A New Compact for Financing Health Services in Ethiopia

Recent years have seen health aid play a crucial role in improving health outcomes in low- and middle-income countries, though challenges remain in optimizing the allocation and impact of these resources. We propose a framework for global health financing that advocates for aid to complement domestic resources by funding high-value interventions, enabling governments to focus on essential services. A case study in Ethiopia explored the implications of this “New Compact” approach, analyzing Ethiopia’s essential health services package and prioritizing interventions based on cost-effectiveness. By applying different financing scenarios, the study found that current health financing practices in Ethiopia are inefficient, failing to align resources with the most cost-effective interventions, thereby undermining goals for equitable health service delivery and Universal Health Coverage (UHC).

The study suggests that adopting the full New Compact approach, where the Ethiopian government finances top priority health interventions while donor aid extends coverage to additional high-value services, could significantly enhance health outcomes, potentially increasing healthy life years (HLYs) by 15 percent. However, full implementation faces practical challenges, leading to the development of a partial New Compact scenario. This more realistic model retains most of the health gains by allowing some donors to adopt the new financing strategy while others maintain existing commitments, showing that even incremental shifts toward this approach can yield substantial benefits. The study emphasizes the importance of aligning donor aid with country priorities and demonstrates that even partial realignment can drive significant improvements in health service delivery and outcomes, ultimately leading to a more sustainable and resilient health financing system.