Turning Challenges into Opportunities: the Medium Term Health Expenditure Pressure Study in Timor-Leste Turning Challenges into Opportunities: The Medium Term Health Expenditure Pressure Study in Timor-Leste Xiaohui Hou, Augustine Asante Acknowledgments The World Bank in partnership with the Timor-Leste Ministry of Health undertook this study. This task (P151108) was one of the subtasks under the Timor-Leste Programmatic Health Advisory Services and Analytics (P145528). This report was produced by a task team consisting of Xiaohui Hou (Senior Economist and Task Team Leader) and Augustine Asante (Senior Research Fellow, UNSW Australia). Ian Morris (Consultant) made a significant contribution in the conceptual design stage and provided the initial draft for chapter 2. David Knight, Katie Barker, Robert Flanagan, Hui Sin Teo, Eileen Sullivan, Eric Vitale, Sarah Harrison, Quenelda Clegg, Tasha Sinai, Sara Maria Pereira, Gadis Ranith, and Cornelio Quintao De Carvalho, provided technical and administrative support. The team also thanks Eko Setyo Pambudi and Ajay Tandon who provided valuable cross-support and conducted most of the analyses included in chapter 1, and colleagues who participated in the decision review meeting. Owen Smith and Sarah Alkenbrack provided formal peer review for the report. Toomas Palu (Practice Manager of East Asia and Pacific Region, Health, Nutrition and Population Global Practice) provided technical comments and overall supervision on the report. The team would also like to thank Franz Drees-Gross (Country Director for Timor-Leste, Papua New Guinea & Pacific Islands, East Asia and Pacific Region) and Bolormaa Amgaabazor (Representative for Timor-Leste) for their overall guidance and support. The authors would also like to sincerely thank the Minister and staff of the Ministry of Health, the Ministry of Finance, the Public Services Commission and other key agencies and development partners for their guidance, assistance and contributions throughout this study. List of Abbreviations and Acronyms ADB Asian Development Bank DFAT Australian Department of Foreign Affairs and Trade DHS District Health System EU European Union GDP gross domestic product GHE government health expenditure GNI gross national income HIV/AIDS human immunodeficiency virus infection and acquired immune deficiency syndrome HSSP Health Sector Strategic Plan IFC International Finance Corporation ILO International Labour Organization IMF International Monetary Fund JICA Japan International Cooperation Agency KOICA Korea International Cooperation Agency LMICs low- and middle-income countries MCH maternal and child health MDGs Millennium Development Goals MDTF multi-donor trust fund MOF Ministry of Finance MOH Ministry of Health NCD noncommunicable disease NGO nongovernmental organization ODA official development assistance OECD Organisation for Economic Co-operation and Development OMS operational material and supplies OMT overseas medical transfers OOPs out-of-pocket payments PFM public financial management PSC Public Service Commission PV present value SAMES Serviço Autónomo de Medicamentos e Equipamentos de Saúde (the autonomous national drug and medical equipment procurement agency) SDP Strategic Development Plan TB tuberculosis THE total health expenditure UNDP United Nations Development Programme UNFPA United Nations Population Fund UNICEF United Nations Children’s Emergency Fund USAID United States Agency for International Development WDI World Development Indicators WHO World Health Organization WHO SEARO World Health Organization South-East Asia Regional Office Contents Acknowledgments................................................................................................................................ iv List of Abbreviations and Acronyms ................................................................................................i Executive Summary ................................................................................................................................i Chapter 1: Introduction ...................................................................................................................... 1 Economic Context ......................................................................................................................................... 1 Demographics and Population Health Outcomes......................................................................................... 3 Overview of the Health System and Health Services Utilization .................................................................. 4 Health Financing ........................................................................................................................................... 6 Rationale for the Report ............................................................................................................................... 9 Chapter 2: The Fiscal Impact of Human Resource Development in the Health Sector ................................................................................................................................................................... 11 Introduction ................................................................................................................................................ 11 Ministry of Health Staffing Trends, 2002–14 .............................................................................................. 11 Staffing Cost Trends, 2008–14 .................................................................................................................... 13 Characteristics of the Current Public Sector Health Workforce ................................................................. 13 Future Health Staffing Demand Scenarios and Costs ................................................................................. 17 Scenario 1. Maintaining Current Population-to-Staff Ratios to 2025 ..................................................... 19 Scenario 2. The WHO-Recommended “Threshold” Service Delivery Staff Scenario ................................ 20 Scenario 3: Timor-Leste New Rural Health Staffing Initiative ................................................................. 22 Comparison of the Three Scenarios ............................................................................................................ 23 Impact of the Three Scenarios on Future Health Budgets .......................................................................... 24 Conclusion ................................................................................................................................................... 25 Chapter 3: Analysis of Trends in Government Health Expenditure .................................. 28 Introduction ................................................................................................................................................ 28 Current Trends in Health Expenditure ........................................................................................................ 28 Health and Total Government Expenditure ............................................................................................ 28 Health Expenditure by Level of Spending ................................................................................................ 29 Health Expenditure by Key Expenditure Items ........................................................................................ 30 District Recurrent Health Expenditures ...................................................................................................... 36 District Expenditure on Salaries/Wages .................................................................................................. 36 District Non-Salary Recurrent (Goods and Services) Expenditure ........................................................... 37 Estimating Future Resource Availability for the Health Sector .................................................................. 37 Conclusion ................................................................................................................................................... 39 Chapter 4: Analysis of Donor Health Funding ........................................................................... 41 Trends in Official Development Assistance................................................................................................. 41 Donor Funding for Health ........................................................................................................................... 43 Donor Funding for Health by Development Partners ................................................................................. 44 Donor Funding for Health by Subsector ..................................................................................................... 45 Incremental Recurrent Costs from Donor Funding..................................................................................... 48 Estimates of Incremental Recurrent Costs ................................................................................................. 49 Conclusion ................................................................................................................................................... 50 Chapter 5: Conclusion and Policy Recommendations ............................................................ 52 Pressure from the Rising Wage Bill ......................................................................................................... 52 Pressure from Pharmaceutical Spending ................................................................................................ 54 Pressure from Overseas Medical Transfers ............................................................................................ 55 Pressure from Declining Donor Spending on Health.............................................................................. 56 Policy Recommendations ............................................................................................................................ 57 Executive Summary Introduction Timor-Leste has achieved significant improvements in the health sector since becoming independent a little over a decade ago. At the time of independence, Timor-Leste had some of the poorest health indicators in the world and a decimated health infrastructure. Since then, health outcomes have improved substantially, with significant reductions in child and maternal mortality, improved antenatal care coverage, increased use of contraception, and greater awareness and knowledge of infectious and noncommunicable diseases. However, many health challenges remain. The maternal mortality rate and the stunting rate for children under five are still among the highest in the world. The immunization rate is still far from an optimal level and access to quality health services remains limited. Like many developing countries in the Asia-Pacific region, Timor-Leste is undergoing an epidemiology transition as the noncommunicable disease burden increases, while infectious disease prevalence remains high. A key objective of this report is to collaborate with the Ministry of Health (MOH) and other key government agency staff (particularly Ministry of Finance (MOF) and Public Service Commission (PSC)) to create an in-depth understanding of the critical strategic issues that require fiscal space by analyzing the resource envelope from government (internal) and donor (external) funding. The aim of this report is to provide analysis that will assist in improved planning and budgeting. More specifically, the report aims to: (i) analyze trends in health sector public expenditures (budgets and realized expenditures); (ii) document trends in staffing and training, including their costs; (iii) understand the likely resource envelope available to the health sector over the next five years (from all sources); and (iv) provide options to adjust expenditures, to support key priorities and improve the efficiency of existing expenditures to create space for key priorities. The document does not assess the impact of increased deployment of healthcare workers to rural areas. Health Financing The health financing landscape in Timor-Leste is changing. The health budget rose drastically during the past decade as actual government health spending more than doubled between 2008 and 2014. This change was partly a result of an overall increase in public expenditure. However, the growth outlook for the Timorese economy during the next few years is subdued. Consequently, the government is attempting to control rising public expenditure, which has already led to a substantial reduction in the national health budget for 2016. Looking forward to the medium term, the resource envelope for health will be significantly constrained relative to the recent past. The fiscal space for health will tighten further as official development assistance for health is reduced. Health sector donors support a wide range of health programs in Timor-Leste, some of which are critical to the national goal of maintaining a healthy population. In the last few years donor health spending has been on a notable downward trend and is projected to decline considerably in the medium term. This will place significant pressure on the total health budget, as the Ministry of Health (MOH) will be forced to fund priority health projects previously funded by donors. There has also been a substantial change in the size and composition of the health workforce since the collaboration with the Cuban government and the Cuban Medical Brigade, which is helping to train and deploy doctors throughout Timor-Leste. The number of doctors in Timor-Leste has i increased dramatically and will continue to increase as soon-to-be health professionals complete their training programs. Doctors represent a greater expense over other types of health care providers. The dramatic increase in the number of doctors in the health system is expected to have a weighty impact on salary and non-salary recurrent expenditure. The MOH faces serious challenges in creating and sustaining fiscal space for maintaining key quality enhancing inputs to support health service delivery in Timor-Leste. Now, more than ever, strategic planning and proactive health policies are critical to the continued and sustained improvement of the Timor-Leste health system. This report reviews the critical fiscal issues facing the health sector in the medium term, including the key areas demanding fiscal space, and the likely resource envelope from government and donors. The report analyzes past trends in health expenditures (by the government and donors), forecasts future resource availability and examines implications for the MOH to sustain delivery of quality health services. Key Findings The report reviews key expenditure item spending trends and their subsequent impacts. It also examines the likely health resource envelope from government and donor financing. In some of the key expenditure categories inefficiencies and possible wastages were identified. The key findings are as follows: • The health sector wage bill has risen significantly and will continue to rise. The rising health sector wage bill in Timor-Leste poses perhaps the biggest challenge to the health budget in the medium term (Figure ES.1). The health wage bill grew by 344 percent from 2008 to 2014— significantly higher than the 233 percent growth of the overall government wage bill for the same period. The rapid expansion of the health wage bill was underpinned by a major scale-up of the medical workforce. The projections of three future demand scenarios for the health workforce illustrate the importance of maximizing the value of the current workforce to maintain a financially sustainable health worker wage bill. Figure ES.1 Salary and Wage Expenditure (Actual and as a Proportion of Total Government Health Expenditure), 2008–14 30 45% 40% 25 35% Millions US$ 20 30% 25% 15 20% 10 15% 10% 5 5% 0 0% 2008 2009 2010 2011 Salary/wages(incl. 2012 overtime 2013 & allowance) 2014 Salary % Total GHE Source: Timor-Leste Transparency Portal, accessed July 2015. Note: GHE = government health expenditure. • Government pharmaceutical expenditure in Timor-Leste is high but not excessive. The overall level of government pharmaceutical expenditure in Timor-Leste is high but not excessive ii compared with spending in other low and middle-income countries (ES.2). What is striking in Timor-Leste is the rapid growth of pharmaceutical and supplies expenditures in the face of limited access to medicines and other essential supplies. The fiscal burden from growing pharmaceutical expenditures can be lessened if concerted efforts are made to improve the efficiency with which current and future resources are expended. Figure ES.2 Operational Materials and Supplies Expenditures (Actual and as a Proportion of Total Government Health Expenditure), 2008–14 12 20% 10 15% Millions US$ 8 6 10% 4 5% 2 0 0% 2008 2009 2010 2011 2012 2013 2014 OMS (incl. pharmaceuticals) OMS % Total GHE Source: Timor-Leste Transparency Portal, accessed July 2015. Note: GHE = government health expenditure; OMS = operational material and supplies. • Overseas medical transfers (OMTs) account for a significant proportion of non-salary recurrent spending. Fortunately, there are some indications that OMTs expenditure is beginning to decline in absolute terms. It is critical that the government continues to closely monitor these costs. • The overall health resources envelope has tightened and will continue to tighten in future years. The 2016 National Budget Book implies that the domestic resource envelope for the health sector will be limited in the future. Donor funding for the health sector is also likely to decline. This overall decline of the health resource envelope presents challenges and opportunity. Policy Recommendations The pressures that Timor-Leste’s Ministry of Health is facing present an opportunity to take a more critical look at the health system and identify challenges and areas to improve service delivery and health resource distribution. This report identifies the key fiscal challenges that confront the health budget in the medium term and presents the following policy recommendations: 1. Develop a strategy to maximize the value of the current health workforce rather than focusing on expansion. There is a significant need to stimulate demand for services and ensure staff is adequately trained and supported by resources to provide quality services. The rising health sector wage bill is driven by the large increase in the number of health workers, particularly doctors. The expansion of the workforce and the wage bill can be slowed down, if the MOH develops an effective strategy to maximize the value of the current health workforce. Some expansion is necessary to maintain an appropriate mix of staff for service delivery. However, the number of health workers in iii certain cadres is sufficient, including medical doctors. The following strategies are recommended to maximize the value of the current health workforce: (a) Establish a specialty training program for a percentage of current primary doctors to address the shortage of specialists in the country. This program would also provide primary doctors with strong performance incentives to be selected for the specialty training program; thereby improving service delivery. 1 (b) Improve the functionality of rural health facilities in accordance with the Basic Service Package. The World Bank’s earlier report on the Health Workers Survey in Timor–Leste highlights the challenges to keep rural health clinic infrastructure up to standard, including stable water and electricity supplies. The findings also emphasize the urgency of equipping health posts with the necessary medical devices and supplies to the mandated standards. This effort will not only improve patient care, but will also improve health staff retention and performance. (c) Optimize the composition of the health workforce by increasing the number of midwives and nurses while maintaining the current number of doctors. (d) Evaluate other opportunities to retrain and convert some of the current health workforce (such as assistant nurses) to address the shortage of nurses and midwives. 2. Improve the efficiency of health spending. Higher spending on health can contribute to better outcomes, as can improvements in the efficiency of health spending. There appear to be significant inefficiencies in health spending, particularly in the area of pharmaceutical expenditures. The extent of these inefficiencies is not entirely clear, because of the lack of proper data. That said, the systematic documentation of the budget, expenditure, personnel, and health utilization information will help track expenditures and expenditure outcomes. Improved efficiency will ensure that resources are available in a timely manner and will reduce cost pressures. The government needs to improve the quality of health spending to ensure value for money, and in particular: (a) Strengthen public financial management across the health system in line with the reforms being undertaken by the Ministry of Finance, and improve the disbursement of funds to the districts. Funds need to be spent in a more efficient manner, with an emphasis on efficient pharmaceutical spending. (b) Strengthen planning and budget management at the District Health System level to reduce the high centralization of expenditure at the MOH head office. High expenditure at the central MOH level is caused in part by limited capacity for budget management at the district level. Health spending cannot be effectively decentralized if districts lack the ability to plan prudently and manage funds. Planning and management capacity appears to have improved at the central level in recent years. The MOH can constitute and deploy teams of central-level managers with technical expertise in budget management to localities across districts. On- the-job support from a few international experts can develop the managers’ planning and budget management capacity. 1 Findings based on the Health Worker Survey in Timor-Leste, 2015. iv (c) Improve the MOH budget execution rate demonstrating the ability to absorb additional funding. The Ministry of Finance will hesitate to raise the ratio of government health spending to total government expenditure if it is not convinced that the MOH can execute its budget diligently. Although the overall budget execution rate of the MOH seems to have improved considerably, there are still weaknesses. Addressing these weaknesses will allow the MOH to argue for a greater share of the state budget. 