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Chapter 8 Budgeting for health

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Chapter 8 Budgeting for health
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Strategizing national health in the 21st century: a handbook
Chapter 8
Budgeting for health
Dheepa Rajan
Helene Barroy
Karin Stenberg
© WHO Viet Nam/J. Zak
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Strategizing national health in the 21st century: a handbook
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© WHO /Sergey Volkov
Chapter 8 Budgeting for health
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DHC
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I CHAPTER 1 Introduction: strategizing national health in the 21st century
PC CHAPTER 2 Population consultation on needs and expectations
SA CHAPTER 3 Situation analysis of the health sector
P S CHAPTER 4 Priority-setting for national health policies, strategies and plans
S P CHAPTER 5 Strategic planning: transforming priorities into plans
O P CHAPTER 6 Operational planning: transforming plans into action
C
CHAPTER 7 Estimating cost implications of a national health policy, strategy or plan
B CHAPTER 8 Budgeting for health
ME CHAPTER 9 Monitoring, evaluation and review of national health policies,
strategies and plans
Cross-cutting topics relevant to national health planning
LR CHAPTER 10 Law, regulation and strategizing for health
CHAPTER 11 Strategizing for health at sub-national level
IP CHAPTER 12 Intersectoral planning for health and health equity
CHAPTER 13 Strategizing in distressed health contexts
Strategizing national health in the 21st century: a handbook
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Budgeting for health
Dheepa Rajan
Helene Barroy
Karin Stenberg
Chapter 8 Budgeting for health
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© shutterstock
WHO Library Cataloguing-in-Publication Data
Strategizing national health in the 21st century: a handbook / Gerard
Schmets … [et al].
Contents: 13 individual chapters
1.Health Policy. 2.National Health Programs. 3.Health Planning.
4.Handbooks. I.Schmets, Gérard. II.Rajan, Dheepa. III.Kadandale,
Sowmya. IV.World Health Organization
ISBN 978 92 4 154974 5 (NLM classification: WA 540)
© World Health Organization 2016
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does not imply that they are endorsed or recommended by the World
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All reasonable precautions have been taken by the World Health Organ-
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the published material is being distributed without warranty of any kind,
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The named editors have overall responsibility for the views expressed
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The document has been produced with the financial assistance of
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Graphic design by Valerie Assmann.
Suggested citation: Rajan D, Barroy H, Stenberg K. Chapter 8. Budgeting
for health. In: Schmets G, Rajan D, Kadandale S, editors. Strategizing
national health in the 21st century: a handbook. Geneva: World Health
Organization; 2016.
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Contents
Acknowledgements iv
Overview v
8.1 What is meant by budgeting for health? Some key concepts 1
8.1.1 What is a budget? 1
8.1.2 Public financial management 1
8.1.3 Medium-term expenditure framework (MTEF) 1
8.1.4 Line-item budgeting for health 2
8.1.5 Performance budgeting 3
8.1.6 Fiscal space and fiscal space for health 3
8.1.7 Strategic purchasing 4
8.2 Why is it important to understand the health budgeting process? 5
8.3 When does the budgeting process take place? 7
8.3.1 Budget cycle steps – a brief overview 7
8.3.2 Fiscal vs calendar year 8
8.4 Who are the people involved and engaged in the health budgeting process?
Roles of different stakeholders 9
8.4.1 MoH: engaging in health budget formulation and execution 14
8.4.2 Role of civil society organizations (CSOs) in the health budgeting process 15
8.5 How does the budgeting process work from the point of view of NHPSP stakeholders?
8.5.1 Budget formulation 18
8.5.2 Budget approval or enactment 22
8.5.3 Budget execution 22
8.5.4 Budget evaluation 22
8.6 Important operational issues for health planning stakeholders to consider during the
health budgeting process 23
8.6.1 Legal considerations 23
8.6.2 How can countries introduce and effectively undertake multiyear budgeting? 24
8.6.3 How can countries move from a line-item to a programme-based budget? 27
8.6.4 When and how should countries assess fiscal space for health? 30
8.6.5 How can the necessary data be collected? 31
8.6.6 How should countries understand and influence the political economy of budgeting
for health? 33
8.6.7 Looking beyond budget: importance of public finance systems for health financing
and UHC 35
8.7 What if...? 36
8.7.1 What if your country is decentralized? 33
8.7.2 What if your country is heavily dependent on aid? 36
8.7.3 What if fragmentation and/or fragility is an issue in your country? 37
8.8 Conclusion 38
References 39
Further reading 48
iii
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Acknowledgements
We would like to give special thanks to Agnes Soucat for overall guidance. Thanks
are also due to Alyssa Muggleworth Weaver for overall background research support.
This chapter was a collaboration between the following units in the Health Systems
Governance and Financing Department: Health Systems Governancy, Policy and Aid
Effectiveness; Health Financing; Economic Analysis and Evaluation. Orienting guidance
and input specifically on budgeting for health was provided by Tessa Edejer, Joseph
Kutzin and Gerard Schmets.
This chapter has been externally reviewed by Professor Jacky Mathonnat and Benoit
Mathivet.
English language editing was provided by Dorothy van Schooneveld and Thomson Prentice.
We gratefully acknowledge financial support from the European Union and the Grand
Duchy of Luxembourg.
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Overview
Engaging in budget preparation,
understanding guiding principles of
budgeting as well as the political dynamics
that enable the budget elaboration and
approval process, is essential for health
planners and managers. In many countries,
the consequences of not doing so means that
health policy-making, planning, costing and
budgeting take place independently of each
other, leading to a misalignment between
health priorities and allocation and use of
resources.
© WHO /Eduardo Martino
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Chapter 8 Budgeting for health
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Health is financed by public and private funds.
To make progress toward universal health
coverage (UHC), a predominant reliance
on public,compulsory, prepaid funds is
necessary. Therefore, the way budgets are
formed, allocated and used in the health
sector is at the core of the UHC agenda. This
chapter outlines the overall budget process
for the public sector, discusses the specific
role of health within it, in particular the role of
the ministry of health (MoH) and other health
sector stakeholders, to provide timely inputs
into the budgeting process.
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What is meant by budgeting for health?
Budgeting is related to the process of defining
the allocation of resources to produce the best
outputs given the level of revenues. A health
budget, typically included in the general govern-
ment budget, is more than a simple accounting
instrument to present revenues and expenses
– rather, it is a crucial orienting text, declaring
key financial objectives of the country and its real
commitment to implementing its health policies
and strategies. While every implementing health
organization develops a budget, in this chapter
we discuss the national government budgeting
process, which includes inputs from a wide
range of health sector stakeholders.
Why
is it important to understand the health
budgeting process?
For those who seek to influence resource allo-
cation in country, a good understanding of
the guiding principles of budgeting as well as
the political dynamics that enable the budget
elaboration and approval process is essential.
In many countries, a lack of understanding of
budgeting issues results in delinked processes
such that health policy-making, planning, costing
and budgeting take place independently of each
other. This leads to a misalignment between
the health sector priorities outlined in overall
strategic plans and policies and the funds that are
ultimately allocated to the health sector through
the budgeting process. This misalignment has
negative consequences: resources are not used
as intended, and accountability is weakened.
On the other hand, a good understanding of
the budget process and engagement by MoH
and other health sector stakeholders at the
right time during the budget cycle will increase
the chances that the final resource allocation
matches planned health sector needs.
When does the budgeting process take
place?
The budgeting process starts with a prepara-
tion/formulation stage of budget proposals,
which includes a negotiation phase between
MoH and ministry of finance (MoF) and ends
up with parliamentary review and approval.
In many countries the fiscal year follows the
12-month calendar year, beginning on 1 January;
in some countries, the fiscal year may start at
a different date (e.g. 1 October in the United
States of America, 1 July in Australia and New
Zealand). In a given year, there are three cycles
potentially taking place at the same time: the
implementation of the current budget, which
essentially takes place throughout the year, at
any given time; budget preparation for the next
year; and audit or review of the previous year.
Summary
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Who are the people involved and engaged
in the health budgeting process, in
particular the budget preparation
phase?
