BUILDING STRONG PUBLIC FINANCIAL MANAGEMENT … · conference copy – september 2018 building strong public financial management systems towards universal health coverage: key bottlenecks

CONFERENCE COPY – SEPTEMBER 2018

BUILDING STRONG PUBLIC FINANCIAL MANAGEMENT SYSTEMS TOWARDS UNIVERSAL HEALTH COVERAGE:KEY BOTTLENECKS AND LESSONS LEARNT FROM COUNTRY REFORMS IN AFRICA

DRAFT TECHNICAL BACKGROUND REPORTREGIONAL WORKSHOP ON PUBLIC FINANCIAL MANAGEMENT FOR SUSTAINABLE FINANCING FOR HEALTH IN AFRICA; 25-28 SEPTEMBER – NAIROBI, KENYA

DRAFT TECHNICAL BACKGROUND REPORTREGIONAL WORKSHOP ON PUBLIC FINANCIAL MANAGEMENT FOR SUSTAINABLE FINANCING FOR HEALTH IN AFRICA; 25-28 SEPTEMBER – NAIROBI, KENYA

BUILDING STRONG PUBLIC FINANCIAL MANAGEMENT SYSTEMS TOWARDS UNIVERSAL HEALTH COVERAGE:KEY BOTTLENECKS AND LESSONS LEARNT FROM COUNTRY REFORMS IN AFRICA

TABLE OF CONTENTS

Executive summary ................................................................................................................................................... ivAcknowledgments .....................................................................................................................................................viIntroduction ..................................................................................................................................................................1

SECTION I. PFM challenges in the health sector in Africa: Where poor budgeting and expenditure management lead to poor health results ............4

1) Budgetdefinitionandformulation:misalignmentwithhealthpriorities ..........................62) Budgetfragmentation:multiplehealthschemesandfundingflowsresulting

inunstableandinconsistentfunding ........................................................................................... 143) Budgetexecution:spendinglessthanplanned,notreachingfrontlineservices

withresourcesandnotpurchasinghealthservicesstrategically ...................................... 204) Budgetaccounting,reportingandauditingisroutinizedbutwithlimited

accountabilityforhealthresults ................................................................................................... 29

SECTION II. Lessons from african country policy responses: Large potential for accelerating PFM reform in the health sector ............................................. 34

1) Whatcanhealthministriesdo:unpackingthehealthsector’sresponsibilitiesinPFMreform ...................................................................................................................................... 36

2) “Leapfrogging”:acceleratingtheimplementationofreformsinhealthbudgetformulationtosecuretransformationinhealthfinancing ..................................40

3) ArenewedcontractbetweenhealthandfinanceforPFMreformadaptation .............47

Listofreferences .......................................................................................................................................................55

List of figuresFigure1. SummaryofkeyPFMbottlenecksinthehealthsectorinAfrica ......................................... 7Figure2. VariationinbudgetprioritizationtowardshealthinAfricancountries

between2000and2014,%ofoverallbudget ............................................................................8Figure3. Exampleofaninput-basedbudget,Namibia:FY17-18 .......................................................... 12Figure4. SourcesofhealthexpenditureintheAfricanRegionandglobally,2015 ......................... 14Figure5. Mappingofdomesticfundingflowsinthehealthsector,BurkinaFaso .......................... 15Figure6. Underspendinginhealth:amultifacetedproblem .................................................................23Figure7. Changeintheformulationofhealthbudgets,Kenya ............................................................. 41Figure8. Mappingofprogrammeclassificationinhealthbudgets,byWHOregion .....................43Figure9. Performancemonitoringframeworkofprogrammebudgetforhealth

–Kenya(excerpt) .................................................................................................................................43Figure10.Alignmentofhealthplanning,budgeting,executionandmonitoring ............................46Figure11. Ethiopia’spathwaystostrengtheningPFMsystems ............................................................48

List of tablesTable1. Budgetimplementationrate,DemocraticRepublicoftheCongo2011-2015 ............... 20Table2. Multipleproviderpaymentarrangements ................................................................................ 26Table3. ExampleofanIFMScodinginTanzania ...................................................................................... 30Table4. ThreeareasforMinistryofHealthengagementinPFMreforms ......................................37

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EXECUTIVE SUMMARY

1. Weaknesses in public financial management (PFM) systems have long been regarded asimpedinggoodgovernance,accountabilityandefficiencyingovernmentactionsinAfrica.Inthehealthsector,suchweaknesseshaveaspecificresonancebecausetheyarelife-threatening.Apoorly-designedbudget,withlimitedexecutionandatruncatedabilitytousefundsinaflexiblemannermaypreventhealthfacilitiesfromtreatingpatientspromptlyandeffectively.InAfrica,thePFMchallengeismoreacutethaninotherregionsoftheworld,withbottlenecksaffectingallstepsofthebudgetcycle–frompreparationtoexecution,reportingandauditing – puttinghealthandprogresstowardsuniversalhealthcoverage(UHC)atrisk.

2. Africancountrieshavebeenworkingonalong-termPFMreformagendasincethelate1990s,supported bymany international and regional partners. In several countries, the reformpackage – dominated by the introduction of complex interventions, such as multi-yearfinancing/expenditureplans,programme-basedbudgetsorintegratedfinancialinformationmanagementsystems–has ingeneraladvancedoverall levelsofPFMsystems.However,reform implementation has been slow and has often been hindered by limited financialmanagement capacity and other institutional factors, especially at subnational levels.Manycountries in the regionpresenta challengeofPFM interventions thatarepartiallyimplementedatbasicormoreadvancedlevels,leadingtoapparentcontradictionsofcomplexproceduresbeing introducedevenwhenbasicaspectsofbudgetpreparation,approvalortimelyexecutionarenotfullyinplace.Often,lackofcoordinationbetweenPFMandotherreforms(e.g.decentralization)havealsoledtoinconsistencies.

3. ThehealthfinancingreformstowardsUHC,asinitiatedinmanyAfricancountriessincethemid-2000s,have revitalized interest inPFMreforms.Byputtingpublic fundsat the coreofthehealthfinancingresponse,themovementtowardsUHChastransformedPFMintoacentralissuetobeaddressedinsupportofUHC-orientedpolicies.PFMisnolongerperceivedasafinancedutyonly;sectorstakeholdersareincreasinglyrecognizingtheimportanceofsectorengagementinthePFMreformagendawhencountrieswanttomakePFMandhealthfinancingreformsmoreconsistentandresponsivetoeachother.

4. HealthhasbeeninthevanguardofPFMreformeffortsinseveralcountriesoftheregion,andthehealthsectorhastheopportunitytocapitalizeonitsadvances.Severalpolicyinterventionshavebeenintroducedwithsuccessbuthavenotbeensystematicallyfollowedthrough.Forinstance, the health sector has often been a lead sector for piloting programme budgets,sectoralmulti-yearexpenditureframeworksorperformance-basedmonitoringframeworksintheregion,butthetransitionisincompleteandhasnotalwaystranslatedintochangesinkeyareasforhealthfinancing..Results-basedfinancing,asanapproachtofinanceandpayserviceproviders–mostlyforprimarycare–hasalsopavedthewaytomoreperformanceorientationinexpenditurebuthasoftennotbeenfullyinstitutionalizedinmosttargetedcountries.

5. ThisreporttakesstockofPFMprogressandchallengesinthehealthsectoracrosscountriesoftheAfricanRegionandproposesaframeworkforhealthministries’engagementinthePFMreformagenda,focusingontheexpendituresideofpublicfinances.WhilegeneralPFMreformshavebeenledbyfinanceauthoritiesoverthepasttwodecadeswithgenerallylimitedinvolvementofhealthsectorstakeholders,healthhasasignificantroletoplayinmakingsurethatPFMreforms are effective for responding to sector needs.

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Therearethreedistinct–non-exclusive–areasoffutureengagementforhealthstakeholdersinPFMproposedhere,namely:1)strengthenedinterest in and monitoring of generic PFMreforms to improve predictability and stability in the financing of health; 2) activeimplementation of PFM reforms that directly affect the health sector (e.g. definition ofrelevant budgetary programmes for health, procurement rules, accounting); and3) designand implementation of health-specific PFM interventions, including with/for subnationallevels of government (e.g. contracting and payment arrangements for facilities, financialmanagementandautonomyoffrontlineproviders).

6. Buildingoncountryexperiencesandlessonslearned,itisbecomingincreasinglyclearthatthehealthsectorcan“leapfrog”toaccelerateimplementationofPFMreformintheregion.Priority interventions could consist of:moving towardsbudgetaryprogrammes thatpoolpublicresourcesaccordingtokeysectorprioritygoals;increasingthespendingflexibilityofthesector’sfundmanagers;developingaframeworktoprovidefinancialautonomytofrontlineproviders;strengtheningperformancemonitoringframeworksforsectoraccountability;andusing performance information to support future budget decisions for the sector. GivingprioritytogetherwithimprovedfinancialmanagementsystemstothesereformsinhealthwillalsobelikelytohelpreducePFMdistortionsandthedevelopmentofparallelsystemsasdevelopmentpartnerspushtolimitfiduciaryrisksfortheirinvestments.

7. Local-levelobstaclestoPFMreformmustalsobeurgentlyaddressedtoensurethatpublicresourcesaredeliveredpromptlytothehealthfacilitiesthatwillusethemandalsobettermatchpaymenttopriorityserviceswithappropriatefinancialincentives..Thismeansdevelopinganequitableandeasy-to-understandformulaforallocatingresources,devisingasystemoffinancialtransfersthatsupportspoorerareasandpriorityneeds,andensuringthatgrantsarealwayspaidontimeandinfull.Healthfacilitiesinturnwillneedimprovedcapacityforfinancialmanagement,whiletheministriesofhealth,financeandlocalcounterpartsmustsharedataandguidanceinordertofacilitatemonitoringofexpenditure.Inmanyplacesthehealthsectorusesmobilecommunicationsanddigitaltechnologytosupporthealthservices.Thereportencouragescountriestoexplorewaystousetheseplatformstospeedupfinancialtransfers,reportingandaccountability.

8. EngagingmoreeffectivelyinimplementationofPFMreformrequiresaninstitutionalandculturalshiftinhealthministries.Thesetransitionsaremoresignificantthanaseriesofmechanicalshifts.PFMchangeisaboutpeopleandbehaviours.WhilemostPFMreformshavebeendominatedbytheintroductionofnewprocedures,toolsandframeworks,moreattentionneedstobeputon people’s skills, responsibilities, accountabilities, motivation and rewards. Transition fromtraditionalplanningbyinputstoprogrammingandbeingaccountableforhealthoutputsaswellasresponsibleforbasicfinancialmanagementrequireslong-termupgradingofhealthministry’sstaff,inwhichgovernments,aswellasdevelopmentpartners,shouldinvestmore.

9. Thereporturgesa“renewedcontract”betweenhealthandfinancetomakesurethattheministrieshaveabetterunderstandingbothofeachotherandofreformneeds.Thereportofferscommongroundfordialogueandfordefiningaroadmapforcollaboration.Buildingona“problem-drivenapproach”tohealthbudgetingandspendingreformsisexpectedtobemoreeffectiveandtowinsustainedpoliticalsupport.

10. WHOworkssidebysidewithcountriesoftheAfricanRegiontoensurethathealthministriesareequippedtoacceleratetheimplementationofPFMreformsinordertosupportUHC.

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ACKNOWLEDGMENTS

ThisreportistheproductofthecollectiveeffortfromtheWHOHeadquartersDepartmentofHealthSystemsFinancingandGovernanceandtheWHORegionalOfficeforAfricaDepartmentforHealthSystems.Thisdraftdocumenthasbeenproducedtoserveasabasisfordiscussionatthe25-28September2018PFMeventorganizedinNairobibyWHOandtheAfricanDevelopmentBank(AfDB),andcosponsoredbytheGlobalFund,UNAIDSandOECD.

ThereportwasdevelopedbyHélèneBarroy(WHOHeadquarters)andGraceKabaniha(WHORegionalOfficeforAfrica),withcontributionsfromChantelleBoudreaux(WHOHealthFinancingconsultant), Tim Cammack (WHO PFM consultant) and Nick Bain (WHO PFM consultant),undertheguidanceofAgnèsSoucatandJosephKutzin(WHOHeadquartersHealthSystemsGovernanceandFinancing)andDelaDovlo(WHORegionalOfficeforAfricaHealthSystems).

WearegratefulforthecontributionsandreviewofseveralPFMexpertsworkinginthehealthsectorinAfrica.Weshouldlikespecificallytothank:EzzedineLarbi(independentPFMexpert),MoritzPiatti(WorldBank),JasonLakin(InternationalBudgetPartnership),SheilaO’Dougherty(Abt/USAID)andCherylCashin(R4D).Inaddition,severaldevelopmentpartnerscontributedto the report review, andwewould like to specifically thank: Nertila Tavanxhi (UNAIDS),Fabrice Sergent (AfDB), Ishrat Husain (USAID).ManyWHO colleagues provided invaluableinputs;specialthanksgotoElinaDale(WHO)andAlexisBigeard(WHO/IST-West).ThereportwaseditedbyDavidBramleyanddesignedbyLarsJorgensen.Photocredit(cover):koya979/Shutterstock

FinancialsupportwasprovidedbytheUnitedKingdom’sDepartmentforInternationalDevelopment(MakingCountryHealthSystemsStrongerprogramme).Weshould liketoalsoacknowledgefinancialsupportprovidedbytheAfricanDevelopmentBank,UNAIDSandtheGlobalFundfortheorganizationoftheregionalPFMmeeting(Nairobi,25-28September2018).

1IntroductIon

INTRODUCTION

A government’s budget is among the clearest signals of a country’s high-level priorities. As such, it is much more than a simple accounting tool. Rather, it can be seen as a policy roadmap.Publicbudgetssetoutagovernment’sintentionsforraisingandusing public resources to achieve nationalpolicypriorities.Thebudgetprocessdefinesthe allocation of resources, generally withan explicit aim to optimize effectivenessand efficiency in spending [1]]. A sectorbudget declares a nation’s commitment toimplementingitsstatedpolicies.

In health, public finance matters more than in any other sector. Public fundsare essential to ensure protection againstfinancial hardship thatmay result fromuseof health services [2][3]. No country hasmade significantprogress towardsuniversalhealthcoverage(UHC)withoutrelyingonadominantshareofpublicfundsforfinancinghealth. Public financialmanagement (PFM)– thesetofrulesthatgovernallocation,useandreportingofpublicfunds–isincreasinglybeingrecognizedasacentralpillarforhealthand universal health coverage [4]–[6]. PFMsystemsprovide the sectorwithadomestic,integrated platform for managing publicresourcesandensuringthathealthspendingis handled effectively and transparently. Ifresourcesarenotappropriatelytargetedanddisbursed in a timelymanner, PFMmaybe“health-disruptive”, posing fundamentalchallengesforthedeliveryofhealthservicesandfortheoverallresponsetohealthneeds.

In 2012, the African Ministers of Finance and Health endorsed the Tunis Declaration

on Value for Money, Sustainability and Accountability in the Health Sector [7],which recognizes that wider and moreequitable coverage of health services canbe achieved through a more effective andefficientuseofbothexistingandadditionalpublicresourcesforhealth.Akeycomponentof ensuringmore effective and efficientuseof public resources for the health sector isa country’s PFM system. Among the keyrecommendations of the Tunis DeclarationofspecificrelevancetoPFMsystemsarethefollowing:

1. Intensify dialogue and collaborationbetween our respective ministries andwithtechnicalandfinancialpartners.

2. Takeconcretemeasuresinourrespectivecountries in order to enhance value formoney, sustainability and accountabilityin the health sector for reaching theobjectiveofuniversalhealthcoverage

3. Solidify sustainable health financingsystemsthatbuildonandcoordinatethediversity of sources of finance includinginstitutional health financing and bettercoordinationandpredictabilityofexternalresourcestoensurethatallhaveaccesstogoodqualityessentialhealthservices;

4. Strengthen accountability mechanismsthatalignall relevantpartners,buildonthe growing citizens’ voice and ensurethehighestpossiblelevelofresultsforthemoneyspent;

5. Increase domestic resources for healththroughenhancedrevenuecollectionandallocation,re-prioritizationwhererelevantand innovativefinancing, givingpriorityto immunizations, non-communicable

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diseases, AIDS, Tuberculosis and malaria,aswell as reproductive,maternal and childhealthinnationalbudgets.

The quality of PFM systems in health is one of the necessary enabling factors for health financing reform implementation. It can help the implementation of healthfinancing reforms in many ways [8]. PFMrules and practices affect health financinginthelevelandallocationofpublicfunding(budget development), the effectivenessof spending (budget execution) and theflexibility with which public funds can beused (subnational spending and paymentarrangements),aswellasintheaccountabilityand transparency of spending (accountingandreporting)[4],[5].Forallthesereasons,effective implementationofhealthfinancingreformswilllargelydependonstrengtheningandtailoringthePFMreformsinthehealthsector from budget planning, to executionandreporting.

In Africa, empirical evidence suggests that there are bottlenecks at all stages of the budget cycle that affect health sector spending. Health budgeting is oftenperceivedasdisconnectedfromtheplanningandcostingprocesses,resultinginmisalignedbudget allocations. Weaknesses in budget-making in health are often related to anunpredictableandunstablelevelofresources,inappropriate costs estimates, disconnectedbudget formulation, and fragmentation infunding sources and budgeting processes.Weaknesses in budgeting, combinedwith delays and leakages in expendituremanagement,oftentranslateintomisspendingand/or underspending [9]. While reportingandauditingsystemsareofteninplace,theyrarelyserveaccountabilityforperformance.

