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From Double Shock to Double Recovery: Implications and Options for Health Financing in the Time of COVID-19

Authors:
FROM DOUBLE SHOCK TO DOUBLE
RECOVERY - IMPLICATIONS AND OPTIONS
FOR HEALTH FINANCING IN THE TIME OF
COVID-19
/
DISCUSSION PAPER
MARCH 2021
Christoph Kurowski
David B. Evans
Ajay Tandon
Patric
k Hoang-Vu Eozenou
Martin Schmidt
Alec Irwin
Jewelwayne Salcedo Cain
E
ko Setyo Pambudi
Iryna Postolovska
Public Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure Authorized
FROM DOUBLE SHOCK TO DOUBLE RECOVERY
IMPLICATIONS AND OPTIONS FOR HEALTH FINANCING IN THE
TIME OF COVID-19
Christoph Kurowski, David B. Evans, Ajay Tandon, Patrick Hoang-Vu Eozenou,
Martin Schmidt, Alec Irwin, Jewelwayne Salcedo Cain, Eko Setyo Pambudi, and
Iryna Postolovska
March 2021
HEALTH, NUTRITION AND POPULATION DISCUSSION PAPER
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Health, Nutrition and Population Discussion Paper
From Double Shock to Double Recovery
Implications and Options for Health Financing in the Time of COVID-19
Christoph Kurowski, David B. Evans, Ajay Tandon, Patrick Hoang-Vu Eozenou, Martin Schmidt,
Alec Irwin, Jewelwayne Salcedo Cain, Eko Setyo Pambudi, and Iryna Postolovska.
Health, Nutrition and Population Global Practice, World Bank, Washington, DC, USA.
Abstract
The COVID-19 pandemic has resulted in a double shock - health and economic. As of March 1,
2021, COVID-19 has cost more than 2.5 million lives and triggered an economic recession
surpassing any economic downturn since World War II.
Almost all countries responded with rapid increases in government spending during 2020 to control
the pandemic and protect people, jobs, and businesses. Despite an expected return to economic
growth, the International Monetary Fund (IMF) projects government per capita spending to fall
across all country income groups in 2021 and 2022. This drop primarily reflects a reduction in the
capacity of many governments to further accumulate and service public debt.
Part I of this paper explores the impact of this current macro-fiscal outlook on the three primary
sources of health spending. Drawing on experiences from previous economic crises, scenario
analyses suggest a fall in government per capita spending on health in 2021 and 2022 unless
governments make bold choices to increase the share of health in general government spending.
The projected drop in per capita government spending on health is expected to coincide with lower
levels of household out-of-pocket spending on health and a possible decline in development
assistance for health (DAH).
The projected decline in government per capita health spending will threaten a recovery from the
health and economic shocks. An end to the pandemic can only come through enhanced disease
surveillance, strengthened delivery platforms, and the roll out of COVID-19 vaccines. Reclaiming
losses in progress toward universal health coverage (UHC) due to disruptions in the supply and
demand for essential non-COVID-19 health services during the pandemic is vital for a sustainable
and inclusive longer-term economic recovery.
Part II of the paper discusses policy options to meet the spending needs in health. These options
encompass strategies to make fiscal adjustments work and channel funds where they are most
needed, as well as policies to stabilize the balance sheets of social health insurance (SHI)
schemes. The paper explains how the health sector can play an active role in expanding fiscal
space, contributing to tax reforms, most importantly pro-health taxes, and mobilizing and absorbing
external financing, including debt relief.
Recognizing that the quality of spending has implications for its quantity, Part II also discusses the
challenges and opportunities of the crisis to increase the equity and efficiency of health spending.
These include which expenditures to cut and which to protect, which emergency measure to roll
back and which to roll out, as well as some of the most controversial trade-offs in health financing
underscored by the crisis.
Countries did not choose COVID-19, but their leaders have policy choices to make in health
financing that will impact the response to the pandemic, the capacity to get back on the path to
UHC, and ultimately the strength of the recovery.
Keywords: Covid-19, economic crisis, health financing, equity
Disclaimer: The findings, interpretations, and conclusions expressed in the paper are entirely
those of the authors, and do not represent the views of the World Bank, its Executive Directors, or
the countries they represent.
Correspondence Details: Christoph Kurowski, G8 -165, 1776 G Street, NW, Washington DC
20006, USA; Tel.: 202 458 4275 Email: ckurowski@worldbank.org; Website http://worldbank.org
ACKNOWLEDGEMENTS
The authors are grateful to the World Bank for publishing this report as an HNP Discussion Paper.
The paper was prepared under the overall guidance of HNP Global Director Muhammad Ali Pate. Carolyn
Reynolds provided editorial support. Kalkidan Woldegiorgis, Jennifer Anderson, Ira Marina, and Carmen
del Rio helped with the production and logistics. Alexandra Humme and Rama George-Alleyne supported
external communications.
We very much appreciate the thoughtful comments and suggestions on an earlier version of the paper from
peer reviewers Paolo Belli, Doerte Doemeland, Toomas Palu, Umar Serajuddin, Owen K. Smith (all World
Bank) and David Coady (IMF). We are thankful to Mercedes Garcia-Escribano and Zsusa Munkacsi from
the IMF for facilitating access to the World Economic Outlook and Fiscal Monitor data.
The paper benefited from discussions of preliminary findings at three sessions of the 5th Annual Health
Financing Forum and the IMF/WB Joint Work Program seminar on Meeting Health Spending Needs during
a Prolonged Pandemic. Our special thanks to all panelists and discussants, including Miriam Ally, World
Bank; David Amaglobeli, IMF; Helene Barroy, WHO; Mark Blecher, Chief Director at National Treasury of
South Africa; Maura Francese, Assistant Director in the Structural Economic Analysis Department at Banca
d’Italia; Oyebanji Filiani, Commissioner of Health and Human Services at Ekiti State, Nigeria; Tamar
Gabunia; First Deputy Minister of Internally Displaced Persons from the Occupied Territories, Labor, Health
and Social Affairs, Georgia, and Mthuli Ncube, Minister of Finance, Zimbabwe.
We are grateful for discussions of preliminary results in meetings with representatives from partner
institutions of the Sustainable Health Financing Accelerator of the Global Action Plan, in sessions with
members of the Community of Practice hosted by the World Bank, Joint Learning Network, and the Global
Financing Facility COVID-19 Health Financing Resilience Program, and in meetings of the Data Working
Group and the Coordination Team of the World Bank’s Health Financing Global Solutions Group.
6
TABLE OF CONTENTS
ACKNOWLEDGEMENTS ............................................................................................................................. 5
TABLE OF CONTENTS ............................................................................................................................... 6
LIST OF FIGURES, MAPS AND TABLES ................................................................................................... 7
ACRONYMS AND ABBREVIATIONS ......................................................................................................... 8
EXECUTIVE SUMMARY .............................................................................................................................. 9
INTRODUCTION ......................................................................................................................................... 15
PART I: THE IMPACT OF THE COVID-19 CRISIS ON HEALTH SPENDING ......................................... 18
COVID-19’S MACRO-ECONOMIC IMPACT .......................................................................................... 18
Economic growth and poverty: Damage on an unprecedented scale ................................................ 18
Government revenue takes a lasting blow .......................................................................................... 21
Government expenditures: Upward pressures, even as revenues fall ............................................... 22
HOW WILL THE COVID-19 CRISIS AFFECT HEALTH FINANCING? .................................................. 24
Government health spending: Multiple paths are possible ................................................................. 24
Household out-of-pocket spending: Less is more? ............................................................................. 29
External financing for health: A lifeline under threat ........................................................................... 30
PART II POLICY OPTIONS TO MEET HEALTH SPENDING NEEDS .................................................. 32
THE PATH TO A DOUBLE RECOVERY ................................................................................................ 32
INCREASING GOVERNMENT FUNDING FOR HEALTH ..................................................................... 33
Health budgets .................................................................................................................................... 34
Obligatory social health insurance (SHI) contributions ....................................................................... 37
EXPANDING OVERALL FISCAL SPACE .............................................................................................. 38
Tax policies ......................................................................................................................................... 39
External financing, including debt relief .............................................................................................. 40
TOWARD GREATER EQUITY AND EFFICIENCY IN HEALTH SPENDING ........................................ 41
Setting priorities: What to cut? What to keep? .................................................................................... 42
Keep learning as the crisis shifts ........................................................................................................ 43
New light on controversial debates ..................................................................................................... 43
Leveraging crises to tackle long-standingissues................................................................................. 44
CONCLUSIONS .......................................................................................................................................... 47
BIBLIOGRAPHY ......................................................................................................................................... 49
ANNEX 1. DATA AND METHODS: PROJECTING GOVERNMENT HEALTH SPENDING EXPENDITURE
(GHE) PER CAPITA ................................................................................................................................... 54
ANNEX 2. IMPLICATIONS OF THE PROJECTED CHANGES IN PER CAPITA GENERAL
GOVERNMENT REVENUE (GGR) AND EXPENDITURE (GGE) FOR GGR/GDP AND GGE/GDP ........ 57
ANNEX 3. IMPLICATIONS OF THE GOVERNMENT HEALTH SPENDING SCENARIOS ..................... 58
ANNEX 4. POLICY OPTIONS TO SUSTAIN GOVERNMENT SPENDING ON HEALTH PER CAPITA . 60
7
LIST OF FIGURES, MAPS AND TABLES
Figures
Figure 1. Growth in GDP per capita, 2000-2025 ........................................................................................ 19
Figure 2. Projected changes in government revenue per capita, 2015-2025 (constant 2018 US$)........... 21
Figure 3. Trends in general government expenditure (GGE) per capita by income group, 2000-2025
(constant 2018 US$) ................................................................................................................................... 23
Figure 4. Pre-pandemic components of current health spending by country income group, 2018 ............ 25
Figure 5. Scenarios for per capita government health spending per capita by income group ................... 28
Figure 6. Projected impact of the recession on household out-of-pocket health payments. ...................... 30
Maps
Map 1. Projected change in GDP per capita, 2020 .................................................................................... 20
Map 2. General government revenues (including grants) as a share of GDP, 2019 .................................. 22
Tables
Table 1. Share of health government spending to protect trend growth in per capita government spending
and offset lower OOPs (Scenario 2), 2019-2015 ........................................................................................ 29
Table A1.1. Panel fixed effects regression results for estimating income elasticity of government spending
for health………………………..…………………………..…………….……………………………..………… 55
Table A1.2. Panel fixed effects regression results for estimating income elasticity of OOP spending for
health…………………………..………………………………………..………………………….……………… 56
Table A2.1. Projected shares of government revenue in GDP by country income group, 2019-
2025………………………...…………………………………………..………………………….……………….. 57
Table A2.2. Projected shares of government expenditure in GDP by country income group, 2019-2025
…………………………………………………………………..………………………….……………………..57
8
ACRONYMS AND ABBREVIATIONS
ACT-A Access to COVID-19 Tools Accelerator
COVID Corona Virus Disease
DAH Development Assistance for Health
DSSI Debt Service Suspension Initiative
GDP Gross Domestic Product
GFF Global Financing Facility for Women, Children, and Adolescents
GGE General Government Expenditure
GGR General Government Revenue
GHE Government Health Expenditure
HICs High-Income Countries
HIPC Heavily Indebted Poor Countries
HTA Health Technology Assessment
ICU Intensive Care Unit
IMF International Monetary Fund
JLN Joint Learning Network
LICs Low-Income Countries
LMICs Lower-Middle-Income Countries
MAMS Maquette for Millennium Development Goals Simulations
MDGs Millennium Development Goals
MDRI Multilateral Debt Relief Initiative
OECD Organization for Economic Co-operation and Development
OOP Out-of-Pocket
PFM Public Financial Management
R&D Research and Development
SHI Social Health Insurance
UHC Universal Health Coverage
UMICs Upper-Middle-Income Countries
UN United Nation
WB World Bank
WHO World Health Organization
WHO GHED WHO Global Health Expenditure Database
9
EXECUTIVE SUMMARY
The COVID-19 pandemic hit most countries with a double shock health and economic. As of March
1, 2021, COVID-19 has cost more than 2.5 million lives world-wide. The global health crisis triggered a
global economic crisis. As many large economies adopted aggressive mitigation and suppression
measures to contain the spread of the virus, the global economy slowed, affecting all countries through
subsequent declines in trade, tourism, commodity prices, foreign direct investment, and remittances.
Recent projections show that COVID-19 led to a deep economic contraction in 2020. The World Bank (WB)
has estimated that as many as 163 million people will be pushed into extreme poverty by the end of 2021,
most in sub-Saharan Africa and South Asia. After 20 years of continuous progress in poverty reduction, this
would return global poverty rates back to 2015 levels.
Even as revenues dropped sharply, government spending surged in 2020 to address both the health
and economic impacts of the crisis. Unlike earlier financial crises, where government health spending
per capita fell with the declines in gross domestic product (GDP) per capita in a majority of countries, in
response to the COVID-19 pandemic many countries immediately announced increases in government
health spending. With revenues falling and spending needs soaring, governments borrowed to finance their
deficits, and public debt as a share of GDP reached record levels.
Despite the projected return to global economic growth in 2021, government expenditures are
projected to fall in all country income groups in 2021 and again in 2022. Any rebound in growth would
begin from the low base of 2020, hence, it could take global GDP per capita until 2023 to reach pre-COVID-
19 levels. Projections of government revenue as a share of GDP follow a similar pattern. After the increases
in 2020, government spending per capita is projected to fall in all country income groups in 2021 and then
again in 2022. This drop primarily reflects a reduction in the capacity of many governments to further
accumulate and service public debt.
How will the economic crisis affect health spending?
This grim economic and fiscal outlook can have major impacts on countries’ health spending for
many years to come. Part I of this paper explores the impact for the three primary sources of health
spendinggovernment, household out-of-pocket (OOP), and external financing.