Ministries of budget/finance and related entities
are the leading agents for budget development.
Ministries of health play a critical role to prepare,
present and negotiate credible, priority-oriented
budget proposals for the sector. Civil society
and the general public can seek to influence
health budget definition by engaging with the
executive or the legislature.
viii
How
does the budgeting process work from
the point of view of national health
policy/strategy/plan (NHPSP)
stakeholders?
The budget cycle starts with the government plan-
ning for the use of the coming year’s resources.
To allow this to be done in accordance with
health priorities, health planning stakeholders
have to engage strategically in this process and
be prepared to support it. This chapter takes
the reader through the steps of the budget
cycle and some practical issues for the health
community to consider.
Anything else to consider?
decentralized environment;
fragile environment;
highly aid-dependent context.
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Chapter 8 Budgeting for health
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I This is exercised through the introduction of good macroeconomic
models and mechanisms to consult on forecasts with stakeholders
such as the central bank, the revenue authority and independent
research agencies.
8.1 What is meant by budgeting for health?
Some key concepts
Narrowly defined, the budget is the government’s
forecast of revenue and planned expenditure,
usually provided on an annual basis. A health
budget is the portion of the national budget
allocated to the health sector, including all
ministries and agencies involved in health-related
activities. A health budget is more than a simple
accounting instrument to present revenues and
expenses – rather, it is a crucial orienting text,
declaring the country’s key financial objectives
and its real commitment to implementing its
health policies and strategies.
Public financial management (PFM) rules govern
how budgets are formulated, funds disbursed
and accounted for. This is centrally important
to UHC because PFM is the interface that helps
ensure that increases in public spending translate
into expanded health coverage.
National health authorities should aim to
effectively engage with national budgetary
authorities to foster credible, priority-oriented
health budgets, and ensure efficient fund flows
and budget execution in order to ultimately
strengthen accountability.
An MTEF is a comprehensive, government-wide
spending plan that is expected to link policy
priorities to expenditure allocations within a
fiscal framework (linked to macroeconomic and
revenue forecasts), usually over a three-year
forward-planning horizon. Mid-term budgeting
can help connect revenue forecasts, sectoral
allocations and health policy priorities, and
strengthen the overall quality and credibility
of annual budget envelopes.
In order to do that well, governments need to
be able to generate robust forecasts of forward
macroeconomic conditions and revenue flows,
as well as of the forward cost of existing and
new policies. While the former is usually the
responsibility of the central government,I the
latter can only be done well using the specialized
knowledge at sector level. Some countries
have also initiated the development of sector/
health-specific MTEF (see Fig. 8.1) that fit into
the overall framework, which can help define
more credible annual allocations.
8.1.1 What is a budget?
8.1.2 Public financial
management
8.1.3 Medium-term expenditure
framework (MTEF)
A health budget
allocates
national funds
to the health
sector, declares
key financial
objectives of
the country,
and represents
a commitment
to health policy
and strategy
implementation.
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“Performance budgeting”, “performance-based
budgeting”, “programme-based budgeting”
and “budgeting for results” are similar terms,
with a common unifying feature: they are all
concerned with introducing performance infor-
mation into budget processes. The Organisation
for Economic Co-operation and Development
(OECD) has defined performance budgeting
as a form of budgeting that links allocated
funds to measurable results.
2
These alternative
budget classifications present advantages for
managing funds through increased autonomy
for funds managers. Specifically for the health
sector, it ensures that funds flow to the priority
services and enables the purchasing of health
services to be operational. By making explicit
the purposes and results of budget spending,
budget managers can also be held to account
by the legislature and citizens.
Line-item budgeting has been the norm in many
countries, in which the budget information is
organized according to the types of expenses
or cost categories. For health, these generally
focus on staff, supplies (operational costs), and
capital investment/equipment, all of which can
be characterized as inputs for health systems.
Providers receive a fixed amount for a specified
period to cover specific input expenses (e.g.
personnel, medicines, utilities).
The existence of many line items is a way for the
legislature to retain control, but provides little
flexibility to operationalize and manage health
funds because the expenditure must follow
strictly defined budget lines. In many countries,
line-item budgeting has been a major deterrent
to a functioning health purchasing system,
which would require setting up appropriate
payment mechanisms to enable funds flow to
the right services and maximize efficient use
of public funds.
8.1.4 Line-item budgeting for
health
8.1.5 Performance budgeting
Fig. 8.1 Key stages of a comprehensive MTEF1
stage
1
stage
3
stage
4
stage
2
stage
5
Development of macro-
fiscal framework (MoF)
Approval process
(executive and/or
legislature)
Development of
sectoral expenditure
frameworks
(MoF and MoH)
Identification of
sectoral priorities
(MoH)
Specification of sector
resource allocations
(budget ceiling) (MoF)
Line-item
budgeting
is a way to
manage budget
information
according to the
types of
expenses or
cost categories.
While this
approach aims
to increase
transparency
and
accountability,
it may often
in fact restrict
flexibility
and lead to
inefficient
resource
allocation.
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Fiscal space is typically defined as “the availability
of budgetary room that allows a government to
provide resources for a given desired purpose
without any prejudice to the sustainability of a
government’s financial position”.3 Tandon and
Cashin’s conceptual framework to assess fiscal
space for health in countries include factors
such as macroeconomic conditions, the extent
to which health is re-prioritized within the gov-
ernment budget, whether new earmarked funds
for health have been introduced, the amount of
external aid and increased efficiency of existing
government health outlays.4
Health planning stakeholders have variable
influence over these five factors. Some are
directly outside of their control, such as the
macroeconomic conditions. Others are in the
direct domain of the health sector and therefore
require particular attention from health planning
stakeholders – namely the efficiency of current
Line-item
budgeting
is a way to
manage budget
information
according to
the types of
expenses or
cost categories;
however, this
budgeting
system does
not provide
the required
flexibility to
operationalize
health plans
and maintain a
well-run health
purchasing
system.
health expenditures and the amount of external
aid for health. Furthermore, there are those
factors which are not directly in the hands of
health planning stakeholders but for which
the health sector can play an important role in
terms of advocacy – namely the prioritization
of health within the overall government budget,
and whether there are efforts to introduce new
earmarked funds specifically for health.
Fiscal space for health analysis could be better
mainstreamed and systematized into the budg-
eting process in many countries to enhance
budgeting decisions. Health planning stakehold-
ers would do well by leveraging the fiscal space
analysis to take a closer look at the political and
institutional enabling factors which can actually
support improved formulation, allocation and
use of health budgeted resources.
5
A better use
of existing public resources toward UHC helps
expand the fiscal room for the sector.
8.1.6 Fiscal space and fiscal space for health
© WHO /Quinn Mattingly
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As one of the generic sub-functions of health
financing,
II
purchasing refers to the allocation of
resources to health service providers. Purchasing
involves three sets of decisions, namely:
1.
identifying the interventions or services to
be purchased, taking into account popula-
tion needs, national health priorities and
cost-effectiveness;
2.
choosing service providers based on criteria
such as service quality, efficiency and equity;
3.
determining how services will be purchased,
including contractual arrangements and
provider payment mechanisms.6
8.1.7 Strategic purchasing
II Health financing functions include: revenue raising, resource
pooling and strategic purchasing.
Purchasing
involves
three sets
of decisions:
identifying
services to be
purchased,
choosing service
providers based
on certain
criteria, and
determining
the modalities
of payments to
providers.
Purchasing is undertaken by a purchasing
organization which can be, for example, an
insurance scheme, a MoH, or an autonomous
agency. Purchasing should not be confused with
procurement, which generally only refers to
buying medicines and other medical supplies.
There is a growing consensus, backed by efforts
being made by countries, to move away from a
passive approach to purchasing (no selection
of providers, no performance monitoring, no
effort to influence prices, quantity, or quality
of care) to an active or strategic one.
Strategic purchasing with general budget rev-
enues involves linking the transfer of funds to
providers, and, at least in part, to information
on aspects of their performance and the health
needs of the population they serve.
