Fiscal Space Perspectives and Practices

1. Fiscal SpacePerspectives and Practices Indrani Gupta Health Policy Research Unit Institute of Economic Growth Universal Health Coverage Day December 11-12, 2017 New Delhi

2. Why emphasize on fiscal space for health? • Investments in health are essential for sustainable growth and development • Investment in health is sound investment because it leads to more productive workers • Lack of sustained level of funding is seen as a critical bottleneck in the health sector, especially in low and middle-income countries • Need to raise resources for the health sector if current resource envelope is not adequate • Fiscal space is the capacity of governments to provide additional budgetary resources for a desired purpose, without jeopardizing the fiscal stability of the economy. • How can a government feasibly increase expenditure in a way that is consistent with its macroeconomic fundamentals

3. What are we aiming for? • 5% of GDP to be spent on health by government (WHR 2010, Chatham House report) • 4-5% of GDP on health can make countries move towards UHC (McIntyre and Meheus 2014) • Abuja Declaration: African countries pledged to spend 15% of their national budgets on the health sector

4. National spending on health by source for 184 countries between 2013 and 2040Joseph L Dieleman, PhD, Tara Templin, BA, Nafis Sadat, MA, Patrick Reidy, BA, Abigail Chapin, BA, Kyle Foreman, PhD, Annie Haakenstad, MA, Tim Evans, MD, Prof Christopher J L Murray, MD, ChristophKurowski, MDThe LancetVolume 387, Issue 10037, Pages 2521-2535 (June 2016)

5. National spending on health by source for 184 countries between 2013 and 2040, The Lancet> A major portion of health financing is expected to remain out-of-pocket. This finding is especially true in south Asia, where more than half of health spending is expected to be out of pocket in 2040.> Of 132 currently low-income and middle-income countries, only 37 are expected to reach the goal of 5% of GDP on health by 2040.

6. Sources of fiscal space • Domestic revenue mobilization • Tax reforms • Newer revenue sources like earmarked taxes • Domestic and external borrowing • Development assistance for health (DAH) • Aid and debt relief • Increase efficiency of spending • Making better use of existing resources • Favourable macroeconomic conditions key for expanding fiscal space

7. 1. Domestic revenue for health Domestic revenues can be mobilized in 3 ways: • Prioritising health within the overall government spending: improving the ratio of health expenditure-to-total government expenditure • Improving the tax-to-GDP ratio: broadening tax base and improving tax administration • Earmarked taxes: sin taxes, Social Health Insurance

8. Total expenditure on Health as a % of GDP (2014) Source: WHO Global Health Observatory data

9. Prioritizing HealthPublic Spending on Health as a % of GDP (2014) Source: WHO Global Health Observatory

10. Prioritizing HealthHealth Expenditure in Total Government Expenditure (%) (2014) Source: WHO Global Health Observatory data

11. World Distribution of Tax-to-GDP Ratio, 2016IMF Fiscal Monitor, April 2017Revenue mobilization remains limited in low-income developing countries.

12. Tax to GDP ratio (%) (2015) in selected countries Source: All countries- World Bank, China-State Administration of taxation, Mexico, Ghana- OECD, India- Economic Survey

13. Earmarked taxes • Earmarking involves separating a part of revenue – generally from a group of taxes – for specific purposes. • Income/payroll taxes or general revenue • Denmark, Brazil, Indonesia, Vietnam • Consumption taxes: VAT, alcohol, tobacco • Chile, Ghana, Italy (VAT) • Thailand, Vietnam, Nepal (alcohol/tobacco) • Other • Gabon: (levy on foreign personal money transfers), Bolivia & Ghana (savings from debt relief) • Article 6 of WHO Framework Convention on Tobacco Control (WHO FCTC) : countries should dedicate revenue to fund tobacco control and other health promotion programmes.

