Health Systems & Reform ISSN: 2328-8604 (Print) 2328-8620 (Online) Journal homepage: http://www.tandfonline.com/loi/khsr20 Fresh Money for Health? The (False?) Promise of “Innovative Financing” for Health in Malawi Collins Chansa, Takondwa Mwase, Thulani Clement Matsebula, Priscilla Kandoole, Paul Revill, John Bosco Makumba & Magnus Lindelow To cite this article: Collins Chansa, Takondwa Mwase, Thulani Clement Matsebula, Priscilla Kandoole, Paul Revill, John Bosco Makumba & Magnus Lindelow (2018) Fresh Money for Health? The (False?) Promise of “Innovative Financing” for Health in Malawi, Health Systems & Reform, 4:4, 324-335, DOI: 10.1080/23288604.2018.1506643 To link to this article: https://doi.org/10.1080/23288604.2018.1506643 Published with license by Taylor & Francis Group, LLC© 2018 International Bank for Reconstruction and Development / The World Bank Published online: 29 Oct 2018. Submit your article to this journal Article views: 276 View Crossmark data Full Terms & Conditions of access and use can be found at http://www.tandfonline.com/action/journalInformation?journalCode=khsr20 Health Systems & Reform, 4(4):324–335, 2018 Published with license by Taylor & Francis Group, LLC ISSN: 2328-8604 print / 2328-8620 online DOI: 10.1080/23288604.2018.1506643 Research Article Fresh Money for Health? The (False?) Promise of “Innovative Financing” for Health in Malawi Collins Chansa 1,2,*, Takondwa Mwase 2,3, Thulani Clement Matsebula 4, Priscilla Kandoole5, Paul Revill 6, John Bosco Makumba1, and Magnus Lindelow7 1 Health Nutrition and Population Global Practice, World Bank Group, Lusaka, Zambia 2 Heidelberg Institute of Global Health, Heidelberg University, Heidelberg, Germany 3 Abt Associates Inc., Lilongwe, Malawi 4 Health Nutrition and Population Global Practice, World Bank Group, Pretoria, South Africa 5 Macroeconomics, Trade and Investment Global Practice, World Bank Group, Lilongwe, Malawi 6 Centre for Health Economics, University of York, York, United Kingdom 7 Health Nutrition and Population Global Practice, World Bank Group, Washington, DC, USA CONTENTS Abstract—Since 2013, the government of Malawi has been pursu- Introduction ing a number of health reforms, which include plans to increase Methods and Data domestic financing for health through “innovative financing.” As Results part of these reforms, Malawi has sought to raise additional tax Discussion revenue through existing and new sources with a view to earmarking Conclusion the revenue generated to the health sector. In this article, a systema- tic approach to assessing feasibility and quantifying the amount of References revenue that could be generated from potential sources is devised and applied. Specifically, the study applies the Delphi forecasting method to generate a qualitative assessment of the potential for raising additional tax revenues from existing and new sources, and the gross domestic product (GDP)-based effective tax rate forecast- ing method to quantify the amount of tax revenue that would be generated. The results show that an annual average of 0.30 USD, 0.46 USD, and 0.63 USD per capita could be generated from taxes on fuel and motor vehicle insurance over the period 2016/2017– 2021/2022 under the low, medium, and high scenarios, respectively. However, the proposed tax reform has not been officially adopted despite wide consultations and generation of empirical evidence on the revenue potential. The study concludes is that revenue generation potential of innovative financing for health mechanisms in Malawi is Keywords: domestic resource mobilization, earmarked taxes, fiscal space for health, health financing, innovative financing, Malawi limited, and calls for efforts to expand fiscal space for health to focus on efficiency-enhancing measures, including strengthening of Received 18 April 2018; revised 29 May 2018; accepted 26 July 2018. *Correspondence to: Collins Chansa; Email: cchansa@worldbank.org governance and public financial management. Color versions of one or more of the figures in the article can be found online at www.tandfonline.com/khsr. © 2018 International Bank for Reconstruction and Development / The World Bank This is an Open Access article distributed under the terms of the Creative Commons INTRODUCTION Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original The Sustainable Development Goal (SDG) on health calls for work is properly cited. countries to “achieve universal health coverage, including 324 Chansa et al.: Fresh Money for Health 325 financial risk protection, access to quality essential health- goods that can negatively affect health, such as tobacco, care services and access to safe, effective, quality and afford- alcohol, and sugar-sweetened foods, aimed at promoting able essential medicines and vaccines for all” (p. 20).1 health and increasing funding for the health sector.14 For However, mobilizing the required level of pooled financing other potential financing sources, there is less experience to to achieve the health-related SDG is a persistent challenge for date. Moreover, most studies that have explored the revenue countries worldwide. In Organization for Economic potential of public health taxes or other financing options do Cooperation and Development countries, health care expen- not quantify the actual amount of revenue that could be ditures have been growing rapidly over the past 30–40 years, raised.15 The few studies that have done so show that the and this has increased pressure on public budgets.2,3 On the amount of revenue that can be generated from such taxes is other hand, government health spending in low- and lower- generally low.14 There are a few exceptions, such as the middle-income countries must be at least 5% of gross domes- Philippines, where revenue that has been mobilized for the tic product (GDP) to achieve sufficient progress toward uni- health sector from taxes on tobacco and alcohol is versal health coverage (UHC).4 However, this is