For government spending, the most critical component of health expenditures, multiple paths are
possible. Government funding for health, raised through mandatory contributions in the form of tax
payments with some revenue allocated to health or social health insurance (SHI) contributions, can be
pooled to remove financial barriers to access and increase the efficiency of spending (for example, through
increased bargaining power). The analysis lays out four scenarios, based on the experience of past
economic shocks and taking into account the health origin of the current crisis:
Scenario 1: Procyclical health spending. Government per capita health spending follows the same
procyclical pattern observed in previous economic downturns - it falls with a decline in GDP per capita
and increases again with a return to economic growth. Government per capita health spending reaches
pre-pandemic levels in low-income countries (LICs) only in 2022 and in all other income groups only in
2023. This scenario is most likely to apply to a small group of countries for which the International
Monetary Fund (IMF) projects that general government spending has fallen in 2020.
Scenario 2: Status quo priority to health. Governments choose to hold the pre-pandemic share of
health in government spending constant, thus per capita government spending on health follows the
trend in general government spending. After an increase in 2020, government per capita health
spending falls in all income categories in 2021 and 2022 and does not recover to 2020 levels until 2024
in LICs and not until 2025 in all other country income categories. This is considered the most likely
scenario for most countries.
10
Scenario 3: Pro-health spending. Governments protect the pre-COVID-19 trend in the growth of
government health expenditure (GHE) per capita. Given the projected reduction in general government
expenditure (GGE), the pro-health spending scenario assumes substantial increases in the share of
government spending allocated to health. This is considered an optimistic scenario.
Scenario 4: High-ambition spending. Governments increase their health spending at the pre-COVID-
19 rate, but also seek to partially compensate for lower household OOP health spending, on the
grounds that at least some of the lower OOP health payments represent a reduction in households’
abilities to use needed health services. This is considered the most optimistic of the scenarios.
Given the projected reduction in GGE, maintaining the pre-COVID-19 growth trajectory in
government per capita spending simulated in the pro-health scenario, let alone moving to a high-
ambition scenario, requires substantial increases in the share of government spending allocated to
health. For example, moving from the status quo to the high-ambition spending scenario requires an
increase in the health share of government spending from the pre-COVID-19 baseline by 1.8 percent in
LICs and 1.7 percent in lower-middle-income countries (LMICs).
Out-of-pocket per capita spending is projected to fall while the outlook on external financing for
health remains uncertain. LICs and LMICs rely heavily on OOP payments as a source of financing for
health despite its deterring effect on service utilization, especially among low-income households. The
capacity of households to pay for health services deteriorates when members lose jobs and their wages
and income decline. They may forgo care or, if available, revert to subsidized or free services. Historically,
the elasticity of OOP spending per capita to changes in GDP per capita is slightly less than 0.9the basis
for the projections presented here. In the current crisis, the income-driven drop in the demand for health
services may be aggravated by fear of contagion and lock-down measures. Meanwhile, the future directions
of external financing remain unclear. Recent IMF projections suggest that external, on-budget grant funding
to LIC and LMIC governments may rise in 2020, but then fall consistently, in per capita terms, each year
up to 2025. If these projections hold, external financing for health also falls, unless donors and recipient
countries choose to allocate a higher share of these grants to health.
The path to a double recovery
To bounce back from COVID-19’s double shock, countries need a double recovery. Getting over the
economic crisis depends on solving the health crisis. First, basic public services and key sectors of
the economy cannot properly restart until COVID-19 is controlled. An end to the pandemic can only come
through enhanced surveillance, the treatment of clinical COVID-19 cases, including patient safety for both
COVID-19 and non-COVID-19 patients, andmost criticallystrengthening delivery platforms and rolling
out COVID-19 vaccines. Second, progress toward universal health coverage (UHC) and sound population
health are vital for a sustainable and inclusive longer-term economic recovery. Yet, attending to COVID-19
patients while trying to ensure patient safety has caused substantial disruptions in the delivery of non-
COVID-19 essential health services. Demand for essential health services has dropped as people’s
incomes declined, and many patients are avoiding health facilities for fear of infection. Economic hardship,
rising food prices, social distancing, and lock-down measures are leading to significant increases in
malnutrition, unwanted pregnancies, mental stress, domestic and gender-based violence, and substance
abuse. Loss of life from disruptions in maternal and child health services and acute malnutrition alone may
outweigh the direct death toll of COVID-19.
To deliver the levels of health spending necessary to solve the health crisis, health and finance
officials must work together on a three-pronged agenda, coordinating across levels of government:
Increasing government funding for health, expanding fiscal space, and improving the equity and
efficiency of health spending. While central governments tend to raise the lion’s share of resources, sub-
national governments contribute substantial amounts of funding for health services and are often
responsible for the delivery of primary health care and community health services. Greater predictability
and design of inter-governmental transfers can help sub-national governments increase their spending and
improve the delivery of frontline services to strengthen pandemic preparedness and response and
accelerate progress toward UHC.
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Increasing government spending on health
If overall government spending envelopes decrease as currently projected, simply sustaining per
capita spending on health will require bold steps to increase the share of government spending that
goes to health. Even more assertive action will be needed to lift per capita health spending,
accelerating health and economic recovery. For most low- and middle-income countries, the IMF
predicts reductions in government spending in 2021 and then again in 2022. Per capita spending on health
will also decline, unless governments substantially increase the share of funding spent on health. History
shows that governments can successfully increase per capita health spending during the recovery from an
economic crisis. For example, of the 53 LMICs that decreased their government spending per person in the
first three years in the wake of the global financial crisis (2008 to 2011), almost half increased their
government spending on health per person. Governments can draw on a range of instruments to stabilize
and increase the funding flowing to health from the two main public sources, budget allocations from general
tax revenues and obligatory SHI contributions. Budget allocations are the predominant source in low- and
middle-income countries, and gain importance in countries with substantial SHI coverage in times of crisis.
Governments have several instruments at their disposal to secure budget resources for health and
to invest them where they can have the greatest impact. Among the most powerful are spending reviews
and performance-based budgeting strategies. Spending reviews unmask waste, while also shining a light
on high-performing programs and critical expenditures that warrant continued investment in times of fiscal
adjustment. Performance budgeting can institutionalize the logic of spending reviews and, in a whole-of-
government approach, holds the promise to align spending decisions with broad national goals. Spending
decisions can also benefit from advances in macro-fiscal analyses, for example, when sector outcomes
feed into the impact analysis of fiscal policies on economic growth and health obligations into the
assessment and management of government budget sheets. Depending on the circumstances,
governments may also want to consider earmarks as well as minimum spending targets to secure future
resources for high-priority programs in health. Given the uncertainty surrounding the availability of
technologies to control the course of the pandemic, the ability to meet critical funding needs in health will
also hinge on the extent to which governments ensure budget agility - whether it is through contingency
and reserves envelopes, in-year budget flexibility mechanisms, and/or supplementary budgets.
Governments also have options to stabilize balance sheets of social health insurance (SHI)
schemes with the primary goal of avoiding bailouts from budget resources. Like income taxes,
obligatory SHI contributions tend to rapidly shrink during downturns and grow when the economy recovers.
As SHI schemes mainly cover better-off households, bailouts from general tax financing constitute
regressive subsidies. Alternatives are associated with automatic stabilizers. Most importantly, schemes can
draw on reserves accumulated in times of surpluses. Governments can also lower reserve requirements.
Other policy options range from simply raising contribution rates to increasing or abolishing contribution
ceilings and extending contributions to all forms of wages as well as non-wage income. While these
measures have the benefit of making revenue systems less regressive, they can negatively affect formal
employment, especially where employers pay a share of contributions. Instead, countries may therefore
opt to close loopholes in contribution systems.
Expanding fiscal space
While countries strive to secure government funding for health and other critical sectors, the health
sector can play an active role in expanding fiscal space, contributing to tax reforms, and mobilizing
and absorbing external financing.
There is a strong case for introducing or increasing pro-health tax measures to help tackle the
current crisis. Pro-health taxes, which target health-damaging products such as tobacco, alcohol, sugar-
sweetened beverages, and carbon, can have a positive effect on population health while also contributing
to revenue generation. Revenues from introducing pro-health taxes or increasing their rates can be
substantial: Excise taxes that increase the prices of tobacco, alcohol, and sugar-sweetened beverages by
50 percent could raise the tax-to-GDP ratio by an average of 0.7 percentage points in LICs and LMICs. In
12
the case of carbon, the first step is to reduce and eventually abolish fuel subsidies. Linking pro-health taxes
to high-priority programs in health establishes a strong benefit rationale and can reinforce the political
acceptability of these taxes. In addition, countries may wish to consider lowering levies and taxes on
medical goods and services to reduce the costs of care and prevention.
For a substantial number of countries, more external financing will be vital for their recovery from
the health shock. Before the COVID-19 crisis, optimistic scenarios for domestic resource mobilization
pointed to a significant financing gap for LICs and LMICs to attain the global Sustainable Development
Goals, including UHC targets, yet growth in external grant financing for health was stagnating. The current
surge in external funding for the COVID-19 response, particularly through the Access to COVID-19 Tools
Accelerator (ACT-A), is focused on research and development (R&D) for vaccines and tools to fight the
pandemic. It is unclear whether this funding will translate into a significant or sustained rise in external
financing flowing to lower-income countries for them to improve their health systems. In the context of the
crisis, the World Bank is providing US$18 billion in emergency financing to support countries in financing
the roll out of COVID-19 vaccines and strengthening their national delivery systems and essential public
health functions. The Global Financing Facility for Women, Children, and Adolescents (GFF) provides
grants linked to World Bank IDA and IBRD financing to help partner countries protect and promote essential
health services during and after the crisis. Both IDA and GFF will require renewed donor commitments in
2021 to replenish their coffers so they can respond to high country demand for their support.
Debt relief offers mixed prospects as a source of health funding. Rapidly increasing levels of public
debt and debt servicing have put many countries at risk of default. The G20 Debt Service Suspension
Initiative (DSSI) launched in May 2020 aims to help LICs channel more of their scarce financial resources
towards COVID-19-related emergency and relief efforts. As of February 2021, DSSI had delivered about
US$5 billion in relief to more than 40 eligible countries, but it provides only a temporary respite in debt
payments and is limited in its current design. The IMF and WB have called for comprehensive action to
address the financing and debt-relief needs of the poorest countries, including by private sector creditors,
but this has not yet happened. As debt relief proposals evolve, it will be essential for ministries of health to
actively engage in negotiations about the potential use of these funds and, when initiatives link debt relief
to investments and reforms spurring inclusive growth, work with their ministry of finance counterparts and
partners to prioritize and ensure the additionality of any resources flowing to the health sector. There are
two potential risks: 1) resources from debt relief can crowd out regular budget allocations, especially if these
funds are managed separately from other public resources; and 2) debt relief can also crowd out project
financing for the health sector from partners. To ensure additionality, debt relief funds should be managed
on-budget, together with efforts to improve public expenditure, UHC, and health monitoring.
Improving equity and efficiency in health spending
To control COVID-19 and achieve UHC, most countries will need more health spending, but also
better, more equitable and efficient health spending. The quality of spending has implications for its
quantity. Historically, finance ministries have viewed the health sector as wasteful, so demonstrating equity
and efficiency gains is key to making a successful case for increasing national spending on health. Like all
crises, COVID-19 poses challenges but also offers opportunities to tackle health financing and system-
performance issues. How policy makers handle them will have long-term implications for countries’ health
financing and health systems performance.
Amid rapidly shifting needs, health policy makers face trade-offs as they weigh which expenditures
to cut and which to protect. Decisions will have both intended and unintended effects on health
system performance and ultimately people. Even when governments manage to sustain or raise
spending levels for health, spending cuts may become imperative as priorities shift. Policy makers must
also account for the negative impacts of so-called “automatic cuts,” whereby, when health budgets shrink,
expenditures on salaries crowd out spending on non-salary items, due to difficulties in downsizing the public
health workforce payroll. These effects are compounded when currency devaluations drive up the prices of
imported medical supplies. These shifts can quickly erode equitable access and quality of health services.
The challenge is therefore not only to cut where it does the least harm, but also to protect spending that is
13
critical for health system performance. Among the spending categories to protect are programs that ensure
access to care for vulnerable populations, such as the poor, mothers, and children, and the goods and
services that benefit these groups most, in particular essential medicines, immunization and nutrition
programs, and primary health care. Yet, in past crises, countries all too often opted for cuts in spending that
disproportionately affected already disadvantaged groups. Even more frequently, countries chose to reduce
funding for essential public health functions, contributing to the system weaknesses that have fueled the
current pandemic.
The health emergency sparked policy responses that have been considered for a long time to keep
the promise of improving equity and efficiency, and countries should double down on these reforms
as they recover from the crisis. Examples include task-shifting, accelerated deployment of telemedicine,
new modes of public-private collaboration, and expanding conditional cash transfer programs to people
with high health risks. Information platforms that can swiftly capture changes in service coverage and
financial protection, even under social distancing and lockdown conditions, have proven critical to protecting
vulnerable populations. At the same time, countries will also have to find the right time to roll back some of
the adjustments to public financial management (PFM) that have been critical to facilitating a swift
emergency response but can undermine efficiency in the longer term, for example, emergency procurement
and payment methods.
The pandemic response has shifted the balance on some of the most controversial trade-offs in
health financing, with potential long-term implications for equity and efficiency, including SHI
versus tax funding in mixed financing systems and central versus decentralized financing. In
countries with mixed financing systems, measures to increase government spending against the backdrop
of rapidly declining obligatory SHI contributions have shifted the balance between funding sources toward
allocations from general tax revenue. Where budget transfers lower or replace wage-based SHI
contributions, they relax the link between employment and entitlements, which can help to overcome
inequities and roadblocks on the path toward UHC. In some countries, adjustments to PFM rules have not
only accelerated the release of funds but they have also shifted more resources and power over spending
decisions to frontline service providers. This enhanced spending autonomy can improve budget efficiency,
but it also calls for enhanced regulatory efforts to ensure accountability, quality, and equity.
