Hélène Barroy (World Health Organization, Headquarters); Ding Wang (World Health Organization, Regional Office for the Americas); Claudia Pescetto (World Health Organization, Headquarters); Joseph Kutzin (World Health Organization, Headquarters).
1) Use existing budgetary flexibility and exceptional expenditure procedures to finance initial measures
In most of the countries affected, PFM systems offer the executive branch a degree of flexibility in using existing budget allocations. Re-prioritization through the use of “transfers” between items or within budget program envelopes (subject to thresholds) is a first authorized action to secure budget funding for an immediate response to COVID-19. Moreover, most legal frameworks provide for the activation of reserve funds by the executive in emergency situations. For example, the President’s declaration of a national emergency allows the U.S. administration to use the Stafford Act, a federal law governing disaster relief, making $50 billion in emergency funds available to states and territories. Similarly, in China, the emergency budget adjustment procedure defined in the 2018 Finance Law was used to enable budget reallocations and the activation of emergency funds and reserves.
In several countries, the highest-ranking members of the executive, such as the head of state or finance minister, can also issue emergency regulations to authorize urgent spending within existing budgets and through simplified approval mechanisms. China’s Ministry of Finance issued a budget notice on January 31, 2020 serving as a budget regulation for budget holders, sub-national entities and “care buyers” to ensure prompt budget funding for the prevention and control of COVID-19. Similarly, the heads of state or finance ministers of several European countries (e.g. France, Germany, Italy) have used decrees to free up budgetary resources for service providers. Governments in low-income countries have acted swiftly to reduce non-priority recurrent expenditure and reprioritize public spending in response to the crisis. Indonesia’s Finance Minister said 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.
The flexibility of the state budget allows many countries to increase budget transfers to sub-national levels and “purchasers of care”. In most countries affected by the pandemic, sub-national levels (e.g. provincial governments in China) and/or purchasing agencies (e.g. national health insurance funds in Korea and Japan) have delegated spending for healthcare. Under normal conditions, these levels receive budget transfers approved as part of the state budget, or via a separate budget preparation and approval process (e.g. a separate finance law for the national health insurance fund in France). China increased transfers from the central budget to Hubei, the province at the center of the epidemic, at the height of the crisis, to 6.2 billion RMB for the prevention and control of COVID-19 (as of March 5, 2020). France has adopted an ad hoc budget increase of 2 billion euros to enable the national health insurance fund to purchase masks and tests.
2) Accelerate the revision of finance laws to secure the budget for the response through earmarking of expenditure
Existing flexibility in the use of budgetary resources can facilitate urgent expenditure. However, the scale of the resources needed to respond often requires additional budgets. The budget enactment process guarantees funding through the allocation of expenditure. In several countries, legislators have adopted spending plans for the response (e.g. Korea, France, Germany, Japan, USA, UK). Countries have developed rapid cost estimates and identified low-priority expenditure, which is preferable to across-the-board cuts. That said, some countries have opted for such measures, with cuts of 15 to 30% in the operating budgets of ministries not linked to the response. Some legislatures have passed their spending bills using shortened processes allowed in such emergency situations, many with cross-party support (submitted on March 18, 2020 by the French Prime Minister and passed on March 19 by the National Assembly and March 20, 2020 by the Senate), and with health precautions taken for their votes.
While several executive decisions have been made in the U.S. over the past two weeks, on March 18, the Families First Coronavirus Response Act was signed into law with bipartisan support from Congress. On March 25, the presidential administration and Congress reached an agreement to pass an unprecedented $2 trillion rescue plan. At the same time, at least twelve states have enacted legislation allocating additional funds to the COVID-19 response or authorizing a transfer of funds from state emergency funds (Rainy day funds).
In a context of closed legislatures, the adoption process has also been shortened. For example, in Canada:
“Estimates usually involve a detailed discussion of expenditure which can take a week of committee meetings, but (this) procedure was limited to a three-hour debate in the House. The government has made radical changes to speed up the procedures, which have lasted well into the night. If we don’t pass this budget quickly, we won’t have the certainty that on April 1, the first day of the new fiscal year, we’ll have the funds to pay our doctors and nurses in this time of crisis,” Premier Jason Kenney told the Alberta Legislature on March 17, 2020.
From the point of view of budget formulation and structure, supporting documents should be as solid as possible. Supplementary spending plans from the USA, France or Germany include cost estimates, explanations of cuts and reallocations, and a description of planned activities, which is essential for executing and tracking spending. For example, France’s proposal for its revised finance law is a 44-page document comprising four main parts: a report on the economic and budgetary situation and the justification for the changes; a detailed presentation of the changes; a program-by-program analysis of the changes; and a performance framework. When countries set up budgets by budget program, this enables them to group additional pandemic spending into a dedicated response budget envelope. France has set up a specific budget program dedicated to the response (Emergency Plan for Health Crises), with two sub-programs, each with an associated action. Similarly, in the new UK government’s first budget, provisions include additional program lines for the National Health Service (£5 billion), provided further changes to the public budget are introduced in the Autumn 2020 Budget. Countries that present budgets by line items/inputs may need to create a temporary lump-sum/program-type line in supplementary budgets to guarantee funding and facilitate the response implementation process.
