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Analysis: A new way to fund healthcare in developing Asia

Susann Roth, senior social development specialist, Asian Development Bank, explains why the ADB is committed to doubling health sector investments by 2020.

A healthy population is the backbone of a strong workforce productivity, which in turn supports inclusive growth and sustainable development. In recent decades, public and private sector investments to drive economic growth and trade have brought tremendous gains to countries in Asia and the Pacific.

But investments in health have lagged behind those in other sectors.

As part of the Sustainable Development Goals, almost every country in the region has committed to universal health coverage (UHC) and providing equitable access to quality care without undue financial hardship.

To deliver on the UHC promise, though, it is essential that countries tackle weak social security systems, focus on persistent pockets of poverty and inequality, enable the private sector to deliver affordable and quality health services and commodities, and reduce out-of-pocket expenditures.

Aging populations foreshadow escalating health care costs in the near future, where both communicable and non-communicable diseases are growing threats. There are also new health risks associated with migration and the effects of climate change.

Unfortunately, the development assistance that in the past had bolstered health financing in Asia and the Pacific region is rapidly declining.

Countries lose eligibility for donor funding as they leave behind their low-income status. Top donors and development partners such as the GAVI Alliance and the Global Fund to Fight AIDS, tuberculosis and malaria are also concentrating on low-income countries.

To make matters even worse, bilateral grant resources and concessional funds are decreasing too.

Asian governments thus struggle to find new ways to mobilize funds to close the huge health financing gap.

Health is part of “social” infrastructure. According to accounting firm PwC, social infrastructure represents around 20% of the region’s total infrastructure investment needs, which are in the trillions of dollars.

To help countries in developing Asia increase health sector funding, ADB is committed to doubling health sector investments to 5% of its total portfolio by 2020. This includes private and public sector loans, and most of this lending will come from ordinary capital resources since many of ADB’s developing member countries have graduated already or will soon be graduating from concessional and grant financing.

Moreover, non-concessional lending is part of the new health sector portfolio being developed by ADB’s Private Sector Operations Department.

Asia’s private health sector is growing rapidly, with many companies aiming to take advantage of emerging markets. The fact that companies and investors are looking at opportunities to invest in the health sector is reflected in ADB’s new health bond, the first ever in this sector issued by a multilateral development bank and launched last March.

The health bond highlights ADB’s commitment to the health sector. It also shows that in today’s increasingly volatile financial environment, investors want low-risk, high-impact investments in health.

The health bond is similar in structure to ADB’s successful water and green bonds, which mobilise funds from financial markets for ordinary capital resources lending in priority sectors. Initially, the health bond will mobilize about US$100 million for health lending in ADB’s sovereign and non-sovereign operations.

In the private sector, the funds raised will contribute to investing in companies that seek high impact on quality, affordability, and accessibility of health services and commodities. ADB has developed an ex-ante due diligence framework to ensure that private sector investments support UHC.

The health bond also targets the public sector, where ADB is working with several lower middle-income countries on strengthening primary health care services, making sure they’re available first of all, and then ready to provide them.

The new funds will be welcomed in countries like India, Kazakhstan, Papua New Guinea or Uzbekistan, where ADB is focused on improving primary and integrated care, health sector management and urban health.

This includes primary and secondary care infrastructure, supporting an enabling environment for public private partnerships, basic medical equipment, digital health infrastructure, staff capacity development, and skills development.

In other words, the health bond opens the door to badly needed long-term financing for health projects. ADB’s developing member countries can expand both public and private spending on health with funding via financial markets.

This is crucial given that the development journey of Asia’s new middle-income countries has not concluded. In fact, it is far from over – especially in health.

Posted on: 07/06/2017 UTC+08:00


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