3. Support the MOH to develop a long-term financing sustainability plan for key donor projects. With the decline of donor health spending and the increased likelihood that the MOH will assume greater responsibility for several donor-supported projects, there is an urgent need for a health financing sustainability plan. Data obtained from several key health sector donors suggest that some level of donor spending will be available in the next two to three years, but that several donor projects are likely to transition to the MOH after this period. It will be helpful to use this “phasing out” period to assist the MOH in preparing a sustainability plan with detailed options and resource requirements for the integration of key donor projects into national programs. All possible options should be fully costed to allow the MOH to evaluate the likely impact on health outcomes and the budget. 4. Systematically document budget, expenditure, personnel, and health utilization information to provide an information base for sound health planning. This recommendation includes documenting staff by occupation, district, and type of facility (hospital, community health center, and health post) through the personnel system (modifying the system to generate the required data where necessary in cooperation with the Public Service Commission); documenting and monitoring the deployment of health staff cadres relative to the population by facility and district, together with staff workloads derived from the health information system; and documenting the budgets and expenditures by a similar breakdown to facilitate the monitoring of linking expenditures and health services delivery indicators. Systematic documentation of this will provide an information base for sound health planning and decision making on staff deployment. v Chapter 1: Introduction Timor-Leste has made significant improvements in the health sector since becoming independent a little over a decade ago. At that time, Timor-Leste had some of the poorest health indicators in the world and a decimated health infrastructure. Since then, the country has made progress, including a reduction in child and maternal mortality, improved antenatal coverage, increased use of contraception, and greater awareness and knowledge of infectious and noncommunicable diseases (NCDs). However, many health challenges remain. The maternal mortality rate (MMR) and the stunting rate for children under age five are still among the highest in the world. The immunization rate is still far from optimal, and access to quality health services remains limited. Like many developing countries in the Asia-Pacific region, Timor-Leste is undergoing an epidemiology transition as the burden of NCDs increases. Quality health services are still limited, particularly for the poor. Now, more than ever, strategic planning is critical for the continued and sustained improvement of the Timor-Leste health system. Economic Context Timor-Leste is a lower-middle-income economy. The country has experienced significant economic growth in the past decade. Per capita non-oil gross domestic product (GDP) grew continuously from 2002 to 2014 (figure 1.1), outpacing the rest of the East Asia and Pacific region, although from a very low base. The annual per capita non-oil GDP growth rate peaked in 2008 at 14.2 percent and has slowed since then (figure 1.2) (World Development Indicators (WDI)). Despite economic growth, poverty remains persistently high, particularly in rural areas where the majority of the population lives. The Timor-Leste Survey on Living Standards in 2007 estimated that 49.9 percent of the population lived under the poverty line (Ministry of Finance 2008). The new Living Standard Survey is being finalized and the new poverty data are expected to be available soon. Figure 1.1 Non-Oil GDP per Capita in Timor-Leste, 2002–14 1500 100 750 1000 1250 80 Share of population (%) GDP per capita, US$ 40 60 500 20 LOW ER LOW MIDDLE 250 INCOME INCOME 0 2002 2004 2006 2008 2010 2012 2014 Year Source: W orld Development Indicators database Note: GDP per capita in 2013 constant US$ 1 Figure 1.2 Year-on-Year Non-Oil GDP Growth Rate in Timor-Leste, 2002–14 15 10 Percentage (%) 50 -5 2002 2005 2008 2011 2014 Year Source: W orld Development Indicators database Timor-Leste is one of the most oil-dependent countries in the world, although known reserves are being quickly depleted. Although non-oil GDP per capita grew steadily between 2008 and 2014, the total GDP per capita (which includes oil and non-oil sector GDP) experienced some volatility between 2008 and 2011, and then fell steadily from US$5,113 in 2011 to US$3,659 in 2014 (figure 1.3). Timor-Leste’s oil wealth, which is collected in the Petroleum Fund and drawn into the state budget, provides fiscal space and supports government services and investment that are essential for development. However, at current extraction rates, reserves from fields currently under production are unlikely to last beyond 2025, and revenues are estimated to have peaked at US$2.8 billion in 2011. Finite petroleum wealth can still provide a perpetual stream of income by using only the returns from Petroleum Fund investments. However, the fiscal sustainability analysis undertaken in the “Timor-Leste Public Expenditure Review: Infrastructure” (Ministry of Finance and World Bank 2015) “demonstrates that frontloading is a viable strategy, but only if domestic revenue is increased as a percentage of non-oil GDP and there is constrained growth in nominal expenditure.” For example, there is a potential window of opportunity to build the non-oil economy and public system foundations for improved growth prospects in the future. The government thus faces the challenge of balancing the current economic need (and reliance) with the challenge to ensure the Petroleum Fund’s sustainability, as it represents a safety net for government expenditure (Ministry of Finance and World Bank 2015). Figure 1.3 Total GDP per Capita, Constant Prices (U.S. Dollars), 2008–15 5,000 4,432 4,015 3,815 4,090 4,198 Total GDP per capita (constant price US$) 4,000 3,520 2,887 2,795 3,000 2,000 1,000 0 2008 2009 2010 2011 2012 2013 2014f 2015f Source: Historical data (2008–13) are from the Government of Timor-Leste; projections (2014–15) are World Bank staff estimates. Note: GDP = gross domestic product. 2 The private sector remains largely underdeveloped and relies heavily on demand from government spending, especially the construction sector. Agriculture (including forestry and fishery) accounts for about 30 percent of non-oil GDP and provides livelihoods to around 80 percent of the population. Coffee is the main export commodity, accounting for nearly 80 percent of total non-oil exports (Ministry of Finance, 2011b). Despite the high participation in agriculture, Timor-Leste faces chronic food insecurity, which is often attributed to low crop yields, lack of income-generating activities, limited purchasing power, periodic droughts, and insufficient infrastructure (IMF 2013). The growth outlook for the Timorese economy reflects a more subdued prospect in the short to medium term, partly because of the decline in oil prices. Based on recent World Bank 1projections, the Timor-Leste oil economy was expected to drop by 23 percent from 2013 to 2014, and drop by another 2 percent in 2015 (in constant prices). Non-oil GDP growth is estimated to have moderated to 4.3 percent in 2015 from 5.5 percent in 2014, because of weaker government spending. Growth is expected to pick up again to 5.1 percent in 2016 and 5.5 percent in 2017 (World Bank 2016). Current public finance policies aim to ensure fiscal sustainability in government spending. Overall, Timor-Leste faces a tightening fiscal space. The reduction in official development assistance (ODA) will further impact fiscal sustainability in Timor-Leste. Demographics and Population Health Outcomes Timor-Leste has one of the youngest populations in the world, with 60 percent of the population under age 25 years (World Bank 2015). The fertility rate in 2013, although declining, was still among the highest in the world, with women averaging 5.2 children. It is the only non-African country in the list of the top 20 countries with highest fertility rates (WDI). According to the 2015 Population and Housing Census, Timor-Leste has a total population of 1.167 million (Ministry of Finance, 2015b). Timor-Leste had some of the poorest health indicators in the world and a decimated health infrastructure at the time of independence. Over the past decade, Timor-Leste has seen significant improvements in the health sector and health outcomes. This has resulted in the consistent decline of maternal, neonatal, infant, and under-five mortality rates and a rising life expectancy (figure 1.4). Figure 1.4 Key Population Health Outcomes in Timor-Leste, 2002–14 250 50 55 60 65 Life expectancy (right axis) Mortality rate per 1,000 live births 100 150 Years Under-fiv e mortality (left axis) 45 Infant mortality (left axis) 50 40 25 35 2002 2004 2006 2008 2010 2012 2014 Year Source: W orld Development Indicators database Note: y-scales logged 1 World Bank East Asia and Pacific Update. 3 The MMR declined from 1,080 per 100,000 live births in 1990, to 694 in 2000, to 215 in 2015 (WDI). However, the MMR is still high compared to other countries in the region—Cambodia (161), Indonesia (126), Lao People’s Democratic Republic (197), Malaysia (40), Myanmar (178), the Philippines (114), Thailand (20), and Vietnam (54) (WDI). High fertility rates and poor access to quality maternal health services contributes to the MMR. Under-five mortality rates were reduced from 175.7 per 1,000 live births in 1990, to 110.2 in 2000 and 52.6 in 2015 (WDI). The under-five mortality rate is unevenly distributed, with rates being significantly worse among the poor segment of the population (World Bank, 2014). The under-five mortality rate is still high for the region, compared with Cambodia (28.7), Indonesia (27.2), Lao PDR (66.7), Malaysia (7), Myanmar (50), the Philippines (28), Thailand (12.3), and Vietnam (17.3) (WDI). In 2013, the leading causes for under-five mortality included preterm birth complications (18.85 percent), lower respiratory disease (16.73 percent), congenital anomalies (11.66 percent), and diarrhoeal diseases (10.99 percent) (Institute for Health Metrics and Evaluation, 2016) Life expectancy in Timor-Leste has improved significantly, rising from 48.5 years in 1990, to 59.5 in 2000 and 67.5 in 2013 (WDI). However, this rate is still lower than the life expectancy in most countries in the region— Cambodia (71.7), Indonesia (70.8), Lao PDR (68.2), Malaysia (75), Myanmar (65.1), the Philippines (68.7), Thailand (74.4), and Vietnam (75.8) (see figure 1.5) (WDI). Like many developing countries in the Asia-Pacific region, Timor-Leste is undergoing an epidemiology transition as the burden of NCDs increases, in addition to a high infectious disease burden. NCDs are estimated to have accounted for 44 percent of total deaths in 2014 (WHO 2014). The top 10 causes of premature death in the country include the following: lower respiratory infection, diarrhoeal disease, pre-term birth complications, congenital anomalies, ischemic heart disease, neonatal encephalopathy, stroke, tuberculosis, malaria and meningitis (Institute for Health Metrics and Evaluation). Figure 1.5 Life Expectancy and Infant Mortality Relative to Income, 2013 Life expectancy Infant mortality 50 75 125 85 Vietnam Lao PDR 75 Malaysia Thailand Timor-Leste Sri Lanka Myanmar Cambodia Indonesia Rate per 1,000 live births Cambodia 25 Lao PDR Philippines Philippines Indonesia Timor-Leste Vietnam 65 Myanmar Years Thailand 10 Sri Lanka Malaysia 5 55 2 LOW ER UPPER LOW ER UPPER MIDDLE MIDDLE MIDDLE MIDDLE LOW INCOME HIGH INCOME 45 INCOME INCOME LOW INCOME INCOME INCOME HIGH INCOME 1 250 500 1000 2500 10000 35000 100000 250 500 1000 2500 10000 35000 100000 GNI per capita, US$ GNI per capita, US$ Source: W orld Development Indicators database Note: Both y- and x-axes logged Overview of the Health System and Health Services Utilization The health sector has made significant progress since independence by re-establishing basic infrastructure and services. By 2011, in addition to the national referral hospital in Dili, the health 4 system infrastructure included five district referral hospitals, 66 community health centers, 42 maternal clinics, and 193 health posts owned and operated by the MOH. In addition, 26 community health centers and one maternity clinic have been established and are operated by the private sector—most of which are part of the Café Timor coffee cooperative network (Ministry of Health 2011). The MOH has plans to establish a network of health posts—one in each suco (subdistricts are subdivided into sucos, of which there are 442 in Timor-Leste). The size of the MOH workforce has increased dramatically in recent years. During the early years of post-referendum reconstruction (the early 2000s), the MOH had a staff complement of approximately 1,500 throughout the country. In 2003, decisions were made to train a significant number of medical students with the support of the Cuban government. Since 2010, the newly trained doctors have been deployed annually throughout Timor-Leste upon successful completion of their training program. The total health workforce has thus increased significantly, with the doctors-to-1,000 population ratio being comparable to other countries in the region (figure 1.6) (OECD 2014). At the same time, the nurses-to-1,000 population ratio remained lower than some countries in the region (figure 1.7). Population health facility usage is improving as a result of improvements in health facilities and the health work force. The total number of outpatient visits to public health facilities per capita (ambulatory care) was estimated at 1.9 per capita in 2007/08. District visits to public health facilities was estimated at 1.7 per capita, and visits to hospitals at 0.2 per capita. There is strong evidence that the poor rely more heavily on lower levels of the health system (World Bank 2014). More recent National Health Information System data show that the average number of outpatient visits per person per year has increased from two (2012), to 2.2 (2013) and 2.9 (2014) (Department of Statistics 2012, 2013, 2014). Figure 1.6 Doctors per 1,000 Population 1.8 1.7 1.6 1.4 1.2 1.2 1 0.8 0.8 0.6 0.6 0.4 0.3 0.3 0.2 0 Indonesia Myanmar Singapore Thailand (2010) TL (2014) Vietnam (2010) (2013) (2011) (2011) Source: OECD Health at a Glance: Asia/Pacific 2014. Timor-Leste figures are staff calculations. Note: TL = Timor-Leste. Figure 1.7 Nurses per 1,000 Population 5 6.0 5.2 5.0 4.0 3.0 2.0 1.7 1.2 1.4 0.9 0.9 1.0 0.6 0.0 Indonesia Myanmar Singapore Thailand TL (2014) w/ TL (2014) Vietnam (2013) (2011) (2011) (2010) midwives w/o (2010) midwives Source: OECD Health at a Glance: Asia/Pacific 2014 Timor-Leste figures are staff calculations. Note: Some countries have included midwives and some have not. As a result, two calculations are included for Timor-Leste, one including midwives and one without them. TL = Timor-Leste. Some key health services utilization indicators are still far behind international standards. As of 2014, 22 percent of pregnant women were not reached by the health system; approximately 24,000 women did not receive any post-natal care after delivery, and approximately 42 percent of health posts did not have a midwife (Department of Statistics 2014). Another key area where improvements have been made, but where there is still much to be achieved, is immunization rates. Rates of fully vaccinated children have increased from 18 percent in 2003 (according to District Health System (DHS) information), to 53 percent (based on the 2009/10 population survey data). Although this marks a significant improvement, it is still a long way from the target 80 to 90 percent coverage needed to establish herd immunity. Health care utilization in Timor-Leste is not equally distributed. The poor tend to utilize lower level health care services, such as community health centers and mobile clinics, more frequently than the wealthy. The wealthy use hospitals more frequently, which are more costly than lower- level health care services. The poor are disproportionately represented in the segment of the population not accessing health services, particularly hospital services. Conversely, the use of key maternal and child health interventions is usually higher among the better off. For example, use of mosquito nets by children and pregnant mothers is twice as high for those in the richest quintile as those in the poorest quintile. Women in the wealthiest quintile are 6.5 times more likely to deliver with a skilled attendant than women in the poorest quintile (World Bank 2014). Health Financing Government health spending, as a proportion of GDP, remains relatively low (under 2 percent overall), although there has been steady growth in recent years. As figure 1.8 illustrates, following some fluctuations between 2008 and 2011, government health expenditure, as a percentage of GDP rose steadily, from 0.89 percent in 2011, to 1.32 percent in 2012, and 1.17 percent in 2013. The national data show that in 2015, government health expenditure as a percentage of GDP rise to 1.7 percent. This contributed to the growth of the overall health sector budget, at least in nominal terms. Unless the proportion of GDP expended on health further increases, the health sector will struggle if total GDP declines. 6 The data come from the WDI database, which makes them consistent for international comparisons. However, government spending on health through the Infrastructure Fund and Human Development Fund, which are mapped to other ministries, was not included in the analyses. This was to ensure the consistency of expenditure trends and projection analyses. For example, a drop in infrastructure investment does not represent a decrease in health spending, but can simply mean the completion of a major health project funded under the Infrastructure Fund. Figure 1.8 Government Health Expenditure as a Proportion of GDP, 2008–13 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2008 2009 2010 2011 2012 2013 GHE % of GDP Source: World Development Indicators. Note: GDP = gross domestic product; GHE = government health spending. Health financing in Timor-Leste is highly centralized. Government spending accounted for 91.7 percent of total health spending in 2013 (figure 1.9). Compared with other countries in East Asia, the share of total government expenditure for overall health expenditure is relatively high in Timor-Leste (figure 1.10): government expenditure as a share of total health expenditure (THE) accounts for 91.7 percent in Timor-Leste, higher than Indonesia (34.1percent), Lao PDR (49.3 percent), Thailand (80.1 percent), and Vietnam (41.9 percent). Figure 1.9 Health Financing Mix, 2000–13 100% 80% 60% 40% 20% 0% 2000 2005 2010 2011 2012 2013 Government Sources Out of Pocket Expenditure Other Private Sources Source: World Health Accounts. 7 Figure 1.10 Government Health Expenditure as a Share (%) of Total Health Expenditure, 2013 100.0 91.7 90.0 80.1 80.0 70.0 60.0 54.8 49.3 50.0 39.0 41.9 40.0 27.2 31.6 30.0 20.5 20.0 10.0 0.0 Source: World Development Indicators. Publicly provided health care is free at the point of service and thus out-of-pocket payments (OOPs) are low compared with other East Asia and Pacific countries. Figure 1.11 shows that OOP spending in Timor-Leste is far lower than that in other countries with similar government health spending as a share of GDP. OOP payments were estimated at only 4 percent, indicating that, at face value, OOP should not be a major constraint to the overall access to health services. OOP payments may represent a constraint in access to specific services with fees, especially for the poor segment of the population, particularly when travel is involved. Figure 1.11 Out-of-Pocket and Government Health Spending, 2013 80 OOP share of total health spending (%) Myanmar 60 Cambodia Philippines Indonesia Vietnam Sri Lanka 40 Lao PDR Malaysia 20 Thailand Timor-Leste 0 0 3 6 9 12 15 Government health spending share of GDP (%) Source: World Development Indicators database External financing comprises a significant portion of total health expenditure in Timor-Leste. External financing as a share of total health expenditure in Timor-Leste is much higher compared with countries with similar gross national income per capita (figure 1.12). However, there has been a clear trend toward declining donor funding in Timor-Leste since 2012, including funding 8 for health. Donor health spending fell by 26 percent from the 2011 level of US$38.9 million, to US$28.9 in 2014 and projections for 2015 suggest a further decline to $US25.2 million. 