The pandemic has underscored the imperative for countries to strike the right balance between
investments in primary versus higher levels of care and to break the cycle of panic and neglect
when it comes to pandemic preparedness. Surging care and treatment needs among COVID-19
patients, pushing health systems toward the point of collapse, have triggered not only increases in recurrent
funding but also capital investments in secondary and tertiary care. In turn, these capital investments will
require sustaining increased levels of recurrent funding for higher levels of care, for example to cover
staffing and maintenance. The pandemic also triggered governments to prioritize spending on chronically
underfunded essential public health functions, especially those to detect, prevent, and respond to
outbreaks. At the same time, though, primary health care remains of poor quality in many countries, which
struggle to provide even the most essential health services to the bulk of their populations. Finding the right
balance of investments across these health needs holds the potential for a triple win: better preparedness
for emerging pandemic threats, greater equity and efficiency of health financing and systems, and
acceleration of progress toward UHC.
The COVID-19 crisis offers policy makers an opportunity to tackle long-standing efficiency and
equity issues in their crisis recovery strategies, most importantly, prioritizing investments in UHC.
The rationale is strong. Progress toward UHC, including stronger health financing, benefits the economy
through multiple pathways, from health and human capital development to workforce and labor-market
effects, poverty reduction and income redistribution, and strengthened consumption and competitiveness.
These strategic investments in UHC benefit from building on ongoing reforms and generate tangible
improvements in coverage for vulnerable populations. Previous crises show how some countries have
successfully focused reforms on extending health coverage to vulnerable groups, shifting the basis for
entitlement from formal employment to residency. They have also introduced reforms to increase financial
protection, such as lower co-pays, exemptions, caps on OOP payments, reimbursement of indirect costs
of health care (such as transport), and sick-leave benefits to compensate for health-related income losses.
14
And they improved coverage of services that are particularly vital for low-income households, such as
emergency, mental health, and preventive services. In parallel, countries can tackle sources of
inefficiencies. These sources as well as solutions are well established. In previous crises, the financing of
pharmaceuticals has been a common focus of efficiency reforms, promising returns in the short term.
Conclusions
Countries did not choose COVID-19, but leaders have policy choices to make in health financing
that will determine the strength of the recovery. The pandemic has triggered an economic crisis that
has had, in addition to the lives lost, indirect health impacts. It has undone years, if not decades, of progress
in improving health outcomes and reducing poverty. In response, countries are making high-stakes and
difficult decisions about how best to mobilize and spend resources to save lives and protect livelihoods.
Evidence points to the benefits of increasing and sustaining spending in health, and experience from
previous crises shows it is feasible. Countries can avail themselves of a range of tools and strategies to
achieve results. If countries prioritize health spending and apply these instruments skillfully, they can not
only hasten the end of the pandemic, but they can also protect the most vulnerable populations, reclaim
recent health gains, and advance an inclusive health and economic recovery.
15
INTRODUCTION
The COVID-19 (coronavirus) pandemic has hit most countries with a double shock health and economic
(Kurowski, Evans, et al. 2020). The first blow was the virus’s rapid spread, driving a steep rise in infections
and deaths that forced governments to pump resources into outbreak control and critical care, while
struggling to keep non-pandemic-related essential health services operational.
The second shock was a severe economic contraction. Most countries introduced mitigation and
suppression policies to save lives and prevent health systems from reaching a breaking point (IMF 2020a).
Along with voluntary social distancing, these measures led to a sharp decline in local economic activity and
output.
Even where the health impact of the pandemic has been limited, countries have faced reductions in national
income due to factors such as the fall in international trade, reduced domestic and cross-border travel,
including for tourism, declining commodity prices, dwindling remittances, and shrinking direct foreign
investments. All but a handful of countries fell into recession in 2020 (IMF 2020a).
Government revenues dropped even faster than economic output. But, even as resources dried up,
spending needs surged, even in non-health sectors, including for programs to protect the people, jobs, and
firms most affected by lockdown measures and the decline in economic activity. With revenues falling and
spending needs soaring, governments borrowed to finance their deficits. In many countries, public debt as
a share of GDP has reached record levels (IMF 2020b).
Standing up to the double shock
Globally, the pandemic continues to cost lives and livelihoods. As of March 1, 2021, 223 countries or
territories reported over 113 million cases and over 2.5 million deaths among them (WHO 2021).1 Many
countries initially succeeded in reducing transmission rates, yet a substantial number have faced
subsequent waves of COVID-19 requiring the re-imposition of mitigation and suppression measures.2
While there is now hope that the recent deployment of vaccines will bring the pandemic under control,
uncertainty persists about vaccine production capacities, distribution, the duration of protection, long-term
safety, the evolution of the coronavirus, and the timelines for stopping transmission.
Therefore, considerable uncertainty also remains about the economic outlook, particularly how fast
economic growth and government revenues will recover. Countries face disparate economic effects,
depending on their macro-economic and fiscal starting conditions, the local public health response, and
factors such as their relative economic dependence on tourism and trade.
A different kind of crisis
Recent decades have seen a series of economic shocks that affected health financing in some countries
and regions. These include the Latin American debt crisis of the 1980s and 1990s, the Asian financial crisis
of 1997, and the global financial crisis of 2007-8, among others.
The current economic crisis differs in important ways from earlier global recessions, implying the need for
a health financing response unseen in crises of the past. First, the current crisis was triggered by a
pandemic. Except for the regional economic contraction associated with West Africa’s 2014-2016 Ebola
outbreak, which was limited to three countries, other recent recessions began with a financial or economic
problem. Countries did not face the same immediate need to increase health spending because the impact
on health came later, through increases in unemployment and poverty and reductions in governments’
spending capacity. As a result, in other recent economic downturns, government health spending per capita
1 In many countries, the reported number of cases likely does not reflect the full scale of infections due to low testing rates.
2 The disease’s impact has varied across countries. Some face the second or even third wave of transmission, while other
jurisdictions have maintained low levels since the initial outbreak. In a few settings, first cases have yet to be registered.
16
fell with the declines in GDP per capita in the majority of countries (Maresso, et al. 2015) (Gottret, et al.
2009) (Musgrove 1987), (Hou, et al. 2013). During the current recession, in contrast, many governments
immediately announced increases in their spending on health.
Another difference is that the current economic downturn affects virtually all countries, rich and poor. In
contrast, the late-20th-century Latin American debt crisis, the 1997 Asian financial crisis, and successive
Ebola outbreaks in sub-Saharan Africa led to major economic contractions only in parts of the world, and
during the global financial crisis, most of the poorest economies did not fall into recession.
Goals and structure of the paper
The paper speaks to a context in which countries’ economic and development prospects depend directly
on their health spending choices. It makes the case for ambitious health spending during the critical years
ahead. To deliver the levels of spending necessary to solve the double crisis, health and finance officials
must work together on a three-pronged agenda: increasing government funding for health, expanding
overall fiscal space, and improving the equity and efficiency of health spending. The paper also recognizes
that many lower-income countries will need additional external financing to advance this agenda and calls
on high-income countries and other donors to boost external funding for health.
The paper is structured into two parts. Part I explores the implications of the double health and economic
shock for health spending, including effects on government spending, households’ OOP health payments,
and, mostly relevant for lower-income countries, external financing for health. Because countries’ situations
and policy choices are not uniform, it considers a range of different scenarios on how the crisis may affect
government health spending.
Part II discusses health financing policies that countries and their external partners can pursue to attain
levels of health spending sufficient to control the pandemic; roll out vaccines; regain losses; and accelerate
progress toward UHC. It draws on lessons from earlier crises, countries’ COVID-19 experiences to date,
and a global consensus on effective health financing policy options that emerged in pre-pandemic days.
Health spending scenarios
Estimates of the pandemic’s impact on government health spending in Part I encompass four different
scenarios to reflect the range of options available to countries in the face of considerable uncertainty. Some
of these scenarios incorporate the experiences of past economic shocks by considering the implications for
health spending if countries respond in the same way now as they did in previous recessions. The scenario
building also allows for other responses too, where per capita government health spending increases in
ways that were not typically seen during earlier economic crises but that may be desirable or necessary in
the context of COVID-19.
The scenarios and other analyses presented here draw on the most recent IMF projections of the
pandemic’s macro-fiscal impact (IMF 2020c). Results are organized according to World Bank country
income groups, while also highlighting variation across countries within income groups.3
A living document with a focus on health spending
This is a living document. Estimates and policy options will be updated as new macro-economic projections
and information on country responses become available. The paper expands on related work to assess the
short-term economic impact of COVID-19 on health spending in Asia and draws on a previous analysis of
the historical drivers of government health spending (Tandon, Roubal, et al. 2020) (Tandon, Cain, et al.
2018).
3. All of the reported averages are unweighted. The average trends observed for income groups are with few exceptions similar
to those observed for World Bank regions. A subsequent paper will further explore regional and cross-country variation,
focusing on pre-pandemic vulnerabilities to the health and economic shocks.
17
The paper does not speculate on the possible impact of changes in spending on the quantity and quality of
service outputs and financial protection, nor on how these changes may ultimately affect health outcomes.
The focus is only on the impact of the crisis on health spending, with a recognition that spending is just the
beginning of the process of protecting and improving the health of people. The relationship between
spending, outputs, and outcomes is complex, and both the production and demand for health services are
likely to change during crises.4
4. The relationship between spending, service coverage, financial protection, and health outcomes is non-linear and complex,
with additional determinants outside the health sector (for example, education, safe water, transport, etc.). Moreover, some of
the determinants and dynamics are likely to have changed during the crisis, such as the supply and demand for services, but
also outside the health sector, most importantly, food security.
18
PART I: THE IMPACT OF THE COVID-19 CRISIS ON HEALTH SPENDING
Part I of this paper aims to describe the main channels through which the COVID-19 crisis will affect
countries’ health spending and to estimate the pandemic’s likely health spending impacts under several
scenarios. To provide context, a first subsection summarizes recent IMF macro-economic projections for
2020-2025, highlighting the pandemic’s impact on economic growth, poverty, government revenues, and
government spending. The analysis then hones in on how COVID-19 may influence the main components
of countries’ health spending.5 It presents four possible scenarios for impacts on GHE. It then estimates
effects on household OOP health payments. Part I concludes with an examination of external financing for
health in low- and lower-middle-income countries.
The latest IMF country-level macro-economic projections may prove optimistic and with that also some of
the projections for government spending on health produced for this report. The IMF released the latest
country-level projections in October 2020, before the most recent set of lockdowns was imposed in many
countries to address second waves of the pandemic. In January 2021, the World Bank provided an update
of its economic growth forecast for a subset of 129 countries included in the IMF dataset (World Bank
2021a). In comparison to the earlier IMF data, the World Bank projections suggest slightly lower growth
rates for 2021. Hence, though concerning, some of the projections for government health spending
presented later in Part I may also prove optimistic.
COVID-19’S MACRO-ECONOMIC IMPACT
The IMF macro-economic data for the period of 2020 to 2025 provide important context for understanding
how the pandemic may affect countries’ health-financing needs and options in the coming years. The IMF
projections highlight implications for economic growth and poverty, government revenues, and government
spendingdomains with central importance for health financing.
Economic growth and poverty: Damage on an unprecedented scale
COVID-19 has led to a deep global economic contraction in 2020. As many large economies adopted
aggressive mitigation and suppression measures in early 2020, the global economy slowed, affecting all
countries through subsequent declines in trade, tourism, commodity prices, foreign direct investment, and
remittances. As a result, the IMF estimates that economies contracted in per capita terms in 2020 by 6.4
percent, on average (Figure 1).
5. The health spending analysis focuses on 178 countries for which data are available. The IMF provides macro-fiscal projections
for 191 countries. From this group of 191 countries/territories, 13 are excluded - Argentina, Aruba, Equatorial Guinea, Guyana,
Hong Kong SAR (China), Kosovo, Libya, Macao, Montenegro, Puerto Rico, Taiwan, West Bank and Gaza, and Yemen either
because the IMF data set does not include projections of government spending up to 2025 or because WHO’s Global Health
Expenditure Database does not contain expenditure data.
19
Figure 1. Growth in GDP per capita, 2000-2025 (constant 2018 US$)
Source: Data from IMF, World Economic Outlook, October 2020
Harsh impacts on the poor and vulnerable
The COVID-19 crisis is also expected to result in a sharp increase in extreme poverty. Estimates suggest
that, in 2020 alone, between 119 and 124 million people will be pushed into extreme poverty, the majority
in sub-Saharan Africa and South Asia (World Bank 2020a) (Lakner, et al. 2021). After years of continuous
progress on poverty reduction, this would return global poverty rates to levels observed in 2015. Even with
a return to economic growth, additional people will still be pushed into extreme poverty in 2021 estimated
at between 24 and 39 million. Simulations suggest that COVID-19 has put the 2030 target of 3 percent
global poverty even further out of reach. The COVID-19 crisis is also expected to have a disproportionate
impact on vulnerable populations more broadly, with the result that income inequality is predicted to
increase and shared prosperity to decline (World Bank 2020a).
Disparate effects across countries
The projected economic impacts of the COVID-19 crisis are not uniform across countries in each income
group. On the one hand, countries have been affected differently by the virus, and their mitigation and
suppression measures have varied in scope and duration. On the other hand, countries’ macro-economic
and fiscal starting points also differed substantially. As a result, there is considerable variation in the
projected changes in GDP per capita across countries, illustrated in Map 1. Only a small number of LMICs
(for example, Bangladesh, Egypt, Vietnam, and Myanmar) and upper-middle-income countries (UMICs) for
20
example, China) are expected to maintain positive economic growth in 2020, though at lower rates than
before the pandemic.
Map 1..Estimated change in GDP per capita, 2020
Source: Data from IMF, World Economic Outlook, October 2020
In contrast to the small set of economies maintaining positive growth, some others have been hit particularly
hard. For example, India and Zimbabwe are expected to experience declines in GDP per capita of more
than 10 percent in 2020, far exceeding the average fall in the LMIC group. Declines of more than 10 percent
are also expected for Botswana and Peru among UMICs, and for Italy, Spain, and the United Kingdom
among HICs.
Return to economic growth
In its latest forecast, the IMF expects global economic growth to recommence in 2021, although the analysts
highlight the inherent uncertainty around the public-health and economic factors that will determine the
timing, nature, and extent of the economic rebound. Moreover, these projections were generated before
the latest round of COVID-19 mitigation and suppression measures (IMF 2020c).
