Investing in Health for Inclusive Growth: Fiscal Policy, Natural Resources, and Human Capital in the 21st Century

“Medicine is a social science, and politics is nothing but medicine on a grand scale!”

“Medicine has imperceptibly led us into the social field and placed us in a position of confronting directly the great problems of our time….…A population will never achieve full education, freedom and prosperity in the form of a gift from the outside. The people must acquire what they need by their own efforts.”

—Rudolf Virchow (1821-1902), scientist, medical doctor, pathologist, anthropologist, sociologist and politician. Collected Essays in Public Health and Epidemiology, Vol. 1 (1985).

In the post-pandemic world marked by economic uncertainty, rising inequality, and shifting global priorities, investing in health is no longer just a moral imperative—it is a strategic policy for achieving inclusive and sustainable development. In this note, I discuss how health investment, fiscal policy reform, institutional accountability, and natural resource governance can work together to build resilient economies and equitable societies.

I. Reframing Health as a Core Investment

As global aid declines and budget pressures intensify, the need for countries to prioritize health as a long-term development investment—rather than a discretionary budget line vulnerable to cuts—has become more urgent. The COVID-19 pandemic laid bare this reality, reminding governments about the close link between health and economic development, as health crises produced major macroeconomic impacts. Moving forward, as highlighted in a report by the International Monetary Fund (IMF), health spending will remain a critical policy priority due to persistent global health threats, rising expenditure pressures, and the growing recognition of its role in both well-being and economic growth.

The time has come, once and for all, for governments to recognize the funding of vaccines, primary care, and essential public health services as indispensable elements of annual national budgets. The real test of a government's commitment to health equity and global goals lies not in its presence at international conferences, but in the sustained allocation of domestic resources over time.

II. Beyond Declarations: Institutionalizing Accountability and Domestic Ownership

The traditional model of global health aid—rooted in donor dependence and lofty pledges—is increasingly unfit for purpose. The disconnection between high-level declarations and commitments at international fora and country follow-up is a recurring pattern. Governments must institutionalize transparency and accountability mechanisms to ensure resources are aligned with stated priorities and agreed commitments. Without this, the gap between rhetoric and reality will persist.

III. Fiscal Reforms and Good Governance for Sustainable Health Financing

Mobilizing domestic resources through tax reforms is essential for securing sustainable financing for development. On average, developing economies collect just 15% of GDP in taxes, compared to 40% in advanced economies. This limited tax capacity severely constrains their ability to fund essential services such as health, education, infrastructure, and other public goods—putting long-term economic development at risk given the scale of their needs.

As highlighted in a World Bank Group evaluation, crises—such as those many countries face today—can create critical momentum for reform. For instance, the fiscal pressures resulting from the 2008 global economic crisis prompted several countries to adopt politically challenging but necessary tax measures to increase revenues. Lessons from tax reform efforts across countries highlight key strategies for effective revenue mobilization: simplify the tax system by limiting rates and curbing exemptions; reform indirect taxes like VAT and excise duties, which can quickly boost revenue; and modernize tax administration by leveraging big data, improving registration and payment systems, and implementing risk-based audits to enhance compliance and reduce corruption.

However, a central finding of the above-mentioned World Bank Group’s evaluation is that tax policy and administrative reforms alone are not enough. Sustained revenue improvements also require strong public institutions, including a credible judiciary, and a concerted effort to tackle corruption across the public sector. Without these complementary reforms, tax efforts risk being short-lived.

In parallel, improving tax collection and reducing tax evasion are practical strategies for boosting government revenues with relatively low political resistance. Advancements in digital payments, data analytics, and automation are increasingly enabling tax authorities to reduce leakages, lower processing times and costs, and minimize errors and fraud—thereby enhancing both efficiency and taxpayer compliance.

Efforts to strengthen fiscal systems pay off. For example, across Africa, sustained reforms have contributed to a gradual rise in tax-to-GDP ratios, reflecting a broader commitment to improving domestic resource mobilization. Between 2013 and 2022, the average tax-to-GDP ratio in Africa increased by 1.1 percentage points, with 25 out of 36 countries recording gains. Over the decade, Africa’s ratio grew by 1.1 percentage points, compared to 0.8 in LAC and 1.4 in the OECD. In 2022, Africa’s average tax-to-GDP ratio rose to 16.0%, up from 15.5% in 2019, marking the second consecutive annual increase. Despite this progress, Africa's tax revenue remains below that of Asia-Pacific (19.3%), Latin America and the Caribbean (21.5%), and OECD countries (34.0%).

