Skip main navigation

New offer! Get 30% off your first 2 months of Unlimited Monthly. Start your subscription for just £29.99 £19.99. New subscribers only. T&Cs apply

Find out more

Fiscal space analysis

What are the means countries use to find money for health initiatives?
PETER ANNEAR: We’re going to look at the concept of fiscal space for health. That is, is there room within the national budget to increase government spending on health services? Now, the best definition of fiscal space is provided by Peter Heller. He says, it is raising spending in a sustainable manner. The challenge is to provide evidence for advocating for greater government participation in the health sector where that is needed. Now, take time to look at this simple formula. You see the left-hand side of the equation and the right-hand side. There are two terms, one on the left.
This formula tells us, on the left-hand side of the equation, that the share of government health spending in the economy is made up by, on the right-hand side, the first term, the share of total government spending in the economy, and the second term measures the priority given to health within the government budget. So to increase fiscal space, we must either raise the share of total government spending in the economy or make health a higher government priority over other sectors, or we do both. Now, both these interventions are political decisions. They won’t be made within the health sector but at the political level.
Now, in many cases, additional spending on the health sector will produce an economic result that is greater in value than the additional spending, and this is called elasticity of health expenditure. It comes about because of improvements in workers’ health, better school education outcomes, higher productivity. So an investment in health is, therefore, economically good. There are five ways, in fact, five accepted ways, of increasing the fiscal space for health care. The associated outcomes in each case are listed here in this slide. These five methods of increasing fiscal space can be illustrated on what we call the fiscal space spider web. Now, for each one of these five, a potential increase up to 8% is shown on each of the five axes.
The spider illustrates how resources might be tapped to increase health spending and how these might be balanced against each other. You can see on this graph, some have expanded more, others not very much. This is a nice way to map those increases. Additional funds for health can be generated by economic growth or by improved tax collection, thus increasing the share of government revenue in the economy. Development assistance might fit in here too as a support to government funding. Now, Mexico, in recent years, has been one of the good examples of how fiscal space was gained by reassessing national priorities.
In that case, to fund what they call Seguro Popular– that is the national health insurance scheme– the government raised health spending by 1% of GDP to cover an additional 50 million beneficiaries. So health rose from 2.3% of GDP to 3.3% of GDP. Again, many countries have used earmarked taxes to raise additional revenues for health, such as tobacco or alcohol sin taxes. That is, the tax revenue is used exclusively for the health sector. From about the 1990s, there’s been a dramatic increase in funding provided through development assistance, particularly from the global health initiatives. That is, the Global Fund and the Gavi Alliance and from the United States. You can see those increases here in the graph that you are looking at.
This has really largely been a response to HIV and AIDS epidemics and the treatment that’s needed. Now, however, the increases have ceased, and a fall in donor funding is threatened. You can see that on the graph. Sri Lanka is an interesting case. Sri Lanka provides a very clear example of how efficiency in the health care sector, efficiency in health care provision, can raise significant resources for health. So for a level of expenditure that is similar to, for example, Cambodia or Bangladesh– you can see those displayed here– the outcomes for inpatient care and for outpatient care in Sri Lanka have been far more productive.
Efficiencies can be made both by the effective allocation of resources which may mean directing resources to where the health need is greatest, that is, perhaps by disease or by region or by socioeconomic group, and by providing existing health services at a lower cost by removing waste and inefficiency. World Health Organisation estimates that resources for health care could be increased by up to 20% or 40% in this way. It’s a very important area. So a specific programme of reforms with strong political and administrative backing will be needed if inefficiencies are to be removed on a significant scale. Reducing fragmentation in pooling and administration of funds is one clear way to do this as is improved targeting to areas of greatest need.
Reforms need to be based on some calculation of cost effectiveness as one of the measures. It’s not the only measure but important to make a check. So expanding fiscal space is, therefore, a key aspect of increasing the level of resources. Both the level of resources from government and the total level of health resources, the resources that are available, therefore, for health services. But the process of increasing fiscal space is complex and difficult often and, ultimately, will be possible only with a strong political commitment.

Rigorous fiscal space analysis is critical to any country’s financial planning process – but it requires time, expertise and data to work with, all of which may be constrained in low- and middle-income country settings.

In the following step, you’ll see in a worked example how a fiscal space analysis was carried out in Indonesia. As you read it, reflect on what might be the main obstacles to conducting a good fiscal space analysis in your context.

This article is from the free online

Health Systems Strengthening

Created by
FutureLearn - Learning For Life

Reach your personal and professional goals

Unlock access to hundreds of expert online courses and degrees from top universities and educators to gain accredited qualifications and professional CV-building certificates.

Join over 18 million learners to launch, switch or build upon your career, all at your own pace, across a wide range of topic areas.

Start Learning now