not the case significant.16 in several low- and lower-middle-income countries, particu- To date, most of the studies that have reviewed the revenue larly in sub-Saharan Africa (excluding high-income coun- potential of public health or “sin” taxes have applied qualita- tries) where government health spending as a share of GDP tive assessment tools that rank the likelihood of generating is estimated at 2.3% on average.5 additional tax revenue as limited, moderate, or high.15 Other Existing evidence further suggests that government and/or studies use regional norms for domestic tax revenue as a public resources are key to achieving effective coverage and share of GDP to justify an increase in overall government financial protection compared to other sources of financing.6– revenues (and eventually public spending on health) if the 8 Therefore, it is critically important for governments in low- existing share is below the norm.17 Furthermore, some and lower-middle-income countries to increase funding to studies18 advocate for an increase in tobacco taxes if the their health sectors. However, government spending on health amount of tax as a share of the retail price for a 20-cigarette in some low- and lower-middle-income countries is below the pack of the most sold brand in a country is below the 75% expected average for countries with similar GDP per capita.9 margin recommended by the World Health Organization.19 Consequently, development assistance for health is the major To guide policy on the revenue potential of public health source of health financing in these countries even though taxes, some authors have called for development of tools there has been a decline in development assistance for health and approaches to quantify potential revenues and health as a share of total health expenditure in recent years.9 and social benefits.14,15 Notably, the fiscal space for health Furthermore, a large share of health financing in developing analytical framework by Tandon and Cashin20 that has been countries needs to be pooled in order to reduce reliance on applied in several studies does not provide ways for quantify- out-of-pocket payments and improve access to health care.10 ing the actual amount of revenue that can be generated from Given the above, several low- and lower-middle-income domestic sources including public health taxes. countries and development partners have either explored or In Malawi, the health sector is currently not able to fully implemented “innovative financing” mechanisms aimed at deliver on key policy commitments of access and affordability (1) raising additional funding for health through unconven- as enshrined in the country’s constitution, which seeks to “pro- tional official development assistance channels, (2) enhan- vide adequate health care, commensurate with the health needs cing the efficiency of financial flows, and (3) linking of Malawian society and international standards of health care” financial flows to results.11–13 At an international level, (p. 4).21 Malawi still has a huge disease burden that can be examples of innovative financing mechanisms are the inter- attributed to low coverage and access to essential health ser- national financing facility for immunization (where funds are vices, though the quality is poor. For instance, the average raised from international capital markets), airline ticket national coverage across six key maternal and child health voluntary solidarity contributions, advance market commit- indicators1 is 53%, and there are also inequalities in service ments, and debt buy-downs.13 Options for innovative finan- coverage by income status and geographical setting.5 Huge gaps cing at the national (domestic) level include levies on in service coverage and poor quality of services are symptomatic financial transactions, diaspora bonds, and public health of a poorly financed and/or inefficient health system. taxes on tobacco, alcohol, and unhealthy foods (sugar, salt).12 Malawi’s per capita total expenditure on health of 39.2 Although termed “innovative,” some of these financing USD in 2014–201522 is significantly below the average of 98 options are already being used extensively. For example, USD in sub-Saharan Africa (excluding South Africa).5 Health about 54 countries worldwide earmark tax revenues from financing in Malawi is predominantly donor dependent, and 326 Health Systems & Reform, Vol. 4 (2018), No. 4 over the period 2009–2010 to 2014–2015, development part- amount of revenue that could be generated from existing and ners contributed an annual average of 27 USD per capita new sources.27 The use of qualitative forecasting techniques in compared to the government’s annual average contribution conjunction with quantitative methods is important because of 9 USD per capita during the same period.5 This implies judgment from experts and informed stakeholders is an impor- that Malawi’s government per capita expenditure on health is tant part of forecasting.27 Nonetheless, qualitative forecasting less than a quarter of the country’s total per capita health methods are often complemented by quantitative forecasting expenditure. Reliance on external development partners to methods to overcome differences in opinions by experts and finance Malawi’s health programs is unsustainable and inability of qualitative methods to guard against spurious corre- exposes the country to internal and external shocks.23 For lations and assertions about causal relationships.27 example, public spending on health as a share of GDP declined from 4% in 2002–2003 to 2% in 2008–2009 due to resource diversion by external development partners.23 Delphi Process—Eliciting Experts’ Judgment on Revenue Further, revelations of financial mismanagement in 2013 Potential of Proposed Taxes contributed to a drop in donor expenditure as a proportion Developed in the 1940s,28 the Delphi technique is a group of total health expenditure from 63% in 2013–2014 to 54% in