Analyzing Fiscal Space Options for Health in Zimbabwe Final Report February, 2017     Analyzing Fiscal Space Options for Health in Zimbabwe Final Report February, 2017   2         Table of Contents Acknowledgements  .....................................................................................................................................  6   Executive  Summary  .....................................................................................................................................  7   Introduction  .............................................................................................................................................  7   Macroeconomic  conditions  and  fiscal  space  for  health  ..........................................................................  7   Prioritizing  health  in  the  government’s  budget  .......................................................................................  8   Development  assistance  for  health  (DAH)  ...............................................................................................  8   ........................................................................  8   Introducing  new  sources  of  domestic  funding  for  health   Options  for  generating  efficiency  gains  in  the  public  system  ..................................................................  9   .........................................................  9   How  much  fiscal  space?  Illustrative  scenarios  for  health  spending   Way  forward  ..........................................................................................................................................  10   1.   Introduction  .......................................................................................................................................  11   2.   Macroeconomic  conditions  and  fiscal  space  for  health  .....................................................................  14   3.   Prioritizing  health  in  the  government’s  budget  .................................................................................  18   4.   Development  assistance  for  health  (DAH)  .........................................................................................  21   5.   Introducing  new  sources  of  domestic  funding  for  health  ..................................................................  24   .............................................................  28   6.   Options  for  generating  efficiency  gains  in  the  public  system   Allocative  efficiency  ...............................................................................................................................  28   ................................................................................................................................  31   Technical  efficiency   7.   How  much  fiscal  space?  Illustrative  scenarios  for  health  spending  ...................................................  38   .......................................................................................................................................  42   8.   Way  forward   9.   References  ..........................................................................................................................................  45     List  of  Tables   Table  1:  International  and  regional  comparison  of  GDP  (1998-­‐2015    average)  ........................................  14   Table  2:  International  and  regional  comparison  of  GDP  (Average  1998-­‐2014)  .........................................  20   Table  3:  Retail  Prices  and  Taxes  for  a  Pack  of  20  cigarettes,  2014  ............................................................  25   Table  4:  Cigarette  Earmarked  Nominal  Revenue  Projections  US$  (2014  –  2022)  .....................................  26   Table  5:  Alcohol  earmarked  nominal  Revenue  Projections  US$  (2014  –  2022)  ........................................  26   Table  6:  Value  Added  Tax  rates  for  Selected  SADC  Countries  ...................................................................  27   Table  7:  Service  availability  and  readiness  assessment  by  facility  type   ....................................................  36   Table  8:  Total  cost  for  the  three  scenarios  (Million  USD)  ..........................................................................  39       3         List  of  Figures   Figure  1:  Example  of  a  fiscal  space  diamond  .............................................................................................  11   Figure  2:  GDP  per  capita  (1998-­‐2021)  .......................................................................................................  15   Figure  3:  Annual  economic  growth  (2009-­‐2021)  .......................................................................................  15   Figure  4:  Elasticity  of  public  health  spending  to  GDP  per  capita  (2009-­‐2013)   ...........................................  15   Figure  5:  Trend  revenues  and  expenditures  GDP  ratios  ............................................................................  16   Figure  6:  Revenues  by  source  (as  a  share  of  GDP)  .....................................................................................  16   Figure  7:  Selected  rents  as  share  of  GDP  (1990-­‐2015)  ..............................................................................  16   Figure  8:  International  comparison:  Government  spending  on  health  (2014)  ..........................................  18   Figure  9:  Trend  in  Government  spending  on  health  (2004-­‐2014)  .............................................................  18   Figure  10:  Central  government  spending  on  health  relative  to  other  priority  sectors  (2009-­‐2014)  .........  19   Figure  11:  Government  spending  on  health  and  total  health  expenditure  as  share  of  GDP  (2000-­‐2014)   20   Figure  12:  Regional  comparison:  External  assistance  as  a  share  of  total  health  expenditure  (2011)  .......  21   Figure  13:  Total  health  spending  by  funding  source  (2014-­‐2017)  .............................................................  21   Figure  14:  Total  Development  assistance  on  health  to  Zimbabwe  (1990-­‐2013)  .......................................  22   Figure  15:  Development  assistance  on  health  on  major  programs  (2000-­‐2013)  ......................................  22   Figure  16:  Funding  breakdown  by  cost  categories  (2016)  .........................................................................  23   Figure  17:  Funding  breakdown  between  government  and  external  funders  by  program  function  (2016)  23   Figure  18:  HDF  funding  commitments  and  gap  (2016-­‐2018)  ....................................................................  23   Figure  19:  Causes  of  Deaths  for  the  Total  Population  in  Zimbabwe  (2013)  ..............................................  29   Figure  20:  MoHCC  Budget  Allocation  by  Service  .......................................................................................  29   Figure  21:  Referrals  to  Central  Hospitals  2008-­‐2014  .................................................................................  30   Figure  22:  MoHCC  transfers  to  health  facilities  .........................................................................................  30   Figure  23:  MoHCC  Budget  Allocation  vs  Actual  Expenditure  2009  -­‐2015   ..................................................  32   Figure  24:  Employment  costs  vs  total  Expenditure  2009  -­‐2016  ................................................................  34   Figure  25:  Percentage  Vacancy  rate  in  2014  .............................................................................................  34   Figure  26:  Objectives  and  keys  assumptions  for  the  three  costing  scenarios  ...........................................  38   Figure  27:  Funding  requirements  of  NHS  scenarios  versus  scenarios  for  increased  government  spending   on  health   ....................................................................................................................................................  39   Figure  28:  Fiscal  space  projections  from  reprioritization  of  health,  sin  taxes  and  earmarking  of  1  percent   of  VAT  (against  NHS2  cost  estimates)   ........................................................................................................  40   Figure  29:  Fiscal  space  projections  from  reprioritization  of  health,  sin  taxes,  earmarking  of  1  percent  of   VAT  and  continued  DAH  flows  (against  NHS2  cost  estimates)  ..................................................................  41   4       Acronyms   AG:     Auditor  General   CHAI:     Clinton  Health  Access  Initiative   DAH:     Development  Assistance  on  Health   DEA:     Data  Envelopment  Analysis   DTTU:   Delivery  Team  Topping  Up   EMPS:     Essential  Medicines  Pull  System   GDP:    Gross  Domestic  Product   GoZ:     Government  of  Zimbabwe   HDF:     Health  Development  Fund   IMF:     International  Monetary  Fund   MDG:     Millennium  Development  Goal   MOFED:  Ministry  of  Finance  and  Economic  Development   MoHCC:  Ministry  of  Health  and  Child  Care   NHI:   National  Health  Insurance   NHS:     National  Health  Strategy   ODA:     Official  Development  Assistance   PBB:     Program  Based  Budgeting   PFM:     Public  Finance  Management   PFMS:   Public  Finance  Management  System   PSIP:     Public  Sector  Investment  Program   QALY:     Quality  Adjusted  Life  Years   RBF:     Results  Based  Financing   SFA:     Stochastic  Frontier  Analysis   SHI:     Social  health  Insurance   THE:     Total  Health  Expenditure   UHC:     Universal  Health  Coverage   VAT:     Value  Added  Tax   WB:     World  Bank   WHO:     World  Health  Organization   ZADS:     Zimbabwe  AIDS  Distribution  System   ZAPS:     Zimbabwe  Assisted  Pull  System   ZEPARU:  Zimbabwe  Economic  Policy  Analysis  and  Research  Unit   ZIP/PHCP:  Zimbabwe  Informed  Push/Primary  Health  Care  Package     5       Acknowledgements   This   Fiscal   Space   Analysis   was   financed   by   the   World   Bank   and   developed   by   the   World   Bank   Health,   Nutrition  and  Population  Task  Team  in  collaboration  with  Zimbabwe’s  Ministry  of  Finance  and  Economic   Development  (MOFED)  and  Ministry  of  Health  and  Child  Care  (MOHCC),  with  the  input  of  development   partners.  The  financial  support  of  the  Zimbabwe  Reconstruction  Fund  under  the  Health  Sector  TA  is  duly   acknowledged.       This   Fiscal   Space   Analysis   was   led   by  Laurence   Lannes   (Senior   Health   Economist).   Ronald   Mutasa   led   the   policy  and  technical  dialogue  that  underpinned  the  analytical  work.  Team  members  included  Chenjerai   Sisimayi  (Health  Specialist),  Shepherd  Shamu  (Health  Economist/Consultant)  and  Leah  Jones  (Knowledge   Management   Consultant).   The   team   gratefully   acknowledges   technical   input   from   Ajay   Tandon   (Lead   Economist)   and   Netsanet   Workie   (Senior   Health   Economist)   in   the   formative   stages   of   the   study.   The   team   is   grateful   to   the   two   peer   reviewers,   Owen   Smith,   Senior   Economist   and   Thulani   Matsebula,   Senior   Public   Health   Specialist   for   their   insightful   comments   and   suggestions.   The   team   also   appreciates   the  administrative  and  management  support  of  Farai  Sekeramayi-­‐Noble  (Program  Assistant,  Harare)  and   Yvette  Atkins  (Senior  Program  Assistant,  Washington,  DC).     The   team   wishes   to   acknowledge   the   leadership   and   support   of   Mr.   Churu   (Principal   Director,   Budgets),   Mr.   Vela-­‐Moyo   (Director   for   Budgets)   and   Brigadier   Gwinji   for   setting   up   and   supporting   the   working   group   on   fiscal   space   comprised   of   economists,   accounts   and   health   specialists   from   the   Ministries   of   Finance   and   Economic   Development   and   Ministry   of   Health   and   Child   Care.   Members   of   the   fiscal   space   working   group   include   Mr.   Gwati   (Health   Economist   at   MOHCC   and   Chair   of   the   working   group),   Mr.   Mutyambizi   (Chief   Accountant,   MOHCC),   Ms.   Matenda   (Senior   Economist,   MOFED),   Mr.   Goredema   (Senior  Economist,  MOFED)  and  Mr.  Machinjike  (Senior  Economist,  MOFED).       The  team  acknowledges  the  guidance  of  Olusoji  Adeyi  (Director,  Health  Nutrition  and  Population  Global   Practice),  Magnus  Lindelow  (Practice  Manager,  Health  Nutrition  and  Population  Global  Practice),  Camille   Lampart   Nuamah   (Country   Manager   for   Zimbabwe),   Paolo   Belli   (Program   Leader   for   Zimbabwe)   and   Johannes   Herderschee   (Senior   Country   Economist).   The   team   could   not   have   completed   this   analysis   without   the   leadership   and   ownership   demonstrated   by   the   MOHCC   through   Brigadier   General   Dr.   Gwinji  (Permanent  Secretary).         6       Executive Summary Introduction Fiscal   space   is   “the   capacity   of   government   to   provide   additional   budgetary   resources   for   a   desired   purpose   without   any   prejudice   to   the   sustainability   of   its   financial   position”1.   Creating   fiscal   space   makes   additional   resources   available   for   government   spending   on   health.   Government   can   generate   fiscal   space   for   health   through:   (i)   establishing   conducive   macroeconomic   and   fiscal   conditions;   (ii)   prioritizing   health   within   the   government   budget;   (iii)   allocating   health   sector-­‐specific   financing   from   other   sources;   (iv)   negotiating   higher   development   assistance   for   health;   and   (v)   improving   efficiency   of   outlays  for  health.       There  is  a  growing  interest  in  fiscal  space  analysis  for  health  in  low  and  middle-­‐income  countries.   As   countries   are   faced   with   the   challenge   of   increasing   domestic   spending   on   health   in   the   wake   of   decreasing   external   assistance,   underfunding   of   the   sector,   unmet   needs   and   poor   health   outcomes,   fiscal   space   analysis   is   a   useful   tool   for   assessing   a   country’s   constraints   and   identifying   areas   for   generating  additional  health  sector  resources.   