Any rebound in growth will begin from the low base of 2020, hence it will take GDP per capita until 2023 to
reach pre-COVID-19 levels globally. Among country income groups, LICs will return to pre-crisis growth
levels slightly earlier in 2022 but all other income groups will only achieve this milestone in 2023.
There is considerable variation across countries within each income group in the projected time it will take
for them to return to pre-COVID-19 levels (2019) of GDP per capita. For example, while 4 of the 25 LICs in
the analysis are forecast to return to 2019 levels during 2021, another 4 will not reach pre-COVID-19 levels
until 2025 or later. Of the 45 LMICs for which GDP per capita is reported as falling in 2020, 10 will bounce
back to 2019 levels in 2021, 21 will bounce back by 2025, and another 14 will not bounce back until after
21
2025. The slow return to 2019 levels is even more pronounced in UMICs and HICs, with only 8 of the 104
countries expected to reach these levels in 2021, while 24 countries will still have per capita GDPs below
2019 levels at the end of 2025.
Government revenue takes a lasting blow
In 2020, government revenue per capita (including grants) is projected to decline on average in all country
income groups before rising again in subsequent years (Figure 2). Importantly, per capita government
revenue is not expected to rebound to pre-pandemic levels in LICs until 2022, while in upper-middle-income
countries and HICs this will not occur until 2024, and in lower-middle income countries not even by 2025.
Projections of government revenue as a share of GDP follow similar patterns.6
Figure 2. Projected changes in government revenue per capita, 2015-2025 (constant 2018 US$)
Source: Data from IMF, World Economic Outlook, October 2020
These declines will have their harshest effects in a subset of countries where the share of government
revenues in GDP was relatively low to begin with (Map 2). In 2019, the average share of government
revenue in GDP was 20.2 percent among all LICs and 26.9 percent in the lower-middle-income country
group. However, this share was less than 15 percent in 22 LICs and LMICs. In three countries, it was below
10 percent: Sudan, a low-income country, and Bangladesh and Nigeria from the lower-middle-income
group.
6 See Annex 2.
22
Map 2. General government revenues (GGR) (including grants) as a share of GDP, 2019
Source: IMF, World Economic Outlook, October 2020
Another way of gauging countries’ capacity to increase or at least maintain levels of government spending
is to examine the share of tax revenues, as opposed to general government revenues (GGR), in GDP. The
IMF suggests a benchmark of 15 percent for sustainable growth and development (Gaspar, Jaramillo and
Wingender 2016). Using this criterion, even more countries are at risk of being unable to mobilize sufficient
domestic resources to invest in their recovery. Countries at risk by this measure include 64 of the 178
countries included in the analysis for this paper. Together, these economies are home to 2.2 billion people.
Government expenditures: Upward pressures, even as revenues fall
Government expenditures are expected to be higher in 2020 than in 2019 in most countries, in dollar terms
and as a share of GDP (Figure 2). While GGRs are expected to decline in 2020, government spending
needs have increased in order to fund the health sector response, but also to protect people, jobs, and
businesses during the recession. The resulting budget deficits have been financed through increased
borrowing. Monetary policies have also been relaxed to support this process, for example with the help of
quantitative easing, where central banks sometimes buy government securities on the secondary market
on a large scale.
23
Figure 3. Trends in general government expenditure (GGE) per capita by income group, 2015-2025
(constant 2018 US$)
Source: IMF, World Economic Outlook, October 2020
Despite the expected increase in government spending in 2020 and the projected return to economic growth
in 2021, government expenditure per capita is projected to fall in all country income groups in 2021, and
then fall again in 2022. This reflects a reduction in the capacity of many governments to further accumulate
and service public debt. Nevertheless, per capita government spending is expected to remain higher than
pre-pandemic levels after 2020 (except for UMICs in 2022). Yet, based on current projections, per capita
government spending will not reach 2020 levels again in LICs until 2023, and in the other country income
groups until 2025.7
Again, not all countries in each income group follow the average pattern. For example, among the countries
that are projected to sustain positive economic growth over the next five years, such as Bangladesh and
Myanmar (both LMICs) and China (UMIC), government expenditure per capita is also expected to grow
consistently over the same period. In contrast, even though the IMF also projects continued economic
growth for Egypt and Turkmenistan, government expenditures per capita are expected to fall from 2021 in
Turkmenistan and from 2023 in Egypt.
Vulnerabilities linked to pre-pandemic debt might explain some of this variation. There are several indicators
of debt distress, including the debt-service ratio (debt repayments, including interest, as a share of
government expenditure). High debt-service ratios limit the capacity of governments to borrow. In several
countries, this ratio is already relatively high, exceeding 20 percent. These countries include Egypt, where
government expenditures per capita are expected to fall despite continued growth, Angola, Ghana,
Jamaica, Pakistan, Sri Lanka, and Zambia. In Jamaica (UMIC) and Zambia (LMIC), government
expenditures per capita are already projected to fall in 2020 and then again in 2021. In Sri Lanka (UMIC),
they will also fall in 2020 but recover slowly thereafter. However, the projected trends in the other countries
7. Annex 2 shows the implications of the projected changes in government expenditure as the share of GDP over the same time
period.
24
with high debt-service ratios follow the average in their income group, that is, they show increases in per
capita government spending in 2020, then declines in both 2021 and 2022.
HOW WILL THE COVID-19 CRISIS AFFECT HEALTH FINANCING?
Countries’ per capita health spending generally increases with their level of economic development. For
example, in 2018, the latest year for which country expenditure data from the WHO Global Health
Expenditure Database are available, current per capita health spending averaged US$42 in LICs, US$129
in LMICs, US$453 in UMICs, and US$3016 in HICs (WHO 2020c).8, 9
Health is typically financed from a combination of three primary sources: government (taxes and charges
plus obligatory SHI contributions), household OOP payments, and, in lower-income settings, external
sources (largely development assistance for health or DAH). Other private sources, mainly voluntary health
insurance, comprise an additional, smaller component of overall health spending. The share of government
funding for health also increases with countries’ levels of economic development (Figure 4)10 (Fan and
Savedoff 2014). In turn, the share of spending from OOPs decreases. Obligatory SHI contributions
constitute more than 20 percent of current financing only in HICs and are negligible in LICs. The share of
external funding is highest in LICs.
The remainder of this section focuses on these three primary sources of health spending: government,
household out-of-pocket, and external.
Government health spending: Multiple paths are possible
Government health spending is derived from general government financing, which in some countries
includes revenues from compulsory SHI contributions. SHI revenues stem from earmarked payroll or
income taxes or sometimes from obligatory premiums that covered people pay directly. Government
financing can be mobilized at national and sub-national levels. Where countries benefit from external
financing, a share is typically also channeled through government budgets.
As discussed earlier, although there are some exceptions, general government spending is projected to
rise on average in all country income groups in 2020 and then fall for at least the next two years. This
projected trend reflects the expected sharp drop in revenues from tax and non-tax sources, and the
declining capacity of countries to finance deficits through borrowing.
What priority for health?
The impact of the expected changes in GGE on government health spending from domestic sources will
depend on the priority given to health in government spending decisions. If, for example, health is given the
same proportional allocation as before COVID-19, government per capita health spending will follow the
trend in general government spending, that is, it will rise in 2020, then fall in 2021 and 2022 though still
remaining higher than in 2019. On the other hand, if governments give health higher priority in their
spending because of the sector’s central role and increased resource needs in the COVID-19 fight, then
the growth in per capita government health spending will be even higher in 2020, and it will decline less in
2021 and 2022 or even rise.
8. All averages presented in this paper are unweighted.
9. The System of Health Accounts 2011 separates health expenditures into “current” expenditures and “investment in health
capital formation.” Current expenditures comprise the final consumption of health care goods and services “including personal
health care (curative care, rehabilitative care, long-term care, ancillary services, and medical goods) and collective services
(prevention and public health services as well as health administration), but excluding spending on investments” (OECD 2021).
10. As countries grow and develop, there is an empirical trend which has recently been characterized as a health financing
transitiontoward higher levels of health spending with greater shares coming from public sources (Fan and Savedoff 2014).
25
Figure 4. Pre-pandemic components of current health spending by country income group, 2018
Source. WHO, Global Health Expenditure Database, 2020
Governments invested in health at the onset of the COVID-19 crisis
Historically, government per capita spending on health has in general been procyclical that is, it has fallen
during economic downturns and increased during upswings. This held true during the debt crises affecting
Latin American and Caribbean countries in the 1980s and 1990s, the Asian financial crisis of 1997, and the
global financial crisis of 2007-8 (Thomson, et al. 2015) (Maresso, et al. 2015) (Gottret, et al. 2009)
(Musgrove 1987) (Hou, et al. 2013).
However, in each of these crises, some governments have been willing and able to increase their per capita
spending on health despite declining economic output and government revenues. Others have protected
recurrent health expenditures while allowing capital spending to decline, or protected expenditures on
health programs that are vital for vulnerable populations and the poor (Thomson, et al. 2015) (Maresso, et
al. 2015) (Gottret, et al. 2009) (Musgrove 1987) (Hou, et al. 2013).
As discussed, however, the current crisis differs from those previous economic downturns, most importantly
because it was triggered by a pandemic requiring an immediate health spending response. IMF and WB
data suggest that most, though not all, countries have reacted to the crisis by raising their general
government spending through deficit financing (IMF 2020c) (World Bank 2021a). While data on actual health
spending in 2020 will not be available for some time,11 many countries also report that they took steps to
increase the availability of funds for health in 2020, such as through supplementary budgets or access to
emergency funds (WHO 2020a). Therefore, in the current crisis a majority of countries are likely to have
followed countercyclical health spending strategies in 2020. The main question then is, what comes next?
11. WHO’s Global Health Expenditure data base has just released data on country health spending for 2018, so 2020 data are
unlikely to be available before the end of 2022.
26
Government health spending in the time of COVID-19: four scenarios
Based on past patterns, and considering the specific nature of the current crisis, the evolution of
government health spending per capita in the wake of the pandemic is projected under four distinct
scenarios:
Scenario 1: Procyclical health spending. In this scenario, government per capita health spending
follows the same procyclical pattern observed in previous economic downturns - it falls with a decline
in GDP per capita (typically at a greater rate than GDP per capita) and increases again with a return in
economic growth. The elasticity of government per capita health spending to changes in GDP per capita
across all countries was estimated, depending on model specification, to be between 1.18 and 1.29.
The projections reflect the lower bound estimate of 1.18.12 Because many countries increased their
general government spending in 2020 and report that they have taken steps to increase their health
spending, this scenario is likely to apply to the small group of countries where general government
spending is projected to have fallen.
Scenario 2: Status quo priority to health in government spending. Governments choose to hold
the pre-pandemic share of health in government spending constant.13 Put differently, per capita
government spending on health follows the trend in general government spending. This is considered
the most likely scenario, in which health spending increases in 2020 with general government spending,
but then falls with the projected decline in government spending in 2021 and 2022
Scenario 3: Pro-health spending. Governments protect the pre-COVID-19 trend in the growth of GHE
per capita, so they increase their health spending consistently every year, despite the reduction in
general government spending.14 This is considered an optimistic scenario. Higher spending levels allow
the health sector to meet at least some of the continued spending needs associated with the pandemic
in 2021 and beyond and may also help countries maintain some progress towards UHC.
Scenario 4: High-ambition spending. Governments increase their health spending at the pre-COVID-
19 rate, but also seek to partially compensate for lower household OOP health spending: on the
grounds that at least some of the lower OOPs represent a reduction in households’ abilities to use
needed health services.15 Household OOPs health payments are likely to fall in 2020, before rising
again - but not reaching the levels expected in the absence of the crisis (see the next section). This is
a very optimistic scenario and is considered the upper bound of the possible scenarios.
Given the uncertainty around the evolution of the pandemic and the full costs of the roll-out of vaccines, it
is not clear that the projected spending increases under scenarios 3 and 4 can meet countries’ full
requirements for addressing the pandemic, maintaining progress towards UHC, andin the case of
scenario 4compensating for lower OOPs. Scenarios 3 and 4 simply illustrate alternative trends in per
capita government health spending over time with an ambitious re-prioritization of government spending
towards health.
In scenario 1, government health spending per capita in 2020 declines in all country income groups (Figure
5).16 With the predicted return to economic growth in 2021, government health spending per capita then
12. For details on how the elasticity of government health spending with respect to GDP per capita was calculated, see Annex 1.
13. The pre-COVID-19 share was taken as the average of the period 2016-2018 (see also Annex 1).
14. The pre-COVID-19 trend was estimated as the average growth of GHE per capita during the years 2009-2018 (see also
Annex 1).
15. Technically, the algorithm projects GHE per capita plus OOPs per capita forward, based on the years 2009-2018. It then
subtracts out the projections for OOPs per capita allowing it to be lower because of the decline (in 2020) then lower levels
(subsequent years) of GDP per capita due to the crisis. The residual in GHE per capita allowing for any decline in OOPs due to
the crisis. For details, see Annex 1.
16. The implications for GHE as a share of GDP are shown in Annex 2.
27
starts to rise but does not reach pre-pandemic levels in LICs until 2022, and in the other country groups
until 2023. Again, this scenario is most likely to apply to the few countries where the IMF projects that overall
general government spending per capita will decline in 2020. There is some variation across countries
within income groups those expected to have very rapid economic growth in 2021 and beyond will return
to pre-pandemic levels much more rapidly.
In scenario 2, government health spending per capita rises in 2020 and then falls in 2021 and again in
2022 for all country groups, mirroring the fall in GGE per capita described earlier (Figure 2). Per capita
spending does not reach 2020 levels until 2024 in LICs and not until 2025 in all other income categories.
Because government health spending per capita starts to rise with GDP in 2021 under scenario 1, the
predicted levels of government expenditure per capita in scenario 2 are overtaken by those of scenario 1
for both LMICs and UMICs in 2023. For LICs and HICs, however, government health spending per capita
is higher in scenario 2 than in scenario 1 over the entire period of 2020 2025.
There is, of course, variation across countries in each country income group in these projections. For
example, the handful of countries described earlier that were expected to maintain economic growth and
increase general government spending in 2020 countries like Bangladesh, China, and Myanmar do not
see the dip in health spending after 2020 for scenario 2. And countries expected to have higher than
average increases in economic growth find that scenario 1 overtakes scenario 2 much earlier than the
averages reported here.
