PFM BLOG

If you’re not ready, you need to adapt: lessons for managing public finances from the COVID-19 response

Hélène Barroy, Federica Margini, Joseph Kutzin (Word Health Organization), Nirmala Ravishankar  (ThinkWell), Moritz Piatti-Fünfkirchen (World Bank Group), Srinivas Gurazada (PEFA), Chris James (OECD)

COVID-19 has been a well-recognized stress test for public financial management (PFM) systems in most countries. It exposed the overall weaknesses of PFM systems across countries but also helped to pinpoint the PFM mechanisms and approaches that make it easier for countries to respond to epidemics. Emerging evidence shows, however, disparities in the readiness of PFM systems. Some countries have budgeting modalities which allowed them to rapidly reprogramme expenditure toward the emergency health response. In other countries, spending procedures have stymied the rapid release of funds to subnational entities and prevented health service providers from quickly accessing necessary resources. In this blog, we delineate some of the enabling features of PFM systems that engendered an effective health response to COVID-19 (“PFM system readiness”) and some of the challenges and bottlenecks that have required major adjustments to existing systems (“PFM system adjustments”).

This work builds on inputs from the WHO Survey on PFM & COVID-19 containing information for 183 countries (updated in September 2020), the World Bank COVID-19 response tracking portal (developed in July 2020), the OECD Joint Network of Senior Budget and Health Officials, and regional and country consultations in 17 low- and middle-income countries (Argentina, Australia, Brazil, Chile, China, Costa Rica, Dominican Republic, Ecuador, Indonesia, Lao People’s Democratic Republic, Malawi, Mexico, Mongolia, Peru, Philippines, South Africa, Ukraine) conducted between June and September 2020 by WHO.

 

PFM system readiness for COVID-19

A pre-existing flexible budget structure—that is, a budget that plans and releases funds by programmatic envelopes linked to policy objectives, instead of by detailed line items—has proven to be helpful for budgeting for COVID-19 and for tracking emergency health expenditures when the structure is accompanied by a robust accountability framework.

Several countries, across income levels, leveraged existing programme-based budgeting approaches by adding a COVID-19 budgetary programme to their health budgets or by using existing programme envelopes to redirect expenditure toward the emergency response. In these cases, COVID-19 targets were defined within existing performance monitoring frameworks to ensure expenditure tracking. In Mexico, New Zealand and South Africa, where programme budgeting has long been standard practice, this approach clearly enabled an agile response to the crisis.

In Mexico, programme budgeting was introduced in the 1970s. When COVID-19 emerged, Mexico’s budget structure facilitated a rapid response by the health sector. A COVID-19 subprogramme was added to the Ministry of Health (MoH) budget to cover secondary and tertiary care. A new budgetary programme for other individual and community-related support was added to a special fund, the Fondo de Aportaciones para los Servicios de Salud (FASSA). As a result, MoH health spending increased by 61% in the first quarter of 2020 and spending by the Ministry of Labor and Social Welfare increased 58% during the same time period to match funding needs for the health response.

In South Africa, where programme budgets have been in place for nearly twenty years, flexible reallocations were made possible through several existing budgetary programmes (i.e. communicable and noncommunicable diseases, primary health care, and health system governance and human resources). At the subnational level, provinces were also allowed to reprioritize up to 1 billion South African rand in existing programme envelopes for COVID-19 expenditure. The budget structure, which has supported an integrated service delivery approach since 2019, facilitated the inclusion of COVID-19 services into service delivery platforms that cut across diseases and levels of care.

In New Zealand, the government established the COVID-19 Response and Recovery Fund (CRRF) as part of the 2020 budget. The CRRF provided additional funds for the response, consistent with and using the same core principles as its overarching programme budgeting framework, which has been in place for decades. All budget appropriations in the health sector were allocated by output, with the MoH having the flexibility to choose the most suitable input mix and delivery mechanisms for each given output.

Some pre-existing spending modalities have also facilitated financing of the COVID-19 health response, especially in moving money quickly toward the frontline service providers. The ability to quickly transfer funds to subnational levels through robust transfer mechanisms and formula-based allocations has been instrumental in many instances.

In at least 15 of 37 OECD countries, subnational governments received transfers from central government for COVID-19 health spending. In Argentina, the pre-existing conditional grants for subnational levels provided a suitable environment to accelerate transfers to the provinces: having well-established central-subnational transfer mechanisms in place was an enabler to moving funds down for the COVID-19 health response. In April 2020, the government created the Provincial Financial Emergency Program which allocated 60 billion Argentine pesos to the provinces through the ATN fund (Aportes del Tesoro Nacional) and another 60 billion pesos through a trust fund managed by the Ministry of Economy. The Provincial Development Trust Fund distributes funding based on the poverty index (Necesidades Basicas Insatisfechas), the number of self-employed, and the COVID-19 infection rate per 100,000 inhabitants.

In some countries, a pre-existing accountability system has enabled the establishment of a robust tracking system for COVID-19 health expenditure. While some countries set up parallel systems for reporting COVID-19 spending, others made rapid adjustments to existing financial management information systems (FMIS) to integrate expenditure tracking for COVID-19. South Africa developed a robust accountability system, building on their pre-existing framework. Special templates were created to report expenditures related to COVID-19 and a new category was added to the standard chart of accounts.

 

PFM system adjustments since COVID-19

While some countries had their PFM systems ready for emergency response, several other countries had to introduce major adjustments to their regular systems to enable a more rapid budgetary response to the crisis and the speedy allocation and disbursement of public funds. Some countries introduced broad adjustments related to resource programming and use, going beyond traditional emergency clauses.