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During the budgeting process, health planning
stakeholders and managers will inevitably be
requested by MoF to provide information on
sectoral priorities and an associated price tag.
Understanding the guiding principles of budgeting
as well as the political dynamics that enable the
budget elaboration and approval processes is
essential to make the case for health. In many
countries, a lack of understanding of these
budget-related issues results in delinked pro-
cesses such that health policy-making, planning,
costing and budgeting take place independently
of each other. This leads to a misalignment
between the health sector priorities outlined
in overall strategic plans and policies and the
funds that are ultimately allocated to the health
sector through the budgeting process. This mis-
alignment has negative consequences: resources
are not used as intended, and accountability is
weakened (see Box 8.1). On the other hand, a
good understanding of the budget process and
solid engagement by MoH and other health
sector stakeholders at the right time during
the budget cycle will increase the chances that
the final resource allocation matches planned
health sector needs.
In reality, the allocation of resources to different
institutions and purposes is essentially a politi-
cal, rather than a purely technocratic process.
III
After having analysed needs and determined the
most equitable and efficient policies and plans,
health planning stakeholders must proactively
engage in this politically-influenced process, as
it determines the details of the national health
budget, which impacts on effectiveness and
efficiency of public spending for health. How
health managers will be able to spend their
money largely depends on what the budget
allocation is. Not only is the budget envelope
amount relevant, but so too is how that total
amount is structured, how it flows into the
system, timing of disbursements and how it will
enable health financing to function in practice
and to purchase the needed health services.
Understanding and influencing the budget
formulation for the health sector is also a matter
of efficiency and equity, two key health policy
objectives linked to UHC, a principle increas-
ingly enshrined in many countries’ NHPSPs.
How a budget is formulated and allocated,
including to lower levels of government, has a
direct impact on how well and how efficiently
funds can and will be used. Supporting a fair
distribution of resources across populations
and/or geographical areas is likely to have a
direct impact on health sector outputs.7
8.2 Why is it important to understand the health
budgeting process?
III For more information, please see Chapter 4 “Priority-setting for
national health policies, strategies and plans” in this handbook.
Understanding
the guiding
principles of
the health
budgeting
process
minimizes
the chance of
misalignment
between health
sector priorities
outlined in
strategic
plans and the
funds that are
allocated to the
health sector.
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Box 8.1
Côte d’Ivoire: understanding
the root causes for misalign-
ment between health planning
and budgeting8
Several factors can explain the misalign-
ment between health planning and budg-
eting at both central and decentralized
levels in the Ivorian context.
At central level, first, there is a noticeable
lack of a general framework and aligned
calendar between health planning and
budgeting. There is no specific mech-
anism to align the budget formulation
and national health planning processes.
Operational plans are often developed
for the ongoing year, while the budget is
formulated for the next year. In addition,
there is no alignment on the objectives
and goals between the two documents.
The budget elaboration is solely driven by
the logic of facility-based funding through
inputs, while the existing strategy sets a
different approach through well-identified
programmes and expected results. Also,
when the programme-based budgeting
process was introduced, it was used more
as a means to reflect externally financed
programmes than to fit with nationally
defined priorities as set out in the NHPSP.
Finally, weaknesses also resulted from
the fact that the processes were relatively
top- down, without considering local sector
needs in a post-war context.
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8.3 When does the budgeting process take place?
8.3.1 Budget cycle steps a brief
overview
The various public finance processes are struc-
tured around the budget cycle. This annual cycle
aims to ensure that public expenditure is well
planned, executed and accounted for. A standard
budget cycle incorporates four distinct stages:
(a) budget definition and formulation;
(b) budget negotiation and approval;
(c) budget execution;
(d) budget reporting, auditing and evaluation.
The MoH is expected to translate government
policy goals (as described in the NHPSP) into
cost
IV
estimates to fit into the suggested budget
ceiling for the sector. The budget ceiling is given
by the MoF based on its revenue forecast outlining
the country’s macroeconomic prospects in the
medium term.
The MoF and MoH engage in negotiations
over these requests which culminate in the
formulation of a formal health budget proposal
that is supposed to typically reflect revenue
and expenditure plans for the budget period
(most often one year). The budget proposal
(which includes the health budget component)
is typically presented for budget approval to
parliament, which can propose amendments,
before formal adoption.
Budget execution, or spending, consists of
a set of processes that lead to effective fund
flows/transfers from the treasury to the MoH,
and onwards to sub-recipients (for example,
districts, health providers, etc). The principal
issues that the MoH will be faced with during
the budget execution phase are the actual
delivery/purchase of health services by those
on the front line (e.g. health service providers)
and the financial management function that
supports the former.
Budget evaluation refers to internal and external
control processes which are designed to ensure
compliance with predefined targets and proce-
dures. Governments also have accounting and
reporting procedures which help keep records
of financial and/or non-financial flows;9 these
need to be respected and cross-checked.
An important point to note here is the issue
of budget amendments that can be passed by
parliament during the course of the fiscal year.
This can happen when, for example, budgetary
resources are lower than expected and overall
spending needs to be reduced. Negotiations will
determine whether the health-specific budget will
be maintained or changed. It is often at this stage
of budget renegotiation that the prime minister
or president may play a key role in arbitrating
between different priorities and sectors. Health
leaders need to maintain a sufficient level of
advocacy to ensure that the sector remains a
budget priority throughout the year.
IV See Chapter 7 “Estimating cost implications of a national health
policy, strategy or plan” in this handbook.
A standard
budget cycle
incorporates
four distinct
stages: budget
definition and
formulation;
budget
negotiation
and approval;
budget
execution;
and budget
reporting,
auditing and
evaluation.
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8.3.2 Fiscal vs. calendar year
Some countries’ budget cycles, referred to as
fiscal years, follow the calendar year and others
do not. A fiscal year refers to a consecutive
12-month period which may or may not follow
the January to December calendar. That being
said, the most common fiscal year countries
use is the calendar year. Other commonly used
fiscal years are 1 July of one year to 30 June
of the following calendar year and 1 April of
one year to 31 March of the following calendar
year.10 Fig. 8.2 depicts the budget cycle steps
according to a fiscal year which is identical to
the calendar year.
Fig. 8.2 Budget steps during a fiscal year starting on 1 January
January –
March
Macro-
economic
and revenue
forecasts
April –
May
Budget
proposal
preparation
June
Budget
conference/
negotiations
August –
September
Preparation
of finance
law
October –
November
Parliament
review and
approval
December
Adoption of
final budget
Not all countries
use the
calendar year
to determine
a fiscal year;
either way, the
budget steps
remain the
same.
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(a) MoH’s role in health budget formulation
Developing robust health budget envelopes
requires strong engagement by health min-
istries with national budget decision-makers
– first, because progress toward UHC is often
associated with increased public funding for
health, and secondly, because the latter also
demands a functioning public finance system
to align revenues with services and to manage
Fig. 8.3 How important is budget prioritization for health?11
8.4 Who are the people involved and
engaged in the health budgeting process?
Roles of different stakeholders
8.4.1 MoH: engaging in
health budget formulation
and execution
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expenditure better. Thus, the dialogue with
MoF/treasury must involve not just the level
of funding but also the PFM rules that govern
their use (forming budgets, distributing them,
expenditure management, reporting).
In particular, the MoH’s role in the process of
budget formulation boils down to three key inputs.
Analysis of expenditure forecasts against
expected revenues; the aim here is to esti-
mate the potential for increased health
spending. Institutionalizing fiscal space
for health analysis within MoH will be an
important step in this direction;
Drafting of credible, well-defined health
budget proposals; systematizing costing
and priority-setting exercises within the
defined envelope;
Engaging in budget negotiations and advo-
cating for a sound health budget allocation.
(b) MoH’s role in health budget execution
The budget execution stage is a pivotal process
for all ministries including health, as it is the
one which enables the actual implementation
of NHPSP activities. MoH’s key role here is one
of supervision, support, and oversight of budget
execution as this is often the deciding factor
for implementation rates – poor technical and
administrative support and oversight capacity
generally results in a low health budget execu-
tion rate, and in more unused fiscal margins.
