Health Financing and the National Planning and Budget Processes

Solomon KaguluraWHO Zambia

Health Financing: global perspectives

10%

88%

34%

10%

56%

2%

0%

25%

50%

75%

100%

Burden of disease inDALY

Distribution of totalglobal expenditure on

health

High income Middle income Low income

Mismatch: health needs & health spending

Private spending increasingly equals or exceeds public spending in SSA

0

1

2

3

4

5

6

7

8

US$ per capita, 2001 Private

Public

Government Health Expenditures/GDP(assuming 5 percent annual GDP growth and total health expenditures of $34 per capita)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Perc

ent

Eritrea

Ethiopia

Ghana

Kenya

Lesotho

Malawi

Nigeria

Uganda

United Republic ofTanzaniaZambia

Projected

What percentage of GDP is needed to finance a health package of US$34 per capita for the whole population?

GH as a percentage of GDP to meet the under-five mortality rate target

0

10

20

30

40

50

60

70

80

90

100

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Year

Eritrea

Ethiopia

Ghana

Kenya

Lesotho

Malaw i

Nigeria

Uganda

Tanzania

Zambia

What percentage of GDP is needed to reduce U5M to the MDG target given the impact of GHE between 1990-2000?

Assumes a 1% real growth in GDP/capita per year, 5% reduction in illiteracy, 5% increase in road network, 5% increase in sanitation, 5% increase in donor funding

Planning and budgeting instruments

Better process helps win bigger budgets

And hopefully better outcomes

• In Mauritania, the Ministry of Finance increased the health budget by 40% in 2002.

• It was influenced by MTEF analysis suggesting targeted increase would reduce infant mortality by 30% and maternal mortality by 40% in five years.

• In Rwanda a similar process led to increased health budget from 6% of total government budget in 2004 to 10% in 2006.

The process graphically: Macro / Sector Links

Cost Sector Plan (Health + others)

PRSP

Macro + Financing Constraints

Different scenarios

Cost PRSC MTEF

Fiscal Space and Sustainability

Fiscal space: financing public expenditure in a prudent manner

Fiscal space:“availability of budgetary room that allows a government to provide resources for a desired purpose without any prejudice to the sustainability of a government’s financial position”

The budgetary resources allocation for health depends on:• Government’s overall fiscal policies• Demand of competing sectors• Spill over effect from one sector to another

Fiscal space can be generated through:• Tax measures or improving tax administration• Reallocation of resources away from lower priorities• Borrowing internally or externally• Seignorage• Grants

Fiscal SustainabilityFiscal Sustainability refers to:

“the ability of government to sustain spending on a desired purpose for its planned duration, and to meet the cost of borrowing without compromising the government's financial position”

Three conditions:• For expenditures funded by loans: financial returns generated by

additional expenditure should cover the cost of borrowing

• For recurrent expenditure funded by donor grants: if intended to continue these expenditures beyond the planned period of donor funding, governments must be able to raise alternative source of revenue to replace donor funding when it is phased out

• For all investments: governments must be able to cover recurrent costs of any new capital investment, e.g. operation and maintenance cost of new health facilities

Health sector spending presents particular challenges in relation to all three conditions.

How can we finance more public spending ?

Czech Republic

Uruguay

Oman

Hungary Argentina

Saudi Arabia

St. Kitts And Nevis

Slovak Republic

Estonia Poland

Mauritius

South Africa

Chile

Croatia

Malaysia

Mexico

Costa Rica Botswana

Latvia Brazil

Macedonia, Fyr

Thailand

Tunisia Panama

Namibia Turkey

Tonga Bulgaria

Gabon

Colombia

Dominica

Dominican Republic

Algeria

Samoa

Fi

Belarus

Peru

El Salvador

Paraguay

Lebanon

Guatemala

J ordan

Philippines China

J amaica

Egypt, Arab Rep.

