Assessing fiscal space

What does a fiscal space analysis look like in practice?

Let’s have a look at recent fiscal space analysis for health in Indonesia, by Ajay Tandon and colleagues (2009).

The table below taken from their report gives a snapshot of critical health spending indicators in Indonesia compared to other countries in the region.

Image source: Table 4-1 on p7 of World Bank. 2009. Indonesia – Giving more weight to health : assessing fiscal space for health in Indonesia (English). Washington, DC: World Bank. http://documents.worldbank.org/curated/en/214081468039866396/Indonesia-Giving-more-weight-to-health-assessing-fiscal-space-for-health-in-Indonesia

Given the relatively low levels of public health spending compared to the region, they explore options for increasing fiscal space for health in Indonesia. Here are their conclusions regarding the five potential options for increasing fiscal space in Indonesia.

Conducive macroeconomic and fiscal conditions

• Economic growth: based on good economic growth projections for Indonesia and the tendency for government spending to increase with increasing GDP, the increase in GDP should lead to an increase in health spending.

• Increased government revenue: revenue generation is an important determinant of fiscal space. Indonesia’s revenue as a percent of GDP is lower than the average of lower middle-income countries, and in part depends on a country’s ability to collect taxes. The authors cite recent studies in Indonesia that suggest the government could increase revenues by increasing property taxes, introducing fringe benefit taxes and limiting VAT exemptions. In general, Indonesia has low local revenue generation capacity.

• Mandatory universal health schemes can generate fiscal space – however in Indonesia with a very large informal sector, this is unlikely to be a viable option.

Adjusting expenditure priorities

• There is some potential for improving government prioritisation of the health sector. Broader socio-political factors found to be negatively associated with public prioritisation of health in expenditures are corruption (meaning relatively lower kickbacks from health projects), lower democratisation and higher levels of ethno-linguistic factionalism.

Raising health-sector specific resources

• Ear-marked taxes on tobacco seem unlikely as a source of increased fiscal space as Indonesia is the only country in Asia not to sign WHO’s Framework Convention for Tobacco Control (excise taxes on tobacco production account for almost 10 percent of government revenues, and it is a high employment sector).

Development-assistance for health

• Foreign aid is not a viable option for generating fiscal space for health in Indonesia since it is a lower-middle income country; and most donors are tightening their foreign aid budgets.

Increasing efficiencies

• Since decentralisation in Indonesia in 2001, the majority of public health expenditure occurs at the district level. Therefore efficiencies will need to be improved at that level. The authors suggest that fiscal space can be achieved in a decentralised setting by a kind of results-based financing that incentivises providers to use health funding more efficiently.

• The authors also caution that absorptive capacity (the ability of governments to spend the money saved through greater efficiencies) needs consideration as it can constrain the actualisation of fiscal space.

The full report on this fiscal space analysis in Indonesia is helpful to read in order to understand the processes, data and analyses required to identify fiscal space. A link to this paper is provided in the ‘see also’ section below.

In your own context, do you think the data and analyses used in this report would be possible to do without additional data collection? Are there factors not considered in this report that you would want to include in a fiscal space analysis in your own country?

Please comment below.

References

World Bank, 2009, Indonesia – Giving More Weight to Health : Assessing Fiscal Space for Health in Indonesia, viewed 26 June 2019, /https://openknowledge.worldbank.org/handle/10986/3028/.