Fiscal Space, Sovereign Debt, and the Resilience of Healthcare Infrastructure in Low- and Middle-Income Economies

Abstract

Public healthcare infrastructure in low- and middle-income economies is routinely expected to deliver essential services under volatile macroeconomic conditions and recurrent shocks. Over the past two decades, rapid demographic change, epidemiological transitions, and rising expectations for universal health coverage have increased the capital intensity of health systems, while debt cycles and tighter global financial conditions have constrained public investment. In this setting, fiscal space and sovereign debt dynamics are not merely background macro variables; they shape the level, composition, and reliability of infrastructure spending that underpins service continuity during crises. This paper develops a technical synthesis of how debt sustainability constraints interact with the resilience of healthcare infrastructure through budget composition, risk premia, and state-contingent financing capacity. The core contribution is an integrated stochastic framework in which a government allocates resources between recurrent inputs and infrastructure investment subject to a sovereign budget constraint, endogenous borrowing costs, and shock-driven damage and depreciation of health capital. Resilience is defined operationally as the system’s ability to maintain service capacity and recover rapidly after disruptions, and is linked to both physical assets and institutional absorptive capacity. The analysis highlights non-linearities: small increases in debt can have limited effects when markets are stable, but can sharply reduce feasible health investment when risk premia rise and refinancing risks intensify. Policy implications emphasize instruments that reduce rollover risk, protect capital maintenance, and align external financing with lifecycle costs, while acknowledging trade-offs among short-run stabilization, long-run capital accumulation, and contingent liabilities.