A few countries with line-item budgets introduced new programme-type lines for COVID-19 to support more flexible spending for the emergency response. This may be considered a pseudo form of programme budgeting. In Nigeria and in Liberia, for example, a lump sum to finance the COVID-19 response was introduced into the input-based formulation of the federal/central budget to generate more flexibility. In other African countries (e.g. Niger, Chad), special earmarked accounts (comptes d'affectation spéciale) consolidating all COVID-19 spending were established to overcome the limitations of line item budgeting.

These temporary measures are worth exploring to see whether they could be further adapted and institutionalized over the long run. COVID-19 has shown that programme-based structures can make allocating funds by purpose easier and can improve expenditure tracking accordingly. Moving forward, countries with budgets historically formed and controlled by line item, with no clear links to results, are encouraged to institutionalize programmatic classifications. This approach would link resources to health outputs, improve flexibility in resource use and potentially provide a framework for accountability with predefined sector targets.

Since the start of the COVID-19 crisis, several countries have also explored alternative spending modalities within their regular PFM systems. These have, in some cases, simplified and accelerated spending by frontline health service providers for the response.

In several countries, fast-track spending authorization procedures were introduced to accelerate the release of funds for COVID-19. For example, China introduced a package of accelerated disbursement mechanisms that allowed for advance appropriations (i.e. no further approval required to release funds) and fast-track payments (i.e. reducing the timeline to final payment) to meet health spending needs. Colombia temporarily excluded medical devices and personal protective equipment (PPE) from the general public procurement regime, allowing public buyers to purchase these items without formal tender procedures.

Many countries also introduced advance payments to health service providers to compensate them for the increase in demand due to COVID-19. When purchasing agencies were able to operate outside of the regular PFM rules with flexible spending modalities and the ability to reallocate funds across existing budget lines, health service providers were able to access funds more easily and the overall response was generally more agile. This was the case in the Philippines where hospitals were able to benefit from advance payments from PhilHealth, the purchasing agency. PhilHealth frontloaded funds using a case-based mechanism. The amount was estimated by multiplying the average value for claims during the previous year by 90 days. As of August 2020, a total of LCU 9.3 billion had been provided in cash advances to hospitals and health facilities to relieve financial pressures.

In China, a total of 19.4 billion yuan in advance payments was allocated from local insurance funds to health service providers as of May 2020, including 3.7 billion yuan for Hubei. China also adjusted its global budget payment policy. All expenses for treating COVID-19 were excluded from the hospitals’ annual budget quota and were covered separately by the insurance funds. In Germany, federal measures were introduced to support hospitals and expand the capacity of intensive care units (ICUs), including bonuses for hospitals that expanded ICU capacity and compensation payments for loss of earnings due to a lower bed usage

The ability to hire and manage staff more flexibly has been a key factor for success in some countries. In Portugal, National Health Service facilities were given the authority to directly hire health workers using renewable four-month contracts. In Uganda, the Ministry of Health was provided with supplementary funds to contract and deploy surge staff for an initial period of three months. Though flexible staff management can be challenging to achieve, it is among the most instrumental factors for efficient health service delivery.

 

Key policy actions

Simply allocating more funds from budgets will do little to make PFM systems more responsive to health needs. Countries must instead use their systems smartly to address bottlenecks, enabling funds to be quickly directed towards health priorities, executing budgets effectively, and ensuring accountability for health results.

Moving forward, some of the mechanisms introduced during the emergency response to COVID-19 may be considered for non-emergency health needs—needs that, by nature, will keep evolving and require PFM flexibility. The positive experiences of the countries in which programme budgeting is well-established, as well as those with effective and accountable inter-governmental transfer mechanisms, suggest that these features need to be part of the “build back better” agenda for more resilient health financing arrangements in the longer-term. In addition, mechanisms that allow for direct facility transfers can be explored to empower providers as they respond to health needs, whether during epidemics or in more normal times. Examples of these mechanisms include those mentioned previously in this blog post and those that have been implemented in other contexts prior to COVID-19 (e.g. in the Tanzania Direct Facility Financing mechanism primary health centres directly receive, manage, and account for public funds).

 

We recommend three key policy actions to integrate or scale up successful PFM approaches used during COVID-19 to make systems more adaptable, flexible and resilient:

  1. where detailed line item planning prevents the effective use of resources, accelerate efforts to tailor health budget structures to allow for more flexible programming;
  2. to remove bottlenecks to health budget execution, sustain formula-based approaches for intergovernmental transfers and agile payment methods to frontline providers;
  3. to enhance accountability in the health sector, make reporting systems more user-friendly and responsive to health expenditure tracking needs. 

 

Acknowledgments

We appreciate inputs received from Claudia Pescetto (WHO Regional Office for the Americas) for Argentina, Chile, and Dominican Republic; Ding Wang (WHO Regional Office for the Western Pacific) for China; Gao Chen (WHO China) for China; Ronald Tamangan (WHO Regional Office for the Western Pacific) for the Philippines; Marife Yap, Ian Nuevo and Pura Angela Wee-Co (Thinkwell) for the Philippines; Jonatan Daven (National Treasury, Republic of South Africa) for South Africa; Neil Cole (Collaborative Africa Budget Reform Initiative) for South Africa; and Kingsley Addai Frimpong (WHO Ghana) and Ernest Sekyere (Ministry of Finance, Ghana) for Ghana.

(credit picture: Shutterstock/Dean Drobot)

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