The continent has embarked on a broad PFM

reform agenda since the late 1990s, led by finance authorities but often with limited coordination with sector reforms. Inmanycountries, the package of reforms includedstandardprovisions,withlimitedconnectionwithcountryneedsandspecificPFM-relatedproblems. Specifically, inconsistencies andlack of coordination between the PFM andhealth financing reform agendas may havesometimescreatedobstaclestomoreefficientspendinginhealth[4].Similarly,reformsareoften conceived and implemented from thetop level, while in most African settings itis the local levels–whetherdeconcentratedor devolved to various degrees – that havesignificantmandateoverhealthspending.

The evidence for what has been designed and effectively implemented in the region and what has worked in health is scarce. AvailableevidenceisrelatedtogenericPFMreformimplementation[11],[12]. Inhealth,while there has been recent advancementin positioning PFM at the core of the UHCagendabydemonstrating its importance foradvancing reforms in the sector [13]–[15],thereisbarelyanyevidenceastowhatworksand how to implement the needed PFMreforms.

In the absence of easily accessible and consolidated knowledge for sectoral PFM reform in the region, the aim of this report is to consolidate and distil evidence on key PFM bottlenecks that affect the health sector and to seek a mutual understanding from health and finance authorities on possible policy responses to enable countries to accelerate implementation of PFM reform. In addition to scarce existingliterature,thereportbuildsonseveralcountryreviews and policy dialogue and technicalsupportactivitiesinitiatedbyWHOinrelationto sectoral PFM reforms in the region in

3IntroductIon

2015-2018.Thereportalsobenefitsfromtheongoingworkof severalotherpartners thatare engaged in country-levelwork to betterunderstand“PFMtensions”inthecontextofhealth operations or programmes (namelyUNAIDS,theGlobalFund,USAID,R4D).

This draft has been produced to serve as a basis for discussion at the forthcoming Regional Workshop on Public Financial Management for Sustainable Financing for Health in Africa, organized in Nairobi,

Kenya, on 25-28 September 2018.Feedbackreceivedattheconferencewillbeincorporatedintoalaterversionofthereport.Inthefirstsection, the report takes stock of core PFMweaknesses inthebudgeting,executionandreportingphasesof thebudgetcycle for thehealth sector. The second section analysessome of the core lessons learned fromcountryreformstoaddressPFMbottlenecksin the health sector and provides guidancefor future engagement between health andfinanceauthorities.

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SECTION I. PFM CHALLENGES IN THE HEALTH SECTOR IN AFRICA:

WHERE POOR BUDGETING AND EXPENDITURE MANAGEMENT LEAD TO POOR HEALTH RESULTS

5IntroductIon

Challenges to PFM occur across the budget cycle in Africa – frombudgetdefinitionandformulation, to budget negotiation and approval, budget execution, and budget accounting,reporting, auditing and evaluation.The sections that followhighlight bottlenecks associatedwitheachstageofthebudgetcycleinAfricancountries,emphasizingweaknessesinthehealthsector’spublicexpenditure.

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Budget formulation is the backbone of well-defined and efficient spending; each step of the budget cycle relies on the success of this step. Poorly formulated budgets createa vicious cycle, undermining downstreamefforts. Consequently, challenges that ariseduring budget negotiation, execution andauditingareoften linkedtothosethatarisein the earliest stagesof budgetpreparation.Low-qualitybudgetproposalsinhealthoftenresult from poor or inappropriate costing,inappropriatestructureandpoortargetingonpriorityneeds[5].

Failure to translate health-sector priorities into aligned budget allocations significantly undermines efforts to achieve sector goals. Because planning and budgeting are oftendelinked processes in countries, allocationsare often unconnected with priorities bothin their level of funding and in their scopeorfocus.Whilethe levelof fundingmattersfor results, the strategic allocation andhowthe money flows to the health system [4],[16]evenmorecrucialforachievingresults.WhileAnnualOperationsPlans(AOPs)havebeenintroducedinseveralAfricancountriesto create a more explicit linkage between

the planning and budgeting processes forthehealthsector,thereformhasnotalwaysbroughtfullbenefitsforbetterhealthbudgetplanning[17],[18](Box1).

One cause of poor budget credibility in health is unrealistic revenue projections. Credible budgets occur when linkages aremaintained across the budget cycle, witheachcomponentofthecyclealignedwiththenext. For instance,when resources that areindicated in the budget fail to materialize,progress towards health-sector goals areseverely undermined since facilities mayhavetointerruptserviceswhiletheywaitforpublic funds to finance drug supplies. Thishas life-threatening consequences and canalso affect the confidence that stakeholdershave in the overall health system. In theDemocratic Republic of the Congo, revenueforecastshaveconsistentlybeenraisedunderpolitical pressure, leading to finance lawsthatareunrealistic.Between2011and2015,the realized budget rate of revenues was63%, with a downward year-to-year trend[19], directly affecting the health budgetmaterialization.

CHAPTER 1:

BUDGET DEFINITION AND FORMULATION: MISALIGNMENT WITH HEALTH PRIORITIES

7Where poor budgetIng and expendIture management lead to poor health results

In several African countries, mid-term expenditure frameworks (MTEFs), which were introduced to control fiscal sustainability and improve resource predictability, have not always lived up to

their promise for health. TheusefulnessofanMTEFistheextenttowhichitisusedasaguideforpreparingfutureannualbudgets,providing a realistic indication of futurerevenuesandhowrevenueswillbeallocated

Figure 1: SummaryofkeyPFMbottlenecksinthehealthsectorinAfrica

Phase 1: Budgeting

Limited control by MinistryofHealthoverfiscalframeworkandbudgeting rules

Misalignmentofbudgetproposalswithsectorpriorities

Inappropriatenessofhealthbudgetstructure

Weak negotiation powerofMinistryofHealth

Lackoftransparencyinbudgetingprocess

Phase 2: Execution

Weakcashmanagementresultinginchronicunderspending

Extrabudgetary procedures

Publicprocurementissues

Weaknesses in strategic purchasing

Phase 3: Accounting and reporting

Misalignment between budget structure,expendituremanagement and reporting

Fragmentationofreportingandfinancialinformationsystems

Limiteduseofperformanceinformationforbudgeting

In Côte d’Ivoire planning and budgeting are managed by different central institutions, withlimitedcommunicationbetweenthemandnogeneralizedframeworktoguidethetwo.Withoutspecificmechanimstoaligntheplanningandbudgeting,parallelprocessesoccuraccordingtotheirowninternalanduncoordinatedcalendars.Forexample,operationalplansaredevelopedfortheongoingyear,whilebudgetsaredevelopedforthefollowingyear.Whilethebudgetfocusesoninput-basedlineitemsneededtofinancetheoperationsofhealthfacilities,operationalplansdevelopedbythehealthsectorfocusonstrategicprogrammesanddetailedexpectedresults[17].

Similarly,inKenya,aninstitutionalizedseparationofplanningandbudgetingisblamedforweakbudgetingandpooralignmentbetweenthenationalbudgetandthenationlhealthsectorpolicy[18].Annualoperationsplans(AOP)were introducedtocreateanexplicit linkagebetweentheplanningandbudgetingprocessesforthehealthsector.However,by2013,severalyearsafterAOPswereintroduced,thisgoalhadnotmaterialized.Followingaseriesofsetbacksincreatingtemplates,trainingstakeholdersanddraftingAOPs,thecountrywasforcedtoapproveitsannualbudgetandpreparetolaunchactivitieswithouttheplanin2016-2017[18].

Box 1: Côted’IvoireandKenya:planningandbudgetingdelinkedprocessesinhealth

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tothesectorin,usually,thecoming23years[20].Recognizedfailuresincludepoorqualityrevenueforecasts,widespreadincrementalismwithin theMTEF(andacorresponding lackofstrategicreprioritization),limitedpoliticalenforcement (i.e. failure to use the Year 2figuresfromthepreviousyear’sMTEFasabasisforthefollowingyear’sbudget),andlimitedengagement of sectors, including health,in integrating sector plans. In Cameroon,for example, theMTEFwas not sufficientlyconsidered during budget negotiations; thevariance between the amount projected intheMTEFandtheeventualbudgetallocationmovedfrom2.7%positivein2010to34.9%negativein2013[21],[22],[23].

Instability in the priority given to health affects the quality of budgeting in the sector. While health is undoubtely a priotysector inmostAfrican countries, this is not

consistenlyreflected inannualbudgets.TheshareofhealthvariessignificantlyfromyeartoyearinAfricancountriesand,asaresult,affectsthepredictabilityandstability intheresourceenvelopeforthesector(Figure2).

Poor budget credibility is also the result of poor costing. Health ministries oftenface challenges inestimating sectoralneedsand costs. Underestimates or overestimatesrelate to poor information quality and/orinappropriatecostingtechniques.Afrequentdisconnect betweenwhat is costed (i.e. thenationalhealthplan)andwhatisneededforbudgeting purposes lead to inconsistenciesand frequent misunderstandings betweenthe finance and health authorities. Whileestimatescanbe improvedbyusingreliabledataandimprovedcosting[4],healthsectorsare typically characterized by a numberof features that pose persistent challenges

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Figure 2: VariationinbudgetprioritizationtowardshealthinAfricancountriesbetween2000and2014,%ofoverallbudget

Source: Global Health Expenditure Database, WHO (pre-2017 update).


to PFM (Box 2). Thus, even high-qualityestimates may fail to predict actual needs.In Cameroon, for instance, the absence ofcredible and up-to-date information on thestateofneedsandtargetsgeneratesanumberof approximations in the preparation of thehealthbudget[21].

Government budgets are typically planned and allocated according to institutional boundaries (e.g. ministries, departments, agencies) and often involve weak coordination and information-sharing between institutions. To be effective, astrategic health response involves multiplestakeholdersinordertoensurethatneeds–fromaccesstowater,sanitationandhygiene,toqualitycurativeandpreventiveservices,aswell as socialprotection interventions–areeffectivelyaddressed.Evenwithinthehealthsector itself, the complexity and varietyof actors in many countries in the regioncreate challenges forministries of health indevelopingrealisticsectorplansandbudgets.For instance, in Ghana, while the MinistryofHealthleadshealthsectorpolicy, ithasanumberofsubordinateagencieswithvaryingdegrees of autonomy doing planning andfinancial management. These include theGhana Health Service (GHS) which is themaindelivery body for health services, andthe National Health Insurance Authority(NHIA) which manages the insurancescheme that finances, through payment ofclaims, most the non-staff running costsof health facilities. The health sector isalso supported by the Christian HealthAssociation of Ghana (CHAG) which runsmorethan150healthfacilitiesinconcertwithMinistryofHealth.Inadditiontooperationaldecentralization of services through GHSand CHAG, the governance systems of thehealthsectorarealsodecentralizedthrough10regionalhealthdirectorates.Adeepening

of this decentralization is planned withfurther responsibilities being devolved tothe district level, and it is expected thatDistrict Assemblies will be responsible forconstruction,equipmentandmaintenanceofprimaryhealthcarefacilities.

These technical challenges are exacerbated when there is limited communication between the Ministry of Finance and the Ministry of Health. The processes fordeveloping the top-down spending ceilingsand the bottom-up budget needed toimplementhealthsectorplansoftenhappeninparallel,withthecentralbudgetauthoritiesfocusedonensuringfundavailabilityandthelineministries focusedonpolicyneeds. Forexample, inMozambique, theGeneralStateBudgetisdevelopedatthesametimeasthenational Economic and Social Plan, whichestablishesthenationalworkplanfortheyear[24].Budgettimetables,whichseektoaligntheseparallelworkplans,areoftenpronetoslippage[25].InSenegal,delaysinprovidingindicativeandfinalbudgetenvelopes to theMinistry of Health have disrupted internalbudget decisions and undermine internalarbitrationontheuseofresources.Thishasbeencitedasaleadingcauseofinconsistenciesin allocation decisions [26]. With littlecoordination and communication betweentheworkplanandthebudget,itisdifficulttolinkthepriorityprogrammeareasoractivitiestoexpenditurecommitments[4],[27].Suchfragmentation weakens ownership of thebudgetprocessamongthelineministriesandoftenleads tobudgets that are formedvia aprocess of incremental adjustments to priorannualbudgets[4].

Budget misalignments are frequently attributed to a weak budget structure. Health budgets have traditionally beenorganized as input-based line-item budgets

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Anumberoffactorsdistinguishthehealthsectorfromotherspendingministries,namely:asymmetryofinformationbetween providers and patients; uncertainty around diagnosis and treatment success; potentially unlimiteddemand;thecombinationofskilledprofessionals,medicalequipmentandtechnology,pharmaceuticalsandchangingprocedures;thepotentialimpactonlivelihoods;andtheunpredictableandsometimesepidemicnatureofdisease.Alltheseelementsareintrinsictothehealthsectorbutarerarelyfoundelsewhere.

Whileeachnationalhealthsystemisunique,thesecharacteristicsincreasethecomplexityofplanningandbudgetinginthehealthsectorrelativetootherspendingministries,andcontributetosomeofthetypicalfeaturesofhealthsystemsinAfricancountriesthatposechallengesforfinancialmanagement:

The way the health sector is funded istypicallymarkedbycomplexfundingflowsandreportingarrangementsthatmakeitdifficulttoobtainacompleteviewofsectorresources(publicandnon-public)toinformpriority-settingandbudgeting.Forinstance:

Domestic financing can come from a variety of sources and channels, such as direct funding from thecentraland/orlocalgovernment;someformofpooledarrangementssuchasinsuranceschemes(compulsoryor voluntary, with or without subsidies); or individual out-of-pocket expenditures. Each type of fundingarrangementrequiresdifferentPFMapproaches.

External financing may be significant – perhaps creating the misleading impression at finance ministriesthatthehealthsectoriswellfunded–andmayhavesegregatedPFMarrangements.Inadditiontotraditionalmultisectoral donors such as bilateral aid agencies, the major funds supporting the health sector verticalprogrammes, while bringing substantial benefits, may pose significant challenges to integrated financialplanningandmanagement(e.g.theGlobalFund,GaviandtheUSgovernment’sPMIandPEPFARprogrammes).Inaddition,largeprivatefoundationssuchastheBill&MelindaGatesFoundationandtheClintonHealthAccessInitiativeprovidefocusedsupporttothehealthsectorinAfrica.

Donated goods and assets arecommoninthehealthsectorinAfrica,particularlywithregardtopharmaceuticals,commodities and medical equipment. The acquisition of these goods and assets largely or bypasses themainstreamPFMsystems,creatingcomplicationsforplanning,recording,monitoringandmanagementofsuchitems.

The ways in which health services are structured and managed mayvarysignificantlybetweencountries,andwillhaveasignificantimpactonPFMrequirementsandarrangements.Forinstance:

The system of government in a country is likely to influence the role of the health ministry and thearrangements for delivery of publicly-funded health services. In a decentralized setting, local and centralgovernmentbodieshaveseparate responsibilities for thevariouselementsofhealthservicesandmayhavedifferentPFMarrangements.

Mixture of providers of health services, normally in a combination of public, private and not-for-profitorganizations,makesitdifficulttobuildanoverallpictureofresourcesandpublic-sectorpriorities.Asaresultofinformationasymmetry,providersmaymakedecisionsintheirownfinancialinterestanddriveupcosts(the“agencyproblem”).PFMsystemsneedtoprovideprotectionfromthisrisk.

The three main levels of care –primary,secondaryandtertiary–eachrequireverydifferentlevelsofresourcesandmanagementand,particularlyatthehigherend,requirespecialistPFMstaffandsupport.

Management of dispersed and remote facilities incountrieswithdispersedruralpopulationsraisesspecificchallengesforthedelivery,managementandoversightofresources,asintheeducationsector.

The nature of health-sector inputs and outputs createsomespecialchallengesforPFM.Forinstance:

Human resources arethedominantinputforthehealthsector,andagovernment’spayrollarrangementsareacriticalPFMsystemforthesector.Staffoftenworkinremotefacilitieswithdifficultyinaccessingfundsandtraining.Additionally,therearechallengesnotonlyinensuringthatstaffareatworkandareprovidingqualityservicesbutalsowithmanagingandrecordingthetransferofstaffandtheircostsbetweenfacilities.

Medicines and medical equipment areauniquefeatureofthehealthsectorandposePFM-relatedchallengesinareassuchasassessmentofrequirements,procurement,distribution,inventorymanagementandequipmentmaintenance.Also,medicinesmaybeprovidedtofacilitiesinkindratherthanascashbudgets.

Building construction and maintenance,withprocurementandoversightofconstructionatremotefacilities,createchallengeswithregardtothetechnicalrequirementsofsomeelementsofhealthfacilitybuildingandtheneedforopenpublicaccess,often24hoursaday.

Outputs and outcomes in health are more complex to measure than in most other sectors, making theintroduction of effective programme-based budgeting more complex to achieve successfully – and highlydependentonHealth ManagementInformationSystems(HMIS)andotherhealthdatasystems.