communication process that facilitates “interaction between 2014–2015.5 Furthermore, about 62% of the external funding the researcher and a group of identified experts on a specified in Malawi is spent on HIV/AIDS, malaria, and reproductive topic,”29 (p1) and this process allows the group as a whole to health, which leaves other components of the health system deal with a complex problem.29 The Delphi technique has significantly underfunded.22 been used widely to elicit expert opinion and reach agreement In an attempt to increase domestic financing to the health on practical issues in a number of disciplines,25,28 particularly sector, efficiency, service availability, and equity, Malawi has when informed judgment is required before taking action.29 been pursuing health financing and organizational reforms since The main areas where the Delphi technique has been applied 2013.24 The health reform process includes four areas, namely: are program implementation, needs assessment, planning, (1) establishment of a social health insurance scheme; (2) creat- policy determination, priority setting and resource allocation, ing a health fund financed from earmarked tax revenues; (3) and forecasting future events.25 Similar to the approach taken decentralizing district- and central hospital–level service provi- in our study, Gordon26 uses the Delphi technique to forecast sion; and (4) reviewing institutional arrangements between the economic variables and to determine rationales for judgments Malawi government and faith-based health providers (Christian in the United States. Health Association of Malawi).24 In our study, a total of 34 individuals (Delphi experts) This study focuses on the second area of this reform were purposively selected from nine government ministries agenda and seeks to generate policy-relevant evidence for and departments and interviewed to gather their perceptions the health financing reform process in Malawi. At the same on the feasibility of generating additional revenues from 12 time, the study contributes to the international literature on areas that were proposed for taxation by the Ministry of innovative financing for health, particularly potential for ear- Health. The 12 areas are (1) fuel; (2) tobacco products; (3) marked tax revenues for health, by providing a systematic alcohol; (4) mobile phone talk time; (5) corporate businesses; approach to assessing feasibility and quantifying the amount (6) value-added tax; (7) extractive industries; (8) moneys of tax revenue that could be generated from potential sources. received from loans applied through parliament; (9) dona- tions received from developing partners, foundations, etc.; (10) annual earnings paid by employees and employers to METHODS AND DATA private health insurance schemes; (11) moneys earned by This study was conducted over a period of one and a half year investments made by or on behalf of the proposed Malawi (between January 2016 and June 2017) and incorporates quali- Health Fund; and (12) motor vehicle insurance. The 34 tative and quantitative approaches to assess the potential of experts were selected on the basis of (1) experience and raising additional tax revenue through existing and new sources vast knowledge on the subject matter, (2) requisite qualifica- with a view to eventually earmarking the revenue generated to tion, (3) representation, and (4) availability. Representation of the health sector. The two-step review methodology uses (1) the individuals from each of the nine government ministries and Delphi (qualitative) forecasting technique25,26 to assess the fea- departments was designed to provide diversified and sibility of generating additional tax revenue based on expert informed opinions. opinion and document reviews and (2) GDP-based effective tax To ensure diversity in knowledge and informed opinion, the rate (ETR) quantitative forecasting method to quantify the 34 experts who participated in the study included four top Chansa et al.: Fresh Money for Health 327 management decision makers, 13 directors and deputy directors, for taxation were excluded from the quantitative analysis. The 16 professional/technical staff members (economists, finance qualitative assessment also reviewed findings from a report managers, market and policy analysts, tax examiners, and statis- by the International Monetary Fund, Strategy for ticians), and a senior university lecturer in economics. The nine Comprehensive Tax Reform to Raise Revenue and Promote institutions were selected in relation to the 12 areas proposed for Growth in Malawi, which also showed that most of the taxation. This includes the Ministry of Health; Ministry of proposed revenue sources were not viable.31 Similarly, a Finance, Economic Planning and Development (MoFEPD); number of experts and participants at the stakeholder meet- Ministry of Natural Resources, Energy and Mining; Extractive ings and workshops that were conducted during the study Industries Transparency Initiative Secretariat; Malawi Revenue were of the view that it would be difficult to increase taxes or Authority; Reserve Bank of Malawi (RBM); Tobacco Control levies in the already existing areas without causing adverse Commission; National Statistical Office; and University of effects on production, trade, and consumption. Consequently, Malawi. Four key bilateral and multilateral development partners consensus was to identify and reallocate revenue from exist- operating in the health sector in Malawi also participated in the ing taxes or levies without increasing tax rates. study. Two rounds of review were conducted, and the respondents were asked to provide judgment on the revenue potential of the ETR Forecasting Process—Quantifying Expected proposed taxes and to explain the reasons behind their judg- Revenues ment. Information was collected by using an interview guide Having excluded ten of the initially targeted areas through that contained questions on five