The  fiscal  space  analysis  for  the  health  sector  in  Zimbabwe  is  timely  and  the  need  for  such  analysis  has   been  strongly  expressed  by  the  government  and  its  development  partners.   This   imperative   is   justified   on  multiple  grounds.  As  the  country  is  hit  by  an  economic  crisis  resulting  in  lower  revenues  and  cuts  in   expenditures,  understanding  the  consequences  and  assessing  coping  strategies  for  the  health  sector  is   critical.   As   the   country   engages   in   the   implementation   of   its   new   health   sector   strategy   which   sets   ambitious   targets   in   terms   of   health   outcomes   towards   Universal   Health   Coverage,   it   is   also   critical   to   explore  ways  to  increase  resources  for  the  sector,  even  in  a  constrained  macro-­‐fiscal  environment.  The   fiscal   space   analysis   also   highlights   the   major   sources   of   inefficiencies   to   identify   areas   for   improvement   to   increase   the   value   for   money   in   the   sector.   Overall,   the   fiscal   space   analysis   aims   to   generate   evidence   to   inform   MOFED   and   MOHCC   on   short-­‐term   and   medium-­‐term   options   to   generate   resources   for   the   health   sector.   It   will   provide   evidence   for   government   partner   consultations   on   short-­‐term   options   and   choices   in   light   of   declining   public   financing   for   health   and   a   difficult   economic   growth   outlook.     Macroeconomic conditions and fiscal space for health Between  2010  and  2014,  Zimbabwe’s  economy  enjoyed  strong  growth  but  recent  economic  updates   point  to  a  significant  downturn  in  2015  and  2016.   Fiscal  revenues,  which  have  been  a  major  source  of   budget   financing,   are   leveling   off   and   the   financial   crisis   is   leading   to   a   significant   deterioration   in   the   Government’s  fiscal  position.   The  financial  crisis  also  dampens  economic  prospects.  Economic  growth  is   expected  to  be  negative  in  2017  and  the  IMF  forecasts  a  0.4  percent  average  economic  growth  between   2017  and  2021.  IMF  projections  for  government  revenues  predict  a  decline  and  stabilization  around  23   percent  of  GDP  for  the  period  2017-­‐2021.  During  the  same  period,  expenditures  are  projected  to  decline   and  stagnate  at  26  percent  of  GDP  generating  a  3  percent  annual  deficit  on  average.   Overall,  the  current  financial  crisis  of  Zimbabwe  and  the  challenging  macroeconomic  prospects  offer   limited   potential   for   greater   fiscal   space   due   to   slow   growth,   high   debt   and   high   taxation   levels.   In   such  a  context,  only  marginal  gains  can  be  obtained  even  if  the  elasticity  of  public  health  expenditure  to   GDP   is   relatively   favorable   to   the   sector.   Rising   unemployment   and   growth   of   the   informal   sector   can                                                                                                                           1  P.  Heller,  The  prospects  of  creating  ‘fiscal  space’  for  the  health  sector.  Health  Policy  Plan.  (March  2006)  21  (2):  75-­‐ 79   7       further   impede   the   already   restricted   fiscal   space.   Concerted   efforts   to   improve   efficiency   in   revenue   collection  and  expenditure  will  make  better  use  of  existing  resources  in  the  medium  term.   Prioritizing health in the government’s budget In   Zimbabwe,   government   spending   on   health—as   a   share   of   total   government   spending—is   low   compared   to   that   of   countries   in   the   region   and   of   a   similar   income   level.   In   the   past   five   years,   government  spending  on  health  reached  an  average  of  7.3  percent  of  government  spending.     Current  trends  suggest  limited  opportunities  to  improve  prioritization  of  the  health  sector.   Historical   data   shows   that   in   difficult   economic   times   lower   priority   is   given   to   the   health   sector,   and   an   increased   share  of  the  budget  is  used  for  debt  servicing  (interest  payment).  Therefore,  despite  the  stated  objective   of  the  health  financing  strategy  (2016-­‐2025)  to  mobilize  adequate  resources  for  predictable  sustainable   funding  for  the  health  care  sector  and  increase  public  spending  on  health  to  15  percent  of  government   spending,  it  is  unlikely  to  happen.       Development assistance for health (DAH) Zimbabwe  relies  to  a  large  extent  on  DAH.   In   comparison   to   countries   in   the   region   and   countries   with   similar  GNI  per  capita,  Zimbabwe  has  one  of  the  highest  shares  of  DAH  in  total  health  expenditures.  DAH   is  the  primary  source  of  financing  for  health  in  Zimbabwe,  with  external  resources  accounting  for  more   than  50  percent  of  total  health  expenditures  (THE).  DAH  also  increased  in  per  capita  terms  from  USD  3.3   in  2002  to  USD  34  per  capita  in  20152.   Zimbabwe’s   DAH   is   skewed   towards   disease-­‐specific   programs,   in   particular   HIV/AIDS,   which   absorbed   on   average   59   percent   of   total   DAH   over   the   period   2010-­‐2013.   Other   large   programs   benefiting   from   significant   DAH   in   recent   years   include   child   health   (8   percent   on   average),   maternal   health  (9  percent  on  average)  and  malaria  (7  percent  on  average).  Even  if  Zimbabwe  receives  a  relatively   high  share  of  DAH,  opportunities  for  fiscal  space   are  limited  if  the  majority  of  resources  are  earmarked;   this   limits   resources   available   for   other   programs   and   the   freedom   to   work   with   the   remaining,   non-­‐ earmarked  external  resources.     Introducing new sources of domestic funding for health The  success  of  the  AIDS  levy  in  Zimbabwe,  an  earmarked  tax  option  for  domestically  funding  HIV/AIDS   programs,   has   given   impetus   for   the   earmarking   of   other   taxes   to   increase   domestic   funding   for   health.     ZimAsset  (2013  -­‐2018)  also  suggests  several  health  and  non-­‐health  specific  earmarked  taxes  and   a   nex   tax   on   airtime   and   data   will   be   introduced   in   2017   to   ring-­‐fence   funding   for   drugs   and   equipment.   There   would   also   be   some   tax   latitude   for   Zimbabwe   to   increase   cigarette   taxes.   World   Health   Organization  (WHO)  indeed  recommends  at  least  70  percent  of  excise  tax  in  the  final  consumer  price,   arguing   that   such   tax   would   induce   many   users   to   quit,   reduce   morbidity   and   mortality   and   at   the   same   increasing  cigarette  tax  revenues.  Although  Zimbabwe’s  excise  tax  on  cigarettes  is  largest  compared  to   its  SADC  counterparts  and  comparatively  larger  total  taxes  share,  its  retail  price  of  US$1.30  is  among  the   lowest  in  the  region.     Introducing   or   expanding   Social   Health   Insurance   (SHI)   to   those   uncovered   can   bring   additional   revenues,   and   therefore,   be   a   source   of   fiscal   space.   This   option   is   discussed   in   the   country’s   new   health  financing  policy.   However,  in  the  short  term  introducing  an  SHI  remains  a  difficult  task  given  the   current  economic  situation.  Key  and  fundamental  reasons  working  against  the  introduction  of  an  SHI  in                                                                                                                           2  Estimate  based  on  Donor  mapping   8       the   short   term   range   from   an   economy   which   is   characterized   by   highly   informalized   economy,   high   formal  unemployment,  flat  and  in  some  cases  dipping  tax  and  non-­‐tax  revenues  for  the  past  five  years,   lack  of  a  clear  actuarial  analysis  and  plan  for  the   envisaged  SHI,  to  strong  objection  from  the  main  Labor   union   of   the   proposed   institutional   arrangements   for   collection   and   management   of   the   SHI   funds.   A   more   comprehensive   and   broader   National   Health   Insurance   (NHI)   funded   from   tax   earnings   from   the   formally   employed   and   complemented   with   earmarked   VAT   would   be   more   acceptable   and   feasible   form  of  revenue  mobilization  for  a  country  with  such  a  very  thin  formalized  employment  base.     Options for generating efficiency gains in the public system As  there   are   very   little   options   for   generating   additional   resources   given   the   financial   crisis   hitting   the   country,   improving   efficiency   in   health   spending   is   paramount.   In   a   context   of   constrained   macroeconomic  environment  and  limited  scope  for  additional  resource  generation,  achieving  technical   efficiency  gains  by  doing  things  right  represent  an  attractive  option  to  do  more  with  the  same  level  of   resources.   This   report   highlights   four   major   sources   of   inefficiencies   and   proposes   some   corrective   actions  for:  Public  Finance  Management  (including  budget  preparation,  budget  execution,  transparency,   accountability,  and  procedures);  Drugs  and  equipment;  Human  resources;  and  Hospital  efficiency.     How much fiscal space? Illustrative scenarios for health spending In   the   short   to   medium   term,   economic   growth   will   not   generate   fiscal   space   for   health   if   the   GDP   share   of   public   spending   on   health   remains   unchanged.   On  current  trends,  public  spending  on  health   per   capita   would   slightly   decrease   by   2020   in   constant   terms   and   reach   US$   27   per   capita   in   2020,   compared  to  an  average  of  US$  28  per  capita  between  2012  and  2014.     Increasing   fiscal   space   for   health   through   reprioritization   of   expenditures   could   narrow   the   funding   gap   in   the   health   sector.   By   2020,   reprioritization   of   health   expenditure   even   to   15   percent   of   government   spending   (Abuja   target)   would   not   cover   any   of   the   National   Health   Strategy’s   costed   scenarios 3  as   GDP   and   expenditures   are   not   expected   to   increase   significantly   over   the   period.   Reprioritization   is   also   likely   to   meet   some   resistance   from   other   sectors   of   the   economy   who   are   competing  for  minimal  resources.   Earmarking  cigarette  and  alcohol  excise  taxes  for  health  would  generate  additional  financing  of  US$10   million  and  US$18  million  respectively  by  2020.   While   these   options   will   create   some   fiscal   space,  they   will  only  marginally  contribute  to  narrow  the  funding  gap  for  the  National  Health  Strategy.  Earmarking   1%   of   VAT   would   generate   additional   US$138   million   by   2020 4  and   could   significantly   narrow   the   funding   gap.   However,   the   feasibility   of   earmarking   VAT   to   health   rests   on   the   government   and   other   stakeholders  accepting  such  a  proposal  given  the  current  economic  situation  and  competing  interests.   In  the  short  to  medium  term,  the  National  Health  Strategy  cannot  be  implemented  without  significant   support   from   DAH.   Even   with   the   most   optimistic   scenario   for   domestic   resources   mobilization,   the   funding   gap   for   NHS2   would   average   $660   million   annually.   Continued   support   from   development   partners   to   the   level   registered   between   2014   and   2016   would   not   suffice   to   close   the   funding   gap.   The                                                                                                                           3  The   MoHCC   defined   3   scenarios   to   assess   how   cost   and   impact   differ   for   varying   packages,   targets   and   activities  related  to  the  National  Health  Strategy  (NHS).  Over  a  five-­‐year  period,  the  entire  plan  would   cost  $6.9bn,  $7.6bn  and  $8.5bn  for  NHS  1  (Baseline  scenario),  NHS2  (High  Impact  scenario)  and  NHS  3   (Optimal  scenario)  respectively.     4  Atchison  Actuaries  &  Consultants  with  TARSC  and  MoHCW  (2013)  Projections  for  the  use  of  Earmarked   Value  Added  Tax  for  health  financing  in  Zimbabwe,  Atchison  Actuaries,  TARSC,  MoHCC,  Harare   9       fact   that   even   most   optimistic   projections   and   assumptions   cannot   cover   the   cost   of   NHS2   by   2020   highlights   the   critical   need   for   efficiency   gains   within   the   health   sector.   If   such   gains   are   not   achieved,   it   is  likely  that  the  health  financing  burden  will  fall  on  households,  creating  financial  barriers  to  health  care   and  inequities  which  would  go  against  the  principles  of  the  health  financing  policy.       Way forward The  current  financial  crisis  and  macroeconomic  situation  in  Zimbabwe  do  not  constitute  an  enabling   environment  for  generating  fiscal  space  for  health.  As  overall  Government’s  revenues  and  expenditures   will   not   increase   in   the   short   to   medium   term,   expanding   fiscal   space   for   health   would   require   reprioritization  of  health  in  total  government  spending.   Generating  sector  specific  resources  represents   an  attractive  way  of  generating  fiscal  space  for  health  in  the  context  of  Zimbabwe.  Expanding  revenues   from  VAT  and  possibly  earmarking  them  for  health  seems  to  be  a  medium  term  rather  than  a  short  term   option.   Getting  more  out  of  the  current  level  of  resources  flowing  to  the  sector  by  achieving  efficiency  gains   seems  to  be  the  most  urgent  and  plausible  option  for  generating  fiscal  space  for  health  in  Zimbabwe   given   the   current   financial   crisis.   Looking   at   the   disease   profile   and   health   seeking   behaviors   of   the   poorest,   it   is   necessary   to   reallocate   more   resources   to   the   lowest   levels   of   care,   where   most   of   the   vulnerable   go   and   where   the   majority   of   cases   can   be   treated   at   a   lower   cost.   