2 Figure 1.12 External Share as Percentage of Total Expenditure on Health vs. Income, 2013 Rationale for the Report The health financing landscape in Timor-Leste is changing. Looking forward to the medium-term total and health state budget expenditures will be significantly constrained relative to the recent past. There has also been a significant change in the size and composition of the health workforce since the collaboration with the Cuban government and the Cuban Medical Brigade. As a result, the number of doctors in Timor-Leste has increased dramatically and will continue to increase as medical students complete their training programs. Of course, doctors represent a greater expense over other types of health care providers. The dramatic increase in the number of doctors in the system is expected to have a significant impact or pressure on the other recurrent expenditures, including pharmaceuticals and other medical supplies. Understanding past health expenditure trends and key expenditure projections is particularly important in light of the expected increase in usage, and should be analyzed as a way to meet increasing need. Finally, an expected decrease in donor financing will further increase fiscal pressure on health. In addition to health expenditures financed by the state budget, development partners are very important financial partners supporting health programs and the health system. Health sector donors support a wide range of health programs in Timor-Leste, some of which are critical to the national goal of maintaining a healthy population. Several donors support interventions in key health areas, including maternal and child health, nutrition, sexual and reproductive health, and health policy and systems strengthening. These facts suggest that the MOH is confronted with very serious challenges to create and sustain fiscal space for maintaining key quality-enhancing inputs to support health service delivery in 2 Data from Timor-Leste transparency portal at http://www.transparency.gov.tl/english.html. 9 Timor-Leste. In an effort to implement the Health Financial Management Reform Road Map, the World Bank and the Timor-Leste MOH have undertaken an analysis of the medium-term pressures on the health budget. An analysis was originally conceived and included in the Road Map as an update of the Health Medium Term Expenditure Framework. However, discussions with MOH and the Government of Timor-Leste, including the Ministry of Finance (MOF), Public Service Commission (PSC), development partners, and other health stakeholders, suggested that it would be more appropriate to focus on two or three critical strategic issues that are facing the health budget and health planners in the medium term. A key objective of this report is to collaborate with the MOH and central agency staff (particularly MOF and PSC) to create an in-depth understanding of the critical strategic issues that demand fiscal space by analyzing the resource envelope from government (internal) and donor (external) funding. Hopefully, this will result in better planning and budgeting. More specifically, the report aims to: (i) analyze trends in health sector public expenditures (budgets and realized expenditures); (ii) document trends in staffing and training, including their costs; (iii) understand the likely resource envelope available to the health sector over the next five years (from all sources); and (iv) provide options to adjust expenditures, to support key priorities and improve the efficiency of existing expenditures to create space for key priorities. The report is organized as follows: Chapter 2 analyzes human resource development in health by discussing three scenarios for medium term health staff planning. The scenarios are linked to existing and planned policy options—particularly for direct service delivery cadres and key technical support staff. Chapter 3 examines trends in government health spending by key expenditure areas and discusses the increasingly important role that government spending will play in the health sector. The chapter disaggregates non-salary recurrent expenditure, and highlights growing pharmaceutical and medical supply expenditures and a significant overseas medical transfer bill. Chapter 4 analyzes the past trends in donor health financing in Timor-Leste. The chapter establishes the likely future resource envelope available to the health sector from development partners, including the demands for counterpart financing by development partners. Chapter 5 concludes by reviewing four key areas (rising wage bill, pharmaceutical spending, overseas medical transfers, and declining donor spending) that are exerting pressure on health sector financing, and suggests policy recommendations based on the analysis detailed in this report. 10 Chapter 2: The Fiscal Impact of Human Resource Development in the Health Sector Introduction This chapter explores past trends in the Timor-Leste health workforce, its current composition and distribution across the country, and considers issues surrounding the future demand for health staff. Government authorities, including the MOH, MOF, and PSC; development partners and other health stakeholders have signaled, in the context of review and discussion of the implementation of the Health Financial Management Reform Road Map that human resource pressures on the current and projected medium-term health budget are of immediate critical importance. There is an increasing realization that a predicted decline in donor health funding coupled with a rapidly growing wage bill will impact the sustainability of health financing in Timor-Leste. A cursory assessment of health system outcomes and performance might suggest that significant additional staff may be required to reach the desired service levels. However, the weight of evidence in this chapter reveals that there is little evidence to suggest a significant need for staff expansion. The data suggest a significant need to stimulate demand for services and ensure that staff is adequately trained and supported by resources to enable the provision of quality services. Ministry of Health Staffing Trends, 2002–14 The size of the MOH workforce has increased dramatically over the past 12 years, and there remains considerable momentum for its continued expansion. During the early years of the post- referendum reconstruction (the early 2000s), the MOH had a staff complement of approximately 1,500 initially supported by several international nongovernmental organization (NGOs), as the MOH was just established. During the Indonesian administration, approximately 3,540 staff, including 135 doctors, worked for the publically financed health sector. 1 After independence, only 20 doctors remained in the whole country—not all working for the embryonic MOH. Nurses and midwives were recruited within the 1,500-person ceiling and deployed to each reestablished health facility. 2 By and large, health services outside the five regional hospitals and the referral hospital in Dili were delivered without the support of doctors. In addition, there were no doctors in the district health administrations, which were established to be the backbone of MOH administration in the districts. The health workforce increased from about 900 in 2002, to 1,643 by 2004, and then expanded by a little under 250 per year through 2008, increasing to almost 2,000 in 2006 and 2,461 in 2008 (table 2.1). Subsequently, staff numbers increased significantly from the early Independence years to 3,024 by 2010—a significant increase of 238 percent from just eight years earlier. Over 2010 to 2014, total staff numbers increased another 1,188, or 39 percent, to reach 4,220. This 1 The United Nations established a much smaller civil service than existed under the old Indonesian administration, because of concerns about the sustainability of the finances of a new Independent Timor-Leste, however, it significantly increased (approximately 100 percent) the level of wages paid compared with the levels paid to civil servants under the Indonesian administration. 2 An initial decision was also taken not to rebuild all previously operational health facilities. Given that about 80 percent of pre-existing health facilities were destroyed, there was an opportunity to consider options to reconfigure the entire health system. 11 marked a very rapid expansion of health system staffing, significantly faster than population growth. Table 2.1 Ministry of Health Staffing by Major Cadre, 2002–14 Staff category 2002 2004 2006 2008 2010 2013 2014 Direct service delivery staff Medical specialist 0 0 0 8 9 13 8 Doctor 6 13 21 29 30 544 835 Nurse 462 723 796 891 1,007 910 1,094 Midwife 199 296 343 386 431 483 502 Total direct service delivery 667 1,032 1,160 1,314 1,477 1,950 2,439 Service delivery support Laboratory technician 17 37 42 73 128 Pharmacist 5 12 14 43 137 Radiologist 12 16 16 16 17 Total service delivery support 34 65 72 132 282 390 Other health workers Public health officers and 45 71 82 115 164 956 assistant nurses Health managers and admin 149 475 674 900 1,101 435 Total other health workers 194 546 756 1,015 1,265 1,391 Total workforce 895 1,643 1,988 2,461 3,024 4,220 Sources: National Health Sector Strategic Plan 2011–2030; Public Services Commission 2014. The composition of the workforce and trends in different categories of workers over time provides further important insight into how the health workforce has evolved over the 12-year period. Table 2.1 categorizes the workforce (i) direct service delivery staff (medical specialists, doctors, midwives, and nurses); (ii) service delivery support (laboratory technicians, pharmacists, and radiologists, which provide technical support service delivery); and (iii) other health workers (public health officers and assistant nurses, and health managers and administrators). The number of direct service delivery staff (doctors, midwives, and nurses) increased from 667 in 2002 (three-quarters of the total workforce), to 1,477 in 2010 (slightly under half of the total workforce), to 2,439 (58 percent of the workforce) in 2014. Over 2002–10, direct service delivery staff grew much slower than the total workforce, but during 2010–14, direct service delivery staff grew much faster than the total workforce. This increase was caused by the rapid expansion of doctors, from 30 in 2010, to 835 in 2014. This expansion occurred with the return of large numbers of Cuban-trained doctors. The number of doctors is expected to increase by another 200 to 300, as the trainees return to Timor-Leste upon completion of their program. Other direct service delivery staff, midwives, and nurses, increased at much more modest rates, as domestic and international training capacity was much more modest compared with doctor training. Service delivery support staff increased rapidly from 2002 to 2010, but from a small base of 34 in 2002, to 282 in 2010. Over the period 2010–14, numbers only increased by 108 to 390—the same rate of increase as the total workforce. In 2010, this staff category only accounted for 9 percent of the total workforce, and has remained static over the past four years. The “other health workers” category has grown in importance since 2002 when the system was largely supported by several international NGOs. In 2002, this category employed 194 health 12 workers. By 2010, there were 1,265 other health workers, an increase of 552 percent to represent 42 percent of the total health workforce. By 2014, the number in this category had increased an additional 10 percent, to 1,391. This category displays somewhat slower growth than the growth in the total workforce and now represents one-third of the workforce. Staffing Cost Trends, 2008–14 The public sector wage bill constitutes a significant portion of government recurrent expenditure. Between 2008 and 2014, the MOH’s salary/wage expenditures increased from US$5.5 million to US$24.4 million (figure 2.1). The health sector wage bill is beginning to attract attention for two reasons: the recent large increase in medical workforce numbers and the new wage policy implemented by the MOH. The growth in expenditure was particularly pronounced between 2011 and 2014. This is not surprising, as it coincides with the deployment of the new Cuban-trained doctors. As a proportion of total government health expenditure, salary expenditure increased from 20 percent of total government expenditure in 2008 to 40.5 percent in 2014. Figure 2.1 Salary and Wage Expenditures, 2008–14 25.0 20.0 15.0 Million US$ 10.0 5.0 0.0 2008 2009 2010 2011 2012 2013 2014 Salary/Wage Expenditures Source: Timor-Leste Government Transparency Portal, accessed July 2015. The important implication of the increasing wage bill is how to sustain the non-salary recurrent health budget, which is critical for quality-enhancing expenditures, including the ability to sustain outreach and pay for pharmaceuticals and other important operational costs. More detailed analyses on this can be found in chapter 3. As Timor-Leste moves forward, it will be important to protect the non-salary budget against further constraints. Characteristics of the Current Public Sector Health Workforce This section describes the characteristics of the current health workforce. Table 2.2 presents information on the workforce by cadre and gender for 2014. Doctors, a key cadre that has grown dramatically in recently years, now constitute 20 percent of the total health workforce, with almost 50 percent being female. Midwives, critical for reproductive health services and birthing, represent 12 percent of the workforce, with the vast majority (97 percent) being female. Nurses, who were the absolute backbone of the Timorese health workforce for the first decade of the country’s existence, remain the largest single cadre of the health workforce, with 26 percent; only 37 percent are female. The role of nurses, and to a somewhat lesser extent the other cadres, has 13 evolved very significantly since the return and deployment of the Cuban-trained doctors across the country. Nurses were the primary diagnosticians in the absence of doctors post- independence. Doctors, where they are deployed, now undertake this function. Table 2.2 Health Workforce by Cadre and Sex, 2014 By Cadre Male Female Total Cadre (%) Female (%) Direct service delivery Medical specialist 8 (0.2) Doctors 431 404 835 20 48 Midwives 15 487 502 12 97 Nurses 689 405 1,094 26 37 Total direct 1,135 1,296 2,439 58 53 service delivery Allied health 212 178 390 9 46 General regime Public health officers & 700 256 956 23 27 assistant nurses Health managers 248 187 435 10 43 & admin Total general 948 443 1,391 33 32 regime Total health staff 2,295 1,917 4,220 100 46 Source: Public Services Commission 2014. Direct service delivery staff (doctors, midwives, and nurses) constitute 58 percent of the total health workforce. Allied health staff, those who technically support direct service delivery staff, constitute 9 percent of the workforce. General regime staff, covering administration and management, constitute 33 percent of the workforce. In the general regime staff category, public health officers and assistant nurses have become a numerically important cadre. Public health officers and assistant nurses are second in number to nurses, and represent 23 percent of the total number of staff. Further, they are predominately male (73 percent). As noted, these staff are predominately involved in clerical and administrative support throughout the health system—in administration, hospitals, and health centers. The existing health staff is deployed across the health system. The average population served by a health center in the MOH system is 17,633, and 5,763 are served by health posts. The average population per health center in each district, excluding the capital, Dili, varies between 7,845 in Manatuto and 23,274 in Liquica. The average population served by each health post varies between 2,477 in Manatuto and 7,578 in Ainaro, excluding Dili. This would seem to indicate that similar sized health facilities service significantly different population numbers, which is not unexpected given the scattered and uneven distribution of the population across the country. It is also clear that the existing health staff is distributed unevenly compared with the population—a major determinant of the demand for health services. Table 2.3 presents information on the distribution of the health staff by cadre and district, and compares the district percentage allocation of staff with the distribution of the population. The first key point is that Dili, which accounts for about 22 percent of the population, has 45 percent of the total health 14 workforce. While the major referral hospital and the MOH headquarters are located in Dili, it still contains a very large share of health staff, including almost 50 percent of the general regime staff and a similar share of the direct service delivery staff. Dili also has over one-third of all doctors and 40 percent of the 502 midwives. Baucau, the third largest district by population, with 10.4 percent of the total population, has a similar share of health staff (10.8 percent). This is because Baucau has the second largest hospital, which also services a regional population, although it is relatively close to Dili. All other districts have a staffing complement share that is relatively smaller than their population share. To some extent, the location of private facilities and staffing may explain some of the differences. 3 The staffing share and population share differences are significant for the Ermera district, which has 3.9 percent of the staff and 10.9 percent of the estimated 2014 population, while Alieu has 4.1 percent of the population and only 2.8 percent of the staff, and Bobonaro has 8.6 percent of the population and 5.8 percent of the staff. Table 2.3 Distribution of Health Staff by Cadre and District, 2014 Percent of Doctor Midwive Nurse Allied General Percent populatio District s s s health regime Total of total n Alieu 23 18 28 13 35 117 2.8 4.1 Ainaro 34 21 38 25 71 189 4.5 5.1 Baucau 83 59 141 40 133 456 10.8 10.4 Bobonaro 47 30 73 31 65 246 5.8 8.6 Covalima 34 27 56 28 66 211 5.0 6.5 Dili 410 199 475 139 670 1893 45.0 21.9 Ermera 30 14 39 16 59 158 3.8 10.9 Lautem 30 22 29 14 65 160 3.8 5.6 Liquica 26 21 29 11 41 128 3.0 5.9 Manatuto 38 34 41 17 34 164 3.9 4.0 Manufahi 25 19 23 13 54 134 3.2 4.5 Oecusse 25 13 50 23 61 172 4.1 6.0 Viqueque 30 25 71 20 36 182 4.3 6.5 4,21 Total 835 502 1,093 390 1,390 100 100 0 Sources: Ministry of Health, Public Service Commission, and staff calculations. Table 2.4 Distribution of Population per Health Staff Cadre by District, 2014 Allied General District Doctors Midwives Nurses health regime Total 3 It would be useful if MOH maintained detailed information on the location of private and NGO, including Café Timor, facilities, staffing and utilization. 15 Alieu 2,122 2,712 1,743 3,755 1,395 417 Ainaro 1,783 2,887 1,595 2,425 854 321 Baucau 1,482 2,085 872 3,075 925 270 Bobonaro 2,157 3,379 1,389 3,270 1,559 412 Covalima 2,248 2,830 1,365 2,729 1,158 362 Dili 630 1,298 544 1,858 386 136 Ermera 4,297 9,208 3,305 8,057 2,185 816 Lautem 2,195 2,993 2,270 4,703 1,013 411 Liquica 2,685 3,325 2,408 6,347 1,703 545 Manatuto 1,239 1,384 1,148 2,769 1,384 287 Manufahi 2,143 2,820 2,329 4,121 992 400 Oecusse 2,820 5,424 1,410 3,065 1,156 410 Viqueque 2,571 3,085 1,086 3,856 2,142 424 Total 1,415 2,353 1,081 3,029 850 281 Total excl. Dili 2,172 3,046 1,494 3,678 1,282 398 Sources: Public Service Commission staffing data; staff calculations. Information on the population per health staff by cadre and district is presented in table 2.4. The table clearly demonstrates how staffing is deployed relative to the 2014 population, and provides an important base from which to discuss future staff deployment options. Overall, there is one health staff member for each 281 members of the public, which is a high staffing level or low population per staff member. The high staffing numbers in Dili mean that on average one staff serves a population of 136—somewhat lower than the national average of 281. The average health staff member outside Dili serves a population of 398, which is more than 100 population per staff member more compared with the national average, and 262 population per staff member more than in Dili. As a consequence of the recent rapid increase in doctors in Timor-Leste, there is now one doctor for each 1,415 population. The doctor-to-population ratio in Dili is now one doctor for every 630 people, and in the districts (excluding Dili), it is one doctor for every 2,172 people. The distribution of doctors between districts outside Dili has been relatively well-executed compared with the population. Only one district, Ermera, has more than 3,000 people per doctor. The district with the smallest ratio is Manatuto, with one doctor per 1,239 people. Midwives, a critical cadre for addressing maternal, neonatal, and infant health, are short in numbers and less than optimally distributed. As for all the other cadres, midwives are better represented in Dili compared with the population share. There is one midwife for every 2,353 16 people in Dili; outside Dili, there is one midwife for every 3,046 people. A couple of districts have very high population ratios per midwife. Ermera has one midwife for every 9,208 people, and Oecusse has a ratio of one midwife for every 5,424 people. Nurses have a ratio of one to 1,081 people nationwide, while Dili has one nurse for every 544 people, and in all other districts there is one nurse for every 1,494 people. There is significant variation across districts, with Ermera, Liquica, and Lautem being particularly disadvantaged. Allied health staff population ratios vary considerably across districts. Understandably, districts with hospitals maintain a lower ratio of population to allied health staff. Nevertheless, a more careful rationale for the deployment of allied health staff needs to be developed, as there is a clear need for a policy on staff allocation according to workload and efficient delivery of health services. As expected, in Dili and in districts with hospitals, the number of general regime staff is higher. On average, there is one staff in this cadre for every 850 people; 1,282 in the districts (excluding Dili), and 386 for Dili. Future Health Staffing Demand Scenarios and Costs This section explores three possible future demand scenarios for the health workforce over the coming decade. The scenarios are based on the following key assumptions. First, the available resources for government and health are unlikely to be as great, or grow as fast, as in the past decade. Further, as discussed, although the budget has grown significantly in the past decade, the fiscal space within the recurrent budget for quality-enhancing non-salary budgets has declined from about 58 percent of the recurrent budget to less than 20 percent in 2014. Second, it is assumed that the population growth rate will be 2.44 percent per annum (UNDP 2015). This is consistent with MOH estimates of the population growth rate. Other estimates have been as low as 2.1 percent, but the estimates of current health status, and service delivery capacities, suggests that 2.44 percent is a reasonable medium scenario. A lower population growth rate would lower the number of health staff required in each of the three scenarios outlined in this section, but it would be quite difficult to reduce staff employment (and training intakes) immediately to meet the recommended scenario. The three policy options need to be considered in a medium- to long-term framework. However, some key decisions, including managing the numbers going into health training, need to be adjusted so as not to put further fiscal pressure on the medium-term health budget. Third, it is difficult to justify the existing staffing levels given the current workload. The total number of outpatient visits to public health facilities per capita per year (ambulatory care) was estimated at 1.9 in 2007/08. Visits to public health facilities in the districts were estimated at 1.7 visits per capita per year and visits to hospitals at 0.2 per capita per year (World Bank 2014). On the basis of working a six-day week (313 days per year) each direct service delivery staff (total 3,387 in 2014) would see 2.3 million visits or 2.1 patients per day. Current health policy objectives imply a significant expansion of health service usage. Allowing for a dramatic increase in demand for services because of the increased presence of doctors, and assuming non-salary budgets per capita and/or per staff are increased to support service delivery to, say, four visits per capita per year would mean that direct service delivery staff would only see 4.5 patients per day. Although this does not take into account all the roles and functions of service delivery staff—there is a need for public health activities, health education, and information programs and outreach—it remains 17 difficult to argue that health staff are overworked overall. There may well be locations and parts of the health system in which staff are overworked, but it is clear this is not so overall. Increasingly, health staff need to be deployed based on location population needs to ensure a fair distribution of workload. The three future demand scenarios and some of the key implications for health staff and their deployment are discussed in turn. The three scenarios considered are: Scenario 1. Maintaining current population-to-staff ratios over the coming decade to 2025. As discussed, sustaining even this modest expansion in total staff numbers would not be justified based on workload unless there is a decisive increase in ambulatory care visits per capita and a firm commitment to outreach and core public health functions within the community. Scenario 2. Reaching and sustaining the suggested World Health Organization (WHO) “threshold” service delivery staff numbers required to achieve the Millennium Development Goals (MDGs). It is the view of WHO that coverage of essential interventions, including those necessary to reach the health related MDGs, is not likely without the outlined staff numbers. Scenario 3. Timor-Leste proposed a Community Service Model (or new Rural Health Staffing Initiative) (Ministry of Health 2015) with the goal of ensuring improved access to health services in rural areas, particularly more remote rural areas. This model proposes that each suco maintains a health facility, at the minimum level of a health post, staffed by the following seven professional staff: one doctor, two nurses, two midwives, one laboratory technician, and one pharmacist. The three scenarios are more fully explained, documented, and discussed in turn. As background to the discussion of each scenario, the staff cost for each scenario is costed in real 2014 prices on the basis of average annual salaries/wages for each cadre (table 2.5). Table 2.5 also documents how many of each cadre can be employed for the cost of one doctor. In Timor- Leste, the average salaries of health professionals do not vary as much as in other countries. For each doctor, Timor-Leste can employ 1.3 midwives, 1.4 nurses, 1.5 pharmacists, or 1.5 laboratory technicians. It can employ 5.1 assistant nurses for each doctor or 3.7 assistant nurses for each nurse. 