themes, namely, revenue gen- qualitative analysis, the ETR forecasting method was then eration capacity, health promotion potential, political feasibility, used to forecast the (1) amount of tax revenue from existing consumer acceptability, and perceived effects on businesses and fuel levies that could be earmarked to the health sector and trade. The interview guide was administered face to face, and (2) additional amount of tax revenue that could be generated participants were asked to assess all of the proposed areas for and earmarked to the health sector by introducing a new tax taxation on each of the five themes by using a three-point Likert on motor vehicle insurance. The forecasting period is scale (1= low, 2 = medium, 3 = high). In the second round, 2016–2017 to 2021–2022, and the ETR was calculated as information from the first round was summarized and returned tax revenue (TR) divided by tax base (TB), which can be to the experts for validation. Verbal responses were transcribed rearranged as TR = TB * ETR.32 Therefore, to forecast TR, and analyzed deductively as prescribed by Zhang and the starting point was to specify (1) TB and (2) ETR. For the Wildemuth.30 In particular, similar text segments, sentences, ETR, the study relied on a report by the Ministry of Health and paragraphs within and across the interviews were identified and Abt Associates24 that proposes three different tax rates and assigned to each of the five themes and then analyzed for each of the identified areas as reflected in Table 1. deductively. Some of the actual expressions/views of intervie- Application of different tax rates also made it possible to wees were retained to provide a rich description of the results. gauge for sensitivity and/or variations in the TB and expected Information from the experts was also validated through five revenue with each change in the tax rate. stakeholder meetings and workshops that were organized dur- The fuel storage levy was originally set up to finance ing the study and review of published and unpublished literature strategic fuel reserve storage facilities, and the rural electrifi- on Malawi. Triangulating evidence from regional and interna- cation levy was established to finance electricity supply pro- tional studies was also used to gauge the quality of the evidence jects under the Malawi Rural Electrification Program in line with Malawi’s country context and best practice. (MAREP).33 Thus, the rural electrification levy is referred Based on information from the qualitative assessment to as the MAREP levy. To forecast potential revenues from (expert opinion, stakeholder meetings and workshops, and the fuel levies (MAREP and storage), raw data covering the document reviews), ten of the 12 areas that had been targeted period 2011–2012 to 2014–2015 on volumes of fuel (petrol, Source Low Medium High Tax Base Existing fuel levies Fuel storage levy MK 5.00/L MK 5.00/L MK 5.00/L Liters of fuel Rural electrification levy 10% or MK 3.43/L 20% or MK 6.87/L 30% or MK 10.30/L Motor vehicle insurance 3% 6% 9% Gross premiums TABLE 1. Proposed Tax Rates 328 Health Systems & Reform, Vol. 4 (2018), No. 4 diesel, and paraffin) imports and consumption, actual amount were applied during the study (Table 2). These are fuel of revenue from the MAREP and storage levies, and pump and motor vehicle insurance. This is contrary to other prices per liter of fuel were collected and analyzed. Assuming countries where taxes on alcohol and tobacco products that the TB is conditional on other variables (e.g., GDP, are often used to promote healthy lifestyles as well as to imports, consumption), the TB for fuel is demand for fuel generate additional revenues for health.16 For Malawi, one in liters. Henceforth, the projections for the period of the key arguments is that consumption of alcohol is 2016–2017 to 2021–2022 were made using the following low and cannot provide a sustainable tax base. These formula: views are corroborated by the World Health Organization,34 which shows that consumption of pure TBt ¼ TBtÀ1 à ½ðrYt =rYtÀ1 À1ÞÃ100%Š; alcohol for people aged 15 years and older estimated at about 2.5 liters per person in Malawi is significantly where TBt is the demand for fuel in the current year; TBt−1 is lower than the African average of six liters per person the demand for fuel in the previous year; rYt is real GDP in and the global average of 6.2 liters per person. the current year; and rYt−1 is real GDP in the previous year. Furthermore, as observed by officials from MoFEPD, The basic assumption is that the demand increase for fuel is RBM, and the Malawi Revenue Authority, the existing proportional to the growth in national income. tax on alcohol is already high and smuggling of alcohol For motor vehicle insurance, the TB is gross motor vehicle products from neighboring countries to Malawi is high. insurance premiums because an increase in revenue is due to Therefore, raising the tax on alcohol could further an increase in quantity demanded, price level, or both. increase smuggling and reduce overall tax revenue. Therefore, raw data on the number of insured vehicles (both With regards to smoking, document reviews show that the third-party and comprehensive coverage), total value of the prevalence of smoking any tobacco product among adults gross motor vehicle insurance premiums, and prices of third- aged 15 years or older in Malawi of 26.6% for males and party and comprehensive coverage were collected for the 6.6% for females is slightly higher than the African average period 2011–2012 to 2014–2015 and analyzed. The projec- of 24.2% for males and 2.4% for females but lower than the tion for the period 2016–2017 to 2021–2022 was based on global average of 36.1% for males and 6.8% for females.34 the following formula: Furthermore, total tax as a percentage of the retail price of a 20-cigarette pack of the most sold brand of cigarettes in TBt ¼ TBtÀ1 ýðnYt =nYtÀ1 À1ÞÃ100%Š; Malawi of 21% is far