Evidence shows that fiscal space expansion for
the health sector is largely possible simply by
increasing effectiveness in government health
spending.12
For purposes of health budget execution, MoH’s
role includes understanding PFM systems, and
in particular, expenditure rules and regulations.
In many countries, MoH’s capacities require
strengthening in this area, as expenditure man-
agement is often not well known or understood
by those who do not have specialist skills in
public finance. For example, in many coun-
tries, the MoH is not the final decision-making
authority on spending (MoF is). This means
that payment requests for services already
rendered end up with the MoF (see Box 8.2). If
the expenditure is not in line with expenditure
rules, MoF may decide not to pay, especially in a
circumstance where funds are not sufficient to
cover all payment requests coming in from all
sectors. Another challenge linked to a lack of
understanding of the PFM system is the funds
disbursement schedule. In many countries, it
does not necessarily follow the needs of sector
plans; instead, funds may be disbursed only at
specific times of the year in specific amounts.
Health ministries should take this into con-
sideration when planning activities and health
budgets for more effective implementation.13
Early engagement on the part of MoH with the
MoF can provide better understanding of the
financial management rules and the system
within which expenditures must happen. Closer
cooperation and inclusion of MoF representa-
tives in key MoH consultations can help both
sides better understand each others’ needs
and challenges.
The Ministry of
Health (MoH)
must engage
strongly with
national budget
decision-
makers during
health budget
formulation.
Credible,
well-defined
expenditure
forecasts and
systematized
costing and
priority-setting
exercises can
put MoH in a
sound negotiat-
ing position with
the Ministry of
Finance.
(i)
(ii)
(iii)
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Box 8.2
Low execution levels of the health budget: where does the problem lie?14
In many countries, health budgets are poorly
executed, but little is known about the under-
lying causes of under-execution. A detailed
analysis of the Democratic Republic of the
Congo context reveals that the responsibilities
lie on many fronts; many weaknesses and
delays at both MoH and MoF explain low
execution of the health budget envelope,
with one major systemic bottleneck being
the fact that the MoF still holds the final
spending decision-making authority above
all line ministries.
A closer look at the budget execution process
in the Democratic Republic of the Congo in
recent years demonstrated that the principal
impediments were:
MoH’s estimation of necessary resources
for health was finalized too late; the
calculations have been of varying quality
over the years;
MoF releases funds directly to those who
are expecting payment from MoH (final
spending decision-making authority is
with MoF) and often does not do so in a
timely manner.
Over 2011–2013, MoH’s forecasted necessary
resources on equipment, services, and other
discretionary expenditure respectively came
to 14%, 21%, and 59% of the funds finally
requested from the Treasury, evincing an
unambiguous disconnect between the estima-
tion of resource needs and actual resources
used. It was, however, noted that the MoH’s
estimation of necessary resources were
more in line with funds spent for personnel
expenditure (94%).
On the MoF side, monies paid out directly to
suppliers/service providers on behalf of MoH
came to only 55% for goods and equipment and
40% for construction. This implies that roughly
half of MoH’s suppliers received late payments.
In addition, when the budget cycle closed at
year end, these late payments remained as
arrears in MoH’s name and needed to be
transferred to the following year’s budget.
All in all, the bottlenecks are clearly systemic
in nature and imply weaknesses on various
fronts and a need for a more comprehensive,
long-term reform in government processes
and government capacity.
A core element of effective health budget execu-
tion and expenditure management is strategic
purchasing,15 referring to the arrangements in
place, and mechanisms used, to allocate funds
to health service providers. MoH is the entity
that must think through and design how health
(i)
(ii)
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services should be purchased, in harmonization
with existing PFM rules. This MoH task of
improving the strategic purchasing of health
services is central to strengthening health system
Table 8.1 What can health planners do/help to foster PFM and health financing system
alignment?
Mid-term budget planning
Budget formulation and
negotiation
Execution process
Reporting, auditing, evaluating
Elaboration of robust health MTEF
Systematized fiscal space for health assessment
Investment case for health sector to support budget
prioritization
Elaboration of sound annual sectoral envelopes
Refined budget structure
Costing for specific policy change (provider payment
mechanisms, benefit package)
Good understanding of PFM rules
Harmonizing PFM rules and health purchasing arrangements
Unified reporting and auditing system, and financial man-
agement information system
Institutionalized public expenditure for health assessments
and national health accounts, with a particular focus on
public expenditure
PUBLIC FINANCE CYCLE TYPE OF ACTIONS
/SUPPORT NEEDED FROM HEALTH PLANNERS
performance and progressing towards UHC, as
it determines the way services are funded and
providers incentivized (see Table 8.1).
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8.4.2 Role of civil society
organizations (CSOs) in
the health budgeting
process
Other stakeholders such as CSOs and the
general public can seek to influence the budget
by engaging the executive or the legislature in
various ways: analysing budget proposals from
the angle of grassroots needs, advocating for
more transparency in budget processes, and
taking part in local budget-setting processes.V
The reality is that, in most cases, time for budget
negotiations is short and budget sessions are not
long enough to make the process as participatory
and effective as it should be. Nevertheless, MoH
can play its part in encouraging and ensuring
more citizen and CSO involvement by producing
or endorsing best-practice documents on citizen/
CSO engagement in budgeting and collaborating
with civil society to get nuanced citizen feed-
back (beneficiary assessment surveys, citizen
scorecards, opinion polls, etc.) for planning,
budgeting, and monitoring.VI
Civil society engagement in the budget process
should thus not only be welcomed but also
encouraged by government, parliament, and
other stakeholders. Several countries report
low legislative capacity to analyse budgets,
and thus they are dependent on line ministries
as well as civil society, academia, and other
bodies to support their study of the budget.
An example from Mexico demonstrates that
civil society engagement with legislatures on
budget analyses can be cardinal even if it is not
easy, does not happen overnight, and is mostly
characterized – at least in the initial stages – by
building up relationships and credibility with
government and parliament (Box 8.3).
Even in fragile settings, case studies from Asia
and Africa demonstrate that systematized citizen
assessments of budget proposals can indeed be
conducted and can add great value to the budget
formulation process. More importantly, they have
the potential to strengthen overall governance
and accountability practices between citizens
and public authorities.16
A few countries have moved a step further by
introducing a “participatory budget”, in which
citizens are involved in budget priority-setting
processes at local levels. The example of the
Democratic Republic of the Congo shows the
interesting lessons learned (Box 8.4).
Once the budget is formally presented to the
legislature, public hearings and debates may
also create space for civil society to express
itself on specific issues and/or the budget as a
whole. Often legislative committees engage in
discussions with civil society and other stake-
holders before voting.
V Beyond the preparation phase, citizens and civil society platforms
can also play an active role in the oversight phase. Good practices in
country experience include: citizens’ report cards and social account-
ability mechanisms.
VI In the Philippines, for example, the government obliges depart-
ments and agencies to consult and partner with CSOs when preparing
agency budget proposals in the budget preparation stage.
Civil society
engagement
in the budget
process should
be welcomed
and encouraged
by government,
parliament and
other stake-
holders.
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Box 8.3
Civil society participation in health budgeting: the case of Mexico17
In Mexico, the NGO FUNDAR (Centre for
Research and Analysis) monitors public
policies in social sectors, especially health.
One of the policies it has been monitoring
for many years is the Seguro Popular (SP
– People’s Insurance) programme as it is
one of the most important health policy
programmes for those who would otherwise
be uninsured. The SP is thus Mexico’s solution
to right-to-health legislation and is endowed
with a generous budget. FUNDAR spent
many years concentrating on research and
analysis of the SP’s policies, and learning
how to package and present its analysis for
legislators and other CSOs.
Health policy in Mexico is decentralized;
the federal government transfers up to 85%
of allocated health resources to the state
authorities for SP services. In several states,
decentralized budget information is unavailable
and there is little transparency as to which
agency or entity is actually implementing SP
services. The consequences at health service
delivery level are dire, with constant shortages
of medicines, high out-of-pocket payments
by households, and low investment in health
infrastructure. In addition, the SP has proven
to be a “golden egg” for many states, with its
large budget, large flexibility in spending,
and little oversight and control. Opposition
politicians have criticized it bitterly, stating
that it has not lived up to expectations.