4 Table 2.5 Relative Costs of Core Health Cadres, 2014 Number who can be employed Health cadre Annual unit cost ($) per doctor Doctors 9,060 1.0 Midwives 7,098 1.3 Nurses 6577 1.4 Assistant nurses 1,793 5.1 Pharmacists 6,232 1.5 4 In Papua New Guinea 3.3 general nurses can be employed for the cost of one doctor, three midwives can be employed and 4.5 community health workers can be employed. (2009 data from PNG Public Services Commission). 18 Laboratory technicians 6,232 1.5 Sources: Public Service Commission 2014; staff calculations. Scenario 1. Maintaining Current Population-to-Staff Ratios to 2025 This scenario assumes that all staff cadres, with the exception of general staff, maintain their current share of the workforce, and that the current (2015) population-to-staff ratios are sustained over the period to 2025. The fundamental driver of the demand for health staff in this scenario is growth of the population. Under this scenario, the number of staff in each cadre, with the exception of general regime staff, will, in effect, grow at the same rate as the population (table 2.6). It is assumed that there are currently too many general regime staff, including assistant nurses, and that these numbers should not be maintained or replaced when/if they leave the MOH staff. It is assumed that about 2 percent per year will retire over the coming 11 years, which is a relatively low number as a result of a young cohort. Under Scenario 1, health staff cadre numbers would increase over the 11-year period (2015–25) as follows: • To maintain one doctor for each 1,415 people (the current benchmark), doctors would need to increase from the 855 in 2015, to 963 in 2020, and 1,059 in 2025—an increase of 204 doctors over the period or an average increase of 20 per year. • To maintain one midwife for each 2,353 people (the current benchmark), midwives would need to increase from 514 in 2015, to 579 in 2020, and 636 in 2025—an increase of 122 midwives over the period or an average increase of 12 per year. • To maintain one nurse for each 1,081 people (the current benchmark), nurses would need to increase from 1,120 in 2015, to 1,262 in 2020, and 1,387 in 2025—an increase of 267 nurses over the period or an average increase of 27 nurses per year. • To maintain a ratio of one direct service delivery staff (doctors, midwives and nurses) for each 486 people (the current benchmark), the number of direct service delivery staff would need to increase from 2,489 in 2015, to 2,805 in 2020, and 3,082 in 2025—an increase of 593 over the period or 59 per year. • To maintain one technical support staff (in the form of allied health staff) for each 3,029 people (the current benchmark), the number of allied health staff would need to increase from 400 in 2015, to 451 in 2020, and 495 in 2025—an increase of 95 over the period or 10 per year. It can be argued that in aggregate terms the general regime numbers should be constrained and employees should not be replaced if they leave MOH employment. On average, about 2 percent per annum would be expected to retire. Thus, the general regime numbers would fall from 1,362 in 2015 to 1,136 in 2025, resulting in an increase in the population per general regime staff from 857 to one in 2015, to 1,272 to one in 2025. This policy would also result in a significant increase in the population per average total health staff, from 275 in 2015 to 307 in 2025. Table 2.6 Scenario 1: Maintenance of Existing Service Delivery Staff- Population Ratios Indicator 2015 2020 2025 Population (thousands) 1,167 1,315 1,445 19 Direct service delivery staff Doctors 855 963 1,059 Midwives 514 579 636 Nurses 1,120 1,262 1,387 Total direct service delivery 2,489 2,805 3,082 staff Population per direct service 469 469 469 delivery staff Technical support staff Allied health staff 400 451 495 Population per allied staff 2,918 2,918 2,918 General regime staff Assistant nurses 937 864 781 Other general regime staff 425 393 355 General regime staff 1,362 1,257 1,136 Population per general regime 857 1046 1272 staff Total health staff 4,251 4,512 4,713 Population per total health staff 275 291 307 Sources: Public Services Commission 2014; staff calculations. Note: General regime staff is held constant with 2 percent attrition each year. Scenario 1 is not a recommended scenario, as it does not consider the structure of the workforce. However, this scenario demonstrates what would happen, if the existing complement and structure of staff were maintained with the exception of the general regime numbers, which are recommended to be allowed to reduce as attrition of the workforce takes place. It also demonstrates the importance of population growth to the overall demand for staff. The scenario does not consider the optimal distribution of staff. Subsequent scenarios will look at possible changes in the structure of the cadres deployed across the health system. In this regard, a scenario could be envisaged in which the number of nurses is constrained and a structural shift that increases the number of midwives within the overall constraints of the scenario is implemented. The costs of each scenario, including Scenario 1, are compared in more detail in the next section, together with the implications of increased staffing for the overall health recurrent budget. Scenario 2. The WHO-Recommended “Threshold” Service Delivery Staff Scenario The second scenario is based on the WHO-recommended “threshold” density of 2.28 service delivery staff per 1,000 people (or one service delivery staff per 439 people). According to WHO, coverage of essential interventions, including those necessary to reach the health related MDGs, is not likely, if the recommended staffing ratio is not maintained. Table 2.7 presents actual data for 2014 and data on what the WHO “threshold” model suggests given the estimated 2014 population. It also assumes that under the WHO threshold model the proportion of nurses and midwives in the non-doctor component of the service delivery staff would be established. In aggregate terms, Timor-Leste currently has slightly fewer service delivery staff than recommended by WHO. At present, the Timor-Leste health system has one service delivery staff per 469 people (table 2.7) compared with one service delivery staff per 439 people as recommended by WHO. However, strictly speaking, the WHO “threshold” service delivery staff 20 density would include public and private sector staff. In addition to the government health system there are growing number of private clinics. The exact number of staff working in these private centers was not available, but it is likely that there are at least four service delivery staff per non- government health facility. This would indicate a “total service delivery staff” of at least 100 in the private sector, meaning that the gap between the current numbers in the public sector and the WHO “threshold” service delivery model is even smaller. At present, there are more doctors than recommended by the WHO “threshold” model, but fewer non-doctor technical staff. The WHO “threshold” density model makes recommendations for the distribution of service delivery staff between cadres. Specifically, it recommends a doctor density of 0.55 doctors per 1,000 people (or one doctor per 1,818 people) and a non-doctor service delivery staff of 1.73 per 1,000 people (one non-doctor direct service delivery staff per 578 people). The number of non-doctor service delivery staff required in 2015 would be 2,020, compared with the existing staff complement of 1,634. An increase of 23.6 percent would be needed to meet the staff distribution recommendations. The data show that over the next five years, the MOH could move decisively toward implementation of the model by constraining growth in the numbers of nurses and doctors, and significantly ramping up training of midwives to achieve implementation of the model by 2025. Under Scenario 2, it is assumed that allied health staff would increase in proportion to the population, and that general regime staff would gradually fall as attrition took place (2 percent per annum) as in Scenario 1. Table 2.7 Scenario 2: Achieving WHO "Threshold" Health Service Delivery Staff Density 2015 Indicator 2015 2020 2025 (WHO) Population 1,167 1,167 1,315 1,445 Direct service delivery staff Doctors 855 642 723 795 Midwives 514 1,010 1,138 1,250 Nurses 1,120 1,010 1,138 1,250 Population per nurse 1,081 1,156 1,156 1,156 Total direct service delivery staff 2,489 2,661 2,998 3,295 Population per direct service delivery 469 439 439 439 staff Technical support staff Allied health staffa 400 385 434 477 Population per allied staff 2,918 3,029 3,029 3,029 General regime staff Public health officers & assistant 937 944 832 733 nursesb Population per assistant nurse 1,245 1,236 1,580 1,972 Other general regime staffb 425 429 379 333 Population per other general regime 2,746 2,722 3,474 4,338 staff Total general regime staffb 1,362 1,373 1,211 1,066 Population per general regime staff 857 850 1086 1356 Total health staff 4,251 4,419 4,643 4,838 Population per total health staff 275 264 283 299 21 Source: Public Services Commission 2014; staff calculations a. Allied health numbers held constant at 2014 population-staff numbers b. General regime staff held constant with 2 percent attrition each year. Scenario 3: Timor-Leste New Rural Health Staffing Initiative The MOH policy, as discussed, has clearly focused on the health challenges facing the country and the need to ensure improved access to health services. In this context, the MOH has proposed a Community Service Model (or new Rural Health Staffing Initiative) (Ministry of Health 2015) with the goal of ensuring improved access to health services in rural areas, particularly more remote rural areas. This model proposes that each suco maintains a health facility, at the minimum level of a health post, and staffed by the following seven professional staff: one doctor, two nurses, two midwives, one laboratory technician, and one pharmacist. The doctor, nurses, and midwives would provide direct service delivery and be supported by the technician and pharmacist. The current health posts are not designed to house seven staff. Therefore, if this policy were implemented, a considerable investment in infrastructure development would be necessary. Under this proposal, program delivery would be guided by the Primary Health Care program for quality integrated community health services, which is perceived as a way to achieve the MDGs and universal health coverage. The plan focuses on equitable distribution of health services, expansion of access to health services, and expansion of the level of service available (Ministry of Health 2015). To illustrate the implications of implementing Scenario 3—from a human resources perspective and a fiscal perspective—the following staffing assumptions were made: one doctor for each 2,000 people, one midwife and one nurse per 1,000 people outside Dili and one additional pharmacist and laboratory technician per suco (a total of 442 of each cadre). The summary results of these projections are presented in table 2.8. Under the new policy initiative total direct service delivery staff would need to increase from 2,489 in 2015, to 4,447 by 2025. This would put a very large burden on training capacity and, most importantly, on the budget. Currently, midwives are in significantly short supply; therefore, if the new Rural Health Staffing Initiative were implemented, the need for midwives would dramatically increase. The required increase in nurses is less dramatic but still significant. The number of midwives and nurses in training programs would need to increase significantly, by about 30 per annum for nurses and 60 per annum for midwives. A key component of the Scenario 3 policy proposal is to increase dramatically the level of technical support to direct service delivery staff in the form of pharmacists and laboratory technicians in each health facility. Establishing one pharmacist and one laboratory technician per suco would require the deployment of 442 members of each cadre to rural areas. To achieve these target numbers over the 11-year period would require the graduation and engagement of 40 members of each cadre each year. Table 2.8 Scenario 3: Timor-Leste New Rural Health Staffing Initiative New policy Indicator 2015 2015 2020 2025 National population 1,167 1,167 1,315 1,445 Direct service delivery staff 22 Total doctors, national 855 892 1,030 1,162 Total midwives, national 514 1,122 1,297 1,463 Total nurses, national 1,120 1,398 1,615 1,822 Total direct service delivery staff 2,489 3,412 3,942 4,447 Population per direct service delivery staff 469 342 334 325 Technical support staff Pharmacists, 1 per Suco (442) 442 442 442 Laboratory technician, 1 per Suco (442) 442 442 442 Other allied health staff 400 400 451 508 Total technical support staff 400 1,284 1,335 1,392 Population per total technical support staff 2,918 909 985 1,038 General regime staff Assistant nurses 937 937 864 781 Other general regime staff 425 434 393 355 Total general regime staff 1,362 1,371 1,257 1,136 Population per general regime staff 857 851 1046 1272 Total health staff 4,251 6,067 6,534 6,975 Population per total health staff 275 192 201 207 Sources: Public Services Commission 2014; staff calculations. Comparison of the Three Scenarios The three scenarios and some of their key features are compared in this section. Figure 2.2 presents staff numbers by key staff cadres for 2014, 2020, and 2025, for each of the scenarios. Table 2.9 presents the population-staff numbers for each cadre and scenario and allows for comparisons. Figure 2.3 highlights the estimated total recurrent budget requirements for 2014, 2020, and 2025 for each scenario. In summary, Scenario 1 sustains the existing staff-to-population ratios over 2014–25. Scenario 2 presents the WHO “threshold” density of the direct service health delivery staffing needed to achieve the MDGs. Scenario 3 presents the staffing requirements and associated population-to- staff ratios required to implement the new Rural Health Staffing Initiative. A review of figure 2.2 indicates that Scenario 1—maintain existing population-staff numbers—is the most modest scenario in staffing requirements, and would see a total staff increase of about 600 over the 10-year period, from 4,210 to 4,812 in 2025. Thus, the scenario assumes there would be no change in the proportion of each cadre in the system. Nevertheless, it would be feasible to alter the share of nurses and midwives gradually over time and remain within the posited overall staff numbers and budget. Figure 2.2 Health Staff Cadre Numbers for the Three Scenarios 23 Scenario 2—the WHO “threshold” model—implies an expansion of staff in aggregate terms, but not a dramatic one. However, Scenario 2 implies a more significant change in the composition of staff relative to the current situation and Scenario 1. Under Scenario 2, the number of doctors is already greater than required. The current number of doctors is adequate for the next 10 years without adding to the cadre, even allowing for population increases. The number of midwives would need to increase significantly. Midwives would account for most of the increase in direct service delivery staff, while of the number of nurses would increase only marginally. Scenario 3 implies a dramatic increase in staff numbers, and is the only scenario that advocates significant expansion of doctor and technical support staff numbers. However, there is no need to expand staff numbers dramatically based on workload. Even if the per capita demand for health services (ambulatory care) doubled, there would be no justification for the existing workforce numbers. Scenario 3 would imply a major reduction in staff workloads, which are currently not overburdened on average. Under each of the three scenarios, the number of assistant nurses and other staff under the general regime has been constrained by the assumption that there would be no replacement for attrition, which is assumed to be 2 percent per annum. Table 2.9 presents the population-staff numbers by cadre for each of the three scenarios. The table shows the lower population-staff ratios of Scenario 2 compared with Scenario 1, and the significantly lower population-staff ratios of Scenario 3 compared with Scenario 2. Table 2.9 Population-Staff Numbers for Staff Cadres for Three Scenarios, 2014–25 Scenario 1 Scenario 2 Scenario 3 Health cadre 2015 2020 2025 2020 2025 2020 2025 Total direct 469 469 469 439 439 334 325 service delivery Total technical 2,918 2,918 2,918 3,029 3,029 1,335 1,392 support staff Total general 857 1,046 1,272 1,086 1,356 1,046 1,272 regime Total health staff 275 291 307 283 299 201 207 Impact of the Three Scenarios on Future Health Budgets Since 2008, the salary budget has increased significantly and at the same time the proportion of the recurrent budget allocated to salary and wages has increased significantly. This has tightened 24 up the essential quality-enhancing non-salary budget. Although some of the financial slack may have been temporarily picked up through donor support, in the longer run, the health system must finance adequate supplies of pharmaceuticals, medical supplies, and operational costs for staff to deliver health programs, including outreach programs. Figure 2.3 presents estimates of the total recurrent budget requirements for the three scenarios. Each scenario assumes that the non-salary budget remains at the level of 2015. While Scenarios 1 and 2 share a similar level of increase, Scenario 3 presents significant budget implications, which bring into question the financial feasibility and sustainability of the seven health workers per suco model. In addition, this discussion only focuses on the recurrent costs of sustaining the increased staff and the expanded non-salary budget, which are critical for sound quality service delivery. Additional staff requires additional training and additional capital expenditures. Implementation of Scenario 3 has very significant training and capital costs that are not discussed in this report. Figure 2.3 Total Recurrent Budget Requirement for the Three Scenarios Scenario 1 Scenario 2 Scenario 3 120 100 Required US dollars (million) Non- 80 Salary 59 Budget 60 54 40 41 Salary 37 38 Budget 40 34 20 39 42 24 27 29 28 30 0 2015 2020 2025 2020 2025 2020 2025 Source: Staff calculations. Conclusion The MOH needs to make some careful choices regarding the allocation of resources—financial and human. It is clear that the rapid expansion of the health workforce over the past decade has and will continue to put pressure on the available resources for quality-enhancing non-salary budgets. In light of the shrinking resource envelope available to health, it is important that the MOH constrain further expansion of the health workforce and reconsider its health workforce strategy within a fiscal space framework. Fortunately, the data show that in aggregate terms, current staff are not overworked. Some facilities may experience greater workloads, but strategically redeploying staff to meet the needs of the population may solve this issue. Thus, this report effectively recommends that the MOH does not significantly expand its staff, but rather develops a strategy to maximize the value of the current health workforce. To maximize the value of the current health workforce, the report makes the following recommendations to the MOH: (a) Establish a specialty training program for a percentage of current primary doctors to address the shortage of specialists in the country. This program would also provide primary 25 doctors with strong performance incentives to be selected for the specialty training program, thereby improving service delivery. 