Pulling   out   some   resources   from   curative   to   preventive   services   could   also   avoid   a   large   burden   on   health   systems   and   health   financing   by   reducing   the   incidence   of   NCDs   and   communicable   diseases   which   are   costly   to   treat.   Improving   budget   processes,   from   planning   to   execution   and   implementing   PFM   reforms   could   better   turn   allocated   funds   into   inputs.   Implementing   recommendations   from   the   AG’s   reports   related   to   budget  control  procedures,  accounting  procedures,  governance  and  procurement  system  will  be  critical   to  move  toward  greater  technical  efficiency.  Strengthening  program  based  budgeting  and  moving  away   from  line  item  budgeting  will  allow  monitoring  progress  and  tying  resources  for  results.     The  large  wage  bill  represents  a  major  constraint  for  the  country  as  a  whole  and  the  health  sector  in   particular   and   no   substantive   efficiency   gain   could   be   achieved   within   the   sector   without   implementing  the  public  sector  wage  reform.  It  is  critical  that  the  Government  defines  a  clear  strategy   for  the  management  of  human  resources  for  health  that  could  include  converting  some  of  the  posts  as   more  low  cost  staff  are  needed  at  the  lower  levels  of  care.     Addressing   issues   affecting   the   supply   chain   would   allow   achieving   major   efficiency   gains.   The   existence  of  parallel  distribution  systems  has  a  direct  impact  of  costs  and  availability  of  drugs.  Vertical   programs   tend   to   fund   drugs   in   an   uncoordinated   way   which   creates   parallel   distribution   systems.   Addressing  these  issues  would  require  reforms  from  the  push  system  back  to  the  pull  system  that  used   to  work  well  before  2008  and  greater  coordination  of  various  financing  streams  and  distribution  systems   for  commodities.     10           1. Introduction Fiscal   space   is   “the   capacity   of   government   to   provide   additional   budgetary   resources   for   a   desired   purpose   without   any   prejudice   to   the   sustainability   of   its   financial   position”5.   Creating   fiscal   space   makes  additional  resources  available  for  government  spending  on  health.     There   are   different   ways   in   which   a   FIGURE  1:  EXAMPLE  O F  A  FISCAL  SPACE  D IAMOND   government   can   create   fiscal   space.   Government   can   generate   fiscal   space   for   health   through   five   pillars:   (i)   establishing   conducive   macroeconomic   and   fiscal   conditions;   (ii)   prioritizing   health   within   the   government   budget;   (iii)   allocating   health   sector-­‐specific   financing   from   other   sources;   (iv)  negotiating  higher  development  assistance   for   health;   and   (v)   improving   efficiency   of   outlays  for  health  (Figure  1).       Some   options   reside   primarily   outside   the   control   of   the   health   sector.   For   example,   general   macroeconomic   policies   and   conditions,   political   economy   and   cross-­‐ sectoral   trade-­‐offs   all   impact   government’s     ability  to  manage  fiscal  space.  Nevertheless,  it   Source:  Tandon  et  al.  2010   is  important  to  analyze  implications  of  general   Note:  the  shaded  area  is  illustrative  and  does  not  represent   the  situation  of  Zimbabwe   macroeconomic   and   political   factors   on   the   health   sector.   Areas   (iv)   and   (v)   are   in   the   direct  domain  of  the  health  sector  and  merit  particular  attention  given  that  they  provide  the  potential   for  sector-­‐specific  resources6.     Several   of   the   pillars   of   fiscal   space   are   likely   to   be   correlated   in   either   direction.  A  recession  in  the   domestic   economy   may   offset   increases   planned   as   part   of   a   re-­‐prioritization   of   health   in   the   government  budget.  It  is  important  to  bear  in  mind  that  any  fiscal  space  assessment  for  health  analysis   ought  not  to  presuppose  that  additional  resources  for  health  would  become  available  or  realizable  and   that   sometimes   not   all   pillars   are   feasible   choices.   It   is   entirely   plausible   that   in   some   countries   the   government’s  resource  envelope  for  health  will  remain  limited  in  the  short-­‐  to  medium-­‐term7.     There  is  a  growing  interest  in  fiscal  space  analysis  for  health  in  low  and  middle-­‐income  countries.   As   countries   are   faced   with   the   challenge   of   increasing   domestic   spending   on   health   in   the   wake   of   decreasing   external   assistance,   underfunding   of   the   sector,   unmet   needs   and   poor   health   outcomes,   fiscal   space   analysis   is   a   useful   tool   for   assessing   a   country’s   constraints   and   identifying   areas   for   generating  additional  health  sector  resources.                                                                                                                           5  P.  Heller,  The  prospects  of  creating  ‘fiscal  space’  for  the  health  sector.  Health  Policy  Plan.  (March  2006)  21  (2):  75-­‐ 79   6  Tandon,   A.   and   C.   Cashin   (2010)   Assessing   Public   Expenditure   on   Health   From   a   Fiscal   Space   Perspective,   Washington  DC,  World  Bank.   7  Ibid.   11       The  fiscal  space  analysis  for  the  health  sector  in  Zimbabwe  is  timely  and  the  need  for  such  analysis  has   been  strongly  expressed  by  the  government  and  its  development  partners.   This   imperative   is   justified   on  multiple  grounds.  As  the  country  is  hit  by  an  economic  crisis  resulting  in  lower  revenues  and  cuts  in   expenditures,  understanding  the  consequences  and  assessing  coping  strategies  for  the  health  sector  is   critical.   As   the   country   engages   in   the   implementation   of   its   new   health   sector   strategy   which   sets   ambitious   targets   in   terms   of   health   outcomes   towards   Universal   Health   Coverage,   it   is   also   critical   to   explore  ways  to  increase  resources  for  the  sector,  even  in  a  constrained  macro-­‐fiscal  environment.  It  is   also   important   to   highlight   the   major   sources   of   inefficiencies   currently   affecting   health   financing   to   identify  areas  for  improvement  to  increase  the  value  for  money  of  resources  available  in  the  sector.  In   that  context,  the  fiscal  space  analysis  will  be  critical  to  generate  evidence  to  inform  MOFED  and  MOHCC   on  short-­‐term  and  medium-­‐term  options  to  generate  resources  for  the  health  sector.  It  will  also  provide   evidence  for  government  partner  consultations  on  short-­‐term  options  and  choices  in  light  of  declining   public   financing   for   health   and   a   constrained   economic   growth   outlook.   The   Fiscal   Space   Analysis   is   also   a  critical  technical  piece  to  provide  evidence  to  inform   the  development  of  the  health  financing  strategy   in   Zimbabwe.   It   will   complement   other   technical   work   on   health   financing   such   as   the   Public   Expenditure  Review,  the  National  Health  Accounts  and  the  Donor  Mapping.  Finally,  beyond  the  health   financing  strategy,  the  Fiscal  Space  Analysis  will  also  provide  evidence  to  the  Government  to  guide  policy   dialogue  on  health  sector  reforms  and  planning.     As   the   world   transitions   from   Millennium   Development   Goals   (MDGs)   to   Sustainable   Development   Goals   (SDGs),   Zimbabwe   is   left   with   an   unfinished   Millennium   Development   agenda,   as   the   country   did  not  meet  some  MDG  targets.  According  to  the  preliminary  results  for  the  Zimbabwe  DHS  for  2015,   maternal  mortality  ratio  remains  high  at  651  deaths  per  100,000  (versus  target  174  deaths  per  100,000   live  births);  under  five  child  mortality  rate  is  at  69  deaths  (versus  target  of  43  per  1000  live  births);  the   nutritional   status   of   children   remains   problematic;   and   HIV   and   AIDS,   TB   and   malaria   remain   major   causes  of  morbidity  and  mortality.   Total   health   expenditure   per   capita   compares   favorably   with   the   Sub-­‐Saharan   Africa   average   but   spending   is   potentially   regressive   due   to   a   high   burden   of   household   out-­‐of-­‐pocket   (OOP)   expenditures  at  point  of  care.   The  2015  NHA  estimated  that  OOP  amounted  to  $24.5  and  26%  of  THE.   MOHCC  spending  on  health  accounted  for  7–8  percent  of  total  government  spending  over  the  past  years   and  most  government  expenditure  on  health  goes  to  salaries.  As  per  the  health  PER  data  (World  Bank,   2015),   Official   Development   Assistance   (ODA)   disbursements   for   health   increased   by   a   factor   of   five   between  2002  and  2010  and  further  doubled  in  2012  to  reach  US$428  million;  this  is  equivalent  to  the   total   amount   spent   by   the   government   on   budget   that   year.   Because   ODA   is   unpredictable   and   unsustainable,   the   Government   of   Zimbabwe   (GOZ)   must   explore   innovative   and   sustainable   ways   of   funding,   such   as   subsidies,   exemptions   or   prepayment   mechanisms,   and   gradually   reduce   its   heavy   reliance  on  external  funding  and  out  of  pocket  payments.   Sluggish   overall   economic   performance   and   recent   economic   developments   further   complicate   the   situation.  Economic  growth  fell  to  1.1  percent  in  2015  and  declined  further  in  2016,  partly  due  to  the   continued  drought   and  financial  crisis.  Growth  is  held  back  by  low  investment  and  ongoing  balance  of   payment   adjustment.   The   country   is   in   extensive   debt.   Soaring   unemployment   means   the   majority   of   the   population   is   engaged   in   informal   work.   Such   a   macro-­‐economic   environment   requires   innovation   and  effective  partnerships  between  government  and  various  partners—including  communities—in  both   funding  and  providing  health  services  to  the  population.  In  the  absence  of  policy  reforms,  the  outlook   remains  difficult  and  per  capita  income  should  barely  remain  constant.  In  that  context,  innovative  fiscal   policy  is  needed  (World  Bank,  2016).     12       In  2016  the  GOZ  embarked  on  development  of  a  comprehensive  Health  Financing  Policy.   The   goals   of   the  policy  are  to:     • Mobilize  adequate  resources  for  predictable  sustainable  funding  for  the  health  care  sector;     • Ensure   effective,   equitable,   efficient   and   evidence   based   allocation   and   utilization   of   health   resources;     • Enhance   the   adequacy   of   health   financing   and   financial   protection   of   households   and   ensure   that  no-­‐one  is  impoverished  through  spending  on  health  by  promoting  risk  pooling  and  income   cross  subsidies  in  the  health  sector;     • Ensure   the   purchasing   arrangements   and   provider   payment   methods   emphasize   incentivizing   provision  of  quality,  equitable  and  efficient  health  care  services;     • Strengthen   institutional   framework   and   administrative   arrangements   to   ensure   effective,   efficient   and   accountable   links   between   revenue   generation   and   collection,   pooling   and   purchasing  of  health  services.   The  Ministry  of  Health  and  Child  Care  (MoHCC)  is  also  developing  a  National  Health  Strategy  (2016– 2020)   to   guide   the   next   five   years   of   government   health   sector   intervention.   As  part  of  this  process,   government,  with  the  support  of  the  World  Bank,  costed  Zimbabwe’s  National  Health  Strategy  (NHS)  for   the  period  2016  to  2020  and  defined  three  scenarios  with  varying  levels  of  ambition  to  assess  how  cost   and   impact   differ   for   alternative   packages,   targets   and   activities.   Over   the   five-­‐year   period,   the   entire   plan   would   cost   $6.9bn,   $7.6bn   and   $8.5bn   for   the   three   scenarios   respectively.     This   allows   for   informed   decision-­‐making   and   selection   of   policy   scenario   and   target   options   to   incorporate   into   final   plans  for  activities  and  budgets.       13       2. Macroeconomic conditions and fiscal space for health The   macroeconomic   environment   impacts   fiscal   space   for   health.   One   key   macroeconomic   determinant   of   fiscal   space   is   economic   growth.   National   income   is   a   key   determinant   of   public   and   private   spending   on   health   because   economic   growth   typically   increases   public   revenues   and   expenditures  and  allows  for  increased  public  spending  on  health.  Additional  macroeconomic  factors  of   importance   for   fiscal   space   include   a   country’s   debt   level,   deficit,   inflation   and   labor   market   performance.     TABLE  1:  INTERNATIONAL  A ND  R EGIONAL   Between   2010   and   2014,   Zimbabwe’s   economy   COMPARISON   O F   G DP   ( 1998-­‐2015     A VERAGE )   enjoyed   strong   growth   but   recent   economic       GDP  Growth   GDP  per  capita   updates   point   to   a   significant   downturn   in   2015       Mean   SD   Mean   SD   and   2016.   After   the   2009   crisis,   the   dollarization   Angola   7.49   5.5   4.72   5.7   stimulated   the   economic   growth   between   2009   Botswana   4.16   4.3   2.87   4.3   and   2012   but   macro   challenges   have   since   DRC.   4   4.7   1.18   4.7   deepened   and   growth   has   declined.   Economic   Lesotho   3.73   1.3   3.49   1.3   growth   fell   to   1.1   percent   in   2015   and   further   Madagascar   2.62   5.3   -­‐0.25   5.4   declined  to  a  projected  0.5  percent  in  2016.  Since   Malawi   4.09   3.1   1.47   3.1   2015,   per   capita   GDP   growth   is   negative.   Per   Mauritius   3.81   1.5   3.36   1.5   capita  GDP  amounted  to  US$  872  in  2015  and  it  is   Mozambique   6.93   1.9   4.28   1.9   expected   to   decline   in   constant   terms   to   reach   Namibia   4.15   1.6   2.79   1.7   $759   in   2021   (Figure   2)  8.   