7

Financing Challenges In-Country

The second day of the workshop opened with a panel examining the challenges of managing money once it has been disbursed to a country. James Kollie, deputy minister for fiscal affairs in Liberia; Gordon Liu, professor of economics at Peking University; Victor Bampoe, deputy minister of health in Ghana; and Tendai Biti, former minister of finance in Zimbabwe, discussed some of these in-country financing challenges, including the allocation of resources across activities and to short- and long-term needs.

Kollie described how during the Ebola crisis Liberia faced twin problems: revenues were decreasing at the same time that the demand for expenditure increased exponentially. The increase in spending was driven by the epidemic itself. Most of the equipment, facilities, and supplies needed to fight Ebola were not available in-country and had to be brought in. Expenditures for personnel increased because health workers in hot spots needed hazard pay, and enforcing public health rules required additional security.

The decline in revenue was more complicated. The Liberian economy had been hit heavily by the decline in primary commodity prices before the epidemic began. With the emergence of Ebola, many multinational companies and organizations slowed down their work. The mass exodus of expatriates affected the service sector, with ripple effects on other parts of the economy. Kollie called on development partners to invest in key economic infrastructure and help countries diversify their economies before a crisis in order to mitigate such revenue impacts.

To deal with an epidemic effectively, Kollie identified three important qualities of relief financing: it needs to be timely, targeted, and strategic. Timely relief financing might involve an emergency fund that is available

immediately and then replenished through pledging conferences during the crisis. Coordination among donors can ensure that funding, once available, targets actual gaps; benefits are reduced if donors focus on one task and leave other things undone. If applied strategically, relief financing can position a health system to deal better with future emergencies. For example, rather than being placed in isolated areas, treatment units could be built on existing health facilities where they could remain in use after the crisis. In this way, Kollie said, the crisis can become an opportunity.

But mitigating the impact is more difficult once the epidemic is under way. It is important, therefore, to take action before the crisis and invest in resilient systems—not only for health, but also for banking, education, and other social services. Kollie suggested testing these systems in the preparedness stage to make sure they can respond during a crisis. In addition to stronger service delivery, Liberia and its development partners can minimize the impact of future crises by diversifying the economy and making key investments in infrastructure such as power, ports, and roads. Affordable and reliable power is important not only for light manufacturing and value-added work, but for services, including health care. In the same way, good roads that support commerce and industry also ease transit to health posts.

Bampoe reminded the group that Ghana did not have any cases of Ebola, and therefore it provides a different perspective on preparedness than Guinea, Liberia, or Sierra Leone. A few years ago, Ghana was declared a lower-middle-income country, leading to a reduction in donor aid. At the same time, the country has been making increased investments in health—$1.1 billion per year. While this figure seems large, Bampoe explained that it is not uncommon to run out of something as basic as vaccines. Most of the money is tied up in the national health insurance program, paying health workers, and running facilities.

Ghana has developed a fairly robust health system guided by its experience with avian flu, cholera, and other epidemics, he continued. The country has a national technical coordinating committee that meets to discuss disease issues and an interior ministerial body that provides the policy. Learning from the experience of Nigeria and the United States, Ghana set up a major operations center to serve as a coordinating body between the government and the technical experts. Through a process called a sector-wide approach, all the development partners gather to discuss what to fund. Over the years, the U.S. government and other partners have helped build the Ghanaian health system, strengthening personnel, infrastructure, and the collection of data. Legislation has decentralized the health sector and ensured that health management teams at the district level have access to dedicated resources. Preparing for Ebola meant building on these systems that were already in place.

To combat the disease, Ghana put in place a three-pronged strategy

of public education; point-of-entry screening and strong surveillance and contact tracing; and construction of Ebola treatment units to prepare for case management. In all three, the country built on what already existed. Even so, it took about 3 months to get the needed public education in place and 9 months to prepare the Ebola treatment units. Ghana sent some of its personnel to Liberia and Sierra Leone to have hands-on experience in such units.

Bampoe drew several lessons from Ghana’s experience. First, preparations cannot be done overnight. Second, funding is important, but not sufficient; the country must know how the money will be used. Third, more money might not be what is needed. Bampoe observed that, during an emergency, a country depends on the same infrastructure that supports the delivery of goods at other times; improving infrastructure, such as railways, is part of preparedness. Finally, he discussed the importance of the sector-wide approach in bringing donors together under a government-led plan.

