Budget Execution in Health Concepts, Trends and Policy Issues Moritz Piatti-Fünfkirchen Hélène Barroy Fedja Pivodic Federica Margini Photo © Arne Hoel / World Bank Budget Execution in Health Concepts, Trends and Policy Issues Moritz Piatti-Fünfkirchen1 Hélène Barroy2 Fedja Pivodic1 Federica Margini2 1 World Bank, Health, Nutrition, and Population Global Practice World Health Organization, Health Systems Governance and Financing Department 2 © International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Internet: www.worldbank.org; Telephone: 202 473 1000 This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments that they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. All queries on rights and licenses, including subsidiary rights, should be addressed to the World Bank Cover image: ©oneinchpunch - stock.adobe.com Internal photographs: Courtesy of the World Bank Flickr library and stock.adobe.com. Budget Execution in Health » Concepts, Trends and Policy Issues i Abbreviations ii iii Acknowledgments Executive Summary iv 01 Introduction What is budget execution? 02 09 How Does Budget Execution Affect UHC? 14 How does budget execution differ according to health financing arrangements? 17 What is the evidence on health budget execution level in LMICs? Conclusions 25 26 References ii Abbreviations Abbreviations CABRI Collaborative African Budget Initiative DAH Development Assistance for Health DP Development partner FMIS Financial Management Information System Gavi Gavi, the Vaccine Alliance GPEDC Global Partnership for Effective Development Co-operation MDG Millennium Development Goals MTEF Medium-term expenditure framework NGO Nongovernmental Organization OECD Organisation for Economic Co-operation and Development PIU Project Implementation Unit PFM public financial management PEFA Public Expenditure and Financial Accountability SAI Supreme Audit Institution SDG Sustainable Development Goals SPA Strategic Partnership with Africa SWAP sectorwide approach TSA treasury single account UHC universal health coverage UNDP United Nations Development Programme UNICEF United Nations Children’s Fund USAID U.S. Agency for International Development WHO World Health Organization Budget Execution in Health » Concepts, Trends and Policy Issues iii Acknowledgments This report was developed by Moritz Piatti-Fünfkirchen (Senior Economist, World Bank), Hélène Barroy (Senior Public Finance Expert, WHO), Fedja Pivodic (Economist, World Bank), Federica Margini (Public Finance Specialist, UNICEF). The report benefitted from managerial oversight by Christoph Kurowski (Global Lead Health Finance, World Bank), Feng Zhao (Practice Manager, World Bank), and Joseph Kutzin (Health Financing Coordinator, WHO). Invaluable comments were provided by Richard Allen (Senior Advisor, IMF), and Fazeer Rahim (Senior Economist, IMF). The report is part of an ongoing inter-agency collaboration on budget execution in health. It has benefitted tremendously from guidance and feedback provided by David Coady (Deputy Division Chief, IMF), Santiago Cornejo (Director Immunization Financing and Sustainability, GAVI), Srinivas Gurazada (Head, PEFA Secretariat), Joseph Kutzin (Health Financing Coordinator, WHO), Christoph Kurowski (Global Lead Health Finance, World Bank), Toomas Palu (Advisor, World Bank), and Timothy Williamson (Global Lead Public Financial Management, World Bank). Excellent editing and graphic design support were provided by Anna Dirksen and David Lloyd. iv Executive Summary Executive Summary Photo © World Bank Budget Execution in Health » Concepts, Trends and Policy Issues v Most countries are committed to the provision ❱ Health budget under-execution is of quality health services to all, without risk of particularly pervasive in LMICs where financial hardship. Adequate budget provisions the budget is executed at around 85-90 are an important, yet insufficient requirement in percent. Some countries have chronic this pursuit. The budget also needs to be budget execution problems where the implemented in full and with regard to efficiency budget is executed at a rate below 85 and accountability. While this is widely percent across consecutive years. acknowledged, there is no systematic evidence on how well the health budget is implemented ❱ In LMICs, the health budget is and literature remains thin on how budget systematically implemented at a lower execution practices relate to health financing rate than the general government functions and service delivery. This report is the budget. This means, that governments first in a series of publications on the topic are effectively deprioritizing health following an active World Health Organization during budget implementation. For and World Bank collaboration. It aims to define Sub-Saharan Africa countries in the concepts, characteristics and trends in health sample, the average health budget was sector budget execution. 6.7 percent of the general government budget. Health spending as a share of The report first calls for clarity in use of general government spending was half terminology. It helps to differentiate between a percentage point less at 6.2 percent. ‘budget execution rates’ and ‘budget execution In some countries this is much more practices’. The former refers to the share of the pronounced, where health is budget being executed. The latter to processes deprioritized by 2-3 percentage points on how well the budget is executed. Both of general government spending during aspects are equally important. implementation. Not implementing the budget in full is a lost ❱ The health budget was also opportunity, efficiency and accountability implemented at a lower rate than the concern and undermines the health sector’s education budget in most countries at ability to deliver services. It also undermines an average rate of 4 percentage points. prospects for increased fiscal space going forward. To identify trends and patterns in over ❱ Underspending in some categories and underspending, the report draws on often occurs concurrently with previously unexplored PEFA annex and World overspending on other expenditure Bank BOOST data. This reveals the following: items. While the wage and salary budget tend to be implemented in full, this is ❱ Health budget execution rates are less so for goods and services or the inversely related to levels of income and capital budget. This can leave health maturity of PFM systems. workers without the necessary supplies or support infrastructure to provide quality services and invariably lead to inefficiencies. vi Key Messages Better and more granular data are urgently situated outside the regular budget, whether needed to give a fuller understanding of trends there is fiscal decentralization, and whether and patterns in budget execution. Publishing health centers and hospitals are recognized as budget execution data by economic and spending units in the budget. Countries often functional classification would also help have a combination of these requiring a benchmarking and allow practitioners to draw nuanced approach to assessing problems in appropriate lessons from peers. budget execution. Consequently there are also many pathways of how budget execution The report recognizes that budget execution challenges can affect service delivery goals. practices will differ according to flow of fund The report identifies a set of these and maps arrangements in the country. Important them to efficiency, equity, quality