Between   1998   and   2015,   South  Africa   2.93   1.7   1.59   1.8   Zimbabwe’s   mean   GDP   growth   was   lower   than   Swaziland   2.94   1.1   1.67   1.4   Sub-­‐Saharan   Africa   and   Low   Income   Country   Tanzania   5.93   1   3.55   1.1   averages  and  below  other  countries  in  the  region.   Zambia   6.05   1.7   3.37   1.7   Zimbabwe   also   has   the   most   volatile   GDP   growth   Zimbabwe   -­‐1.75   9.2   -­‐2.5   8.9   in   the   region   as   reflected   by   the   high   standard   Low  income   4.31   6.7   2.22   7.4   deviation   (Table   1).   The   inflation   remained   Sub-­‐Saharan  Africa   3.97   6.6   1.62   6.9   negative   due   to   the   appreciating   U.S.   dollar   and   Source:  World  Development  Indicators  database   lower   commodity   prices.   This   price   adjustment   Note:  data  present  averages  for  the  period  1998-­‐2015   however   has   had   only   limited   impact   on   competitiveness  (IMF  2016).  As  a  result  of  the  financial  crisis  and  drop  in  agricultural  output,  poverty  is   increasing:  the  number  of  extremely  poor  increased   from  3  million  in  2012  to  3.23  million  in  2015  and  is   expected  to  increase  further  to  3.36  million  in  2016.   The  financial  crisis  dampens  economic  prospects.  The  crisis  stems  from  a  large  increase  in  Government   borrowing   from   March   2015   to   June   2016   from   the   Banking   sector,   leading   to   severe   liquidity   shortages   in  the  financial  sector.  Zimbabwe’s  external  position  is  challenging:  imports  are  expected  to  fall  by  nearly   a   fifth   in   2016   due   to   the   rising   cost   of   capital   and   temporary   restrictions   on   imports   of   basic   goods   competing  with  local  productions;  exports  are  also  expected  to  fall  by  9  percent  in  2016  as  a  result  of   the  lack  of  credit  and  continued  drought.  Economic  growth  is  expected  to  be  negative  in  2017  and  the   IMF   forecasts   a   0.4   percent   average   economic   growth   between   2017   and   2021   (Figure   3).   Inflation   is   projected   to   remain   negative   in   2016,   but   to   pick   up   over   the   medium   term.   According   to   the   IMF,   risks   in   the   medium   term   will   stem   mainly   from   continued   adverse   weather   conditions,   fiscal   challenges,   weak  commodity  prices  and  policy  implementation  in  a  difficult  political  environment.                                                                                                                             8  IMF,  October  2016  WEO.     14       FIGURE  2:  GDP  P ER  C APITA  (1998-­‐2021)   FIGURE   3:   ANNUAL   ECONOMIC   GROWTH   (2009-­‐   2021)       1,400   14    11.9       GDP  per  capita  (Constant    11.4   Real  GDP  growth  (annual  %   1,200   12    10.6     1,000   10    7.5     800   8   USD)   change)   600   6    4.5      3.8     400   4   200    1.1     .5      1  1.3    1   .5     .6     2    0  0.0     0   0   1998   2006   2008   2016   2018   2000   2002   2004   2010   2012   2014   2020   2009   2011   2013   2015   2016   2017   2018   2019   2021   2010   2012   2014   2020   -­‐2     -­‐4    (2.5)     Source:  IMF  WEO   Source:  World  Bank  PER  (for  2015  and  2016)  and  IMF   WEO     FIGURE   4:   ELASTICITY   OF   PUBLIC   HEALTH   SPENDING   TO   G DP   P ER   C APITA   ( 2009-­‐2013)   In   Zimbabwe,   economic   growth   has   a   positive   impact   on   public   spending   for   health.   Public   Government spending on health per capita in USD 30 spending  has  grown  faster  than  GDP  per  capita  in   the   past.   Over   2009-­‐2013,   the   elasticity   of   public   25 spending   on   health   to   GDP   per   capita   was   2.1   Elasticity=2.1 implying   that   for   every   1   percent   change   in   GDP   per  capita,  public  spending  on  health  changed  by   20 2.1  percent  (Figure  4).     15 Fiscal  revenues,  which  have  been  a  major  source   of   budget   financing,   are   leveling   off   and   the   financial   crisis   is   leading   to   a   significant   10 700 800 900 1000 1100 GDP per capita in USD deterioration   in   the   Government’s   fiscal   Source: World Development Indicators database   position.   The   country’s   revenue   collection   recovered   significantly   between   2011   and   2015   and   the   revenue-­‐to-­‐GDP-­‐ratio   is   now   comparable   to   most  regional  peers.  In  2015,  revenues  were  estimated  at  27  percent  of  GDP  (Figure  5).  Most  revenues   in   Zimbabwe   are   tax   revenues   (Figure   6)   and   tax   revenue   collection   as   a   percentage   of   GDP   was   the   second  highest  among  SADC  countries  between  2011  and  2015.  Independent  of  increases  in  GDP,  higher   revenue  share  of  GDP  could  result  in  fiscal  space  even  if  there  was  no  change  in  health’s  share  of  general   government  expenditure.  However  Zimbabwe’s  tax  collection  as  a  share  of  GDP  is  already  high  by  the   Sub-­‐Saharan   Africa   standard   and   IMF   projections   for   government   revenues   predict   a   decline   and   stabilization   around   23   percent   of   GDP   for   the   period   2017-­‐2021.   During   the   same   period,   expenditures   are   projected   to   decline   and   stagnate   at   26   percent   of   GDP   generating   a   3   percent   annual   deficit   on   average.   The   scope   for   fiscal   space   generation   from   revenues   is   thus   insignificant.   However,   the   increasing  revenues  from  mineral  rents  could  be  a  potential  source  to  tap  (Figure  7).  The  IMF  noted  that   increasing   transparency   and   accountability   in   the   diamond   industry   could   ensure   a   meaningful   and   monitorable  contribution  of  the  sector  to  government  finances9.                                                                                                                             9  IMF,  2016.  IMF  Country  report  No.  16/109   15       FIGURE   5:   TREND   REVENUES   AND   EXPENDITURES   FIGURE   6:   REVENUES   BY   SOURCE   (AS   A   SHARE   OF   GDP  R ATIOS   GDP)   35   30%   30   25   %  of  GDP   20%   %  of  GDP   20   15   10%   10   5   0%   0   2012   2013   2014   2015   2016   2017   2018   2019   2020   2021   (est.)   Personal  income  tax   Corporate  income  tax   General  government  revenue   Other  direct  taxes   Customs   General  government  total  expenditure   Excise   VAT     Other  indirect  taxes   Non  tax  revenue     F IGURE   7 :   S ELECTED   R ENTS   A S   S HARE  O F   G DP   ( 1990-­‐2015)   10 8 Rent as % of GDP 6 4 2 0 1990 1995 2000 2005 2010 year Mineral rents (% of GDP) Coal rents (% of GD Forest rents (% of GDP) Source: IMF WEO database Efforts   should   focus   on   improving   the   efficiency   of   tax   administration   rather   than   increasing   tax   pressure.  Zimbabwe  is  leading  SADC  countries  in  VAT  collection  as  a  share  of  GDP.  Zimbabwe’s  VAT  rate   is  among  the  top  six  at  15  percent  –  the  required  rate  under  SADC  macroeconomic  convergence  criteria.   The   IMF   recommended   that   the   review   of   the   tax   system   focus   on   broadening   the   tax   base,   particularly   the  VAT,  and  on  improving  tax  administration  (e.g.  simplifying  procedures  and  addressing  areas  where   collection   efficiency   can   be   improved).   Finally,   raising   non-­‐tax   revenues,   currently   representing   one   percent  of  GDP  and  below  potential,  could  also  be  an  option  for  generating  additional  resources10.  This   could   include   foreign   aid,   loans,   revenue   from   state-­‐owned   enterprises,   revenues   from   investment   funds,  revenues  from  sales  of  state  assets,  etc.   The  growth  of  the  informal  economy  hinders  broadening  the  tax  base.  Unemployment  has  been  rising   in  recent  years,  and  employment  has  been  shifting  to  the  informal  sector.  In  2014,  the  unemployment   rate   rose   to   11.3   percent,   from   10.7   percent   in   2011   (ZIMSTAT   2015).   Of   the   6.3   million   employed,   94.5   percent   were   in   informal   employment,   compared   with   84   percent   in   2011   (ZIMSTAT   2015).   Moving   forward,  it  is  necessary  to  encourage  and  incentivize  the  informal  sector  to  transition  from  informality  to   formality  to  increase  contributions  to  the  national  treasury.                                                                                                                           10  IMF,  2016.  IMF  Country  report  No.  16/109   16       Zimbabwe’s   large   public   debt   burden   is   a   significant   constraint   on   economic   growth.   High   levels   of   deficit  and  debt  pose  a  threat  to  fiscal  sustainability  (i.e.  a  government’s  ability  to  maintain  current  fiscal   policies,   such   as   spending   and   tax   policies,   without   any   major   future   adjustments).   Zimbabwe   is   currently  servicing  its  domestic  public   debt  but  the  country  continues  to  accumulate  arrears  on  most  of   its   external   debt   which   is   estimated   at   60   percent   of   the   GDP.  In   the   coming   years,  Zimbabwe’s   external   debt   is   expected   to   average   58   percent   of   GDP,   way   above   the   threshold   recommended   by   IMF   for   low-­‐   and  lower-­‐middle-­‐income  countries11.  The  reengagement  process  could  potentially  bring  fresh  resources   to   the   country.   However,   in   addition   to   repaying   arrears   to   International   Financial   Institutions,   a   sufficiently   ambitious   reform   program   and   broad   support   from   creditors   are   also   prerequisite   for   a   financial  arrangement  with  the  IMF.     In  sum,  the  current  financial  crisis  of  Zimbabwe  and  the  challenging  macroeconomic  prospects  offer   limited   potential   for   greater   fiscal   space   due   to   slow   growth,   high   debt   and   high   taxation   levels.   In   such  a  context,  only  marginal  gains  can  be  obtained  even  if  the  elasticity  of  public  health  expenditure  to   GDP   is   relatively   favorable   to   the   sector.   Rising   unemployment   and   growth   of   the   informal   sector   can   further   impede   the   already   restricted   fiscal   space.   Concerted   efforts   to   improve   efficiency   in   revenue   collection  and  expenditure  will  make  better  use  of  existing  resources  in  the  medium  term.                                                                                                                               11  IMF,  October  2016  WEO   17       3. Prioritizing health in the government’s budget In  theory,  the  limited  fiscal  space  for  health  generated  from  economic  growth  and  revenue  collection   can   be   supplemented   by   increasing   the   budget   share   allocated   to   health.   Government   spending   on   health   often   reflects   overall   government   commitment   to   and   prioritization   of   health—the   budget   for   which  competes  with  other  sectors  such  as  education,  infrastructure  or  agriculture.     In   Zimbabwe,   government   spending   on   health—as   a   share   of   total   government   spending—is   low   compared  to  that  of  countries  in  the  region  and  of  a  similar  income  level.   In   2014,   in   the   SADC   group,   only  the  Democratic  Republic  of  Congo  (DRC)  allocated  fewer  public  resources  for  health  as  a  share  of   total   government   spending   than   Zimbabwe 12 .   Public   spending   on   health   is   not   only   a   matter   of   resources   available.   Mozambique,   Madagascar,   Zambia,   Tanzania,   Lesotho   and   Malawi,   which   have   comparable   income   levels,   each   spend   more   on   health   than   Zimbabwe   and   get   closer   to   the   Abuja   target   of   15   percent   budget   allocation   to   health,   reflecting   their   governments’   commitment   to   the   sector   (Figure   8).   Government   spending   on   health  in   Zimbabwe   is   showing   signs   of   weakness   from   2013   onwards.  In  the  past  five  years,  it  reached  an  average  of  7.3  percent  of  government  spending  (Figure  9).       FIGURE   8:   INTERNATIONAL   COMPARISON :   FIGURE   9:   TREND   IN   GOVERNMENT   SPENDING   ON   GOVERNMENT  SPENDING  O N  H EALTH  (2014)   HEALTH   ( 2004-­‐2014)   Gov. spending on health as % Total Gov. spending 20 Gov  spending  on  Health  as  a   share  of  Total  Gov  spending   MWI SWZ 8.2   8   8   7.6   7.3   15 LSO NAM ZAF 6.6   6.5   TZA ZMB MDG 10 MUS MOZ ZWE BWA 5 ZAR 2009   2010   2011   2012   2013   2014   2015   0 0 2000 4000 6000 8000 10000 Year   GNI per capita Source: World Development Indicators database       Source:  MOFED  (2015)   In  terms  of  spending,  Zimbabwe’s  government  tends  to  prioritize  other  major  sectors  over  the  health   sector.   The   share   of   health   affairs   and   services   in   central   government   expenditures   decreased   from   8   percent  in  2009  to  6  percent  in  2014.  Over  the  same  period  the  share  of  education  affairs  and  services   rose   from   22   percent   to   25   percent;   in   2014,   central   government   spending   on   education   was   more   than   four   times   the   level   of   spending   on   health.   Spending   on   other   priority   sectors,   such   as   general   public   services,  public  order,  defense  and  agriculture  fluctuated  over  the  period  (Figure  10).                                                                                                                             12  This  low  level  of  public  spending  can  partially  be  explained  by  the  fact  that  DAH  is  mostly  off-­‐budget   in  Zimbabwe.   18       F IGURE   1 0:   C ENTRAL   G OVERNMENT   S PENDING   O N   H EALTH   R ELATIVE   T O   O THER   P RIORITY   S ECTORS   ( 2009-­‐2014)   50%   %    of  Central  Government   40%   expenditure   30%   25%   26%   25%   25%   22%   23%   20%   8%   8%   8%   7%   7%   6%   10%   0%   2009   2010   2011   2012   2013   2014   General  public  services   Defense   Public  order  and  safety   Educaoon   Health   Agriculture,  forestry,  fishing  and  hunong     Source:  National  accounts  2009-­‐2014  reports  (ZimStat  2015)   Government   spending   on   health   as   a   share   of   GDP   is   lower   than   the   pre-­‐crisis   level,   reflecting   variation   in   prioritization   of   health.  