In some other hard-hit countries, the spending plan continues to be implemented by the executive using exceptional procedures without adopting a new budget. Chinese leaders managed their response through a series of “notices” from the Ministry of Finance (January 31, 2020 and March 4, 2020) at central level from the Wuhan lockdown, addressed to budget centers, sub-national levels, insurance funds and service providers. The central government has adopted a rigid allocation process to limit COVID funds. The Ministry of Finance notice published on January 31, 2020 explicitly mentions that transfers earmarked for sub-levels must only be used for response and prohibits fungibility: “Before, during and after the event, standardize fund approval procedures and ensure that funds are earmarked for special use. It is strictly forbidden to use financial grant funds for the renovation or purchase of non-standard equipment, facilities and transportation not related to the prevention and control of epidemics”.
Australia, whose new budget was due in mid-May, has decided to postpone the presentation of its 2020-2021 budget until October, due to the uncertainties involved in drawing up a budget in this context. In the meantime, the government has introduced a Supply bill – a precautionary measure used in emergencies to guarantee a financial supply when appropriation bills are not passed within the usual timeframe.
3) Disburse public funds to front-line service providers in a timely manner and facilitate tracking of expenditures
It is essential that countries explore ways of ensuring that public resources are made available to frontline actors through fast and efficient budget execution processes. Throughout the crisis, China has maintained a degree of flexibility in the rules of execution. In a January 31, 2020 budget notice to sub-national entities and purchasers, the Ministry of Finance stated, “Local financial services should accelerate the disbursement process, enable early allocation and accelerated payment to meet spending needs. Local financial departments at all levels should strengthen the analysis and judgment of the status of treasury funds, order and standardize the organization of funds dispatch and, if necessary, take measures such as advance allocation and advance payment to prioritize the allocation of funds for epidemic prevention and control.”
Although flexibility is provided in the use of resources, control procedures are generally adjusted to speed up disbursement. France has adopted an accelerated expenditure authorization procedure, in which one stage of the expenditure authorization procedure has been eliminated to speed up the release of funds. In the revised law, the full amounts are automatically released for expenditure authorization and are equal to the credits. In other words, the ability to spend is facilitated and accelerated. Other priority disbursement procedures can be adopted by governments as part of supplementary budgets to accelerate the availability of funds and/or enable rapid procurement through a simplified purchasing process. For example, cash advances have been implemented in China, where advances have been paid by insurance funds to healthcare facilities to reduce financial pressure on Hubei province. As of February 19, insurance funds had paid out over 17 billion RMB to healthcare facilities. Australia also provided additional federal allocations quickly, earmarking funds for primary health networks to set up respiratory clinics. Countries can also use ex-post and/or risk-based controls (e.g. focusing controls on high costs such as major purchases or infrastructure upgrades that are more susceptible to fraud), particularly in cash management frameworks.
As well as speeding up the release of funds and easing spending procedures, countries should act to ensure reporting and accountability mechanisms in the use of resources for the response. Several countries have begun to define performance frameworks. France’s new budget programs are accompanied by clearly defined political objectives and performance indicators and targets. In the same spirit, China has strengthened its reporting and supervision capabilities at provincial level. To ensure accurate reporting, the financial information management systems used to track public expenditure need to be updated to reflect changes in budget lines and enable consolidated reporting of COVID-19 expenditure. Program envelopes can make it easier to track expenditure and ensure accountability in the use of resources, if all pandemic spending can be reported under the same program code.
Although multi-stakeholder spending is often necessary, financial authorities generally play a leading role in the financial accountability of the response. New spending plans are generally placed under the authority of the Finance Minister or Prime Minister, as in China, Germany and France. The new budget program in France is the responsibility of the Ministry of the Budget, while expenditure may be carried out by various ministries and entities, but is accounted for according to the budget mission code communicated by the Ministry of the Budget.
In conclusion, as the pandemic begins to spread to low-income countries and fragile contexts where PFM systems already suffer from systemic weaknesses, it is essential to learn from high-income countries about how to budget for the response. Striking the right balance between flexibility and accountability is more relevant than ever in these exceptional circumstances. Governments and the legislature must guarantee sufficient budget funds, by reprogramming existing spending and allocating additional funds. Funds need to be rapidly made available to front-line players, while effective expenditure tracking mechanisms need to be put in place to ensure effective use of resources and accountability. Finally, it is recommended that countries engage as early as possible in the budgeting process to ensure a rapid response from domestic sources, while aligning external resources towards this objective.
We thank Tomas Roubal (WHO Western Pacific Regional Office), Valeria De Oliveira Cruz (WHO South-East Regional Office), Tsolmongerel Tsilaajav (WHO South-East Regional Office), Camillo Cid (WHO Americas Office), and Agnès Soucat (WHO Headquarters) for their contributions to this text. We would also like to thank Vanessa Rousselle (Global Fund to Fight AIDS, Tuberculosis and Malaria) for her invaluable help with the French translation.