Box 2: TypicalfeaturesofhealthsystemsthatposechallengesforPFMinAfricancountries


intheregion–i.e.theyhavebeenbasedonthe inputsneeded todeliverhealth servicesat facilities, such as human resources orpharmaceuticals [28].Forexample, inChadand Liberia, the budget is formulated usinga sole economic classification; and undereachchapter,detailedinputssuchasfuelforambulancesorstationeryforfacilitiesserveforappropriationsand spending [29]. Inflexibleinput-based budgets have major recognizedlimitations in general and for the healthsector in particular. While such budgetingapproachesmayhelptoensureabasic levelofcontrolandmaypreventmisappropriationof funds where there is weak financialaccountability, it is generally accepted thatbudgets that are formulated, appropriatedandcontrolledbyinputsalonecreaterigiditiesandconstraineffectivematchingofbudgettosectorpriorities, in turn leading towasteofresources[8].Poorbudgetstructuremayalsomask inequitabledistributionof resources ifthereisnovisibilityofallocationstodistrictsor facilities.While presented by inputs, theMinistryofHealthbudgetintheDemocraticRepublicoftheCongo,forexample,actuallymasksabiaseddistributionofpublicresourcestowards hospitals (87% of discretionaryexpenditure)andurbanareas(percapita546LCUinthelowestprovince,comparedtopercapita2431LCUinthecapitalcityprovincein2013)[30].

Criticism of input-based budgets stems from both a failure to link inputs to specific health outputs and a lack of flexibility. While input-based line-itembudgetsarerelativelysimpletodevelop,costandmonitor,theiruseintheregionisfocusedontop-downmicro-managementofresourcesratherthanonachievingvalueformoneyandobtaining health sector results. Input-basedbudgetsmakeitdifficult–particularlyinthehealth sector – to ensure that key activities

are properly funded to accomplish statedobjectives and are flexible and responsiveenough to changing health needs. Input-based budgets often perpetuate historicalallocationsandareassociatedwithrulesthatprovide little flexibility to move resourcesbetweenexpenditurecategoriesoncebudgetsareapproved–thusunderminingoperationalaccountability for the efficientmanagementofresources[31].

Issues can also arise between levels when central and peripheral governments employ different budget structures for health. This is particularly the case whereperformancebudgetinghasbeenintroducedforcentralgovernmentbutthecapacityisnotyetinplaceforthisapproachatthelocallevel.ThisisthecaseinKenya,whereperformancebudgeting has been adopted at the centrallevel but input-based budgeting is still thenorm in the counties. This challenge canbedifficult toovercome, as is illustratedbytheexperienceofSouthAfrica.WhileSouthAfricaiswidelyconsideredacaseofeffectiveimplementation of programme budgeting[32], provincial governments continue tolargelyrelyoninput-basedbudgetingnearly20 years after the central government firstintroduced programme budgets [33], thusposingchallengesforbudgetplanning,aswellas for consolidationoffinancial informationandoverallaccountabilityforthesector.

The final stage of budget preparation – the negotiation phase – is an inherently political process that is often not mastered by health authorities in the region [34],[35]. While health is often recognizedas a top priority by governments, healthministries often struggle to make the caseand to translate commitments into votedallocations.Thisprobably reflects anumberoffactors,includingpoorpreparation,aswas

12

13 Health and Social ServicesVote

Vote Past and Planned Expenditures by Major Category

Expenditure Sub Divisions 2015-16Actual

2016-17 Revised

2017-18 Budget

2018-19 Projection

2019-20 Projection

300 Operational

010 Personnel Expenditure

2,671,601,000 2,708,717,000 2,914,299,000 3,001,728,000001 Remuneration 3,091,778,000

246,415,000 275,338,000 262,294,000 270,215,000002 Employers Contribution to the G.I.P.F. and M.P.O.O.B.P.F.

278,322,000

89,400,000 99,033,000 99,083,000 102,060,000003 Other Conditions of Service 105,123,000

8,881,000 14,655,000 14,632,000 15,071,000005 Employers Contribution to the Social Security

15,522,000

3,016,297,000010 Personnel Expenditure Total 3,097,743,000 3,290,308,000 3,389,074,000 3,490,745,000

030 Goods and Other Services

53,952,000 49,504,000 10,005,000 10,302,000021 Travel and Subsistence Allowance

10,610,000

1,423,179,000 1,668,512,000 1,277,034,000 1,265,733,000022 Materials and Supplies 1,240,397,000

85,671,000 105,086,000 86,878,000 89,483,000023 Transport 92,167,000

220,153,000 289,676,000 343,195,000 353,490,000024 Utilities 364,092,000

55,174,000 86,014,000 29,371,000 30,252,000025 Maintenance Expenses 31,159,000

14,541,000 19,606,000 25,347,000 26,108,000026 Property Rental and Related Charges

26,891,000

64,196,000 11,084,000 0 0027-1 Training Courses, Symposiums and Workshops

0

16,755,000 25,849,000 14,439,000 14,872,000027-2 Printing and Advertisements

15,317,000

43,321,000 56,144,000 54,581,000 56,218,000027-3 Security Contracts 57,905,000

44,000 41,000 41,000 43,000027-4 Entertainment-Politicians 45,000

7,093,000 13,750,000 2,120,000 2,184,000027-5 O�ce Refreshment 2,249,000

40,000 349,000 10,000 10,000027-6 O�cial Entertainment/Corporate Gifts

10,000

587,645,000 700,080,000 706,370,000 727,562,000027-7 Others 749,392,000

2,571,764,000030 Goods and Other Services Total

3,025,695,000 2,549,391,000 2,576,257,000 2,590,234,000

080 Subsidies and other current transfers

4,070,000 5,093,000 3,044,000 3,135,000041 Membership Fees And Subscriptions: International

3,229,000

0 14,000 14,000 14,000042 Membership Fees And Subscriptions: Domestic

14,000

8,777,000 30,345,000 1,500,000 1,545,000043-2 Other Extra Budgetary Bodies

1,591,000

20,000,000 0 262,887,000 270,774,000044-1 Social Grant 278,897,000

398,583,000 237,196,000 2,065,000 2,127,000044-2 Support to N.P.O 2,191,000

431,430,000080 Subsidies and other current transfers Total

272,648,000 269,510,000 277,595,000 285,922,000

110 Acquisition of capital assets

8,254,000 11,893,000 0 0101 Furniture And O�ce Equipment

0

4,766,000 100,080,000 40,242,000 41,449,000102 Vehicles 42,692,000

57,628,000 88,920,000 45,531,000 46,897,000103 Operational Equipment, Machinery And Plants

48,304,000

70,648,000110 Acquisition of capital assets Total

200,893,000 85,773,000 88,346,000 90,996,000

6,090,139,000 6,596,979,000 6,194,982,000 6,331,272,000 6,457,897,000300 Operational Budget Total

200 Development

110 Acquisition of capital assets

27,747,000 35,680,000 37,511,000 64,430,000111 Furniture and O�ce Equipment

48,771,000

120,249,000 51,008,000 48,390,000 81,738,000115 Feasibility Studies, Design and Supervision

62,164,000

337,407,000 271,868,000 233,696,000 398,751,000117 Construction, Renovation and Improvement

303,491,000

485,403,000110 Acquisition of capital assets Total

358,556,000 319,597,000 544,919,000 414,426,000

485,403,000 358,556,000 319,597,000 544,919,000 414,426,000200 Development Budget Total

GRAND TOTAL 6,575,542,000 6,955,535,000 6,514,579,000 6,876,191,000 6,872,323,000

Figure 3: Exampleofaninput-basedbudget,Namibia:FY17-18

Source: Ministry of finance, Namibia


foundinKenyaforinstance[36],butitalsoresults from limited skills for negotiation,suchaswere identified inMalawi[34].Theperceived high level of donor funding mayweaken the position of health ministriesto lobby effectively for more domesticresources [37], [38]. Although budgetingis often presented as a purely technicalexercise, someelementsof thebudget cycle– particularly the budget negotiation andapproval processes – are deeply politicalin nature [39], [40], [41]. While budgetingreliesontherelativelytechnocraticexercisesrequired to prepare budget proposals, thefinalallocationof resourcesreflects internalpowerstructuresandpoliticalincentives[32].Thisleadstoagapbetweenhowthebudgetprocessworks in theory, including the rolesandresponsibilitiesofformalactorsandthesystems and structures in place to manageinformal influence, and how the budget isdeveloped and approved in practice. Powerrelations, informal behaviours, failure tofollowrules,andinfluencebyotheractorsallhaveanimpactoneventualbudgetdecisions[34],[42],[43].

Even when centralized, the budget negotiation process has been observed to be loose in many settings, with poor implementation of budgeting rules and calendar. In Malawi, for instance,the Budget & Finance Committee and theNational Assembly are supposed to reviewand discuss budget proposals in detail andconsult with civil society and other actors,but inpracticetheMinistryofFinancedoesnot allow them sufficient time to do so.Without time to prepare for a substantivedebate about the content of the budget,theyareessentiallyobligedtogiveapprovalwithoutsufficientreview[34],[41],[44].Therecent formalization of budget conferencesinseveralcountrieshascertainlybeenasteptowards amore systematicdialoguearoundbudgetpreparation,securingmoreconsistentinvolvement of health stakeholders [45].Their implementation varies across Africancountries,however,withpersistentby-passingof health or social sectors and a range ofinformalpractices that typically continue togovernallocationdecisions.

14

CHAPTER 2:

BUDGET FRAGMENTATION: MULTIPLE HEALTH SCHEMES AND FUNDING FLOWS RESULTING IN UNSTABLE AND INCONSISTENT FUNDING

While globally more than 50% of total health expenditure is financed by government resources, in Africa the picture is more fragmented. IntheAfricanregion, public and out-of-pocket are equal,respectivelyat34and35%ofcurrenthealthexpenditure (CHE), while external sourcesrepresentaquarterofCHE(Figure4).

The multiple sources of funds, schemes and funding flows in health pose specific challenges for budgeting [46].Several assessments have underlined thefragmentation in funding flows as a corefeature of health financing in the region,posing challenges to appropriate budgeting.In one study of 12 francophone Africancountries, researchers identified an averageof 23 discrete and generally uncoordinatedfinancingstreamspercountry[47].Differentrules often apply to the separate elementsof funding, including inflexibilities throughrestrictions on the use of specific fundingsources (e.g. earmarked funds for certainpurposes or commodities); such funding isoftenreporteddifferentlyandaccountedforin different systems [48]. Where differentcomponents of “programmes” are financed

fromdifferentsourcesitbecomescomplicatedto ensure that all elements are adequately

34%

51%

35%

32%

24%

11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AFRO World

Ext-che OOP-che Dgghe-che

Figure 4: SourcesofhealthexpenditureintheAfricanRegionandglobally,2015

Source: Global Health Expenditure Database, WHO, 2017Ext-che: health expenditure from external sources % current health expenditureOOP-che: out-of-pocket expenditure % current health expenditureDgghe-che: general government expenditure on health from domestic sources % current health expenditure.


resourcedorthattherevenuestreamsdoinfactmaterializeasexpected(Figure5).

Even on-budget funds may flow through a number of distinct channels and may be subject to different allocation rules.Mostcountries insub-SaharanAfrica relyheavilyontransfersfromthenationalbudgettofundpublicservicesdirectly[49].Fromabudgetingperspective,thisisthesimplestcase,asmostfundsareonbudgetandcanbeeasilytracked.However, capital expenditure is typicallyseparatedfromrecurrentexpendituresandisoftenmanagedbyaseparateministry(suchas the Ministry of Planning), with limitedcoordinationwithoperationalpriorities[27].Salariesforcivilservants–whomakeupthebulkofthehealthworkforceinmanyAfricancountries–areprotectedinaseparatefunding

poolandpaidaccordingtocivilservicerulesandpayscaleswhicharedeterminedoutsideof theMinistryofHealth. In countries suchasSenegal,healthfacilitieshaveneithertheinformationnorthepowertoinfluencestaffregulationandspending[26].Medicinesmayalsobeprocuredandmanagedcentrally,andmaybe provided in kind to health facilitiesrather than being purchased from budgettransfers or the facility’s own revenues –potentially giving less visibility, trackingability and flexibility in the allocation ofresources.

Another element of complexity is related to the breadth of expenditure in health managed off-budget or by entities outside the Ministry of Health, making it difficult to form a comprehensive view

Allocationbudgétaire par poste

Mix de modalités

Allocation budgétaire globale

Paiementà l’acte

Paiement à laperformance

Paiement au cas/ forfait

RAMUPADSDAF

FBRRAMU

GratuitéRistournes

ONE/G

Communes

SBCCSPS CMA

CAMEG CNLS

Salaires

Usagers/ Patients

Co-paiement formel ou informel

Ministèrede la Santé

DistrictSanitaire

MINEFID / MATD / MS

Mutuellescommunautaires

Assurancesprivées

CréditsTransférés

CHR / CHN / CHUPrestataires

privésPharmacies

privées

Salaires(Titre 2)

Crédits Délégués+ dépenses mutualisées

(Titre 3)

Gratuités(Titre 3)

Transfertscourants(Titre IV)

Fondsnon ciblés

Fondsciblés

Figure 5: Mappingofdomesticfundingflowsinthehealthsector,BurkinaFaso

Source: [87]

16

of the health sector budget. In severalAfrican countries, disease programmes aremanaged by ministries other than health,on the assumption that management closetohigh-levelleadershipwillsecuregooduseof resources. For instance, in Burkina Faso,theHIV/AIDSprogrammeismanagedbythePresident’s office [50]. Similarly, the healthsystem strengthening programme of theDemocratic Republic of the Congo, fundedfrom domestic resources, is attached to theoffice of the Head of State. The latter hasrarely been fully reflected inofficial budgetlaws[30].InseveralotherAfricancountries,some health revenue streams may be off-budget, with others being on-budget, butnot on-Treasury, posing challenges to fullreconciliationofbudgetinformation.

Funding arrangements in decentralized contexts are often a source of budget fragmentation. Subnational authoritiesmay receive income from multiple sources,including“blockgrants”whichtheyare freeto allocate; conditional grants that are ring-fenced (e.g. for health or education); otherforms of intergovernmental fiscal transfers(IGFTs), such as equalization grants; projectfunding or goods in kind from off-budgetsources such as NGOs, local businesses orexternal donors; and also “own source”revenueswhichtheyareauthorizedtocollectlocally(e.g.propertytaxes,marketstallfees,licencefees).Separatereportingarrangementsandincompatiblecomputersystemsbetweendifferentlevelsofgovernmentmakeitdifficultto obtain a comprehensive picture of healthsector resources, undermining the drive forequity. The experience also shows that insomecases,suchasGhana,therearetransfersfrom theNationalHealth InsuranceSchemeto the Ministry of Health to cover publichealth programmes, such as immunizationcampaigns,thatareunderthepurviewofthe

Ministry of Health. The efficient utilizationof these funds is critical for the effectiveimplementation of programmes, and for thesustainability and credibility of theNationalHealth Insurance. In the absence of goodfinancialmanagementsystems,thesetransferscanbesubjecttoinadequatetransparencyandaccountabilityforvalueformoney[51].

As a result of unfinished transition towards decentralization, the division of responsibility between central and subnational authorities for health budget development and decisions is often unclear in most African countries. In afullydevolvedsystem,subnationalauthoritiesare free to allocate resources betweensectors on the basis of local decisions,and have full control over development ofthe health budget, while complying withcentral guidelines and policies on qualityand standards of services. Alternatively, indeconcentrated1 settings, central decision-making dominates. In practice, evidencefromastudy including18Africancountriesshows that, even when local governmentsare effectively assigned the responsibilityto deliver health services onpaper, inmostcountries theyhave littleornocontroloverlocalhealthresources[52].Thislackoflocalgovernment discretion is particularly trueforthemanagementofhumanresourcesandassociatedwageexpenditures:itremainsthenorm for central authorities, from BurkinaFasototheDemocraticRepublicoftheCongoand the United Republic of Tanzania, todetermine the number and composition oflocal sectoral staff positions, to determinethewageratesandallowancespaidto localstaff, and to control local hiring, firing andpromotion.

1 Units administratively part of central government but operating at the local level.


Arrangements for allocating central government funds to the local level vary widely across the region, posing additional challenges to programme resources that are appropriately in the sector. Theregionincludesavarietyofsituations.Forinstance:a government’s health budget may be fullyunder thehealthministryandflowthroughthatministry(e.g.Chad,Malawi);or itmaybemainlyunderthehealthministrybutwithsomefundsflowingdirectlyfromthefinanceministrytosubnationalgovernmentsorhealthfacilities(e.g.Gabon,Zambia);orthehealthbudget may be divided between the healthministryandsubnationalgovernments,withthe subnational share ring-fenced forhealth(e.g. Democratic Republic of the Congo,UnitedRepublicofTanzania);oritmaybesplitbetweenthehealthministryandsubnationalgovernments, but at the subnational level itismergedwithothersectorfundingasblockgrantsand isnotearmarkedforhealth(e.g.Kenya).Somecomponentsofthehealthbudgetmay be determined separately (e.g. staffbudgetsmaybenegotiatedprimarilybetweenthefinanceministryandacentraldepartmentfor civil servants and other governmentworkers).Eachtypeofarrangementpresentsdifferentchallengestofinanceministriesandthehealthsectorinsecuringvalueformoney,and toministries of health in ensuring theintegratedplanningandbudgetingofhealthresources.Wheresomeofthehealthbudgetis allocated directly to the subnationallevelsofgovernment, thosebudgetsmaybenegotiatedbetween theMinistry of Financeand the subnational levels of governmentwithoutnecessarilyinvolvingtheMinistryofHealth.Itisprobablyimpracticalforallsectorministriestobeincludedinsuchnegotiations,makingitessentialthattheMinistryofHealthdevelops an alternative approach with theMinistryofFinancetoensurethatthehealthsector’sneedsaretakenintoaccount.