To expand the tax base, the World Bank Group, along with the World Health Organization (WHO) and other organizations, has advocated over the past decade for increasing excise taxes on tobacco, alcohol, and sugary drinks, which serve the dual purpose of reducing consumption and health risks while generating additional public revenues to fund priority investments and programs that benefit all. Increases in excise and sales taxes are the simplest measures because they can raise revenue fairly quickly without fundamental changes to the tax system.

Eliminating inefficient fossil fuel subsidies would also create vital fiscal space for investment in health, education, and social protection. According to estimates by the IMF, fossil fuel subsidies reached $7 trillion in 2022—an increase of $2 trillion since 2020—and accounted for 7.1 percent of global GDP.

Likewise, reductions in military expenditures—as a share of both total government spending and GDP—can further expand fiscal space for greater investment in education, health, and infrastructure. According to data from the Stockholm International Peace Research Institute (SIPRI), total global military expenditure rose to $1,917 billion in 2019, representing 2.2 percent of global GDP, or approximately $249 per person. This marked a 3.6 percent increase from 2018 and the largest annual growth in military spending since 2010.

The above fiscal measures offer governments powerful tools to increase investment in health and other development priorities, while simultaneously addressing key social and environmental risks.

However, as former World Bank Group President James D. Wolfensohn observed, corruption in the public and private spheres is a ‘cancer’ that eats away at development from within. He argued that unless countries confront the corrosive effects of fraud and corruption, efforts to improve governance, invest in health, and achieve inclusive growth will continue to be undermined. Wolfensohn’s call for transparency, accountability, and civic participation remains deeply relevant today, especially in the management and use of public funds and health budgets, where leakage and misuse can erode public trust and limit impact.

IV. Health, Human Capital, and Economic Growth: The Evidence Base

As I discussed in a previous post, the link between health and long-term economic performance is well-established. Robert Fogel, 1993 Nobel Laureate in Economic Science, in his book The Escape from Hunger and Premature Death, traces the interplay between health, nutrition, and technology from 1700 to 2100, showing that improved health, nutrition and technological advances have more than doubled human longevity and increased average body size by over 50%. Larger, healthier populations have helped accelerate economic growth and technological progress, contributing to reduced inequality, shorter working hours, and increased leisure time.

Underscoring Fogel’s findings, Jakob Madsen’s study of 21 OECD countries from 1812 to 2009 found that improved health-adjusted educational attainment played a pivotal role in boosting economic growth by enhancing learning capacity and worker productivity. In contrast, childhood illness, malnutrition, and poor health reduce school attendance, impair cognitive function, and limit earnings potential later in life.

The World Bank Group’s Human Capital Index confirms these dynamics in today’s context, showing that countries lose an estimated 50% of potential economic productivity due to gaps in health and education. Human capital—comprising the knowledge, skills, and good physical and mental health people accumulate over their lives—not only holds intrinsic value but also empowers individuals to contribute productively to society. Greater human capital is linked to higher individual earnings, stronger national income, and greater social cohesion, making it a key driver of sustainable growth and poverty reduction.

Contemporary country examples from East Asia show how strategic health investments underpin national development. For example, South Korea’s remarkable development over the past 60 years offers valuable lessons across multiple sectors—particularly its sustained commitment to universal health coverage and the creation of a resilient health system capable of managing and learning from major shocks like the COVID-19 pandemic.

Following World War II, South Korea pursued an integrated approach to human capital development by expanding public health programs alongside compulsory education and export-oriented growth strategies, leading to one of the fastest economic transformations in modern history. The strengthening of the health system has been supported by sustained funding, via allocations from the central and local governments, and the compulsory National Health Insurance (NHI) that covers more than 97 percent of the total population. While population-level prevention and outbreak response are funded by the government, a comprehensive benefit package of medical care services is offered by NHI. The National Health Promotion Fund, financed through earmarked tobacco taxes, helps fund the Korea Disease Control and Prevention Agency (KDCA) and NHI, and the Disaster Management Fund, which collects one percent of local government tax revenue, helps fund local expenditures during emergencies. During COVID-19, the government also provided supplementary budgetary allocations to purchase vaccines, support vaccination rollout, and overall infection control.

V. Institutions and Systems: Keys to Sustainable Development in Resource-Rich Countries

As countries seek to mobilize domestic resources to advance the 2030 development agenda, the experience of mineral-rich regions that have successfully channeled natural resource revenues into human capital offers valuable lessons.

While many resource-rich countries—particularly in sub-Saharan Africa and Latin America—have struggled to translate mineral wealth into improved human development outcomes, notable exceptions such as Chile, Botswana, and the U.S. state of Texas demonstrate what is possible when sound policies and strong institutions are in place. These cases show that natural resource endowments can become a catalyst for sustainable and inclusive development, rather than a curse.

