i Public Expenditure Review on Health Sector 2003/04 to 2005/06 Submitted to Health Economics and Financing Unit Ministry of Health and Population Government of Nepal Ramshah Path, Kathmandu Submitted by Nepal Health Economics Association Kathmandu December 27, 2009
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i
Public Expenditure Review on Health Sector 2003/04 to 2005/06
Submitted to Health Economics and Financing Unit
Ministry of Health and Population Government of Nepal
Ramshah Path, Kathmandu
Submitted by Nepal Health Economics Association
Kathmandu
December 27, 2009
ii
Acronyms CBS Central Bureau of Statistics DDC District Development Committee DFID Department for International Development (UK) DoHS Department of Health Services DRF Debt Relief Fund EDP External Development Partner FCHV Female Community Health Volunteers FCGO Financial Comptroller General’s Office FMIS Financial Management Information System FY Fiscal Year GDP Gross Domestic Product GTZ Deutsche Gesellschaft für Technische Zusammenarbeit GmbH HEFU Health Economics and Financing Unit GoN Government of Nepal HSR Health Sector Reform ICPD International Conference on Population and Development IDA International Development Association INGO International Non-Governmental Organization JICA Japanese International Cooperation Agency KFW Kreditanstalt Für Wiederaufbau (Consulting Arm of German Bank) LSMS Living Standards Measurement Survey MoHP Ministry of Health and Population MTEF Medium-Term Expenditure Framework NDHS Nepal Demographic and Health Survey NFHS Nepal Family Health Survey NGO Non-Governmental Organization NNHA Nepal National Health Accounts NPC National Planning Commission NRs Nepali Rupees PERH Public Expenditure Review on Health PHC Primary Health Care Center SDC Swiss Agency for Development and Cooperation SHP Sub-Health Post SOE State-Owned Enterprises UNDP United Nations Development Programme UNFPA United Nations Population Fund UNICEF United Nations Children’s Fund USAID United States Agency for International Development VDC Village Development Committee WHO World Health Organization
iii
Executive Summary
Public expenditure review on health sector (PERH) is a continuous process of
analysis that helps to make fiscal management, macroeconomic and social stability
in the country from the health perspective. The PERH is designed to complement
rather than substitute for existing and ongoing work on improving the quality of public
expenditure. The PERH analyses overall trends in public health expenditure in order
to gain an overall picture of the allocation of expenditure by sector and functional
classification. The difference between estimated (budget) expenditures and actual
expenditures has also been analyzed in order to identify weaknesses in budget
implementation. The primary objective of this review, thus, is to assess the extent to
which public expenditure on health was incurred and to assess all of the financial
flows in the public health sectors, from the sources of financing to where resources
are converted into health care outputs.
This review provides a brief summary of the process of elaboration of the
public expenditure on health and a review of the different channels through which the
funds allocated for health flow to the ultimate users and facilities. The present review
has primarily covered the last three fiscal years from 2003/04 to 2005/06.The
assessment has been done based on the last six fiscal years 2000/01 to 2005/06 as
well. The study attempts to capture all public expenditures of health sector consisting
of the following components: expenditure of central government, expenditure of local
bodies, donor expenditure, expenditure of autonomous bodies and expenditure of
state-owned enterprises.
The macroeconomic performance of the country has a significant contribution
to determine the expenditures on health sector and health sector outcomes. The
levels of economic growth determine the fiscal space for the government
expenditure. Higher growth rate broadens the revenue space of the government that
leads to scale up health interventions and expenditures. In the health production
function, health sector expenditures are inputs that influence the health outcomes of
the country.
iv
Economic growth had remained very low in the country, and inflation rate has
continued to rise during the study period resulting that per capita real income has not
been able to increase very much. The economic growth was not in a satisfactory rate
however poverty is steadily going down.
The major sources of funding for public expenditure on health are mobilization
of tax revenue, expenditures by EDPs, allocations by local bodies and state owned
enterprises. Government expenditure has contributed between 58 to 68 percent of
the public health expenditure in Nepal during the review period. The share of the
development expenditure has increased from 9 to 16 percent while the share of the
regular expenditure has declined from 91 to 84 percent. The increase in the share of
development expenditure with a decline in regular expenditure is a matter of
satisfaction as it is likely to improve the quality and coverage of health service in the
future.
The contribution of the EDPs fell from 33 percent in 2003/04 to 23 percent in
2004/05 and again rose to 25 percent in 2005/06 indicating that EDPs are highly
fluctuating sources of health expenditures in Nepal. The contribution of EDP funding
was around 20 percent in the year 2002/03.
The combined contribution of other components - the state owned enterprises
(SOEs), autonomous universities and local bodies have remained between 7 to 13
percent of the total public expenditure on health. Expenditures by SOEs accounted
as the largest share among them in all review years.
During the three fiscal years under review (2003/04 to 2005/06), the health
expenditure ratio with GDP showed an increasing trends rising from 1.45 to 1.70
percent. Per capita public health expenditure in US dollar terms has persistently
increased over the last six years rising from US $ 3.86 in 2000/01 to US $ 5.65 in
2005/06.
The first group of burden of disease captured two third of total stock of health
problems of the country. However, this group exhausted less than a quarter of the
public health expenditure. The allocation of public health expenditure based on
burden of disease appears somewhat improving during the review years compared
to previous two years.
v
The results suggested that priority I programmes consumed on an average
less than one third of the total development budget on the health sector, conversely
priority III programmes had consumed more than half the amount allocated to
development health expenditures. The allocations have, however, gradually
improved in FY 2005/06.
