The COVID-19 pandemic requires sufficient public funding to ensure a comprehensive response. The reprioritization of public spending to protect the economy and strengthen the health system’s response requires timely action by government leaders and a favorable environment for public finances. The most affected countries have adopted different approaches to budget allocation, depending on their public financial management (PFM) systems and regulations. On the revenue side of the budget, adjustments (e.g., via borrowing) are required to cope with the new economic and fiscal constraints. On the expenditure side, speed in decision making is needed. That will be the focus of this blog.
AUTHORS
Helene Barroy, (World Health Organization, Geneva Headquarters), Ding Wang (World Health Organization, Regional Office for the Western Pacific), Claudia Pescetto (World Health Organization, Regional Office for the Americas), Joseph Kutzin (World Health Organization, Geneva Headquarters)
Each country should develop specific processes to allocate sufficient budgetary funds for emergency response. To inform the budget response in countries where the pandemic may spread in the near future, a summary of budget practices observed in some hard-hit countries is provided below, with the aim of informing other countries’ responses to three key questions:
What are the immediate spending actions that can be taken within the existing budget framework?
How to secure resources for COVID-19 response through revisions in the budget laws?
What can be done to speed up budget execution and ensure that funds reach the health services involved in the first line of response?
Use existing budgetary flexibility and extraordinary expenditure procedures to finance the first measures.
Public financial management systems in most of the countries concerned provide some level of flexibility for the executive branch to use budget allocations. Re-prioritization through reallocation of line items or within program allocations (subject to limits) is the first action allowed to secure budget funding for COVID-19’s immediate response. Most legal frameworks also provide for the activation of contingency funds by the executive in emergency situations. For example, the declaration of a national emergency by the President of the United States allowed the administration to use the Stafford Act, a federal law governing disaster relief efforts, to make $50 billion in emergency funds available to states and territories. Similarly, in China, the budget adjustment procedure for emergency situations defined in the 2018 budget law was used to allow for budget reallocations and the activation of contingency funds and reserves.
In several countries, senior members of the executive, such as the head of state or the minister of finance, may also adopt emergency regulations to authorize urgent expenditures for immediate response within existing budgets and through simplified approval mechanisms. For example, China’s Ministry of Finance issued a budget announcement on January 31, 2020 to be used as a budget regulation for budget holders, sub-national and procuring entities to ensure prompt funding of the budget for COVID-19 prevention and control. Similarly, the heads of state or finance ministers of several European countries (e.g., France, Germany, Italy) used decrees to free up budgetary resources earmarked for healthcare providers. Developing country governments have also acted quickly to reduce recurrent and non-priority spending and prioritize public spending to respond to the crisis. Indonesia’s Finance Minister announced on March 18, 2020 that the government would halt non-urgent spending and reallocate up to $650 million from the state budget for COVID-19 relief.
Flexibility in the state budget allows many countries to increase budget transfers to subnational governments and purchasing entities. In most pandemic-affected countries, subnational levels (e.g., provincial governments in China) and/or procurement agencies (e.g., national health insurance funds in Korea and Japan) have been delegated authority to undertake health spending. Under normal conditions, these governments receive approved budget transfers within the state budget or through a separate budget approval and development process (e.g., a separate financing law for the national health insurance fund in France). China increased central budget transfers to Hubei, the province at the center of the outbreak at the height of the crisis, to RMB 6.2 billion for COVID-19 prevention and control (as of March 5, 2020). France adopted an ad hoc budget increase of 2 billion euros for the national health insurance fund to purchase masks and tests.
Accelerate the revision of public financing laws to ensure a budget for response through earmarked spending.
Existing flexibility in the use of budget resources can facilitate emergency spending. However, the scale of resources needed for the response often requires supplementary budgets. The budget approval process ensures funding through the earmarking of expenditures for specific purposes. In several countries, the legislature enacted spending plans for the response to Covid-19 (e.g., Korea, France, Germany, Japan, United States, United Kingdom). Countries have developed rapid cost estimates and identified low-priority expenditures, which is preferable to making cuts across the board. However, some countries have opted for such measures, with reductions of 15-30% in the operating budgets of non-response ministries. Some legislatures have passed spending bills using processes allowed only during emergencies, many with all-party support (e.g., the French prime minister introduced a bill on March 18, 2020, and it was passed on March 19 by the national assembly and on March 20, 2020, by the Senate), taking health precautions for the vote.
In the United States, following the passage of several executive orders, the Families First Coronavirus Response Act was passed in Congress on March 18 with bipartisan support. On March 25, the President and Congress reached an agreement to approve an unprecedented $2 trillion aid package. In parallel, at least twelve states enacted legislation authorizing additional funding for the COVID-19 response or a transfer from state emergency funds (raini day funds).
In a context of closing legislatures, the debate and approval processes have also been reduced. For example, in Canada:
“Estimates usually involve detailed discussion of spending figures in week-long committee meetings, but (this) procedure was limited to a three-hour debate in the chamber. The government made sweeping changes to speed up the proceedings that stretched late into the night. If we do not pass this budget quickly, we will not have the certainty that on April 1, the first day of the new fiscal year, we will have the funds we need to pay our doctors and nurses in this time of crisis,” Premier Jason Kenney said in the Alberta Legislative Assembly on March 17, 2020.