Scenario 3 projects continual yearly increases in government health spending per capita. Nevertheless,
maintaining the pre-pandemic rate of increase in government health spending per capita results in a lower
level of spending in 2020 than under scenario 2 for LICs, LMICs, and HICs. In other words, for these groups,
the percentage increase in health spending per capita under scenario 2 in 2020, needed to respond to the
crisis, exceeds the pre-pandemic rate of increase. From 2021, scenario 3 results in higher spending levels
than scenario 2 (and scenario 1) on average.
Scenario 4 projects continual increases in the growth of government health spending per capita in excess
of scenario 3. It provides an upper bound to the four scenarios, except in 2020 for HICs, where scenario 2
yields higher levels of per capita spending.
28
Figure 5. Scenarios for per capita government health spending per capita by income group, 2015-2025
Source: Authors’ calculation and WHO, Global Health Expenditure Database, 2020
Scenario trends and the priority given to health
To achieve the immediate spending levels required for both scenarios 3 and 4, governments would need
to increase, sometimes substantially, the priority given to health in government budgets.17 On average,
small, consistent increases in priority to health are required in LICs, LMICs, and UMICs. In HICs, however,
no additional priority to health is required in 2020 because of the very large increases in general government
spending described earlier. In 2025, the share of government spending assigned to health would need to
have increased on average across all countries from 11.4 percent in 2019 to 14.5 percent in 2025. The
increase would range from a minimum of 2.5 percentage points in LICs, to a maximum increase of 4.2
percentage points in UMICs.18 Part II of this paper extends these considerations and examines the policy
implications of the scenario analysis in detail.
17 See Table 2 for scenario 4 and see Annex 3 for the implications for all scenarios.
18 The increases in shares would be slightly lower for scenario 3, but the shares would need to increase consistently as well.
29
Table 1. Share of health government spending to protect trend growth in per capita government spending
and offset lower OOPs (scenario 2), 2019-2015
Country groups
N
2019
2020
2021
2022
2023
2024
2025
All countries
178
11.4
11.7
12.5
13.1
13.6
14.0
14.5
Low income
25
9.3
9.9
10.6
11.1
11.3
11.6
11.8
Lower middle income
49
8.6
9.3
9.9
10.3
10.7
11.0
11.3
Upper middle income
46
12.3
13.1
14.0
14.8
15.3
15.9
16.5
High income
58
13.9
13.5
14.5
15.1
15.6
16.0
16.6
Source: Authors’ calculations
Household out-of-pocket spending: Less is more?
Some countries relied heavily on household OOPs as a source of financing for health before the pandemic.
In 2018, the share of OOPs in country health expenditure averaged 42.3 percent in LICs and 38.7 percent
in LMICs.
As GDP per capita drops, the individual capacity to pay health expenses OOP falls, on average. This
typically leads to a decline in utilization of health services that require payment, and sometimes to an
increased use of free or subsidized services, if they are available. In the current crisis, this effect is
aggravated by fear- and lockdown-related declines in health service utilization documented across many
countries (WHO 2020b) (WHO 2020d). On the other hand, possible declines in government health spending
may reduce the availability and quality of government services, spurring an increased need to use private
health services in which case OOPs might rise. Data on OOPs in health for 2020 will not be available for
some time and the collection may be further delayed because of the difficulty in conducting large household
expenditure surveys during COVID-19.19
The projections of OOP presented here are based on the historical elasticity of OOPs per capita to changes
in GDP per capita across countries, estimated at 0.88.20 This suggests that a 1 percent fall in GDP per
capita would result in a decline in OOPs per capita of slightly less than 1 percent (0.88 percent), consistent
with a recent study of the determinants of OOPs (Xu, Saksena and Holly 2011). This pattern is also
consistent with findings from previous recessions suggesting that OOPs falls with declining GDP (Musgrove
1987) (Gottret, et al. 2009) (Xu, Saksena and Holly 2011).
Mirroring IMF projections of GDP per capita, OOP spending per capita is expected to fall in 2020 and then
increase in subsequent years (Figure 6). OOP spending per capita reaches pre-COVID-19 levels in all
country groups in 2022, except in HICs, where it will match earlier levels only in 2023.
Paradoxically, declining OOP spending in 2020 may result in apparent improvements in the commonly used
metrics of financial protection in health, for example, the incidence of financial catastrophe. This indicator
measures the proportion of households spending more than 10 percent of their income or consumption on
health. The direction this measure will take depends on how the drop in OOP spending compares to the
drop in household income or consumption. Important to note is that a drop in the share of households facing
financing catastrophe may simply reflect a lower use of needed health servicesor forgone care - rather
than improvements in financial protection.
19 WHO’s Global Health Expenditure Database shows data up to 2018 as of 4 December 2020.
20 Methodological details are provided in Annex 1.
30
Figure 6. Projected impact of the recession on household out-of-pocket health payments
Source: Authors’ calculations and WHO Global Health Expenditure Database, 2020
Governments can act to protect the vulnerable
Countries may opt to increase their spending on health to compensate for some or all of the decline in
OOPs. This will help to ensure the utilization of needed health services, most importantly among the poor
and vulnerable. As simulated in scenario 4, to do so countries need to substantially increase the share of
health in general government spending.21
External financing for health: A lifeline under threat
Many countries, mostly LICs and LMICs, relied heavily on external financing for health before the pandemic.
Countries obtained that financing from bilateral or multilateral partners and foundations. In 2018, the last
year for which country health expenditures derived from external sources are available, external financing
accounted for over a quarter of current health spending in 26 countries, and over half of current health
spending in five countries (WHO 2020c).
A critical input hangs in the balance
Any reduction in external funding as a result of the impact of the pandemic in HICs would make it
substantially harder for recipient countries, largely LICs and LMICs, to meet emergency needs related to
the pandemic and maintain progress towards UHC and the health SDGs. On the other hand, increases in
external funding could help offset the projected falls in general government expenditures from domestic
sources in lower-income countries in 2021 and 2022.
21 In comparison to scenario 3, in scenario 4, the increases in government spending per capita compensate for the expected fall
of OOPs per capita below levels projected based on pre-COVID-19 macro-economic forecasts.
31
The 2008-09 financial crisis did not immediately result in a decline in external assistance for health.
However, the rate of increase in such support to LICs and LMICs started to drop, with levels of external
financing stagnating by 2014, falling over the next two consecutive years, and since then remaining stable
at around $14 billion annually.22
The current economic shock is affecting higher-income countries more than other countries, with a much
deeper recession than in 2008-09. Government borrowing in HICs has also risen substantially, leading to
very high ratios of public debt to GDP. This might result in wealthy countries’ reducing their development
assistance budgets. On the other hand, HICs are better able than others to weather the economic storm,
at least in the short term, through increased public borrowing. The needs of lower-income countries are
also greater now than in 2008-09, not just because of the pandemic, but also because most of them are in
recession, something that did not happen during the earlier financial crisis. Given this context, bilateral
partners might decide to maintain or increase their external financing for health.
A factor that reinforces this possibility is that HICs have an interest in ensuring that COVID-19 is controlled
not only within their own borders but also outside. However, it is also possible that HICs might reallocate a
portion of the funds that were previously used for external assistance at country level towards investments
whose payoffs for wealthy countries’ own citizens may be easier to grasp, such as the creation of vaccines
and effective COVID-19 therapies. While investment by HIC governments has been critical for the rapid
development of a number of COVID-19 vaccines, shifting resources away from country support to fund
such efforts could mean lower health expenditures in the poor countries that still rely on external financing.
The future direction of external funding remains unclear
It is hard to predict the trajectory of external funding. Current IMF projections, however, suggest that overall
external funding in the form of grants to LIC and LMIC governments may rise in 2020, but then fall
consistently, in per capita terms, each year to 2025. Similar patterns are projected for the individual
countries in each income group.23 Unless donor and recipient governments choose to allocate a higher
proportion of on-budget external grant funding to health, external financing for health would also fall from
2021 onwards, if the IMF projections are accurate.
Debt relief can boost health spending, but won’t do so automatically
High and increasing levels of public debt have put several countries at risk of default. This trend has also
raised the cost of commercial borrowing for these countries (World Bank 2021b). Some degree of debt
cancellation, suspension of payments, or restructuring is now being offered to the most distressed
countries, though no coordinated framework has yet been established. G20 countries and several
multilateral banks have already deferred interest payments, and other measures are being discussed (IMF
2020d) (UN 2020). Additional concessional lending is also being offered to some of the countries
participating in debt relief initiatives, some of which can be used for health spending (World Bank 2021b).
The purpose of debt relief is to support countries at risk of default. The extent to which debt relief per se
translates into higher levels of government health spending depends on whether countries fully commit the
resources freed up by debt relief to reduce their budget deficits. Where they do not, some of the freed-up
resources will increase levels of discretionary spending. The impact on health spending depends on the
share that is allocated to the sector.
22 This is the 2018 spending in LICs and LMICs of external funding for example, development assistance for health reported
in WHO’s Global Health Expenditure Database for the countries included in this analysis. The total amount that donor countries
and organizations report to the OECD Development Assistance Committee (whether commitments, disbursements or country
programmable aid) or estimated by the Institute of Health Metrics Evaluation is higher because it includes funds classified by
donors as development assistance, but which is spent in the donor countries rather than recipient countries.
23 These calculations do not include development assistance that is not channeled through government budgets, which can be
quite significant in some countries.
32
PART II POLICY OPTIONS TO MEET HEALTH SPENDING NEEDS
THE PATH TO A DOUBLE RECOVERY
The double shock of COVID-19 has cost millions of lives and resulted in a deep global recession. The
projected decline of 6.4 percent in per capita growth in 2020 surpasses any economic downturn since World
War II, including the global financial crisis of 2007-08. Following the immediate increases in government
spending in response to COVID-19 in 2020, including higher spending on health, most countries are
expected to curb expansionary fiscal policies in 2021 and 2022, with a predicted fall in government spending
per capita. The decline in spending is expected despite positive forecasts for growth in economic activity
and revenues, in part because record debt levels are likely to prevent countries from borrowing as they did
in 2020. The scenario analysis in Part I of this report suggests that, in countries where general government
spending is now predicted to fall, per capita government spending on health will also decline, unless
governments take steps to increase the share of their spending on health.
While it is understandable and even desirable for many countries that general government spending may
fall in the next years, there are strong reasons why health spending in most countries should not drop,
despite a return to growth and perceptions that the end of the pandemic is near. Any declines in health
spending would be most damaging in countries that already faced severe health-financing constraints to
begin with: most importantly, a group of lower-income countries with low levels of health spending and high
shares of OOP expenditures and external financing (WHO 2020a).
No economic recovery without a health recovery
To bounce back from COVID-19’s double shock, countries need a double recovery. Getting over the
economic crisis depends on solving the health crisis. On the one hand, this is because basic public services
and key sectors of the economy cannot properly restart until COVID-19 is controlled. But there is more to
the story. Universal health coverage and sound population health indicators are vital for a sustainable and
inclusive longer-term recovery (World Bank 2019). Progressively closing gaps in affordable coverage with
essential health services improves health and builds human capital, increasing workers’ productivity in the
short term and boosting cognitive and physical development, educational attainment, and productivity in
rising generations. Sound financial protection from health care costs promotes equity, for example by
allowing the sick and poor to protect and improve their health and increase their earnings. As a result,
income inequality falls. Inadequate health spending, in turn, is “macro-critical”: that is, it has the potential
to threaten countries’ macro-economic stability and future growth (IMF 2019).
The health recovery involves two distinct but related short-term agendas. One is controlling the spread of
the novel coronavirus. An end to the pandemic can only come through enhanced surveillance, including
improvements in data infrastructure, testing and laboratory services, behavior change communication,
quarantine and isolation capacity, the treatment of clinical COVID-19 cases, including patient safety for
both COVID and non-COVID patients, andmost criticallystrengthening delivery platforms and rolling
out vaccines. The spending needs to control the pandemic are substantial. For example, estimates of the
costs to achieve adequate levels of vaccination coverage alone amount to approximately 2.1% of GDP in
LICs and 0.7% of GDP in LMICs. Spending on these measures will save lives right now.
The second short-term agenda is about reversing the indirect losses in health from the pandemic. A full
recovery from the health shock means undoing the growing gaps and reclaiming the pre-COVID gains in
UHC. Attending to COVID-19 patients while trying to ensure patient safety for all has caused substantial
disruptions in the delivery of non-COVID-19 essential services. Demand for services is down, as incomes
decline and people fear the risk of infection. The effect of growing coverage gaps on health outcomes is
aggravated by changes in health-related behaviors. Economic hardship, rising food prices, social
distancing, and lock-down measures cause malnutrition, mental stress, domestic violence, and substance
abuse. The loss of life from disruptions in maternal and child services and acute malnutrition alone may
outweigh the direct death toll of COVID-19 (Robertson, et al. 2020).
33
Bold choices amid hard times
Even during macro-fiscal crises, countries have choices. During previous economic contractions, not all
countries followed the path of pro-cyclical health spending.24 Most relevant today, some countries increased
government expenditures on health when general government spending levels declined in the wake of the
economic crisis. This precedent points to options for countries today. For example, among the 53 countries
that lowered their government spending per person in the first three years during and in the wake of the
global financial crisis (2008 to 2011), almost half increased their government spending on health per person.
The 25 countries that raised health spending per person in this period included 11 upper-middle-income
countries like Iran, Jordan, Mexico, several Eastern European countries, and several Caribbean and
Pacific states. But this group also included lower-middle-income status countries, for example, Honduras,
Pakistan, and Ukraine. Among the total of 17 middle-income countries, several not only increased their
spending on health per person over the three-year period but raised health spending per person in at least
two consecutive years, despite simultaneous cuts in the general government spending envelope. Among
the few LICs whose economies contracted during the global financial crisis, several also elected to raise
government spending on health. Here, external financing played an important role, as in the case of Guinea,
Liberia, and Sierra Leone during the 2014-16 West African Ebola epidemica regional health and
economic crisis that foreshadowed the current global double shock.