Where subnational governments are free to allocate core resources between sectors there are risks of de-prioritization of the sector. Evidenceshowsthatprioritizationforhealthatsubnationallevelcanbelowerthanat central level. In theDemocraticRepublicof the Congo, for instance [30], provincialbudgetsallocatedanaverageofonly4%ofallresources to thehealth sector in2010-2014.InKenya by contrast there does not appeartohavebeenasignificantdrop intheshareof health sector funding as a result of thedevolution–eventhough,followingthe2010Constitution,healthfacilityrunningcostsarefunded out of multisectoral “block grants”allocated by the counties. The allocationto health from two levels of governmentwas 7.8% of government spending beforedevolutionand7.7%in2015-2016[53].

While some countries of the region are moving to large purchasing agencies, they are not exempt from budgeting issues. While national health insurance schemesare less common in Africa than elsewhereintheworld,Algeria,Gabon,Ghana,Kenya,RwandaandtheUnitedRepublicofTanzaniahavemandatoryinsuranceschemesatvariousstages of implementation [49]. Gabon’sCaisse Nationale d’AssuranceMaladie et deGarantieSociale (CNAMGS) isoneexampleofanumbrellafund,withseparatefundsfordifferent population groups. In both Gabonand Ghana, purchasing entities have beenfundedbyacombinationofearmarkedfunds,directly managed by finance and generalrevenues (budget transfers fromhealth andother ministries). Despite the steps takentowards integration, the revenues have notbeenpooledunderGabon’sCNAMGS,posingchallenges in terms of sustainability forthe low-income, non-contributory scheme.While separate arrangements offer someflexibilityinresourceuse[54],theymaypose

18

challengesforpredictabilityinrevenuesandforthemanagementofexistingfundsinthesector [55], [56]. In somecases,purchasingentitiesmayalsohaveanadverseimpactontransparency in the budgeting process andmay undermine accountability structures[36],asdemonstratedbyKenya’sexperiencewithfraudintheNHIF[57].

In addition to the centralized sources of funding indicated above, many African countries authorize hospitals and lower-level health facilities to charge patients directly under varying regulations on fee collection and utilization. These feescompriseaseparatefundingchannel–thoughingeneralmarginal[58]intermsofsectoralfunding–withitsownrulesandimplicationsfor public financial management. Thearrangements for budgeting and reportinguser fee revenues are often weaker thanfor other sources of funding, and user feesare often poorly managed, off-budget andunderreported.Countrieshavedifferingrulesconcerningretentionofuserfees(e.g.whetherfunds must be transferred to the Treasury)and use (e.g.whether funds can be used topurchase medicines or incentivize staff).In Kenya, following devolution, regionalhospitalsinitiallyhadtodepositallrevenuesanduserfeeswithcountytreasuriesandwerenotreceivingthefundsbackonatimelybasis.In francophoneAfricancountries, the legacyfrom the Bamako Initiative has meant thatuser fees have formed a significant part ofdiscretionarybudgetforprimaryhealthcarefacilities that hasnot always been fully andpromptlycompensatedwithpublicfundsaftertheir removal [59]. Beyond weaknesses infinancialmanagementnotedinmostsettings,user feeshavealsohad significant– thoughgenerally unquantified – impacts on equity,accesstohealthcareandfinancialprotection[60]fornon-exemptedpopulations[61],[62].

Fragmented budgets sometimes result from a high dependency on off-budget external aid. Therelativelyheavydependenceof thehealth sector on external income meansthat the sector suffers more greatly fromfragmentation than other sectors as theresult of off-budget arrangements. Between2000and2014,externalaidincreasedfrom13% to 24% of total health expenditurein Africa [9]. For example, in Zambia, forthe four years to 2009, off-budget fundingaccounted for an average of 32%of officialdevelopmentassistance (ODA) to thehealthsector; for the fouryears to2014, followingamajorfraudin2009,theaveragewas80%[63].AnotheranalysisinUgandafoundmorethan75%ofdonorfundswerespentonHIV/AIDS, malaria and tuberculosis while thegovernment’sprioritypackageofbasichealthservices and supporting systems remainedunderfunded[4],[64].InthecaseofKenya,externaldonors fund35%ofhealth care inthecountry,and60%ofthatfundingisoff-budgetandtargetedatspecificinterventions[65]. Major vertical programmes may givetheimpressionthatthehealthsector iswellfinanced but such programmes generallyrequiretheirfundstobekeptseparately;theyrequire separate budgeting and planningprocesses,makingitmoredifficulttodevelopintegratedplanstoimprovethefullrangeofbasichealthservices.

As a result of the rigidities which come from earmarking of donor funds, health has been considered a distorting sector from a PFM perspective in several African countries. Thehealthsectorisknowntohavegenerated the development of parallel PFMsystems inmanyAfrican countries in orderto secure investments and limit fiduciaryrisks for development partners. Earmarkedallocations and parallel budgeting cycles,poolingprocurement,reportingarrangements


and the use of fiscal agents s have becomeastrongattributeofthesector,asthedonorcommunityhasbecomeincreasinglycautiousaboutbudgetsupport–partlyduetocontinuingPFM weaknesses [66], [67]. While severalcountries,suchasSenegalandSierraLeone,are working with development partners tointegratethefinancialmanagementactivitiesofhealthdonorprogrammesintotheroutinesystems,2 full integration has been slow inall countries. While Sierra Leone’s separateproject administrative units continue tomanage donor funds, Senegal’s Departmentof Administration and Equipment (DAGE)manages funds using each donor’s fundingflowarrangements[66].

External funding provided as goods in kind or donated assets create specific challenges to the budgeting and management of health resources. Medicines may beprovided in kind by the large externally-funded vertical programmes. Not only aremedicinesprovidedinthiswaymoredifficultto factor into comprehensive health sector

2 Through the Integrated Health Project Administration Unit (IHPAU) in Sierra Leone’s Ministry of Health and Sanitation, and through the Department of Administration and Equipment (DAGE) in Senegal’s Ministry of Health [66]

budgets, but there may be associated coststhat are not budgeted. For instance, in theUnitedRepublicofTanzania,servicechargesduetotheMedicalStoresDepartmentforthecostsofclearance,storageanddistributionofmedicinesprovidedfreeofchargebyverticalprogrammeswereneitherbudgetednorpaidby thegovernment, leading to a substantialdebtthatatonestagethreatenedthefinancialviabilityofthedepartment[68].Inadditiontogoodsinkind,manyhealthfacilitiesinAfricarely heavily on donatedmedical equipmentwhich typically comes with significantinstallation,operatingandmaintenancecoststhatmay not be adequately covered by thedonor.3Donatedassetsmayincludebuildingsas well as medical equipment (e.g. in theMongudistrict of Zambia amaternitywingat Mabumbu Community Rural Clinic wasfinanced and constructed in 2016 byDalbitPetroleum,alocalemployer).Poorreportingof the existence and condition of donatedassets can result in inadequate budgetprovision for maintenance, or inequitableallocationofcapitalfunds.

3 WHO estimates that the purchase costs of medical equipment only represent about 20% of the total costs incurred during the life of the equipment. [69]

20

CHAPTER 3:

BUDGET EXECUTION: SPENDING LESS THAN PLANNED, NOT REACHING FRONTLINE SERVICES WITH RESOURCES AND NOT PURCHASING HEALTH SERVICES STRATEGICALLY

Budget execution is often the weakest component of the budget cycle. A reviewof PFMassessments in31African countriesfinds that Public Expenditure and FinancialAccountability (PEFA) scores are higherupstream in the budget cycle (i.e. budgetformulation)thantheyaredownstreaminthecycle (i.e. budget execution and reporting)[12]. Budget execution refers to the releaseand use of funds and generally includes aseriesofsteps,includingthecommitmentoffunds,verificationofactivities,authorizationofpaymentsandtheactualpayment.Budgetexecutionrequirestheparticipationofmultipleministries and agencies and, in large anddecentralizedsystemstypicalofmanyhealth

sectors, requires significant coordination.Weakcashplanningandmanagementresultsin chronic underspending, the commonreliance on extra-budgetary procedures,publicprocurementproblemsandweaknessesinstrategicpurchasing.

Underspending in health is a recurring theme in budget assessments across all areas of Africa. Data from sub-SaharanAfrican countries indicate that 10-30% ofbudgetsallocatedforhealthgounspent[70].Table 1 shows the budget implementationrateforhealthandfortheoverallbudgetforthe Democratic Republic of the Congo forthe years 2011-2015.While the low overall

Table 1: Budgetimplementationrate,DemocraticRepublicoftheCongo2011-2015

Year Total budget Health budget

2011 71.7% 73.0%

2012 72.3% 27.5%

2013 69.2% 71.5%

2014 62.9% 40.4%

2015 70.2% 62.0%

Source: Ministry of the Budget, Democratic Republic of the Congo.


implementation rate suggests a need forsubstantial strengthening, in all but twoyears the overall absorption of the healthbudget was significantly lower than that oftheoverallbudget.

While many countries seek to prioritize and protect the social and health sectors when funds are in short supply, nondiscretionary spending that is fixed by law has the first claim on available funding [27].Inpractice,nondiscretionaryspending,which generally includes governmentsalaries, often comprisesa largeproportionofoverallspending,particularlyincountriesthat rely heavily on a large workforce ofcivil servants todelivercare.Shortfallscanhave a disproportionate impact on non-salary recurrent spending and componentsof capital projects that can be delayed. Forinstance, in a health budgetwhere 70% ofrecurrentfundingisforsalariesand30%isallocatedtogoodsandservices,acutof10%intheoverallrecurrentbudgetwilleffectivelyreducegoodsandservicesspendingbyone-third.Healthmaysometimesbedeprioritizedin mid-year revisions. In the DemocraticRepublicof theCongo, forexample,budgetlines for the President, the Prime Ministerand the twohouses of Parliament typicallyhave significantly higher implementationratesthandootherbudgetlines.Fortheyears2013-2015,theimplementationratesforthePrimeMinister’sbudgetwere244%(2013),207% (2014) and 177% (2015), comparedto 72%, 40% and 62% for theMinistry ofHealth [19]. In recent years, Senegal hasalso seen significant mid-year reallocationinaccordancewiththeFinanceAmendmentAct. Changes resulting from the Act aregenerallynotmadeinconsultationwiththedepartments concerned, thus underminingthe implementation of annual workplans[26].

The use of exceptional procedures has become frequent for sector expenditure in several countries. IntheDemocraticRepublicoftheCongoin2015,lessthan25%ofnon-staff expenditures were spent through thenormalchannels.Whilethebudgetproceduremanualallowsforemergencyexpenditures–an exceptional procedure intended to allowexceptional spending that would follow anunpredictable expense such as a naturaldisaster– theprocedure is frequentlycalledupon for general expenditure; emergencyexpenditures accounted for 77% of non-staffexpenditure in2015,and isoneof thecountry’s commonest sources of budgetoverrun[19].

Weaknesses in the cash management systems are ubiquitous. Commonchallengesobservedinbudgetexecutionintheregionareliquidity problems and late, inconsistent orinsufficientdisbursementsoffunds[4],[43],[71],[72].InKenya,forexample,only67%ofallocationsreachedthedistrictlevelbecauseof liquidity problems [73]. This is often aresult of cash budgeting practices in whichthetotalamountofreleasesismatchedtotherevenues raised in the previous month andthereforecanresultinunexpectedshortfallsinlineministryfunding.Cashconstraintsatcentralgovernmentlevelresultintheuseofcash budgeting techniques which make thereceipt of resources for servicedelivery lessreliable[74].Cashbudgetingtypicallydistortsthe prioritization of different componentsof the health sector budget and leads tounpredictable, irregular and reduced flowof funds, sometimes together with a surgeof funding towards the endof thefinancialyear.Cashbudgeting–especiallywherenotoperated transparently – may also provideopportunitiesforincreasedcorruptionas,forinstance, irregular receipts provide greateropportunities to divert funds (Box 3). In

22

Ghana,wheretheNHIS’sclaimpaymentspayforover80%ofhealthfacilities’operationalexpenses,underfundingof theNHISbudgetleadstolengthydelaysinreceiptoffundsbyfacilities–in2016paymentstofacilitieshaddelaysof8-10months[75].

Other challenges result from issues upstream in the budget rules and structure. Over-budgeting is a commonpractice in several countries. It is apracticeusedtoaccommodatethedemandsasofmanystakeholders, including sector developmentpartners, as possible. In addition, technicalchallenges arise in many African contexts,

In African countries, funds are often released late or in insufficient amounts, posing seriouschallengestothemanagementanddeliveryofhealthservices.Thereliabilityofbudgetreleasesmayvarybysourceoffunds.

Direct government grants: Cashbudgetingpractices inmanyAfricancountriesareamajorcontributortounpredictableand insufficientgovernmentfundingforhealth.Cashbudgetingiswherethetotalamountofreleasesismatchedtotheactualrevenuesraisedinthepreviousmonth.Useofthepractice istypicallyasignofweakforecasting,withshortfallsresultsfromambitiousallocationssupportedbyunrealisticrevenuebudgets.Areviewof27PublicExpenditureTrackingSurveys(PETS)[74]foundthatcertainwidespreadPFMdysfunctions–particularlytheineffectivenessofresourceflowsbetweenlevelsofgovernment–resultedfromcashbudgetingandcash-rationingpracticesoperatingupstreaminthebudgetcycle.

Health insurance systems: Similar concerns exist where funds are routed through healthinsuranceschemes.Wheresuchschemesincludegovernmentfundingaspartoftheirrevenueinadditiontocontributionsfrommembers,thegovernmentfundingcanalsobeeitherlateorincomplete.InadditiontodelaysintheflowoffundsfromtheMinistryofFinancetothescheme,eveniffromanearmarkedsourceofrevenuesuchasinGhanaorGabon[56],[76]–[78],thereareoftenfurtherdelaysinthefundsreachingthefacilities.Thisisinpartbecauseofthebureaucraticprocessofsubmitting,reviewingandapprovinglargenumbersofclaimsfrommultiplefacilities,butdelaysmaybeexacerbatedbyfraudulentorerroneousclaimswhichrequirecarefulreview.

User fees: Whileuserfeebudgetingarrangementsareoftenweak,whereuserfeesexisttheymay be the most reliable and consistent source of funds for operating costs at local healthfacilities.Policychangestoeliminateuserfeesmustbeaccompaniedbyrealisticmeasurestoensurealternativesourcesofstablecashflowtolocalhealthfacilities.

Donor funding: Donorfundingmayappeartobemorecertainthangovernmentfundingintheshorttomediumterm.However,evenroutinegrantrequirementsmaycausedelaysinreleaseoffunds.Forinstance,theGlobalFundfoundinareviewof27grantsacross24countriesinitsglobalportfoliothatsubmissionofitsstandardroutinereports–ProgressUpdates–tookanaverageof129dayscomparedwiththeexpected75days[79].WeakPFMtypicallydisruptstheflowofdonorfundsnotonlybecauseofdelaysinpreparingfinancialreportsandauditsandprotractedfeedbackfromdonorsbutalsobecauseofotherweaknessesingrantimplementation,ormorestringent grant conditions and monitoring.

Box 3: Predictabilityofbudgetreleasesinthehealthsectormaydifferbysourceoffunding


whenbudgetformulationandassociatedrulesfor spending prevent reallocation betweenbudget linesandconstrainexecution. Input-based line-item budgets, in particular, areoften relatively rigid and are based onhistorical allocations. Budget rules precludethe shifting of expenditures to respond toserviceneedsoverthecourseoftheyear[4].In the Democratic Republic of the Congo,for example, budget lines are binding andmadewithoutconsultationwiththesectoralministries.

Underspending against health budgets is a common problem in many African countries. The available data indicate thatthe proportion of unspent health budgetranges from 10% to 30% of authorizedallocations in African countries, with someoutliers(suchastheDemocraticRepublicoftheCongo)comingcloseto60%unspent[9].These underspends may be caused in part

by the upstream problems noted earlier –includingunpredictableallocations,mismatchbetween policy and budget allocations andinappropriatebudgetstructures.Underspendsmay also be caused by underperformingbudget execution systems,partly relating tothenatureof thesector.Figure6highlightssomeofthecausesofunderspendingagainstbudgets;thoseparticularlyrelevanttohealthsectorarehighlightedindarkblue.

Complex delivery chains for funds may also impede budget execution. The morecomplexthedeliverychainforfundsis–i.e.themoreintermediariesandstepsinvolved–thegreatertheriskofdelayedreceiptoffundsdue to additional administrative processesis. More intermediaries also create moreopportunitiesforfundscaptureorfacilitationfees. Introduction of direct payments byministries offinance todistricts or facilitiesremove intermediary steps, although they

Figure 6: Underspendinginhealth:amultifacetedproblem

• Over-estimate of revenues

• Full disconnect between planning and budgeting

• Lack of formalization of budget preparation process

• Rigid structure of budget

• Delays in operationalizing PFM reforms, in particular transfer of spending responsibility to MoH

• Unrealistic plans with poor data

• Late and misaligned disbursements from treasury

• Mid-year re-allocations across sectors

• Limited capacity of MoH to plan and anticipate spending needs

• Health-related procurement issues, delays

• Extra-budgetary procedures

• Lack of PFM capacity and tools at local level

Up

-str

eam

bu

dg

etin

gD

ow

n-stream

bu

dg

eting

24

need to be accompanied by other financialmanagementandreportingreforms,includingcapacity-building. In Zambia, governmentfundsfortheprovincesanddistrictsusedtobechannelledthroughtheMinistryofHealthandwere recorded as “imprest” (advances),with detailed expenditure being recordedwhen the retirement reportswere received.Since 2015, funds have been sent directlybytheMinistryofFinancetoprovincesanddistricts.InUganda,theoperationalfundsforhealthfacilitieswerechannelledthroughthelocalgovernmentwhichusedtocausedelays.Since the financial year 2014-2015, theMinistry of Finance has been implementing“straight through processing” – a measurethatsendsfundsdirectlytohealthfacilities,therebymaking funds available in a timelymanner.However,challengesaroseindelaysor lack of reporting on the accountabilityfor funds received by the Chief AccountingOfficer(CAO)forthedistrict.Thiswasoftencompounded by the fact that informationabout the release of the funds reached theCAOslate.IntheUnitedRepublicofTanzania,operating costs for facilities are channelledthroughcouncils,whichhavecontributedtodelays in receiptof fundsby facilities; since2017thegovernmenthasbeenpilotingdirectfacilitytransfersfromthehealthbasketfund.