Under the health sector policy reform that aims to “shift emphasis from urban
to rural health services,” the policy documents reflecting the government’s priorities
were to increase financial allocations for rural health services through preventive as
well as clinical services. Analysis of public expenditure review on health sector
revealed that rural health services were kept in priority in the allocation of financial
resources in the review periods, except for fiscal year 2003/2004. The results
exhibited that life expectancy at birth has positive relationships with per capita public
health expenditures. On the other hand, moratality rates have negative association
with per capita public health expenditures.
The absorptive capacity index suggested that the capacity was very low
though it has been increasing over the years. The results exhibited that medical
services had higher absorptive capacity than public health services. It means that
public health services have greater barriers to utilize the resources compared to
medical services.
The Government has considered allocating more resources to health.
However, qualities of public health expenditure, or efficiency and equity of health
spending are equally important. The priority should be given to identifying the right
mix of investments to better reflect the country’s complex and wide-ranging public
health challenges. Efforts are made to analyze quality of health spending from
different aspects such as spending on priority based programmes, targeted services,
utilization and resource absorptive capacity of the programmes.
Government policies in the sector should be more clearly reflected in
budgetary allocations and greater transparency in decentralized health accounting
and spending is necessary. There should be appropriate mechanisms for mobilizing
resources and purchasing services and, what proportion of public expenditure is for
public health, as opposed to medical care.
vi
Table of contents
Acknowledgement ...................................................................... Error! Bookmark not defined.
Acronyms ................................................................................................................................. ii
Executive Summary ............................................................................................................... iii
Chapter I Introduction ....................................................................................................... - 1 -
Chapter II Macro Economic performance and Health policy ........................................ - 7 -
Chapter III Sources of funding ........................................................................................ - 10 -
Chapter IV Analysis of Public Expenditure on Health ................................................. - 17 -
Chapter V Fiduciary risks of government expenditure on health ............................... - 31 -
Chapter VI Discussions and Recommendations ............................................................ - 32 -
The required data are collected from all DDCs (= 15) and all municipalities (=14) and
30 VDCs (almost two from each) from selected districts.
Donor expenditure: The study team collected the information from the respective
offices. Add to this, the study team used multiple source of information such as
Department of Health Services (DoHS) Annual report, annual report of Auditor
General and FMIS to cover the maximum numbers of donors.
- 6 -
Expenditure of autonomous bodies/Expenditure of State-owned enterprises: The study team collected the information from the respective offices of local bodies
and state-owned enterprises. The following institutions have captured from this
survey: Nepal Agriculture Development Bank, Citizen Investment Trust, Dairy
Development Corporation, Gorkhapatra Corporation, Janak Education Materials
Centre, National Insurance Company, Nepal Housing Development Finance
company, Nepal Oil Corporation, Nepal Television, National Water Supply
Corporation, Rastriaya Banijya Bank, Nepal Drugs Limited among others.
A short structured questionnaire has been developed to conduct the
expenditure survey as per the objectives. Data were entered into Excel and
primary analysis has been done in Excel. The obtained data were summarised in
terms of number, percentage, rate, ratio, mean and median.
1.4 Organization of the report:
The following chapter deals with macroeconomics and health and
macroeconomic performance and health outcomes. The third chapter puts forward
review of sources of funding for public expenditures on health. The fourth chapter
assesses the allocative efficiency of public health expenditure on health. The fifth
chapter provides the fiduciary risk of public expenditure on health. The last chapter
provides conclusions and recommendations.
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Chapter II
Macro Economic performance and Health policy
Macroeconomic performance: The macroeconomic performance of the country
has a significant contribution to determine the expenditures on health sector and
health sector outcomes. The levels of economic growth determine the fiscal space
for the government. Higher growth rate broadens the revenue space of the
government that leads to scaled up health interventions and expenditures. In the
health production function, health sector expenditures are inputs that influence the
health outcomes of the country. Nepal’s macroeconomic performance during the
review period did not produce satisfactory results. The economic growth had
remained very low, and inflation rate has continued to increase during the study
period resulting in very small increase in per capita real income. The saving-
investment scenarios of the country reveals that the difference between ratio of
saving-investment and GDP have increased because of low investment from the
private sector due to conflict situation in the country. This gap demonstrates that a
huge amount of money from foreign savings is being invested in the country. On the
other hand, the results demonstrated that gross national savings are higher than
gross domestic savings because of inward transfers of remittances and foreign
grants. Table 2.1: Macroeconomic performance Indicators 2003/004 2004/005 2005/006 Economic growth (Annual % change) 4.7 3.1 2.8Annual change in real per capita GDP (%) 2.51 1.11 0.76Per capita GDP (USD) 293 328 350Population ( millions) 24.74 25.30 25.86Exchange rate( USD: Nepalese Rupees) 73.97 71.05 71.5Inflation (GDP Deflator) (2000/001= 1.00) 1.114 1.184 1.26Difference between Domestic saving and investment (%) -12.8 -14.9 -18.1
Sources: Ministry of finance, Government of Nepal (2007) Economic survey 2006/007
The economy did not grow in a satisfactory rate however poverty is steadily
going down. The results of NLSS-II survey suggested a significant reduction in
poverty during the study period. The poverty gap remains high that indicates high
income inequality among the poor too.