Chile’s experience in managing copper revenues illustrates how prudent fiscal management can transform natural wealth into long-term public value. As detailed in José Pablo Arellano’s book Políticas Sociales y Financiamiento: Chile 1990–2009, the country implemented a series of institutional reforms—including the establishment of stabilization funds and structural budget rules—that helped shield the economy from commodity price volatility and ensured consistent investment in health and social programs. For example, the Regime of Explicit Health Guarantees (AUGE – Acceso Universal a Garantías Explícitas), introduced in 2005, significantly strengthened public sector funding and established a legally mandated package of priority health services. This measure has contributed to improve access, timeliness, quality, and financial protection for all citizens. Each covered condition is linked to standardized clinical protocols, defined maximum waiting times for diagnosis and treatment, and capped out-of-pocket payments. AUGE was designed to reduce health inequalities—particularly for chronic and high-burden conditions—while enhancing system efficiency and promoting patient-centered care.

Similarly, Botswana leveraged its diamond revenues through sound economic policies, strong institutions of private property, and a well-managed public sector—enabling efficient resource use and sustained investment. Despite challenging initial conditions, it stands as a leading example of how institutional design can drive development in resource-rich African countries.

Over the past decades, Botswana has also tackled some of the world’s highest HIV/AIDS prevalence rates through comprehensive prevention efforts and a robust, domestically funded antiretroviral (ARV) program with success. During the plenary session of the Seventy-eighth World Health Assembly on May 20, 2025, the WHO Director-General awarded Botswana gold tier status on the Path to Elimination of mother-to-child transmission of HIV as a public health problem. This recognition, following its silver tier status in 2021, reflects Botswana’s success in reducing new pediatric HIV infections to under 250 per 100,000 live births and raising antenatal care, HIV testing, and treatment coverage among pregnant women to 95%. Achieved in just three years, this milestone highlights Botswana’s strong health leadership, integration of HIV services into primary care, and commitment to human rights, gender equality, and community engagement.

Texas stands out for its century-long track record of using oil and gas revenues to fund public education. As mandated by the Texas constitution, the Foundation School Fund, the primary mechanism for transferring state funds to more than 1,000 school districts, is largely financed by 25% of the state’s occupation tax revenues, which include oil and natural gas production taxes. In recent years, the state’s education system received over $1 billion in revenue from these taxes.

The Permanent School Fund, a state education endowment with total assets of more than $56 billion in 2023, that is capitalized with annual oil and natural gas royalties and investments managed by the State Lands Board, supports K-12 public schools. This Fund also helps secure AAA bond ratings for school districts, enabling them to pay lower interest rates. It is estimated that the Permanent School Fund has contributed more than $23 billion to Texas schools since 1960, with about $2.1 billion being disbursed in 2023.

The Permanent University Fund (PUF) is a public endowment that supports 21 institutions of the University of Texas (UT) and the Texas A&M University systems that provide educational opportunities to close to 200,000 students across the state. PUF was established by the 1876 Constitution of the state of Texas through the appropriation of 2.1 million acres of land in West Texas. Since 1923, when oil began to be drilled on what was once cattle-grazing land, the principal of the PUF, which cannot be spent, has included proceeds from oil, gas, sulfur, and water royalties on this land, gains on investments in the financial markets, rentals of mineral leases, and the amounts received from the sale of university lands. The income generated by grazing leases on university lands and a portion of the earnings from the endowment are distributed across the two university systems (about $1.8 billion in 2024 alone); the rest is added back into the principal.

The PUF is managed by the Board of Regents of the UT System, which contracts with a non-profit organization for its day-to-day investment management. In early 2025, The University of Texas System’s $47.5 billion endowment is one of the largest educational endowments in the United States, second place after Harvard University with an endowment of $52 billion, and above Yale University, with an endowment of $41.4 billion. To prevent political interference in the management of the PUF, specific provisions are included in the state constitution limiting how much money could be withdrawn and prohibiting spending on anything outside academics.

In addition to paying taxes and royalties, the oil and natural gas industry contributes funding for special training programs in local high schools and colleges, particularly focusing on science, technology, engineering, and math. This helps the state educational system meet the demand for a skilled workforce in the Texan energy industry and gives students skills to help them find jobs after graduation.

The experience in Texas, as well as of Chile and Botswana, demonstrate how extractive wealth can be used strategically to invest in health, education, and workforce development.

For mineral-rich countries elsewhere, adopting similar approaches can help finance universal education and health coverage, reduce reliance on volatile and rapidly eroding external aid, and foster inclusive growth. Learning from global experiences like those from Chile, Botswana, and Texas can help overcome the “poverty of imagination” that often limits the pursuit of more just and prosperous societies.