5 (b) Improve the functionality of rural health facilities in accordance with the Basic Service Package. The World Bank’s earlier report on the Health Worker Survey in Timor-Leste highlights the challenges in keeping rural health clinic infrastructure up to standard, including stable water supplies. The findings also emphasize the urgency of equipping health posts with necessary medical devices and supplies to the mandated standards. This effort will not only improve patient care, but will also improve health staff retention and performance. (c) Optimize the composition of the health workforce by increasing the number of midwives and nurses while maintaining the current number of doctors. (d) Evaluate other opportunities to retrain and convert some of the current health workforce (such as assistant nurses) to address the shortage of nurses and midwives. Other innovative options to ensure service delivery on the frontline should be considered. For example, given the dramatic increase in staff numbers over the past four to six years, the MOH may consider different approaches or new opportunities to supply health services in the local villages. A “meet them where they are” model would recommend setting up mobile staffing units at community markets, which occur weekly or bi-weekly, in villages across the country. The markets are well attended by women and children, and would be an opportune place for health workers to provide services to the most vulnerable segments of the population. When analyzing available policy options, it is critical for the MOH to cost these options and carefully review their likely impact on health outcomes and the budget before committing to changes. This will ensure that the policies are affordable, and that sufficient fiscal space can be maintained within the health budget to sustain other key health activities and programs. To aid this process in the future, budget, expenditure, personnel, and health utilization information should be systematically documented, that is, (i) document staff by occupation, district, and type of facility (hospital, community health center, and health post) through the personnel system (modifying the system to generate the required data where necessary in cooperation with the PSC); (ii) document and monitor the deployment of health staff cadres relative to the population by facility and district, together with staff workloads derived from the health information system; and (iii) document budgets and expenditures by a similar breakdown, to facilitate the monitoring of linking expenditures and health services delivery indicators. Systematic documentation of this information will provide an information base for sound health planning and decision making on staff deployment. The review of Scenario 3 reveals that the model is not fiscally viable or necessary, based on recommended staffing levels and projected health care usage. Any attempt to implement this scenario may seriously affect the financing of other critical items required for quality service delivery. A modification of this policy and implementation timeline should be considered. Options of modifications could include: (i) establish a suco population threshold for seven health workers; (ii) conduct a critical evaluation of the need for two nurses and two midwives per suco; and (iii) establish more specific guidelines for the types of lab services conducted at each facility level, and 5 Findings based on the Health Worker Survey in Timor-Leste, 2015. 26 explore options to send specimens out for analysis rather than to employ a lab technician in each suco. 27 Chapter 3: Analysis of Trends in Government Health Expenditure Introduction Timor-Leste has experienced rapid expansion in health expenditure in recent years. Health expenditures in the country are financed mainly by the government through budgetary allocations to the MOH and funding from development partners (donor funding). This chapter analyzes past trends in government health expenditure in an attempt to estimate the likely resource envelope from the state budget in the medium term. The data were collated from the Timor-Leste Ministry of Finance Transparency Portal and from key MOH documents. This chapter covers only government health expenditures; donor health funding is covered in chapter 4. Current Trends in Health Expenditure Health and Total Government Expenditure Government health expenditure relative to GDP was discussed in chapter 1. Actual government health expenditure in Timor-Leste has expanded considerably in the past decade from approximately US$27.6 million in 2008, to US$60.2 million in 2014. This represents an increase of 118.4 percent in nominal terms, or a 47.7 percent growth in real terms, and average annual real growth of about 6.8 percent. In relation to total government expenditure, Timor-Leste appears to commit less public funding to health care than similar low- and middle-income countries (LMICs). The ratio of government health expenditure to total government expenditure averaged 5 percent between 2008 and 2013 (figure 3.1), and ranged from 2.3 to 3.0 percent from 2010 to 2013. This was lower than the proportion of total government expenditure devoted to health care in many LMICs. Although there appears to be room for expansion in total government expenditure devoted to health care, this has to be assessed in relation to the health sector’s capacity to absorb new funding, including an assessment of budget execution rates and availability of human and other resources as well as assessing the level of donor support to the sector. Figure 3.1 Health Expenditure per Capita and as a Share of Total Government Expenditure, 2008–13 80 12 Health expend. per capita Gov. health expenditure as a % 70 10 of total gov. expenditure 60 50 8 40 6 30 4 20 10 2 0 0 2008 2009 2010 2011 2012 2013 Health expend. per capita (current US$) Gov. Health Expend. % of Total Gov. Expend. Source: World Development Indicators. 28 Per capita government health expenditure 1 in Timor-Leste correlates with GDP per capita (total). It grew significantly from US$38 in 2011 to US$68 in 2012 (in current US$) (figure 3.1). The rising trend was continued in 2015 based on government expenditure data. Health Expenditure by Level of Spending Health dollars are spent at different levels of the health system depending on the structure of the health system. In Timor-Leste, health dollars are spent broadly at the central MOH level to carry out the macro-level administrative functions of the ministry, such as policy setting, program development, budget allocation, and service and facility planning; at the hospital level to provide secondary and tertiary health care services; and at the DHS level to provide primary health care and related services. In this analysis health expenditure at the central MOH level includes expenditure of Serviço Autónomo de Medicamentos e Equipamentos de Saúde (SAMES, the autonomous national drug and medical equipment procurement agency). Government health expenditures at the central MOH level represented the highest share of total government health expenditure between 2008 and 2014 (figure 3.2). Central-level health expenditure grew by nearly 198 percent in nominal terms, from US$9.3 million in 2008 to US$27.7 million in 2014. The increase was dramatic between 2009 and 2012, rising from 18.9 percent of total government health expenditure to 60.5 percent. Central-level expenditure consisted mainly of salary and non- salary recurrent expenditures, indicating a high number of staff in administrative and related roles at the MOH head office. The SAMES component for the period between 2008 and 2014 averaged below 6 percent. The high rate of resource centralization at the MOH head office may have been partly because of the limited decentralization of functions and weak capacity in the districts. Figure 3.2 Percentage Share of Government Health Spending by Levels of Expenditure, 2008–14 70.0 60.0 50.0 % share of GHE 40.0 30.0 20.0 10.0 0.0 2008 2009 2010 2011 2012 2013 2014 Central MoH level (incl SAMES) Hospitals (incl. National Lab) DHS Source: Timor-Leste Transparency Portal (Government Budget), accessed July 2015. Note: DHS = District Health System; GHE = government health expenditure. Government health expenditure at the hospital level in this analysis includes expenditure of the National Laboratory. Compared with other countries, the proportion of government health expenditure that goes to hospitals is relatively low in Timor-Leste. In absolute terms, hospital- level expenditure grew by 66.6 percent between 2008 and 2014 (from US$8.4 million to US$14 1 Per capita health expenditures are actual government health expenditure divided by the number of population. Funding from development partners that is not provided as budget support is not included. 29 million. However, as a share of government health expenditure, hospitals in Timor-Leste experienced a declining expenditure trend. After a modest rise from 30 percent of government health expenditure in 2008 to 40 percent in 2010, it dropped significantly to 18.5 percent in 2012, before rising modestly to 23.2 percent (figure 3.2). In Timor-Leste, expenditure on hospitals is moderate. In Fiji, where the government is the key financier of the health system, hospitals accounted for 49 percent of current health expenditure in 2011 (Fiji Ministry of Health 2013). In neighboring Indonesia, hospitals accounted for 52 percent of total health expenditure (Indonesia National Health Account 2013). However, considering there are only six hospitals in Timor-Leste (including the national hospital in Dili) and that most specialized services cannot be delivered in the country because of capacity and resource constraints, the current level of expenditure may still be high. DHS-level expenditures in this analysis include expenditures of the Institute of Health Science, which provides a range of pre- and in-service training for health workers, especially those from the districts. Between 2008 and 2014, government health expenditures at the DHS level experienced nominal growth of 87.6 percent, from US$9.9 million to US$18.6 million. However, as a share of government health expenditure, the DHS saw a decline in spending, from 36 percent in 2008, to 30.8 percent in 2014. The decline was particularly sharp between 2009 and 2012, when DHS health expenditure fell from 43.5 percent to 21 percent. Given the policy emphasis on primary and community health care in Timor-Leste, the decline in DHS health expenditure appears unreasonable. However, until recently many DHS facilities lacked human resources, which may have affected the volume of services and expenditure at this level (Asante et. al. 2014). A limited budget execution rate at the DHS level could also affect the level of expenditure, although this capacity appears to have strengthened in recent years. Health Expenditure by Key Expenditure Items There are three key expenditure items for most health systems in LMICs: recurrent salary/wages, recurrent non-salary items (goods and services), and capital expenditures. The salary and wage expenditures in this analysis include allowances and overtime payments. In Timor-Leste, capital expenditures are sub-categorized into minor capital and development. In this analysis, capital expenditure is defined as the cost for resources that last more than one year, and includes minor capital expenditures, such as the purchase of vehicles, office equipment, generators, etc.; these resources usually last more than one year. Salary/Wage Expenditures The public sector wage bill constitutes a significant proportion of government recurrent expenditure, and in many LMICs governments are under increasing pressure to maintain effective control over their wage bills. In Timor-Leste the health sector wage bill is beginning to attract some level of attention for two reasons: the recent large increase in the size of the medical workforce, and the new wage policy implemented by the MOH. Between 2008 and 2014, the MOH salary/ wage expenditures increased from US$5.5 million to US$24.4 million (figure 3.3). As a proportion of total government health expenditure, the salary expenditure experienced a rise of 103 percent from 20 percent of total government expenditure in 2008 to 40.5 percent in 2014. 30 Figure 3.3 Actual Salary and Wage Expenditures in health and as a Share of Total Government Health Expenditure, 2008–14 30 45% 40% 25 35% 20 30% Millions US$ 25% 15 20% 10 15% 10% 5 5% 0 0% 2008 2009 2010 2011 2012 2013 2014 Salary/wages(incl. overtime & allowance) Salary % Total GHE Source: Timor-Leste Transparency Portal (Government Budget), accessed July 2015. Note: GHE = government health expenditure. Government Health Non-Salary Recurrent Expenditures With major capital expenditures for health no longer under the control of the MOH, the government health budget is mainly allocated toward recurrent and minor capital expenditures. The non-salary recurrent expenditure, which in this analysis is made up of expenditures on goods and services plus transfers and contingencies, has seen significant expansion in recent years. The total non-salary recurrent expenditure from the government increased by nearly 106 percent, from US$16.5 million in 2008, to US$34 million in 2014. However, the rate of expansion slowed between 2011 and 2014, when salary expenditures increased rapidly. During this period, non- salary recurrent expenditures grew by about 30 percent, indicating a potential contraction of expenditure on goods and services because of the rising health wage bill. As a proportion of the total government health expenditure, non-salary recurrent expenditure declined modestly, from 59.9 percent in 2008, to 56.5 percent in 2014. If the current trend continues, salary expenditure will outgrow non-salary recurrent spending, and result in a tightening fiscal space for essential goods and services. Several LMICs, especially in Sub-Saharan Africa, provide a cautionary tale where a high wage bill has left the government with little to spend on essential goods and services. In Zambia, for example, a sharp increase in the public sector wage bill between 2000 and 2003, amounting to about 47 percent of domestic revenue, left few resources to finance service delivery, and caused increased reliance on donor resources (Vujicic Kelechi, and Sparkes 2009). It is reported that public health facilities in Nigeria spend most of their government budget allocations on salaries, leaving a small part of the budget for recurrent expenditure for drugs and other essentials (Fritsche, Soeters, and Meessen 2014). Capital Expenditures Since 2011, the government no longer allocates the budget for major health infrastructure projects to the MOH. Capital expenditure for health therefore consists mainly of minor capital projects (Figure 3.4). Unlike recurrent expenditures, capital expenditure did not see any increase over the 2008 expenditure. Between 2008 and 2014, capital health expenditure from government sources decreased by 67 percent, from US$5.6 million to US$1.8 million. As a proportion of total government health expenditure, capital expenditure fell from 20.2 percent in 2008 to 3 percent in 2014. Timor-Leste has a considerable health infrastructure deficit, as much of the country’s 31 health infrastructure was destroyed during the 1999 crisis. The low capital expenditure is due to the fact that since 2011 all capital and development budgets have been removed from MOH responsibilities (Laing 2014) and subsumed under the Ministry of Public Works. Figure 3.4 Total Health Spending by Key Expenditure Items, 2008–14 40 35 30 25 Million US$ 20 15 10 5 0 2008 2009 2010 2011 2012 2013 2014 Salary Non-salary recurrent Capital Source: Timor-Leste Transparency Portal (Government Budget), accessed July 2015. Disaggregation of Non-Salary Recurrent Expenditures The non-salary recurrent budget finances about 17-20 expenditure items, including utilities, local and overseas travel, training and workshops, fuel, vehicle maintenance, office stationary and supplies, and other operational expenses. Some of the key expenditure items that consume the largest shares of the non-salary recurrent budget are operational material and supplies expenditures, which include pharmaceutical expenditure, professional services, and overseas medical transfers. Figure 3.5 Key Non-Salary Recurrent Items (Combined) as a Proportion of Total Government Non-Salary Recurrent Expenditures, 2008–14 32 35.0 70% 30.0 60% 25.0 50% Million US$ 20.0 40% 15.0 30% 10.0 20% 5.0 10% 0.0 0% 2008 2009 2010 2011 2012 2013 2014 Three key non-salary recurrent combined Total govt non-salary recurrent % share of total govt non-salary recurrent Source: Timor-Leste Transparency Portal (Government Budget), accessed July 2015. In relation to total government health expenditure, each of these three expenditure items account for a significant proportion of government health spending, as shown in the following subsections. Operational Material and Supplies Expenditure on operational material and supplies (OMS) captures government spending on pharmaceuticals and medical supplies, and accounts for a relatively large share of overall government health expenditure, as well as non-salary recurrent spending. The largest component of the OMS expenditure is pharmaceutical spending, which is under the direct control of SAMES, which is the country’s semi-autonomous agency for procurement and management of pharmaceuticals. Figure 3.6 shows that OMS expenditure grew by 186 percent, from about US$4.2 million in 2008, to US$11.9 million in 2015. The greatest and most consistent growth occurred between 2011 and 2015, when OMS expenditure grew by over 313 percent, from around US$2.9 million to US$11.9 million. As a percentage of total government health expenditure, the OMS expenditure accounted for 7 percent in 2011, and 18 percent in 2014 and 2015. 2 Figure 3.6 Actual Operational Material and Supplies Expenditure and as a Share of Total Government Health Expenditure, 2008–14 2The 2015 expenditure, unlike the other years, was budgeted, not actual. Actual expenditure by the end of the year may demonstrate an increase or decrease over the 2014 figure. 33 12 20% 10 15% Millions US$ 8 6 10% 4 5% 2 0 0% 2008 2009 2010 2011 2012 2013 2014 OMS (incl. pharmaceuticals) OMS % Total GHE Source: Timor-Leste Transparency Portal, accessed July 2015. Note: GHE = government health expenditure; OMS = Operational material and supplies, including pharmaceuticals expenditures. Compared with the growth in salary expenditure, the OMS bill appears to move along the same trajectory as salary expenditure. Both expenditures rose sharply from 2011 to 2014 (figure 3.7). The rise coincides with the deployment of the new Cuban trained doctors. Data are not available to assess whether, and the extent to which, the large increase in doctors has contributed to the steady growth in OMS expenditure. However, there is a general perception among health policy analysts that the rapid increase in the size of the workforce will not only drive up the health wage bill, but may also trigger a corresponding increase in the demand for pharmaceuticals and medical supplies. 3 This perceived connection should be carefully assessed, as the rise in OMS expenditure may have more to do with systemic inefficiencies in the pharmaceutical sector than the increase in the size of the health care workforce. Figure 3.7 Trends in Salary, Non-Salary Recurrent, and OMS Expenditure, 2008–14 35,000 30,000 25,000 1,000 US$ 20,000 15,000 10,000 5,000 0 2008 2009 2010 2011 2012 2013 2014 Total non-salary recurrent Salary/wages OMS (incl pharmaceuticals) Source: Timor-Leste Transparency Portal, accessed July 2015. Note: OMS = Operational material and supplies, including pharmaceuticals expenditure. Professional Services 3 An increase in the number of doctors may lead to an increase in drug prescriptions and laboratory tests, which in turn may lead to increased consumption of pharmaceuticals and medical supplies. 