and differences include whether the country accountability in service delivery. A brief subsidizes purchasing agencies that are summary is offered below. ES Table 1: How budget execution issues affect UHC goals UHC goal How budget execution issues affect the UHC goal Efficiency Lacking budget credibility Delay in fund release Operational budget cuts Arrears Rigidity in spending rules Fragmentation in budget execution protocols Equity Equity considerations in budget distorted Increase in user fees to compensate for funding shortfalls Quality Poor budget credibility compromise quality Slow and irregular cash releases compromise service quality Accountability Overspending without appropriations Lacking accountability undermines autonomy Excessive financial management requirements Budget Execution in Health » Concepts, Trends and Policy Issues vii It is important to trace problems in budget foster a constructive dialogue and can be used execution back to the responsible agencies in to craft an appropriate policy response. order to take adequate mitigation measures. Root causes may be external to the health Important work remains to be done at the sector. For example, a poor budget execution country level to generate additional evidence. rate may follow an over-optimistic revenue Specifically, there is need to: (i) identify root projection that does not materialize. causes of budget execution and how these Subsequently budgets are not released despite relate to ministry of finance or health; (ii) identify promises, which is beyond the control of the how countries have dealt with budget execution health sector. Other problems could be traced problems and develop a set of potential policy back to the health sector, such as issues relating options; and (iii) identify how budget execution to how providers are paid, delays in affects countries with different types of health procurement, or coordination problems among system structures, and relate root cause health sector stakeholders. The delineation of assessment and policy options according root causes and associated actors would help to health system typology. Photo © Jutta Benzenberg / World Bank Introduction Introduction “ It doesn’t do much good to have a well- prepared and realistic budget that reflects  the choices and compromises of society if it is not then implemented. It is difficult to implement well a badly formulated and unrealistic budget, but quite possible to implement badly a good budget. Good budget execution follows good budget preparation but is equally important to it.” (Schiavo-Campo 2017) Photo © Simone D. McCourtie / World Bank Budget Execution in Health » Concepts, Trends and Policy Issues 01 Most countries are committed to universal Against this backdrop, the paper primary health coverage (UHC), where everyone addresses a health audience and intends can access quality health services without to define and clarify key concepts around risk of financial hardship (WHO 2010). budget execution, unpack why and how To achieve UHC, countries must not only have budget execution matters for health and an adequate amount of public resources UHC, and outline trends in health budget (Kutzin 2013) but must also manage and use execution rates. those resources effectively. In recent years, the impact of public financial management The paper emerged after an extensive (PFM) processes on achieving UHC goals analysis of the UHC and PFM literature. has received an increasing amount of The study process also involved an analysis interest, especially in policy research and of how budget execution issues were treated dialogue (UHC2030 2020). in health-related Public Expenditure Reviews (2012-2018), and a review of the country Among PFM reforms, budget formulation literature, although thin, assessing budget has received specific attention over the years, execution bottlenecks and their relation to with the introduction of performance-based health financing performance. Policy and budgeting (Robinson 2018). Budget analytical work conducted in recent years execution issues have remained largely by the authors also informed the development undocumented and a blind spot. Available of this paper. In addition, a quantitative evidence from Public Expenditure and analysis of budget execution rates in LMICs Financial Accountability (PEFA) reviews was undertaken drawing on two sets of suggests that progress on budget execution data: (i) overall budget and sector falls behind other PFM reforms (Fölscher, expenditure data collected by the BOOST Mkandawire, and Faragher 2012; Kristensen initiative for 64 LMICs (2009-2018) (ii) overall et al. 2019; PEFA 2021). budget and sector expenditure data of PEFA country assessments for 73 LMICs (2009- Despite their central role in the UHC agenda, 2016). The data sets were cross-checked budget execution processes have not been against available primary country sources. extensively studied in health. While budget under-execution is frequently reported across The first section of the paper defines individual low-and-middle income countries budget execution in its key steps and (WHO 2016; Barroy, Kabaniha, Boudreaux, stakeholders. Section 2 unpacks the et al. 2019), there is a lack of systematic relation between budget execution evidence in health. In the health sector, there and the UHC goals, while section is also an important gap in the understanding 3 maps budget execution processes of budget execution systems and, often, and issues to most common health misperceptions emerging from the relationship financing arrangements. The final between budget execution principles and section offers an overview of trends health system and financing arrangements. in health budget execution in LMICs. This lack of evidence and conceptual clarity may prevent the health sector from delivering on its UHC objectives. It is essential for health and finance authorities to get on the same page to support effective progress. 02 What is Budget Execution? What is budget execution? The execution of the budget constitutes an (Schiavo-Campo, 2017). How funds have essential stage in the budget cycle. In its most been spent is then carefully reviewed and simplified form, a budget needs to be (i) evaluated against performance measures formulated and approved; (ii) the approved to inform subsequent budget allocation budget needs to be executed; and (iii) evaluated decisions (Andrews et al, 2014; Hashim, to inform the next budget cycle. During the first 2014; Tommasi, 2007; Schiavo-Campo and stage, a budget proposal is developed and Tommasi, 2002). submitted to legislature for approval. Policy priorities in the country are transformed into the Multiple steps are involved in executing budget, which becomes legally binding for the a budget. Getting an understanding of each executive. The executive then has the mandate step is essential to delineate finance and to implement these priorities, as stated in the health’s roles in spending processes. budget. Implementing the budget is referred to Typically, budget execution involves as the budget execution stage. This stage is authorization and apportionment, commitment, where funds are actually spent, and activities acquisition and verification, creating payment are implemented. It is an essential stage in the orders and making payments (Figure 1). budget cycle as even a carefully crafted budget These are further described in generic terms with regard to