VI. Development Matters for Global Prosperity and Stability

Development should be seen as a far-sighted investment in national resilience, prosperity, and security. As Anna Bjerde, Chief Operating Officer at the World Bank Group, highlighted in a recent interview, at its core, it is an investment in growing markets that expand opportunity; in new solutions to persistent challenges; in tomorrow’s partners who will trade, innovate, and collaborate; and in a more stable, inclusive future.

Health lies at the heart of this investment logic. A nation’s economic potential is shaped as much by the health of its people as by its physical infrastructure or fiscal reserves. Healthy populations are more productive, more innovative, and more capable of contributing to long-term growth. When governments invest in universal immunization, primary care, maternal and child health, mental health, and disease prevention, they are laying the foundation for human capital development, which in turn attracts businesses, drives consumption, and sustains competitiveness in an ever-growing knowledge-based economies.

However, turning development—and particularly health development—into a smart investment requires the right enabling environment. This is where the integrated work of institutions like the World Bank Group becomes indispensable. As Anna Bjerde noted, development finance must go hand in hand with policy directionality, fiscal prudence, good governance, and regulatory clarity to give public and private investors the confidence to engage for the long term. In the health sector, this means ensuring that resource allocation is transparent and aligned with national priorities, and that health systems are efficient, accountable for the management of resources and the results and impact achieved, and inclusive.

It also takes targeted tools to de-risk investment, particularly in fragile or underserved markets where health needs are greatest, but traditional capital flows are limited. Blended finance mechanisms, concessional lending, and public-private partnerships can catalyze private investment in health infrastructure, technology, and services—transforming lives while generating sustainable returns.

Most importantly, it takes genuine partnerships between governments, the private sector, and multilateral finance organizations to transform development into sustained, shared prosperity. With ‘the rules of the game’ clearly spelled out and enforced, private investors can be good allies in scaling health innovations, expanding access to care, and helping countries build resilient systems. This is especially critical at a time when global goals like ending extreme poverty and achieving universal health coverage risk falling out of reach.

By embracing health not just as a social good but as a strategic investment in human capital and national development, governments can realign fiscal policy, economic strategy, and development assistance toward inclusive growth. The dividends of this investment—in improved well-being, enhanced productivity, and greater societal cohesion—will endure far beyond the next budget cycle.

VII. Designing Health Systems That Reflect Social Values

Health systems are reflections of a society’s values. The late, great Princeton health economist Uwe Reinhardt emphasized that the organization of health care—its financing, risk pooling, service delivery, and governance—reflects a nation’s distributive ethics and moral commitments. Different nations, he argued, make different choices, and their systems vary widely, but the guiding question remains: what kind of society do we want to build?

These choices are not merely technical or economic—they are profoundly political and ethical. Decisions about who gets access to care, how that care is financed, and who bears the financial risk in times of illness reveal the underlying priorities of a society. Countries that invest in universal health coverage, equitable financing mechanisms, and strong public health institutions demonstrate a commitment to social solidarity and shared responsibility. In contrast, fragmented or underfunded systems often reflect and reinforce broader inequalities. As global challenges—from pandemics to aging populations to erosion of development aid contributions—place growing pressure on health systems, the moral imperative to align policy with equity, efficiency, and sustainability becomes ever more urgent. The architecture of health care, as Reinhardt reminded us, is ultimately a mirror of what we owe to one another as members of a shared community, bound by a common social contract.

VIII. A Development Vision Grounded in Human Dignity

Moving forward in an unsettled post-COVID-19 era, marked by converging syndemic crises—health, economic, social, political, and environmental—the central challenge facing all countries is not merely to mobilize, allocate, and manage more resources efficiently, but to translate those resources into measurable improvements in people’s lives and health conditions. This means building societies rooted in equity, social justice, and, above all, human dignity.

Realizing this vision requires sustained and strategic investment in people—through quality health care, education, and social protection—reaffirming the critical importance of human capital development as the foundation for long-term economic growth, job creation, income generation, and shared prosperity.

Equally vital is the need to reshape the architecture of global cooperation in the face of fiscal constraints and donor fatigue. The time has come to move beyond short-term, project-based aid toward long-term, trust-based, results-oriented, partnerships focused on institutional reform, systems strengthening, and national capacity development. These are the building blocks of resilient economies and inclusive societies that deliver real and lasting benefits to all.

In the spirit of moral clarity, let us heed the words of Martin Luther King Jr.—“The arc of the moral universe is long, but it bends toward justice”—and commit to bending that arc deliberately, strategically, and inclusively, anchored in the fundamental dignity of every person.

Source of Images:

Image 1: Shutterstock Asset id 2015750438

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Image 3: Photo by author at exhibition at the World Bank Group HQs, WDC, June 2025.

Image 4: Photo by author of World Bank report cover.

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Image 7: Shutterstock, Asset id 1269896962.