The amount of Development Assistance for Health (DAH) available to low- and middle-income countries has increased exponentially over the past decade. However, there are concerns that DAH increases have not resulted in increased spending on health at the country level. This is because DAH may be fungible, resulting from the recipient government decreasing its contribution to the health sector as a result of external funding. The aim of this research is to assess whether DAH funds in Tanzania are fungible, by exploring government substitution of its own resources across sectors and within the health sector.

A database containing 28140 projects of DAH expenditure between 2000 and 2010 was compiled from the Organisation for Economic Co-operation and Development’s Creditor Reporting System (OECD-CRS) and AidData databases. Government health expenditure data for the same period were obtained from the Government of Tanzania, World Bank, public expenditure reviews and budget speeches and analysed to assess the degree of government substitution. 22 semi-structured interviews were conducted with Development Partners (DPs), government and non-government stakeholders between April and June 2012 to explore stakeholder perceptions of fungibility.

We found some evidence of substitution of government funds at the health sector and sub-sector levels and two mechanisms through which it takes place: the resource allocation process and macro-economic factors. We found fungibility of external funds may not necessarily be detrimental to Tanzania’s development (as evidence suggests the funds displaced may be reallocated to education) and the mechanisms used by DPs to prevent substitution were largely ineffective.

We recommend DPs engage more effectively in the priority-setting process, not just with the Ministry of Health and Social Welfare (MoHSW), but also with the Ministry of Finance, to agree on priorities and mutual funding responsibilities at a macroeconomic level. We also call for more qualitative research on fungibility.