Austerity Meets Health – Why Governments Must Pivot Now

The US Government (USG)’s new bilateral health Memorandums of Understanding (MoUs) for 2026–2030 are advancing rapidly. As of April 2026,² 32 countries have signed, covering USD 20.3 billion (USD 12.8 billion from the US and USD 7.5 billion in country co‑investment). Despite their scale, these agreements clearly reflect a reduction from previous USG funding and impose time‑bound domestic spending increases.

For governments, the MoUs require:

• credible co‑investment pathways integrated into annual budgets;
• prioritisation of agreed packages, with an emphasis on health security and high‑impact interventions; and
• strengthened public financial management and monitoring systems to meet reporting and data‑sharing obligations.

In its 2023–2028 strategy, the Global Fund to fight HIV, TB and Malaria anticipated a more constrained global financing environment, by placing sustainability and domestic resource mobilisation at the centre of its partnership model.

The Global Fund’s revised Sustainability, Transition and Co‑Financing Policy frames external financing as catalytic and links continued Global Fund support to greater domestic fiscal effort. Co‑financing is positioned as a core mechanism to strengthen country ownership, incentivise the prioritisation of system‑critical and recurrent investments, and align health spending with long‑term sustainability goals.

The policy emphasises that domestic commitments must be targeted, credible and verifiable, particularly for interventions that have historically been reliant on donor funding.

Gavi’s co‑financing model reflects a similar model. While co‑financing has long been embedded in Gavi’s engagement model, the operating environment has become considerably more demanding as countries move along income and transition pathways. Domestic vaccine financing expectations increase over time, and country performance against these expectations is increasingly shaping discussions of programme scope, timing and prioritisation.

Similarly, EU health investments through the Neighbourhood, Development and International Cooperation Instrument (NDICI-Global Europe), Team Europe initiatives, and Global Gateway are placing increasing emphasis on domestic ownership and system sustainability. 

In practice, this is reflected in: 

• a shift towards strengthening systems, prioritising health security, primary care, and digital and information systems over stand‑alone programme delivery;
• greater reliance on domestic systems, with stronger expectations that governments progressively increase their domestic health financing and plan for the long-term sustainability of donor-supported interventions, in line with the Addis Ababa Action Agenda³ and EU commitments to domestic resource mobilisation;
• the heightened importance of fiduciary and planning capacity – particularly where health support is channelled through budget support or blended finance, making credible Public Financial Management (PFM), performance reporting, and sound medium‑term planning essential foundations for absorbing external financing and sustaining health investments domestically.

Responses from partner governments at country level have been varied, reflecting differences in readiness, institutional strength and the capacity to adapt to evolving donor funding dynamics.

Governments are beginning to respond – within the constraints of their respective fiscal and political reality – as illustrated by the examples below:

Nigeria has taken some steps to ring‑fence HIV spending, approving ₦4.8 billion (~USD 3.5 million) for treatment procurement while advancing domestic financing mechanisms, including private‑sector engagement and plans for an AIDS Trust Fund.⁴ Colombia has expanded fiscal space through higher taxes on tobacco, alcohol, and sugary drinks, generating additional revenues that can be directed towards health. Vietnam has integrated antiretroviral medicines into social health insurance as domestic financing increases alongside a managed transition from external support. Botswana has deployed emergency measures following medicine shortages, while Ethiopia has introduced the Health Access Resource Planner to guide coverage decisions in times of fiscal uncertainty.

These actions signal commitment and experimentation – important but largely isolated steps – highlighting a persistent gap between intention and scale.

It is against this backdrop that current health sector budget allocations reveal the magnitude of the challenge ahead.

We analysed the responsiveness of selected governments through one key measure: national health sector budgetary allocations for 2025. These allocations are a clear indicator of government commitment to health sector ownership, the management of imminent funding gaps, and long-term financial sustainability.

In particular, the 2025/2026 national budgets should have provided a reliable indication of government responsiveness for countries that released budgets after July 2025, by which time changes in external funding were already known or anticipated to be significant.

Key findings

1) 2025/2026 health budget allocations remained largely unchanged, despite critical shifts in funding 

For most countries analysed, there was either a reduction in the Financial Year (FY) 2025/2026 health budget allocation compared to FY2024/2023 or no substantive change. Uganda was the exception among the countries analysed, with a marked health budget allocation increase from 4.1% to 8.1%. By contrast, a few other countries in this analysis registered increases of less than one percentage point, underscoring the lack of substantive reprioritisation of the health sector.

2) Current allocations underestimate the scale of the challenge 

Countries releasing budgets in 2025/2026 should have anticipated the sharp drop in external health funding and adjusted accordingly. Instead, budgets have stalled or declined, following a familiar pattern: when fiscal pressure intensifies, budget adjustments occur too slowly to prevent service cuts, reduced coverage and weaker prevention.

Evidence from The Lancet⁵ and the World Bank⁶ shows that spending eventually recovers, but only after years of disruption and with lasting impacts on quality and equity. This recurring cycle underscores the urgent need for stronger foresight and more deliberate planning. Without decisive adjustments, current allocations will fall short of achieving full domestic ownership.

3) Pace of response has not matched the funding shift

In many settings, the response has yet to match the pace of change. Early, targeted action can help to protect essential services and reduce longer-term costs. Delayed action poses significant long-term risks, including disease evolution:

• HIV: Treatment interruptions lead to viral rebound, drug resistance and increased transmission, and could result in significant additional infections by 2030.
• TB: Underfunding stalls progress on drug-resistant TB and preventive therapy. TB remains the leading infectious killer in many settings.
• Malaria: Shortfalls in nets, IRS and case management, compounded by insecticide and drug resistance, are leading to increases in cases, particularly among children under five.