In  2014,  government  spending  on  health  reached  2.47  percent  of   GDP,  compared  to  2.74  percent  in  2005  and  4.37  percent  in  2000.  During  the  crisis,  spending  on  health   as  a  share  of  GDP  dropped  significantly,  but  increased  when  the  economy  began  to  recover,  yet  not  to   pre-­‐crisis  levels.  Interestingly,  the  trend  in  total  health  expenditure  followed  a  similar  pattern  over  time   (Figure   11).   Between   1998   and   2014,   Zimbabwe’s   public   spending   on   health   averaged   2.39   percent   of   GDP,   a   level   comparable   to   SSA   average   but   1   percentage   point   lower   than   the   average   for   LIC   (3.52   percent)  (Table  2).     Current   trends   suggest   limited   opportunities   to   improve   prioritization   of   the   health   sector   despite   the   need  for  increased  resources  to  implement  the  National  Health  Strategy     Historical   data   shows   that   in   difficult   economic   times   lower   priority   is   given   to   the   health   sector,   and   an   increased   share   of   the   budget   is   used   for   debt   servicing   (interest   payment).   MoHCC   budget   for   2017   of   USD   282   million   (out   of   which  only  USD  59  million  are  non-­‐wage  expenditures)  reflect  the  further  decline  of  MoHCC  budget  in   absolute   terms   and   the   absence   of   reprioritization   in   favor   of   the   health   sector   as   it   continues   to   represent  8  percent  of  total  government  budget.  It  is  worth  mentioning  though  that  MoHCC  is  making   progress   in   evidence-­‐based   planning   and   budgeting   as   it   was   able   to   use   the   NHS   costing   and   other   strategic   documents   to   support   its   pitch   during   the   December   2016   budget   discussions.   This   however   did   not   translate   into   increased   priority   as   MoFED   was   faced   with   a   difficult   economic   situation   and   could  only  ensure  key  budget  categories  for  each  sector.  Therefore,  despite  the  stated  objective  of  the   health   financing   strategy   (2016-­‐2025)   to   mobilize   adequate   resources   for   predictable   sustainable   funding  for  the  health  care  sector  and  increase  public  spending  on  health  to  15  percent  of  government   spending,  it  is  unlikely  to  happen.             19         FIGURE   11:   GOVERNMENT   SPENDING   ON   HEALTH   AND   TABLE  2:  INTERNATIONAL  A ND  R EGIONAL   TOTAL  HEALTH  EXPENDITURE  AS  SHARE  OF   GDP   (2000-­‐ COMPARISON   O F   G DP   ( A VERAGE   1 998-­‐2014)   2014)     GGHE  (%   THE  (%  GDP)   GDP)   8 Angola   2.34   3.91   Botswana   3.33   5.13   7 DRC   0.78   3.47   6 Share of GDP (%) Lesotho   5.24   8.34   5 Madagascar   2.31   4.59   4 Malawi   4.31   7.42   3 Mauritius   2.12   4.27   2 Mozambique   3.39   5.68   1 Namibia   4.32   7.20   0 2000 2005 2010 2015 South  Africa   3.65   8.27   Year Swaziland   4.45   6.78   THE as % of GDP Gov. spending on health as % of GDP Tanzania   2.19   4.19   Source: World Development Indicators database Zambia   2.92   5.95     Zimbabwe   2.39   6.15   Low  income   3.52   5.93   SSA   2.42   5.50           20       4. Development assistance for health (DAH)     Increasing  revenues  through  development  assistance  for  health  (DAH)  may  be  an  option  for  increasing   fiscal   space.   While   the   level   of   such   assistance   is   important,   the   predictability,   flexibility   and   composition  of  the  assistance  are  equally  important.  A  highly  unpredictable  inflow  of  foreign  aid  renders   long-­‐term   planning   a   challenge,   and   foreign   aid   that   comprises   primarily   of   loans   increases   debt-­‐ servicing  costs.  Similarly,  foreign  aid  that  is  tied  to  specific  programs  (such  as  immunization  or  HIV/AIDS)   may  lack  the  flexibility  to  meet  to  country’s  changing  demand  for  overall  health  resources.   Zimbabwe  relies  to  a  large  extent  on  DAH.   In   comparison   to   countries   in   the   region   and   countries   with   similar   GNI   per   capita,   Zimbabwe   has   one   of   the   highest   shares   of   DAH   in   total   health   expenditures   (Figure   12).   DAH   is   the   primary   source   of   financing   for   health   in   Zimbabwe,   with   external   resources   accounting  for  more  than  50  percent  of  total  health  expenditures  (THE)  (Figure  13).  As  observed  in  other   developing   countries,   rising   DAH   may   give   the   perception   that   enough   resources   exist   in   the   sector   because   of   donor   contributions   and   Ministries   of   finance   consequently   channel   resources   that   would   have   been   allocated   for   health   to   other   sectors.   To   minimize   this   problem,   Zimbabwe   could   more   FIGURE   12:   REGIONAL   COMPARISON :   EXTERNAL   FIGURE   13:   TOTAL   HEALTH   SPENDING   BY   FUNDING   ASSISTANCE   AS   A   SHARE   OF   TOTAL   HEALTH   SOURCE   ( 2014-­‐2017)   EXPENDITURE   ( 2011)     80 MOZ External assistance as % THE (2011) ZAR MWI ZWE 60 40 TZA MDG ZMB LSO 20 SWZ NAM BWA MUS ZAF 0 0 2000 4000 6000 8000 GNI per capita (2011) Source: World Development Indicators database     Source:  MoHCC.  Round  2  resource  mapping  (2016)   Note:  2014  and  2015  data  are  actual  expenditures.  2016   and  2017  data  are  planned  expenditures.   systematically  reflect  resources  from  development  partners  as  part  of  country’s  annual  health  budget   Total   DAH   has   increased   significantly   over   time.   DAH  peaked  after  2005  to  reach  more  than  USD  430   million  in  2012  (Figure  14).  DAH  also  increased  in  per  capita  terms  from  USD  3.3  in  2002  to  USD  34  per   capita  in  201513.   Zimbabwe’s   DAH   is   skewed   towards   disease-­‐specific   programs,   in   particular   HIV/AIDS,   which   absorbed   on   average   59   percent   of   total   DAH   over   the   period   2010-­‐2013.   Other   large   programs   benefiting   from   significant   DAH   in   recent   years   include   child   health   (8   percent   on   average),   maternal   health  (9  percent  on  average)  and  malaria  (7  percent  on  average)  (Figure  15).  Even  if  Zimbabwe  receives   a  relatively  high  share  of  DAH,  opportunities  for  fiscal  space  are  limited  if  the  majority  of  resources  are   earmarked;   this   limits   resources   available   for   other   programs   and   the   freedom   to   work   with   the                                                                                                                           13  Estimate  based  on  MoHCC  Round  1  resource  mapping  (2016)   21       remaining,   non-­‐earmarked   external   resources.   The   fact   that   most   DAH   is   off-­‐budget   also   limits   opportunities   for   expanding   fiscal   space,   as   off-­‐budget   resources   make   it   difficult   to   plan   and   track   resources  spent  on  health.       FIGURE   14:   TOTAL   DEVELOPMENT   ASSISTANCE   ON   FIGURE   15:   DEVELOPMENT   ASSISTANCE   ON   HEALTH   HEALTH   T O   Z IMBABWE   ( 1990-­‐2013)   ON   M AJOR   P ROGRAMS   ( 2000-­‐2013)   500 500 400 400 DAH in million USD Millions of 2015 US Dollars 300 300 200 200 100 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 HIV/AIDS Child Health 0 Maternal Health Malaria 1990 1993 1996 1999 2002 2005 2008 2011 2014 Year Tuberculosis Health system strengthening     Source:  IHME   The   reliance   on   external   funding   for   key   cost   categories   represents   a   challenge   in   terms   of   sustainability   and   predictability   of   health   system   funding.   The   MoHCC   budget   is   mostly   spent   on   salaries  and  benefits  with  the  remaining  share  of  expenditure  meeting  other  related  operational  costs   and  capital  costs;  other  costs  are  covered  by  external  funders.   Funding  from  external  partners  is  critical   for   drugs   (41   percent   of   DAH   compared   to  6   percent   of   MoHCC   budget).   Some   critical   items—such   as   research  and  M&E  or  infrastructure  and  equipment  related  expenses—are  only  paid  for  by  DAH  (Figure   16).     External   funding   is   skewed   towards   a   few   health   programs,   generating   heavy   reliance   on   DAH   for   those   programs   and   a   potential   risk   of   funding   gap   in   the   event   of   decreasing   DAH.   HIV,   vaccines,   malaria,   reproductive   and   maternal,   neonatal   and   child   health   (MNCH)   and   TB   programs   are   highly   donor   dependent   (Figure   17)   and   there   is   no   graduation   plan   for   decreasing   external   funding.   This   pattern  creates  a  real  tension  around  Zimbabwe’s  health  financing.     22       FIGURE   16:   FUNDING   BREAKDOWN   BY   COST   FIGURE   17:   FUNDING   BREAKDOWN   BETWEEN   CATEGORIES   ( 2016)   GOVERNMENT   AND   EXTERNAL   FUNDERS   BY   PROGRAM   F UNCTION   ( 2016)       Source:  MoHCC.  Round  2  resource  mapping  (2016)     While   DAH   has   provided   fiscal   space   for   health   and   FIGURE   18:   HDF   FUNDING   COMMITMENTS   remains   an   important   source   of   funding,   future   increases   AND   G AP   ( 2016-­‐2018)   are   unlikely.   Figure  13  suggests  that  DAH  is  stagnating  or   decreasing   in   2016   in   comparison   to   previous   years.   Commitments  to  the  Health  Development  Fund  (HDF)  for   Funding  commitments   Funding  gap   the   period   2016-­‐2018   also   reveal   a   large   funding   gap    160     between   2016   and   2018   (Figure   18).   Funding    140     commitments  are  far  lower  than  costed  interventions  and    120     the   gap   increases   over   time,   revealing   the   predictability   Million  US$    100     concerns   with   DAH.   This   is   in   line   with   DAH   trends    103      136      136      80     observed   in   other   countries.   Donor   countries   tend   to    60     reduce   their   levels   of   external   assistance   as   a   result   of    40     financial   crisis.   The   international   community   and   regional    20      32     peers   recognize   the   need   to   mobilize   more   domestic    18      14      -­‐         resources  for  health  and  to  improve  the  value  for  money   2016   2017   2018     in  existing  health  care  spending14. Source:  MoHCC  and  UNICEF                                                                                                                             14  The  2012  Tunis  Declaration  signed  by  Ministers  of  Finance  and  Health  from  around  40  African  countries  argues   for  mobilization  of  domestic  resources  for  health  and  for  achieving  greater  accountability  and  value  for  money  in   delivering  health  services.   23       5. Introducing new sources of domestic funding for health From   a   theoretical   point   of   view   and   when   considering   fiscal   space   for   health,   one   of   the   most   intuitive   options   to   generate   additional   resources   for   health   is   to   introduce   new   taxes   which   could   be   earmarked   for   financing   health   care.   From   the   perspective   of   the   health   sector,   earmarked   taxes   are   useful   because   they   can   insulate   health   spending   from   other   competing   publicly   funded   activities   and   this   can   be   particularly   important   for   countries   with   low   or   unstable   spending   in   health.   There   is   however  an  ongoing  debate  about  whether  earmarking  is  desirable  and,  in  general,  Ministries  of  Finance   prefer  not  to  have  money  that  is  tied  to  a  sector  or  specific  purpose.       Fiscal  policy  goes  beyond  the  scope  of  the  health  sector  and  the  decision  whether  additional  revenues   generated   from   new   taxes   or   increase   in   taxes   should   be   earmarked   or   not   to   a   specific   purpose   rests   with   the   Ministry   of   Finance.   The   evidence   on   earmarking   is   indeed   mixed   and   depends   on   country   specific  context  and  political  economy.   Furthermore, it is worth mentioning that revenues earned from earmarked sources may not be ‘additional’ in the medium to long term since the Ministry of Finance can lower the trajectory of funding from traditional revenue sources. Exploring   the   scope   for   increased   domestic  funding  from  tax  revenues  is  however  critical  for  a  fiscal  space  analysis.  Even  in  the  absence  of   earmarking,  the  health  sector  would  ultimately  benefit  from  increased  revenue  collection.  This  section   reports  the  results  of  previous  analyses  related  to  raising  taxes  that  could  potentially  be  earmarked  to   health   and   aims   to   show   the   potential   for   raising   additional   resources   in   Zimbabwe,   in   a   context   of   decreasing   revenues.   When   contemplating   such   options,   it   is   critical   to   assess   the   potential   regressive   nature  of  tax  increases  which  could  result  in  increased  inequalities.       The  success  of  the  AIDS  levy  in  Zimbabwe,  an  earmarked  tax  option  for  domestically  funding  HIV/AIDS   programs,   has   given   impetus   for   the   earmarking   of   other   taxes   to   increase   domestic   funding   for   health.   The   National   AIDS   Council   and   the   AIDS   levy   were   introduced   in   2000   through   an   Act   of   Parliament15.   The   levy   is   a   3%   flat   tax   charged   on   companies   and   individuals’   amount   of   income   tax   assessed16.  Since  dollarization  in  2009,  the  annual  tax  revenue  has  risen  from  US$5.7  million  to  US$38   million  in  2015.  Learning  from  this  experience,  additional  health-­‐specific  resources  could  take  the  form   of  earmarking  or  levying  taxes  on  consumption  goods  (such  as  alcohol  and  tobacco)  that  adversely  affect   health.   Earmarking   can   involve   dedicating   an   entire   tax   to   fund   a   particular   program   (for   e.g.,   a   dedicated  payroll  tax  for  SHI)  or  setting  aside  a  fixed  proportion  of  a  particular  tax  to  fund  a  program.  As   of   January   2017,   a   5   percent   health   levy   will   also   be   introduced   on   airtime   and   data,   and   will   be   earmarked  to  drugs  and  equipment  as  a  way  to  ring-­‐fence  funding  for  critical  health  services.     ZimAsset  (2013  -­‐2018)  proposes  several  health  and  non-­‐health  specific  earmarked  taxes.  