34 Professional services expenditure (item 705) includes the costs of contract advisers, technical assistants, temporary health staff, and security services for hospitals. This expenditure rose by nearly 55 percent, from close to US$2 million in 2008 to US$3.1 million in 2014. However, there were considerable spending fluctuations over the period (2008–14), with the highest expenditures occurring in 2010, and the lowest in 2012 (figure 3.8). Expenditure on professional services increased substantially in 2013 and 2014, despite the large increase in the health workforce between 2011 and 2014. Timor-Leste still has a significant shortfall in specialist medical practitioners and as a result may have been temporarily engaging the services of expatriate medical specialists. This increase may also include the costs of the Cuban medical brigade working in Timor-Leste. In relation to total government health expenditure, professional services expenditure grew from 7 percent in 2008 to 9 percent in 2010, but declined to roughly 5 percent by 2014. Figure 3.8 Actual Professional Services Expenditure and as Proportion of Total Government Health Expenditure, 2008–14 3,500 3,094 10.0% 3,050 2,880 3,000 8.0% 2,336 2,500 1,970 2,000 1,799 6.0% 1,000 US$ 1,582 1,500 4.0% 1,000 2.0% 500 0 0.0% 2008 2009 2010 2011 2012 2013 2014 Professional services (current US$) Source: Timor-Leste Transparency Portal, accessed July 2015. Overseas Medical Transfers Overseas medical transfers (OMTs) refers to sending patients outside Timor-Leste for medical treatment that cannot be provided within the country, because of inadequate resources—human, physical, or financial. OMTs expenditure is captured as a separate line item, similar to salaries or minor capital. Table 3.1 shows that actual government expenditure on transfers exceeded US$11 million in total from 2013 to 2015. In 2015, government expenditure on OMTs has declined by nearly US$1 million, to US$3.3 million from the US$4.2 million spent in 2013. Table 3.1 Allocation budget for Overseas Medical Transfers (US$) Non- Hospitals Years Hospital Total Actual Fees** Fees* 2013 581,707 3,575,030 4,156,737 2014 714,912 3,071,946 3,786,858 2015 345,472 2,948,461 3,293,933 Source: Timor-Leste Ministry of Health; * Fees reflect airfares, per diem, lodging, tax; ** In addition to hospital fees, includes surgeon fees, etc. 35 District Recurrent Health Expenditures In Timor-Leste, district recurrent health expenditure usually includes salary/wages, goods and services, and minor capital expenditures. However, in this chapter, minor capital is considered part of the capital or development expenditure since most of the assets under this category can last for more than a year. This leaves only salary/wages and goods and services as the main components of district recurrent health expenditure. District Expenditure on Salaries/Wages Analysis of government recurrent health expenditure at the district level from 2008 to 2014 shows a significant proportion of the recurrent budget being expended on salaries/wages. The overall salary/wage expenditures of districts grew by 338 percent in nominal terms, from US$5.5 million in 2008 to US$24.1 million. In real terms, this was about 196 percent over the same period. The nominal growth in salary expenditures for each district between 2008 and 2014 was not less than 250 percent, although there were variations across districts. In the Manatuto district, for example, expenditure on salaries/wages grew by 502 percent, from US$216,900 in 2008, to US$1.3 million in 2014. All the districts spent close to 60 percent or more of their government recurrent budget on salaries/wages from 2012 to 2014. Dili, the most populous district in Timor- Leste, accounted for the highest share of DHS salary expenditure for the entire period (2008–14). It also spent more than 90 percent of its recurrent allocation (from the government) on salaries/wages between 2010 and 2014 (figure 3.10). Figure 3.9 Percentage Share of Government Recurrent Health Expenditure for the DHS Accounted for by Salaries/Wages, 2008–14 120 Dili Baucau 100 Aileu Ainaro 80 Bobonaro % Share Ermera 60 Lautem Liquica 40 Manatuto Manufahi 20 Oecussi Covalima 0 Viqueque 2008 2009 2010 2011 2012 2013 2014 Source: Timor-Leste Transparency Portal, accessed July 2015. This suggests that much of the actual health service delivery activities in the district were financed with funding from non-government sources—donor funding or perhaps out-of-pocket payments. Ainaro is the only district where salary expenditures did not exceed 65 percent of government district recurrent health expenditure at any point in time over the entire period (2008–14). In addition, apart from the Baucau and Liquica districts, which saw a steady growth in salary/wage expenditures over the entire period (2008–14), the rest experienced a fall in salary/wage expenditure at some point during the period. Covalima and Oecussi experienced a sharp decrease in salary expenditure between 2013 and 2014. This situation is difficult to explain, given the large increases in the medical workforce in many districts from 2010 to 2013. The two 36 districts (Covalima and Oecussi) received 29 and 24 new medical doctors, respectively, in 2013 (Asante 2014 et. al. 2014). The drop in salary expenditures in the two districts may reflect errors in the expenditure reporting. District Non-Salary Recurrent (Goods and Services) Expenditure Expenditure on goods and services paid for by the government non-salary recurrent budget declined by between 8 and 74 percent over 2008–14. The decline was steeper in Dili compared with other districts, with Bobonaro recording the smallest decline in non-salary recurrent expenditure (figure 3.11). Overall, the Baucau district accounted for the largest share of expenditure on goods and services in absolute terms. The low government non-salary recurrent expenditure at the district level for 2008–14 was driven largely by the rapid increase in salary expenditure. In 2008, almost all the districts spent between 50 and 70 percent of their government recurrent budgets on goods and services, except the Dili district, which spent around 29 percent (figure 3.11). However, expenditure on goods and services dropped rapidly from 2010 to 2013, before rising again in 2014. The increase in expenditure in 2014 may have been the result of the overall increase in government allocation (in absolute terms) to the health sector. In general, the trade-off between salaries/wages and goods and services expenditures, as far as government recurrent allocation to districts is concerned, may be informed by the so-called specialization in financing sources, where government funds often finance salary and administrative expenditures and donor funding is directed at supporting service delivery (Bernard 2012). Although there has been some flexibility in recent times, many donors still do not allow health sector funding to be used for salary payments. Figure 3.10 Percentage Share of Government Recurrent Health Expenditure for the DHS Accounted for by Goods and Services, 2008–14 90 Dili 80 Baucau Aileu 70 Ainaro 60 Bobonaro 50 Ermera % Share Lautem 40 Liquica 30 Manatuto 20 Manufahi Oecussi 10 Covalima 0 Viqueque 2008 2009 2010 2011 2012 2013 2014 Source: Timor-Leste Transparency Portal, accessed July 2015. Note: DHS = District Health System. Estimating Future Resource Availability for the Health Sector The estimation of future resource availability for the health sector is critical for effective planning and management of the health system. When policy makers develop a good understanding of the potential resources available for health activities based on credible forecasting, they are in a 37 better position to plan and manage the health system more effectively (Appleby 2013). Future health resource availability depends on a range of factors that are not always easy to predict (Pavignani and Colombo 2009). Factors such as economic and fiscal performance, political will, donor commitments, and competing demands for resources from other sectors should be taken into consideration when forecasting the availability of health care resources in the short to medium term. Data from the 2016 National Budget Book (Ministry of Finance 2015a) clearly shows a contraction of the government health resource envelope. The total health budget declined by 18 percent, from $67.4 million in 2015 to $55.6 million in 2016 (table 3.1). There were significant changes in the structure of the health budget in 2016; SAMES, National Laboratories, National Institute of Health, and National Hospital Guido Valadares became independent cost centers and received direct budget allocations from the Ministry of Finance. This arrangement is expected to remain in place for the foreseeable future. Table 3.2 Comparison of 2015 and 2016 Budgets Item 2015 2016 MOH 66,756,051 42,387,000 SAMES 635,000 5,946,000 National Hospital Guido Valadares - 6,260,000 National Laboratories - 504,000 National Institute of Health - 518,000 TOTAL 67,391,051 55,615,000 Source: Budget Comparison year 2015-2016, Ministry of Health, in Tetum. Internal document. The government health budget is forecasted to grow only modestly between 2016 and 2020, following the 18 percent decline in 2016 (MOH 2016). The total health budget for 2020, including allocations to autonomous health institutions, will still be lower than the 2015 budget (figure 3.12). On the surface, this may represent only a moderate decline, but with a rapidly rising health sector wage bill, coupled with more than 100 medical graduates yet to be absorbed into the health system, the drop in government health spending could put significant pressure on the health budget. Figure 3.11 Actual and Forecasted Budget (MOH and Autonomous Agencies), 2015–2020 (1,000 $) 70000 60000 50000 40000 30000 20000 10000 0 2015 2016 2017 2018 2019 2020 MOH SAMES National Lab NHGV INS Source: Ministry of Finance, 2016 Government Financial Items (Budget Book) Book 4B. 2015. Note: INS = ; MOH = Ministry of Health; NHGV = ; SAMES = Serviço Autónomo de Medicamentos e Equipamentos de Saúde (the autonomous national drug and medical equipment procurement agency); INS= National Institute of Health; NHGV= National Hospital Guido Valadares). 38 The MOH will face challenges to maintain the current levels of service delivery, and this would undermine the country’s ability to achieve its health policy goals. Inefficient spending of additional resources from the government would exacerbate the problem. Given the current macroeconomic climate in Timor-Leste, the MOH needs to improve the efficiency and quality of health spending to maximize value. Conclusion This analysis of Timor-Leste government health expenditure did not find a health budget in crisis, but one that is likely to come under severe pressure if the current government spending pattern continues or the level of health expenditure is reduced. The following key expenditure trends are particularly worrying and need to be carefully monitored: high spending at the central MOH level, which is not favorable for expansion of health services in the districts; rapidly rising expenditures on health salaries and wages, which is “dangerous” for the sustainable financing of goods and services and minor capital expenditures; and the extremely high proportion of the district health budget expended on salaries, which is similarly constraining to the expansion of services in the districts, and will invariably leave the financing of service delivery in the hands of donors, which is not sustainable. In anticipation of possible future changes in government spending and on the basis of the rapidly changing health expenditure pattern, it is imperative that the MOH improves the quality of its spending to ensure value for money. The following policy recommendations may be considered: 1. Strengthen public financial management (PFM) across the health system to improve spending efficiency. One area where attention is very much needed is the pharmaceutical sector. Expenditures on pharmaceuticals and other supplies exceeded US$10.8 million in 2014 (equivalent to nearly 18 percent of total government health expenditure). There is some anecdotal evidence from stakeholders pointing to significant inefficiencies in the pharmaceutical sector, particularly in inventory management and procurement practices. Addressing these and other inefficiencies in health spending will reduce waste and lessen the need for additional resources as health expenditure grows. Given the limited local capacity in PFM, MOH will need to use its current technical assistance in PFM more effectively to build capacity not only at the central level, but also, and importantly, in the districts. 2. Strengthen planning and budget management at the DHS level to reduce the high centralization of expenditure at the MOH head office. Part of the reason for the high expenditure at the central MOH level is that capacity for budget management at the district level is limited. Health spending cannot be decentralized effectively if districts lack the ability to plan and manage funds prudently. Planning and management capacity appears to have improved at the central level in recent years. The MOH can constitute and deploy teams of central-level managers with technical expertise in budget management to localities across districts. On-the-job support from a few international experts can help in developing managers’ planning and budget management skills. 3. Improve the budget execution rate to demonstrate the readiness of the MOH to absorb additional funding. The Ministry of Finance will hesitate to raise the ratio of government 39 health spending to total government expenditure if it is not convinced that the MOH can execute its budget diligently. Although the overall budget execution rate of the MOH seems to have improved significantly, there are still weaknesses that, if addressed, will assist the ministry to argue for a greater share of the state budget. 40 Chapter 4: Analysis of Donor Health Funding As in many LMICs, a considerable proportion of health expenditure in Timor-Leste is financed by external resources, largely grants from development partners (donors), loans, and other credit facilities. The continuous flow of donor funding to the health sector has played a critical role in the post-independence rebuilding of the health system. In recent years, the amount of donor funding has decreased substantially as government funding from the state budget increased. This chapter examines donor funding for health and the incremental recurrent costs, arising from system expansion or quality-enhancing expenditures, arising from donor funding. The analysis focuses specifically on off-budget donor spending, and is intended to inform the emerging debate around the sustainability of health financing in the context of a predicted decline in donor spending and rising health expenditures driven by a rapidly growing wage bill. Data for this analysis were collated from the Timor-Leste MOF’s Aid Transparency Portal and consultations with key development partner representatives and government officials in Dili during the last quarter of 2014. Trends in Official Development Assistance Since Independence, Timor-Leste has received considerable external support for the development of all sectors, including health. About 97 percent of all development assistance to Timor-Leste is provided as off-budget support. The total actual ODA rose from US$11.3 million in 2005 to US$275.9 million in 2014. This represents an average of about US$170 million per year and a nominal growth of nearly 2,338 percent over the 10-year period. The increase in donor funding was particularly high between 2008 and 2010, when total (actual) ODA more than quadrupled, from US$50.6 million to US$244 million. However, since 2012 total ODA has been on the decline (figure 4.1). Although Timor-Leste is expected to continue receiving some donor support, at least in the short to medium term, the overall donor envelope may continue to shrink because of changing donor priorities. Figure 4.1 Total Actual ODA, 2005–14 350 300 250 Million USD 200 150 323 301 288 276 244 100 134 50 11 19 52 51 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total ODA (Actual) Source: Timor-Leste Transparency Portal (Aid), accessed July 2015. Note: ODA = official development assistance. 41 A range of bilateral and multilateral agencies provide development assistance to Timor-Leste. In 2013, about 40 agencies (19 multilateral and 21 bilateral) were providing development assistance through 313 projects (Ministry of Finance 2015c). By far, the Australian Department of Foreign Affairs and Trade (DFAT) is the largest donor, providing more than a third of total ODA to Timor-Leste between 2011 and 2015 (table 4.1). In addition to providing direct assistance to government and non-government organizations, Australia has development cooperation relationships with key bilateral donors and jointly funds projects with these donors. The top six donor agencies—DFAT, Japan International Cooperation Agency (JICA), Portugal, Asian Development Bank (ADB), United States Agency for International Development (USAID), and the European Union (EU)—provided around 73 percent of the total ODA for 2011–15. Bilateral donors appear to dominate the ODA landscape, with Japan, Portugal, and the United States contributing significantly alongside Australia. Japan, in particular, appears to have increased its assistance in recent times when contributions from many donors are waning. The EU, ADB, World Bank, United Nations Children’s Emergency Fund (UNCIEF), and Global Fund are among the most influential multilateral donors. The EU plans to spend €95 million from 2014 to 2020, with an indicative allocation of 60 percent (€57 million) to support rural development and 32 percent (€30 million) toward good governance, but none on health (Asante et. al. 2014). Table 4.1 Actual and Planned Donor Support by Selected Development Partners, 2011–15 Development partners 2011 2012 2013 2014 2015 actual actual actual planned planned Total Percent Australian DFAT 96.0 88.0 89.0 66.0 35.0 374.0 34.1% JICA 28.7 19.9 13.8 37.6 35.3 135.3 12.3% Portugal 26.0 33.0 22.0 10.0 1.5 92.5 8.4% ADB 6.0 11.0 17.0 23.6 12.1 69.7 6.3% USAID 13.3 17.4 26.6 8.6 1.4 67.3 6.1% European Union 6.9 10.1 23.0 18.7 6.8 65.5 6.0% China 21.3 17.1 8.1 11.7 1.6 59.8 5.4% World Bank 10.0 7.2 6.0 14.0 10.0 47.2 4.3% New Zealand Aid 5.9 7.1 7.5 11.0 8.7 40.2 3.7% UNICEF 10.8 9.4 10.3 9.3 0.0 39.8 3.6% Global Fund 3.7 8.8 6.2 8.0 3.7 30.4 2.8% German Cooperation 8.5 3.2 6.7 5.0 5.0 28.4 2.6% ILO 10.7 3.6 3.7 1.8 0.1 19.9 1.8% KOICA (Korea) 6.9 0.1 0.5 0.5 0.0 8.0 0.7% UNFPA 3.3 2.3 0.4 0.0 0.0 6.0 0.5% UNDP 1.8 2.0 1.6 0.4 0.0 5.8 0.5% IFC 0.7 0.2 0.3 3.2 0.2 4.6 0.4% WHO 1.9 1.0 0.5 0.0 0.0 3.4 0.3% Total 262.4 241.4 243.2 229.4 121.4 1,097.8 100.0% Source: Data for Timor-Leste were collated from Ministry of Finance. Note: This is not the complete list of development partners in Timor-Leste; hence, the yearly totals do not tally with the total ODA.ADB = Asian Development Bank; DFAT = Australian Department of Foreign Affairs and Trade; IFC = International Finance Corporation; ILO = International Labour Organization; JICA = Japan International Cooperation Agency; KOICA = Korea International Cooperation Agency; UNDP = United Nations Development Programme; UNFPA = United Nations Population Fund; UNICEF = United Nations Children’s Emergency Fund; USAID = U.S. Agency for International Development; WHO = World Health Organization. The Timor-Leste Strategic Development Plan 2011–2030 (SDP), released by the government in 2011, is the country’s development blueprint, which sets out the vision for the nation and goals 42 for achieving this vision (Ministry of Finance 2011a). In principle, all development partners in Timor-Leste align their activities to government priorities as set forth in the SDP. However, the partnership framework agreements under which countries provide development assistance to Timor-Leste differ across countries. Australia (DFAT), for example, provides development assistance under the Strategic Planning Agreement for Development, which is based on the principles of trust, mutual respect, and shared accountability. EU support is governed by the Cotonou Partnership Agreement, which defines EU relations with 79 countries from Africa, the Caribbean and the Pacific. ADB’s assistance is guided by the ADB Country Partnership Strategy for Timor-Leste 2011–2015, and is closely aligned with the SDP 2011–2030. The World Bank’s Country Partnership Strategy for Timor-Leste (2013-2017), which is closely aligned with the SDP, provides the guiding principles for the World Bank’s assistance in Timor-Leste. Overall, donor coordination in Timor-Leste is challenging, and the government’s engagement with donors is sporadic. Donor Funding for Health A significant share of ODA for Timor-Leste goes to the health sector. As a percentage of total ODA, the health sector maintained an average of about 12 percent between 2008 and 2014 (table 4.2). The only exception was 2012, when less than 10 percent of total ODA was received by the health sector (the share of donor support fell to 9.8 percent in 2012 from 13.5 percent in 2011). In absolute terms, donor health spending rose by nearly 508 percent, from US$6.4 million in 2008, to US$38.9 million in 2011, before beginning to decline in 2012. Donor health spending fell by 26 percent from the 2011 level (of US$38.9 million) to US$28.9 million in 2014. Table 4.2 Donors Funding for Health and Total ODA, 2008–14 Actual health Total ODA Health ODA ODA % total Year actual actual ODA 2008 50,648,321 6,405,619 12.6 2009 133,858,102 20,127,631 15.0 2010 244,011,479 30,808,152 12.6 2011 287,988,516 38,933,865 13.5 2012 323,482,027 31,763,473 9.8 2013 300,533,799 30,347,112 10.1 2014 275,871,808 28,897,564 10.5 Source: Data were collated from the Timor-Leste Transparency Portal (Aid) of the MOF. Note: Health ODA excludes water and sanitation and population policy and reproductive health. MOF = Ministry of Finance; ODA = official development assistance. In relation to total health expenditure, donor funding for health plays a critical role in Timor- Leste. Health ODA, as a proportion of total health expenditure, averaged about 38 percent from 2008 to 2014 (figure 4.2). The proportion was highest in 2011 when donor spending reached 50.1 percent of total health expenditure—almost at par with the government’s share of total health spending. A clear pattern exists between government and donor spending on health: in the years that donor health spending increased, government expenditure on health declined and vice-versa. For example, when donor funding rose from 19 percent of total health expenditure in 43 2008 to 50 percent in 2011, government health spending declined by nearly the same margin, from 81 percent to 50 percent. In 2012, government health spending started rising again when donor spending began to fall (figure 4.2). The pattern of donor-government health spending raises a familiar issue of donor support fungibility, which occurs when donor funding changes the allocation of government resources and/or its efforts to raise domestic revenue (Fairbank 2014). It appears that the Timorese government reduces its spending on health when donor spending increases. In this regard, donor health spending does not serve the intended purpose of “additional funding” for health initiatives. Instead, donor funding is used to replace money the government would otherwise need to provide to the sector. The pattern may also suggest an active engagement of development partners by the government under the sector-wide approach. The current high government spending on health in relation to donor health spending augurs well for future sustainability of health financing in Timor-Leste. Figure 4.2 Total ODA and Percentage Shares of Health ODA, 2008–14 70,000 100.0% 60,000 80.0% 50,000 40,000 60.0% '000 USD 30,000 40.0% 20,000 20.0% 10,000 0 0.0% 2008 2009 2010 2011 2012 2013 2014 Govt health exp (current US$) Health ODA (Actual) Govt health exp % THE Health ODA % THE Note: ODA = official development assistance; THE= Total health expenditure (excludes water and sanitation and population policy and reproductive health projects). Donor Funding for Health by Development Partners The health sector of Timor-Leste is supported by a range of bilateral and multilateral agencies. In 2013, 13 donors were actively supporting 34 projects (Ministry of Finance 2014a). Australian DFAT was the single largest donor to the health sector, accounting for more than half of all donor funding for health in 2013 (Ministry of Finance 2014a). However, DFAT’s support to Timor-Leste has been decreasing in the last two years. The two other important health sector donors are the EU and the Global Fund. Together these three donors have provided more than two-thirds of all development assistance for health in Timor-Leste in the past. In 2013, they accounted for around 73 percent of the US$30 million health sector ODA (Ministry of Finance 2014a). The USAID and the World Bank are also crucial sources of financial and technical assistance to the health sector. The World Bank manages the multi-donor trust fund (MDTF) that finances the Timor-Leste Health Sector Strategic Plan (HSSP). The trust fund was established with a US$1 million International Development Association grant and US$19.3 million funding from DFAT. The HSSP 44 support project, administered by the World Bank and implemented by the MOH, has been streamlined in recent years to target specific priority health areas and received additional funding commitments of US$17.7 million for 2012–15 from DFAT and the EU. The investment project funded from the MDTF finished in June 2015, but the World Bank-executed analytical work and technical assistance will continue through December 2016. Going forward, the EU’s support to the health sector will be limited. The development plan for the next seven years will focus on supporting rural development and governance, but not health. The Global Fund is transitioning and DFAT is decreasing its funding for health. Other notable development