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BACKGROUND: Inadequate funding for health is a challenge to attaining health-related Millennium Development Goals. Significant increase in health funding was recommended by the Commission for Macroeconomics and Health. Indeed Official Development Assistance has increased significantly in Uganda. However, the effectiveness of donor aid has come under greater scrutiny. This paper scrutinizes the prerequisites for aid effectiveness. The objective of the study was to assess the prerequisites for effectiveness of donor aid, specifically, its proportion to overall health funding, predictability, comprehensiveness, alignment to country priorities, and channeling mechanisms. METHODS: Secondary data obtained from various official reports and surveys were analyzed against the variables mentioned under objectives. This was augmented by observations and participation in discussions with all stakeholders to discuss sector performance including health financing. RESULTS: Between 2004-2007, the level of aid increased from US$6 per capita to US$11. Aid was found to be unpredictable with expenditure varying between 174-8722;360 percent from budgets. More than 50% of aid was found to be off budget and unavailable for comprehensive planning. There was disproportionate funding for some items such as drugs. Key health system elements such as human resources and infrastructure have not been given due attention in investment. The government's health funding from domestic sources grew only modestly which did not guarantee fiscal sustainability. CONCLUSION: Although donor aid is significant there is need to invest in the prerequisites that would guarantee its effective use.
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