equity, efficiency and quality will in Box 13, as they apply across all sectors be meaningless if it is then not well executed and ministries, including health. PAYMENT COMMITMENT ORDER AUTHORISATION ACQUISITION AND AND PAYMENT APPOINTMENT VERIFICATION Figure 1: Budget execution steps Source: authors, based on (Hashim 2014; Tommasi 2007) A more detailed description of budget execution processes, including related information technology infrastructure, is provided by Hashim 3 (2014, pp. 30-44) and Tommasi (2007). Budget Execution in Health » Concepts, Trends and Policy Issues 03 Box 1: Unpacking steps and roles in budget execution systems Authorization and apportionment. transfers, such as transfers to health insurance funds, to local government or to hospitals After a budget is formulated and approved, directly, where they are autonomous. line ministries, such as health, receive authorization to spend money. Authorization can Acquisition and verification. be given annually, but it is often given for shorter periods of time, such as on a quarterly basis Once goods and services are acquired and for goods and services. Health ministries then delivered, the goods or services rendered need authorize their subordinate spending units. to be verified against the original contract, As soon as the budget is approved, funds ideally at the time of delivery. For some items, should be apportioned to specific spending like personnel expenditures or transfers, there is units. Delays in apportionment will lead to no need for separate verification and this step is delays in the availability of funds, making it often removed. difficult for spending units to execute the budget early in the fiscal year. Payment orders. Commitment. Once goods and services are delivered and verified by an authorizing officer, a payment In the commitment stage, expenditure decisions order is forwarded to a public accountant are made. This often involves a future obligation who makes payments. At this stage there to pay, such as placing an order or awarding are important differences between franco- a contract for the delivery of specific goods phone and anglophone budget systems. or services. The commitment only becomes In francophone systems, there is traditionally a liability (obligation to pay) if these goods a clear separation of duties between the and services are delivered as per the contract’s authorizing officer (ordonnateur) and the public provisions. Payment does not have to occur accountant, who decides whether or not to within the same fiscal year, which is often the make a payment (a payment can be rejected case with large investment expenditures or due to irregularities). The public accountant framework contracts to procure drugs or does not report to the authorizing officer. medical supplies in bulk. Commitments should Increasingly, however, spending authority only be made if there are associated has been delegated to line ministries in appropriations and enough budget available most francophone settings (Lienert 2003). to cover the cost. Financial management In anglophone budget systems, financial control information systems (FMIS) typically have is largely assigned to line ministries, along with commitment controls built in which would block accountability for irregularities. The accounting a commitment unless these preconditions are officer in charge (generally the permanent met. These controls help to avoid overspending secretary of a line ministry like health) has and an accumulation of arrears. For personnel the authority to make expenditure commitments expenditures that make a large portion of health and issue payment orders. This approach is less spending, the commitment should correspond cumbersome and gives more flexibility to the to the amount of compensation or contributions health ministry for budget execution.4 » due. This also holds for commitments to A detailed discussion between francophone and anglophone budget systems can be found in Tommasi (2007). 4 04 What is Budget Execution? » Budget execution is a ecosystem » Box 1 continued… Payments. Bills are paid upon receipt of a payment order, either by cash, check or an electronic funds transfer. Processing the transaction is generally done through the FMIS, as is all accounting and reporting. Reporting is done against all segments in the chart of accounts. For budget execution reports to be useful, they should be comprehensive and include all financing sources. When payments to providers are done through separate agencies (e.g. health insurance funds), they generally do not follow the budget system and are not processed through the FMIS. Banking arrangements. Government funds are generally banked in a treasury single account (TSA) in the central bank. Other funds available to the health sector may be banked in the TSA, in ringfenced accounts in the central bank (with end users having access to money through transfers to commercial bank accounts), in zero balance accounts in commercial banks, or in regular accounts in commercial banks. According to general guidance in the PFM literature, the TSA should be comprehensive to mitigate inefficiencies (Fainobim and Pattanayak 2010; Hasim 2014). While keeping central government funding in the TSA is important to minimize fragmentation and inefficiencies, the same may not be true for service providers who manage only small amounts of money, like often observed in the health sector (Piatti-Fünfkirchen Ali Hashim Khuram Farooq 2019). Budget Execution in Health » Concepts, Trends and Policy Issues 05 Budget execution is an ecosystem. Budget execution processes mostly involve budgetary authorities and line ministries, as well as a range of other intermediate stakeholders involved in spending. Generally, sub-national levels, statal and para-statal entities, service providers are part of the execution system. The ecosystem and exact role of each stakeholder varies across countries. For instance, in some countries, district level administrations have the overall responsibility of service delivery and are the lowest level spending unit who also execute the budget on behalf of health facilities or hospitals. The lower- level health facilities or hospitals receive in-kind support from the higher- level administration. In other systems, health facilities or hospitals themselves are spending units and have the authority to engage in commitments and to account for spending directly. The role of development partners in budget execution also varies across LMICs. Spending from such sources is not systematically integrated into domestic budget execution processes and reporting, and often follow separate budget execution protocols. Photo © AS photo 06 What is Budget Execution? » Budget execution is a ecosystem Figure 2: Budget execution ecosystem Source: Santiso 2007 CIVIL SO Societal accountability PARLIA Participatory performance monitoring Government discharge Overseeing the overseers GOVER Review of public accounts BUD FORMU External auditing LEGISLATIVE BUDGET REVIEW BUD ACCOUNTABILITY AND ADOPTION PROC Independent evaluation Internal auditing Managerial controls Financial reporting BUD Accounting system EXECU Procurement systems Committee oversight Social auditing External scrutiny LEGISL OVERS Expenditure monitoring – social spending Budget Execution in Health » Concepts, Trends and Policy Issues 07 OCIETY Revenue watch AMENT Participatory budgeting Independent budget analysis RNMENT