- 8 -
Table 2.2: incidence of the poverty Sector
Population below the poverty line Poverty Gap 1995/96 2003/04 1995/96 2003/04
Sources: Ministry of finance, Government of Nepal (2007) Economic survey 2006/007 National health policies and programmes: Existing health policies and
programmes are derived from the National Health Policy 1991 (2048 BS). The
primary objective of the National Health Policy is to extend the primary health care
system to the rural population so that they benefit from modern medical facilities and
the services from trained health care providers. The National Health Policy has
focused on preventive, curative and promotive services to be delivered through
health system to the people. The Ministry of Health and Population has implemented
20-year Second Long-Term Health Plan (SLTHP) for Nepalese FY 2054-2074 (1997-
2017). The aim of the SLTHP is to guide health sector development for the overall
improvement of the health of the population; particularly those whose health needs
are often not met. The priority in the SLTHP has been given to health promotion and
prevention activities based on Primary Health Care principles. It has identified
Essential Health Care Services (EHCS) that address the most essential health
needs of the population and that are highly cost-effective. EHCS are priority public
health measures and are essential clinical and curative services for the appropriate
treatment of common diseases. The three priority categories have been given in the
policy and programmes documents published by the MOHP.
Table 2. 3: priority of the health programmes SN First Priority programmes
Second Priority Programmes
Third Priority Programmes
1 Expanded vaccination and national polio vaccine
National Health Training Nepal Eye Hospital
2 Control of Acute Respiratory Infection
Bir Hospital Netrajyoti Sangh
3 Diarrhea Shahid Shukraraj Tropical and
BP Koirala Memorial Cancer Hospital
4 Nutrition Infectious Disease Hospital
BP Koirala Health Science Foundation, Dharan
5 Safe motherhood Kanti Children’s Hospital 6 Family planning HRH Indra Rajya Laxmi
Maternity HospitalShahid Gangalal National Health Centre
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SN First Priority programmes
Second Priority Programmes
Third Priority Programmes
7 Reproductive Health of the adolescents
Urban health Dental care service
8 Female Community Health Volunteers and sudenis (trained traditional birth attendants)
Ayurved services Ayurved Hospital, Naradevi
9 Epidemiology and control of diseases − Control of malaria − Typhus (kala-azar) − Natural disaster and management − Vector-borne diseases and their control, research and training − Tuberculosis − Leprosy − HIV/AIDS and Sexually Transmitted Diseases (STD) − Health information, communication and education − Supply management − Community medicine − Health insurance − Information management
Singha Durbar Vaidyakhana Homoeopathy Unani
Naturo-therapeutics Management of medicines Post-graduation
Hospital development and extension Control of addictive drugs
Curative health services are provided by tertiary, secondary and primary level
hospitals. Basic health services were provided during the study period by 89
hospitals, 186 Primary Health Care Centers (PHCCs), 698 Health Posts (HPs) and
3,129 Sub Health Posts (SHPs). Child health, reproductive health, disease control,
national health training, health education, information and communication, among
others are key public health programmes implemented in the country.
- 10 -
Chapter III
Sources of funding
The major sources of funding for public expenditure on health are mobilization
of tax revenue, foreign grants and loans, allocations by local bodies, state owned
enterprises and autonomous universities. The size of public expenditure determines
the fiscal space of the country. The foreign grants and loan which is the second
major source of funding for public expenditure comes through bilateral and
multilateral commitments. Bilateral and multilateral agencies, called external
development partners (EDPs) have provided funds for health expenditures through
two channels: direct and indirect. The commitments of fixed amount of money
spelled out in the red book is called direct sources of funding and the amount of
money that is expensed by the EDPs themselves to improve health status of the
people is referred to as indirect sources. The public expenditure on health sector
from direct sources can be captured from various published government documents
such as FMIS; red books, auditors’ reports etc. Indirect sources of funding from
EDPs were very difficult to collect because financing documents were rarely found
and even if the documents were found, detail information were not available. We
have, therefore, presented here the direct sources of funding only.
Table 3.1: Public expenditure on health by sources of financing (NRs in million)
District Development Committees 88.28 1.08 92.49 .00 87.61 0.78 Municipalities 13.45 0.16 20.10 0.22 31.33 0.28 Village Development Committees 97.09 1.19 128.74 1.40 180.42 1.61
Total public spending 8,182.22 100.00 9,226.87 100.00 11,241.08 100.00
- 11 -
Government expenditure has contributed between 58 to 68 percent of the
public health expenditure in Nepal during the review period. In nominal terms the
expenditure on health from the government expenditure on health increased steadily
from 4,760 million in 2003/04 to 5970 million in 2004/05 and 7694 million in 2005/06.
Regarding expenditures that contribute to expand the capacity of the health
service systems in the country in the future, the share of the development
expenditure, which is mainly capital expenditure, is found to have increased from 9
percent to 16 percent. The share of the regular expenditure, which is mainly
recurrent expenditures, in contrast has declined from 91 percent to 84 percent during
the review period. The earmarked expenditures which prevailed earlier were not
incurred during the review period.
Distribution of Government Expenditure by Recurent and Development (Capital) Categories
0
1000
2000
3000
4000
5000
6000
7000
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06
Fiscal Year
RS
(MIll
ion)
Recurent
Capital
The External Development Partners (EDPs) were the second largest sources
of funding in the health sector and all expenditures were incurred as direct
expenditures. No uniform pattern was observed in their contribution too. Their
contribution fell from 33 percent in 2003/04 to 23 percent in 2004/05 and again rose
to 25 percent in 2005/06. This indicates that EDPs are a highly fluctuating sources of
health expenditures in Nepal.
