Middle income health trap threatens health financing, authors warn

A middle income health trap is putting public-health budgets under pressure as countries move beyond low-income status, according to Tom Achoki and Walter O. Ochieng. In a Project Syndicate commentary dated July 29, 2026, the authors argued that graduation can cut off grants and concessional finance before tax systems, insurance coverage and domestic capital markets are strong enough to replace them.

The issue is material for health systems and public finances because eligibility for some aid is tied to gross national income per capita. Once countries cross the World Bank threshold into middle-income status, the authors said, concessional loans may give way to more expensive borrowing, while support from global health programmes can be reduced or ended.

What is the middle income health trap?

The middle income health trap describes a fiscal squeeze in which a country is considered too wealthy for some aid, yet still lacks the revenue base and affordable financing needed to sustain public-health programmes. Achoki and Ochieng said the gap can widen when disease burdens remain high while external support declines.

They cited World Bank data showing that middle-income countries account for more than 70% of the world’s poor. They also pointed to World Health Organization data indicating that these countries record most tuberculosis deaths and still carry a large share of mortality from HIV and non-communicable diseases.

The fiscal constraint is reinforced by weak revenue collection in many countries. Citing the International Monetary Fund, the authors noted that many middle-income economies raise less than 15% of GDP in taxes, in part because large informal sectors limit the tax base. Debt-service costs can further reduce the room available for health ministries.

The transition can be abrupt for health programmes with recurrent costs. Achoki and Ochieng said governments may be expected to take over spending on vaccines, antiretroviral medicines and malaria control within only a few budget cycles after donor-backed programmes supported by groups such as Gavi or the Global Fund begin to wind down.

How aid exits can affect health programmes

Romania is one case raised by the authors. After the country joined the European Union in 2007 and its economy expanded, a key condition was created for the Global Fund to withdraw support for HIV prevention services in June 2010, according to research they cited. When public funding did not fill the gap, harm-reduction services deteriorated and infections rose among vulnerable groups, according to the cited studies.

Borrowing terms are another channel. Achoki and Ochieng said countries that graduate often face a shift from concessional external finance to commercial debt at the same time that aid declines. Private lenders may charge higher rates because of volatility in newly graduated economies, while interest payments can absorb the fiscal space donors expected governments to use for health spending.

The authors also cautioned that private-sector investment does not substitute evenly for public-health financing. They said capital tends to seek returns in areas such as urban hospitals, diagnostics and specialist treatment, while primary care, prevention and other public-health functions often remain dependent on the state because they generate lower financial returns.

What changes are being proposed?

Achoki and Ochieng called for aid eligibility rules that give greater weight to disease burdens and fiscal capacity, rather than relying heavily on projected income status. They also urged global health institutions to offer longer and more predictable transition periods, reflecting the recurring costs of service delivery.

For recipient governments, the authors said debt relief should be considered alongside health transitions rather than treated as a separate macroeconomic question. They added that countries should strengthen tax collection and direct a meaningful share of additional revenue toward health programmes with proven results.

The authors concluded that graduation should remain a sign of development progress, but warned that health gains can weaken if financing systems are not ready when donor support recedes.

This story draws on original reporting from Project Syndicate.