Planning and forecasting DGET ULATION Revenue estimates Budget review and analysis Expenditure cielings DGET BUDGET REVIEW LEGISLATIVE CESS AND ADOPTION SCRUTINY Amendment powers DGET Veto and counter-veto powers UTION Reversion point Budget transparency Budget law Open and public budget debate LATIVE SIGHT Independent budget analysis 08 What is Budget Execution? » Budget execution is a ecosystem Photo © Dominic Chavez / World Bank Budget execution practices and budget execution rate may indicate efficiency gains, execution rates are two different things. where budgeted activities are implemented Budget execution generally refers to the rules at a lower cost than anticipated. Full budget and processes that govern how a budget is execution, on the other hand, could hide implemented. A budget execution rate refers deficiencies in health spending such as to the proportion of the budget that was spent. excessive compliance orientation, payment A 15% deviation from the approved budget delays or arrears at the facility level. It is (i.e. spending at <85% or >115% of the original important for these terms to be used carefully budget) is considered inadequate and receives to avoid confusion and to pinpoint specific a D score in the PEFA methodology5 (PEFA bottlenecks. Underspending and overspending 2016). Budget execution rates are a proxy frequently occur at the same time within for assessing the degree to which a budget a budget, both across and within sectors has been implemented. (Addison 2013).6 For instance, if budget is spent by inputs, an unanticipated wage Budget execution rates can mask important increase may bust the wage bill (overspending) details. While budget execution rates provide and crowd out the operational budget information on the volume of spending, they (underspending). The total execution rate, do not indicate how well a budget has been however, may give the impression that the implemented. For example, a low budget budget was fully implemented. PEFA scores are on a 4-point scale from A-D. D indicates the worst outcome. 5 Addison’s (2013) analysis of the quality of budget execution in 45 countries based on PEFA data finds that underspending and overspending 6 almost always occur at the same time within a budget and that compositional deviations tend to be larger than the deviations in total net resources because of simultaneous overspending and underspending. For example, overspending some budget heads during a period of an unanticipated resource shortfall necessarily requires that the remaining budget heads be cut beyond what the shortfall would have otherwise required. For the majority of countries in the sample, most ministries were able to obtain a share of the largest windfalls and almost every ministry shared the pain of large unexpected losses. Budget Execution in Health » Concepts, Trends and Policy Issues 09 How Does Budget Execution Affect UHC? Budget execution processes have an impact budget execution issues to the UHC on the ability of a health system to deliver intermediate goals can help unpack the against its UHC objectives. Spending modalities relation between spending modalities and have direct implications for efficiency, equity, outputs (Table.1). Here is a first systematic quality, and accountability of a health system approach to link up budget execution – the key UHC intermediate goals.7 Mapping processes and mechanisms with UHC.8 Table 1: Mapping budget execution issues to UHC goals UHC goal How budget execution issues affect the UHC goal Efficiency Lacking budget credibility Delay in fund release Operational budget cuts Arrears Rigidity in spending rules Fragmentation in budget execution protocols Equity Equity considerations in budget distorted Increase in user fees to compensate for funding shortfalls Quality Poor budget credibility compromise quality Slow and irregular cash releases compromise service quality Accountability Overspending without appropriations Lacking accountability undermines autonomy Excessive financial management requirements Health financing frameworks define UHC intermediate outputs in terms of efficiency, equity, quality, and accountability (Kutzin 2013).. 7 Table 1 and description below lists and unpacks examples based on the available literature and country experiences, though it may not be 8 exhaustive of all pathways. 10 How Does Budget Execution Affect UHC? » How budget execution relates to health system efficiency How budget execution relates Operational budget cuts can lead to an imbalance of inputs. While personnel spending to health system efficiency is often well executed given the quasi- statutory nature of the expense, operational The availability of promised funds is essential budgets are frequently not executed fully.10 for efficiency. Predictable health sector funding When available funding is first used for is essential. If resources are budgeted and statutory payments, an unanticipated shortfall but not released, this can lead to disruptions in revenue (or overspending on other items) in service delivery and can diminish the ability will have the greatest impact on operational of managers to implement their plans. If the or infrastructure spending. However, the problem is systematic, it can undermine longer- spending on personnel and non-personnel term planning and affect operational efficiency. items is complementary. For example, without Ad hoc and unbudgeted fund availability can adequate resources to cover operational also lead to opportunistic spending in health costs, personnel are unlikely to be able to (Ally and Piatti-Fünfkirchen 2021). deliver health services, which consequently leads to problems with productivity and Delaying the release of funds can impede efficiency (Tideman et al. 2014). service delivery and other activities. Delays in the release of funds directly impact the ability Arrears lead to price increases. An inadequate to plan and spend. If the bulk of funds becomes release of funds can lead to an accumulation available towards the end of the fiscal year, daily of arrears, putting health services at risk. operational costs in earlier months cannot be When spending units miss payments to a met. The late release of funds can also lead to supplier, suppliers may apply penalties such unnecessarily rushed spending if the PFM as built-in risk premiums for government system does not allow funds to be carried over contracts or an increase in prices. In several into the following year. When funds are released countries, it has been observed that the in the final months of the fiscal year, it leaves accumulation of arrears undermined the little time for fund holders to commit and actually efficiency of health service delivery,11 increasing spend their budget before the funds have to be the cost of health services and, in some cases, returned to the central treasury, giving the wrong limiting drug availability—health ministries were impression that the sector was not in need of penalized for missing payments and some resources (Chansa et al. 2018).9 suppliers refused to deliver drugs or medical supplies until outstanding payments were settled (World Bank 2019, 2016a, 2016b). In Madagascar, Pivodic et al. (forthcoming) found strong seasonality in budget execution partly driven by the taux de regulation set by the Ministry of 9 Finance, which is a quarterly release of budget credits to line ministries. This led to procurement delays in certain high-value goods that required significant upfront payments to providers since many health system institutions had to wait until midyear to accumulate a sufficient number of credits. Therefore, advocating for a timely release of the budget is critical for setting the right incentives and for the efficient use of funds.  