The combined contribution of other components- the state owned enterprises
(SOEs), autonomous universities and local bodies have remained between 7 to 13
- 12 -
percent of the total public expenditure on health. Expenditures by SOEs accounted
as the largest share among them in all review years. Expenditures by Ministries
Regarding expenditure on health by various ministries, the MOH spent the
largest share and has remained fairly constant at around 96-97 percent during the
review period. The Ministry of Local Development (MOLD) and the Ministry of
Industry, Commerce and Supplies (MOICS) made about 1 percent each while the
remaining were made by several other ministries during the review period.
The expenditures on health by autonomous universities are actually financed
from annual budget provided by the Ministry of Education and their other sources of
income. However due to definitional problem, these expenditures have not been
included in the expenditure of the Ministry of Education. Table 3. 2: Trend in government health spending (HMG and EDP Red Book) by financing agents, (NRs in million) Financing agent
FA1 Ministry of Agriculture 21.90 0.46 2.06 0.03 1.34 0.02FA2 Ministry of Defense 0.11 0.00 0.13 0.00 0.15 0.00FA3 Ministry of Education 4.60 0.10 3.74 0.06 4.36 0.06FA4 Ministry of Finance 0.00 0.00 0.00 0.00 0.00 0.00FA5 Ministry of Health 4617.70 97.01 5737.89 96.11 7436.44 96.65FA6 Ministry of Home 8.98 0.19 84.88 1.42 93.04 1.21FA7 Ministry of Industries, Commerce and Supplies 45.00 0.95 50.00 0.84 46.58 0.61
FA8 Ministry of Labour 2.67 0.06 2.53 0.04 4.00 0.05
FA9 Ministry of Local Development 49.45 1.04 75.87 1.27 90.39 1.17FA10 Ministry of Physical Planning 6.23 0.13 9.52 0.16 14.38 0.19FA 11 Ministry of Population 0.00 0.00 0.00 0.00 0.00 0.00FA 12 Women Children and Social Welfare 3.25 0.07 3.20 0.05 3.20 0.04
Grand Total 4759.907 100 5969.82 100 7693.872 100 Expenditures by Local Bodies
In accordance with the local self-governance act, local bodies namely the
Village Development Committees (VDCs), Municipalities and the District
Development Committees (DDCs) are entitled to spend a part of their budget in the
provision of health care services at the district and sub-district level. Data were
collected from local bodies and were extrapolated for national representation with
appropriate weightage.
- 13 -
The results revealed that local bodies as a source of health expenditures has
a contribution that ranged between 2 to 3 percent of the total expenditure in health in
the country during the review period. This is an improvement compared to
preceeding year (2002/03) where it was only 0.7 percent. As DDCs are the largest
administrative units for local self governance, their contribution among the local
bodies in naturally the largest. During the review period, their share however
declined from 66 percent to 55 percent with increment in the share of the
Municipalities from 30 to 40 percent. The share of the VDCs in health spending by
local bodies is the smallest but has risen gradually from 3 percent to 5 percent during
the review period.
The sources of financing are diverse for each of the three local government units.
The VDCc have a greater reliance on budget provided by central government, the
municipalities have a large local tax at their sources of funding while the DDCs rely
more on assistance from international NGOs.
The budget provided by the central government constitutes the largest source
of funding (around 96 percent) for the VDCs while the rest comes from INGOs. In
case of the Municipalities, who have a stronger tax base in the urban population and
are able to raise significantly large local taxes themselves, about (60-80 percent)
from this source followed by assistance from central government and international
agencies. The share of funding from local bodies shows a declining trend with a fall
from around 80 percent to around 60 percent compensated by a rise in funding from
the general government tax revenue from 5 to 30 percent. The contributions from the
international agencies have also declined steadily from 18 percent in 2003/04 to 9
percent in 2005/06. In case of the DDCs, more than 80 percent of the amount spent
on health services are derived from assistance by international donor agencies while
13 to 16 percent comes from local bodies and the rest from general government tax
revenues. The overall expenditure by local bodies has gradually increased over the
review period.
Table 3.3: Average Expenditure by local bodies (in thousand Rs) Local bodies
The table suggested us to develop indicators for allocative efficiency for
expenditure on health. There would be allocative efficiency if more than 75 percent
of total development budget goes to P1 programmes, almost 20% to P2
programmes, remaining almost 5% for P3 programmes. The following graph
suggested that priority I programmes consumed almost one third of the total
development budget on the health sector, conversely priority III programmes had
consumed largest amount of development health expenditures. The trend lines of
priority programmes demonstrated that first priority programmes had a greater
vicissitude compared to other priority programmes. The results validated that the
expenditures on health sector had not been allocated based on priority settings.
Trends of priority programmes
-10.0020.0030.00
40.0050.0060.0070.00
Fiscal Years
Perc
ent
P1 36.16 32.40 33.46 18.55 32.99 38.23
P2 7.87 24.26 32.07 23.40 7.16 24.87
P3 55.96 43.35 34.46 58.05 59.85 36.90
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06
Pillar II: Trends of public health expenditure on targeted services categories
Under the health sector policy reform objective to “shift emphasis from urban
to rural health services,” the policy documents reflecting the government’s priorities
were to increase financial allocations for rural health services through preventive as
well as clinical services. Analysis of public expenditure review on health sector
revealed that rural health services were kept in priority for allocation of financial
resources in the review periods, except for 2003/2004 fiscal year (following diagram).