Other challenges with the delivery chainspertain to multiple accounts that are usedby the government ministries, departmentsandagencies(MDAs)andlocalgovernments(LGs)tomanagepublicfunds.InUganda,forinstance,beforetherecentPFMreforms,theMDAs and LGs hadmultiple bank accountseach serving a different purpose. Theseaccounts facilitated misappropriation andunderutilization of public funds because ofthe lack of effective oversight. In addition,health facilities experienced delays inaccessingfundsformorethansevenworking

daysduetopoormanagementoffunds[80].SimilarfindingsarereportedinNigeria[81].

Execution differs by nature of expense, with capital expenditure being more fragile to low implementation. InSenegal,theaverageexecutionrateforinvestmentgrantsfor2012-2015 is 99%, while the rate for the moreadministrativelycomplexcapitalexpendituresis just 64% [26]. Similar differences areseenintheexecutionof theUnitedRepublicof Tanzania’s development and recurrentbudgets for health; in Tanzania, delays indisbursements to regional units are blamedonafailuretoproducetimelyreportsthatarerequiredforthereleaseofdevelopmentfunds[82].IntheDemocraticRepublicoftheCongoduring2011-2015,theexecutionrateforstaffcostswas 94%,while the execution rate fornon-staffexpenditureswasjust32%.InsomesystemssuchasNigeria,subnationalpoliticiansmayuse theirdiscretionarypowers tospendonissuesthatarenotidentifiedasprioritiesatthecentrallevelbutthatareimportanttolocalconstituents to whom they are accountable[35].Thislatterpointcreatesthepotentialforfraudulentorcorruptuseofthesediscretionarypowers,whichcarriessignificantimplicationsforbudgetperformance.

What matters from a sector perspective is not only the level of execution and whether each specific input line has been fully spent but to what extent the expenditure was spent to respond to needs and reached frontline services. In certain situations,limitedexecutionofcertainlinesisnot–orshould not be – necessarily associatedwithpoor sector performance. It might insteadsignal the actual shift of resources towardsunplanned or emerging priority needs. Inaddition,inaninput-budgetsetting,theneedto plan and authorize spending by detailedinputsmay create an artefact that does not


reflecthowmoneyisactuallyutilizedatlowerlevels of government (e.g. district, facility,implementingagency).

Practices for purchasing health services are typically not strategic in the health sector in African countries. Strategicpurchasingisanapproachthattransfersfundstoproviders(health facilities) based, at least inpart, oninformation about providers’ performanceor the health needs of the population they

serve[83].Suchanapproachrequiresspecificinstitutional structuresandPFMmodalities.IntheabsenceofseparatepurchasingentitiesinmanyAfricancountries,thepractice–andeven sometimes the concept – of “strategicpurchasing” is often unfamiliar. Passivemechanisms are often in use in Africa(i.e. providers receive funds by traditionalbudget transfers without consideration ofperformance). The core components of astrategic purchasing function are generally

Underspending isamajor issue inseveralcountries.TheexampleoftheDemocraticRepublicof theCongoandCameroonarehelpful forunderstandingthemultiple factorsprevailingforunder-execution.Analysisofthebudgetcyclelinksunder-executiontoweaknessesatboththeministriesinchargeofhealthandtheministriesinchargeoffinancethathaveimpactsatseveralstagesofthebudgetcycle.

DuringbudgetpreparationintheDemocraticRepublicoftheCongo,sectorworkplanandbudgetdocumentshavebeendeliveredlateandareofvariablequality.Inparticular,healthauthoritieshave systematically overestimated allocations from external resources. In 2013, for instance,the Ministry of Public Health’s forecasted budget needs for equipment, services and otherdiscretionaryexpenditurecameto59%of the fundsultimately requested fromtheTreasury[5].ThisislinkedtodelaysinissuingquarterlyBudgetCommitmentPlansbythecentralbudgetoffice.Otherconcerns,includingerrorsinthepreparationanddelaysinreceivingtheMinisterofPublicHealth’sapprovalofthesectorplans,pointtocapacityandorganizationalproblemswithintheMinistryofPublicHealthaswellasthelackofaformalizedbudgetpreparationprocessandstructure[30].

Budgetexecution isfurtherhamperedbythestructureofthefinancialmanagementsystem.ValidationofexpendituresremainsahighlymanualprocessmanagedbytheMinistryofBudget.LongdelaysinvalidationhaveresultedinexpendituresbeingchargedtothenextquarterandalossofquarterlytransferfortheMinistryofPublicHealth.Oncevalidated,theMinistryofFinanceprocessesapurchaseorderthroughasimilarlymanualprocess,whichcantake2-3months,againresulting in the lossofquarterly transfers for theMinistryofPublicHealth.Payment is alsofrequentlydelayedfurtherbyerrorsintheauthorizationofpaymentsandbanktransfers[30].

InCameroon,challengesofhealthbudgetexecutionarealsonumerousandinterlinked.Majorcauses include: widespread ignorance of the rule of budget development; a commitment totraditional management practices; excessive concentration of funds in central services withlimitedinvolvementofperipherallevels;weakmonitoringandmanagementcontrolmechanismsforexpenses;andacontinuingpreferencefor infrastructureexpendituretothedetrimentofthosesupportingthecontinuityofhealthservices[21].

Box 4: RootcausesofunderspendinginCameroonandtheDemocraticRepublicoftheCongo

26

not in place.Whilemany African countrieshave established norms for packages ofservices to be provided at each level of thehealthsystem,therehasbeenlessprogressindevelopingtheseinto“benefitpackages”thatmay be purchased by a strategic purchasersuch as a local government or a healthinsurancefund,andlimitedthinkingonhowto pay providers for the delivery of theseservices[84]–[86].

Fragmented budget systems introduce challenges for strategic purchasing of health services. A particular challengearises when salary payments are underthe authorityof oneministryor are subjectto strict civil service laws,while a separatepurchasingagency–suchastheMinistryofHealthoranationalhealthinsurer–attemptsto introducepayment reforms [83].Salaries

arealargeportionofhealthbudgetsandareacriticalcomponentofan individualhealthworker’s overall incentive structure. Thus,omitting salaries from payment reformscan greatly diminish their effectiveness.PFMrulescanalsounderminetheincentivestructure that strategic purchasing seeks tocreate. For example, rules that require thatanysavingsmustbereturnedtothecentralbudget,particularlyifthesavingscannotbereallocated within the year by operationalunits to other budget lines, eliminate oneincentive to provide more effective andefficientcare[4].

Multiple provider payment systems further complicate the situation by limiting the ability to pool resources and, frequently, by instituting a number of conflicting incentives [83]. Fragmented purchasing

Table 2: Multipleproviderpaymentarrangements

Overall budget allocation

Allocation by budget item

Payment by procedure

Payment on a case-by-case basis (flat rate)

Capitation Payment by results

MinistryofHealth–DAF X X

MinistryofHealth–Healthdevelopmentprogramme

X X X

MinistryoftheEconomy,FinanceandDevelopment/MinistryofTerritorial Administration and Decentralization/MinistryofHealth

X

Genericmedicinespurchasingagency

X

NationalcouncilforthefightagainstHIV/AIDSandsexually-transmittedinfections

X

NGO X X X X

Community-healthinsurance X

Private insurance X

Universalhealthinsurancescheme X X

Source: [87]


systemsmakeitdifficulttoimplementaunifiedsetofpaymentrules,andsomayincreasetheoverall administrative burden, particularlyon facilities. In Burkina Faso, for instance,multiple provider payment mechanisms arein place,with inconsistent incentives to thedeliveryofservicesatdifferent levelsof thehealthsystem(Box5).

PFM rules and structures also have an impact on procurement of goods such as essential medicines or other health commodities. Procurementisoftenmanaged

by a centralized authority, generally theMinistryofHealthoradepartmentofamedicalstore.Whilecentralizedprocurementsystemscan leverage greater purchasing power tonegotiatemulti-yearpurchasingagreements,theyoftenfailtoliveuptotheirpotentialandcanleadtoafocusonhigh-costtertiary-levelmedicines at the expense of resources forbasicmedicinesforprimaryhealthcare.Thelogistics systems underpinning procurementareoftenoutdatedandstruggletoobtainanddelivertherightquantity,attherighttime,tothe rightplace tomeethealth-serviceneeds

BurkinaFaso’shealthfinancingsystemischaracterizedbyahighleveloffragmentation.A2014studyidentifiednofewerthan23separatehealthfinancingschemes[47].Thisislargelyattributedtothelargenumberoffreeandsubsidizedpoliciesinplace.Subsidiesarefundedbyavarietyof sources, including the statebudget, internationalpartners,NGOs,private and communityinsurance funds,andhouseholds [87].The result isahighly fragmentedpoolingof resourcesthathindersfinancialrisk-sharingandhighlightsthecomplexityofhealthsectorpurchasinginBurkinaFaso.Thestateisthemainpurchaserofhealthcareinthecountry,channellingjustoverhalf(53%)ofhealthexpenditures.Fundsflowlargelyvialine-itempaymentsbasedonhistoricalspending,althoughthegovernment’songoingbudgetreformeffortsareexpectedtoresultinchangestothepurchasingandprocurementsystem.Personnelcosts,whichcovercivilservants’salaries,aregovernedbythe2015ActNo.081-2015/CNTontheGeneralStatuteoftheStateCivilService.Salarieslevelsare,therefore,largelydeterminedoutsideoftheMinistryofHealth.However,thereisscopetoincorporateperformancetop-upstocivilservicesalaries.Grantsandtransfers may be delivered as global budgets, while vertical programmes such as the state-subsidizedmaternalandchildhealthprogrammearepaidviacase-basedpayments.Thenascentsocialhealthinsurerisexperimentingwithacombinationofcapitationandcase-mixpaymentsinthreedistricts.Community-basedhealthinsurance,privateinsurersandpatientsrelyheavilyonfee-for-service,withtheorganizedinsurersgenerallyhavingsomecontrolsonoverallspending.Areviewofexpenditureflowsfindsthatapproximatelytwothirdsofpaymentstothesectorareline-itempayments,andonethirdarecase-basedpaymentswithresults.

While the multiplicity of payment and procurement mechanisms illustrates a trend toexperimentationand learning-by-doingthat isrequiredforanymajorreform,careshouldbetakentoprioritizeasystemthatwillharmonizeandcoordinatethemultipledifferentstreams.Thecurrentpurchasingsystemshowsanoveralllackofcoherenceandhomogeneitythatincreasesadministrativecostswhileunderminingtheefficiencygoalsofthecase-mixandperformancepayments[87].

Box 5: BurkinaFaso:multiplepaymentarrangementsandthepassivepurchasingofhealthservices

28

[88].InSenegal,forinstance,theprocurementunitoftheMinistryofHealthisatwo-personteam that is responsible formore than 400contracts[26].Inaddition,procurementrulesmay be outdated or cumbersome, centraladministrators may lack the skills requiredto negotiate attractive contracts, and theremay be corrupt diversion of funds [89].Budgetingarrangementsmayalsovary,withsome countries providing cash budgets tofacilitiestoprocuremedicines(typicallyfromacentralagency),andothersmaintainingthebudgetscentrallyanddistributingmedicinesto facilities as goods in kind. Francophonecountriesintheregionthathaveimplementedthe Bamako Initiative have long relied onuserfeestosecurefundingformedicinesatprimaryhealthcarelevel,withlimitedinputsfrompublicfundsuntilfeeswereremovedfora corepart of services and compensatedbypublictransfers(whicharesporadicandwithdelaysinmostcases)[90],[91].

Transfers of funds to health facilities – getting funds “the last mile” to remote rural facilities – is a common difficulty in the region. Several studies in Africancountries have found that facilities often

receiveaverytinyportionofthetotalhealthbudget(ingeneral lessthan10%)[92]and,forseveralPFM-relatedissues(e.g.delaysindisbursement, blockage at district level) donot eveneffectively receiveorutilizepublictransfers supposedly intended for them.Facility health workers also often have tomake journeys to district capitals to collectsalaries and facility funds, or to reportexpenditure, resulting in absence from thefacility and incurrence of costs. The lackof bank accounts – because of weak banksystemsorlackoflegalauthorization)–posesacommonchallengeinremoteareasinseveralcountries [93]. In some countries funds aremanageddirectlybydistrictadministrations– as in Zambia, where facility funds aremanagedbydistricthealthofficeswithonlyaverysmallproportionofeachfacility’sbudgetbeinggiventoitasacashadvance.Whilethisavoidsthepaymentchallenge,itisnotinlinewith the principle of empowering frontlinestaff. In Ghana an “e-zwich” debit cardsystemhasbeenintroducedforcivilservants’salaries,buttherehavebeenchallengesduetoaninsufficientlydensenetworkofservicepoints[94].


CHAPTER 4:

BUDGET ACCOUNTING, REPORTING AND AUDITING IS ROUTINIZED BUT WITH LIMITED ACCOUNTABILITY FOR HEALTH OUTPUTS

Budget reporting is now routine across Africa, but accountability for results remains limited. While budget documentsmay analyse resources across multipledimensions, expenditure reporting isgenerallymorelimited–typicallybylineitems.Otherconcernsincludethefragmentationofreportingandfinancialinformationsystems,and the limited reporting of performanceinformation alongside expenditure data.Multiple funding flows cause complex andoverlapping reporting relationships andmanagement systems, while weaknessesin the underlying information system forfinancialmanagementmakeitverydifficulttomonitortheuseoffunds.SouthAfricaoffersa case in point. Prior to 2012, the countryreliedonanumberofdifferent informationsystems, including different financialmanagement systems. The accountingsystem was cash-based, and payroll andlogistics informationwaskept instandalonesystems, none ofwhich could be integratedfor data analysis and reporting [4]. This isalso a challenge in decentralized settings,withsubnationalgovernmentsfrequentlynotreporting sectoralfinancial information.Forexample,intheUnitedRepublicofTanzania,

thedistricthealthbudgetsandfiscaltransfersare reportedundereachof thecountry’s31regions as a single figure comingled withother sectors. Underlying district healthexpenditure is separately recorded for eachofthe184districtsbutthereisnopublishedreportingofsectoralbudgetsandexpenditurebydistrict.

The complexity of the health sector poses challenges for accurate reporting. Thehealthsectorissometimesperceivedtohavea lack of measurable, immediate results,and this may lead to the feeling that it isineffectiveandinefficient[2].Numerousandfragmentedfundingsources,eachwiththeirownreportingrequirements,oftenintroduceduplicate or conflicting requirements. Forinstance, in South Africa in recent years atleast six financial systems were being usedsimultaneously [95]. In Sierra Leone, thefragmentation and proliferation of financialmanagement rules, manuals, trackingsystemsandbankaccountshasbeennotedaslimitingbothtransparencyandaccountabilityaswellascontributingtoinefficienciesinthehealth sector [96]. InBurundi, thereareupto26parallelentities(includingdonorsand

30

NGOs) working in the sector with a weakaid/donor coordination mechanism at theMinistry ofHealth toprovide thenecessaryalignment and accountability [96]. Thechallengeofmaintainingaccurateandtimelydataweakenseffortstoensureaccountability.

The expanded use of an Integrated Financial Management System (IFMS) in African countries represents a prominent effort to facilitate programme-based flexible reporting. The IFMS categorizesdata according to a number of potentiallyrelevant fields which might, for example,include funding source, programme (orsubprogramme), cost centre, activity, item(orsub-item).TheexampleshowninTable3wasdevelopedin2005intheUnitedRepublicofTanzaniaand iscurrentlybeingupdated.The extensive coding allows reports to begenerated on any of the fields. Thus, thedevelopment of budgets by administrativeunit,inputcodeorprogrammeisnolongeranissueof“either/or”.Multiplepermutationsarenow possible and users can extract reportsbasedononeormoreofthefieldsindicated.