Since   2013  a   number   of   proposals   have   been   put   to   the   MoHCC   by   its   partners   to   increase   domestic   funding   for   health   given   the   unpredictability   and  the   sustainability   of   external   assistance.   These   included  the  use  of   earmarked  taxes  for  ‘sin’  products  such  as  alcohol  and  cigarettes,  earmarking  of  Value  Added  Tax  (VAT)   revenues,   earmarking   of   mobile   excise   taxes,   earmarking   of   mineral   taxes,   earmarking   of   road   taxes,   earmarking   of   fuel   taxes   and   earmarking   of   third   party   insurance   premiums.   These   options   are   also   being   discussed   among   ministries   such   as   Education,   Labor   and   Social   Welfare   and   Agriculture,   calling   for  increased  coordination.  Since  2015,  the  MoHCC  has  worked  to  assess  the  feasibility   of  and   potential   revenues  that  would  accrue  from  such  earmarked  taxes.  The  MoHCC,  the  Training  and  Research  Support   Centre,  Atchison  Actuaries,  and  the  Zimbabwe  Economic  Policy  Analysis  and  Research  Unit  carried  out   studies   for   raising   domestic   revenues   for   Universal   Health   Coverage   (UHC)   in   Zimbabwe.   The   studies                                                                                                                           15  The  National  AIDS  Council  of  Zimbabwe  Act  Chapter  15:14  of  2000   16  National  AIDS  Council  Section  14  subsection  14  and  15  of  the  Finance  Act,  Chapter  23:04   24       explored   possibilities   for   earmarking   excise   taxes   on   cigarettes,   beer   and   fuel   as   well   as   VAT   and   mining   company  taxes.  The  National  Association  of  Non-­‐Governmental  Organizations  together  with  UNICEF  also   looked   at   the   possibility   of   earmarking   excise   taxes   on   cigarettes   and   beer   to   fund   child   health   and   child   education   initiatives.   The   following   section   provides   a   summary   and   projections   of   some   of   the   proposed  areas  for  increasing  domestic  funding  for  health.       There  would  be  some  tax  latitude  for  Zimbabwe  to  increase  cigarette  taxes.  World  Health  Organization   (WHO)   indeed   recommends   at   least   70   percent   of   excise   tax   in   the   final   consumer   price,   arguing   that   such  tax  would  induce  many  users  to  quit,  reduce  morbidity  and  mortality  and  at  the  same  increasing   cigarette   tax   revenues.   The   comparative   analysis   of   the   cigarette   retail   prices   and   taxes   for   Zimbabwe   and  its  SADC  counterparts  shows  that  there  is  still  enough  room  for  Zimbabwe  to  increase  its  cigarettes   taxes   (Table   3).     Although   Zimbabwe’s   excise   tax   on   cigarettes   is   largest   compared   to   its   SADC   counterparts  and  comparatively  larger  total  taxes  share,  its  retail  price  of  US$1.30  is  among  the  lowest   in   the   region.   Low   cigarette   prices   have   possibly   contributed   to   the   growth   of   cigarette   smuggling   to   neighboring   countries.   Harmonizing   the   pricing   and   taxes   rates   will   go   a   long   way   in   curtailing   cigarettes   consumption  and  cigarettes  smuggling  in  the  region.  However,  of  all  SADC  members,  none  has  any  part   of  its  taxes  earmarked  for  health.     T ABLE   3 :   R ETAIL   P RICES  A ND   T AXES   F OR   A   P ACK   O F   2 0   C IGARETTES ,   2 014   Country   US$  Price   Specific  tax   Ad   Valorem   Value  added   Import  duty   Other  Taxes   Total  taxes   17 Excise  Tax   Tax   Angola   2.06   0.00%   0.00%   22.90%   0.00%   0.76%   23.66%   Botswana   3.08   42.44%   9.53%   10.71%   0.00%   0.00%   62.68%   Lesotho   3.27   33.15%   0.00%   13.04%   0.00%   0.00%   46.20%   Malawi   2.01   14.53%   0.00%   4.09%   2.06%   0.00%   20.68%   Mozambique   0.98   16.33%   0.00%   14.53%   0.00%   0.00%   30.86%   Namibia   3.74   29.00%   0.00%   3.80%   0.00%   0.00%   32.80%   South  Africa   2.97   36.52%   0.00%   12.28%   0.00%   0.00%   48.80%   Swaziland   3.27   33.14%   0.00%   20.00%   0.00%   0.00%   53.14%   Zambia   1.47   0.00%   20.00%   1.36%   0.00%   0.00%   21.36%   Zimbabwe   1.30   23.08%   23.95%   13.04%   0.00%   0.00%   60.08%   Source:  WHO  Tobacco  Atlas  2015     Existing   projections   for   earmarked   taxes   showed   modest   to   above   average   potential   earnings   from   some  of  the  health  and  non-­‐health  specific  taxes.  Scenario  and  simulation  analysis  were  used  to  model   economic   and   revenue   trends   to   inform   discussions   on   options   for   the   optimal   level   of   earmarked   taxes   in  each  case  for  health  financing.18  Results  show  that  increasing  excise  taxes  on  cigarettes  by  25%  would   raise  US$10  million  by  2022  (Table  4).  Similarly,  increasing  excise  taxes  on  beer  and  wines  by  25%  would   raise   US$18   million   and   US$3   million   by   2022   respectively   (Table   5).   A   follow   up   stakeholder   analysis                                                                                                                           17  Ad  Valorem  Tax  is  tax  based  on  the  determined  value  of  the  item  being  tax,  and  in  this  case  it  referred   to  either  sales  tax  or  Value  Added  Tax.   18  The  simulation  models   included  analysis  of  tax  changes  in  a  dynamic  model  where  income  changes;   and   various   tax   rates   and   various   elasticities   to   provide   revenue   forecasts.   For   the   fuel   tax,   cigarette   tax   and  alcohol  tax,  the  calculations  took  into  consideration  the  following  dynamic  changes:  Implications  of   a  change  in  tax;  Additional  revenue  generated  following  the  tax  change;  Change  in  consumption  of  the   taxed   commodity;   Change   in   demand   for   the   taxed   commodity;   and   change   in   economic   activity.   Potential  future  revenue  were  calculated  using  expected  GDP  growth  as  projected  by  the  IMF.   25       carried   out   by   the   MoHCC19  and   its   partners   on   earmarked   taxation   showed   huge   support   by   those   in   the  health  sector  and  potential  opposition  by  the  producers  and  suppliers  of  the  listed  products.     T ABLE   4 :   C IGARETTE  E ARMARKED   N OMINAL   R EVENUE   P ROJECTIONS  U S$   ( 2014   –   2 022)   Excise  tax  increase   2014   2015   2016   2017   2022   on  baseline   +5%   1  265  185   1  379  140   1  509  992   1  866  659   2  016  778   +10%   2  530  369   2  758  280   3  019  983   3  733  390   4  033  556   +25%   6  325  923   6  895  701   7  549  959   9  333  475   10  083  889   Source:  MoHCC,  TARSC  and  ZEPARU  2013     T ABLE   5 :   A LCOHOL  E ARMARKED  N OMINAL   R EVENUE   P ROJECTIONS  U S$   ( 2014   –   2 022)   Excise  tax  increase   2014   2015   2016   2017   2022   on  baseline   Beer   +5%   2  414  436   2  622  291   2  860  964   3  511  590   3  785  342   +10%   4  828  872   5  244  582   5  721  928   7  023  181   7  570  684   +25%   12  072  180   13  111  455   14  304  821   17  557  954   18  926  710   Wines  and  Spirit   +5%   402  438   448  020   500  360   643  042   703  074   +10%   804  875   896  040   1  000  720   1  286  083   1  406  149   +25%   2  012  185   2  240  099   2  501  801   3  215  208   3  515  373   Source:  MoHCC,  TARSC  and  ZEPARU  2013     Introducing   or   expanding   Social   Health   Insurance   (SHI)   to   those   uncovered   can   bring   additional   revenues,   and   therefore,   be   a   source   of   fiscal   space.   This   option   is   discussed   in   the   country’s   new   health  financing  policy.   Currently  9  percent  of  the  total  population  is  covered  under  any  form  of  health   insurance 20.   Current   figures   show   that   there   are   no   gender   differentials   in   the   coverage   of   health   insurance,  while  the  age  group  benefiting  most  (17  percent)  is  the  45-­‐49  years.  Those  on  paid-­‐employee   permanent   benefited   the   most   (58.9   percent)   compared   to   the   casual   workers,   own   account   workers   and  members  of  cooperatives.  Of  the  formally  employed,  39.2  percent  are  on  medical  insurance,  while   for  the  informally  employed  only  8.6  percent  are  on  medical  insurance.   In  countries  with  government-­‐ subsidized   national   health   insurance   schemes,   increasing   the   number   of   enrollees   (and   therefore   increasing   the   amount   of   contributions)   increases   health-­‐specific   resources.   In   Zimbabwe,   it   would   be   fundamental  to  target  potential  sources  of  revenue  that  enable  participation  of  both  formally  and  non-­‐ formally  employed  population  groups.       However,   in   the   short   term   introducing   an   SHI   remains   a   difficult   task   given   the   current   economic   situation.   Key   and   fundamental   reasons   working   against   the   introduction   of   an   SHI   in   the   short   term   range   from   an   economy   which   is   characterized   by   highly   informalized   economy,   high   formal   unemployment,  flat  and  in  some  cases  dipping  tax  and  non-­‐tax  revenues  for  the  past  five  years,  lack  of  a   clear  actuarial  analysis  and  plan  for  the  envisaged  SHI,  to  strong  objection  from  the  main  Labor  union  of   the  proposed  institutional  arrangements  for  collection  and  management  of  the  SHI  funds.                                                                                                                               19  TARSC,  Atchison  Consulting  and  MoHCC  (2013)  Analysis  of  stakeholders  in  Domestic  Health  Financing.     20  Zimstat  Labour  Force  Survey  2014   26       A  more  comprehensive  and  broader  National  Health  Insurance  (NHI)  funded  from  tax  earnings  from   the   formally   employed   and   complemented   with   earmarked   VAT   would   be   more   acceptable   and   feasible   form   of   revenue   mobilization   for   a   country   with   such   a   very   thin   formalized   employment   base.  Importantly,  VAT  payments  in  Zimbabwe  are  not  essentially  regressive  as  a  number  of  basic  goods   that   are   commonly   accessed   by   poor   population   groups   are   zero-­‐rated.   Revenues   of   between   US$77   million  (2013)  and  US$138  million  by  2020  could  be  raised  by  earmarking  1  percent  of  VAT,  and  twice   the  additional  resources  could  be  raised  for  the  same  period  by  earmarking  2  percent  of  VAT21.  Looking   at  VAT  rates  in  SADC  countries,  it  seems  that  Zimbabwe  can  enjoy  some  VAT  latitude  as  VAT  ranges  from   12  percent  to  20  percent  (Table  7).  The  VAT  base  can  also  be  broadened  by  tapping  into  the  informal   sector  through  broadened  and  increased  presumptive  taxes  and  by  improving  the  overall  efficiency  of   tax   collection   through   increased   financial   inclusion   through   increased   internet   and   mobile   banking,   broadened   automation   and   fiscalisation   and   improved   regulatory   environment.   Ghana,   Chile   and   Italy   are  examples  of  countries  using  earmarked  VAT  earnings  to  finance  their  health  systems.       T ABLE   6 :   V ALUE   A DDED   T AX   R ATES   F OR   S ELECTED   S ADC   C OUNTRIES   Country     Value  Added  Tax  Rate   Botswana   12.0%   Lesotho   14.0%   Malawi   16.5%   Madagascar   20.0%   Mozambique   17.0%   Namibia   15.0%   South  Africa   14.0%   Swaziland   14.0%   Zambia   16.0%   Zimbabwe   15.0%   Source:  USCIB  2014  and  Vatlive,  2016  http://www.vatlive.com/vat-­‐rates/international-­‐vat-­‐and-­‐gst-­‐rates/  accessed   on  8  August  2016.                                                                                                                               21  Atchison   Actuaries   and   Consultants,   TARSC,   MOHCC   (2013)   Projections   for   the   use   of   Earmarked   Value  Added  Tax  for  Health  Financing  in  Zimbabwe.   27       6. Options for generating efficiency gains in the public system Increased  efficiency  creates  fiscal  space  by  increasing  savings  within  the  existing  envelope  rather  than   by   expanding   the   resource   envelope.  The  World  Health  Report  (2010)  identifies  ten  major  sources  of   inefficiency:   underuse   of   generic   medicines   and   higher   than   necessary   prices   for   medicines;   use   of   substandard   and   counterfeit   medicines;   inappropriate   and   ineffective   use   of   medicines;   supplier-­‐ induced   demand   and   overuse   of   some   services;   inappropriate   staff   mix   and   unmotivated   workers;   inappropriate   hospital   admissions   and   length   of   stay;   low   use   of   infrastructure   such   as   hospital   beds;   medical   errors   and   suboptimal   quality   of   care;   waste   and   fraud;   and   inefficient   mix   and   inappropriate   level  of  intervention.     Two   components   of   efficiency   are   generally   differentiated:   technical   efficiency   and   allocative   efficiency.   Technical   efficiency   is   often   referred   to   as   “doing   things   right”   and   allocative   efficiency   as   “doing  the  right  things.”  As  the  central  government’s   current  budget  allocations  to  the  MoHCC  is  almost   exclusively   spent   on   salaries,   there   is   however   little   room   to   address   non-­‐human   resources   related   inefficiencies.   Still,   as   there   are   very   little   options   for   generating   additional   resources   given   the   financial   crisis  hitting  the  country,  improving  efficiency  in  health  spending  is  paramount.  Areas  for  improvement   discussed  below  are  in  line  with  the  stated  objectives  of  the  health  financing  strategy,  in  particular  those   related   to   i)   ensuring   effective,   equitable,   efficient   and   evidence   based   allocation   and   utilization   of   health  resources;  ii)  ensuring  the  purchasing  arrangements  and  provider  payment  methods  emphasize   incentivizing   provision   of   quality,   equitable   and   efficient   health   care   services;   and   iii)   strengthening   institutional  framework  and  administrative  arrangements  to  ensure  effective,  efficient  and  accountable   links  between  revenue  generation  and  collection,  pooling  and  purchasing  of  health  services.   