Similarly, the health policy documents such as SLHP have given importance to
primary health services. The comparisons of allocated expenditure among the
- 22 -
tertiary, secondary and primary services provide information on translation of policy
into implementation. The results showed that primary health services consumed
more resources compared to other level of services; however the trend lines of
expenditure of primary health services showed a downfall.
Allocation of Expenditure by Urban/Rural
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06
Fiscal Year
Perc
ent
Urban Rural
Allocation of Expenditure by Level
0.00
10.00
20.00
30.00
40.00
50.00
60.00
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06
Fiscal Year
Perc
ent
Tertiary Secondary Primary Not Distinguished
- 23 -
The following diagram suggested that the government has prioritised to the
preventive services which are related to public goods. The expenditures on medical
services were decreasing over the period; conversely, the expenditure on public
health services had increasing trends. The fiscal year 2003/04 had equi-allocation of
financial resources between medical services and public health services.
Allocation of Expenditure by Medical and Public Health Services
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06
Fiscal Year
Perc
enta
ges
Medical Service Public Health Services
Allocation of Expenditure by Age Group
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
Fiscal Years
Perc
enta
ges
0-5 Years 1.93 1.65 1.71 0.98 0.99 2.28
0-14 Years 2.32 2.33 1.99 11.57 6.52 7.71
15-49 Years 2.31 1.55 1.91 1.70 1.51 2.66
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06
- 24 -
Pillar III: input output relation Efficiency of Health expenditure
The policy efforts in terms of aggregate outcomes, such as child health
outcomes have been found to follow desired impact that is presented in the following
graph. The curve of under-five mortality has showed faster changes in mortality rate
compared to others. The child mortality rate after 2001 has declined considerably.
The life expectancy at birth is slowly increasing and after 2001, female life
expectancy at birth has become higher than male life expectancy. The graphs exhibit
that life expectancy at birth has positive relationships with per capita public health
expenditures. On the other hand, mortality rates have negative association with per
capita public health expenditures.
Mortality Rate
020406080
100120140
1996 2001 2006
Years
Rates
Neonatal Post neonatal infantchild under five
Trends of Life Expectancy at Birth
010203040506070
1971 1981 1991 2001
Years
life ex
pactan
cy
Male Female
Source: Population Division, Ministry of Health and Population, Government of Nepal, New ERA Kathmandu, Nepal and Macro International Inc. Calverton, Maryland, U.S.A.( 2007) Nepal demographic health survey
- 25 -
Trends of Real and Nominal Expenditure
050
100150
200250
300350
400450
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06
Fiscal Years
Am
ount
(Rs)
Per capita Public Health Expenditure Per capita Real Public Health Expenditure
Nepal has made some progress in health outcomes over the years.
Particularly, in the last decade, there have been improvements in coverage in
immunization, utilization of health services, MCH programmes. However, health
outcomes have not been equitable, as are reflected in the income quintile.
It has been recognized that diarrheal diseases as one of the major public
health problems among children under five in Nepal. The national reported incidence
of diarrhea per 1,000 among children under five years decreased during the study
years. The following trend lines suggested that the stock of health problems has
been decreasing over the years.
- 28 -
Diarrhoeal Diseases: Output measurement
0
0.2
0.4
0.6
Fiscal Years
Indi
cato
rs p
er th
ausa
nd
Diarrhoeal death perthausand
0.1 0.04 0.04 0.05 0.07 0.02
Case fatality rate perthausand
0.4 0.22 0.2 0.25 0.31 0.11
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06
Absorptive capacity
The absorptive capacity of the programmes is the share of the allocated
budget that is spent each year. Absorptive capacity indexes of the priority
programmes are developed based on development (or capital) budget of the ministry
of health and population. The absorptive capacity index presented in the following
graph suggested that the capacity was very low in 2004. The capacity has been
increasing over the years though it still remains low.
Absorptive capacity index of development (or Capital) budget
0.00
0.50
1.00
Fiscal years
Inde
x
Absorptivecapacity
0.36 0.58 0.84
2003/04 2004/05 2005/06
The following graph exhibits absorptive capacity indices based on priority
programmes. P1 programmes had surprisingly lower absorptive capacity in fiscal
- 29 -
year 2003/2004. The absorptive capacity was increasing over the years however it
was still very low. P2 programmes consumed more resources as allocated in the
budget in 2006. But it had almost 50 per cent absorptive capacity in 2003/04 and
2004/05. Briefly, all priority programmes had low absorptive capacity indicating one
of the bottlenecks to produce desired health outcomes in the country.
Absorptive Capacity based on Priority Programmes
-
1.00
2.00
Fiscal Years
Indi
ces
P1 0.18 0.66 0.78
p2 0.47 0.54 1.85
p3 0.57 0.55 0.62
2003/04 2004/05 2005/06
We compared absorptive capacity of medical services and public health
services in the following graph. The results exhibited that medical services had
higher absorptive capacity than public health services. It means that public health
services have greater barriers in utilization of the resources compared to medical
services.