imson & Welham (2014), using data from Liberia, the United Republic of Tanzania and Uganda, find that, in terms of subcategories of types of 10 S expenditure, personnel expenditure (wages) is the category that deviates the least from the pre-set budget. This expenditure category tends to be no more than 5% above or below its budget, across government. Recurrent expenditure (goods and services) is less credible with a variation between -20% and +20%, while the capital or development category is the least credible by far, fluctuating hugely with a variance of between -60% and 80%. n Zambia, by the end of 2015, an estimated US$30 million worth of drugs and pharmaceutical supplies remained unpaid due to the late release 11 I of funds by the Ministry of Finance and a diversion of funds to other purposes. The situation was made worse as arrears were denominated in US dollars, and depreciation of the Zambian kwacha made them more expensive to honour over time. Budget Execution in Health » Concepts, Trends and Policy Issues 11 Rigidity in spending rules can undermine How budget execution affects efficiency in spending. During budget health equity execution, input-based budget controls limit spending on any input other than what was provided for in the approved budget. For Poor budget execution can undermine an example, commitment control requires that equitable budget. In principle, budget execution funds allocated for utilities are only spent on per se has no impact on health equity beyond utilities and not diverted to another item such the equity effects of the approved budget. as the purchase of emergency drugs A well-executed budget only delivers on the (Chakabrorty 2010). This undermines the priorities already laid out in an approved budget. autonomy of service providers, restricting their As such, budget execution may either reinforce ability to react swiftly to changing needs and inequities or support the equitable allocation to modify the mix of inputs to deliver services of funds depending on how the approved most efficiently (Barroy, Blecher, and Lakin, n.d.; budget was formulated (Sabignoso et al. 2020). Piatti-Fünfkirchen and Schneider 2018). However, when done poorly, budget execution While a change in budget formulation has the can undermine a budget that was equitably potential to enhance spending flexibility within formulated and allocated. For example, funds programmatic envelopes, the reform may not may be first or only fully released to providers always enhance budget execution in practice12 who are in well-connected or favoured districts, (Aboubacar et al. 2020). leaving those in more remote locations with delayed or limited funds. Also, certain provinces Fragmentation in budget execution protocols may be prioritized in the execution of central across financing sources creates inefficiencies. transfers, which compromises equity Health providers, as spending units, frequently considerations in the original budget formula draw on different sources of financing to cover (Barroy et al. 2014). operational costs. These may include government budgets, payments from insurance Health service providers may resort to user schemes, user fees and various direct fees to compensate for public budget donations. Financing sources often have their shortfalls. Health service providers require own spending protocols. This means the access to drugs, medical supplies and funding execution environment for these service for operational expenses to provide services. providers becomes fragmented. Fragmentation If there are problems during the budget may mean that providers can use funds from execution process (e.g. funds are not released certain sources for certain items, but it cannot and/or made accessible to the frontlines), make use of all funds for all items. For example, service providers may have to draw on resources from performance-based financing alternative means, such as user fees, to deliver schemes can often be used to top up salaries, care. Informal payments have emerged or but that is often not the case for funds from other re-emerged in several sub-Saharan African sources. This makes management of resources countries, where delays in compensation unnecessarily complex for providers and leads mechanisms (i.e. budget transfers to facilities for to inefficient provider management (Mathauer exempted services) affected provider capacity et al. 2020; McIntyre 2008). to deliver services (McPake et al. 2011; James n Gabon, for instance, design flaws and a lack of clarity around spending rules compromised the implementation of the reform and reduced 12 I budget execution levels in the health sector. 12 How Does Budget Execution Affect UHC? » How budget execution affects service quality et al. 2006). This is highly regressive and blocks How budget execution affects access to care. It can also cause financial accountability in health hardship, especially for the poor and vulnerable. Spending beyond appropriations or the How budget execution affects authorized budget creates an accountability service quality problem. Spending beyond what has been approved in the budget undermines accountability and may crowd out Budgets that are insufficiently funded can appropriations for other essential spending compromise service quality. If budget categories. In several LMICs, the frequent provisions are not met, the quality of services use of exceptional and emergency procedures can suffer, especially if there are rigid input- for routine spending results in spending that based line-item controls built into the budget. is largely disconnected from the approved For example, if the budget line for cleaning budget (Barroy et al. 2014).13 Multiple revisions materials is not funded, this can have a serious in budget laws, limited communication and impact on the quality of care delivered. opaque or arbitrary changes to a budget throughout the year also limit accountability. Slow and irregular cash releases can A wage increase without the necessary compromise service quality. Similar to the appropriations may also crowd out service previous point, the quality of health care suffers delivery in an already limited operational if there are delays due to late or irregular budget.14 cash releases. In health, delays in salary payments negatively affected staff morale, Poor financial information systems can leading to higher absenteeism and moonlighting undermine accountability. Inadequate among personnel who needed additional documentation and reporting may give the income. Higher staff absenteeism affects the impression that a budget is under-executed quality of services delivered and can cause when, in fact, spending has not been properly delays in treatment (Chansa et al. 2018). accounted for. Multiple reporting mechanisms, such as a separate reporting system for donor Rigidities in spending protocols also create funds, may also make it difficult to develop service quality issues. If a provider spends a comprehensive picture of spending (Barroy, on certain pre-defined items for budget Kabaniha, Boudreaux, et al. 2019). Inadequate compliance reasons, it may undermine the financial