Biti, who was minister of finance in Zimbabwe from 2009 to 2013, described the challenges that weak states face in dealing with pandemics and other calamities. One problem is that fiscal expectations are immense. The demands of the provinces far outstrip the budget, and there is no fiscal legroom. Another problem is a lack of institutional and human capacity. Early warning systems in Guinea could have nipped the Ebola epidemic in the bud, but such systems did not exist, and the crisis spread. Acknowledging the inherent trade-offs, Biti asked the audience to make the long-term development of African institutions, human capacity, and fiscal buffers a priority for development.

He described the need for better coordination within the international community, where discord is “a permanent feature” and turf wars among agencies waste valuable time. In fragile states, the problem is exacerbated because donors do not want to give money directly to the government and must spend time deciding who will govern the trust fund. The problem goes beyond interagency coordination: even development agencies and their local representatives may speak at cross purposes.

It is a question of the whole response architecture, according to Biti, who said the focus should be on the various issues that make aid ineffective. A donor may provide the money, but the country can only absorb a small percentage. Donated grain often rots in the warehouse for want of the capacity to move it to the field. Beyond the finance ministry, other government departments—the users of the money—may not know how to prepare a requisition or manage finances. Marshaling money is only one part of the problem. The solution, Biti said, is institution building. He asserted that donors, as well as Africans, focus too much on physical infrastructure while overlooking soft infrastructure, such as a functional system to manage public finances.

Following Biti’s remarks, Liu discussed what he called a fundamental economic question: how to balance multiple demands on public spending. In the management of public finance, the government seeks to optimize the allocation of resources guided by economic principles such as value for money (as discussed in Chapter 5) and approaches like cost-benefit analysis of multiple needs.

How the government makes decisions about resource allocation depends in part on the time horizon—whether resources are being designated for long- or short-term needs. In the long run, governments have more time and better information, and economic principles can govern budgetary work across sectors and populations. But in the short term, as when responding to urgent needs in a pandemic, social and political considerations play a much bigger role. According to Liu, this type of short-term decision making often leads to misallocation and misuse of resources. Though underreaction gets considerable attention, overreaction is also a risk. In China and other countries with similar central governments, Liu said that overreactions dominate when it comes to pandemics and other large crises. With the 2003 severe acute respiratory syndrome (SARS) outbreak, the 2008 earthquake in Sichuan, the 2009 H1N1 influenza outbreak, and the 2015 warehouse explosion in Tianjin, such overreaction led to a large misuse of resources, in his estimation. In Sichuan, unpacked boxes of goods are still stacked in warehouses after the 2008 earthquake.

Pandemics and other crises will always bring chaos, but institutional policies can enable efficient catastrophe response. For example, in 2009, the Chinese government began to implement universal health insurance coverage for the entire population. Today, this insurance policy covers primary care services for 97 percent of the population. Primary care insurance is also being used to handle rare but expensive health catastrophes. The Chinese government is establishing separate catastrophe insurance with premiums drawn from the residuals of primary care insurance. Liu saw this as a way to ensure protection for short-term catastrophes as well as long-term primary care.

Liu explained that, when planning for a crisis, governments have to balance the risk of failure to control the disease against the failure to limit needless disruptions. Failure to control the disease is very visible. Governments can easily be held responsible for this first kind of error, but accountability for the second is more elusive, incentivizing overreaction. Liu suggested that the answer again is institutional policy setting, which can improve governance.

Governments can also play a role in minimizing disruptions caused by the public. Driven by fear and panic, these disruptions arise due to misinformation or a lack of knowledge. Providing the public with accurate and transparent information as soon as possible can control rumors and prevent

panic. Liu acknowledged that this is not easy to do. He gave the example of the recent Tianjin explosion: the government did not want to tell the public what had gone wrong until it was sure and, as a result, misinformation spread. Liu concluded that the government should provide the public with information, even if that information is uncertain, before panic and rumors run rampant.

In response to Liu’s comments, Kollie and Biti addressed the issue of overreacting versus underreacting to epidemics and other crises, noting that in their countries the incentives tend to favor underreporting. As Kollie observed, reports of disease outbreaks can have negative consequences for economies and can create panic among the population. Properly managing that information is important, not only to protect health but also to promote social stability.

Biti noted that a weak monetary and surveillance tradition in Zimbabwe has created a structural tendency to underreact to crises. In rural areas, people may not react appropriately because they do not understand the situation. Governments, on the other hand, have a tendency to hide or downplay a crisis because it would reflect badly on them politically or from the perspective of investors. He used the example of HIV/AIDS, an epidemic that many African governments denied for years even as it ravaged their populations. Harkening back to Liu’s point about accountability, Biti suggested that the incentives would be different if civil society were stronger. In the age of social media, every citizen has a voice, and practices may change.

