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Analytical summary - Health financing system

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The Ministry of Health in Ethiopia developed and implemented a Health Care Financing Strategy in 2007 to increase funding for health by improving resource mobilization and to ensure equitable resource allocation, efficiency of resource utilization and financial protection of its citizens.

Components of the Strategy include:

  • revenue retention and utilization
  • facility governance
  • a system of fee waiver and exemption for those who cannot afford to pay
  • outsourcing of non-clinical services
  • establishing a private sector to strengthen the supply and delivery of quality health services.
Figure 1. Financing sources for health care, 2007–2008[1]
Figure 2. Change in general health expenditure between National Health Account (NHA) 3[2] and NHA 4[1]

Performance-based contracting is also used to improve supply, by transferring money from purchasers (the Ministry of Health, regional health bureaus and woreda health offices) to service providers (health facilities) conditional on achieving predetermined performance targets.

Moreover, to address financial barriers to accessing health services and to pool risks of doing so, the Government of Ethiopia recently initiated community-based health insurance for the rural and urban informal sectors and social health insurance for the formal sector.

The National Health Account (NHA) 4[1] shows that most of the general health care was financed by the rest of the world, followed by households (see Figure 1). There was also a large increase in general health expenditure between NHA 3[2] (2004–2005) and NHA 4[1] (2007–2008), the highest increment being due to households (176%) and the rest of the world (143%) (see Figure 2).

Despite this significant increase, the per capita national health expenditure was only US$ 16.1 in 2007–2008, far below the US$ 34 recommend by the WHO Commission on Macroeconomics and Health. NHA 4 shows that the health sector is mostly financed by donors and that households are substantially burdened by high spending on health.

Figure 3. Financing agents (management of health resources)[3]

Regarding financing agents, the private sector (including households, private employers and non-profit institutions) managed 44% of the NHA, while the Government and the rest of the world managed 42% and 14% of the NHA, respectively (see Figure 3). Therefore, the private sector and households, followed by the Government, mainly manage and control health sector spending.

Although the Government manages 42% of health sector spending, it has little flexibility in decision-making on allocation and utilization of resources, as most resources from donors come already ear-marked.[3]

Figure 4. Spending on general health care[1]

Curative care consumed most of the national health expenditure (42%) while prevention of communicable diseases and maternal and child health accounted for 25% (see Figure 4). Between NHA 3 and NHA 4, there was a significant shift from curative care to preventive health care, in line with the Government’s health-promotion policy.[3]

NHA 4 shows that key areas of the health sector are heavy financed by donors, raising the question of sustainability.[3] The effectiveness of resource utilization by the various public health programmes implemented by different partners needs to be regularly monitored and corrected.

The way forward

  • Strengthen the financial management, procurement and budgeting system to better alignment with the Government system.
  • Continue advocating for increased resource allocation from the Government budget and mobilize additional funding from international partners.
  • Speed up the implementation of social health insurance and community-based health insurance by identifying those at greatest need.


  1. 1.0 1.1 1.2 1.3 1.4 Ethiopia’s fourth national health accounts, 2007/2008 (pdf 1.68Mb). Addis Ababa, Government of Ethiopia, Ministry of Health, 2010
  2. 2.0 2.1 Ethiopia’s third national health accounts, 2004/05 (pdf 465.61kb). Addis Ababa, Government of Ethiopia, Ministry of Health, 2010
  3. 3.0 3.1 3.2 3.3 Trends and prospects for meeting Millennium Development Goals by 2012. Millennium Development Goals report. Addis Ababa, Government of Ethiopia, Ministry of Finance and Economic Development, 2010