reporting systems may also complicate quality of services. When providers cannot budget execution reforms, as finance ministries choose the right mix of inputs required to deliver may hesitate to extend autonomy to service the needed services, quality is negatively providers if they are unsure whether they impacted (Barroy et al. 2019). will properly use the funds. In the DRC, the Extraordinary Expenditure Procedure (EEP) is commonly used in the health sector. The EEP rolls the first three steps in the spending 13  procedure (commitment, validation and payment order) into one n Ghana and Zambia, a wage increase was instituted abruptly across the civil service, without the necessary appropriations (World Bank, 14 I 2016b). Parliamentary approval had to be given on an ex post basis to ratify a hasty decision which, among other things, also crowded out budget for operational costs. Budget Execution in Health » Concepts, Trends and Policy Issues 13 Photo © Vincent Tremeau / World Bank Photo © Stephan Gladieu / World Bank Photo © Arne Hoel / World Bank While financial accountability is critical, requirements and too many small cumbersome budget execution requirements transactions may inadvertently impede can place an unnecessary burden on medical the efficient delivery of health services. staff. Excessive financial management and A higher financial management workload accountability requirements can pull medical is also sometimes associated with slower personnel away from operational duties if processing times, meaning that spending there are not enough administrative personnel becomes less efficient (Pivodic, Piatti- to manage the work. Too many reporting Fünfkirchen, and Juquois, n.d.). 14 How does budget execution differ according to health financing arrangements? » Countries with no providr/purchaser split How does budget execution differ according to health financing arrangements? Budget execution processes are heterogenous differences largely affect how public funds flow in health. The effect of budget execution on to the sector, and thereby, how budget execution health spending differs according to how health processes ultimately drive outputs. Budget financing arrangements are organized and execution issues are different if a separate structured. These differences are hardly agency exists and spends and accounts unpacked and understood. It is essential to through separate spending modalities. Table 2 distinguish countries that rely on a provider/ maps budget execution processes and rules purchaser split15 from countries that operate to most common health financing arrangements, through direct service provision, because these and these are further detailed below. Table 2: Mapping budget execution processes to health financing arrangements Health financing arrangements Main execution rules and processes No provider/purchaser split Regular PFM rules for transfers to various budget holders, and potentially to facilities Fiscal decentralization Inter-governmental transfers, from central to sub-national levels Separate purchasing agency Transfers to purchaser(s) NGO provision Procurement and contract management of NGOs Countries with no provider/ Execution issues typically arise as facilities purchaser split. receive input-based funds that do not always align with needs. If budgets are provided In many LMICs, governments directly operate directly to providers, the provider becomes and provide health services. It may happen responsible for executing that part of the that local bodies are delegated the role of budget. Key execution issue relate to how health service provision; in which case they funds are released to facilities (e.g. by inputs execute the budget on behalf of service or through a lumpsum for operational costs) providers who in turn have limited autonomy and how flexible their use is. Tertiary or and ability to access and manage funds. secondary care hospitals are often explicit The purchaser/provider split is a service delivery and financing model in which purchasers/payers (often in health, an insurance fund) are kept 15  separate from service providers who are managed by contracts. Budget Execution in Health » Concepts, Trends and Policy Issues 15 budget holders. This is not always the government transfers or subsidies, the release case for primary care providers. While some of these subsidies is still subject to regular countries are gradually shifting away budget execution protocols. From a budget from local government budget provisions execution standpoint, the critical element to a structure in which primary care providers is whether transfers are timely and correspond are recognized as spending units (Mtei to budget appropriations. If transfers are 2020; Barroy et al. forthcoming), this is delayed or not paid as per expectations, rather the exception. this strains the financial feasibility of the purchasing agency (Figure 3, next page). As a result, the agency may have to raise Countries with fiscal funds from other sources to compensate decentralization. for the shortfall or risk not reimbursing service providers adequately.16,17 The same holds true for larger hospitals, which may Countries with fiscal decentralization devolve be autonomous entities, that receive periodic authority and financing to sub-national levels. government transfers or a global budget for This is frequently supported through inter- the delivery of services. governmental transfers. Sub-national levels can then prioritize amongst sectors, when transfers Countries may use nongovernmental are not earmarked, and engage in purchasing organizations (NGOs) to deliver a minimum arrangements. Budget execution issues relate benefits package. In some fragile and conflict to the credibility of the inter-governmental affected countries such as Somalia or transfers originating from national government Afghanistan, governments may make use and then actual execution processes at the of established NGO networks to provide lower level. Financing arrangements may differ services in hard to reach areas. This is also across regions/provinces in a country where the case with countries that have an extensive some may offer transfers to health insurance relationship with faith-based providers such agencies operating at the regional level, while as Lesotho, Malawi or Zambia. Here there is other regions may make payments to providers a contractual relationship between government directly or operate providers themselves. and the NGO and how well contracts are set up and managed will determine the effectiveness of the engagement. This will Countries with a separate require extensive procurement and contract purchasing agency. management capacity that falls largely under the budget execution domain of domestic PFM. Purchasing agencies that operate outside Countries often have mixed health financing of the budget often do not abide by general arrangements, where budget execution budget execution protocols (World Health processes overlap. The four situations described Organization 2019). If they rely on large above are not mutually exclusive. Countries may In Ghana for example, the Ministry of Finance pays significant subsidies to the National Health Insurance Scheme (NHIS) to provide coverage for 16  poor segments of the population (Schieber et al. 2012). Similarly, in Rwanda, the Ministry of Finance subsidises enrolment of the community based health insurance scheme for the poorest through transfers to the Rwanda Social Security Board (RSSB) Delays and shortfalls in the release of funds have affected service delivery (World Health Organization 2021).  