below the recommended minimum of 75%.19 However, the retail prices of cigarettes in Malawi are where TBt is the demand for motor vehicle insurance in the comparable to those in Mozambique and because Malawi current year; nY is the nominal GDP; and subscripts t and t-1 shares a long border with Mozambique, any significant dif- represent the current year and previous year, respectively. ference in the retail prices of cigarettes between the two Real GDP (Yt) and nominal GDP (nYt) were projected by countries would encourage smuggling.31 using the World Bank’s macroeconomic projections and It is also worth noting that domestic production of simulations model. The real GDP growth for Malawi was cigarettes in Malawi is very low and most of the tax projected at 2.5% in 2016, 4.2% in 2017, and 4.5% in 2018.2 revenue is from imported cigarettes (Figure 1). Thus, an For conversions from Malawian Kwacha to US dollars, the increase in tobacco taxation could lead to reduced con- rate was as follows: 1 USD = MK 721.07 as of October 12, sumption and importation of cigarettes and ultimately a 2016. This is a mid-point rate obtained from the Reserve reduction in revenue. This would address the public health Bank of Malawi (http://www.rbm.mw/Statistics/MajorRates). concern on reduced tobacco consumption but would lead to reduced revenues for the whole economy and the health sector in particular. The other option could be the introduc- RESULTS tion of a health levy on tobacco production.35 However, this Results from the qualitative assessment show wide con- option was deemed to be highly undesirable given that sultations and knowledge among various stakeholders on tobacco (commonly referred to as “green gold” in the health reform process in Malawi, particularly domestic Malawi) is the country’s key export commodity, accounting resource mobilization through additional tax revenue from for almost half of the country’s total merchandize exports.36 existing and new sources. However, the qualitative assess- Further, tobacco production is already highly taxed and ment showed that only two of the 12 proposed taxes were politicized, and smuggling of tobacco to neighboring coun- likely to be feasible based on the evaluation criteria that tries is rife. Chansa et al.: Fresh Money for Health 329 Revenue Effects on Generation Political Consumer Businesses Proposed Sources of Revenue Potential Health Promotion Potential Feasibility Acceptability and Trade Concluding Remarks Fuel High High Low Low Negative Fuel is already heavily taxed Revenue generated could be “Fuel is weighted highly in Malawi’s Generate revenue —A total of eight duties and used to fund health Consumer Price Index (CPI). Any forecasts with focus on levies are charged on each promotion, treatment, and change in fuel prices has an impact on revenue potential of liter of fuel. As at 4th social benefit programs that household expenditures, businesses replacing existing fuel November 2016, each liter of could help to reduce the high and is therefore politically unpopular. levies— Storage and fuel (petrol, diesel, paraffin) morbidity and mortality Compared to its neighbors and MAREP attracted duties and levies related to road accidents. Southern Africa, prices of fuel in amounting to an average of Negative externalities Malawi are higher”. K208.94 per liter. This is associated with fuel “Best option would be to replace some equivalent to 27% of the consumption (congestion, of the existing levies on fuel with a pump price of each liter of noise/air pollution) could health levy. Examples are the storage fuel. also be reduced. and MAREP levies”. “About MK30 billion (44 million USD) has accumulated over the years but progress on rural electrification has been slow. Therefore, government could use some of the future revenues from MAREP . For the storage levy, facilities have already been built”. Third party and High High High High Positive comprehensive motor vehicle insurance A new tax on third party and Malawi’s road traffic fatality The Ministry of Finance through the Generate revenue comprehensive motor rate of 35 deaths per 100,000 Reserve Bank of Malawi has already forecasts insurance would have the population is above the prepared a Concept Note outlining the twin goal of generating average for Africa (26.6 establishment of a Third-Party Motor additional revenues for the deaths per 100,000 Compensation Fund. health sector while at the population), and twice the The Minister of Health expressed same time reducing the costs global average of 17.4 deaths concern on the rising number of fatal incurred by the health sector per 100,000 population. Road Accidents and their impact on in addressing deaths, injuries, the health system. and disabilities due to road traffic accidents. Revenue generated could be used to fund health promotion, treatment, and social benefit programs. TABLE 2. Expert Opinions on Poposed Sources of Generating Additional Tax Revenue Currently, there are more than eight levies and taxes on tobacco smallholder farmers in rural areas. And we are determined production targeting both domestic use and imports. Any tax/levy to continue promoting value addition [in tobacco] to increase on tobacco [whether on production or domestic consumption] our export earnings. (President of Malawi during the official ultimately affected tobacco farmers. (Official from the Tobacco launch of the 2016 Tobacco Marketing Season) Control Commission) We will ensure that there is no tobacco slips through the borders to Tobacco is a very serious matter. It has been the life of our Zambia or Mozambique as has been the case years back. We will economy, our life! This country [Malawi] has thrived on confiscate all tobacco being smuggled and that will remain the tobacco for more than a century now. My government pro- property of the government. (Chief executive officer of the motes tobacco production and marketing as a crop of strategic Tobacco Control Commission at the