partners supporting the health sector include the WHO, JICA, and other United Nations agencies, including UNICEF, United Nations Population Fund (UNFPA), and United Nations Development Programme. The government and the development partners working group have made efforts to coordinate donor support in the interest of aid effectiveness (OECD 2005). Nonetheless, considerable volatility remains regarding planned and actual disbursements of total ODA and donor funding for the health sector with actual disbursements almost always exceeding planned disbursements. For example, actual donor disbursements for health exceeded planned disbursements by 158.4 percent on average from 2008 to 2014, except for 2013 when the opposite occurred (figure 4.3). The volatility appears to have moderated since 2012, averaging about 31 percent. Figure 4.3 Planned and Actual Disbursements of Health ODA, 2008–14 40,000 30,000 USD 1,000's 20,000 10,000 0 2008 2009 2010 2011 2012 2013 2014 Planned disbursements Actual disbursements Source: Data were collated from the Timor-Leste Transparency Portal (Aid). Note: ODA = official development assistance. Donor Funding for Health by Subsector Donor health spending in Timor-Leste finances a wide range of health activities. A total of 152 completed and on-going donor-funded health projects were reported as of 2014, including 54 water and sanitation projects (Ministry of Finance 2015c). The projects range from communicable disease programs, particularly HIV/AIDS, malaria, and tuberculosis (TB); family and child health projects, including maternal health and sexual and reproductive health; nutrition programs; health policy and systems strengthening activities; and water and sanitation programs 45 (table 4.3). The majority of the projects (about 64 percent) were implemented at the district level, with some across all districts while others were implemented in specific districts. Table 4.3 Actual Donor Spending on Health by Subsector (USD 1,000’s), 2008–14 %+/- (2014/ Area 2008 2009 2010 2011 2012 2013 2014 Total Percent 2008) Communicable diseases (incl. malaria, HIV/AIDS, & TB) 978 7,629 5,875 4,608 9,497 5,713 6,764 41,065 13.4 592% Family & child health 1,226 3,758 11,419 16,787 11,902 13,803 9,945 68,840 22.5 711% Nutrition 0 2,070 3,143 4,661 1,343 2,714 7,024 20,955 6.8 239% Health policy and systems 1,314 2,249 4,405 7,537 2,967 4,955 3,497 26,923 8.8 166% Clinical services 1,386 732 2,824 3,260 5,570 2,423 1,208 17,404 5.7 -13% Noncommunicable disease 0 0 128 254 18 47 101 549 0.2 -21% Other public health programs 1,502 3,690 3,044 2,056 466 860 389 12,006 3.9 -74% Water & sanitation 189 5,775 25,610 27,855 27,070 17,922 14,412 118,832 38.8 7536% Total 6,594 25,902 56,448 67,019 58,833 48,437 43,340 306,575 100.0 558% Note: Figures include water and sanitation and population policy & reproductive health. They therefore differ from the figures in table 4.2. Family and child health includes maternal health and sexual & reproductive health. Water and sanitation, in particular, has gained considerable donor attention in Timor-Leste since independence, accounting for 38 percent of health sector ODA from 2008 to 2014. Actual donor disbursements for water and sanitation activities increased from nearly US$189,000 in 2008 to US$14.4 million in 2014, which was an increase of more than 7,500 percent (table 4.3). Although in Timor-Leste the beneficiary ministry for donor-funded water and sanitation projects is listed as the Ministry of Public Works, globally such projects are often subsumed under the health sector, because of the relevance to health (Wexler, Valentine, and Kates 2013). In terms of the number of projects, the Government of Japan is the dominant donor in the water and sanitation sector, funding 29 of the total 54 projects listed on the Ministry of Finance Aid Transparency Portal, at the cost of US$14.4 million from 2008 to 2014. However, the actual disbursements from the Australian government for water and sanitation activities for 2008–14 were the largest; accounting for nearly 43 percent (US$50.6 million) of the total water and sanitation ODA. Going forward, funding from DFAT on water and sanitation will be significantly reduced because of recent budget cuts, with some programs set to close shortly. Funding from the USAID over the seven-year period amounted to US$13.8 million, making it the third highest donor for water and sanitation activities in Timor-Leste. Family and child health (including maternal health and sexual and reproductive health) is the second largest subsector, attracting 23 percent of the total health ODA for 2008–14 (if ODA for water and sanitation is excluded from health ODA, donor funding for family and child activities accounted for 34 percent of total health ODA for 2008–14; see figure 4.3). A total of US$68.8 million was expended by donors on 37 completed and ongoing projects in this subsector between 2008 and 2014 (table 4.3). Donor contributions to family and child health initiatives rose from US$1.2 million in 2008 to US$9.9 million in 2014, representing a nominal growth of 711 percent. The key players in this subsector are the USAID and DFAT who together fund about half of all 46 family and child health donor programs. The majority of the projects in this area focus on maternal and child health interventions including safe motherhood activities. The DFAT’s maternal and child health (MCH) program and USAID Health Improvement Project—the two largest MCH projects in the subsector, cost more than US$27 million combined and are both focused on improving maternal, neonatal, and child health. Given the high maternal mortality rate in Timor-Leste (557/100,000 according to the 2010 Timor-Leste Demographic and Health Survey (Ministry of Finance 2010)), the high focus of donors on MCH services appears reasonable. Other important players in the family and child health sector include the EU and UNFPA, which spent US$8.4 million and US$9.8 million, respectively, between 2008 and 2014. Communicable diseases, including malaria, HIV/AIDS and TB, is the third largest subsector for health sector ODA. Donor spending on communicable diseases rose by 592 percent from US$978,000 in to US$6.8 million in 2014. About 93 percent of funding to this subsector is provided by the Global Fund and expended on malaria, HIV/AIDS, and TB. Of the total US$40.5 million that was spent in the communicable disease sector from 2008 to 2014, about US$37.5 came from the Global Fund. Across the three disease areas, malaria received the largest share of funding, US$15.7 million, compared with US$14.4 million and US$7.4 million for HIV/AIDS and TB, respectively. Excluding water and sanitation, donor funding for family and child health and communicable diseases together accounted for nearly 60 percent of the total health ODA for 2008–14 (figure 4.4). Figure 4.4 Total Health ODA and ODA for Family and Child Health and Communicable Diseases, 2008–14 70 60 50 40 Millions USD 30 20 10 0 2008 2009 2010 2011 2012 2013 2014 Total Health ODA Family & child health Communicable diseases Source: Data were collated from the Timor-Leste Transparency Portal (Aid). Note: ODA = official development assistance. Noncommunicable diseases (NCDs) attracted the least amount of donor funding over the period, a total of just US$549,000 from 2008 to 2014 (table 4.4). Funding for the subsector commenced in 2010 and declined by 21 percent, from US$128,000 to US$101,000 in 2014. The WHO is the sole donor supporting activities aimed at reducing the risk of NCDs. Given the high rate of smoking in Timor-Leste and the association between smoking and cardiovascular diseases (Sreeramareddy et al. 2014), the lack of active donor participation in this subsector is surprising. For example, Timor-Leste has one of the highest rates of premature mortality caused by NCDs in young age, about 60.7 percent (Thakur et al. 2011). Although the government has several health 47 promotion initiatives targeting chronic diseases in general, a considerable funding gap for NCDs remains. Donor support for health systems strengthening, including strengthening of policy and planning capacity, was close to US$27 million over 2008–14, and was the fourth largest subsector for donor health funding. Spending in this area was largely in support of the Timor-Leste HSSP and was financed mainly from the multi-donor trust fund. The trust fund pools funding from three key donors—DFAT, the EU, and the World Bank. Activities in this area include strengthening the pharmaceutical and medical supply management system, improving public financial management and fund flows for health services delivery, and improving evidence-informed decision making and health sector coordination. The WHO also provides technical support in health systems and policy strengthening, and spent nearly US$3 million in 2008–14. The management of donor-funded health projects in Timor-Leste varies. Some projects are managed primarily by the development partner and others by the MOH or other government ministries, such as the Ministry of Agriculture and Fisheries or the Ministry of Public Works. For example, the MOH implemented the project financed by the World Bank, DFAT, and EU. Considerable donor funding for nutrition is channeled through the Ministry of Agriculture as opposed to the MOH. Local and international nongovernmental organizations (NGOs) play a key role in the implementation of donor-funded health projects in Timor-Leste. Most of the key donors including DFAT and USAID contract project implementation to other agencies – government and non-government. NGOs such as Marie Stopes, Catholic Relief Services, and Care International are key implementing agencies. The US$15 million maternal and child health project funded by DFAT, for example, is implemented by Marie Stopes. Incremental Recurrent Costs from Donor Funding Donor spending has incremental recurrent cost implications for governments. Incremental recurrent cost is the additional cost incurred because of a particular donor project, that is, costs that would not have been necessary if the project did not exist (Ribeiro 2011). Such costs may arise either as a result of a system expansion or quality-enhancing expenditures. In Timor-Leste, as in many LMICs, donor investments in building new health facilities or extending existing ones may generate additional recurrent expenditures for the government, as donors typically do not commit to funding long-term recurrent expenditures. The government may also incur additional recurrent costs as a result of contributing to an ongoing donor project or continuing key donor projects that enhance the overall quality of health service once donor funding has ceased. The Global Fund, for example, requires all governments, including that of Timor-Leste, to make a contribution towards a national disease program in HIV/AIDS, TB, or malaria as a condition for accessing its funding. Estimating incremental recurrent costs arising from donor funding requires good information about donor projects, particularly capital projects and their cost structure. Such data are very limited in Timor-Leste. Data were available on only a few donor capital projects from the MOF’s Aid rency Portal. Table 4.4 provides basic data on donor capital projects, which are likely to generate some recurrent costs for the government. 48 Table 4.4 Donor Capital Projects with Incremental Recurrent Cost Implications for the Government Total Projec investment t no. Project title Donor agency Project description costa National health laboratory Korean Construction of a 1 capacity building in International laboratory building at the 2,318,233 Tuberculosis diagnosis and Cooperation Agency National Health management in Timor- Laboratory Leste Construction of China- 2 aided Medical Team The People's Construction of dormitory 2,290,152 Dormitory Republic of China for Chinese Medical Team in Timor-Leste Rehabilitation of Motael 3 Clinic JICA Rehabilitation for Motael 79,296 Clinic Renovation and 4 improvement of JICA Renovation of five 84,081 accessibility of health care buildings of the care center centers in Liquica 5 Establishment of birth- JICA Establishment of birth- 40,724 friendly health facility in friendly health facility in Ainaro & Manufahi community health centers 6 Construction of community JICA Construction of community 86,342 clinic in Bebonuk, Dili clinic 7 Promoting sound growth JICA Renovation of the youths 137,706 of youth and educational center and provision of assistance for children and educational assistance to youth in four districts in youth Timor-Leste 8 Maternity Clinic in Pasabe Monaco Build a new maternity 81,459 clinic in Pasabe Source: Timor-Leste Transparency Portal. a. Total investment costs = total planned disbursement. Estimates of Incremental Recurrent Costs The incremental recurrent costs of these projects are estimated over a 20-year period from 2015 to 2034. Several assumptions were made including a uniform ratio of recurrent expenditure to investment cost (“r” coefficient) of 0.035. In addition, a 5 percent discount rate was assumed for calculating the present value of the 20-year incremental recurrent costs from the projects. Finally, starting dates of the projects existed, but completion dates could not be obtained; therefore, it was assumed that donors completed all investments in 2014. The present value was calculated in 2014 dollars. The results, which is purely to illustrate the point that additional financing is required to cover the recurrent expenditures after the completion of donor funded capital projects, are presented in Table 4.5. 49 Incremental recurrent cost Project Investment PV no. Project title costs 2015 2019 2024 2029 2034 (2014$) 1 National health laboratory 2,318,233 81,138 405,691 811,382 1,217,072 1,622,763 1,011,161 capacity building in Tuberculosis diagnosis and management in Timor-Leste 2 Construction of China-aided 2,290,152 80,155 400,777 801,553 1,202,330 1,603,106 998,912 Medical Team Dormitory 3 Rehabilitation of Motael Clinic 79,296 2,775 13,877 27,754 41,631 55,507 34,587 4 Renovation and improvement 84,081 2,943 14,714 29,428 44,142 58,857 36,674 of accessibility of health care centers in Liquica 5 Establishment of birth- 40,724 1,425 7,127 14,253 21,380 28,507 17,763 friendly health facility in Ainaro & Manufahi 6 Construction of community 86,342 3,022 15,110 30,220 45,330 60,439 37,660 clinic in Bebonuk, Dili Promoting sound growth of 7 youth and educational 137,706 4,820 24,099 48,197 72,296 96,394 60,064 assistance for children and youth in four districts in Timor-Leste 8 Maternity Clinic in Pasabe 81,459 2,851 14,255 28,511 42,766 57,021 35,531 Note: PV = present value, which is in 2014 dollars. Discount rate = 5% and “r” coefficient = 0.035. The incremental recurrent costs for the laboratory building constructed by the Korean International Cooperation Agency will accumulate to about US$1.6 million in 2034, from US$81,138 in 2015, representing a growth of around 1,900 percent. In 2014 dollars, the cumulative recurrent costs arising from the project will be a little over US$1 million. Overall, it appears that health sector donors in Timor-Leste do not invest substantially in capital projects such as construction of new health facilities. The vast majority of donor projects focus on improving service delivery and strengthening the non-capital components of the health system. This may seem surprising given the perceived backlog in health sector infrastructure. However, it may be that the government has sufficient domestic funding for such projects or perhaps such investments are captured/reported differently in an alternate format. Such expenditures may be reported under the Ministry of Public Works which has been responsible for the execution of capital and development budgets since 2011. Since 2011, the Ministry of Health has lost responsibility for executing capital and development budgets (Laing 2014). Conclusion The analysis in this chapter demonstrated the critical role that donor funding has played and continues to play in the health sector of Timor-Leste. Since Independence, donors have contributed on average 38 percent of total health expenditure, which is very significant. The single largest donor for the health sector remains DFAT, which provides around a third of all health sector ODA. Family and child health is the largest subsector in the flow of donor funding, 50 if the water and sanitation subsector is decoupled from health. Communicable diseases, notably HIV/AIDS, TB, and malaria, also account for a substantial proportion of donor funding. In the past few years, donor spending has been on a downward trend and health ODA is projected to decline considerably in the medium term. The decline is partly due to the government’s increased health expenditure from the state budget. The overall picture suggests that although development partners will continue to work in Timor-Leste in the foreseeable future, the financial and institutional sustainability of the health sector remains vulnerable to the tightening fiscal space and shifting donor priorities. In addition to absorbing incremental recurrent costs arising from donor funding, the MOH will be forced to assume responsibility for priority donor projects when donor funding for such projects ceases. Accurate estimation of the incremental recurrent costs from donor spending is difficult because of the lack of appropriate data on donor health spending. There is no standard format for recording and monitoring donor expenditures, which makes estimation problematic. Even separation of budgets (and expenditures) into capital, technical assistance, and recurrent expenditures is not available; nor is a breakup of recurrent expenditures between salaries and wages and goods and services. Although the MOF’s Aid Transparency Portal has some useful information, key gaps such as those mentioned in this report need to be urgently addressed. In particular, donor funding reporting should be standardized. A standardized format would not only encourage donors to report, but also help them to report accurately and on time. Such data would facilitate a more comprehensive analysis of donor health spending and enable appropriate policy responses that would ensure future sustainability. 51 Chapter 5: Conclusion and Policy Recommendations Rapidly growing health expenditure is a concern in many developed countries around the world. Historically, health expenditure has been less of a concern in developing countries where public spending on health has traditionally been low. On average, emerging and developing countries spend about 3.2 percent of GDP on health compared with around 6 percent by developed countries. The health financing landscape in Timor-Leste is changing rapidly, with the following notable features: 1. Government health spending has risen sharply in recent years (118.4 percent in nominal terms between 2008 and 2014), but the overall level of expenditure financed from the state budget is relatively low compared with other LMICs. 2. Donor spending on health has been instrumental in rebuilding the health system in the past decade, but donor funding in general is declining (it fell by 26 percent between 2011 and 2014 and is projected to fall sharply from 2015) and will negatively impact donor spending on health. 3. The government has signaled its intention to control the rising public sector health expenditure in line with anticipated changes in the country’s macroeconomic conditions. Given the declining trend in donor health expenditure, this is likely to put pressure on the health budget in the medium term. In light of these developments, the analysis in this report attempted to assess the areas of demand pressure on the health budget that will be most severely impacted in the medium term. The analysis focused on four key areas of government health recurrent expenditure—the wage bill, pharmaceutical spending (which is included in the operational material and supplies expenditure), overseas medical transfers, and spending on professional services. Analysis of donor health spending was also conducted to assess the level of decline in donor expenditure in the medium term and identify potential impacts for the MOH budget. Pressure from the Rising Wage Bill The rising health sector wage bill in Timor-Leste poses perhaps the biggest challenge to the health budget in the medium term. The health wage bill grew by 344 percent from 2008 to 2014— significantly higher than the 233 percent growth of the overall government wage bill for the same period. The rapid expansion of the health wage bill was underpinned by a major scale-up of the medical workforce. It also coincided with a decade of high growth of the national economy, generally high government expenditure and high donor spending on health. There are indications that the growth of the national economy is slowing, and consequently, the MOF has signaled a much tighter control of government expenditure. As in many developing countries, the health workforce in Timor-Leste is part of the national civil service, and as a result, the resources for the wage bill are not under the direct control of the MOH. Although the government seems committed to ensuring that the health system is adequately staffed, the control of government expenditure 52 may include restrictive wage bill policies, which may inadvertently affect health sector wage bill resources. Over the past three years, the MOH has accounted for around 15 percent annually of the total government wage bill resources. Even if this share is maintained, the total allocation to the health sector in absolute terms may fall as total government wage resources decline, thereby putting the health budget under pressure. Controlling government expenditure and the public sector wage bill may not necessarily affect the health sector wage bill. Depending on the priorities attached to health, the government can reallocate wage resources from other sectors to the health sector so that the MOH can grow the health workforce for better national health outcomes. Reallocating resources away from any sector is a politically difficult endeavor and has to be managed carefully. Countries like Rwanda and the Dominican Republic have been able to reallocate resources to health from other sectors, indicating this policy can be pursued relatively peacefully without significant political fallout (Vujicic, Kelechi, and Sparkes 2009). Several countries, including Rwanda, Uganda, and Zambia, have also attempted to delink the health workforce from the civil service and the overall government wage bill (Haji et al. 2010; McPake, Scott, and Edoka 2014). Such efforts can provide the MOH greater flexibility in staff management and financing. In settings where the government may have a budgetary ceiling for the overall wage bill, delinking the health workforce from the civil service can allow the health wage bill resources to grow without affecting the overall salary budget (Haji et al. 2010). However, evidence of a successful health workforce delinking in developing countries appears weak. In Zambia, the government reverted to a recentralized workforce under the Public Service Commission after only a few years of delinking the health sector workforce (Soucat, Scheffler, and Ghebreyesus 2013). The pressure from the rising wage bill could be reduced if the MOH implements effective human resources policies that would lead to more strategic spending of the salary and wage budget. This may include focusing more on the effective use of the current workforce to achieve better health outcomes, rather than focusing on expanding the size of the workforce. For example, analysis of the proposed government Rural Health Staffing Initiative (the so-called seven health worker model discussed in chapter 2) does not appear to have any sound justification, considering the current low health worker workload, especially for staff outside Dili. Although this policy demonstrates government commitment to the community health care concept, it would require a 60 percent increase in the current health workforce, from 4,210 in 2014, to 6,534 in 2020, and 6,764 in 2025. This would lead to an approximate 68 percent rise in staffing costs (in real terms), from US$19.7 million in 2014, to US$33.1 million in 2020, and US$36.5 million in 2025. The skill mix of the current workforce suggests a high number of general medical doctors but a relatively low number of other professionals, such as medical specialists and qualified pharmacists. Inevitably, the government may have to scale up certain health worker categories to maintain the appropriate mix of staff necessary to deliver quality services. This would require a strategic health workforce development approach underpinned by the efficient use of existing resources. A blanket policy of seven health workers per suco does not appear to promote the efficient use of staff. Strategic use of the existing health workforce will improve health outcomes, increase confidence in MOH resource management and underscore the importance of sufficient funding for the health workforce (Vujicic, Kelechi, and Sparkes 2009). 