4) Abuja Declaration targets remain unmet

Twenty-four years after its adoption, the Abuja Declaration target remains out of reach for the countries analysed, with none reaching the benchmark of allocating at least 15% of their national budget to health in the 2025/26 budgets assessed.

Budgetary allocations remain inherently political and influenced by competing priorities. Current FY2025/2026 budgets clearly indicate that the health sector is not consistently prioritised in several countries.

Fiscal space for domestic resource mobilisation for health in lower-income countries remains constrained due to low tax revenues, large informal sectors, high public debt and significant debt-servicing obligations, among other factors.

In addition, tax authorities often lack the administrative capacity as well as effective enforcement mechanisms, while governments are facing several competing demands on limited resources. As a result, health care is often only one of many urgent national priorities.

Given the urgency, governments must navigate these constraints and step up for health.

Budget signals matter: health must be a national priority

It is now crucial that governments prioritise health in the treasury – and not merely in policy statements. If health is a national priority, it must dominate the budget conversation.

Why now?

National budgets for FY2026/2027 are currently being drafted. This is the moment for ministries of health – the custodians of health outcomes – to engage actively with ministries of finance, the budget gatekeepers. The case is clear: investing in health is not a cost; it is a long-term economic strategy. A healthier workforce promotes productivity, resilience, and growth, delivering strong returns on investment. The World Bank’s 2025 health financing analysis⁶ shows that sustained investment in health strengthens economies by boosting productivity and labour force participation, making health one of the most cost-effective forces behind development.

At a minimum, governments must plan to maintain universal coverage of essential health services. This means urgently reassessing budgets, embedding sustainability and accelerating the transition away from donor dependency. It is not merely a matter of numbers, but of safeguarding lives and systems.

Finally, strategic disease plans should be re-evaluated. Funding reprogramming is inevitable, but it must not create blind spots. Every adjustment should strengthen rather than weaken programmatic impact.

Budget absorption matters even more: execute for impact

Spend what you pledge – and spend it effectively.  

Chronic under‑absorption of already limited budgets is compounding the crisis. WHO-World Bank analysis shows systematic underspending – averaging ~13% (≈USD 4 per capita⁷) – of approved health budgets in low‑ and lower‑middle‑income countries, with execution rates deteriorating in many contexts. This weakens service delivery while also undermining the credibility of requests for increased allocations.

Universal health coverage financing context: why absorption is essential

World Bank Group analysis (2025)⁶ finds that government and donor health spending in low-income countries averages ~USD 17 per capita, well below the minimum benchmarks required to deliver essential services (≈USD 60 for LICs; ≈USD 90 for LMICs), with projections indicating further declines as aid is reduced. In short: not only must countries spend more, but also spend better.

What causes under-absorption in practice

Across countries, the same bottlenecks persist. Cash releases arrive late, rigid rules block mid‑year reallocations, and procurement processes are delayed by repeated ‘no objection’ requirements. This is compounded by fragmented financing streams, weak links between financial systems and procurement, and limited autonomy at facility level.

The result: funds remain unspent while needs go unmet. This problem can, however, be solved if governments streamline cash flows, simplify rules, empower providers and integrate systems to translate allocations into action.

Partnership signals matter: ensure that health deals deliver

Governments must engage development partners – bilateral, multilateral and philanthropic – on sustainable financing plans that strengthen health systems rather than disrupt them. This requires clear co‑financing commitments and credible execution.

Recent shifts, including the new US bilateral agreements, demonstrate the pace of change. While these arrangements offer greater flexibility, without addressing chronic under absorption and procurement delays, new funding risks stalling in the same way as previous allocations.

In essence, governments must honour pledges and co-financing commitments, spend wisely and tackle bottlenecks upfront. In a more restrictive financing environment, the focus should be on maximising health impact and sustainability so that each partnership accelerates progress rather than adding complexity.

Market signals matter: leverage the private sector and citizens

The private sector cannot be ignored: it delivers a significant share of health services, fosters innovation and mobilises capital. Ignoring it leaves capacity and expertise untapped.

Governments must move beyond ad hoc contracting towards structured partnerships: clear regulatory frameworks, predictable payment mechanisms, and incentives for quality and equity. This includes integrating private providers into national health plans, data systems and emergency response networks.

Citizen engagement – building trust through transparency, feedback loops and community participation – is equally critical. When citizens demand accountability and co‑create solutions, partnerships gain legitimacy and impact.

The crux of the matter is that health is too big for governments alone. Engaging markets and people is not optional; it is the catalyst that turns policy into progress.

The health financing landscape is evolving more rapidly than ever. Domestic budgets are under pressure, donor models are shifting, and new bilateral and private sector dynamics are emerging.

For governments, this is not a moment for incremental change. It requires bold, coordinated action.

Governments must prioritise health in budgets, execute with discipline and urgency, and engage partners – bilateral, multilateral and philanthropic – with credible, clearly stated co‑financing commitments. In addition, the private sector and empowered citizens must be recognised as co‑architects of resilient health systems.

Decisions taken now will determine whether health remains a promise or becomes a pillar of sustainable development.

When the beat of the drum changes, the dance must also change.