official launch of the 2016 importance. It is a crop that economically empowers our Tobacco Marketing Season) 330 Health Systems & Reform, Vol. 4 (2018), No. 4 FIGURE 1. Domestic Production and Import Quantities for Cigarettes in Malawi. This figure was created using data from the following source: National Statistics Office. For fuel, it was noted that introducing an additional levy The proposal to introduce a new tax or levy on motor vehicle would lead to an increase in the pump price of fuel and insurance premiums made by private insurance companies cause an inflationary pressure that would affect the entire offering this service was widely welcomed. The understand- economy. This is because the pump price for a liter of fuel ing was that additional revenue could be raised for the health (petrol, diesel, and paraffin) in Malawi already contains sector while at the same time reducing the costs incurred by eight levies and duties, which constitute 27% of the price the health sector in addressing road traffic–related deaths, of each liter of fuel.5 Thus, rather than introducing a new injuries, and disabilities. Document reviews show that levy on fuel, consensus from the qualitative assessment Malawi has a road traffic fatality rate of 35 deaths per was to use existing levies. Specifically, it was felt that 100,000 population, which is above the African regional revenues from the existing storage levy could be channeled average of 26.6 deaths per 100,000 population and twice to the health sector and the storage levy could be retitled the global average of 17.4 deaths per 100,000 population.37 as a medical levy. In addition, it was suggested that a share As shown in Figure 2, the total number of people seriously of future revenues from the existing MAREP levy could be injured and killed in road traffic accidents increased by 93% channeled to the health sector. The justification for repla- between 2012–2013 and 2013–2014 and the value of insur- cing the storage levy was that all of the planned fuel ance claims due to injuries and death increased by 70%. In reserve storage units had already been built in the country other words, the monetary value of vehicle insurance claims and the optimal national fuel storage capacity had been for injuries and deaths as a percentage of the total monetary reached. On the other hand, justification for targeting a value of motor vehicle insurance claims rose significantly share of future revenue from the MAREP levy was due from 5% in 2008 to 50% in 2014 (Figure 2). to the low absorptive capacity for funds that had been It is not clear, however, whether these claims are genuine collected since introduction of the levy.3 However, an offi- or whether the victims were attended to at public and private cial from the Ministry of Natural Resources, Energy and hospitals. This is because there is no information on reim- Mining had some reservations on the proposal to allocate bursement of medical costs by insurance companies for road part of the future revenue from the MAREP levy to the traffic related injuries.4 This suggests minimal or no impact health sector: of the increasing road traffic insurance revenues and claims (Figure 2) on financing and alleviation of road traffic related Replacing the storage levy with a medical levy could be more costs at public and private hospitals. feasible but not the MAREP levy. The Rural Electrification Act The amount of money that could be generated from intro- No. 21 of 2004 provides for the establishment of a Rural ducing a motor vehicle insurance levy and reallocating some Electrification Fund. (Senior government official, Department of Energy) of the existing levies on fuel (storage and MAREP) to the Chansa et al.: Fresh Money for Health 331 FIGURE 2. Road Accident–Related Injuries and Deaths and Insurance Claims. Panel (A) on the left-hand side shows the number of road accident-related injuries and deaths, and the monetary value of road accident- related insurance claims for injuries and death. Panel (B) on the right-hand side shows the monetary value of road accident-related insurance claims for injuries and death as a share of the total value of motor vehicle insurance claims. This figure was created using data from the following sources: National Police Headquarters and Reserve Bank of Malawi. FIGURE 3. Revenue Projections: MAREP, Storage, and Motor Vehicle Insurance. Panel (A) on the left-hand side shows revenue projections (MAREP, Storage, and Motor Vehicle Insurance) in absolute values (million USD) under the low, medium, and high scenarios. Panel (B) on the right-hand side shows revenue projections (MAREP, Storage, and Motor Vehicle Insurance) in per capita terms, and as a share of 2014–2015 GHE. For per capita estimate, 1 USD = MK 721.07. This figure was created using data from the following source: MoFEPD, RBM, MERA, and National Police Headquarters. health sector is projected in Figure 3. Assuming that all three DISCUSSION levies are introduced, 5.4 million USD would be raised on The results highlight Malawi’s plan to expand domestic average per year over the period 2016–2017 to 2021–2022 financing to the health sector through innovative financing under the low scenario (Figure 3). Under the high scenario, mechanisms, particularly earmarked tax revenues. The pro- the amount of revenue generated would be 11.6 million USD posed financing reform is part of the broader health reforms on average per year over the period 2016–2017 to that are outlined in a performance contract between the pre- 2021–2022. As a share of the 2014–2015 government health sident of Malawi and the Minister of health that was signed in expenditure (GHE), the amount of revenue that could be 2015.5 In preparation for the adoption process, the Ministry generated from the three levies over the period 2016–2017 of Health has consulted widely with several government to 2021–2022 would be 5%, 7%, and 10% on average per ministries, including the Ministry of Finance, which is the year under the low, medium, and high scenarios, respectively. permanent chair of the health financing technical working In per capita terms, this is equivalent to 0.30 USD, 0.46 USD, group. The Ministry of Finance also requested for this and 0.63 USD on average per year under the low, medium, study to be undertaken and participated in all five consulta- and high scenarios, respectively (Figure 3). tive meetings and workshops that were held during the study. 