Structure of Part II
Countries have compelling reasons to maintain or increase their health investments now. But how can they
achieve this, given fiscal constraints, political pressures, and competing demands on public funds? The
remainder of Part II presents a set of policy options that countries can consider.25 The compilation draws
on lessons from earlier crises, countries’ COVID-19 experiences to date, and a global consensus on
effective health-financing policy options that was emerging in pre-pandemic days.
Part II includes three sections. The first explores options to boost the share of government spending for
health. It first presents strategies for the health-sector revenue stream that is most important across all
country income groups: budget allocations. It discusses spending reviews, performance budgeting, and
other tools that decision makers can use to mobilize funds for health budgets. It then examines options to
protect SHI schemes during crisis times. A second section looks at selected policy options to expand overall
fiscal space. It focuses particularly on policies notably pro-health taxeswhere health policy makers
need to interact with a ministry of finance, then discusses external financing for health, including debt relief.
External financing remains a critical source of health funding for many countries, while collaboration
between donors and beneficiaries is needed to ensure that debt relief unlocks additional resources for the
health sector. Part II’s third section provides an overview of policies to ensure and advance equity and
efficiency in health spending during the crisis and beyond. Successfully managing new and old challenges
can strengthen the case for maintaining and increasing health spending going forward.
INCREASING GOVERNMENT FUNDING FOR HEALTH
To deliver the levels of health spending needed for health and economic recovery, most countries will need
to boost their government spending in health. There are two main sources of domestic public revenues for
the health sector: (1) the allocation to the health sector from tax financing and (2) obligatory contributions
to SHI. Of these two sources, the larger across all country income groups is the allocation from tax financing
(Figure 3). Obligatory SHI contributions are mostly relevant for HICs and some UMICs. For simplicity, the
24 This spending pattern has been well documented for European countries during the global financial crisis (Mladovsky 2012,
Thomson 2015). It also holds true for some middle-income countries. For example, among the 18 middle-income countries
experiencing negative per capita GDP growth between 2008 and 2011, more than half (13) increased their per capita
government health spending during the period. This group of countries includes lower-middle-income stateslike Benin,
Honduras, Senegal and Ukraineas well as upper-middle-income countries, for example, Gabon, Jamaica, Jordan, and Mexico.
Increases in government spending on health per person have also been reported from earlier recessions, including the 1980s
debt crisis in Latin America and the Caribbean (Musgrove 1987).
25 Annex 4 summarizes the policy options presented throughout Part II for different country income levels.
34
remainder of this paper refers to allocations from tax financing as health budgets, even though health-sector
budgets may also include obligatory SHI contributions and external financing. This section looks first at
tools and techniques countries can use to boost health budgets, then at options to stabilize SHI revenues,
in settings where these are an important source of health financing.
Health budgets
During an economic crisis, pressures to spend on health from health budgets mount rapidly. In the ensuing
economic recovery phase, however, these pressures may abate more slowly. The reasons for this
asymmetry are intuitive. When incomes fall during a crisis, households lower their private spending on
health, including payments for medicines, private providers, and voluntary health insurance, and
increasingly rely on government-provided health services. Likewise, as unemployment and informal
employment rise, many people lose employment-linked entitlements and turn to general tax-financed
schemes or government-provided health services. These patterns produce converging upward pressures
on government health budgets, only partially countervailed as some people choose (or are forced) to forego
health services that remain beyond their financial reach. During the subsequent economic recovery,
employment, SHI coverage, wages, and household incomes increase. This typically leads to a rise in
demand for health care, and again keeps pressure on health budgets high. Depending on the economic
shock’s duration and intensity, some people who avoided seeking timely medical care during the crisis may
now experience more serious health problems as a result, placing additional strains on the system as
recovery begins.
In the current crisis, the pandemic compounds these pressures on health budgets. Most key health
response measures to COVID-19including testing, treatment, and the roll-out of vaccinesrequire
government funding to quickly attain the necessary scope and scale of coverage. Acute budget pressures
are all the greater, since both disease-control principles and equity concerns have prompted some
governments to subsidize COVID-19 services or in some cases provide them free of charge. The rationing
of non-essential health services may relieve some pressure on government health budgets, especially since
many people have avoided visiting health facilities for non-emergent complaints, due to fear of coronavirus
exposure. But this relief is only temporary, and the pent-up demand for non-COVID-related services is likely
to result in a powerful rebound effect later on.
In times of declining spending envelopes, the scope to reprioritize spending across sectors, however, is
shrinking. As the spending envelope dwindles, so does the share of discretionary spending. It is only
discretionary spending that can be readily redirected, as it is not tied up with ongoing commitments such
as government payroll and debt service. At the same time, critical spending needs are also growing in all
social as well as other sectors, some of them vital to protect gains in UHC and population health.
Coordinating across levels of government
Responding to this dilemma requires close coordination across levels of government and strengthening the
frameworks and processes that govern the prioritization of expenditures. In many settings, a successful
recovery will also require coordination across different levels of governmentjust as during the crisis
response. While central governments tend to raise the lion’s share of resources, sub-national governments
not only raise substantial amounts of funding but are often responsible for the delivery of frontline services,
including the allocation of resources across sectors. Frontline services include primary health care,
population-based health services, and other essential public health functions, all of which are critical both
for pandemic response and achieving efficiency and equity on the path toward UHC. Making inter-
governmental transfers more predictable can help sub-national governments improve the performance of
frontline services. When carefully designed, results-based intergovernmental transfer can reinforce the
efficiency use of resources and accelerate progress toward UHC and health outcomes (Gertler, Giovagnoli
and Martinez 2014).
35
Managing uncertainty
During the pandemic, spending envelopes for health will depend on how effectively governments can
manage uncertainty in the budgeting and planning process. These challenges are even greater in the
preparation of medium-term budgeting frameworks. Critical questions surround, for example, the setting of
the budget baseline. Which year serves as the starting point of the exercise pre-COVID 19 or COVID
19, and is it the adopted budget or the actual outturn (Khasiani et al. 2020)? How accurately can
governments anticipate the discretionary COVID-19 policy measures and the non-discretionary impact of
COVID-19 on cost drivers, given the uncertainty about the evolution of the pandemic as well as the
availability of new technologies? When countries started the budgeting process for the second year under
COVID-19 in the last summer and fall, it was not even certain whether vaccines would become available.
Given the possible large fiscal impact of vaccines costs alone estimates range dependent on coverage
and vaccine prices from 0.1 percent to 2.5 percent of GDP for 2021, countries may opt to set up separate
expenditure programs or funds to facilitate the planning process and protect the health sector budget. In
turn, it will also to what extent countries ensure agility in the budget, whether it is by setting up contingency
and reserve envelopes, enhancing in-year budget flexibility mechanisms (for example, limits on virements),
and adopting supplementary budgets during execution.
Making fiscal adjustment work
A number of tools and strategies are available that can help governments find resources for health budgets
and invest those resources where they will do the most good. This sub-section looks at three of the most
powerful of these instruments: spending reviews, budgeting strategies, and macro-fiscal analysis.
Spending reviews
Spending reviews constitute a critical element of an agenda to find the space within budgets to finance
spending programs in health. Spending reviews assess the level and intra- and intersectoral composition
of expenditures. They also evaluate the effectiveness, efficiency, and equity of spending and its adequacy
and sustainability against government goals. In contrast to the focus on new spending proposals in the
budgeting process, expenditure reviews scrutinize baseline expenditures. The World Bank offers support
to countries in carrying out public expenditure reviews at regular intervals.
Savings based on evidence
In a time of shrinking spending levels, spending reviews focus on the development of savings options, often
with specific savings targets. Spending reviews should not end with the development of options but savings
decisions (Robinson 2014). These savings decisions rest with the elected officials who exercise power over
the content of the budget. In OECD countries, spending reviews with a focus on savings options have been
widely introduced during global financial crises. In the majority of OECD countries, the practice of spending
reviews continued and in some, the use is likely to increase (OECD 2020).
Learning what doesn’t work
In addition to savings options from efficiency gains, spending reviews identify savings options from the
reduction of certain services or transfers to improve expenditure prioritization (strategic reviews). In other
words, strategic spending reviews also identify ineffective budget lines and programs, from which resources
can be redirected. The potential to reprioritize spending from lines and programs that do not produce any
significant, desired effect can be substantial. The classic case is fuel subsidies included as part of anti-
poverty programs. These subsidies typically benefit middle-class rather than poor households, and they
counteract government investments in a green recovery. Fuel subsidies amount on average to 7.7 percent
of GDP in LICs and MICs, exceeding by far the average of government spending on health in these
countries (Coady 2019). In good economic times, significant reallocations between ministries are the
exception. Under emergency conditions, however, targeted spending cuts are vital for an effective crisis
response and recovery. In contrast, it is preferable to avoid blanket cuts that impose equivalent reductions
on unproductive expenditures and on efficient programs that are producing important social benefits.
36
Protecting what’s essential
While unmasking waste, spending reviews can also shine a light on critically important expenditures and
high-performing programs that warrant continued investment. In the current fiscal context, reviews can
identify budget lines, programs, and sectors that are vital to end the crisis and accelerate an inclusive
recovery. These can then be tagged for monitoring in budgets and medium-term expenditure frameworks.
Such analyses equip decision makers to protect and adjust recovery-relevant spending priorities over time.
For these budget elements, governments can also define minimum spending targets. Some countries have
adopted such spending floors for poverty-reducing social spending (IMF 2019).
Budgeting strategies
Performance budgeting can institutionalize the logic of spending reviews, an approach to which some
countries moved during the global financial crisis. In the most common form of performance budgeting,
program budgeting, expenditures are not solely classified by economic, functional, and administrative
categories, but are assigned to programs based on objectives and types of service categories (Robinson
and Last 2009) (OECD 2018). Information about program performance, using indicators and drawing on
evaluations, feeds into the budget preparation process. Program budgeting typically provides flexibility for
ministries and program managers to choose the best input mix for efficient service delivery. When the
design and implementation of performance budgeting is adapted to local institutional circumstances, it can
align activities and spending with government priorities while increasing fiscal transparency (de Jong and
Ho 2017).
A whole of government approach to policy making and budgeting also holds the promise of better aligning
spending decisions with spending needs. Priority is given to expenditure programs that contribute to one or
a set of agreed national goals. This encourages ministries and agencies to focus budgeting processes on
results and to coordinate and collaborate with each other to reduce inefficiencies and improve outcomes.
Though evidence of the effectiveness is not yet conclusive, the rationale for whole-of-government budgeting
is strong, and countries are continuing to develop the strategy. One prominent recent example is New
Zealand’s Wellbeing Budget, with all ministries asked to apply for incremental spending based on how it
contributes to inter-generational well-being. A similar approach, but focusing on a narrower goal, is the use
of gender budgeting to address gender inequalities. As with spending reviews and performance budgeting,
the approach relies on the definition of explicit criteria to assess the impact of spending.
Macro-fiscal analyses
To ensure the adequate prioritization of health and human capital spending more generally, adjustments to
macro-fiscal analytics that inform spending decisions will be important. These include simulation exercises
to assess the impact of fiscal and other policies on economic growth and other macro-economic variables.
Steps have been taken to extend these models to account for strategies that boost human capital outcomes,
including health. For example, Maquettes for MDGs (MAMS) offers features, in comparison to other
computable general equilibrium models, that enable users to assess the macro-economic trade-offs of
financing strategies to attain targets of the Millennium Development Goals, including child and maternal
mortality (Lofgren, Cicowiez and Diaz-Bonilla 2013).
Debate continues about how best to integrate non-debt liabilities, including health care, into the assessment
and management of a government’s balance sheet (Heller, Hemming and Potter 2013). The general
premise is that the amount of explicit debt and provisioned public guarantees understates the exposure of
government finances to obligations and as such also fiscal risks. The type of obligations varies, from legally
binding contingent liabilities with fully specified amounts and timing of payments to obligations based on
policy promises and historical precedents. In health, government obligations fall somewhere in the middle
of this spectrum. There is often some variation within countries. Obligations may range from explicit
contractual commitments, (in the case of contributory SHI), to formal legal obligations (for example, non-
contributory guaranteed entitlements), to non-legal, implicit obligations (such as publicly financed and
provided health services). Another question is how to determine the size of these prospective obligations
37
(given the uncertainty about future outlays), not only in terms of costs and demand but also a government’s
discretion over the quantity and quality of services, and the prospective flow of revenues. The benefit of
recognizing these obligations is not only a greater sense of realism in health policy making, but also greater
ambition in setting a politically viable and economically optimal tax to GDP ratio.
Earmarking
Earmarking, also known as hypothecation, is a different type of instrument that governments may use to
channel resources into health budgets. The objective of earmarking is to maintain or increase funding for a
particular category of expenditure, attempting to protect it from the political negotiations of the budget
process.
Earmarks for health-sector activities are common, despite longstanding controversies about the
appropriateness of hypothecated taxes in public finance (Cashin, Sparkes and Bloom 2017) (Ozer, et al.
2020). In periods when discretionary spending is shrinking, earmarks seem even more questionable. The
effect on funding levels is often only temporary, as earmarks eventually prompt cuts in related spending
programs during the budget negotiation process.
Depending on the circumstances, however, governments may want to consider earmarks as part of a set
of policy measures to mobilize additional funding for health, for example, to secure future resources for
high-priority programs. In the current crisis, pandemic preparedness and response might be a target for
earmarked funds. As a source of revenue, pro-health taxesdiscussed in detail belowmay be a
pragmatic choice as a source of earmarked funds. Linking pro-health taxes to high-priority programs in
health establishes a strong benefit rationale, thus reinforcing the generally high political acceptability of
these taxes.
Obligatory social health insurance (SHI) contributions
In some countries, a second important stream of domestic public funding for health comes through SHI
contributions. Given their mandatory nature, SHI contributions are considered a tax earmarked for the
health sector. These contributions are, however, distinct from other taxes, in that people who pay into SHI
are entitled to a specific set of health benefits, while those who do not make contributions are ineligible.
Traditionally imposed on wages, obligatory SHI contributions often link entitlements to employment.