Turkmenistan

Morocco Ecuador Vanuatu

Indonesia

Zimbabwe

Honduras

Papua New Guinea

Bolivia

Armenia

Lesotho

Vietnam

Djibouti Guinea

Georgia

Ghana

Pakistan

Solomon Islands

Sudan

Gambia, The

Haiti Cameroon

Mongolia

Cote D'Ivoire

Kyrgyz Republic

Togo

Moldova

Uganda

Rwanda

Burkina Faso

Chad

Nigeria

Eritrea

Mali

Zambia

Malawi Burundi

0

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3

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6

7

8

0 2,000

4,000 6,000 8,000 10,000 12,000 14,000

Per capita income PPP PPPPPP PPP

Dom

esti

call

y F

inan

ced

Gov

ernm

ent

Hea

lth

Spen

ding

as

% o

f G

DP

One way is through growthOne way is through growth

Note: Some Countries Spend Less Than Expected on Government Health Note: Some Countries Spend Less Than Expected on Government Health ProgramsPrograms

One way is through growthOne way is through growth

Note: Some Countries Spend Less Than Expected on Government Health Note: Some Countries Spend Less Than Expected on Government Health ProgramsPrograms

Real GDP Growth by Region

-4

-2

0

2

4

6

8

10

1991-2000 2001 2002 2003 2004 2005 2006-15

Year

Perc

ent

EAP SAR LAC ECA SSA MNA

Will Growth Help?Will Growth Help?Future GDP Growth Will Be ModestFuture GDP Growth Will Be Modest

Source: World Bank, Global Economic Prospects and the Developing Countries, 2004

Can countries increase taxation?

Tax revenue is low in SSACentral Government Revenues, Early 2000s Average

Regions*

Total Revenue as

% of GDPTax Revenue as % of GDP

Social Security

Taxes as % of Total GDP

Early 2000s

Americas 20.0 16.3 2.3Sub-Saharan Africa 19.7 15.9 0.3Central Europe, Baltics, Russia & Other Former Soviet Republics 26.7 23.4 8.1Middle East & North Africa 26.2 17.1 0.8Asia & Pacific 16.6 13.2 0.5Small Islands (Pop. < 1 million) 32.0 24.5 2.8

Low-income countries 17.7 14.5 0.7Low middle-income countries 21.4 16.3 1.4Upper middle-income countries 26.9 21.9 4.3High income Countries 31.9 26.5 7.2

** Unw eighted averages

* IMF regional and income categorizations

Countries in SSA have low tax base a low capacity to increase tax and non tax revenues

Figure 5. Annual percentage change of tax and nontax revenue (as % of GDP) in 1990s

Source: WDI database and IMF PRGF report Note: Blue diamond stands for tax revenue and rose square stands for nontax revenue

Figure 6. Annual percentage change in total revenue (as % of GDP) in 1990s

Source: WDI database and IMF PRGF report

Can countries allocate more to health?

Angola

Burkina Faso

Congo, Dem. Rep.

Congo, Rep.

Ethiopia

Gambia, TheGuinea-Bissau

Kyrgyz Republic

Lesotho

Madagascar

Mali

Mauritania

Moldova

Mongolia

Papua New Guinea

Rwanda Senegal

Sierra Leone

Solomon Islands

Tajikistan

Tanzania

UzbekistanYemen, Rep.Zambia

Zimbabwe

Vietnam

Uganda

Togo

SudanPakistan

Nigeria

Niger

Nepal

MalawiKenya

Indonesia

India

Haiti

Guinea

Ghana

Georgia

Eritrea

Equatorial Guinea

Cote D'Ivoire

Comoros

Chad

Central African Republic

Cameroon

Cambodia

Burundi

Benin

Bangladesh

Azerbaijan

0

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40

50

60

70

80

0 3 5 8 10 13 15

govt. health exp. as % govt. exp.

govt.

exp

. as

% G

DP

above regr. line

below regr. line

Quadrant I

Quadrant IIQuadrant III

Quadrant IV

EXPANDING GOVERNMENT EXPENDITURES IN HEALTHEXPANDING GOVERNMENT EXPENDITURES IN HEALTH

But government spending has its limits

0

2

4

6

8

10

12

14

eap eca lac mna sar ssa

share

of

GD

P d

evote

d t

o

govt.

healt

h e

xpend.

(%

)

2000

2015 on currenttrend

2015 requiredfor U5MRMDG

Assumes: Past impact of GH on outcomes remains constant and that, GDP per capita, donor funding, road network and sanitation coverage increase at 2.5% per year. Illiteracy is assumed to decline at 2.5% per year. Donor Funding is assumed to be only 1/3 as volatile in 2015 as in 2000.

