A Framework for Assessing Fiscal Space for Health

A Framework for Assessing Fiscal Space for Health

A Framework for Assessing Fiscal Space for Health

Ajay TandonHealth, Nutrition, and Population Anchor

World Bank

What is Fiscal Space?

• Understanding overall fiscal space from a macroeconomic perspective.

• Assessing fiscal space from a health sector perspective.

Some country examples.

Outline





Outline

Overall fiscal space (IMF definition):

Fiscal space refers to the 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.

Definition does not specify fiscal space for what, eg, there is no sector specification – generally presumed to be for some “meritorious” purpose, or for financing public investments for aiding economic growth.

Strong link to the notion of financial sustainability.

Financial sustainability is the capacity of governments, in future, to finance desired expenditure programs, service its debts, and ensure its solvency.


Can government expenditure be increased? If so, how is the government going to finance additional expenditure?

What are the implications for expenditure in future years and can these also be financed?

Is financing of today’s expenditures consistent with today’s macroeconomic policy framework (exchange rates, inflation, growth)?

Will new expenditure programs, if continued, fit into the medium-term budget and macroeconomic policy framework?

Does today’s expenditure create debt obligations that must be serviced in the future? If so, will the expenditures have an impact on the underlying growth rate?

Types of Questions to Pose

Can be understood by examining a simplified government budget constraint.

Uses of Budgetary Resources = Sources of Budgetary Resources

Gt + rBt-1 = Tt + Bt + At + Ot

Gt is (discretionary) non-interest expenditure. rBt-1 is (non-discretionary) debt repayment. Tt are taxes and other revenues. Bt is new domestic and/or foreign borrowing. At are grants. Ot are other sources of funds, eg, from sale of assets.

Sources of Fiscal Space

Sources of Fiscal Space

Grants

Revenue

Borrowing

Efficiency1

2

3

4

5

6

7

Overall fiscal space(increase as % of GDP)

Can be visualized as a diamond plot with theaxes representing the amounts from different sources

Fiscal capacity measured as 2002-2007 average of indicators for:

• Debt/GDP.• Fiscal deficit.• Current account balance.• International reserves.• Reversible capital inflows.

High Exposure-Low Fiscal Space

• Ethiopia, India, Pakistan

High Exposure-Some Fiscal Space

• Bangladesh, Cambodia, Indonesia

High Exposure-More Fiscal Space

• Uzbekistan, Bhutan, Botswana

Fiscal Capacity and Fiscal Space





Outline

Availability of budgetary room for increasing public spending for health without jeopardizing macroeconomic stability.

Fiscal space for health can be assessed by:

Deriving implications for health sector from overall fiscal space framework, eg, as a result of conducive macroeconomic conditions. Focusing on the extent to which health might be reprioritized within the government budget. Examining pros and cons of sector-specific means to raising resources, eg, by use of earmarked taxes. Evaluating the use of sector-specific grants from international agencies such as GAVI and Global Fund. Improving the efficiency of sector outlays.

Fiscal Space for Health



Health sector-specific assessments of fiscal space can be visualized using a spider plot.

Conducive macroeconomic conditions

Reprioritization

Sector-specific foreign aidOther sector-specific resources

Efficiency

1

2

3

4

5

6

7

8

Fiscal space for health(increase as % of government health spending)

Assessment of overall fiscal space is meaningless without some sense as to why the fiscal space is needed.

A specific overall policy objective or a sector-specific focus is necessary for any assessment of overall fiscal space to have some utility – fiscal space for what?

Demographic pressures (aging, high fertility rates) may require a rise in government health spending.

Implementation of health reforms may require a rise in government health spending, eg, introduction of subsidized insurance.

Often perceptions/evidence that health sector is under-funded. Fiscal space assessments can complement costing studies.

Demand as part of PERs or as inputs to MTEFs.

Why Fiscal Space for Health?


US$34

0 20 40 60Health expenditure per capita (US$)

BhutanSao Tome and Principe

MongoliaTimor-Leste

ZambiaVietnam

HaitiSenegal

Yemen, Rep.India

SudanZimbabwe

GhanaCote d'Ivoire

Kyrgyz RepublicSolomon Islands

RwandaNigeria

CambodiaMali

UzbekistanKenya

Papua New GuineaBenin

Burkina FasoUganda

AfghanistanChad

Lao PDRTajikistan

MalawiGuinea

MauritaniaTogo

TanzaniaMozambique

NepalPakistan

ComorosCentral African Republic

BangladeshGambia, The

Guinea-BissauEritreaNiger

LiberiaMadagascarSierra Leone

EthiopiaCongo, Dem. Rep.

MyanmarBurundi

Source: WDI

Health expenditure per capitain low-income countries, 2006

15%

0 10 20 30Share of government budget (%)

RwandaMalawi

BotswanaLiberia

Burkina FasoGabon

TanzaniaCape Verde

BeninMozambique

MaliSao Tome and Principe

Central African RepublicZambia

NigerEthiopiaNamibiaUganda

South AfricaMadagascar

ChadSwazilandMauritius

ZimbabweSeychelles

Gambia, TheCameroonComoros

LesothoSierra Leone

Congo, Dem. Rep.Equatorial Guinea

TogoGhana

SenegalSudanKenya

MauritaniaAngolaGuineaEritrea

Cote d'IvoireGuinea-Bissau

Congo, Rep.Nigeria

Burundi

Source: WHO

Health share of government budgetin Sub-Saharan Africa, 2006



Reprioritization


Efficiency

1

2

3

4

5

6

7

8


With share of government expenditure to GDP of about 30%, and health’s share at 15% of the budget, fiscal space is likely to be limited to around 4.5% of GDP.

Current average of public expenditure on health is about 2.5% in low-income countries.