The policy options discussed in the following paragraphs are mostly relevant for upper-middle-income and
HICs where SHI contributions are a significant source of health spending. In low- and lower-middle income
countries with a relatively small working-age population and low rates of formal employment, obligatory SHI
contributions do not constitute a promising source of revenue. In those settings, given SHI’s comparatively
low revenue potential and the often inherent link of entitlements to employment, SHI can provide one piece
of a UHC health-financing mix, but SHI alone will not deliver UHC goals or provide a foundation for crisis-
resilient health financing (World Bank 2019).
As with tax revenue, revenue from SHI contributions tends to shrink rapidly during economic downturns, as
wages drop and unemployment and informal employment rises. On the other hand, SHI revenue grows
quickly when the economy recovers. During downturns and upswings, SHI schemes have options to
stabilize their balance sheets and avoid cost shifts to providers and consumers. From a government
perspective, the objective is to avoid using budget transfers to bail out SHI regimes. Because SHI schemes
mainly cover better-off households, bailing such schemes out with public funds is equivalent to
implementing highly regressive subsidies (Kurowski and Walker, 2012).
38
Benefiting from automatic stabilizers
At the onset of an economic crisis, SHI schemes can benefit from automatic stabilizers. SHI schemes
accumulate reserves in times of surpluses, on which they can draw when facing temporary deficits. For
example, SHI schemes in Kenya, Lao PDR, and Nepal have recently been drawing down reserves to
stabilize their balance sheets (World Bank forthcoming). To support SHI, regulators may reduce minimum
reserve requirements. The design of contribution rules can further cushion the effect of economic declines
on revenues. When governments make formula-based allocations for non-contributing members to SHI,
these may automatically trigger increases in budget transfers, for example, when they cover premia for
individuals and households living below fixed welfare thresholds or for people who have lost employment.
In periods of crisis and recovery, more people are below these thresholds, and, in turn, budget allocations
are higher. Lithuania, for example, draws on several of these measures to limit swings in the revenue of its
SHI. The SHI accumulates reserves in good times, receives government transfers in lieu of premia for non-
contributing members, and establishes these premia based on average wages with a lag time of two years
(Kacevicius and Karanikolos 2015).
Bolstering revenues
Trying to bolster SHI revenues by simply raising contribution rates increases labor costs where employers
pay a share of SHI contributions. This may tend to increase levels of unemployment and informal
employment. Alternatively, countries can opt to raise or abolish contribution ceilings26 or extend
contributions to all forms of wages (for example, short-term contracts, part-time contracts), as well as non-
wage income (dividends, redundancy payments, self-employed revenue, pension income). Most of these
measures primarily increase contributions of higher paid workers, sparing more vulnerable households.
Therefore, they are less likely to generate the adverse labor market effects associated with increases in
contribution rates, especially where employers pay a share of the contribution. Many of these measures
have the additional benefit of making the overall revenue system less regressive. Another, relatively
politically palatable option is to close loopholes in the collection of SHI contributions, rather than raising
rates or ceilings. In the past, some European countries seized crises as an opportunity to overhaul their
collection systems: for example, by linking contributions to tax databases or introducing penalties when
collecting agencies do not improve their performance in enforcing the payment of contributions (Thomson,
et al. 2015).
During past crises, some HICs suspended SHI contributions and/or lowered contribution rates for
employers and employees, thus reducing labor costs and protecting jobs as part of crisis and recovery
measures. Other countries reduced contribution rates, but only for vulnerable households. Countries may
even opt to exempt vulnerable population groups from contributions entirely, for example, children from
low-income households. In these instances, governments have compensated SHI schemes for the resulting
revenue shortfalls through budget transfers. If sustained, these reforms relax the link between employment
and SHI entitlements.
EXPANDING OVERALL FISCAL SPACE
While countries tackle the challenges of securing government funding for health and other critical sectors
during times of shrinking resource envelopes, they also seek ways to maintain and gradually increase levels
of discretionary spending—that is, spending from the funds a government has left after making debt-service
payments. Simply put, the point is to enlarge the initial “pie,” from which the government carves out pieces
for health and other sectors. The overall pie-making agenda primarily involves ministries of finance.
However, the health sector can also play an active role, contributing to tax reforms and mobilizing and
absorbing external financing.
26 Where contributions increase with incomes, this usually occurs only up to some upper limit, or ceiling. Once that level is
reached, contributions do not increase any further.
39
Tax policies
In the face of the current crisis, many countries are already adjusting their revenue strategies, with the aim
of increasing the share of government revenues in GDP. As part of these efforts, the crisis warrants
revisiting several taxes and groups of taxes and considering how they affect both revenue mobilization and
the sustainability of health financing.
Pro-health taxes: win-win for a healthy recovery
The case for introducing or increasing pro-health taxes during the current crisis is strong. Pro-health taxes
shape the long-term spending needs and efficiency of the sector while contributing to revenue generation.
Such taxes target health-damaging products, like tobacco, alcohol, sugar-sweetened beverages, and the
carbon content of fuels. In the case of carbon, in many places, the first step is to reduce and eventually
abolish fuel subsidies.
Pro-health taxes have a positive effect on population health in the longer term and in turn the sustainability
of health financing. Introducing or increasing taxes on health-damaging products reduces their consumption
and lowers long-term morbidity and mortality from a whole range of non-communicable diseases, including
metabolic conditions, pulmonary and cardiovascular diseases, and cancer, thus protecting human capital.
In turn, lower prevalence and severity of such diseases helps limit cost growth in the health sector, increase
sector efficiency, and improve labor productivity.
While secondary to the impact on health, revenues from introducing pro-health taxes or increasing their
rates can be substantial. For example, excise taxes that increase the prices of tobacco, alcohol, and sugar-
sweetened beverages by 50 percent could raise the tax-to-GDP ratio by an average of 0.7 percentage
points in LICs and LMICs (World Bank 2019).
The pro-health rationale makes introducing or raising these taxes more politically acceptable than tax
changes whose primary goal is simply to increase government revenue. This principle applies in general,
but also during times of economic crisis. Spain, for example, increased the value-added tax on sugar-
sweetened beverages from 10 to 21 percent in 2021.27 As noted earlier, earmarking additional revenue for
critical population-based health interventions may further enhance the political feasibility of pro-health
taxes. Taking into account the distribution of health benefits from these taxes, recent evidence rebuts earlier
concerns that pro-health taxes might be regressive. When health gains in the longer term are factored in,
pro-health taxes can be expected to deliver most of their benefits to lower-income populations (Fuchs, Icaza
and Paz 2019). Moreover, revenues obtained from these taxes can be used for programs that
disproportionally benefit the poor in other ways.
Additional tax policy tools
Some countries applyand so can now reduce or removetax relief for the purchase of voluntary health
insurance and private health spending. Most countries that provide such relief are HICs. They may abolish
tax advantages for social security contributions. However, those designing such tax reforms must anticipate
their impacts on the poor and other vulnerable populationsfor example, the chronically illand may need
to introduce compensatory mitigation measures.
Although countries have seen their revenues drop sharply during the current crisis, it is prudent to consider
lowering levies and taxes on medical goods and services, in order to reduce the costs of care and
prevention. For example, Lao PDR, Nepal, Nigeria, the Republic of Korea, and Myanmar waived or
eliminated tariffs for COVID-19 related medical goods and services, and Ethiopia, Indonesia, and Tanzania
reduced them (World Bank forthcoming). Reducing these levies and taxes results in lower prices and health
system costs. For products and services that patients pay for OOP, this approach also enhances
affordability, especially for the poor.
27 https://taxfoundation.org/spain-recovery-plan-budget-tax-hikes/
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External financing, including debt relief
For a substantial number of countries, any near-term expansion of fiscal space to improve health must rely
in part on external financing. A key area for international action is to return to a growth path for this category
of financing. Even before the COVID-19 crisis, most optimistic scenarios for domestic resource mobilization
pointed to a significant financing gap for LICs and LMICs to attain the Sustainable Development Goals,
including their UHC targets (World Bank 2019) (Stenberg, et al. 2017) (Archer and Muntasim 2020). The
health sector is a major beneficiary of external financing. Prior to COVID-19, growth in levels of external
financing for health in the form of grants was stagnating.
It is too early to tell whether the current surge in external funding for COVID-19most importantly the ACT-
A—will translate into a significant and sustained rise in external financing for health. Moreover, it remains
unclear whether this surge of international funding will primarily support the discovery and development of
diagnostics, therapeutics, and vaccines, possibly at the cost of investments in health-system strengthening.
By constraining countries’ scope to reinforce their health systems comprehensively, such a shift in external
financing could limit recipient countries’ ability to benefit from global investments in research and
development (R&D), if R&D investments ultimately give rise to global public goods such as low-cost
treatments and vaccines. For this reason, the World Bank is providing US$18 billion not only for global
public goods but to support countries in strengthening their national delivery systems and essential public
health functions (World Bank 2020b). The GFF provides grants linked to World Bank IDA and IBRD
financing to help partner countries protect and promote primary health care and community health during
and after the crisis. Both GFF and IDA will require renewed donor commitments in 2021 to respond to high-
country demand for their support.
Donors can also do their part to ensure that external financing yields the expected dividends. The enhanced
collaboration and alignment of partners under ACT-A is a critical departure from traditional, fragmented
approaches. Its co-financing arrangements also establish links to domestic resource mobilization. The ACT-
A builds on progress under the Global Action Plan financing accelerator, with critical features such as
enhanced support for public financial management, other efficiency reforms, and advocacy platforms.
External financing can also help protect funding for priority expenditures during the crisis and recovery (for
example, monitoring, indicators and targets linked to disbursements, conditionalities). At the same time, it
is important that countries be able to absorb higher levels of external financing for the health sector and
use them efficiently and equitably. This may necessitate investment in organizational capacity for health
financing and its governance more broadly.
Debt relief, then and now
Debt relief, mostly available to LICs, seeks to help countries meet their debt payment obligations and more
broadly alleviate debt distress. Debt relief can also indirectly foster economic growth, since the risk of debt
defaults scares off potential lenders and investors, and the cost of servicing debt depresses public
investments (Clements, Bhattacharya and Nguyen 2005). If not well coordinated among actors, though,
debt relief can also impose high costs on economies. For example, uncoordinated changes in debt
repayment schedules can lead to a lowering of a country’s credit ratings and reduce or even cut off its
access to financial markets.
Earlier large-scale coordinated debt relief initiatives, most notably the Heavily Indebted Poor Countries
effort (HIPC), later supplemented by the Multilateral Debt Relief Initiatives (MDRI), linked debt relief to
investments, reforms, and progress in poverty reduction, among other conditions. The HIPC and MDRI
resulted in reduced debt service, freed up resources equivalent to approximately 2 percent of GDP each
year for beneficiary countries, and increased social spending in excess of the debt-service reductions
obtained. Some beneficiary countries undertook remarkable increases in their spending on health,
education, and other social services (IMF 2021), (Gupta, et al. 2001).
41
The current DSSI aims to help lower-income countries channel more of their scarce financial resources
towards vital emergency and relief efforts.28 Even before COVID-19, using the standard assessment for
debt sustainability, approximately half of the 69 DSSI countries found themselves in or at high risk of debt
distress, though less than a quarter of these countries had faced such conditions in 2013 (IMF 2020e)
(Kaddar and Furrer 2008).
As of February 2021, DSSI had delivered about US$5 billion in relief to more than 40 eligible countries.
Saving estimates of the DSSI for the period from May to December 2020 range from 0.2 to 5.8 percent of
GDP. In contrast to earlier coordinated debt relief initiatives, conditions regarding the use of resources freed
under DSSI are limited to full disclosure and IMF and World Bank monitoring of financial commitments.
Furthermore, the DSSI provides only a temporary respite. In its current design, the debt standstill is neutral
in net present value, implying that the unpaid debt service will have to be repaid, including interest, later.
The IMF and World Bank have called for comprehensive action to address the financing and debt-relief
needs of the poorest countries, including by private sector creditors, but this has not yet happened.
Boosting the chances for health gains from debt relief
Experiences from past debt relief initiatives offer some lessons on how the health sector can best position
itself to benefit in situations where recipients and creditors agree to use some of the freed resources to
invest in poverty reduction and economic growth. For example, it is important that ministries of health
actively engage in negotiations about the use of funds (Kaddar and Furrer 2008). Under previous
coordinated debt relief initiatives that aimed to reduce poverty, health sectors benefitted substantially, and
it is likely that they may also do so under the current DSSI, which aims to facilitate the COVID-19 response.
However, previous initiatives did not always benefit the health sector as much as they could have. More
effective engagement of the sector in negotiations will often require that health officials better understand
the management and governance arrangements that apply to debt relief. Another precondition for success
is full transparency from ministries of finance and central banks about the additional resources that relief
initiatives make available.
For a successful engagement, investments in public expenditure, UHC and health monitoring systems, can
help track spending, demonstrate the effectiveness of programs, and meet reporting requirements and
conditionalities.
Ensuring additionality
Under coordinated debt relief efforts that link debt relief to investments and reforms spurring inclusive
growth, it is equally important that health officials work with finance counterparts and partners to ensure the
additionality of resources flowing to the health sector. Two pitfalls have been common. First, resources from
debt relief may crowd out regular budget allocations. The risk increases when debt relief funds are managed
separately from other public resources. A separate setup has short-term advantages, especially where PFM
systems are weak. For example, such a model initially provides greater transparency about available funds
and their use. However, separate structures ultimately undermine efforts to improve public expenditure
management. A second pitfall is that resources from debt relief can also crowd out project financing for the
health sector. Again, to ensure additionality, it is important that debt relief funds be managed on-budget.
TOWARD GREATER EQUITY AND EFFICIENCY IN HEALTH SPENDING
To control COVID-19 and advance towards UHC, most countries need more health spending but also better
health spendingthat is, spending that can make health systems more equitable and efficient. Over time,
the quality of spending has implications for its quantity. Especially where finance ministries have historically
seen the health sector as wasteful, demonstrating equity and efficiency gains can strengthen the case for
increased health spending going forward.