he contractual arrangement between purchasers and providers determines how purchasing agencies spend money and reimburse service 17 T providers, and how service providers use purchaser payments. 16 How does budget execution differ according to health financing arrangements? » Countries with a separate purchasing agency. use purchasing agencies and also allocate ultimately determined by the relative budget directly to providers. Countries may importance of these funding flows. also allocate funds to district health offices For example, countries that channel large for some services and, for other services, transfers to a purchasing agency will have allocate funds directly to facilities (e.g. to consider the credibility of these subsidies. services for women and children exempted In these cases, the execution of the budget from user fees). In some countries, the that remains with the health ministry for decision to allocate funds directly to a facility operational expenditures plays a less depends on the level of care the facility important role. Conversely, government provides (e.g. hospitals receive a budget budget execution practices matter much allocation but primary care providers do not). more in countries that rely chiefly on budget The impact of these budget execution provisions through the government. practices on the delivery of services is Figure 3: Typical budget execution system with separate purchasing agency Source: Authors Ministry of Finance Budget release Budget Treasury against cash release to authorizes flow plan sub-national transfer government Insurance Fund MoH Sub-National Level (Extrabudgetary) Government Providers receive authority to spend Insurance authority from MoH Providers receive authority reimburses providers to spend/transfer from against claims submitted sub-national governement Health Service Providers Budget Execution in Health » Concepts, Trends and Policy Issues 17 What is the evidence on health budget execution level in LMICs? Budget execution rates are an indication Measuring country budget execution has of the credibility of the budget. Consistently many challenges. There is no consistent high variation (over or under-execution) way used across countries to measure points to issues with the quality of budget budget execution. Some countries produce planning and/or challenges in budget and provide public access to audited execution. Across PEFA assessments, the expenditure that can be used to estimate average rating for aggregate expenditure levels of spending. In other countries, many outturn over the last ten years was equivalent issues may arise that prevent access to to a C+, and expenditure composition outturn reliable expenditure data, such as the scored worse, averaging between C and D+. absence of transparency policies or reliable This is indicative of systemic weaknesses financial information systems, or an unclear in budget execution across countries and division of labor across stakeholders in sectors, that invariably affect countries’ compiling and publishing financial data ability to delivery services. A more granular (Open Survey 2020). Execution levels may, assessment of budget execution data in the therefore, vary indicator by indicator (e.g. health sector is however necessary in order commitments, payments or audited to understand how budget execution affects expenses). If one uses commitments as fiscal space for health or the ability to make a numerator, it is likely to generate higher progress against UHC goals. This section budget execution ratios (Table. 3). Finding provides a quantitative overview of trends the right denominator can also be challenging, and patterns in budget execution rates in when midyear budget revisions are not health across LMICs, drawing on BOOST officially included in revised finance laws and PEFA annex data. and/or made publicly available. 18 What is the evidence on health budget execution level in LMICs? Table 3: Illustration of variable execution rate by stage of expenditure, DRC Source: Barroy et al, 2014 Total allocation Expenditure Validations Payment Payments in current commitments (%) orders (%) (%) CDF billions (% of allocations) (2011-2013) Personnel 351.5 94.1 94.1 94 93.6 Goods 45.8 116 115 63.8 54.5 Services 5.5 20.9 20.2 18.3 18.1 Transfers 35.7 58.7 58.5 45.1 41.2 Equipment 597.5 14.4 14.4 14.1 13.5 Construction, 59.9 67 49.2 59.5 39.5 rebuilding, renovations A comprehensive assessment of budget associated with country income level and the execution data in the health sector, using maturity of the PFM systems. On average, publicly available global datasets, shows high income countries execute their health that budget under-execution has been budgets in full, with some over- and under- pervasive in health in LMICs over the past execution (Figure 4).18 ten years. In low-income to upper-middle- income countries, the health sector budget There are a set of countries suffering from was systematically under-executed between chronic under-execution – repeated 2009–2018. Low-income countries (LICs) deviations below 15 percent. The majority tend to under-execute their health budgets by of these countries are in in low-income about 14% on average, meaning budgets African countries, though some higher were executed at about 86% during this income resource rich countries are also period. To provide context, in the PEFA represented (e.g. Iraq and Republic of framework a D rating is awarded to a Congo). Chronic under-execution of the deviation of 15 percentage points (i.e. 85 health budget is in line with observations or 115% execution rate). Budget execution from the general literature (Barroy et al, rates are closely associated with country 2019a; WHO, 2016) as well as public income level and the maturity of the PFM expenditure reviews and other analytical systems. Budget execution rates are closely products that have repeatedly pointed to Execution rates are calculated for each data set. The authors trimmed the distributions of computed execution rates at 30% at the lower end and 18  175% at the upper end to account for data quality issues. The calculations omit information on countries with populations of less than 600,000. Within each data set, the analysis is limited to those years for which data from at least 30 countries is available to achieve sufficient variation in terms of income groups among the analysed countries. For each given year, countries are grouped into income level groups based on the World Development Indicators database. Budget Execution in Health » Concepts, Trends and Policy Issues 19 Figure 4: Health budget execution rate by income group, average 2009-2018 Source: BOOST data; authors’ calculations. Note: Point is mean execution rate, whiskers are +/– 1 standard error of the mean Budget Execution rate (%) 100 95 90 85 L LM UM H Income Group associated problems. Barroy et al (2014) Aboubacar (2020) highlighted an execution pointed to considerable execution problems rate of about 50% in Gabon. The full list of in Cameroon and the DRC, which only countries with chronic under-execution as per executed the budget at about 40%. PEFA data is shown in figure 5. Figure 5: Countries with chronic budget under-execution, average 2008-2016 Source: PEFA annex data; authors’ calculations Note: Countries with average health budget execution rates <85% Iraq 84.7 Paraguay 82.8 Togo 82.7 Mozambique 82.4 Afghanistan 81.5 Vietnam 81.0 Mali 79.0 Papua New Guinea 78.4 Country Madagascar 78.4 Republic of Congo 78.0 Burkina Faso 77.7 Niger 69.3 Guinea Bissau 67.2 Serbia 66.5 South Sudan 64.0 Benin 60.9 Guinea 60.8 Gabon 53.2 0 20 40 60 80 100 Budget execution rate in health 20 What is the evidence on health budget execution level in LMICs? Budget execution rates are deteriorating in does not appear to be the case for Sub- Sub-Saharan Africa. The analysis also Saharan African countries. Here budget suggests a systematically different trajectory execution rates are considerably lower than in across regions. While most regions appear to other regions and deteriorating over time be improving and converging over time, this (Figure 6). Comparing health budget execution rates to education Figure 6: and general government, average 2009-2016 Legend: n Latin America and Caribbean n Europe and Central Asia n EAP, MENA, SA n Sub-Saharan Africa Source: PEFA annex data; authors’ calculations 120 110 Budget Execution Rate (%) 100 90 80 70 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Budget execution in health is systematically 2008–2019. The relationship also holds true worse than in other sectors. In the countries in low-income and upper-middle-income included in the analysis over the studied countries, though it is less pronounced period, budget execution rates in the health (Figure 6). This difference is even more sector were consistently worse than those in pronounced for the set of countries that fall education or generally across government. under the 85% execution rate threshold in In low-income countries, the difference health. The mean execution rates for most between budget execution in health versus of the 15 countries is significantly higher in education was about 4% on average between education than in health (Figure 7). Budget Execution in Health » Concepts, Trends and Policy Issues 21 Comparing health budget execution rates to education Figure 7: and general government, average 2009-2016 Legend: n Education n Health n Other Source: PEFA annex data; authors’ calculations Note: Bars represent group means, brackets represent standard errors of the mean 100 Budget execution rate (%) 50 92.8 88.9 93.0 96.7 95.0 97.1 96.7 95.0 97.1 121.7 126.4 119.0 0 L LM UM H Income Group This difference is even more pronounced for the health budget. Variability is also true for the set of countries that fall under the 85% some countries with advanced health systems execution rate threshold in health. The mean such as Algeria, Côte d’Ivoire and Ghana, execution rates for most of the 15 countries is where health budget execution is very volatile, significantly higher in education than in health despite considerable investments in PFM (figure 8). The figure also shows that there is systems over the last decades. considerable variation in execution rates across years, which suggests that one point in time is insufficient to gauge a country’s credibility of 22 Section » Sub section Differences in health and education budget execution rates, average Figure 8: 2009 – 2016 and +/- 1 standard err of mean Legend: n Education n Health Source: PEFA annex data; authors’ calculations Note: Countries with average health budget execution rates <85%; +/- 1 standard error of mean; data on budget execution in education sector not available for Benin, Gabon, Togo and Guinea-Bissau Iraq Paraguay Togo Mozambique Afghanistan Vietnam Mali Papua New Guinea Country Madagascar Republic of Congo Burkina Faso Niger Guinea Bissau Serbia South Sudan Benin Guinea Gabon 40 60 80 100 120 Budget execution Budget execution rates in health are execution rate hides the fact that the budget systematically higher for wages and salaries for goods and services and capital spending than they are for goods and services or is executed a lower rate (figure 9). For capital capital expenditures. As health is a labor spending in particular, there is a concerning intensive sector and a large share of downward trend over recent years, and the spending in the health sector is wage related, Covid19 epidemic has likely worsened this looking at the overall health sector budget situation further. Budget Execution in Health » Concepts, Trends and Policy Issues 23 Figure 9: Health budget execution by spending categories, average 2009-2018 Source: BOOST data; authors’ calculations 100 95 Spending Cateogory 90 85 80 Wages Goods and Services Captial Expenditure Budget Economic Classification There is deprioritization in health spending. worse budget execution rates that overall A consequence of these lower execution government, health spending as a share rates in health is an implicit deprioritization of total government spending decreased of health during the budget execution to an average of 6.2 percent. Thus, there process. For Sub-Saharan Africa countries is a de-facto deprioritization of health in the sample, the average share of the during the budget execution process of health sector budget relative to the total 0.5 percentage points. This is again more government budget was 6.7 percent. This is pronounced in the set of countries with already well below the Abuja target of 15 a health sector execution rate of <85%. percent and in most cases insufficient for the The percentage point reduction is particularly provision of quality health services. As the drastic in Vietnam, South Sudan, and the health sector suffers disproportionately from Republic of Congo (Figure 10). 24 What is the evidence on health budget execution level in LMICs? Figure 10: Deprioritization of health during execution, average, 2009 – 2016 Legend: n Budget n Execution Source: PEFA annex data Vietnam Togo South Sudan Serbia Paraguay Papua New Guinea Niger Mozambique Country Mali Madagascar Iraq Guinea Bissau Guinea Gabon Republic of Congo Burkina Faso Benin Afghanistan 0 2.5 5.0 7.5 10.0 12.5 Percent of overall government budgeted and executed funds Budget Execution in Health » Concepts, Trends and Policy Issues 25 Conclusions Despite their central role in the UHC agenda, Poor budget execution in health has multiple budget execution processes have not been causes. It is often attributed to a health extensively studied in health. This paper ministry’s limited ability to absorb budgeted provides a first attempt to unpack the issue resources. However, generic PFM factors to provide a shared understanding between tend to also play a role, such as inadequate health and finance authorities. It explains how revenue forecasts, rigid budgeting and budget execution processes can affect the spending modalities on a wider level. achievement of the UHC goals, specifically Understanding and defining these root how weaknesses, delays and rigidities in the causes is necessary to identify possible expenditure chain drive or hinder health policy solutions between health and finance service outputs. The paper also demonstrates to address systemic issues in health budget the depth of budget under-execution in health. execution. Moving forward, there is a need The analysis shows how under-spending has to provide an analytical framework to support been pervasive in low-income countries over country-level assessment. the past ten years, the health budget execution rate being systematically lower than for other sectors. 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