Absortive capacity index
-
0.50
1.00
1.50
Fiscal Years
Inde
x
Medical Services 0.56 0.82 1.06
Public HealthServices
0.30 0.51 0.74
2003/04 2004/05 2005/06
- 30 -
Bottlenecks of budget utilization
The results mentioned above demonstrated that utilization rate of the
programmes budget was very low due to the under-funding to the programmes.
Budgets are not released in time for the programmes (ATI, 2008). There is provision
to supply the approved programmes to the implemented body within 15 days of
starting of the new fiscal year. However, in practice it has been taking at least a
month to approve the programmes. Approved programmes with authority to
implement, and 80 percent physical achievements of programmes for second
trimester are preconditions for releasing the budget. Hence, institutional weakness;
delay in disbursement of programme budget and regional disparities are responsible
for low utilization of allocated budget in the health sector.
- 31 -
Chapter V
Fiduciary risks of government expenditure on health
Fiduciary risk is the measure of uncertainty that fiduciary requirements are
actually met. The fiduciary risk explains about the funds not properly accounted for,
are not used for the intended purpose and do not represent the value of money
(DFID, 2004). We used secondary information to assess the fiduciary risk of
government expenditure on health sector.
One important aspect of public budgeting is the maintenance of financial
discipline in the form of allocating budgets and making expenditures in the allocated
heading within the stipulated time. Any expenditure that deviates from sanctioned
allocation is a case of budgetary indiscipline as all budgetary allocations are a part of
the public sanctioning through parliamentary approvals. Allocations that exceed or
fall short of the budget amount within scheduled time frame pose a threat to
achieving sectoral and broader national development targets set by the country.
Fiduciary risks are mostly brought to public notice though annual reporting by
Office of the Comptroller Generals. These reporting have revealed that such risks
have been prevailing continuously during the last consecutive years. For instance in
the fiscal year 2003/04, it has been reported that among the twenty-one projects
which had been given a Priority status in the Tenth Plan, budget allocation for the
Reproductive Health Programme for the Teen-age Population is missing. The
Comptroller Generals report has mentioned that funds not being allocated even for
projects that were under Priority I of the government could not be considered a good
sign (MOF, 2008).
Similar observations have been made by the report of the Comptroller
General for consecutive fiscal years 2004/05. In the fiscal year 2004/05, budget
allocation has been missing for yet another project under Priority I. In yet another
Report of the comptroller General for the year 2005/06, it has been reported that the
achievement out of the physical target for four projects have not been reported
indicating a lack of accountability
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Chapter VI
Discussions and Recommendations
Analysis of public expenditure on health sector help to strengthen MOHP's
position in tracking financial resource allocation and expenditure trends with the view
of improving equity and efficiency in resource allocation within the sector. The review
documented the trends of funding sources and allocation of public expenditure and
provided overall budget performance and factors constraining the allocations of
resources. This PERH highlighted a number of different facets of public expenditure
on health in Nepal and prompted a series of fundamental questions: including the
overall adequacy of funding, the role of public expenditures in the health sector,
appropriate mechanisms for mobilizing resources and providing services with
appropriate mix of public health and medical care.
Nepalese health system has made tangible improvements after restoration of
democracy in the health status of the people. It is however struggling to produce
desired outcomes, particularly among the poor, endogenous and tribal people. Large
number of children continue to die of preventable diseases; too many mothers die in
childbirth, burden of fighting against communicable diseases, the number of non-
communicable diseases (diabetes, heart diseases, etc) is increasing rapidly. This
double burden of communicable and increasing non-communicable diseases is
placing additional pressures on the health system. In addition to this major
demographic change, epidemiological and nutritional transitions are also occurring.
These changes will have important implications for demand for health care and for
policy decisions in health financing. Nepalese health sector is entering a period of
transition. The country is in a position of transforming into new systems, particularly
regarding political systems and mechanism of governing. The policies and strategies
are designing with new visions. In this situation, the review provides base line
information and lessons from experiences.
Public expenditure on health sector has been increasing in the recent years,
but trends of expenditures were heavily fluctuated over the last six years, 2001 to
2006. The Government has considered allocating more resources to health. Along
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with, qualities of public health expenditure, efficiency and equity of health spending
are equally important. The priority should be given to identifying the right mix of
investments to better reflect the country’s complex and wide-ranging public health
challenges. Efforts are made to analyze quality of health spending from different
aspects such as spending on priority based programmes, targeted services,
utilization and resource absorptive capacity of the programmes. At the same time,
analysis of public health expenditure data remains problematic not only due to the
lack of reliable data from different sources but also because of complexities
introduced into the system: changing in budget item lines, expenditures on health
from different ministries, changing items development budget to capital budget and
recurrent budget, direct and indirect channels of spending on health sector from
development partners, limitations in local health accounting system, among others.
The functional classification of public expenditure and various categorizations
of expenditures based on programmes and budget line items were difficult due to
frequent changing budget line items and name of the programmes. Data record
system was very weak in the local level such as VDCs, Municipalities and DDCs due
to the various reasons such as impact of conflict on programmings, implementing,
and running of the offices, along with limited awareness of functional classification of
expenditure among others. This led to many difficulties in determining expenditure by
health sector classification. Obtaining details of expenditures patterns and
classification on health sector from the EDPs was very difficult because they had
their own system of allocating budget and expenditure classification. They did not
publicly disclose their reports on details of expenditures on health. Efforts to improve
on these aspects of the expenditure are beyond the scope of this study.