28 “COVID-19: Debt Service Suspension Initiative.” : World Bank, accessed December 30, 2020
https://www.worldbank.org/en/topic/debt/brief/covid-19-debt-service-suspension-initiative
42
The current crisis poses challenges for health-spending equity and efficiency, while simultaneously creating
opportunities to spend better. Amid shifting needs, policy makers face trade-offs as they weigh which
expenditures to cut and which to protect. Leaders may choose to maintain some innovative policies
introduced during the immediate crisis response, but they will have to roll back other emergency measures
and deciding when to do so may prove difficult. Like all crises, COVID-19 offers opportunities to tackle
deep-rooted system performance issues. However, the pandemic has also sharpened long-standing equity
and efficiency trade-offs, particularly through its disproportionate impacts on poor and vulnerable
communities. How policy makers handle these multiple challenges will have long-term implications for
health financing and health systems performance, as well as for countries’ recovery from the double shock.
Setting priorities: What to cut? What to keep?
Even when governments initially manage to sustain or raise spending levels during a crisis, spending cuts
may become imperative as conditions evolve. The pandemic has shaken up spending needs at the sector
level and for government as a whole. The pace of such change may accelerate during the recovery phase.
Who pays the price of spending cuts?
At the sector level, it is important for policy makers to fully appreciate the intended and unintended effects
of spending cuts on health system performanceand thus ultimately on people. Spending cuts are often
linked to reductions in entitlements. The need to anticipate the consequences of such measures is one
reason why spending reviews, discussed earlier, are instrumental at the sector level. In previous crises,
countries all too often opted for cuts in spending and entitlements that disproportionately affected vulnerable
populations. For example, they reduced funding for primary health care or rationed other essential services.
These policy choices shifted costs to people. Some governments increased co-paymentsfor example, for
outpatient prescription drugsdropped exemptions, increased caps, and reduced tax relief on out-of-
pocket payments for health services. In some cases, policy makers deliberately cut back on the entitlements
of vulnerable populations, lowering means-testing thresholds and excluding previously-covered groups (for
example, non-citizen residents). Even more frequently, countries chose to reduce funding for essential
public-health functions, contributing to the system weaknesses that have fueled the current pandemic
(Thomson et al. 2015).
In addition to deliberate reductions in spending, in times of declining health budgets, policy makers must
also apprehend and adjust for so-called automatic cuts. This term refers to the pattern whereby, as
budgets shrink, expenditures on salaries crowd out spending on non-salary items, due to difficulties in
downsizing the payroll. For example, during the Asian financial crisis of the late 1990s, the share of salaries
in the declining budget of the Thai ministry of public health increased from 39 percent in 1995 to 47 percent
in 1999 (Wibulpolprasert 1999) (Koettl 2010). The effect on non-salary expenditures, for example medicines
and other medical supplies, is compounded when currency devaluations drive up the prices of imported
goods. The shift in the composition of spending and resulting change in the balance of medical inputs can
quickly erode the quality of health services.
Priorities for protection
Against this background, the challenge for policy makers is not only to cut where it does the least harm, but
also to protect spending critical for the performance of the health system. Spending categories to protect in
times of crisis include, first and foremost, programs and policies that ensure access to care for vulnerable
populations, such as the poor, mothers, and children, and the goods and services that benefit these groups
most, in particular essential medicines, immunization and nutrition programs, and primary health care.
Looking forward, it will be critical to secure and protect funding for COVID-19 vaccines. The current crisis
has also highlighted the need to protect spending on essential public-health functions. As discussed earlier,
relevant expenditure programs and items can be tagged and monitored in budgets and medium-term
expenditure frameworks. Governments can further shield them through introducing minimum spending
floors and, as discussed earlier, links to external financing.
43
Spending categories that tolerate cuts without major harm to health system performance tend to be context
specific and spending reviews critical to identify them. Decisions need to weigh both short- and longer-term
effects. In past crises, administrative budgets have sometimes been seen as a spending category where
cuts would do little damage to the system, at least in the short term. Indeed, in times of crisis, health-sector
agencies often demonstrate their commitment to reduce inefficiencies by cutting administrative costs. Such
measures are currently underway in Indonesia and Lao PDR, for example. However, to reap full returns on
their investments in UHC, countries often need to increase their administrative capacities in health, not
reduce them. Similarly, the system may tolerate cuts in spending on maintenance of equipment and
infrastructure in the short term, but not in the long term.
During the global financial crisis, European SHI schemes reported some of the deepest spending cuts for
hospitals and cash benefits (Koettl 2010). Policy makers speculated without evidence that cuts in hospital
reimbursement rates would trigger efficiency gains. In the current crisis, cuts in both hospital spending and
cash benefits, including sick leave, could have detrimental effects on the quality of care for the critically ill,
as well as on beneficiaries’ compliance with critical public-health measures.
In some cases, targeted cuts in spending and entitlements can result in lasting, positive effects on equity
and efficiency. For example, where entitlements were initially broadly defined and systems relied on implicit
rationing, some countries seized emergencies as opportunities to introduce explicit benefits packages that
prioritized the most cost-effective interventions. Countries have also curtailed benefits that show lower cost-
effectiveness. Historically, cuts in capital budgets are typical. Thailand took advantage of forced delays in
capital projects during the Asian financial crisis to critically re-assess costs and benefits and cancel some
of these projects (Gottret 2009).
Keep learning as the crisis shifts
The immediate COVID-19 health response posed new challenges and opportunities to maintain and
enhance the equity and efficiency of health spending. To ensure the efficient use of resources, countries
will have to assess and find the right time to roll back adjustments to PFM that have been critical to facilitate
the emergency response. For example, in the short term, it is important to rigorously review measures that
streamlined procurement processes and accelerated funding flows at the risk of increased corruption and
leakages (Curristine, et al. 2020). In the longer term, governments will need to carefully reevaluate
measures introduced to strengthen the health workforce during the acute response phase: for example,
whether and how supplemental pay packages and the rapid recruitment of additional health workers can
be incorporated into the permanent payroll. Some countries adopted sunset clauses for emergency
procedures from the outset, for example, Nepal and Indonesia (World Bank forthcoming).
Some policies implemented as emergency measures during the COVID-19 response are improving overall
health-system equity and efficiency. Rolling-out and deepening these reforms holds great promise for health
system performance improvements in the longer term. Examples include, as mentioned above, PFM
adjustments that accelerated funding flows and absorptive capacity, furthermore, task-shifting, new modes
of public-private collaboration, accelerated deployment of telemedicine, and expanding conditional cash
transfer programs to people with high health risks. Information platforms that can swiftly capture changes
in service coverage and financial protection, even under social-distancing and lockdown conditions, for
example, high-frequency, phone-based household surveys, proved critical to protect vulnerable
populations.
New light on controversial debates
The COVID-19 response has also shifted the balance on some of the most controversial trade-offs in health
financing, with potential long-term implications for equity and efficiency. Two initial examples pertain to the
sources and management of public resources: SHI versus tax funding in mixed financing systems and
central versus decentralized financing.
Efforts to maintain government spending levels against the sharp drop in revenue from obligatory SHI
contributions have increased the share of general tax revenue funding for health in some mixed financing
44
systems. Budget transfers that lower or replace wage-based contributions relax the link between
employment and entitlement inherent to SHI. The link between employment and entitlement can cause
inequities and roadblocks on the path to UHC.
In some countries, adjustments to PFM rules have not only accelerated the release of funds but shifted
more resources and power over spending decisions to the system frontlines. The enhanced spending
autonomy can help frontline services procure essential goods and services for their day-to-day activities
and thus perform more efficiently. However, the shift from central controls to local autonomy may cause
inefficiencies and requires additional PFM adjustments and regulatory steps to ensure transparency and
accountability and equitable and efficient spending (IMF 2020g).
A second set of trade-offs concerns challenges in balancing spending priorities, specifically, spending on
health care versus essential public-health functions and, within health care, spending on primary versus
higher levels of care.
Surging care and treatment needs among COVID-19 patients, pushing health systems toward the point of
collapse, have triggered increases in recurrent funding and capital investment in secondary and tertiary
care. The capital investments will require sustaining increased levels of recurrent funding for higher levels
of care over the longer term (for example, to cover staffing and maintenance). When a hospital builds or
expands an intensive care unit (ICU), it has to shoulder the associated running costs for years or decades
to come, likely compensating with spending cuts elsewhere. However, in many countries, primary health
care was already underfunded and of poor quality compared to higher levels of care. Bold investments in
primary health care are more vital than ever to get the most cost-effectives services to those most in need.
Investments in threat detection and pandemic response have amplified the resources available for health
security in many settings. The challenges that countries at all income levels have experienced in controlling
COVID-19 underscore the chronically low prioritization of essential public-health functions in funding
decisions. Predicted and largely preventable, the COVID-19 tragedy challenges countries and the global
community to finally break the cycle of panic and neglect around international public-health threats. At the
same time, though, many countries still struggle to provide even the most essential health services to the
bulk of their populations.
Finding the right balance for these trade-offs during the recovery holds the potential to improve the equity
and efficiency of health financing and systems and eventually put countries on a new trajectory toward UHC
(World Bank 2019). However, there are no perfect solutions. Available resources may shrink in many
settings in 2021 and 2022, while calls for higher spending on an array of health agendas multiply. Countries
and communities will resolve these dilemmas differently. A general principle is to maintain inclusiveness
and transparency in the processes by which trade-offs are considered and decisions reached. When
decisions around frontline health care and public-health investments are discussed, for example, it is
especially important that the voices of vulnerable constituencies be heard. All solutions have both up- and
downsides, and the best answers may be those facilitated by a decision-making process that communities
see as fair and open.
Leveraging crises to tackle long-standing issues
The COVID-19 crisis also provides policy makers with an opportunity to tackle long-standing equity and
efficiency issues. As countries weigh options, recent examples can inform their choices.
Protecting the vulnerable
In past emergencies, some countries deliberately chose to double-down on their investment in UHC as part
of both their crisis response and recovery strategies. The rationale and supporting evidence are strong.
Progress toward UHC, including stronger health financing, benefits the economy through multiple
pathways, from health and human capital development to workforce and labor-market effects, poverty
reduction and income redistribution, and strengthened consumption and competitiveness (World Bank
2019).
45
These strategic investments in UHC benefit from building on ongoing reforms and generate tangible
improvements in coverage for vulnerable populations. During previous crises, some countries focused
reforms on extending population coverage to vulnerable groups, shifting the basis for entitlement from
formal employment to residency. Groups that benefited from these decisions included the elderly, students,
the unemployed, self-employed workers, agricultural and informal workers, and the poor. Higher-income
countries also extended benefits to non-citizen residents, including migrants, foreign workers, and stateless
persons. For example, during the global financial crisis, Belgium, Bosnia and Herzegovina, and Estonia
extended entitlements to the long-term unemployed, while Mexico almost doubled its coverage of the poor
and informal worker households with guaranteed essential health services, expanding coverage from 31.1
million people in 2009 to 55.6 million in 2013 (Freeman and Boynton 2009) (Thomson et al. 2015) (World
Bank 2017a) (World Bank 2018). During Argentina’s 2001-02 financial crisis, the government expanded
maternal and child health and disease-specific programs, including vaccinations, while Indonesia and
Thailand responded to the 1997 Asian crisis by increasing coverage of the poor with subsidized health
card” programs guaranteeing free services at public health facilities. Coverage under Indonesia’s program
rose from near zero to more than 10 percent of the population (Braun and Di Gresia 2003) (Sparrow 2008)
(Pongsapich and Brimble 1999).
In past crises, some countries also introduced health financing reforms focused on enhanced financial
protection for vulnerable populations. Policy measures included lower co-pays, exemptions from co-pays,
caps on out-of-pocket payments, the reimbursement of indirect costs of health care (for example, transport),
and sick-leave benefits to compensate for health-related income losses. For example, during the global
financial crisis, 12 European countries reduced user fees for outpatient and inpatient care, lowering the cost
to consumers of goods and services ranging from outpatient drugs to diagnostic tests. (Thomson, et al.
2015) In some instances, countries have also leveraged emergencies to improve the coverage of health
services particularly important for low-income households (for example, emergency, mental health, and
preventive services (Musgrove 1987) (Gottret, et al. 2009). For the same reason, but also to facilitate
disease control, several countries have offered COVID-19 services free of charge for the entire population.
Countries adopting this strategy include Ethiopia, Indonesia, Papua New Guinea, and Tajikistan (World
Bank forthcoming). Other countries are expanding their safety nets, targeting households with high health
risks.
Seeking efficiency gains
In many low and middle-income countries, strengthened PFM can improve the efficiency of government
spending on health. Realistic budgets that are executed swiftly support the stability and reliability of health
funding and, in turn, greater financial discipline (Cashin, Bloom, et al. 2017). Transparency and government
accountability help direct public budgets efficiently and equitably to UHC goals. Countries can improve
results when good practices are adapted to country-specific problems and capacities, accompanied by
measures to strengthen PFM foundations, if needed (Andrews, Pritchett and Woolcock 2015). Where
designed and implemented appropriately, PFM improvements have a positive impact on the capacity of
health financing to achieve desired system goals (Goryakin, et al. 2017). In turn, countries that have
achieved greater budget transparency and less corruption government-wide tend to allocate higher shares
of their budgets to health (Sarr 2015), (Simpson 2014), (Robinson 2006) (Mauro 1998).
Other sources of inefficiencies and options to overcome them are well established (World Bank 2017b).
Taking all forms into account, the magnitude can be staggering. Countries can waste an estimated 20 to
40 percent of all their health resources. Some options lie in the health financing system, while other
solutions require actions in the wider health system. Some solutions are more likely to produce rapid returns
than others.
Many sources of inefficiencies have been raised in this and previous sections and options to overcome
them discussed. For example, earlier discussed issues of allocative efficiency included questions of cutting
and protecting expenditure programs; performance and whole of government approaches to budgeting;
imbalances in spending on health care versus essential public health functions and within care; spending
on primary versus secondary and tertiary health services; the introduction and adjustment of explicit
46
benefits with a focus on cost-effective interventions, including telemedicine; and the use of pro-health taxes
as some of the most cost-effective health interventions. Issues of technical efficiency included adjustments