Through its budget analysis work, FUNDAR
first gained credibility and built trust with
various legislators and state-level civil society
actors. Over several years, FUNDAR began to
make suggestions to modify Mexico’s article
on social protection spending to become more
transparent – this involved meeting with the
executive and the legislative branches, mainly
the Health Committee and the Budget and
Public Accounts Committee. The suggestions
were not taken into consideration in the
following budget decrees but after much per-
severance, seven amendments, all influenced
by FUNDAR, were incorporated into the 2012
Federal Budget Decree. These amendments
touched at the heart of accountability and
transparency issues and, at least in theory,
seek to improve expenditure control and
evaluation of the SP budget, and increase the
legislature’s capacity to supervise spending
via the National Audit Office. The lesson to
be learned here is that influencing national
budgets is a long-term process and both
civil society and parliamentarians, as well
government, and ultimately the population,
can greatly benefit.
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Box 8.4
Rural and urban citizens’ recent participation
in the formulation and management of local
budgets has helped to strengthen governance
in the Democratic Republic of the Congo. How
does participatory budgeting work in practice?
The local authority presents its budget to the
public, specifying the share of the budget to
be allocated to local investment. Through a
process of dialogue, community members are
able to choose for themselves which priorities
should be addressed and funded under the
local budget. The population is also involved
in monitoring the implementation of the
activities selected through this participatory
process. Using mobile phones, which most
Congolese now own, stakeholders in the
Participatory Budgeting Project can easily
obtain, from wherever they happen to be,
useful information on the date, time, and
place of meetings. They can also find out
what was decided at meetings, vote by SMS
(short message service) and, importantly,
monitor and evaluate the decisions made
through voting – all while going about their
daily lives. This participatory approach has
enabled the decentralized territorial entities
involved in the pilot project to improve local
governance through social accountabil-
ity, effective participation of citizens in the
management of public affairs and citizen
monitoring of public investments.
Participatory budget: lessons from pilot experiences in the
Democratic Republic of the Congo18
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Fig. 8.4 Aligning budget and strategic priorities: a core challenge19
8.5 How does the budgeting process work from
the point of view of NHPSP stakeholders?
The budget cycle starts with the government plan-
ning for the use of the coming year’s resources.
To allow this to be done in accordance with
health policy priorities, health planners have
to engage strategically in the process and be
prepared to support it.
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The macroeconomic projections, calculated
usually by a macroeconomic unit in the MoF,
enables the budget office within the MoF to
determine the global level of expenditure that
can be allowed without adverse macroeconomic
implications, given expected revenues and a
safe level of deficit.
In many countries, the prime minister or the
president and/or the cabinet will be directly
involved in budget formulation and preparation,
especially in influencing the main strategic
orientations and modalities of implementation.
The initial formulation of the national budget
happens within the budget office of the MoF, with
input from the various sectors. The degree of
openness and interaction with the other sectors
is very specific to each country, and this process
will determine how long it takes to come up
with a budget (weeks or months). The MoF will
certainly request clear, transparent, and concrete
information from its own individual departments
or from other ministries directly. Some MoFs
issue budget circulars to give instructions to
line ministries, with the indicative aggregate
spending ceiling stated for each ministry. This
circular will also include information on how to
prepare spending estimates in a way that will
be consistent with macroeconomic objectives.
It will spell out the economic assumptions to
be adopted on wage levels, the exchange rate
and price levels (and preferably differentiated
price levels for different economic categories
of goods and services).
MoH negotiations could be with the budget office
directly or with an individual from a different
MoF department assigned to the health sector.
The MoF must accommodate various government
priorities and make decisions on trade-offs in
order for budget expenditure totals to tally up
to what is available with the country’s fiscal
space. There will also be negotiations between
central-level management MoH and the district-
level budget holders.
In reality, a lot of the budgeting processes make
use of historical budgeting, i.e. the budget is
based on last year’s allocations. Unless there
are major changes to the economic situation
or government priorities (e.g. the 2014 Ebola
crisis in West Africa), the broad contours of the
budget should be generally known. They will be
a combination of critical projections on economic
growth, inflation, demography, revenue (all of
this information should be included in the pre-
budget statement) and overarching fiscal goals.
Budgeted funds are often tied up with the fixed
costs of staff and infrastructure, leaving limited
flexibility, and perhaps even reduced budgetary
scope for key patient treatment inputs, such as
medicines and other disposable items.
The MoH can bring itself into a strong nego
-
tiating position by having its costed plan and
plan of negotiation ready before the MoF begins
calling on the different sectors for information.
Normally, simply requesting an increase in
funds for the health sector will not be adequate
to convince a finance ministry that is dealing
with several competing priorities. A costed
plan is a prerequisite to negotiations with the
MoF; however, in addition, specific information
such as, for example, who are the ultimate
beneficiaries of this plan, what are the expected
health outcomes, and if necessary, how this will
affect the country’s economy and government
goals as a whole, should be deliberated upon
beforehand, calculated and analysed, for dis-
8.5.1 Budget formulation
It is important
to keep in mind
that the MoF
must accom-
modate various
government
priorities and
make decisions
on trade-off.
MoH thus must
come with a sol-
id evidence base
and arguments
which have been
thought through
carefully to
make the case
for health.
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cussion with the MoF. This is a critical stage for
engaging in the budgeting process, including
budget advocacy and negotiating with various
stakeholders. Working hand in hand with civil
society organizations and think-tanks can be
useful here, especially in specific areas of
expertise (Box 8.3).
© WHO /Sergey Volkov
Once budget negotiations have been finalized,
the cabinet endorses the proposals for inclusion
in the budget that will go to parliament.20
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Box 8.5
Key steps of Liberia’s budgeting process21
Using the illustrative example of Liberia helps
us understand in practice how budget prepa-
ration involves a large range of stakeholders
at each and every step of the process.
In Liberia, the MoF leads planning and budg-
eting process. The MoF calculates revenue
projections and then disseminates this infor-
mation to the respective line ministries,
sometimes in the form of a workshop. The
line ministries are then responsible for sub-
mitting budget proposals, following which
budget hearings, debate, and revisions of
the original revenue projections take place
between MoF and the line ministries. The
MoF must accommodate various government
priorities and make decisions on trade-offs
in order for budget expenditure totals to add
up to what is available with the country’s
fiscal space. There will also be negotiations
between central-level management MoH and
the district-level budget holders.
The process culminates in a draft budget
which the MoH officially submits to the
President and the Parliament. Once the
Parliament has adopted the national budget,
the line ministries are supposed to adjust
their internal budgets according to final
budget allocations.
December
January
February
March
April
May
June
Revenue projections by MoF and line ministries
Training workshops by MoF for line ministries
Budget proposal submission by line ministries to MoF
Revenue forecast revisions
Submission of draft budget by MoF to President’s Office
Line ministries prepare priorized cash plan
MoF prepares overall priorized govt. cash plan
Parliament adopts national budget
Draft budget submission by President’s Office to Parliament
Line ministries adjust budgets as per final appropriations
Budget hearings and arbitration between MoF and line inistries
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Box 8.6
The budget preparation process in Ghana22
The budget process in Ghana is an annual
event which includes top-down setting of
ceilings and broad priorities and bottom-up
prioritization and allocation. Key steps in the
process are listed below.
1.
A request for inputs from the general
public, including civil society and private
sector groups.
2.
An update of the macroeconomic frame-
work, including overall expenditure ceil-
ings and the distribution of government
and donor funds.
3.
An early policy review by ministries,
departments and agencies, including
costing of objectives, policies and activ-
ities.
4.
Cross-sectoral meetings to identify: areas
of overlap and duplication in outcomes,
objectives and key outputs; areas where
collaboration and coordination are required
in the planning and implementation of
activities; and comments and feedback
on prioritization of objectives.
5.
