International Monetary Fund and aid displacement.

Several recent papers find evidence that global health aid is being diverted to reserves, education, military, or other sectors, and is displacing government spending. This is suggested to occur because ministers of finance have competing, possibly corrupt, priorities and deprive the health sector of resources. Studies have found that development assistance for health routed to governments has a negative impact on health spending and that similar assistance routed to private nongovernmental organizations has a positive impact. An alternative hypothesis is that World Bank and IMF macro-economic policies, which specifically advise governments to divert aid to reserves to cope with aid volatility and keep government spending low, could be causing the displacement of health aid. This article evaluates whether aid displacement was greater when countries undertook a new borrowing program from the IMF between 1996 and 2006. As found in existing studies, for each $1 of development assistance for health, about $0.37 is added to the health system. However, evaluating IMF-borrowing versus non-IMF-borrowing countries reveals that non-borrowers add about $0.45 whereas borrowers add less than $0.01 to the health system. On average, health system spending grew at about half the speed when countries were exposed to the IMF than when they were not. It is important to take account of the political economy of global health finance when interpreting data on financial flows.