From the perspective of budget formulation and structure, supporting documents should be as robust as possible. Supplemental bills from the U.S., France or Germany include cost estimates, explanations of cuts and reallocations, a description of planned activities, information that is essential for implementation and tracking of expenditures. For example, France’s proposal in its revised financing law contains a 44-page document and includes four elements: a report on the economic and budgetary situation and justification for modifications; a detailed presentation of modifications; an analysis of changes by program; and a performance monitoring framework. When countries formulate program budgets, this allows them to group additional pandemic expenditures into a specific (earmarked) response fund. Thus, France created a specific budget program dedicated to the response (“Emergency plan for the health crisis”), with two sub-programs, each with a specific related action. Similarly, the UK in the first budget under the new government provisions include supplementary items for the National Health Service (NHS) of £5 billion, provided that other changes to the public budget are presented in the Autumn 2020 budget. Countries submitting line item budgets may need to create a temporary lump sum/program item within the supplementary budgets to secure funding and facilitate the implementation process for the response.
In some other hard-hit countries, the spending program continues to be implemented through the executive branch using exceptional procedures without the need to enact a new budget. Chinese leaders managed their response through a series of “Notes” from the Ministry of Finance (January 31, 2020 and March 4, 2020) at the central level since the closing in Wuhan, targeting budget managers, sub-national levels, insurance funds and service providers. The central government adopted a rigid resource allocation process to separate funds for COVID-19. The “Note” of the Minister of Finance issued on January 31, 2020 explicitly mentions that transfers allocated to subnational levels should only be used for response and prohibits their interchangeability (non-fungibility): “Before, during and after the event, standardize procedures for approving funds and ensure that funds are specifically earmarked for this special use. It is strictly prohibited to use financial grant funds for the renovation or purchase of equipment, equipment and transportation that are not related to the prevention and control of the epidemic”.
Australia, whose new budget was due to be presented in mid-May, decided to delay the presentation of the 2020-2021 budget until October due to uncertainties in preparing a budget in the context of the emergency. In the meantime, the government introduced a “supply law”, an exception measure to be used in an emergency to guarantee the availability of financial resources when budget appropriation laws are not approved within the usual timeframe.
Releasing public funds to service providers on the front line of timely response and facilitating tracking of expenditures
It is essential that countries explore ways to ensure that public resources are available to frontline providers through timely and effective budget execution processes. Throughout the crisis, China provided flexibility in the rules of execution. In a January 31, 2020 budget note to subnational entities and buyers, the finance ministry stated, “Local finance departments should accelerate the disbursement process, allow early allocation and accelerated payment to meet spending needs. Local finance departments at all levels should strengthen the analysis and evaluation of the treasury fund situation, order and standardize the organization of fund remittance and, if necessary, take measures such as advance allocation and advance payment to prioritize the allocation of funds for epidemic prevention and control.”
To the extent that flexibility is provided in the use of resources, control procedures are adjusted to accelerate disbursements. France adopted an accelerated expenditure authorization procedure, eliminating a step in the authorization procedure to speed up the release of funds and ensure liquidity. In the revised law, the total amounts are automatically released for spending authority and are equal to the appropriation. In other words, the ability to spend is facilitated and accelerated. Governments may adopt other priority disbursement procedures within supplemental budgets to accelerate the availability of funds and/or allow for rapid purchasing through streamlined procurement processes. For example, cash advances were implemented in China, where insurance funds made advance payments to health facilities to ease the financial pressure on Hubei province. As of February 19, insurance funds had disbursed more than RMB 17 billion to health facilities. Australia also provided rapid supplemental appropriations at the federal level, allocating funds for primary care networks and establishing respiratory clinics. Countries can also use ex post and/or risk-based controls (e.g., controls focused on high costs such as large purchases or infrastructure renovations that are more susceptible to fraud), especially for cash on hand management.
While the release of funds is accelerated and spending procedures are made more flexible, countries should ensure that reporting and accountability mechanisms are adopted for the use of resources allocated to the response. Several countries have begun to define performance-based frameworks. France’s new budget programs are accompanied by clearly defined policy goals with corresponding performance indicators and targets. In the same vein, China strengthened reporting and monitoring capabilities at the provincial level. Existing systems for monitoring public spending and ensuring rigorous reporting should be updated to reflect changes in budget lines and allow for consolidated reporting of COVID-19 related expenditures. Program allocations can facilitate tracking of expenditures and ensure accountability in the use of resources by allowing all pandemic-related expenditures to be reported under the same program code.
While the expenditure required to address the pandemic involves multiple actors, government finance authorities play a major role in the financial responsibility for the response. New spending plans are generally under the authority of the finance minister or prime minister, as in China, Germany and France. The new budget program in France is under the budget ministry, but the expenditure may be executed by several ministries and entities and accounted for under the budget code assigned by the budget ministry.
In conclusion, as the pandemic begins to spread across developing countries and in fragile contexts where public financial management systems already exhibit systemic weaknesses, it is useful to consider the experience of higher income countries on how to budget for the response. It is clear that ensuring an appropriate balance between flexibility and accountability is now more relevant than ever in these exceptional circumstances. Governments and legislatures must ensure sufficient budgetary funds by reprogramming existing expenditures and allocating additional funds. Funds must be made available quickly at the front line of service response, while effective expenditure tracking mechanisms are put in place to ensure effective and efficient use of resources and accountability. Finally, it is recommended that the countries discuss the budget process as soon as possible to ensure a rapid response using domestic sources of financing, and in parallel optimize external sources towards the same objective.
THANK YOU
The authors would like to thank Tomas Roubal (WHO Regional Office for the Western Pacific), Valeria De Oliveira Cruz (WHO, Regional Office for South-East Asia), Tsolmongerel Tsilaajav (WHO, Regional Office for South-East Asia), Camilo Cid (WHO, Regional Office for the Americas), Agnes Soucat (WHO, Geneva Headquarters) for their contributions.