The method of extrapolation of expenditure on health from local bodies might
not be robust and estimated amount might not be representative of real expenditure
due to small sample size of local bodies for survey. Similarly, the amount of
expenditure on health by EDPs did not cover the indirect expenditure in this review.
The government assumed that indirect sources of expenditure on health by EDPs
were almost 10 percent of total expenditure on health by EDPs.
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Econometric evidence shows that most cross-country variance in health
outcomes is explained by per capita income (poverty level) differences and that
public expenditure has limited explanatory power (Roberts, 2003).
Recommendations
Government policies in the sector should be more clearly reflected in
budgetary allocations and greater transparency in decentralized health
accounting and spending is necessary.
There should be appropriate mechanisms for mobilizing resources and
purchasing services and, appropriate proportion of public expenditure for
public health, as opposed to medical care. These issues are reflected from
the public policy, such as the role of the state, the design of decentralization,
and the social and political values attached to equity and efficiency.
The MTEF has marked an important milestone in public resource
management in the country; however, the budgetary and the MTEF processes
have not been properly integrated. MTEF has been proved to be an
extremely useful tool for public expenditure management from several
perspectives. The budgetary reforms that have been introduced to implement
the MTEF, particularly linking fund releases to the plan priorities for effective
implementation and performance that will help to improve the effectiveness of
public spending and service delivery.
The prioritization criteria require further revisit to make them more objective
and comprehensive. Criteria have to be periodically reviewed and made more
objective, focused and comprehensive, particularly in the context of the
changing environment and sectoral need. To ensure adequate resources to
P1 projects, budget share of P1 projects has to be reviewed and made more
realistic from funding and implementation point of view.
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Research team
Shiva Raj Adhikari Principal Investigator
Bishnu Prasad Sharma Co Investigator
Baburam Shrestha Co Investigator
Damaru Paneru Researcher
Indu Joshi Researcher
Sumanta Neupane Researcher
Sunil Kharel Researcher
Ghana Prasad Neupane Research Assistant
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References Government of Nepal, MOF, (2007) Economic Survey, Ministry of Finance, Kathmandu,
Nepal _____, Source of Foreign Aid Projects Handbook under Development Budget of Various
Fiscal Years (Nepali) _____, Expenditure Estimate Description of various FY (Nepali), Ministry of Finance, Financial Comptroller General Office (2008) “Public Expenditure and
Financial Accountability: An Assessment of the Public Financial Management Performance Measurement Framework (As of FY2005/06)”
_____, (2008) “Health expenditure report” in Nepali Central Bureau of Statistics, (2004) Nepal Living Standard Survey 2003/04: Statistical Report,
Central Bureau of Statistics, Kathmandu, Nepal _____, (1996); Nepal Living Standard Survey 1996: Main findings, Central Bureau of
Statistics, Kathmandu, Nepal _____, (2003) Population Monograph 2001 Central Bureau of Statistics, Kathmandu, Nepal HMG/Nepal, (1999) Second Long Term Health Plan (1997-2017), Ministry of Health,
Kathmandu, Nepal _____, (2003), Health Sector Strategy: An agenda for reform, Ministry of Health,
Ministry of Health, Kathmandu, Nepal _____, National Planning Commission, 2003, The Tenth Plan (2002-07), National Planning
Commission/ Government of Nepal Government of Nepal, (2007) Three Year Interim Plan (2007/08 – 2009/10) _____, Ministry of health and population (2006) Nepal National Health Accounts (2001-
2003) _____, Ministry of health and Population, (2004) Public expenditure review on health sector _____, Department of health services, Ministry of health and Population, Annual report
2006/007 Ministry of Health and Population (MOHP) [Nepal], New ERA, and Macro International Inc.
(2007). Nepal Demographic and Health Survey 2006. Kathmandu, Nepal: Ministry of Health and Population, New ERA, and Macro International Inc.
Roberts, J. (2003) Poverty Reduction Outcomes in Education and Health: Public Expenditure and Aid, Working paper 210, Overseas Development Institute.