14. Evidence… • A WHO study on nine countries for earmarked tobacco taxes (WHO 2016) : Botswana, Egypt, Iceland, Panama, Philippines, Poland, Romania, Thailand, Vietnam • Required legislative reforms • Faced strong opposition • Overall moderately successful • Lessons learnt • Present evidence for decision makers • Clearly articulate financing mechanism, use of funds and implementation • Health and finance departments need to work in tandem • Need political champions

15. Earmarked taxes…. • A more recent review (WHO 2017) indicate the following • Success of earmarking depends on the context • Earmarking in some cases have advanced the UHC cause (ex. Ghana, Philippines) • More importantly, earmarking is unlikely to bring sustained and significant increase in priority placed on health because funds are fungible, and earmarking can result in offsets. Ex. Brazil • It can introduce rigidities in the budget process • Earmarking more successful in cases where the practices follow a standard budget process • Main question: do we need to earmark, if resource allocation decisions are taken based on sound planning and a process of prioritization within the current or expanded revenue envelope

16. 2. Borrowing • Domestic and foreign borrowing must be serviced and repaid • Need careful evaluation of the costs and returns of the borrowed funds • Will the borrowed funds be used in a way that will increase future government revenues? • Government’s capacity to service interest and principal repayments? • Current debt-GDP ratio? • Terms of borrowing? • GDP growth, interest rates, composition of existing debt etc • Different views on borrowing as a tool for creating fiscal space • In any case not advisable for countries with high debt-GDP ratio • Borrowing is not generally seen as a reasonable strategy or a sensible tool for recurrent payments and expenditures like those under UHC

17. Gross Debt to GDP Ratio (%) (2016) Source: IMF , Fiscal Monitor, 2017

18. 3. External Resources or Development Assistance for HealthDeclining, uncertain, unsustainable.… Development assistance for health: past trends, associations, and the future of international financial flows for health. The Lancet.   June 2016

19. 4. Improving efficiency of spending • Technical efficiency: maximum outcomes for a given level of inputs • Productive efficiency: input costs are minimised for a given level of health outcomes • Allocative efficiency: right mixture of healthcare programmes • Between 20 per cent and 40 per cent of health spending is wasted globally through inefficiency, pointing to substantial potential for savings. • When resources are scarce, any type of wastage needs to be urgently addressed • An important source of fiscal space that need to be discussed along with need for higher spending

20. Ten leading causes of health system inefficiency (WHO, 2010)

21. Efficiency….. • Value for Money: a framework that can be used to spend wisely and cut down on inefficiencies • Rapid advances in technology requires evidence-based adoption of new interventions • Health Technology Assessment (HTA) can be used to assess the relative costs and benefits of health technologies, and can aid decision-making, especially in the context of UHC. • At the same time, health sector reforms that change the way health care is financed and delivered (ex. reduce fragmentation in flow and pooling of funds) are essential alongside new cost-effective technologies • Ex: Tamil Nadu: reforms started early; public health cadre at district level; village level nurses; setting up of Tamil Nadu Medical Services Corporation (TNMSC) in 1995, an autonomous body regulating the drug procurement and distribution alongside promoting the rational use of generic drugs at an affordable cost • Incremental and gradual reforms is the key to address many inefficiencies in the health sector

22. Whither fiscal space? • In 2014 the 54 Member States of the African Union adopted Agenda 2063, a new vision that provides a common 50-year development framework for the continent. • Agenda 2063 commits Member States to overcome “the dwindling and unpredictability of development assistance” by ‘looking inwards’ and ‘mobilising internal resources for the promotion of her health”. • Mexico, Thailand, Chile, Turkey, and Brazil, more recently Ghana, Cambodia, Rwanda, China…shown the will to reform by prioritizing health and undertaking incremental reforms that address financing and efficiency issues   • For countries with low tax-GDP ratios and high debt-GDP ratios, revenue mobilization remains the most robust option for expanding fiscal space for health • Even with the current tax-GDP ratio, governments can prioritize social sector spending, including health • …you need to do all the systems reforms as well but at the end of the day I think that the two absolute foundations you need are genuine political commitment by the head of state and public financing…‘ (Robert Yates)

23. THANK YOU