FINANCIAL DEVELOPMENT, EXTERNAL FINANCING AND HEALTH EXPENDITURE: EVIDENCE FROM SELECTED SUB-SAHARAN AFRICAN COUNTRIES

Abstract

Sustainable healthcare financing is key to achieving the third sustainable development goal of good health and well-being. However, relatively low levels of health expenditure and poor financial sector development still characterize most sub-Saharan African (SSA) countries.  This study examined the effect of financial development and external financing on health expenditure. Decomposing health expenditure and using a randomly selected sample of seven SSA countries for 2000-2019, the seemingly unrelated regression estimator was employed. For further robustness, an interaction model was estimated and the causal relationship was examined. Domestic credit to the private sector and external financing through borrowings significantly reduced the impoverishing effect of high out of pocket expenditures, but they significantly increased public health expenditures, which is very important for improving population health. The robustness check revealed that the positive effect of external debt holds only when the growth of GDP is rising but this is only significant for public health expenditure.  A panel granger causality test revealed that out of pocket expenditures and domestic credit to the private sector had a bidirectional causal relationship. The study recommends that policy reforms towards strengthening the financial sector should be adopted for achieving sustainability in health expenditure.