In an average country with GDP per capita of US$400 and population of 44 million, increasing public expenditure on health from 2.5% to (say) 5% of GDP would raise per capita health spending by only US$10 per capita.

There may be upper limits to increasing health spending in low-income countries without economic growth.

Conducive Macroeconomic Environment Important

Health Spending Increases with Income

CameroonIndia

Kenya

TanzaniaBangladesh

Ethiopia

Cambodia

Madagascar

NepalUganda

ZambiaSenegal

55

05

00

50

00

To

tal h

ea

lth e

xpe

nd

iture

pe

r ca

pita

, US

$

250 1000 5000 25000GNI per capita, US$

Total health expenditurevs income, 2006

Cameroon

IndiaTanzania

BangladeshEthiopiaNepal

Uganda

ZambiaSenegal

55

05

00

50

00

Go

vern

me

nt h

ea

lth e

xpe

nd

iture

pe

r ca

pita

, US

$

250 1000 5000 25000GNI per capita, US$

Government health expenditureper capita v s income, 2006

Source: WDI & WHO

On average, government and total health expenditure rises with income.

Share of Government in Health Increases with Income

Government’s share of expenditure rises with income (akin to Wagner’s Law).

Government

Private out-of-pocket

Private pooled0

20

40

60

80

100

Pe

rcen

t of t

otal

hea

lth e

xpen

ditu

re

Lower income Lower middle Upper middle High incomeSource: WHO

Health financing trends by income, 2005

Share of Government in Health Increases with Income

As countries become richer, revenue generation tends to improve. Indonesia’s collects about 19% of GDP in revenues – lower than the average for its income.

0 10 20 30 40Revenue (% of GDP)

Higher income

Upper middle

Lower middle

Lower income

Source: WDI

Revenues (% of GDP), 2003-2006



Reprioritization


Efficiency

1

2

3

4

5

6

7

8


Prioritizing health in the government budget: often linked to difficult political economy considerations.

Can “unproductive” expenditure be reduced to make space for health, eg, expenditure on subsidies? Often entails difficult political trade-offs.

Literature suggests factors such as level of democratization, income inequality, ethno-linguistic fractionalization, initial levels of education, etc., are important determinants of the degree to which health is prioritized by governments.

Reprioritizing Health in Government Budgets

Reprioritizing Health in Government Budgets

Country/Region Central government share of budget, 2000-2006 Health Military Education

Bangladesh 6.2% 13.9% 15.2%

China 9.8% 19.0% --

India 3.3% 18.0% 11.7%

Indonesia 4.6% 7.8% 9.4%

Malaysia 7.2% 11.4% 24.0%

Philippines 5.7% 5.2% 15.9%

Sri Lanka 7.4% 14.1% --

Thailand 11.0% 7.3% 27.8%

Vietnam 5.9% -- --

East Asia and Pacific (EAP) 9.9% 11.2% 17.1%

Lower Middle-income Countries (LMC) 10.1% 9.3% 16.7%

Source: WHO NHA Database and WDI. Note: EAP and LMC averages are unweighted.



Reprioritization


Efficiency

1

2

3

4

5

6

7

8




Reprioritization


Efficiency

1

2

3

4

5

6

7

8


Earmarked taxes may be an option

Often criticized from a public finance perspective, but tend to be a popular option used by countries – some argue earmarking is important when governance is weak. Thailand has employed “sin taxes” to fund health promotion. Ghana has 2.5% VAT for health insurance fund. India employs an education cess.

Mandating social health insurance may be an option

If the pool of premium-paying population is large, this may be a means to raise public funds for health. Difficult option to implement in countries with large informal sectors.

Sector-Specific Sources of Fiscal Space



Reprioritization


Efficiency

1

2

3

4

5

6

7

8


Health System Efficiency

Chattisgarh

Himachal Pradesh

Orissa

Tamil Nadu

Kerala

Madhya PradeshOrissaUttar Pradesh

Uttarakhand

RajasthanIndia

515

50

150

Infa

nt m

ort

alit

y ra

te

100 250 1000 5000 25000GDP per capita, US$

Infant mortality vs income, 2005

Chattisgarh

Himachal Pradesh

Orissa

Tamil Nadu

Kerala

Madhya PradeshOrissaUttar Pradesh

Uttarakhand

RajasthanIndia

515

50

150

Under-

five m

ort

alit

y ra

te

100 250 1000 5000 25000GDP per capita, US$

Under-five mortality vs income, 2005

Note: Indian states highlighted

Can efficiency gains be a source of fiscal space?

Health System Efficiency

Can efficiency gains be a source of fiscal space?

India

Rajasthan

Kerala

Uttar Pradesh

Below average Above average

Belo

w a

vera

ge

Above

ave

rage

Attain

ment re

lative

to inco

me

Attainment relative togovernment health spending per capita

Source: WDI & WHO

DPT3 immunization, 2005

India

Rajasthan

Kerala

Uttar Pradesh

Below average Above averageB

elo

w a

vera

ge

Above

ave

rage

Attain

ment re

lative

to inco

me

Attainment relative togovernment health spending per capita

Source: WDI & WHO

Skilled birth attendance, 2005

Fiscal space assessments in health entail:

Outlining a framework for assessing the different sources of funds underlying government health expenditures; Given needs, identifying possible options for increasing fiscal space for health from the different sources of funds; and Addressing the pros and cons of the different policy options in a given country context.

Conducive macroeconomic conditions and economic growth are prominent drivers of fiscal space for health.

Lack of prioritization often a key issue – one that is not easy to overcome as is often driven by political economy considerations.

Some options may entail creative use of sector-specific options – can learn from different country experiences.

In Conclusion





Outline

Documents

A Framework for Assessing Fiscal Space for Health