332 Health Systems & Reform, Vol. 4 (2018), No. 4 Despite this support, most of the areas that were proposed for products in Malawi and widespread smuggling of these pro- taxation were assessed as infeasible, and revenue forecasts ducts to and from neighboring countries. were only conducted on two fuel levies and motor vehicle Though presumably low, revenue that can be generated insurance premiums. from taxes on fuel and motor vehicle insurance premiums Assuming a high scenario, the results show that taxes on could be used to fund a few priority areas in the health sector fuel and motor vehicle insurance would generate an average in Malawi and thereby complement government funding. of 11.6 million USD per annum, which is equivalent to 10% Though this study does not focus on how the generated of the 2014–2015 GGHE or 0.63 USD per capita per year funds will be used or managed, this is a critical issue that over the period 2016–2017 to 2021–2022. This money is low should be considered in fiscal space for health analytical and far from covering financing gaps in the health sector in studies. For example, in Ghana and Estonia, tax revenues Malawi. Nonetheless, this is relatively higher than Poland and that have been earmarked to the health sector have been used Panama where tax revenues from tobacco that have been to run national health insurance programs, and in Zimbabwe earmarked to the health sector as a percentage of the GGHE they have been used to address the HIV/AIDS epidemic.14 are estimated at 0.001% and 1.3%, respectively.14 On the Likewise, Malawi could consider using the money generated contrary, earmarked tax revenues for health from tobacco from the proposed taxes to reduce the high burden of road and alcohol in the Philippines are nearly double the govern- traffic injuries and deaths in the country. This would be impor- ment’s health budget.16 But without a norm or minimum tant because Malawi has the highest number of road traffic threshold on the size of the earmark relative to public expen- related deaths per 100,000 population in Africa and globally,37 diture on health or GDP, it is difficult to make a judgment on but actions to combat this problem are insufficient.41 whether the potential revenues are high or low.14 It is also The cost of road traffic injuries and deaths in low- and important to note that success in the Philippines can be middle-income countries is estimated at 5% of GDP.37 This attributed to strong annual economic growth of 6.3% between study found no evidence that motor vehicle insurance com- 2010 and 2016, gross national income per capita of 3,580 panies in Malawi are currently compensating the health sys- USD in 2016, increasing urbanization, a growing middle tem (public and private hospitals) for road traffic–related class, and a large and young population.38 There is also a injuries and fatalities despite a rapid increase in the number high prevalence of tobacco smoking among adults and the and value of insurance claims of this nature. Other countries youth in the Philippines, estimated at 40.3% and 5.1% for in Africa (e.g., Botswana, Namibia, and South Africa) have in male and female adults (15 years), respectively, and 14.5% place dedicated road accident funds that provide social secur- for youth (13–15 years).39 ity benefits to road traffic accident victims for medical and Unlike the Philippines, capacity to raise additional tax funeral expenses, loss of earnings, and loss of support.42–44 revenue from existing and new sources in Malawi is low, Notwithstanding the above, earmarking tax revenues to and this could be attributed to the weak economy. For exam- certain budget lines or sectors is associated with potential ple, Malawi experienced weak and volatile economic growth negative consequences. This includes reduction in flexibility between 1995 and 2015, with real per capita GDP growing at in allocating public finances, fragmentation of public finan- 1.5% on average, which is almost half the average of 2.7% in cing within the health sector and between sectors, and the non-resource-rich sub-Saharan African countries over the possibility that health budgets are reduced by the correspond- same period.40 Malawi’s GDP per capita was only about ing increase in funding from earmarked tax revenue.45,46 494 USD (in constant 2010 terms) in 2015.40 Furthermore, Furthermore, even when earmarked tax revenues for health the fiscal deficit was about 4.3% of GDP and the total public are introduced, there can be huge delays in disbursing the debt was 52.1% of GDP in 2016.5 As a result, prospects for mobilized revenues due to rigidities in public finance manage- income-driven growth in health spending in Malawi are con- ment systems.7,14,47 Thus, in addition to generating additional strained. Compounding the problem is that the health sector revenues for health through earmarked taxes, money can be is already highly prioritized by the government, with created by improving efficiency in resource allocation and use, observed government health spending much higher than the governance, and public finance management. This is important average for low income countries.9 However, the absolute for Malawi because several studies have highlighted varying amount of money available is very low in comparison to forms of inefficiencies in health financing and service peer countries due to the low level of national income and delivery.5,14,23,48–50 On the other hand, it is also important for