RTI International (2008) Bottleneck study for the timely Disbursement of funds. Research Triangle Park, NC USA
World Bank (2000) Nepal operational Issues and Prioritization and resources in the health sector, health Nutrition and Population Unit, South Asia region World Bank
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Annexes
Table 1 Functional Classification of Public Expenditure
Administrative and provision of health related cash benefits 0.00 0.00 0.00 0.00 0.00 0.00
Administrative and provision of social services to those living with disease and impairment
82.40 1.73 108.49 1.82 193.38 2.51
All other discipline-specific specialised medical care services 27.49 0.58 45.32 0.76 78.72 1.02
All other health-related expenditures 0.00 0.00 0.00 0.00 0.00 0.00All other public health services 265.91 5.59 478.19 8.01 865.63 11.25Allopathic hospital in-patient care 530.71 11.15 728.28 12.20 910.66 11.84Allopathic medicines 19.99 0.42 58.41 0.98 42.20 0.55Basic medical and diagnostic services 1575.42 33.10 1748.32 29.29 1817.93 23.63Capital formation of health care provider institutions 310.03 6.51 405.77 6.80 1203.92 15.65
Clinical laboratory services 38.46 0.81 38.83 0.65 30.44 0.40Drinking water and sanitation 6.23 0.13 9.52 0.16 14.38 0.19Education and training of health personnel 89.26 1.88 200.75 3.36 144.84 1.88
Family health (MCH and FP) and reproductive health services 19.22 0.40 24.29 0.41 143.20 1.86
Government administration of health and health-related social security 337.54 7.09 366.32 6.14 427.83 5.56
Immunization (except EPI) 498.77 10.48 323.84 5.42 523.23 6.80Infant and child health 1.13 0.02 9.38 0.16 15.78 0.21In-patient curative care 462.48 9.72 375.64 6.29 366.96 4.77Non-allopathic hospital in-patient care 15.38 0.32 17.54 0.29 18.01 0.23Non-allopathic hospital out-patient care 4.14 0.09 5.67 0.09 5.40 0.07Non-allopathic medicines 5.22 0.11 6.67 0.11 0.00 0.00Non-allopthic medicine and other health care services 94.84 1.99 108.32 1.81 123.34 1.60
Occupational health care 2.67 0.06 2.53 0.04 4.00 0.05Other communicable diseases 0.00 0.00 0.00 0.00 0.00 0.00Other reproductive health 0.00 0.00 0.00 0.00 0.00 0.00Patient transport and emergency rescue 96.86 2.04 275.22 4.61 247.23 3.21
Pharmaceuticals and other medical non-durables 7.17 0.15 0.00 0.00 7.70 0.10
Prevention and management of communicable diseases 0.00 0.00 0.00 0.00 0.00 0.00
Prevention and management of non-communicable diseases 45.00 0.95 50.00 0.84 46.58 0.61
Preventive health care and public health services 0.50 0.01 3.88 0.06 0.77 0.01
Research and development in health 41.32 0.87 81.60 1.37 62.13 0.81STDs 31.57 0.66 235.98 3.95 130.40 1.69Tuberculosis and leprosy control 97.06 2.04 153.61 2.57 152.17 1.98Vector borne diseases 37.88 0.80 61.07 1.02 49.93 0.65Water and food borne disease control 15.26 0.32 46.41 0.78 67.09 0.87Total 4759.91 100.00 5969.82 100.00 7693.87 100.00
38
Technical notes Form A: Income by Source
This form includes the income of institution by different sources. They might be government, local bodies, promoters/shareholders, student fee, donation/charity, NGOs, INGOs, ODA (International Assistance Grants) etc. Form B: Expenditure by Source
This form includes the expenditure by source such as government, local bodies, promoters/share holders, student fee, donation/charity, NGOs, INGOs, ODA (International Assistance Grants) etc. Form C: Expenditure by Providers Level This form captures the expenditure of Tertiary level hospitals: This item comprises central hospitals, all teaching and/or university hospitals except specialist hospitals. Secondary level hospitals: This item comprises all zonal and regional hospitals. Primary level hospitals: This item comprises all district hospitals. Form D: Medical Practice Expenditure (Paid to other Institutions) of Medical/Nursing Schools
This item includes the medical practice expenditure incurred by paying the sum of money to the contracted government hospitals or private hospitals (for profit) or NGO hospital (private for profit) or community hospitals or primary health care facilities (PHC, HP, SHP). Form E: NR Health Related Function NR: Health Related Functions NR1: Capital Formation of Health Care Institutions This item comprises the gross capital formation of domestic health care institutions excluding those listed under NP4 (Retail sale and other providers of medical goods).
i. Building ii. Land (Procured) iii. Medical Equipment (cost per item US$100 and more)
Note: Establishments and equipments whose primary objective is to manufacture of medical goods for sale to the general public/personal/household are excluded in this category.
39
NR2: Education and Training of Health Personnel
This item comprises government and private provision of education and training services for health personnel, including the administration, inspection or support of provider institutions. Training corresponds to national post-secondary and tertiary education levels. This item includes the following expenditures: the education and training of health personnel by both public and private agencies and institutions; education and training that involves (i) paramedical schools, (ii) medical/paramedical departments in undergraduate schools and (iii) graduate and under graduate medical schools; expenditures for universities and other training institutions on medical education; the salaries of medical interns, medical residents and trainee nurses.
i. Salary and allowances of teachers/trainers ii. Salary and allowances of interns and trainee nurses
iii. Educational supplies (Books, journals, stationeries and others) iv. Examination cost of students/trainees
This item excludes expenditure by teaching hospitals. NR3: Research and Development in Health
This item comprises Research and Development (R&D) expenditure in health, which is defined as follows: "R&D programmes directed towards the protection and improvement of human health. 1; includes R&D on low: hygiene and nutrition and also R&D on radiation used for medical purposes, biochemical engineering, medical information rationalization of treatment and pharmacology (including testing medicines and breeding of laboratory animals for scientific purposes) as well as research relating to epidemiology, prevention of industrial diseases and drug addiction.'' Note: Research and experimental development (R&D) comprise creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society and the use of this stock of knowledge to devise new applications. "R&D covers three distinct activities: basic research, applied research and experimental development. Basic research is experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundation of phenomena and observable facts, without any particular application or use in view. Applied research is also original investigation undertaken in order to acquire new knowledge. It is, however, directed primarily towards a specific practical aim or objective. Experimental development is systematic work, drawing on existing knowledge gained from research and/or practical experience that is directed to producing new materials, products or devices, to installing new processes, systems and services, or to improving substantially those already produced or installed. R&D in health excludes outlays by pharmaceutical firms, which are shown separately. R&D outlays by pharmaceutical firms have to be distinguished from other related scientific and technological activities such as, for example, patent and license work. Research by postgraduate students carried out at universities and university hospitals in medical science should be counted, wherever possible, as part of R&D in health care.