Review and finalization of ceilings in view
of predicted cost forecasts.
6. Final ceilings are approved by Cabinet.
7.
Development of more detailed first-year
operational plans. These are developed
bottom-up including regional and district
plans, reflecting the policy direction and
priorities set out in the NHPSP.
8.
Discussion of operational plans in policy
and technical hearings with the Ministry
of Finance and Economic Planning. After
finalization the Ministry consolidates the
national budget.
9.
Final allocation of ceilings between cost
centres and objectives.
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The budget is said to be “enacted” when it is
brought to the legislature for discussion and
subsequent passing into law. The (budget)
appropriations committee usually has the
power to vote on financial issues here as the
leading legislative body making spending rec-
ommendations and decisions on behalf of the
legislature. In the budget approval stage, public
hearings and debates may take place on specific
parts of the budget and/or the budget on the
whole, with specific legislative committees
(or subcommittees) engaging in discussions
of specific topics. Here, the health committee
(which may be organized as a subcommittee
of the appropriations committee, or a separate
standing committee)
VII
will be active in studying
the health sections of the overall budget and
preparing an analysis and response, often in
the form of amendments. It is here that the
MoH has the vital opportunity to liaise with the
legislature and support the technical analyses
and cross-verification with the costed health
plan. During this stage of the budget cycle,
media attention to the country’s budget is high
and this forum can be used to bring attention
to specific issues, in partnership with advocacy
organizations and civil society.
8.5.3 Budget execution
This stage of the budget cycle includes the actual
implementation of the planned budget, which
rarely is executed exactly as the budget dictates.
The decisive issue is whether unplanned spend-
ing is adequately justified by policy decisions,
changes in macroeconomic projections, or other
reasons, and is well documented.
In many countries, budget implementation and
oversight capacity is weak, which exacerbates
problems of a poor budget system, and thus
budget execution that is further away from the
planned budget. For the MoH, and any line ministry
for that matter, it is essential that its own sector
costing and MTEF work has made explicit where
funds should go and for which activities. This can
help in a situation where the budget is unclear or
where reporting systems do not provide adequate
information to monitor expenditure.
8.5.4 Budget evaluation
Budget evaluation and oversight for the full
national budget is usually undertaken by a
supreme audit institution (SAI). Its mandate is to
monitor public spending against stated budgets
and spending targets, and ensure accordance
with relevant laws and regulations. SAIs are
among the most important agencies for ensuring
that money is spent in the appropriate way, in
the way it was intended.
Increasingly, SAIs are tasked with auditing the
efficiency of fund utilization, examining value
for money, and assessing performance of public
services.
23
Normally, the task of following up
on and enforcing audit results and recommen-
dations is within the remit of the legislature.
Ideally, the legislature and the SAI (and where
relevant, with civil society organizations) should
collaborate closely to ensure that SAI findings
are acted upon.
Specifically for the health sector, health budget
execution can be evaluated during periodic sector
reviews. This would fall within the health policy
and planning cycle and is separate from national-
level budget audits, although health-specific
audits can and will certainly be undertaken by
a country’s SAI.
8.5.2 Budget approval or
enactment
VII Not all health-related committees in a legislature will have influ-
ence over the budget. The exact committee or body which has a health
mandate and influence over the budget will differ in each country.
The budget en-
actment process
is a vital time for
the MoH to liaise
with the legis-
lature health
committees and
support budget
analysis and
cross-
verification
with the costed
health plan.
The su-
preme audit
institution’s
(SAI) mandate
is to monitor
public spending
against stated
budgets and
spending tar-
gets and ensure
accordance with
relevant laws
and regulations.
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8.6.1 Legal considerations
Although the precise legal framework for govern-
ment budgeting varies from country to country, it
is usually spelled out in some form or other, be
it through a law or decree or regulatory directive
or other means. Health planning stakeholders
should be aware of how to source information
relevant to the budget and where to position
their technical inputs and influence.
The constitution is at the top of the legal hier-
archy. Although it usually deals only with broad
principles, the constitution may clarify three
important aspects:
the relative powers of the executive and
legislative branches with respect to public
finance;
the definition of the financial relations
between national and sub-national levels
of government; and
the requirement, for example, in common
law systems, that all public funds be spent
only under the authority of a law.
The organic law is usually the main vehicle
for establishing principles of public financial
management. This may take the form of a single
law that guides budget formulation, approval,
execution, control, and auditing, or there may
be several general laws covering specific areas
of public finance management that may also
relate to national and sub-national levels of
government. The organic budget law also gives
to the government, or the minister responsible
for public finance, the authority to issue detailed
regulations and instructions.
The constitution, the budget organic law, and
financial regulations are permanent and form the
legal framework within which the annual budget
law/finance law, which includes the revenue
and expenditure estimates for a given year, is
prepared, approved, executed and audited. The
annual budget law can take different shapes
depending on the system.
In the francophone and Latin American systems,
the coverage of the annual budget law (budget
or loi de finances in francophone countries and
ley anual de presupuestos in Latin America)
is rather far-reaching, since it stipulates the
amount and details of revenue and expenditure,
the balance amounts, any new tax legislation
measures and any permitted changes to spend-
ing. Brazil, for example, has minimum health
spending thresholds in place at municipal, state
and federal levels of government that require
a certain percentage of the annual budget be
dedicated to health services.24 Under the common
law system, only revenue and expenditure esti-
mates need to be presented to the parliament.
By contrast, the annual budget in many transition
economies has often been rather summary in
format as no detailed legislation stipulates the
contrary: prior to any recent reforms, budget
estimates were presented in aggregate format,
by budgetary institution – typically only the
major supervisory institutions and not their
subordinate units – and broken down only by
broad “functions”.25
8.6 Important operational issues for health
planning stakeholders to consider during the
health budgeting process
The legal
framework that
impacts budget
formulation
and execution
is made up of
the constitution,
organic budget
law, and finan-
cial regulations.
1.
2.
3.
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Since the mid-1980s, budgeting reforms world-
wide have been concerned in a significant way
with engineering a shift from planning and
approving budgets for one year at a time to a
multiyear perspective to improve predictability
and sustainability in sector funding. The need to
ensure the financial affordability and operational
feasibility of policy proposals has been a major
factor behind the introduction of medium-term
perspectives. Given that the disconnect between
health policy-making, planning, and budgetary
processes was recognized as a common factor
of several countries’ governance, the health
MTEF has increasingly come to be regarded
as a central element of public expenditure
management reform programmes (see Box 8.7).
8.6.2 How can countries
introduce and effectively
undertake multi-year
budgeting?
Box 8.7
Malawi26
In 1993, a Budget Management Review in
Malawi revealed real weaknesses in the
country’s budgeting system; it especially
highlighted the fact that both sector-specific
as well as overall spending objectives of
the government were unclear. In 1995, the
World Bank assisted in introducing the MTEF
process in Malawi in four sectors, including
health, in response to the review’s findings.
The first year of implementation focused very
much on adequately costing sector-specific
priorities to reflect the sector strategic plans.
All of the other sectors joined in the following
year, with the MoF providing overall guidance
and management. After the initial years of
implementation, it was clear that the Budget
Division needed more staff and provisions
were made for an increase in personnel.
The MTEF in Malawi was seen as a process
to support improved decision-making and
to better link policies, priorities, resources,
and budgets. It has involved both a top-down
and bottom-up joint approach – top-down
meaning a macroeconomic analysis looking
at total revenue and allocation of budget
ceilings to different sectors. At the same
time, a bottom-up approach at sector level
consisted of formulating a sector strategy
and breaking the strategy down into activities
and costs. In Malawi, a special emphasis was
Introducing health MTEF in
Africa: the case of Malawi and
the Democratic Republic of the
Congo
MTEFs in the
health sector
were borne out
of the need to
ensure financial
affordability
and operational
feasibility of
health policy
proposals.