53 Pressure from Pharmaceutical Spending Pharmaceutical and medical supplies are indispensable to health systems, and constitute a major area of expenditure for health systems in LMICs, including out-of-pocket payments by poor households (Roberts and Reich 2011). It is estimated that about 20 to 50 percent of the government recurrent health budget in many countries is used to procure drugs and medical supplies (Falkenberg and Tomson 2000). Health services need to make informed purchasing choices to meet priority health needs and avoid wasting limited resources (Kaur and Hall 2001). In Timor-Leste, pharmaceuticals and medical supplies account for a significant percentage of total government health expenditure, as demonstrated by the analysis in this report. Pharmaceutical and supplies expenditure, which is captured as OMS spending, accounted for around 18 percent of total government health expenditure and 31 percent of government health non-salary recurrent expenditure in 2014 and 2015, respectively. It increased by around 313 percent (in absolute terms) between 2011 and 2015. The increase in pharmaceutical and supplies expenditure paralleled the growth trajectory of the health sector wage bill over the same period. This situation raises an interesting question regarding the extent to which the rising pharmaceutical expenditure was driven by the large increase in the medical workforce over the same period. A separate and more detailed investigation is required. The overall level of government pharmaceutical expenditure in Timor-Leste is high, but not excessive compared with spending in other LMICs. Even assuming that all OMS expenditure is for pharmaceuticals, this translates to less than US$10 expenditure per capita. LMICs similar to Timor-Leste spend around US$31 per capita on medicines 1 (Lu et al. 2011). What is striking in Timor-Leste is the rapid growth of pharmaceutical and supplies expenditures in the face of limited access to medicines and other essential supplies. This finding can be attributed to a range of factors, including inefficiencies in the procurement and distribution system, particularly the lack of credible information about drug consumption and medical supplies across the various districts. Poor consumption data makes accurate pharmaceutical demand forecasting difficult. Inaccurate demand forecasting often results in a mismatch between supply and demand, which in turn leads to shortages. This is believed to be partly responsible for the frequent stock-outs of essential medicines and the use of emergency procurement orders in Timor-Leste (Holloway 2012). In addition to poor consumption data, other factors contribute to the inefficiencies in the procurement and distribution system. According to SAMES, delays in the disbursement of the pharmaceutical budget, from the Ministry of Finance, contribute to the frequent use of emergency orders (Holloway 2012). Similarly, the customs and clearance procedures at the port are cumbersome and sometimes lead to the extended detention of medicines in environments without appropriate quality control (Norris et al. 2007). Furthermore, there are no effective structures for quantification, stock control and warehousing, and inspection (Ministry of Health 1 The US$31 average per capita spending on medicines in lower-middle-income countries represents total spending, which includes expenditures in the private sector and by donor agencies. In Timor-Leste, the US$10 spending per capita is only government expenditure. However, the private sector in Timor-Leste is very small, and the bulk of the pharmaceutical expenditure is financed by allocations from the state budget. 54 2011). In theory the Department of Pharmacy supervises district-level quantification and provides data to SAMES for procurement planning. In practice, accurate district- or facility-level consumption data do not exist. As a result, SAMES estimates need based on historical distribution patterns. In 2010, a comparison of district consumption estimates, based on SAMES data and district data collected by the Department of Pharmacy, revealed a discrepancy of about US$1 million, confirming the general perception that district consumption data are inaccurate (Holloway 2012). Improving efficiency in the pharmaceutical subsector is likely to reduce pressure on the health budget, by allowing the MOH to determine the real costs of pharmaceuticals and advocate for a realistic budgetary allocation from the government. The MOF will not take SAMES’ complaints of inadequate budgetary allocation or facility stock-outs seriously when the system is riddled with inefficiencies. Frequent stock-outs of essential drugs and medical supplies in public health facilities in LMICs undermine public confidence in the health system, lead to underutilization, and subsequently result in poor health outcomes. Improving efficiency in the pharmaceutical subsector is likely to boost the availability of and access to medicines in health facilities across Timor-Leste. This will strengthen people’s confidence in the health system, improve the quality of health care, and ultimately enhance health outcomes. The onus of improving efficiency is not only on the MOH, but also the MOF. The timely disbursement of budgets to SAMES is critical to reducing procurement delays and thereby reducing emergency orders and the purchase of poor quality products. In a nutshell, the fiscal burden from growing pharmaceutical expenditures can be lessened if concerted efforts are made to improve the efficiency with which current and future resources are expended. Pressure from Overseas Medical Transfers As a single expenditure item, OMT expenditure accounts for a significant proportion of non-salary recurrent spending. The total cost was US$4.2 million in 2013, US$3.8 million in 2014 and US$3.3 million in 2015. At present, the high OMT bill appears to be driven by limited tertiary care in Timor-Leste and the frequent need for treatment overseas. The health care system, despite considerable improvements, still has an under-developed tertiary care infrastructure. The national hospital in Dili, which is the top tier referral facility for specialized services, faces significant capacity and resource constraints. As a result, the hospital has established referral linkages for tertiary care with facilities in Australia, Indonesia, and Singapore for services not available in the country (WHO SEARO 2012). Although it is not uncommon for countries with limited medical resources to send their citizens abroad for treatment, the costs of doing so in Timor-Leste need to be carefully reviewed and closely monitored and controlled. This will be important for ensuring that there are sufficient domestic resources for medical infrastructure to continue to develop and to adequately utilise the newly trained doctors returning from Cuba. Any cost containment efforts should involve a thorough needs assessment to make sure overseas treatment cannot be obtained for less locally through expatriate specialists already working in the country. The destination of such transfers and perhaps the number of accompanying relatives 55 should also be reviewed to ensure value for money. Finally, access to OMT needs to be addressed in the interest of fairness and equity in the distribution of health care benefits. There appears to be a lack of transparency around access to overseas referral and selection of destination countries. Several countries and organizations have developed solid eligibility guidelines for overseas medical treatment, which Timor-Leste can adapt. The Australian government, for example, provides financial assistance through its Medical Treatment Overseas Program for Australian citizens and permanent residents suffering from a life threatening condition. Applications are strictly assessed against the following mandatory medical eligibility criteria: a) The proposed overseas treatment or an effective alternative treatment must not be available in Australia in time to benefit the applicant. b) The treatment must be significantly life extending and potentially curative. c) There must be a real prospect of success for the applicant. d) The treatment must be accepted by the Australian medical profession as a standard form of treatment for the applicant’s condition (Australian Government Department of Health 2015). Although the context in Timor-Leste is completely different, the development of appropriate, cost-effective OMT guidelines can be informed by such established guidelines. Fortunately, there are some indications that OMT expenditure is beginning to decline—in absolute terms and as a proportion of total government health expenditure (it fell in 2014 and in 2015). The OMT decline may be related to the large increase in the medical workforce, but a separate and thorough investigation is recommended to verify the cause and ensure continued decline. Pressure from Declining Donor Spending on Health The declining donor health spending in Timor-Leste, analyzed in chapter 4, presents challenges and opportunities. Donor funding occupies important fiscal space in the health sector (about 38 percent), and the decline of donor funding has the potential to put significant pressure on the health budget. Health sector donors support a wide range of health programs in Timor-Leste, some of which are critical to the national goal of maintaining a healthy population. Several donors support interventions in key health areas, including maternal and child health, nutrition, sexual and reproductive health, and health policy and systems strengthening. In some instances, the government depends entirely on donors to provide services in these areas. For example, the UNFPA is currently the sole provider of family planning services in Timor-Leste. The UNFPA, like other donors, has experienced a decline in funding, and consequently, its ability to continue funding these services is in question. The government will have to assume responsibility for providing these services when UNFPA funding completely dries up. The Global Fund is another example of a key development partner providing substantial support for the control of TB, HIV/AIDS, and malaria in Timor-Leste—about US$37.5 million between 2008 and 2014. To ensure the sustainability of programming, the Global Fund requires countries, including Timor- Leste, to commit domestic resources (counterpart funding) for the programs it supports (Hanvorauongchai, Warakamin, and Coker 2010). In 2017, the full funding of the Global Fund program will transition to the Timor-Leste government. Given the rising wage bill and competing demands for additional funding from other programs, the health budget will need to be significantly increased to cover the funding vacuum created by the withdrawal of donor support. The quantity and quality of health services provided in Timor-Leste could be severely 56 compromised if the government budget is not increased to cushion the effects of declining donor support. Challenges aside, declining donor health spending in Timor-Leste presents an opportunity to consolidate domestic financing for health and put the sector on a firm path of long-term financing sustainability. As critical as it is, donor funding can hardly be considered a reliable source of fiscal space for health (Saleh 2013). Consequently, recipient governments have been urged to expand domestic sources on health financing and wean themselves from donor support (WHO 2011). The Government of Timor-Leste, like all other governments, has the responsibility to secure the health of its citizens by ensuring that there are adequate domestic financial resources for health. Further, health resources should be used in an efficient, equitable, and sustainable way to ensure the health of the population (Royal Institute of International Affairs 2014). National policy makers in Timor-Leste have the opportunity to expand the domestic fiscal space to address issues of financial sustainability for health as donor funding dwindles. A long-term financial sustainability plan should include cost reduction strategies, improved funding allocation (including eliminating delays in disbursement of approved budgets), and resource mobilization (Katz et al. 2014). Despite its importance for a sustainable health system, the issue of domestic resource mobilization for health in Timor-Leste has not attracted sufficient attention. As a matter of policy, the government has committed to providing free health care to the population until 2030 (Ministry of Health 2011). In light of declining donor funding, the feasibility of this policy and the future of health care post-2030 are pertinent issues that require national dialogue. As the analysis in chapter 4 suggests, the phasing out of donor health funding is unlikely to be as dramatic as currently projected by the MOF. The gradual withdrawal of support offers a window of opportunity for the government to develop workable sustainability plans to absorb key donor initiatives. Such plans should detail the incremental recurrent costs of existing projects and strategies to replace donor funds with domestic funds over a specific timeframe. Key donors such as DFAT, USAID and EU can play a critical role in assisting the MOH during this transition, by helping review all donor-funded health programs to identify critical programs for integration, establishing resource requirements for program integration, and providing sound data on donor- funded projects. Policy Recommendations This Medium-Term Expenditure Framework analysis has clearly demonstrated the rising trend of the health wage bill and the momentum of health sector growth. It has also established the extent of decline in donor health spending and identified key recurrent expenditure items that consume the largest share of government non-salary health recurrent expenditure, notably pharmaceuticals and overseas medical transfers. These are the key fiscal challenges that confront the health budget in the medium term. The pressures that Timor-Leste’s MOH is facing present an opportunity to take a more critical look at the health system and identify challenges and areas to improve service delivery and health resource distribution. This report identifies the key fiscal challenges that confront the health budget in the medium term and presents the following policy recommendations: 57 1. Develop a strategy to maximize the value of the current health workforce rather than focusing on expansion. There is a significant need to stimulate demand for services and ensure staff is adequately trained and supported by resources to provide quality services. The rising health sector wage bill is driven by the large increase in the number of health workers, particularly doctors. The expansion of the workforce and the wage bill can be slowed down, if the MOH develops an effective strategy to maximize the value of the current health workforce. Some expansion is necessary to maintain an appropriate mix of staff for service delivery. However, there are sufficient numbers of health workers in certain cadres, including medical doctors. The following strategies are recommended to maximize the value of the current health workforce: (a) Establish a specialty training program for a percentage of current primary doctors to address the shortage of specialists in the country. This program would also provide primary doctors with strong performance incentives to be selected for the specialty training program, thereby improving service delivery. (b) Improve the functionality of rural health facilities in accordance with the Basic Service Package. The World Bank’s earlier report of the Health Workers survey in Timor–Leste highlights the challenges to keep rural health clinic infrastructure up to standard, including stable water supplies. The findings also emphasize the urgency of equipping health posts with the necessary medical devices and supplies to the mandated standards. This effort will not only improve patient care, but also will improve health staff retention and performance. (c) Optimize the composition of the health workforce by increasing the number of midwives and nurses while maintaining the current number of doctors. (d) Evaluate other opportunities to retrain and convert some of the current health workforce (such as assistant nurses) to address the shortage of nurses and midwives. 2. Improve the efficiency of health spending. Higher spending on health can contribute to better outcomes, as can improvements in the efficiency of health spending. There appear to be significant inefficiencies in health spending, particularly in the area of pharmaceutical expenditures. The extent of these inefficiencies is not entirely clear because of the lack of proper data. That said, systematic documentation of the budget, expenditure, personnel, and health utilization information will help track expenditures and expenditure outcomes. Improved efficiency will ensure that resources are available in a timely manner, and will reduce cost pressures. The government needs to improve the quality of health spending to ensure value for money, more particularly: (a) Strengthen PFM across the health system in line with the reforms being undertaken by the MOF, and improve the disbursement of funds to the districts. Funds need to be spent in a more efficient manner, with an emphasis on efficient pharmaceutical spending. (b) Strengthen planning and budget management at the DHS level to reduce the high centralization of expenditure at the MOH head office. High expenditure at the central MOH level is caused in part by the limited capacity for budget management at the district level. Health spending cannot be effectively decentralized if districts lack the ability to plan and manage funds prudently. Planning and management capacity appears to have improved at the central level in recent years. The MOH can constitute and deploy teams of central- 58 level managers with technical expertise in budget management to localities across districts. On-the-job support from a few international experts can develop the managers’ planning and budget management capacity. (c) Improve the MOH budget execution rate demonstrating the ability to absorb additional funding. The MOF will hesitate to raise the ratio of government health spending to total government expenditure if it is not convinced that the MOH can execute its budget diligently. Although the overall budget execution rate of the MOH seems to have improved considerably, there are still weaknesses. Addressing these weaknesses will allow the MOH to argue for a greater share of the state budget. 3. Support the MOH to develop a long-term financing sustainability plan for key donor projects. With the decline in donor health spending and the increased likelihood that the MOH will assume greater responsibility for several donor-supported projects, there is an urgent need for a health financing sustainability plan. Data obtained from several key health sector donors suggest that some level of donor spending will be available in the next two to three years, but that several donor projects are likely to transition to the MOH after this period. It will be helpful to use this “phasing out” period to assist the MOH in preparing a sustainability plan with detailed options and resource requirements for the integration of key donor projects into national programs. All possible options should be fully costed to allow the MOH to evaluate the likely impacts on health outcomes and the budget. 4. Systematically document budget, expenditure, personnel, and health utilization information to provide an information base for sound health planning. This recommendation includes documenting staff by occupation, district, and type of facility (hospital, community health center, and health post) through the personnel system (modifying the system to generate the required data where necessary in cooperation with the PSC); documenting and monitoring the deployment of health staff cadres relative to the population by facility and district together with staff workloads derived from the health information system; and documenting the budgets and expenditures by a similar breakdown to facilitate the monitoring of linking expenditures and health services delivery indicators. Systematic documentation of this information will provide an information base for sound health planning and decision making on staff deployment. 59 References Appleby, J. 2013. 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