Better Aid for AIDS Treatment: The Promise of Endowment Funds

Amanda Glassman and Christopher Lane

UNAIDS, the joint United Nations program on HIV/AIDS, recently released its latest estimates of the funding gap for HIV/AIDS treatment, noting that an additional $30 to $54 billion will be required annually to reach and sustain universal access to treatment. Although fundraising efforts for HIV/AIDS treatment are receiving big boosts – mostly via wealthy country pledges of $9.7 billion for the 2008-2010 period to the Global Fund and positive consideration by the U.S. Congress of re-authorizing funds for the President’s Emergency Plan for HIV/AIDS (PEPFAR) — the total amount falls well short of estimated needs, even taking into account downward revisions of HIV/AIDS prevalence.

Globally, HIV/AIDS prevention programs remain under-financed, and the treatment costs for the approximately 2 million persons currently on antiretroviral (ARV) drugs in the developing world depend greatly on aid flows from the Global Fund, the U.S. government and other bilateral donors.[1] In spite of this, the financing arrangements to sustain programs are vague, if defined at all. The Global Fund proposals merely require a cost table showing “greater reliance on domestic resources” and “additionality” of Global Fund resources, with little thought given to the long-term financial risks of starting an HIV-positive person on treatment to the recipient country health system and to patients. In most low income countries all or almost all of the financing for ARV treatment is from external donors. Research in countries as diverse as Rwanda, Cambodia and Georgia shows that it may take 15-20 years for government budgets to expand sufficiently to cover current levels of external assistance for health.

With some exceptions, the current terms of aid for AIDS are also inconsistent with the requirements of financing long-term recurrent costs in resource-constrained environments.[2] The majority of aid remains fragmented amongst multiple, poorly-coordinated donors, tied to policies that require purchasing of donor-country products (PEPFAR being the most prominent example), off-budget directly to non-governmental executors with no effort to strengthen government purchasing or contracting oversight capacity, linked to short-term projects rather than long-term programs and, volatile and unpredictable in its duration and disbursements.

These features are problematic not only for aid effectiveness, but also for the effectiveness and benefits that are generated from treatment programs. Interrupted ARV treatment reduces its efficacy for individual patients via treatment failure and could contribute to the development and spread of resistant strains, requiring the patient to switch to more expensive second-line drugs sooner and thus increasing the costs of programs.

At the Brookings Global Health Financing Initiative, we are engaged in the search for innovative financing mechanisms that would create the health aid terms necessary to generate long-term and predictable financing for health priorities working with the financial sector, academia and selected donor agencies. Unlike interventions such as vaccination, where there are benefits to front-loading aid financing (see our Global Health Snapshot on the International Finance Facility for Immunization — IFFIm), financing for long-term disease treatment requires a smooth stream of funding to providers.[3]

One promising option for mobilizing funds for HIV/AIDS prevention and treatment is a country-based endowment fund. Endowment funds are typically thought of in the context of universities, foundations or not-for-profit hospitals, and for the financing of infrastructure or other capital investments. However, there are some cases in which endowment funds have been used successfully to finance recurrent costs. For example, university endowments have evolved to include earmarked financing for professorships or scholarships. Trusts, such as the Wellcome Trust and others, also have channeled charity or philanthropic giving into medical research or social services from the early 20th century in developed countries. There also are several precedents of official and private donor-financed health endowment funds operating in developing countries, as in Tuvalu and Bhutan.

Such funds could provide bridge financing to facilities that have a break in donor funding, or top-up funding to a minimum per capita funding level in the event of donor shortfalls. An alternative idea under consideration is a “life trust” that could cover the lifetime cost of ARV treatment for HIV/AIDS patients. Endowments could assure regular and predictable flow of financing, permitting financially-sustainable long-term health interventions without requiring the creation of a new institution. They could prove particularly cost effective in small states, which they might help achieve economies of scale through aid pooling and reduce aid administration costs. Endowments also could provide an alternative investment vehicle for donor disbursements in the event that a weak state is temporarily unable to absorb funds along a preset schedule. Further, endowments might catalyze additional private philanthropic contributions particularly if contributions to endowments receive favorable tax treatment. These funds also could provide a useful mechanism for ensuring the continuation of resources for countries that reach the end of donor financing.

Box 1. The Tuvalu Trust Fund

The Tuvalu Trust Fund is an important precedent of a light-touch institutional arrangement. The fund was created from contributions of the Tuvalu government and the governments of Australia, New Zealand and the United Kingdom. In subsequent years, unspent aid funds have been added to help grow the fund.

The fund’s general objectives include: increasing the financial autonomy of the recurrent budget; supporting social infrastructure and services including through long term maintenance; using external capital funds and technical assistance better; and assisting in the development of Tuvalu’s economy of Tuvalu.

An unremunerated governing board comprises representatives of all initial contributors to the fund, and there is a paid two-person advisory board. Use of funds is subject to financial safeguards specified in the treaty. Operations are audited annually. Distributions are made from the fund to the government budget.

Through 2006, the fund has achieved an average real rate of return of 6 percent, and contributed 21 percent of recurrent expenditures to the budget in 2006.

These experiences were also recently introduced in three other Pacific nations – Micronesia, Marshall Islands and Palau under the US government’s Millennium Challenge Account program.

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Despite their promise, there also are drawbacks to using endowments because they intrinsically backload aid financing. Endowments would represent an inefficient use of health aid if the return on the endowment investment is less than the marginal benefit of current health spending. A second more technical objection is that endowments would not promote intergenerational equity if future populations are assumed to have higher incomes than the current population. A third objection, dependent somewhat on the objectives of a fund and the extent to which objectives can be changed over time, is that such funds promote earmarking to goals that may not be an efficient use of resources as time progresses. Fourth, endowments may not meet the “need” test often applied by aid agencies, i.e. funds are only disbursed when the resources are needed. In a few cases, e.g, BMGF, regulations would need to be changed to allow funding of endowments.

Governance is key to making these funds feasible. Potential contributors will need to be assured that fund governance is adequately robust to provide the necessary financial safeguards and maintain accountability in the use of funds. Use of endowments in other areas of development can offer examples of how these funds can be structured to ensure adequate governance while also maintaining the “light touch” preferred by donors and aid effectiveness proponents (see Box 1 on the Tuvalu Trust Fund).

The scope (provincial, national) and activities supported by an endowment fund could be determined by the initial level of contributions and the lifetime envisaged for its operations. These details would be included in a fund charter, which would detail financial safeguards relating to use of funds and ensure that the fund would not be empowered to borrow. The described use of funds could be loose enough to allow their direct transfer to provincial budgets (providing adequate financial safeguards exist) or to contractors such as NGOs that operate health care facilities.

Endowments are one of several innovative financing options being explored by the Brookings Global Health Financing Initiative and a final report will be published during 2008.


[2] Lane and Glassman 2007; Oomman, Bernstein and Rosenzweig 2007; Institute of Medicine 2007.

[3] Financing the long-term costs of HIV/AIDS treatment is controversial. While some point to the economic benefits of treatment, Mead Over has recently opined that these benefits are overstated and termed treatment an “entitlement”, equivalent to a welfare transfer provided under a human rights rationale. Others see reason to fear that donors will not sustain the growth in funding for PEPFAR and the Global Fund, and that other health priorities will suffer as development assistance for health is squeezed. Some argue that restricted financing will have the salutary effect of forcing reallocation towards prevention. Many authors highlight the trade-offs in allocation efficiency made when choosing to finance ARV treatment for life versus other, possibly more cost-effective interventions.