Are donors coming through?

Donor funding• Donor funding is relevant mostly in Africa a few other LIC

• Meeting commitments is proving to be difficult

• Most Donor Funding for health comes in the form of vertical programs and is off budget

• Recent econometric work shows that additional donor funding does no have an impact on U5M and MM unless volatility and fungibility issues are addressed

The following charts illustrate some of the problems

Donor Funding: Are commitments being delivered? ODA is Rising But is Far Short of What is Needed to Meet the MDG

(0.54) and the Monterrey Commitments (0.70)

0

20

40

60

80

100

120

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010 0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

2003 US$ billions

T otal ODA (left axis)

ODA as % of donors' GNI(right axis)

Percent

0.25

0.300.32

T otal ODA to SSA (left axis)

Prospects for ODA in 2006 and 2010 are based on DAC members’ post-Monterrey announced commitments. Not all DAC members have made commitments beyond 2006.

Source: OECD DAC database.

A Large Part of the Increase in Aid is Not Directed to A Large Part of the Increase in Aid is Not Directed to Financing the Incremental Costs of Meeting the MDGsFinancing the Incremental Costs of Meeting the MDGs

a few countries debt relief and TC

Increase in ODA is concentrated in

The real increase in ODA in 2001-03 is $7.5 billion in 2003 dollars.

Breakdown of total increase in nominal net ODA of $16.7 billion in 2001-03

123456789

1011121314151617

Debt relief: $6.0 billion

Technical cooperation: $4.8 billion

Em ergency & disas ter relief & food aid: $2.8 billion

Other bilateral: $1.2 billion

Multilateral: $1.9 billion

-2-1

123456789

10111213141516171819

Congo: $5.1 billion

Afghanistan: $1.1 billion

Sub-Saharan Africa LICs: $3.9 billion

Other LICs: -$0.6 billion

Jordan: $0.8 billionIraq: $2.1 billion

MICs: $0.2 billion

Unallocated by country: $3.9 billion

Donor Health Assistance is increasing

0

2,000

4,000

6,000

8,000

10,000

12,000

Average 1997-99 2003Year

US$

(in

million

s)

Private Non-profit

Other Multilateral

Development Banks

UN System

Bilateral

But large part of the increase is in vertical programs

Trend in HIV/AIDS Financing Relative to Total DAH 2000-2004

1532

84 8568

160

20

40

60

80

100

2000 2002 2004

Year

Pe

rce

nt

HIV/AIDS Financing

Lack of predictability of donor assistance

F ig u re 3 . D o n o r C o m m itm en ts as a p ercen tag e o f To ta l H ealth E xp en d itu re

0

20

40

60

80

100

1997 1998 1999 2000 2001

M auritan ia

Tanzan ia

M a li

E ritrea

F ig u re 4 . P ercen tag e o f To ta l H ealth E xp en d itu re F in an ced b y E xtern al S o u rces

0

5

10

15

20

25

1997 1998 1999 2000 2001

G u inea

B en in

B urund i

L ibe ria

S ource: W D I and O E C D D A C donor fund ing database . S taff es tim ates

Where Does All the Aid Go?

On average, for every $1 disbursed by donors to our 14 case study countries, we estimate:

•Not recorded in balance of payment $0.30•Recorded in B of P but not in Govt spending $0.20•Aid earmarked to specific projects $0.30•Budget support $0.20

1990s structural adjustment provided a larger share of aid as general budget resources.

Conclusions

• Countries are behind with respect to the MDG goals

• Broad agreement exists on health priorities.

• Accountability for results is not always supported by control of the resources necessary to achieve them.

• Fiscal constraints are binding, particularly in low-income countries.

• Public health expenditure needs to be well- targeted and allocated to high impact interventions proven to work.

Conclusions

• In good practice cases, PRSP identifies spending priorities in consultation with sectors, MTEF/budget process shifts resources towards them, reviews and adjusts each year in light of performance.

• Capacity problems can be managed if bottlenecks are tackled in a logical sequence, avoiding large "earmarked" commitments that distort priorities.

• Progress to the MDGs requires more budget support in aid-dependent countries