According to Liu, policy may also change the way a government approaches crises. In general, incentives favor curative action over less-visible preventative measures (Brahmbhatt and Jonas, 2015). But if the central government links the occurrence of any crisis—regardless of how it is handled—with the governor’s promotion, local authorities will take a different approach. China has used this policy, and Liu saw promise in it, but cautioned against its overuse as fear of retaliation can discourage the cooperation of local authorities.

In response to a question about whether efforts to improve preparedness should focus on general economic development, overall health systems strengthening, or specific public health capacity building, Bampoe noted that different countries would make different decisions because they are at different levels. But he also stressed that these three areas form a continuum, and none can be strengthened alone. Ghana’s three-pronged strategy for Ebola relied on broad social mobilization in addition to employing public health measures like surveillance and preparing health care facilities. He said that these investments need to be made over the long term, and they need to be country led.

Kollie, too, said that prevention needs to be approached holistically. It may be a health crisis, but other systems affect it. He gave the example

of trade restrictions imposed by other countries because of the epidemic in Liberia. When a country is not self-sufficient in food and other essential supplies, such restrictions not only hurt the economy; they damage the response effort. He agreed with Bampoe that strengthening preparedness would look different for each country, and, for some, would require more help from the international community. In Liberia, where the overall budget amounts to half what Ghana spends on health, they do not have the fiscal space to make the necessary investments. Throwing money at only one part, without fixing the surrounding systems, will not get results.

Biti carried this point forward, saying that health care, public health, and economic development are not mutually exclusive. He called for a development model that would build sustainable states and uplift the entire population, not only some parts. Money alone is not enough. According to Biti, the development model must also include democratization and strengthening of both institutions and civil society.

A discussion arose over how to foster a good relationship between the ministry of finance and the ministry of health so that the flow of funds to health needs is as smooth and effective as possible. Eduardo González-Pier acknowledged that, at least in middle-income countries, the relationship is often governed by distrust, with ministries of finance viewing ministries of health as budgetary risks, rather than partners. Kollie noted that, in the case of Liberia, the relationship between the two ministries is good. Many of the people in the ministry of finance worked previously in the ministry of planning, where they worked with other ministries and came to appreciate the strategic nature of government funding. During the Ebola crisis, a core team from the finance ministry worked closely with their counterparts in the health ministry not only to get the money, but to think strategically about where the money was most needed. One priority that has emerged is the payment of health workers; partners can provide medicine and other supplies, but the government must ensure that health workers get paid.

Bampoe observed that the Ghanaian ministry of health has been successful in acquiring resources directly from donors, which has given it some independence from the finance ministry. At the same time, the money coming from the finance ministry to the health ministry has expanded dramatically, despite some concern that the funds are not being used efficiently. In Ghana, 2.5 percent of the value-added tax pays for health insurance, creating some tension with other ministries that have fewer resources. For these reasons, the finance ministry has encouraged the health ministry to get more value out of already allocated funds before asking for more money.

In the parliamentary system of many former British colonies, Biti pointed out, the finance minister has a lot of discretion over the budget. Strong leadership may harness this power in pursuit of a common vision

that prioritizes social goods such as health and education. But, in weak states, these goods can easily become targets of competing interests.

Advocating again for the importance of institutional policy setting, Liu explained how the Chinese government had addressed the problem of trust by bringing in a third party, the Ministry of Human Resources and Social Security, to serve as an intermediary between the ministries of finance and health. Resources are now allocated through the insurance policy.

When asked to what extent the Liberian government had had oversight of external funds coming in for Ebola response, Kollie said that there was no such accountability. They still have no idea how funds were used. While donors demand transparency from recipient country governments, he saw no reciprocation of that openness. To counter this problem, Liberia decided to lead by example; in setting up their National Ebola Trust Fund, they have incorporated detailed accounting requirements and committed to publishing regular reports on how money was spent. They hope that this will motivate donors to follow suit. For now, the ministry of finance has no control over how the funds are spent, making it difficult to direct those investments strategically. Kollie reiterated a point made previously in this panel and others: at a certain point in the crisis, the country and its partners must start thinking about what happens after the crisis and how they can apply relief financing strategically.

Echoing this idea, Martin Meltzer observed that, “The best insurance is to build capacity. The best way to respond to the next pandemic or big epidemic is to use systems already running.” But he noted that there will still be gaps—unmet demand for certain supplies and services—and asked how governments can best prepare to respond to such gaps. In Ghana, they have focused on developing an integrated plan that anticipates common needs and can be built on according to the specific event. Liu suggested that public–private partnerships may serve as a good model; the private sector can provide the essential goods and funds through an insurance mechanism, and the public sector can step in to cover unmet needs.