Chapter 8 Budgeting for health
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given to involving a wide range of stakehold-
ers in the design and implementation of the
process and presenting the budgeting process
as a management tool for all sectors. With
the MTEF work, the MoF has taken on a less
controlling role and is more of a supervisor
of performance, ensuring accountability and
transparency in resource use. An evaluation in
early 2014 demonstrated good improvement
for Malawi’s budget credibility and stronger
links between policies and budgets. However,
significant improvements were still necessary
for budget execution and control as well as
accounting procedures.
Democratic Republic of the Congo27
From 2011 the Research and Planning Division
at the Ministry of Public Health (MoPH) has run
a programme to improve the budget process
via a results-oriented management concept
that uses the MTEF as a tool. Since 2012, the
national MoPH and provincial ministries have
compiled a national and provincial MTEF each
year. This tool is featured in the roadmap for
government expenditure reform initiated by
the Ministry of Economy and Finance, making
the health sector a trailblazer for a reform to
be extended to all other sectors. The benefits
are twofold. First, results-based management
practices are picked up by provincial planning
and budgeting teams. These teams will play
a central role in allocations of resources for
health. Second, the tool makes it easier to
develop arguments in defence of the health
budget when choices are being made for the
annual budget. In 2014, sound arguments
helped the MoPH obtain a 20% increase in
the budget initially announced for non-wage
expenditure. This represents an additional
USD 10 million in the health allocation.
However, the unpredictability of external
resources and uncertainty surrounding
decentralization makes the medium-term
budget process an especially delicate exercise
that often has little link to macroeconomic
realities. The MTEFs in the Democratic
Republic of the Congo are developed using
incomplete and patchy data: the provinces
have no clear idea of the domestic and
external resources that they will receive the
following year. Therefore, MTEFs are hardly
ever used to manage resources and are
more of a theoretical exercise. The MoPH’s
efforts to improve the budget process are
hampered by the uncertainty surrounding
decentralization and the fragmentation of
external financing. Recent efforts by the
MoPH to strengthen their financing strategy
should enable the government to set out its
official vision of the health financing and
decentralization architecture, which will
improve the budget process.
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To date, MTEFs have seen a mixed impact on
increased budgetary predictability for health
ministries, but there is some evidence that
they have led to budget reallocations to the
sector.
28
It is a common observation that the
quality of forward spending estimates, as well
as revenue forecast, is generally poor. For the
former, they tend to consist far too frequently
of the proposed budget for the first year of a
multiyear framework, followed by inflation
adjusted projections of cost for the later years:
multiyear incrementalism, in other words. On
the latter, revenue projections are sometimes
Box 8.8
Barriers to medium-term budgeting29
Legacy systems in francophone and anglo-
phone countries in Africa may affect the
implementation of standard reforms such as a
medium-term budgeting. While francophone
systems have budget control benefits and
offer some mechanisms that are not out of
keeping with a medium-term perspective
(such as allowing for capital programming to
have a multiyear legal basis in the financial
laws), they also present important challenges.
The central control over spending ministries
discourages spending agencies from taking
strategic responsibility for better spending
and the budget format does not help either.
With a strong emphasis on law in francophone
systems, the lack of legal provisions for
modern budget management mechanisms
such as MTEFs and programme budgeting
mean that reforms to these effects have
very little impact. On the plus side, the
requirement to adhere to the West African
Economic and
Monetary Union directives,
however, has driven successful reforms of
key parts of the PFM systems.
In anglophone Africa, the United King-
dom-based financial management tradition
can clash with the constitutional form of
modern states. The role of parliament in
undermining comprehensive, medium-term
budgeting that is affordable and effective
is among the key concerns. In anglophone
countries the strong legal emphasis on the
accountability of the spending agency (in this
case, MoH) accounting officers in turn under-
mines a strong finance ministry mandated to
run a disciplined budget process. The weak
role of parliaments and inadequate capacity
for medium-term forecasting, particularly
at sector level, further affects the impact of
these reforms.
judged as unrealistic and do not allow for ade-
quate strategic planning.
The process and quality of health and overall
MTEF need strengthening in most countries,
more specifically:
more realistic resource scenarios;
better alignment of MTEF ceilings with annual
sector allocations;
more support to MoH for developing sound
health expenditure scenarios;
more participatory processes.
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8.6.3 How can countries move
from a line-item to a
programme-based
budget?
Many countries are progressively moving away
from activity-based or line-item budgeting
towards a system that is more focused on outputs
and places emphasis on results. The shift from
traditional budgeting to alternative budgeting
methods with results and performance at its
focus is noted to be more useful as a policy
or decision-making tool. It assures elected
and administrative officials of what is being
accomplished with the money, as opposed to
merely showing that it has been used for the
purchase of approved input.
31
At the end of
the budget cycle, a review of performance is
supposed to help planners allocate and spend
more effectively toward the set targets in the
following years (see Box 8.9). In moving towards
performance budgeting, countries adopt a
system of planning, budgeting and evaluation
Fig. 8.5 Introducing performance-based budgeting: from concept to practice30
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that emphasizes the relationship between money
budgeted and results expected.
However, there are caveats. While performance-
based budgeting seems to have been effective
to better inform resource allocation decisions
and in supporting higher quality of negotiation
processes between MoF and line ministries like
health, systematic evidence has been lacking
on the actual effects on health sector perfor-
mance. Performance-based budgeting requires
considerable budget management capacity
within the spending institutions. Providing more
autonomy to such institutions (such as MoH)
would require that accountability systems are
in place and functioning to ensure that more
flexibility indeed leads to better sector results.
However, in weak PFM systems, the introduc-
tion of an alternative budget classification is
likely to create more confusion and to reduce
accountability, at least initially. Budgets may
therefore need to be presented using several
different formats in a transition phase.
Specifically for the health sector, the introduction
of programme budgets can increase risks of
creating new silos (programme budgets are often
disease-specific vertical programmes). Modifying
the budget structure will not be sufficient to
drive flows to expected results. Just as equally
important as budget structure are personnel
management and structure of government
that provide incentives and accountability for
improved health sector performance.
The move
towards
performance-
based budgeting
creates a system
that emphasizes
the relationship
between money
budgeted and
results expect-
ed. However,
caveats include
the increased
risk of new
budget silos and
initial confusion
in weak PFM
systems.
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Chapter 8 Budgeting for health
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Box 8.9
From line-item to programme budgeting: the case of the
Republic of Korea32
The Republic of Korea’s budget system
revealed that the most problematic feature
of the budget classification system was that it
placed primacy on classifications by organiza-
tion (ministries and agencies) and, most of all,
by budget account. As a result, programme or
activity level expenditures were fragmented
over different accounts. Conversely, even
when a programme or activity was funded
solely through a single budget account, it
took considerable cross-checking to verify
that there are no other expenses in another
account. The opacity of spending information
for programmes or activities was compounded
by the fact that there were more than 6000
activities. Thus the solution demanded that
the budget classification system be simplified
in order to make the spending information
more transparent and accessible. Further-
more, this streamlining of the classification
system should be accompanied by greater
discretion granted to spending ministries
like health. This would also allow the budget
office and the legislature to concentrate on
the broader resource allocation decisions
while harnessing the expertise of front-line
managers in spending within their sectors,
in order to raise the efficiency of lower-level
spending decisions.
With this general direction in mind, the Gov-
ernment decided on several basic principles
for restructuring its line-item budget into a
programme budget:
a programme cannot span multiple min-
istries;
all activities that have the same policy
objective must be grouped under a single
programme, regardless of revenue source;
programmes must be clearly differentiated
from one another both in policy objective
and programme name.
Further guidelines have been set to ensure
that the programme classification matches
that of the National Fiscal Management
Plan (NFMP – the country’s MTEF) and that
the final number of activities is reduced to a
level that is practical for resource allocation
decision-making. Additionally, the Government
decided that all indirect costs (salaries, facility
maintenance, etc.) for each ministry would
be aggregated into a separate programme,
as would simple transfers among different
budget accounts, rather than trying to dis-
tribute such costs or transfers into other
programmes.
1.
2.
3.
