
This refers to a country’s domestic private sector resources, including large corporations and SMEs as well as country’s domestic institutional investors, such as the pension funds, insurance funds, and sovereign wealth funds. To be effective, public sector measures to encourage private investment need either to decrease perceived risk or to increase anticipated returns.
International Private
These consist primarily of: (i) Foreign Direct Investment (FDI) in developing countries; (ii) remittances from migrants back to their home countries; (iii) private philanthropy, e.g., from foundations; and (iv) financial market-based financing like portfolio equity flows, bonds, short-term debt flows and syndicated bank loans. Some of the newer resource flows are contributed by relatively new actors that are primarily public, but which have private sector-like investment return objectives, such as sovereign wealth funds and pension funds.
Sources of finance in the Healthcare sector
All the above sources are applied, in different weights, in financing the healthcare infrastructure, to create new facilities, refurbish, extend and continuous maintenance of the existing ones.
Domestic Public source is still the main source of finance in most of the countries. The incomes from taxes are used to grant essential services for taxpayers. However, with the scarce financial incomes especially in low and medium-income countries, the domestic public funding of healthcare infrastructure is becoming more insufficient to cover all the countries needs.
International Public source is covered mainly by multilateral financing banks such as World Bank, European investment bank, Asian development bank, Africa development bank etc.
The role of multilateral institutions is gradually transforming, in the last years, from loans provider to facilitator and advisor. This is compensated partially by the growing importance of bilateral financing agreements between countries. It can’t have however the same financial capacity.
Small part of the International Public source of funding comes also from aids and cooperation programs which are, in many cases, negligible comparing to the healthcare sector needs.
The Domestic Private source is an important support for the public funding. Private institutions have marginal role in healthcare in developing countries. The private funding is characterized by individual or small initiatives with limited action. An institutional private financing is still required under public supervision and control.
As per the Domestic Private, International Private source could be a valuable support. The main issue is local laws and legislations that regulate the foreign investments as well as the availability of foreign currency and the possibility of profit expatriation.
The private funding both domestic and international is attracted by the possibility of profit generation which could not always in accordance with the national health strategies and objectives.
Role of PPP
Each of the above-mentioned sources has its own limits and suitability according to the case and to the country.
Combination of one or more sources should be considered according to the healthcare infrastructure development plans and the size of the projects.
I see the PPP as a possible way for combination of the different sources giving more or less weight to each of them according to the country and typology of project.
For example, PPP based on domestic public and private sources can be applied in small and medium healthcare projects. This could be extended to international public and private sources for large scale health project.
Involvement of Multilateral Development Banks should be seen as a catalyzer of other foreign public and private investments.
The key is to maintain always the role of the public sector as supervisor and regulator of the health services even with private or foreign financers.
Photo by Christine Roy on Unsplash
Photo by Ilyass SEDDOUG on Unsplash
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