per capita GDP.5 On the other hand, the proposed taxes on Malawi to align all proposals on earmarked tax revenues for alcohol and tobacco had low revenue generation capacity due health to the overall tax reform process given that the process to the low domestic consumption of alcohol and tobacco of reviewing the overall tax system has been initiated.31 Chansa et al.: Fresh Money for Health 333 The debate on earmarking is summed up by Cashin and is limited. The study calls for efforts to expand fiscal space others, who conclude that earmarking is highly context speci- for health in Malawi to focus on efficiency enhancing fic and depends on a country’s political priorities and budget measures, particularly governance and public financial process.14 Other researchers are of the view that earmarking is management. not inherently right or wrong because it depends on how overall government spending is adjusted to accommodate changes.46 Our observation, therefore, is that the validity of arguments on earmarking depends on practical implementation NOTES experiences. In the case of Malawi, the proposal to generate [a] The national average of 53% was for the following indi- additional tax revenue and to earmark the acquired revenue to cators: children age 12–23 months fully vaccinated, preg- the health sector has not yet been officially adopted despite nant women with four or more antenatal care visits, wide consultations among government ministries and agencies children with fever who sought treatment from a health and health and finance authorities working together. facility/provider, households with at least one insecticide- Conversely, adoption and implementation of the medical treated net, pregnant women aged 15–49 who slept under levy5 in Zambia was proposed and led by the Ministry of an insecticide-treated net the previous night, and pregnant Finance with very minimal consultation with the Ministry of women age 15–49 who received three or more doses of Fansidar for intermittent preventive treatment of malaria Health and other government ministries and stakeholders.51 during pregnancy. Thus, this study finds no evidence that amicable consultations [b] Estimates done by using the World Bank’s macroeco- between finance and health authorities at the time that an nomic projections and simulations model. earmark is proposed are likely to lead to its adoption. [c] About MK 30 billion (44 million USD) has accumulated The key value of this study is that it devises and applies a over the years, but progress on rural electrification has systematic approach to assessing feasibility and quantifying the been slow. amount of tax revenue that could be generated from potential [d] The study team visited Kamuzu Central Hospital, Likuni sources. Several studies on the subject matter have focused on Hospital, and Luke Daeyoung Hospital in Lilongwe to feasibility.15 Nonetheless, the main limitation of this study is obtain information on the number of accident victims that a budget redistribution analysis was not conducted. The attended to, average length of stay, treatment costs, and study proposes reallocation of revenue from some of the exist- compensation by insurance companies, but this informa- ing fuel levies to the health sector to avert potential adverse tion was not readily available. [e] Zambia implemented a medical levy between 2003 and effects if new taxes or tax rates on existing taxes are increased 2013 aimed at raising additional revenue for the health but these funds are already part of the national budget. Thus, this sector. The medical levy was charged at a rate of 1% on requires a comprehensive assessment of the national budget to gross interest earned by any person and partnership on all ascertain the impact of the redistribution. savings and deposit accounts, treasury bills or govern- Secondly, the study assumes that all revenues that will ment bonds, and other similar financial instruments. be generated from the new tax on motor vehicle insurance will be allocated to the health sector. However, this might not be the case given that in other countries the revenue generated serves as an all-encompassing social security net DISCLOSURE OF POTENTIAL CONFLICTS OF for victims of motor vehicle accidents.42 Lastly, the study INTEREST quantifies additional revenue that could be generated from No potential conflict of interest was reported by the authors. potential sources but does not quantify social and public health benefits. Quantifying social and public health ben- efits is important because the proposed taxes are really meant to trigger behavioral change to improve lifestyles, ACKNOWLEDGMENTS decrease disease burden, and eventually reduce health care This study is part of a broader study on fiscal space for health costs. in Malawi that was funded by the World Bank on request from the government of Malawi. The authors acknowledge comments and contributions from Owen K. Smith, Caryn CONCLUSION Bredenkamp, Pachalo Mwanza, Richard Record, Ziauddin The study concludes that the revenue generation potential Hyder, Abebe Adugna, Dominic Nkhoma, Emma Jipson of innovative financing for health mechanisms in Malawi Mabvumbe, Crispin Kulemeka, and John Mpoha. 334 Health Systems & Reform, Vol. 4 (2018), No. 4 FUNDING report. 2009 [accessed 2018 Feb 6]. https://www.uhc2030. org/fileadmin/uploads/ihp/Documents/Results___Evidence/ This work was supported by the World Bank Group (Project HAE__results___lessons/WORKING%20GROUP%202% Reference Number: P157774). 20REPORT%20-%20Raising%20and%20Channeling% 20Funds.pdf. 12. World Health Organization. Health systems financing: The path to ORCID universal coverage. Geneva (Switzerland): World Health Organization; 2010. Collins Chansa http://orcid.org/0000-0003-0982-5087 13. World Bank. Innovative finance for development solutions. Takondwa Mwase http://orcid.org/0000-0002-3067-3981 Washington (DC): World Bank; 2009. 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