Fiscal Strain and Public Health: How Ethiopia’s Debt Crisis is Reshaping Healthcare Financing – A Systematic Review to Evolve a Hybrid Model

Abstract

This review critically examines the interplay between Ethiopia’s escalating national debt and its healthcare system, focusing on how debt servicing priorities erode healthcare financing and exacerbate public health challenges. Over the past decade, Ethiopia’s debt-to-GDP ratio surged from 35% in 2013 to over 57% in 2021, diverting crucial resources away from healthcare. With nearly 25% of government revenue allocated to external debt repayments by 2020, healthcare spending remains a mere 4% of GDP, far below the Abuja Declaration’s 15% target. This disproportionate focus on debt servicing results in underfunding, especially for rural healthcare, which serves 80% of the population yet receives only 25% of the national health budget. The review highlights that rising debt service pressure not only restricts healthcare budgets but also stagnates key health outcomes, such as maternal and infant mortality rates. Ethiopia’s reliance on foreign aid for 40% of its healthcare financing makes the system vulnerable to donor shifts, further complicating the country’s healthcare crisis. Governance inefficiencies, misallocation of resources, and corruption amplify the adverse impacts of limited healthcare funding, contributing to inequitable access to healthcare services, particularly in rural areas.

It advocates a future research model that transcends static analyses by proposing a hybrid empirical approach integrating Structural Equation Modeling (SEM) and Vector Autoregression (VAR). This model will explore the causal relationships between debt servicing, healthcare financing, and public health outcomes, while capturing the dynamic, time-lagged effects of fiscal shocks on healthcare delivery. By investigating how debt restructuring, governance improvements, and public-private partnerships (PPPs) could alleviate healthcare financing gaps, this approach provides actionable insights for policymakers aiming to balance debt management with essential healthcare investments. This review underscores the urgent need for structural reforms in governance and debt management to prioritize healthcare investments in debt-stricken countries like Ethiopia. The proposed hybrid model advances the extant literature by providing a comprehensive framework for understanding the long-term impacts of national debt on healthcare systems, offering a pathway toward sustainable healthcare financing solutions.