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The missing link? How good financial governance helps strengthen health systems

Expert talk, GIZ Bonn, 20 April 2016

Expert talk, GIZ Bonn, 20 April 2016

Strengthening health systems for better health outcomes requires more domestic investment in health but also improvements in how funds are managed and spent. Yet good financial governance and health systems specialists have often talked past each other. How can we change this?

Domestic spending on health in most low- and middle-income countries needs to increase substantially if governments want to honor their commitment of providing adequate health services to their populations. Increasing domestic funding for health has thus become a rallying cry for the global health community. African governments have set themselves an ambitious spending target for health, promising in 2001 to dedicate 15% of their annual budgets health (few have reached this goal). Ministries of finance, on the other hand, need to balance the financial needs of all sectors. Setting budget levels thus becomes a question of political priorities. But the health sector also needs to demonstrate that investments in health achieve outcomes efficiently. In short, good financial governance needs to become part of the health systems discussion. This was the subject of an expert talk hosted by the health and good financial governance units of BMZ and GIZ on 20 April 2016.

Two ships passing in the night?

OECD’s Camila Vammalle and Chris James presented some of the typical budgeting challenges in health based on a recent survey among Latin American countries. Fragmentation of health systems poses problems for coherent budgeting, as does chronic underexecution of budgets in some countries. In some instances, underexecution is due to late transfers to the executing agencies, in others due to problems in these agencies. Another key challenge for budget execution is the lack of qualified personnel. While increasing revenue collection and spending on health is correlated with better health outcomes, substantial wastage (20-40% according to WHO) means that the health sector is not getting sufficient value for money.

Aarti Shah from the Collaborative Africa Budget Reform Initiative (CABRI) and Cynthia Macharia of the GIZ Health Programme in Kenya confirmed similar challenges from an African perspective. Unpredictable budget processes or irregular, late and insufficient flow of funds are common, as is the lack of effective public participation. Clearly there are funding gaps – so more investment is needed – but also efficiency gaps, i.e. funds can be used better in spite of constraints. CABRI’s experience suggests that dialogue of the different stakeholders in health and public finance is crucial.

New ways to tackle old issues?

While these challenges are not new, growing attention to good financial governance in sectors has led to some promising initiatives to bring the two ships – public financial management and health – together. The OECD is currently extending its analysis to African countries. By benchmarking and sharing tools and practices it hopes to foster better alignment between budgeting and health. A Joint Network on Fiscal Sustainability of Health Systems is being established in order to encourage mutual learning and cooperation of the two sides. It is supposed to ensure health and budget officials communicate early in the budget process. Other new approaches are citizen-led accountability mechanisms and complaint mechanisms, which GIZ’s support to civil society organisations in Kenya seeks to encourage.

External donors also have to adapt and align their programming with national priorities and budgeting systems. This is ‘very much a question of trust', according to Walter Seidel from the European Commission. He also noted that ‘new answers’ to well-known problems need to address silo thinking between institutions. According to Seidel, ‘spending better’ including reduction of wastage and better budget execution may free up some resources but enormous gaps will remain. Current annual average spending on health in 32 countries is below USD 44 per capita. In order to finance a minimum adequate health services package, USD 86 per capita will be needed. This leads to an additional need of USD 57 billion per year. Even under the most optimistic assumptions (tax ratio 25% and 15% of budget for health), which translate into a domestic resource mobilisation potential of USD 9.5 billion per year, we are left with an annual gap of USD 47 billion.

The discussion showed that there are some new actors and promising new ways of co-operation and new approaches as well as sufficient experiences for further cooperation between African and European institutions on the issue of good financial governance and health. In his closing remarks, BMZ’s Heiko Warnken stressed the need to consider both the political choices and the technical solutions if we are to move forward on improving good financial governance in health.

Further information:

Presentation by OECD

Presentation by CABRI

Presentation by GIZ Kenya (video)

Presentation by EC

BMZ glossary

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