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The quest for fiscal space for health should be
mainstreamed into the budgeting process (see
Fig. 8.6 and Box 8.10). Situating fiscal space for
health analysis in the overall budget forecast
process is essential. It is likely that the analysis
will be best placed at the medium-term budget
formulation stage. It is a critical moment, largely
unexploited, which should allow aligning realistic
revenue forecasts with government priorities and
associated expenditure ceilings. Sector-specific
fiscal space assessment, if conducted prior to
and as a support for the elaboration of a sound
MTEF, will maximize impact on change. With
such an assessment, health planners will bring
useful technical value and support for exploring
the actual potential fiscal space, rather than
focusing on historical frameworks and ceilings.
A more realistic sense of the actual potential
fiscal space for health can also aid health min-
istries to better plan for a possible reduction of
resource allocations to health during the year
which can happen in times of financial difficulty
due to fluctuations in external aid, a reduction
in domestic resources, or other reasons. In
such circumstances, NHPSP implementation
can be deeply undermined if potential resource
reductions are not adequately planned for and
taken into account from the very beginning.
8.6.4 When and how should
countries assess fiscal
space for health?
Box 8.10
Taking stock of fiscal space
for health: main lessons from
assessments in developing
countries33
Lessons from country evidence have
shown that in contexts with very limited
public spending for health (all standards
included), fiscal space for health projec-
tions have helped to identify feasible sce-
narios for expanding resource availability
on both the revenue generation and the
expenditure side. They signalled existing
margins from clearly untapped resources
(e.g. taxation, mineral resources), from
misalignment with government priorities
and international commitments (e.g. low
health prioritization) and from effective-
ness and efficiency-related losses (e.g. low
execution, skewed allocations, technical
inefficiencies).
In more advanced countries (i.e. higher
revenues and health prioritization within
the budget envelope), evidence has shown
that further gains are likely to derive from
the expenditure side through improved
management of the existing health budget
envelope. In the short and medium term,
a strategic combination of improved exe-
cution and modified allocation within the
budget envelope is likely to drive fiscal
space expansion for the sector. In such
contexts, successful country experiences
have focused on how to align an existing
budget envelope with the UHC goals
(i.e. reduce inequalities in service use
and spending), rather than delaying or
derailing the sequence of their reform
process and expecting sizeable gains
from the resource side.
The move
towards perfor-
mance- based
budgeting cre-
ates a system
that emphasizes
the relationship
between money
budgeted and
results expect-
ed. However,
caveats include
the increased
risk of new
budget silos and
initial confusion
in weak PFM
systems.
Chapter 8 Budgeting for health
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Accessing and effectively using quality budget and
financial data is critical for health planners and
managers, especially to drive future investment
decisions. In many countries, MoH and other
stakeholders cannot rely on good quality budget
and financial data, for the following reasons:
lack of access to and use of data by relevant
MoH units;
poor classification of public expenditure
for health;
weak financial management reporting and
consolidation systems within MoH and across
ministries.
Over the past decade, the systematized produc-
tion of national health accounts has helped to
monitor overall health expenditure from different
sources at country level and to provide globally
a systematic description of the financial flows
related to the consumption of health care goods
and services (see Box 8.11). MoH is encouraged
to make use of health accounts outputs in a
more systematic manner to further inform
health planning and budgeting. There is also a
need to institutionalize and systematize public
expenditure assessments, as well as national
health accounts, within MoH to strengthen
their ability to inform and influence budget
8.6.5 How can the necessary
data be collected?
Fig. 8.6 Positioning fiscal space
for health analysis in the
budgeting process34
Fiscal space
analysis, including
for health sector
MTEF:
revenue forecast
and expenditure
definition
Annual budget
formulation
and approval
Good quality
budget and
financial data
are essential to
inform health
planning and
budgeting.
Expenditure
assessments
should thus be
institutional-
ized, not the
least because
countries are
encouraged to
move towards a
dominant reli-
ance on public
expenditure to
make progress
towards UHC.
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decision-makers. As countries are encouraged
to move toward a dominant reliance on public
expenditure to make progress toward UHC,35
more efforts shall be put on strengthening
production and effective policy use of good quality
public expenditure for health data. In doing so,
three main aspects can be annually monitored:
how much is allocated to the health sector
compared to the overall budget;
how much of the allocated budget is actually
executed;
reasons for under or over-spending.
Box 8.11
Role of national health accounts in informing budget formulation and
expenditure tracking36
Health accounts cover actual expenditure and
not budgets or commitments. Health accounts
track health expenditure from all sources
(including nongovernmental) to different
types of providers (for example, hospitals vs
providers of ancillary services) and different
uses (for example, inpatient vs outpatient care
or curative care vs preventive care).
Health accounts address five basic questions.
1.
Where do resources come from (through
which financing mechanisms have the
revenues/resources been pooled)?
2.
Who is managing those resources and
under which financing arrangements do
people get access to health care goods
and services?
3.
What kinds of goods and services are
consumed?
4.
Which health care providers deliver these
goods and services?
5. Who benefits from the expenditures (by
age, gender, regions, diseases)?
A new System of Health Accounts was issued
in 2011 to allow comparison across countries
and to accommodate a number of changes
and improvements.
1.
2.
3.
Chapter 8 Budgeting for health
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Overall, the budget elaboration process is a
site for contestation of power and resources,
and therefore not just an outcome of economic
rationality. It is above all a political exercise
(Box 8.12). Central to health planners is the
acknowledgement that the budget preparation
phase is fundamentally political, because it
is about making real policy choices based on
societal preferences and linking them to practical
health sector strategies.
In order to understand the political economy
of the budgeting process, it is necessary to
understand the accompanying processes of
health policy and planning.37
The process of allocating resources to different
goals, priorities or institutions is essentially
a political, rather than purely technocratic
one. In addition to analysing health needs,
health planning stakeholders should pay
sufficient attention to understanding political
processes pertaining to budgeting prior to
and during the budget formulation process.
The process of budget allocation does not
occur in isolation from macroeconomic and
revenue issues, and efficiency/effectiveness
concerns in the use of funds for health and in
the other sectors. A holistic understanding
of public expenditure systems and the
institutional cultures that condition them – is
important in order to formulate strategies for
change and improvement (i.e. an increased
allocation to health).
It should never be automatically assumed that
health allocations translate accurately into
spending. What money actually gets spent by
whom, on what items and for what purpose
is often determined during the process of
budget execution, which in itself implies
political, financial and technical interactions
within a large range of interests and powers.
8.6.6 How should countries understand and influence the political
economy of budgeting for health?
The budget
process is
fundamental-
ly a political
exercise, an ac-
knowledgment
that must be
understood by
health planning
stakeholders.
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Box 8.12
The politics of budget formulations38
To guarantee meaningful change in budget
allocations, it is recommended to have infor-
mation about the following:
(a)
the formal structure of roles and respon-
sibilities within the budget process;
(b)
the formal rules governing decision-
making, political choice and account-
ability within the public expenditure
management system;
(c) the networks of stakeholder power and
influence (outside the formal allocation
of roles and responsibilities), which
influence the outcomes of the budget
process;
(d) incentives for action (covert as well as
overt) affecting the decision-making of
politicians and officials during budget
formulation and execution;
(e)
the latitude for independent discretionary
action of bureaucrats at all levels of the
budget execution process;
(f) the norms and values prevailing in key
institutions within the budget formulation
and execution process.
The experience of budget initiatives with
social/health goals suggests a number of
broad lessons that can help guide practice,
including the following: Firstly, budget pro-
cesses which are successful in relation to
social/health goals often involve a broad
range of actors with different positions and
skills – including NGOs, researchers, par-
liamentarians, members of political parties,
technocrats and members of the social
groups in question themselves. Secondly,
many successful social initiatives on the
budget process in developing countries have
benefited from donor support. Sometimes
this has been through support to civil society
groups, sometimes through support to build-
ing capacity in government, and sometimes
through the provision of extra resources (e.g.
through Heavily Indebted Poor Countries debt
relief). Thirdly, successful initiatives (such
as the participatory budgeting movement
in Brazil, or the gender budget initiative in
South Africa) are often facets of a broader
popular political movement or project. Where
governments have particularly strong frame-
works of policy goals, or other frameworks
for accou