While the IFMS improves central government accounting, the complexity of such systems presents challenges, particularly at district and facility levels. Suchsystemsmaysometimesbetooinflexiblein theway they have been implemented tofully meet the needs of central Ministriesof Health, and significant financial

managementactivitiesmaytakeplaceusingExcelspreadsheetswhicharepronetoerrorand loss. In somecountries, suchasGhanaand Mozambique, the ministries of healthhaveprocuredtheirownaccountingsystems.At the local level, a large IFMS at centralgovernment isnotnormallysuitable for thecapacity and accounting requirements ofhealthfacilities,andsometimesalsonotfordistricts. InUganda, challengesat the locallevelfollowingtheroll-outofIFMSatdistrictlevel includednetworkfailure, instabilityofthe system (especially at peak times) andpoor Internet connectivity which affectedimplementationandmonitoringofactivities[80].In Zambia, health facility budgets aremanaged directly by district health offices(deconcentrated units of the Ministry ofHealth),withonlyverysmallcashadvancesbeinggivento facilities for theirdirectuse.The district health offices are not on thegovernment’scentralaccountingsystem,andtherearenoimmediateplanstoconnectthemwiththatsystem–astepthatwouldrequiresignificantresourcesbothforinstallationandalsointermsofongoingcapacitytooperateand maintain the system. In view of theneed for basic accounting tools to managefunds and to provide assurance to externaldonors, many of the district health officesare installing an alternative, less complexaccounting system with financial supportfrom donors. In the United Republic ofTanzania,wheredirectfacilitypaymentsarebeingpiloted,aweb-basedcashbooksystem

Table 3: ExampleofanIFMScodinginTanzania

Segment 1 Segment 2 Segment 3 Segment 4

Vote Program Sub-program Cost centre Performance budget

District Account

XX XX XX XXXXXX X-XX-X-XX XXXXXX XX-XX-XX

Source: adapted from IFMS, Ministry of Finance, Tanzania


isbeingdevelopedforfacilityaccountingandreporting.

Unless consolidated around a performance framework for both operational and financial information, health sector financial reports are typically produced in silos, separated from the performance and activity data in systems such as HMIS, and from human resources and medicine stock control systems. Differentprofessionalcadres (e.g. health data specialists, humanresources officers, pharmacists, economistsandaccountants)oftenworkinisolationfromeachother,producingseparateandpotentiallymisaligned data and reports. One positiveconsequence of using provider paymentmodelsistosharpenthefocusonoperationalhealthdata,stimulateimprovementsinhealthinformation systems and bring togetherfinancialandnon-financialdata. InBurundithe government is taking the opportunityof performance-based financing (PBF) toupgrade the health data system, increasinggranularity,transparencyandversatility.

In many African countries, weaknesses in the internal and external auditing systems further undermine accountability. Auditingsystemsaredesigned to supplement routinedata by supplying critical information,ensuring the accuracy and completenessof the system of controls. However, healthsector internal audit units are frequentlyunderfundedandunder-skilledand,inmanycountries,carryout“pre-audit”ofpaymentswhichnotonlyconsumelimitedresourcesbutalsoriskcompromisingindependence.IntheUnitedRepublicofTanzania,forinstance,thepoor performanceof the internal audit unitoftheMinistryofHealthandSocialWelfarewas blamed for non-release of allocatedfunds, threatening the functioning and thefinancialmanagementsystemoftheministry

[97].Reflectingthefragmentedinstitutionalandbudgetstructuresofmanyhealthsectors,multipleauditreportsareproduced,makingit difficult to identify key weaknesses,monitor follow-up of recommendationsacross the sector, and design and prioritizereforms. Meanwhile, official external auditreportsarefrequentlyproducedtwoorthreeyears after the events towhich they relate.Their findings become less helpfulwith thepassageoftimeandresultinpoorfollow-upofrecommendations.Wherethestructureoffinancial oversight isweakened in thisway,sectorgoalsareagainthreatened.

While most external audits focus on compliance with procedures and controls, sector performance audits provide a valuable resource if followed through. Forexample, the National Audit Office in theUnited Republic of Tanzania conducted aprimaryhealthcareperformanceaudit[98]toreviewwhetherhealthcentresaremanagedefficiently and whether their performanceis appropriately considered when allocatingresources.Theauditidentifiedkeyissuesandweaknessesandmadeaseriesofconstructiverecommendations but follow-upwas poor –perhapspartlybecauseofthedifficultyoftheMinistryofHealthindirectingimprovementsinefficiencyindistricthealthservices.

Both IFMS and auditing systems have aimed to increase financial transparency but sector accountability remains limited. Budgetandexpenditurereviewsaretypicallyincludedasbackgrounddocumentstoannualhealthsectorreviews.However,expenditureinformation is often weak and unreliablebecause, for instance, of the complexityof mapping the sector budget structure tothe institutional and budget structures ofgovernment, and the delays in providingexpenditure data. Health sector public

32

expenditure reviews contribute to sectoraccountability but it appears that they arebecoming less common. The publication ofcitizens’budgetsandpostingoffinanceandother resource information (e.g. medicines,staff) on noticeboards at facilities provide

more direct forms of accountability tocitizens. Sector performance frameworksmay help to boost accountability but aretypically both high-level and yet complex;theyarealsocomplicatedbythemultiplicityofdifferentperformanceframeworksusedby

33large potentIal for acceleratIng pfm reform In the health sector

donor-funded programmes, such as verticalprogrammes. Greater transparency mayincrease public trust in government [6] buttransparencymaynotresultinaccountability.Recent efforts to introduce performance

frameworksinthehealthsectorofferpromisetoboostaccountabilityforperformance[99],irrespective of the structure of the existingbudget.

34

SECTION II. LESSONS FROM AFRICAN COUNTRY POLICY RESPONSES:

LARGE POTENTIAL FOR ACCELERATING PFM REFORM IN THE HEALTH SECTOR


ThissectionofthereportbuildsonobservedpracticesfrombothfinanceandhealthministriesinrespondingtoPFMchallengesinthehealthsector.Itclarifiesthescopeofinterventionforhealthministries,highlightsareaswherePFMreformcanbefurtheracceleratedandinstitutionalized,andgivesguidanceonhowtorevitalizeatrust-basedcontractbetweenhealthandfinanceinthecontextofacceleratedandtailoredsectoralPFMreforms.

36

CHAPTER 1:

WHAT CAN HEALTH MINISTRIES DO: UNPACKING THE HEALTH SECTOR’S RESPONSIBILITIES IN PFM REFORM

Budget reform is frequently considered to be the exclusive domain of budgeting and planning authorities, but reforms are rarely effective without the active participation of the spending units. PFM reform affects the most fundamentalactivities of government institutions, fromhowtheydefineprioritiestohowtheycontrolthe budget. The budgeting cycle affects allpublicactivities;nopublicinstitution–fromthecentralministry toahealthposton theperiphery – is fully shielded fromefforts toreformthecycle.Theroleofthehealthsectorwilldepend, in largepart,on thenatureofPFMreform(Table4).

The Ministry of Health can be classified as an “interested observer” in a number of broad PFM reforms that aim to stabilize and better predict the macro-fiscal environment. Whilethehealthsectoris not the central focus of general PFMreforms, it can benefit, for instance, fromthe increased predictability of the resourceenvelope that stems from improvementsto the quality of annual budget projectionsand the introduction of an MTEF. Healthauthorities shouldmonitor theadvancement

ofthesereformsmorecarefully.Ministriesofhealth,likeotherspendingministries,benefitmostwhen they complement these growingstrengths by ensuring the quality of thecostingandutilizationdatawhendevelopingsectoralbudgetproposals.

The Ministry of Health should proactively participate in the design of PFM reform that directly affects the health sector. Evenifitdoesnotdirectlymanageallofthepublicresourcesforthehealthsector,theMinistryofHealthhasanoverarchingresponsibility forpublichealth,thedeliveryofeffectivehealthservicesandtheefficientuseofhealthsectorresources.TheMinistryofHealthhasadirectrole in strengthening and implementingPFMcomponents for thehealthsector, suchas the development of realistic and reliableproposalsfortheannualhealthsectorbudget.With the introductionofbudget reformandthe transition to programme budgets, theMinistryofHealthshouldplayanimportantrole in defining budgetary programmes. Inthe most effective reform cases, Ministryof Health officers have taken the lead inaligning the programmes’ content withsectorprioritiesandplans. InBurkinaFaso,


theMinistry ofHealth activelymapped thebudgetary programmes according to thestrategicobjectivesofthenationalhealthplantoensure that thescopeandcontent reflectcoreneeds[99].

These transitions are more significant than a series of mechanical shifts: they imply a shift in the role and function of Ministry of Health. When ministriestransitionfrombeingtraditionalplannerstobeingprogrammers,theynolongerconceivebudgets as a series of inputs; rather, theyfocus instead on the sector’s priorities. Thisimpliesacriticalshift inthe logicofbudgetplanning.Ministriesmayalsooftenbecomedirectmanagerswithaccountabilityforhowresources are spent and with implicationsfor internal management systems, or theymay take a more regulatory, oversight andcoordinating role which requires differentapproaches and skills plus good data. Asministries of health are increasingly beingheldaccountableforresults,itisessentialthattheyestablishappropriatemeasurementsanddesigninformationsystemstomonitorthem,and that financial information is used toinformfuturedecisionsonallocations.These

shiftsmustbethoughtthroughandshouldbeimplemented in coordination with anotherimportant shift,namely:whengovernmentstransferresponsibilityforservicedeliverytoinsurance/purchasing funds [100], healthministriesmusttransformfrombeingdirectserviceproviderstobeingregulators.

Capacity-building is a crucial component of these reforms. Budget reformmaybringabout changes to the underlying process ofmanaging a health system’s expenditure. Inadditiontoraisingawarenessofthechangestoexecutionprocedures,ministriesofhealth–inadditiontotheotherlevelsofthehealthsector– often require significant capacity-buildingintermsoftheirinternalbudget,accountingand monitoring functions. Sectoral budgetofficersmustbetrainedtoutilizeestablishedPFM policies effectively; MTEFs, IFMS andperformance results can be leveraged tobettertargetallocations.Skillsupgradingcanleadtobetterdevelopedandjustifiedhealth-sectorbudgetsthatalignwithsectorpriorities.Increasing the legitimacy of the budgetwillalso strengthen the sector’s position in thehighlypoliticalnegotiationprocess.

Table 4: ThreeareasforMinistryofHealthengagementinPFMreforms

PFM domain Ministry of Health role Policy example

GeneralPFMreforms Interested observer ImprovingqualityofMTEF/projectionstoincreasepredictabilityandstabilityinthesector’sresourceenvelope

PFMreformdirectlyapplicabletothehealthsector

Activeimplementer Introductionofaprogrammebudgetinthehealthsectortoimprovethealignmentofbudgetallocationswithsectorpriorities

Health-specificPFMinterventions

Policy design leader Designofaregulatoryframeworkforfinancialautonomyandmanagementforlocal-levelhealthfacilitiestoimprovequality(i.e.targetedfunds)andthelevelofexecution

Generic

More specific

38

The health sector plays – or should play – a leading policy role in a number of PFM interventions that are specific, and sometimes unique, to the health sector. Many PFM reforms should directly targetsectorspecificissuesspecificitiesnotedabove.For instance, interventions should aim toincrease the spending autonomy of healthfacilities or to provide strategic financialincentives to health workers. While boththese interventions interact with, and haveimplicationsfor,thebroadersetofPFMrulesand structures, the Ministry of Health willgenerally take – or should take – the leadin designing and developing appropriateregulatory frameworks and in dialogue to

obtain thebuy-inof thefinance authorities.Some aspects of the health sector (e.g. thedispersed nature of the sector and its staffand facilities) have much in common withthe education sector, and these two sectorscan often benefit from working togetherin developing reforms with the Ministry ofFinance.

As part of their health-specific PFM reforms, several countries have introduced flexible financing models that allow more financial autonomy to providers, while providing performance-oriented bonuses to reward service use and/or quality [101].These experiences arewell-known inmany

Performance-basedfinancing(PBF)orpay-for-performance(P4P)isaformofincentivewherebyhealth providers are, at least partially, funded on the basis of their performance in meetingtargetsorundertakingspecificactions.Thisincentiveisdefinedasfee-for-service-conditional-on-quality.

Inmanylow-andmiddle-incomecountriesPBFprogrammesarealsooftenreferredtoasresults-basedfinancing(RBF),althoughRBFisanumbrellatermforaninstrumentthat linksrewardswithperformance.RBFgoesbeyondPBFandincludesconditionalcashtransfers,performance-basedcontractsandotherincentives.Inlow-andmiddle-incomecountries,PBFinitiativesarelargely,orinmanyinstancesexclusively,supportedthroughdevelopmentaid.

Untilrecently,discussionsonPBFtendedtofocusonwhetheritworksornot–i.e.itseffectivenessinimprovingutilizationofservices,qualityofcareandmotivationofhealthworkers.TherehasbeenatendencytolookatPBFasanisolatedinstrumentandnotinthecontextoflargerhealth-financingreforms.Thereistypicallyverylittlediscussionoftheoverallpurchasingandproviderpaymentsystemsof thecountrieswherePBF isbeing implemented.TherearenostudiesofwhathappensnextifPBFisproventobeeffectiveinimprovingcertainindicators(suchasskilledbirthattendance)andkeypolicy-makersandstakeholdersarepersuadedthatitisausefulwayforward.Whatarestepsarenecessary inbudgetaryprocesses toallow fora shift fromrigidinput-basedbudgetingtoaformofpaymentbasedonresults?HowcanPBFbetrulyintegratedwithoutcontributingtofragmentationandbecominganotherverticalprogramme?WhatstepsshouldbetakenbydonorsandthegovernmenttoreformhealthfinancingandPFMinordertoallowproviderstobepaidaccordingtoresultsandnotaccordingtoinputs?

Source: [101]

Box 6: Results-basedfinancing(RBF)inhealth:keyquestionsforpublicfinancialmanagement


African countries, under the categories ofperformance- or results-based financing(PBF or RBF).While reviews of experienceshowmixedresultsintermsofsectoroutput[102]–[104],these“pilots”haveledtoarangeof innovations in public finance. Revenuesprovided to health facilities – mostly fromexternalresources–aremanageddirectlybyfacility managers and disbursed accordingto a performance logic (i.e. on the basisof a range of predefined sector targets).However, sometimes these initiatives havebeendesigned anddevelopedby thehealthsector without sufficient collaboration withthe finance ministry. Institutionalization ofsuchmechanismshasoftenencounteredPFMdifficulties, and the passage from a “pilot”to a domestically-rooted response is oftenchallenging(Box5).InBurundiandRwanda,however, specific budget lines have been

incorporated intodomesticbudget lawsandattesttothecountry’swillingnesstoprovidemore flexibility in the use of health-relatedresources.IntheUnitedRepublicofTanzania,a results-based financing pilotwas initiatedin 2015 in the Shinyanga,Mwanza, Pwani,SimiyuandTaboraregions.Thiswasthefirstefforttoprovidefinancingtofacilitiesdirectly.Further, the RBF introduced flexibility intheuseof funds, includingbonuspaymentsto civil servants. Rather than following theannual budget cycle, RBF funds are guidedby quarterly business plans. An effort wasmadetointegratethesefundsintothebudgetandadedicatedbudget linewas introducedtocapturetheseflowsunderthedevelopmentbudgetstarting in2017,althoughnotat thesamelevelofgranularityasthereisforotheractivitiesinthegovernmentbudget[105].

40

CHAPTER 2:

“LEAPFROGGING”: ACCELERATING THE IMPLEMENTATION OF REFORMS IN HEALTH BUDGET FORMULATION TO SECURE TRANSFORMATION IN HEALTH FINANCING

In the context of health financing reforms, budget formulation reforms are crucial for the health sector. A programme structurehas the potential to help clarify the logicalframeworkthatconnectsinputsandactivitiestooutputsandwiderpolicygoals.Whileitistheoretically possible to provide allocationstoministriesandmakethemaccountableforresultswithouttheprogrammestructure,theclassificationbyobjectivesservestopromotepolicy-basedallocationdecisions.Itisexpectedto align government activities more closelywith sector policy priorities and therebycontributetobettersectorperformance[16].Ultimately, new budgeting models aim toenable future funding tobebetter linked toanticipatedneedswhilealsoreflectingactualpast performance. While the potential forreform is clear in termsof improvements infiscal management and accountability, theintroduction of programmatic classificationscan help the health sector by 1) buildingstrongerlinkagesbetweenbudgetallocationsand sector priorities, 2) enabling theimplementation of strategic purchasing byoffering more choices in provider paymentarrangements, and 3) incentivizingaccountabilityforsectorperformance[8].

Because of sector relevance, institutionalization of budget reforms in health should be prioritized by African governments. The development of healthfinancing reforms in the context of effortsto achieve UHC has led in many Africancountries to renewed interest in acceleratedbudgeting reforms in the sector and hashighlighted the urgent need to addressbottlenecks in budgeting and expendituremanagement to ensure speedy reforms [4],[8], [30], [83].While input-basedbudgetingremains in use globally to formulate healthbudgets,itismorecommoninAfricathaninother regions (Figure 8). Only around 40%ofAfricancountrieshave institutionalizedaformofprogrammaticclassificationtopresenttheiroverallbudgetsandhealthbudgets.Thetransitionshouldbecontinued.

A change in budget formulation is an opportunity to boost performance monitoring against achievement of specific targets. Programme budgets areoften accompanied by performance targetswith specified time frames. Aligning thebudget with programmatic or performance-based criteria introduces a fundamental


change in the budget’s accountabilitystructures and facilitates more systematicmonitoring and evaluation of performance.Figure 8 illustrates recent changes to thebudgetlinesusedinKenyafollowingbudgetreform. While traditional budgets focus onensuring that appropriations are targetedto the approved line items, well-alignedoutput budgets emphasize accountabilityfor sector results [32]. The revised budgetstructure published by Kenya emphasizes

programmaticgoalsand increasesflexibilityinallocationdecisionswithintheprogrammecategory. Theflexibility of IFMIS allows forusers within government to continue toanalysedataby economic classification/lineitem,whichmaystillbenecessaryinordertosupportex-postanalysisandtosecureinitialforms of accountability that may remain,whileaccountingexpenditureinlinewiththepredefinedtargets[107].