Allocative efficiency Assessing  allocative  efficiency  helps  to  understand  the  extent  to  which  spending  patterns  align  with   the   country’s   health   needs.   For   example,   it   is   important   to   see   whether   there   are   opportunities   to   change   the   mix   of   inputs   such   as   staff,   buildings   and   supplies,   or   allocation   across   primary,   secondary   and  tertiary  care  services  to  address  conditions  that  contribute  most  to  a  country’s  burden  of  disease.     The   burden   of   disease   in   Zimbabwe   is   largely   dominated   by   communicable   diseases   that   can   be   addressed   at  low   cost   at   the   lowest   level   of   care.   In  2013,  only  25  percent  of  deaths  were  caused  by   non-­‐communicable  diseases.  HIV/AIDS  and  TB  were  the  primary  cause  of  deaths  (35  percent)  followed   by   common   infectious   diseases   such   as   diarrhea   (20   percent)   (Figure   19).   Improving   allocative   efficiency   in  that  context  would  require  ensuring  that  most  health  sector  financing  is  allocated  to  these  causes  of   deaths  and  to  preventative  measures  to  reduce  the  incidence  of  these  conditions.   28       F IGURE   1 9:   C AUSES   O F   D EATHS   F OR   T HE  T OTAL   P OPULATION  I N  Z IMBABWE   ( 2013)   HIV/AIDS  and  tuberculosis   7%   Diarrhea,  lower  respiratory,  and  other   common  infecoous  diseases   35%   Neglected  tropical  diseases  and   25%   malaria   Maternal  disorders   Neonatal  disorders   1%   3%   Nutrioonal  deficiencies   6%   20%   1%   Other  communicable,  maternal,   2%   neonatal,  and  nutrioonal  diseases     Source:  IHME   Targeted   investments   on   preventive   care   can   pay   off   and   avoid   expensive   curative   care.   MoHCC   expenditures   are   skewed   towards   curative   care   rather   than   preventive   care,   in   particular   for   non-­‐ communicable   diseases,   which   are   very   expensive   to   treat.   On   average   76   to   81   percent   of   MoHCC   expenditures  go  to  curative  care  compared  to  8  percent  or  less  to  preventive  care  (Figure  20).       FIGURE  20:  MO HCC  BUDGET  ALLOCATION  B Y  SERVICE     100%   7%   8%   7%   8%   9%   8%   %  of  MoHCC  Budget   80%   Research   60%   Prevenove  care   40%   80%   76%   76%   81%   83%   81%   Administraoon  and  General   20%   Medical  care  services   0%   2010   2011   2012   2013   2014   2015       Source:  MoFED  2015  Audited  Expenditures     Inefficiency  arises  if  the  majority  of  the  disease  burden  can  be  addressed  through  primary  level  care   but  public  spending  is  largely  geared  towards  hospitals.   Productive  efficiency  gains  could  be  achieved   by  delivering  more  services  at  the  lower  levels  of  care  and  implementing  a  sound  referral  system.  The   lack  of  adequate  services  at  the  provincial  level  and  city  health  departments  has  resulted  in  increased   referrals  out  and  in  some  cases  self-­‐referrals  to  central  hospitals.  This  has  resulted  in  central  hospitals   29       recording   large   numbers   in   outpatient   care,   normal   maternity   deliveries,   minor   operations   and   x-­‐rays   and  laboratory  tests  (Figure  21).  MoHCC  direct  transfers  to  hospitals  and  health  centers  are  minimal  and   decreasing:  they  represented  18  percent  of  central  spending  on  health  in  2010  and  6  percent  in  2013.   Furthermore,   a   large   part   of   these   allocations   went   to   only   five   major   hospitals   in   the   country,   although   the  proportion  is  decreasing  (Figure  22).     FIGURE   21:   REFERRALS   TO   CENTRAL   HOSPITALS   FIGURE   22:   MO HCC   TRANSFERS   TO   HEALTH   2008-­‐2014   FACILITIES   500000   60   %  spending   450000   400000   40   Number  of  referrals   350000   20   300000   250000   0   200000   2009   2010   2011   2012   2013   150000   100000   Spending  in  5  major  hospitals  as  %  of   50000   spending  on  govt  hospitals  and  HCs   0   Spending  on  govt  hosp  &  HC  as  %  of   2008  2009  2010  2011  2012  2013  2014   total  spending       Source:  MoHCC,  2014   Source:  PER     Resource   allocation   on   health   in   Zimbabwe   is   not   pro-­‐poor.   MoFED   and   MoHCC   budgeting   has   historically   been   a   line   item   based   budgeting   framework   categorically   divorced   from   the   realities   on   the   ground.   Apart   from   Harare   and   Bulawayo,   the   other   eight   provinces   have   been   allocated   almost   the   same   amounts   despite   differences   in   population   numbers   and   disease   burden.   Rural   areas   are   generally   associated   with   lack   of   adequate   access   to   health   services,   a   high   level   of   poverty   and   health   needs.   Inefficiency  arises  if  a  vast  majority  of  the  public  spending  on  health  is  geared  towards  urban  areas,  at   the   expense   of   the   rural.   As   the   five   major   hospitals   are   located   in   richer   and/or   urban   areas   of   the   country,   it   is   clear   that   public   resources   are   not   adequately   directed   to   rural   areas.   Furthermore,   the   Public  Expenditure  Review  already  highlighted  a  strong  income  gradient  in  the  service  utilization  pattern   with   the   poor   relying   heavily   on   rural   health   centers   for   both   inpatient   and   outpatient   services,   while   the   better   off   were   more   likely   to   use   hospital   services.   It   is   important   to   note   that   the   MoHCC   has   accepted  in  principle  to  use  a  needs  based  resource  allocation  formula  for  allocating  its  budget  vote.     A   Program   Based   Budgeting   (PBB)   to   complement   the   needs   based   resource   allocation   framework   would  improve  effectiveness  and  efficiency  in  the  use  of  available  resources.  The  MoFED  has  started   implementing   the   PBB 22  with   three   lead   pilot   ministries   using   the   2016   National   budget   Votes   –   Ministries   of   Primary   and   Secondary   Education,   Ministry   of   Health   and   Child   Care   and   Ministry   of   Public   Service,  Labour  and  Social  Welfare.  The  second  phase  of  the  program  will  include  six  more  ministries  in   2018.   PBB   will   likely   improve   prioritization   and   targeting   of   key   specific   areas   and   groups   of   people,   improve  transparency,  accountability  and  efficiency  in  the  use  of  available  funds.                                                                                                                             22  MoFED  The  2016  National  Budget  Statement:   “Building  a  conducive  environment  that  attracts  foreign   direct  investment”   30       Grants  to  urban  and  rural  district  council  clinics  will  promote  use  of  lower  levels  of  care  and  reduce   the   demand   for   more   expensive   higher-­‐level   care.  The  Harare  City  Health  local  council  pilot  initiative  of   having  a  doctor  stationed  at  a  polyclinic  will  in  the  long  run  reduce  the  numbers  of  patients  that  seek   secondary  level  care  at  the  country’s  central  hospitals.  This  will  reduce  the  number  of  normal  deliveries   and  minor  operations  at  central  hospitals  and  in  the  process  free  up  much  needed  fiscal  space.   Technical efficiency In   a   context   of   constrained   macroeconomic   environment   and   limited   scope   for   additional   resource   generation,   achieving   technical   efficiency   gains   by   doing   things   right   represent   an   attractive   option   to   do  more  with  the  same  level  of  resources.  As  already  pointed  out,  there  are  several  common  sources  of   inefficiencies   in   the   health   sector.   On   the   basis   of   expert   opinion   and   knowledge   of   Zimbabwean   context,   this   report   focuses   on   the   following   sources   of   inefficiencies:   Public   Finance   Management;   Drugs  and  equipment;  Human  resources;  and  Hospital  efficiency.     Public Finance Management (PFM): Turning allocated funds into inputs Budget  preparation  process  generates  inefficiencies  but  Zimbabwe  is  making  progress  on  preparing  its   budget  in  accordance  with  international  standards;  efforts  are  also  underway  to  implement  program   budgeting,  including  producing  results-­‐based  information.   To  date,  the  highly  fragmented  financing  of   general   health   services,   the   quasi   historical   bid-­‐based   budgeting   system   and   the   fragmented   private   health  insurance  industry  have  all  contributed  to  the  increase  in  inefficiencies  in  the  health  care  system.   The   budget   allocation   is   not   linked   to   population   needs,   and   the   needs-­‐based   resource   allocation   formula   developed   in   2013   for   the   MoHCC   is   still   non-­‐operational.   The   current   allocation   system   is   based  on  bids  consolidated  from  the  districts  and  provinces,  although  the  final  allocation  rests  with  the   MoFED.   Over   the   last   five   years   the   budget   bids   have   always   been   at   least   twice   what   is   eventually   allocated.  On  average  the  budget  bids  have  floated  between  US$58  -­‐  US$60  per  capita.  The  Ministry  is   now  moving  away  from  the  line  item  budgeting  thanks  to  PBB.  Although  the  line  item  budgeting  enabled   fiscal   authorities   to   monitor   expenditures,   they   could   not   link   money   spent   to   eventual   health   outcomes.  With  PBB,  fiscal  authorities  should  have  detailed  and  disaggregated  expenditures  which  are   much  easier  to  monitor  and  tie  to  results.     Budget   execution   weaknesses   generate   inefficiencies.   MoHCC   budget   execution   is   suboptimal   with   capital  expenditures  being  the  ones  with  the  lowest  execution  rate.   The  first  two  years  after  the  country   dollarized  its  economy  (2009  and  2010)  the  MoHCC  underutilized  its  allocated  budget  on  account  of  its   weak  absorption  capacity  where  it  had  unspent  balances  that  were  returned  to  the  treasury.  One  reason   cited  for  the  unspent  balances  was  the  issue  of  MoFED  releasing  huge  amounts  of  money  towards  the   end   of   the   financial   years   making   it   difficult   for   the   Ministry   to   spend   the   money   in   a   short   time,   however  this  scenario  changed  after  2011  when  it  increased  its  absorptive  capacity  but  faced  another   challenge  as  it  could  not  access  all  its  allocated  funds.  Rather  it  was  the  inability  of  the  MoFED  to  release   the   allocated   funds   to   MoHCC   that   resulted   in   the   mismatch   between   the   allocated   funds   and   final   expenditure   (Figure   23).   By   2011   the   MoFED   was   operating   on   a   cash-­‐budgeting   system   where   funds   were   disbursed   to   ministries   as   and   when   the   funds   became   available  after   collecting   taxes   and   other   non-­‐taxes.  There  is  also  ample  evidence  of  initial  budget  allocations  being  revised  almost  every  year  and   of   mismatches   between   the   revised   the   budget,   the   MoHCC   expenditure   outturn,   the   expenditure   recorded   under   the   Public   Finance   and   Management   system   and   the   Auditor   General’s   (AG)   audited   expenditures.       31       F IGURE   2 3:   M O HCC   B UDGET   A LLOCATION  V S  A CTUAL   E XPENDITURE   2 009   -­‐ 2015   Allocaoon   Expenditure   450   400   Millions  US$   350   300   250   200   150   100   50   0   2009   2010   2011   2012   2013   2014   2015     Source:  MoFED  2015     Lack  of  transparency,  accountability  and  of  sound  management  of  public  revenues,  expenditures  and   liabilities   is   a   source   of   inefficiency.   Since   2010,   audit   results   have   shown   a   mismatch   between   the   MoHCC  budget  outturn  and  the  audited  expenditures,  reflecting  structural  weaknesses  in  the  budgetary   control   procedures   for   the   MoHCC.   MoHCC   action   to   address   structural   inefficiencies   in   the   country’s   health   care   system   would   go   a   long   way   toward   freeing   up   additional   resources.   The   AG   2010-­‐2014   reports   identify   points   of   inefficiency  within  the  Government  of  Zimbabwe’s   financing  system   as   well   as   within  the  MoHCC.  These  points  are  summarized  below:       ü The   MoHCC   has   weak   budget   control   procedures.   The   AG   2015   report   noted   a   number   of   anomalies   in   MoHCC   budget   control   procedures,   including   unauthorized   budget   expenditures   and  virement  of  funds  between  budget  lines  without  prior  MoFED  authorization.  A  major  case   involved   the   use   of   US$2   million   for   Public   Sector   Investment   Program   (PSIP)   projects   for   recurrent   expenditures   without   prior   authorization.   Some   of   the   PSIP   projects   remain   uncompleted  16  years  after  commencement,  with  lack  of  follow  up  on  goods  procurement  as  a   major  area  of  weakness.     ü The   MoHCC   must   address   improper   accounting   procedures,   especially   with   regards   to   the   Health  Services  Fund,   a  development  partner  support  fund  meant  to  cover  hospital  operational   costs  minus  staff  salaries.  In  some  instances,  ministries  did  not  keep  proper  records  via  receipts,   payment  vouchers,  goods-­‐received  vouchers,  cashbooks  and  ledgers.  For  example,  in  2014  the   debtors’  ledger  for  the  five  provincial  hospitals  and  one  laboratory  amounted  to  US$19  million   without   any   documentary   proof.   The   debtors'   ledger   for   the   MoHCC   has   grown   from   US$25   million   in   2010   to   over   US$40.6   million   in   2011,   underscoring   the   need   for   more   stringent   adherence  to  accounting  standards  and  protocols.       ü Weak   internal   budget   controls   and   management   systems   result   in   unnecessary   losses   and   facilitate   corrupt   practices.   Within   the   MoHCC,   eleven   hospitals   were   cited   in   the   AG’s   2015   report   for   weak   fuel   management   systems.   