Figure 7:Changeintheformulationofhealthbudgets,Kenya

INPUT-BASED BUDGET

2012/13 Budget Excerpt

NationalAIDSControlProgrammeHeadquaters 2012/13 Estimate

BasicSalaries–PermanentEmployees 14,581,463.00

PersonalAllowance–PaidasPartofSalaries 14,018,568.00

PersonalAllowance–PaidasReimbursements 250,000.00

Communication,SuppliesandServices 60,149.00

DomesticTraavelandSubsistence,andotherTransportationCosts 233,589.00

Printing,AdvertisingandInformationSuppliesandServices 353,372.00

HospitalitySuppliesandServices 34,384.00

SpecialisedMaterialsandSupplies 46,432.00

OfficeandGeneralSuppliesandServices 97,326.00

RoutineMaintenance–OtherAssets 47,183.00

PurchaseofOfficerFurnitureGeneralEquipment 3,919.00

NetExpenditureforSUBHEAD01 29,726,385.00

PROGRAMME-BASED BUDGET

2016/17 Budget Excerpt

Programme 2016/17 Baseline

HealthPromotion 1,383,627,161.00

Non-CommunicableDiseasePreventionandControl 1,003,149,198.00

RadiationProtection 181,334,201.00

CommunicableDiseaseControl 4,898,571,736.00

Family Planning Services 120,000,000.00

Preventive,Promotive,andRMNCAH 7,586,682,296.00

Source: Ministry of Finance, Kenya

42

Adopting programme budgets implies a shift in the entire budget cycle, but the biggest adjustment is the fundamental change required in how the sector approaches performance and results. Spending and being accountable to policygoals is a technical and behavioural

challenge.Asevidencedinseveralcountriesof the region that have made some criticalstepstowardsinstitutionalizingaprogrammebudget–suchasMauritius,SouthAfricaandtoalesserextentBurkinaFasoandEthiopia–acarefulcombinationoflegalimprovements,technical guidance, staff training and

TheSouthAfricanHealthBudgetfor2017-2018followsaprogrammestructureasithasdonefor several years. The budget is divided into six programmes: 1) Administration; 2) NationalHealthInsurance,HealthPlanningandSystemsEnablement;3)HIVandAIDS,Tuberculosis,andMaternalandChildHealth;4)PrimaryHealthCareServices;5)Hospitals,TertiaryHealthServicesandHumanResourceDevelopment;and6)HealthRegulationandComplianceManagement.

These programmes are divided into subprogrammes. For instance, Programme 5 (Hospitals,Tertiary Health Services and Human Resource Development) includes the following eightsubprogrammes: Programme management; Health facilities infrastructure management;Tertiaryhealthcareplanningandpolicy;Hospitalmanagement;Humanresources forhealth;Nursingservices;Forensicchemistrylaboratories;andViolence,traumaandEMS.

Thefunctionalityoftheseprogrammesismadepossiblebecauseofkeyfeaturesofthebudgetdocument’sstructure.First,thebudgetisstructuredprimarilybyprogrammeandsecondarilybybothsubprogrammeandeconomicclassification.Lineitemsarepresentbutaresubordinatedto the programme structure. Second, there is a structure of performance indicators withtargets and timelines at both theprogramme level and also, in themajority of cases, at thesubprogramme level.For instance, the indicator for thesubprogrammeHumanresources forhealthis:“improvethequalityofnursing-educationandpracticebyensuringthatall17nursingcollegesareaccreditedtoofferthenewnursingqualificationby2019-2020”.

Third, the 2017-2018 budget document provides extensive historical and future figures onexpenditurebyprogramme,subprogrammeandeconomicclassification,includingthefollowing:audited outcomes for the years 2013-2014, 2014-2015 and 2015-2016, indicating that auditsalsorecognizetheprogrammestructure;therevisedappropriationfor2016-2017;theaveragegrowthrateofthebudgetforthe lastfiveyears; theaveragepercentageofhealth inoverallbudgetforthelastfiveyears;the2017-2018provisionandprojectionsfor2018-2019and2019-2020(theMTEF);andtheprojectedaveragegrowthrateofthebudgetfortheMTEFperiod,andtheprojectedpercentageofthehealthfortheMTEFperiod.Theavailabilityofthesedatamakesitclearthattheprogrammestructurepermeatesnotonlythefinancialreportingsystembutalsotheauditprocess.

Fourth, the document contains a narrative which explains the function and objectives of allprogrammesandsubprogrammes.Finally,theSouthAfricanbudgetdocumentincludeshistoricalandprojectedfiguresforemploymentbygradeandbyprogrammeandsubprogramme.

Source: The information presented here is based on the abridged health budget shared online by the National Treasury at http://www.treasury.gov.za/documents/national%20budget/default.aspx

Box 7: Structureandpresentationofprogramme-basedbudgetingforhealthinSouthAfrica


upgradingofinformationsystemsisneededtosecureaneffectivetransition.Insomecases,strong and continued personal involvementof planning unit directors, as in BurkinaFaso, boosted interest in sector reform andenlistedhealthstakeholders’ support for thereformprocess (Box9) [99].The quality ofperformance monitoring frameworks also

matters;itisessentialtosettherightnumberof performance targets that are reliable,comparableandbuildonexistingmonitoringsystemsofthesector.

While budget reforms generally require a long-term time frame to achieve institutionalization, there are several quick

17

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3

10

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24

7

6

10

6

5

0

5

10

15

20

25

30

35

40

45

AFR AMR EMR EUR SEAR WPR

Nb of countries without programmatic classification Nb of countries with programmatic classification

Figure 8: Mappingofprogrammeclassificationinhealthbudgets,byWHOregion

Figure 9:Performancemonitoringframeworkofprogrammebudgetforhealth–Kenya(excerpt)

Source: authors’ calculations from [106]

Source: Ministry of finance, Kenya

Improving Program-Based Budgeting in Kenya

www.internationalbudget.org

23

“Health promotion” sub-program, there are five delivery units with key outputs, indicators and

targets.

Figure 8: The 2014/15 Health Budget Showing Program and Subprogram Breakdown

Source: Ministry of Health Program-Based Budget for the year 2014/15

Beyond the number of programs and subprograms, PBBs should provide a classification of

expenditure. While all budgets do this, the key question is how much detail they provide. The

2013/14 PBB divided spending using standard economic classifications: compensation to

employees, goods and services, transfers, and development. These economic classifications

persist in the 2014/15 PBB, but they provide more information because they are now at the

level of subprograms. However, the budget still uses categories such as “other recurrent” and

“other capital” which are vague. These require further breakdown. At best, such residual

categories should be used to aggregate a few minor expenditures rather than describe large

allocations. For example, when most of the budget for the Preventive & Promotive Health

Program goes to “other development,” this leaves us wondering what this program is actually

doing with its allocation.

The 2015/16 budget is very similar to the 2014/15 budget in terms of subprograms and further

disaggregation. One notable improvement is the addition of a column in the budget tables

showing 2014/15 approved budget by subprogram, allowing comparison between the two

years. However, as we have already seen, some of the underlying activities in each

44

steps than are possible in the health sectors. InBurkinaFaso,theinstitutionalizationofthereformsofthebudgetstructuretooksome20years(1998-2017)[87].Theothersuccessfulreforms,suchasthoseinMauritius[42]andSouth Africa [110], were generally decadesin the making. For countries that have notyetstartedthetransitionorarestuckattheformulation stage, helpful lessons to moverapidly towards implementation in healthinclude:

integrating disease-specific interventionsinto broader, sector-wide budgetaryactivitiesorprogrammes;

mapping the content and scope ofbudgetary programmes with national

priorities; defining a clear management andaccountability structure for budgetaryprogrammes;

ensuring that programmatic logic isconnectedwith strategicpurchasingandoffers the potential for output-orientedpaymentarrangementsatfacilitylevel.

Recent experiences highlight the limitations of programme budgets when introduced in isolation and not accompanied by devolving authority to spending units. Budget reforms in African countries haveoften stopped at the formulation stage, andhealthexpenditurescontinuetobespentbyinputsinmanysettings.Thereformmustbe

Lessonsfromfailureswhentryingtointroduceprogrammebudgetsinhealthcanbeinstructive.The implementationofmajorbudgetreformswithoutensuringbasicPFMcan leavesystemsvulnerabletofraudorabuse.

TheGovernment ofMozambiquefirst began a serious effort tomodernize its PFM systemsin1996withthe introductionofamedium-termfiscal frameworkandan integratedfinancialmanagement system. The government entered a second phase of reform in 2006 when itintroducedprogrammebudgetreforms.However,programmeswereusedprimarilyasplanningtools and could not be mapped to allocations. At the same time, although reform effortsproceededrapidly,theywereintroducedwithinacontextofweakcontrols.Whilethenewfinancialmanagementsystemwasexpectedtoalleviatethisproblem,administratorsfailedtocollectdataoncompliancewithinternalcontrols.Afterseveralyearsofimplementation,problemsbecamedifficulttoignore[108].Althoughprogrammebudgetssoughttolinkallocationstosectorplans,moneywasreportedlymisspentduringexecution,thusreducingspendingonstrategicpriorities.Externalcontrols,meanwhile,reflectedtheinput-basedbudgetstructure.Ratherthantrackingwhetherthefundswerespentonapprovedpriorities,externalauditsandtheParliamentfocusedonwhetherthemoneywasspentonthespecificgoodsandservicesthatwerebudgeted.Thesefailureswereblamed forapublicfinance crisis in2016,which sawwidespread reportsof themisuseoffundsandanoveralllackoftransparencyinspendingbythegovernment[109].

InKenya,thefirstyearsaftertheswitchsawadeclineinbudgettransparencybecauseofthehighlevelofaggregation,confusioncausedbyincoherentnarratives,andillogicalindicatorsandtargets[18],[32],[35].

Box 8: Introductionofprogrammebudgetsinweakaccountabilitysystems:keylessonsfromMozambiqueandKenya


accompaniedbyaclearchangeinexpendituremanagement and reporting. It is the healthministry’sresponsibilitytoworkwithbudgetauthorities to make sure these reforms arenot simply presentational but that theypermeateexpendituremanagement.Withinastructuredframeworkofdelegatedauthority,fundmanagersshouldbeprovidedwiththefinancialflexibilitytoexecuteandultimatelymake necessary reallocations within theprogrammeenvelope inorder to respond tochangingneedsinthesector.Theshiftfromline-item to programme-based budgeting isnotsufficientunlesstheunderlyingdegreeofflexibilityisprovidedtomovefundsbetweenbudgetlines,expenditurecategoriesandcostscentres,andthelevelatwhichthisflexibility

operates is clearly defined and effectivelydelegated(e.g.centralfundmanagers,healthfacilities).

When initiating a change in annual budget formulation, the key is to work on improving consistency and alignment of budgetary structures across the sector. Several countries in the region, such asBurkina Faso, have made efforts to alignthe structure of the sector planwithmulti-year and annual budgets, so that all threeare now clearly focused on the same threebroadbudgetaryprogrammes[99].Thenextstep includes mirroring budget formulationand expenditure and ensuring that newclassifications are more than add-ons but

Technicalguidance:productionandgradualrevisionofstandardsandtools(guidancedocumentfortheimplementationofthe2010programmebudget),theprogrammebudgetimplementationstrategy(2011),methodologyguides(2010and2011),outlineofworkondividingpublicpoliciesinto budget programmes (2010-2011), establishing annual performance plans (from 2011onwards),aguidetoprogrammebudgetexecution(2017).

Governance: settingupgovernanceof the reformwith involvementof thefinanceandothersectors–budgetplanningreformcommittee(in2008),steeringcommitteeforimplementationof theprogrammebudget (from2009)with implementation teams in eachministry and thecreationofministerialtechnicalunitsfortheprogrammebudget.

Adaptation of management tools: adaptation of financial information systems to the newapproach(reviewoftheIntegratedExpenditureSystem,orCID).

Capacity-building: production of a capacity-building plan for stakeholders, including in thesectors(2013),withtheexceptionofprogrammeofficers(fromtheMinistryofHealth)appointedafterthetraining.Capacity-buildingactivitiestargetedattheresponsiblefinancialofficersandnottheoperationalarmofthereform(e.g.budgetprogrammedirectors).

Legal framework: a suitable legal and regulatory framework, including the transposition ofdirectivesoftheWestAfricanEconomicandMonetaryUnion(WAEMU)(2013-2016).Adoptionofapresidentialcircularin2016announcingofficialtransitiontotheprogrammebudgetinallministries.

Source: [99]

Box 9: KeyfactorsforinstitutionalizingtheprogrammebudgetinBurkinaFaso

46

actually drive funding flows. The final stepconsists inaligningperformancemonitoringframeworks, using the same program/subprogramme/activity logic to monitoractualspendingagainstsettargets.

Performance-based approaches have been introduced in the sector, even without a change in budget formulation. In severalcountries of the continent, a performance-oriented approach has been introduced

to manage public expenditure, serving tomonitorachievementsinsectors.Healthhasoften been a lead pilot for these reforms.As a result, several countries are able toconsolidatefinancialandsectoralinformationinoneplaceandcanconnecttheuseofpublicresources with the achievement of results.This approach has been introduced inmostStates of the West African Economic andMonetaryUnion(WAEMU).

Figure 10: Alignmentofhealthplanning,budgeting,executionandmonitoring

…in the sector plan …in the MTEF …in budget

releases…in the annual

budget

Aligned budget approaches and structures…

…in the performance monitoring framework


CHAPTER 3:

A RENEWED CONTRACT BETWEEN HEALTH AND FINANCE FOR PFM REFORM ADAPTATION

While the scope for Ministry of Health engagement in PFM reforms is becoming clearer, the path to achieving these reforms in health is an open question. Anestablishedliterature underlines the importance of anappropriate sequence for introducing PFMreforms.Itsetsoutalogicalbutoverlappingprogressionofcorefinancialcompliance(anessentialforanorderlyPFMsystem):medium-termplanningleadingtoafunctionalMTEF,followedbyprogrammeclassificationleadingto programme and performance budgeting[11]. However, in several African countries,publicfinancesystemscontainsomeaspectsof “advanced reforms” while still dealingwith the basic PFM foundations [111]. Itis essential that basic aspects of budgetpreparation, approval and execution arecontinuouslystrengthened,whileintroducingmoreadvancedinterventions.

It is becoming more obvious that there is no dichotomy between “fixing the basics” and transitioning towards more sophisticated budgeting approaches [112].Whilecautionisneededwhenrelaxingex-antecontrols,thehealthsectorhasprovedthatsuccessfulreformimplementationispossiblebycombiningboth

basicandmoreadvancedreformapproaches.InEthiopia,forinstance,thePFMfoundationshave been strengthened in several sectors,including health, leading to more realisticand more reliable annual budget proposalsforhealth,cleaned-upandsimplifiedbudgetcoding, more predictable cash managementsystems, and transparent and flexibleprocurement[113], [114], [115]. Inparallel,the country has accelerated implementationof results-oriented PFM reforms in healthby introducing multi-year financing plans,pilotingprogrammebudgetsfortheMinistryof Health, and improving accountability forsector results (Figure 10). Key is to be abletomonitor effective implementationofbothtypesofPFMinterventions.

Sectoral PFM reform efforts should be grounded in stronger problem analysis. The imposition of reforms with littleconsiderationforsolvingproblemsinagivensector have sometimes resulted in failure[116].Ifacountryaimstobetterdirectmoneytopriorityhealthservicesandbetterrespondtoneeds,changeinbudgetformulationalonewillhardlyhelp.Ifex-antecontrolsbyinputsarenotremovedandlocalcapacity,toolsand

48

proceduresarenotstrengthened,costcentresorfundholders(e.g.facilities,implementingagencies, programme managers) will notbeabletospendmoneyaccordingtoneeds.In analysing PFM blockages in the healthsector, it is important to look not only atthe rules for “allocating” but also the rulesfor “expenditure and reporting” becausea failure to distinguish those stpes mayundermine the sector’s efforts to promotemore responsive expenditure systems. Abetter understanding of what is needed toauthorize expenditure and what is neededfor reporting and accounting will certainlyfacilitate expenditure management andaccountabilitypracticesinthesector.

Calls to “do development differently” should be applied to PFM in order to promote reforms that are more attuned to local needs and realities and are more programmatic in their approach. Thisobservationisoftenmadebutthenpromptlyforgotten. In practical terms, it means thatthePFMsystemisnotafreelyadaptableset

of technical procedures. It is rarely capableof satisfying the requirements of optimalhealthfinancingregardlessoftheirtechnicalmerit.Additionally, it requires PFM reformstoresponddirectlytothepoliticalcontextaswellas thebudgetarycontext. Internationalbestpracticemustgivewaynotjusttowhatis the“bestfit”butto“thebestpoliticalfit”[117]–[120].

A more problem-driven approach is relevant for solving PFM problems in the health sector. The approach of problem-driveniterativeadaptation(PDIA)developedbyAndrewsandcolleagues(Box10)aimstosolveparticularPFMproblemsinaparticularcontext by engaging broad sets of agentsand skills and creating an “authorizingenvironment”forlearningandfeedbackfromlessons into new solutions. For the healthsector, the implications of a more problem-driven approach are clear. First a carefulspecification of a country’s health systemchallenges (e.g. limited access to funds forhealth facilities, mismatch between central

Figure 11: Ethiopia’spathwaystostrengtheningPFMsystems

Developing more realistic health

budget proposals

Enforcing program budgeting in

health

Simplifying and cleaning coding for

health section

Reforming strategic

purchasing function of health

services

Securing timely cash flow

Developing and using

performance-oriented reporting

systems to inform allocative

decisions


budget and health needs, rigidities in useof funds at lower levels of government)is needed. These challenges then need tobe prioritized and addressed step by stepthrough an ongoing learning process and a

wide support group (e.g. involving facilitymanagersandprogrammemanagers,ifany).Importantly, this approach is supportiveof neither the imposition of internationalbestpracticenorblanket reforms(including

Two major reforms that have the potential to support UHC are Medium Term ExpenditureFrameworks(MTEFs)andprogramme-basedbudgeting.Bothhavealonghistoryinsub-SaharanAfricawithverymixedoutcomes.This isoftenattributed to theway inwhich these reformsare introduced– i.e.oftenwithstrongencouragementfromtheinternationalcommunitybutwithoutthetiminganddesignbeingsuitablyadaptedtothelocalcontext.

In 2013 Andrews [121] introduced the concept of “reforms as signals” i.e. reforms which aredesignedtogarnershort-termsupport(orsometimesrespect)fromtheinternationalcommunity(andinvariablypromotedbyit)butoftenlackingtruegovernmentsupport.Andrewsidentifiesthe following characteristics of such reforms: they typically overlook contextual realitiesthat determine how much change is possible; they emphasize “best international practice”interventionsbeyondthereachofdevelopingcountries;andtheyfocusonnarrowgroupsofchampions that can seldom facilitate implementationanddiffusion. In identifyingwhy thesereformsassignalshavehadlittleimpact,hisworkpointsthewaytoa“politicallysavvy”approachtoPFMreform.

Observingthatdecadesofgovernancesupport(includingPFMreform)havehadrelativelylittleimpact insomecountries,Andrewshighlightstheemptinessofreformswithnofunctionalityor substance that have been developed as signals to the donor community and in responseto demands for international best practice. He posits the idea of a more effective problem-driven(orcontext-driven)reformprocess(whichisasrelevantinhealthsectorbudgetsasitiselsewhere)thatrespondsdirectlytospecificproblemsidentifiedbygovernment.Hecallsthisorganicapproach“problem-driveniterativeadaptation”(PDIA).AsnotedbyODI,thisrequiresaclearemphasisondeepunderstandingofthelocalcontextinordertoidentifypathwaysforreformratherthantop-downtransmissionofgenericbestpracticetothelocallevel[74].

Thisproposedapproachresonateswellwiththehealthsector.WhileseveralPFMreformsledbytheMinistryofFinanceatcentrallevelhavebroughtgeneralbenefits(e.g.cleaningupbudgetcoding),theyoftenclashedwithothersectorreformsasaresultofa lackofconsultationandunderstandingofcountrysystems,aswellasrequirementstobringaboutmoreefficientandequitable spending. While budget formulation reforms, which require a very sophisticatedprocess,haveledtobetteralignmentofbudgetallocationswithsectorneeds,theymayhavebeenoflittlehelpwhenfundscannotreachandbeusedbyfacilitiestorespondtohealthneeds.Lackofflexibilityanda“onesizefitsall”reformapproachhashad limited influenceonfixingpracticalissuesoffundingflowsinthesector.Jointstrategicthinkingisneededbetweenhealthand finance authorities to design micro-level reforms to fix these problems, by for examplerevisinglocallegislationforfacilityfinancing.

Box 10: “Reformsassignals”andproblem-driveniterativeadaptation:applicationtothehealthsector

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MTEF,programme-basedbudgeting,accrualaccounting etc.) unless they agreed to be aspecific response to a problem identified bygovernmentofficialsatvariouslevels,suitablyadapted, and with a credible, politically-supportedtheoryofchange.

A renewed contract is needed between health and finance. Advancements in PFM practices in the health sector depend on a combined response from finance and health, and a better mutual understanding of the needs and requirements of both sides. Despite the need for a strongrelationship between the budgeting andsectoral authorities, the health sector oftenfaces difficulty in actively engaging withthe Ministry of Finance and other keypartners. A lack of shared vocabulary cancomplicate communication, as can a beliefthat the technical nature of some healthsystemconcernsmaynotinterestthefinanceauthorities.WhileimprovingbasicPFMlevelsis important for health, as for all sectors,health-sector specificities must be takeninto consideration and responses tailoredto sectoral needs when PFM responses aredefined.

Because of the renewed interest for PFM in the context of health financing reforms, there is a need to capitalize on health sector advancement and to capture useful innovations that have arisen. In severalcountries, the health sector has introducedseveral innovations and is more advancedinPFMreformthanother spendingsectors.Some of the innovations are specific tohealth(e.g. introducingstrategicpurchasingapproaches,improvingfinancialmanagementand the autonomy of facilities) while someare broader PFM reforms. Health has oftenbeenaneffectivepilotsectorforprogrammebudgets and MTEF, and in many countries

sectors implementprogrammebudgetsevenifthechangeisnotfullyinstitutionalizedforthe overall government budget. In Senegal,theMinistryofHealthwasamongthethreepilot sites when MTEF was introduced in2006–nearly10yearsbeforetheMTEFwasextendedtoallministriesin2015[26].

Among the key priorities for health-specific PFM interventions, improving local-level financial management is key. Thereisstrongevidence of a positive correlation betweenlocal-levelsectoralspendingasapercentageoftotalsectorexpenditureandsectoroutcomes(e.g. an improved under-5 mortality rate)in bothhealth and education [52].The locallevelincludesdeconcentratedunitsofcentralgovernmentandis therefore independentofany particular politicalmodel or devolutionarrangement.Thehealthsectorhasamajorstake in ensuring that PFM systems enableadequate resources to reach local frontlinefacilities. To do this, key local-level PFMblockagesmustbeaddressedtoensurethat:resourcesareequitablyallocatedinlinewithneed;resourcesflowtothelocallevelinfullandonatimelyandpredictablebasis;andthemanagementanduseofresourcesatfacilityleveliseffective.Ministriesofhealthneedtoworkwithministries of finance and,whereapplicable, representatives of subnationalstructures,toensurethatthedetailsofPFMreformscontributetoimprovinglocalhealthservices.

Fiscal decentralization in the health sector should be implemented in a way that supports universal health coverage and does not undermine it. Differentapproachescanbeusedtoprotecthealthsectorprioritiesand make sure that money is available,appropriately distributed and targeted.Thefirst step is todevise–and revise–anequitable and easily understood resource


allocationformulawhichwouldapplytotheentireSNAinthecaseofablockgrantortothe health sector specifically in the case ofa conditional health grant. An immediatequestionistowhatleveltheallocationshouldapply, with the option that it goes directlytothefacilitylevel,possiblyintheformofabaseallocationplusaperformanceor local-

factor adjustment. Second, a structure offiscaltransfersshouldbedevisedtosupportpoorer regions and communities, possiblythrough equalization grants, with othersupplementary grants such as matchinggrantsforhealth(whichcanincentivizelocalhealth expenditures). Third, grantsmust bepaidout in a timelymanner and in full. In

TheUnitedRepublicofTanzaniahasmorethan180localgovernmentauthorities(LGAs),eachreceiving its funds throughmultiple channels.According to the2016 localgovernmentPEFAreport [123], most of the funds allocated by the Treasury to the Council for primary healthfacilitiesarenotdisburseddirectlytothefacilities,althoughreformsareunderwaytochangethis(seeBox12).Rather,theCouncilincursexpenditureonbehalfoftheprimaryhealthfacilitiesand transfers the procured items to the facilities. Funds disbursed to health facilities comeeitherfromtheHealthBasketFund(adonor-financedpool)ortheHealthSectorDevelopmentGrant,usingtheguidelinesintherespectiveprogrammedocuments.Hospitals,healthcentresand dispensaries also receive direct delivery of medicines from the central Medical StoresDepartment.Additionally,hospitals,healthcentresanddispensariescollectuserfeeswhichareretainedatthefacilitylevelandusedinaccordancewiththeguidelinesprovidedbytheCouncil.

Inordertostrengthenequity,aresourceallocationformulahasbeenestablishedwhichallocateshealthfundstoLGAsonthebasisofpopulation(70%),numberofpoorresidents(10%),directmedicalvehicleroute(10%)andunder-fivemortality(10%).Thisformulaispublishedannuallyinthegovernment’sbudgetguidelinesbutappearstobeappliedonlytothegoodsandserviceselementofthebasketfundandtocentralgovernmenttransfers.Itdoesnotapplytosalaries.This is significantbecausea recentstudy [124]observed that,at thesubnational level, salarypayments [dominated by education and health] represented 78% of recurrent transfers and55% of all LGA revenues, and this pattern has become more prominent over time. By 2013-2014, budgeted transfers for the running costs of health, water and primary and secondaryeducationwere40%lowerthanfouryearspreviouslyatonlyTZS10 700(US$6)percapita.Inotherwords,protectionofsalarybudgetshadcomeattheexpenseofrunningcostbudgets,andanincreasinglysmallshareoftheoverallbudgetwasthereforeallocatedusinganeeds-basedallocationformula.

Anelementofbottom-upplanningisachievedbythecountry’sCouncilComprehensiveHealthPlan (CCHP) which begins with identification of health priorities at the grassroots level. Indeveloping theCCHP, local staffareguidedby centrally-determinedpolicies andprocedures,includingsomecappingofindividualbudgetlines.Somechallengeshavearisenbecauseofthecomplexity of the guidelines and the difficulty of gathering and synthesizing the local data,althoughtheseillustratewelltheissuesthateverycountryfacesinbalancinglocalneedsandautonomyagainstnationalprioritiesandtheneedforqualitycontrol.

Box 11: ImplementingfiscaldecentralizationinthehealthsectorofTanzania

52

addition, when subnational governmentsareresponsibleforbudgetingandmanaginghealth resources, central government caninfluence budgets by, for instance, makinguse of “non-negotiable” budget lines as inSouth Africa. Detailed local-level healthbudgetguidelinesmaybedrawnupbyhealthministriestocommunicatenationalpriorities,provide technical guidance for budgetdevelopment, ensure comparability betweenlocalareas,andenforce“redlines”[122].

Improving mechanisms for intergovernmental fiscal transfers is another priority to ensure continuous and timely funding of essential health services. The critical tool for transferring resourcesfromcentraltosubnationalgovernmentsinadecentralizedsettingistheintergovernmentalfiscal transfer (IGFT); the design of thosetransfers can have a significant impact onthe health sector’s efficiency and equity.IGFT rules and approaches are typicallydetermined centrally, particularly by theMinistryofFinance.Ministriesofhealthneedto understand the impact of IGFT designon the health sector and should work withministries of finance to mitigate potentialproblemsthataffecttheneedsofthehealthsector. In order to improve the efficiencyand effectiveness of health spending at thesubnational level, one study analysed thethree dimensions of IGFTdesign allocation,incentivesandaccountability–fromahealthsector perspective [125]. Drawing on thatanalysis, some general principles can bedeveloped to influence the design of IGFTsthatmeettheaccountabilityneedsoffinanceministrieswhilealsosupportinghealth-sectorgoals (i.e. IGFT incentives should promoteefficiency in order to fulfill the grantor’sobjectives,andtheIGFTshouldgivetransferrecipientsautonomyinuseoffunds).

Simplifying funding flows and budget transfer mechanisms to ensure that health facilities can receive and utilize funds in a timely and flexible manner should be an important area of collaboration between finance and health authorities. Onecauseofdelayinreceiptoffundsbyfacilitiesistheinvolvement of one or more intermediaryinstitutional layers. By improving centralgovernmentpaymentsystemsitispossibleforfinanceministriestomakedirectpaymentstofacilities,asiscurrentlybeingpilotedforsomesources of funds in the United Republic ofTanzania(Box12).Criticalpreconditionsforsuchareforminclude:1)improvingfinancialmanagementcapacityatfacilities(e.g.withasimplebutstandardizedcashbook,andwithanaccountantfromalargerfacilitysuchasahealthcentreprovidingback-stoppingsupporttosmallerfacilitiesinthesamearea),and2)arranging for the financeministry to shareexpendituredatawiththeMinistryofHealthtosupportoverallmonitoringofhealth-sectorresources.

The use of mobile/digital technology could be further explored to make money available to health facilities more rapidly and more easily. Thehealthsectorismakingincreasing use of mobile and other digitalplatformstosupportandimprovedeliveryofhealthservices,buttherehasbeenlittleuseofthetechnologyinthefinancialmanagementofthesector.Thereareclearopportunitiesforgovernmentstousedigitalizationofpaymentstosupportmorereliableandefficientresourceflows and transactions, and to improveaccountability[126].Inthisregard,thehealthsectorisanobviousandattractivesectorforpiloting such technology. Digitalization ofpaymentsislikelytobeespeciallyrelevanttothehealthsectorwherereceiptsandpaymentsmaybedistributedoverawidegeographicalarea,includingremotelocationswithlimited


TheGovernmentoftheUnitedRepublicofTanzaniaintroducedDirectHealthFacilityFinancing(DHFF)forsomefundingstreamsin2017-2018inordertoensuretimelyavailabilityoffunds,andtoenhanceperformance,flexibilityandlocalaccountabilityinservicedelivery.KeyfeaturesofthearrangementsthatarerelevanttoPFMinclude:

PaymentsaremadedirectlyfromtheMinistryofFinancetohealthfacilitybankaccounts.

Thesystemisbeingintroducedcountrywidetoallfacilitiesmeetingcertainpreconditions,includingestablishmentofahealthFacilityGoverningCommittee,aswellasavailabilityofHMISdata,anactivebankaccountandanannualfacilityhealthplan.

The introductionofDHFF isbeingphasedbyfundingstream. Itapplies initially tobasketfunds,withthepossibilityofexpandingtoinclude,forinstance,theGovernment’sfundingforfacilities’non-staffrunningcosts.

It has been essential to have good collaboration between the Ministry of Finance, thePresident’sOfficeforRegionalandLocalGovernmentandtheMinistryofHealth.

Districthealthfundsareallocatedtoservicelevelsonthebasisoffixedpercentageranges–e.g.20-25%ofthedistrictbudgetallocatedtodispensaries.

These budgets are distributed between facilities by applying a weighting (as a proxyforneeds) toafixedbase rateper facility.Theweightingcomprises three factors: facilityutilization(60%),distanceoftheindividualdispensary/healthcentrefromthenearestfullyfunctionalhospital(20%)andservicepopulation(20%).

The reform represents a shift of health facility planning and management from councilstothefacilitiesthemselves.Nationalplanningguidelineshavebeenupdatedandincludeafinancialmanagementmodule.Facilitiespreparetheirannualplansbymeansofastandardtemplatewhichisthenenteredintothegovernment’s“Planrep”toolatdistrictheadquarterstobeintegratedintothedistrict-levelComprehensiveCommunityHealthPlan.

Alongwiththenationwidestarratingsystemforfacilityperformance,DHFFenablesfundingtobetargetedtoimproveperformance.

Facilityaccountinghasbeenstrengthenedbythe introductionofaweb-basedcashbooktool – the Facility Financial Accounting and Reporting System (FFARS) – for all facilities.Healthcentreshaverecruitedhealthaccountantstosupportfinancialmanagementbothatthehealthcentreandatthedispensariesinthelocalarea.

FacilitiesareallowedtoprocuremedicineswhenthecentralMedicalStoresDepartmentisunabletosupplyit,andregionalframeworkcontractshavebeenestablished.

SignificantexternalfundingisbeingprovidedtosupportthedevelopmentandintroductionoftheDHFFsystem.

Source: Tanzania SWAP documents 2017.

Box 12: Tanzania’sDirectHealthFacilityFinancing–keyfeatures

if any conventional banking facilities. It iscommonforfacilitystaffintheregiontohavetotraveltodistrictcapitalstocollectsalaries

and facility funds,or to reportexpenditure,andthiscanrequirethemtobeabsentfromthe facility for several days. In addition to

54

facilitatinggovernmenttransfersofresourcestofacilitiesandstaff,mobilemoneymayhaveother applications in thehealth sector – forinstance, in health insurance and savingsschemes (such as Kenya’s M-Tiba e-wallet),indonorfundstopayforpatients’transportcosts to access providers (e.g. the Freedomfrom Fistula Foundation in Kenya), or intransferringfundstoapatientortoahealth-careproviderfromfamilymembersworkingintownsandcities.

A significant contribution can be made to improving transparency and accountability in government financial reporting by introducing a standard set of accounting principles and requirements. Whilemanycountries continue to use cash accountingfor their financial reporting, the globalbenchmarkistheInternationalPublicSectorAccounting Standards (IPSAS) which havebeen,orarebeing,implementedbyanumber

ofcountriesintheregion(e.g.Nigeria,UnitedRepublic of Tanzania, Zimbabwe) and arebeing considered by others.While this is ahighly technical reform led byministries offinance,therearetwoareasofopportunityforthehealthsector.First,IPSASshouldprovidethe impetus for much improved accountingfor capital assets such as buildings andequipment.Ministries of health should taketheopportunityof IPSAStodrawupa full,computerized national inventory of publiclyowned (including donated) health-sectorassets and ensure that robust arrangementsare in place for updating, monitoring andreportingfromtheinventory.Second,IPSASrequires consolidated accounts which willgive amore comprehensive view of incomeandexpenditurethroughministriesofhealthand their subsidiary institutions (such asmedical stores that operate as subsidiaryorganizationsunderthehealthministry).

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Foradditionalinformation,pleasecontact:

DepartmentofHealthSystemsGovernanceandFinancingHealthSystems&InnovationClusterWorldHealthOrganization20,avenueAppia1211Geneva27Switzerland

Email: [email protected]: http://www.who.int/health_financing

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