In   some   health   institutions   there   were   reported   cases  of  theft,  lack  of  records  to  support  stock  movements  and  in  some  cases  prioritization  of   fuel  over  medicine  purchases.     32         ü Weak   procurement   systems   increase   the   MoHCC’s   transaction   costs.  According  to  the  AG,  in   some   instances   unsupported   payments   were   made   to   workers   who   had   already   left   employment.   Concern   was   also   raised   on   the   issue   of   the   MoFED   paying   directly   to   service   providers/parastatals   in   some   instances   without   forwarding   such   documentation   to   the   line   ministries;   such   procedures   render   line   ministry   accounting   officers   unable   to   monitor   such   expenditures.   This   is   in   conflict   with   the   Public   Finance   and   Management   System   (PFMS)   Act,   which  gives  ministries  the  power  and  responsibility  to  account  for  monies  allocated  to  them.  In   2014  the  MoHCC  had  about  US$4.2  million  of  such  unsupported  expenditures  directly  paid  to  a   service  provider.  In  most  cases  there  were  unexplained  variances  between  MoFED  appropriation   account  expenditures  and  the  line  ministries’  reported  expenditures.       Strengthened   public   finance   management   could   help   improve   efficiency   in   the   health   sector.   The   country  faces  unique  characteristics  and  hurdles  affecting  its  PFM  system.  Given  its  large  public  sector,   Zimbabwe  must  manage  substantial  public  expenditures;  it  is  however  not  adequately  equipped  to  do   so.   The   recent   GoZ-­‐World   Bank   2016   PER   provides   a   series   of   recommendations   to   improve   PFM   in   general,   but   that   could   apply   to   the   health   sector   and   generate   efficiency   gains.   These   include:   1)   Continued  efforts  to  improve  results-­‐based  budgeting;  2)  Continued  efforts  to  improve  the  transparency   and   effectiveness   of   the   budget   process,   including   increasing   information   and   capture   of   extra   budgetary   funds   planned   in   the   gross   expenditure   outlays   of   the   ministry,   strengthening   the   medium-­‐ term  focus  on  expenditure  levels  and  composition  (using  MTEF);  3)  Expanding  the  coverage  of  the  PFM   system   by   integrating   local   authorities,   extra-­‐budgetary   funds   and   donor   financing;   3)   Considering   reforms   to   control   payroll   commitments   and   costs;   4)   Taking   complementary   actions   to   strengthen   employment  and  wage  controls  such  as  enforcing  limits  on  hiring,  review  of  promotions  and  establishing   rules   for   using   contract   workers;   and   5)   Allocating   more   resources   to   support   external   and   internal   auditing.       Human resources: Turning a budget into a staff mix and turning inputs into outputs Human   resources   typically   represent   the   single   largest   cost   in   most   health   system   and   therefore   have   an   important   impact   on   overall   efficiency.   In   general,   excessive   spending   on   wages   and   salaries   suggests  an  imbalance  in  the  use  of  inputs,  and  translates  into  less  resources  being  available  for  other   health   programs   and   activities.   Reducing   excessive   expenditures   on   wages   and   salaries   could   free   up   resources  for  other  health  activities.  Zimbabwe  is  no  exception,  with  very  high  labor  and  administrative   costs  particularly  given  its  labor  intensive  health  care  delivery  system.  The  share  of  employment  costs  to   total  MoHCC  expenditure  indeed  grew  from  as  low  as  57  percent  in  2010  to  a  high  of  83  percent  in  2015   (Figure   24).   As   of   September   2016   almost   93   percent   of   MoHCC   expenditures   have   gone   towards   meeting  employment  costs.  At  the  same  time  the  treasury  is  calling  for  the  rationalization  and  realigning   of  the  civil  service  to  cut  down  on  employment  costs,  the  MoHCC  is  calling  for  unfreezing  posts  from  the   time  of  the  2008-­‐2013  inclusive  government  and  the  revision  of  the  establishment  posts  to  reflect  the   current  population  and  disease  burden.  This  has  presented  a  real  conundrum  for  the  fiscal  authorities  as   they  try  to  rationalize  and  realign  the  civil  service.     33       F IGURE   2 4:   E MPLOYMENT   C OSTS   V S   T OTAL   E XPENDITURE   2 009   -­‐ 2016     Employment  Costs   MoHCC  Total  Expenditure    350      300     Expenditures  (US$  millions)    250      200      150      100      50      -­‐         2009   2010   2011   2012   2013   2014   2015   2016  Sept       Source:  MoFED  2016     MoHCC   estimates   that   the   sector   is   confronted   with   a   critical   shortage   of   key   human   resources   for   health   which   negatively   affects   health   sector’s   efficiency.   The   shortage   of   key   health   personnel   is   estimated   against   the   background   of   a   staff   establishment   last   revised   in   the   1980s   which   does   not   take   into   account   the   growth   in   population   or   the   increase   in   and   changing   disease   burden.   Increased   ‘mechanization’  of  the  country’s  health  system  has  been  hampered  by  the  shortage  of  technicians  and   inadequate  budgets  for  equipment  maintenance.  For  example,  55  percent  vacancy  rate  for  equipment   maintenance  officers  coupled  with  minimal  capital  investment  in  the  health  care  sector  is  worrying  and   could  be  one  reason  why  Zimbabwe’s  health  care  system  remains  labor  intensive  (Figure  25).  The  recent   health   system   assessment   estimated   that   in   2015,   the   ratio   of   health   workers   (comprising   doctors   (1,230),   nurses   and   midwives   (17,217))   was   1.3   per   1,000   people,   which   is   well   below   the   WHO   threshold  of  2.28.  However,  compared  with  other  countries  in  the  region  Zimbabwe  has  the  fifth  highest   ratio   of   nurses   per   10,000   people,   after   South   Africa,   Namibia,   Botswana   and   Angola,   and   has   a   ratio   almost  double  that  of  Ethiopia  (Witter  et  al,  2016).       F IGURE   2 5:   P ERCENTAGE   V ACANCY   R ATE   I N   2 014   Top  Management  Team   42%   Environmental  Health   33%   Radiography   50%   Health  Promooon   27%   Equipment  Maintenance  Officers   55%   laboratory   45%   Pharmacy   33%   Nurses   14%   Doctors   38%   0%   10%   20%   30%   40%   50%   60%     34       Source:  MoHCC  2014     Theoretically   rationalization   of   employment   numbers   and   wages   will   go   a   long   way   in   reducing   the   MoHCC   wage   bill.   However,   the   current   circumstances   point   to   a   situation   of   non-­‐possibility   of   this   happening  in  the  short  to  medium  term.  In  reality  the  MoHCC  has  requested  for  MoFED  to  absorb  more   graduate   doctors   and   nurses   who   are   currently   unemployed.  MoHCC  is  banking  on  the  GoZ  rationalizing   employment   numbers   in   other   ministries   to   create   fiscal   space.   A   2014   study   by   Zimbabwe   Economic   Policy  Analysis  and  Research  Unit23,  revealed  that  minimum  wages  for  the  country  grew  by  28.6  percent   between   2009   and   2014,   an   increase   out   of   sync   with   productivity   levels   in   the   country   and   one   that   placed   unbearable   pressure   on   the   wage   bill.   MoFED   committed   to   reduce   the   current   government   wage   bill   to   an   estimated   50   percent   by   2019.   In   its   2016   Mid-­‐Year   Fiscal   Review,   the   Government   estimated   that   this   rationalization   of   employment   costs   would   free   up   US$118   million 24  annually.   However,   MoFED   did   not   provide   the   specific   measures   that   each   ministry   would   take.   In   addition   to   reducing  the  absolute  number  of  human  resources  for  health,  MoHCC  should  consider  task  shifting  and   skills  upgrading  to  increase  efficiency.   Linking  spending  on  human  resources  for  health  to  outputs  rather  than  inputs  can  increase  efficiency   as   Zimbabwe’s   Results   Based   Financing   (RBF)   program   demonstrated   through   its   performance   based   payment  mechanism.  RBF’s  bonus  payments  to  facilities  and  facility  staff  not  only  improved  quantitative   and   qualitative   health   outcomes,   but   also   reduced   the   staff   turnover   rates   at   RBF   health   facilities.   Results  from  the  program’s  mid-­‐term  evaluation  and  cost  effectiveness  analyses  show  an  improvement   in  both  the  technical  and  allocative  efficiency  of  health  facilities.  The  first  phase  Zimbabwe  RBF  Impact   Evaluation   revealed  key  gains  in  selected  health  coverage  and  quality  indicators,  especially  those  directly   targeted   by   the   RBF   program:   the   in-­‐facility   delivery   rate   increased   by   14   percentage   points;   process   quality  of  ANC  care  and  the  rates  of  post-­‐partum  care  also  showed  significant  improvements.  The  cost-­‐ effectiveness   analysis   of   RBF   showed   annual   live   saved   of   511   annually,   with   a   total   of   12,120   Quality   Adjusted  Live  Years  (QALYS)  for  the  period  a  period  of  2.5  years.  Combining  both  quantity  and  quality,   the   results   showed   the   RBF   program   was   highly   cost   effective   and   more   cost   effective   than   the   input   based  method25.     RBF   offers   promising   results   to   improve   efficiency   in   Zimbabwe   by   linking   financial   resource   to   measurable  and  desirable  outputs.  The  country’s  willingness  to  expand  and  sustain  that  focus  on  results   in  health  facilities  should  ensure  greater  efficiency  gains.  It  can  also  partially  help  address  the  shortage   of  critical  human  resources  for  health  as  current  staff  will  do  more  and  better.  However,  as  RBF  is  now   implementing  at  the  national  scale,  it  is  critical  that  Government  of  Zimbabwe  makes  progress  toward   the   institutionalization   of   RBF   and   finds   a   sustainable   way   of   financing   this   strategy   which   currently   relies   mostly   on   external   support.   It   is   expected   that   the   medium   term   institutionalization   framework   under  preparation  should  tackle  those  issues.     Drugs and equipment: Ensuring inputs are available for service delivery The  availability  of  key  equipment  and  essential  drugs  in  public  health  facilities  is  often  used  as  a  proxy   indicator   of   efficiency.   The  absence  of  drugs  and  equipment  can  reflect  an  inadequate  budget  and/or                                                                                                                           23  Zimbabwe   Economic   Policy   Analysis   and   Research   Unit   (ZEPARU),   (2014)   Cost   Driver   Analysis   of   the   Zimbabwe  Economy,  cited  in  IMF  Country  Report  May  2016.   24  MoFED  estimates  to  save  overall  US$118  million  by  the  end  of  2016,  and  US$155  million  in  2017  and   the  same  figure  annually  thereafter  (MoFED,  2016  Mid-­‐Year  Policy  Review).   25  Shepard  D  and  Zeng  W  (2016)  –  Conference  Presentation:  Cost  Effectiveness  Analysis  of  Results-­‐Based   Financing  in  Zimbabwe,  Cresta  Lodge  Harare,  Zimbabwe.     35       inefficiencies.   Table   8   shows   the   availability   and   readiness   of   sampled   facilities   to   provide   a   list   of   essential   medicine.   On   average   18   of   the   surveyed   24   essential   medicines   were   available   at   health   facilities,  irrespective  of  the  type  of  ownership  of  the  facilities.  However,  only  26  percent  of  the  facilities   surveyed  had  all  the  24  essential  medicines  at  the  time  of  the  survey.     There   has   been   a   general   improvement   in   Zimbabwe’s   drug   procurement   system,   although   external   partners   still   largely   drive   this   system.   The   use   of   the   country’s   sole   drug   procurement,   storage   and   distribution   company,   the   National   Pharmaceutical   Company   (NatPharm)   by   external   partners   for   storage   and   distribution   of   health   commodities   has   improved   NatPharm’s   finances   and   continued   relevance   and   in   the   process   minimized   unnecessary   transaction   and   administrative   costs   associated   with  running  parallel  systems.  However,  the  continued  lack  of  government  funding  has  resulted  in  the   undercapitalization  of  NatPharm  and  has  reduced  its  ability  to   procure  cheap  drugs  and  its  influence  on   the   general   pricing   of   drugs   in   the   country.   Applying   lessons   learned   to   improve   the   drug   distribution   system   from   the   current   push   and   pull   system   will   go   a   long   way   toward   reducing   inefficiencies.   Currently  the  country  has  four  drug  management  systems26:  the  Delivery  Team  Topping  Up  (DTTU),  the   Zimbabwe   Informed   Push/Primary   Health   Care   Package   (ZIP/PHCP),   the   Zimbabwe   ARV   Distribution   System   (ZADS)   and   the   Essential   Medicines   Pull   System   (EMPS).   A   pilot   study 27  combined   the   four   systems  into  a  single  management  and  distribution  system  at  the  primary  level  in  Manicaland  Province.   Mid-­‐term   evaluation   results   of   what   was   named   the   Zimbabwe   Assisted   Pull   system   (ZAPS)   showed   that   while   the   current   systems   were   generally   efficient—except   for   some   reservations   with   the   EMPS   system—the   cost   and   cost   effectiveness   baseline   values   were   not   completely   reflective   of   the   total   picture.     Low   levels   of   key   diagnostic   items   in   health   facilities   affect   the   quality   and   care   and   the   overall   efficiency   of   health   facilities.   On   average   health   facilities   in   Zimbabwe   have   the   capacity   to   provide   diagnostic   tracer   tests   on   site.   Mission   hospitals   have   the   highest   readiness   score   of   81   percent,   with   public  hospitals  and  public  clinics  at  73  percent  and  69  percent  respectively  (Table  8).     The   availability   of   key   maternal   and   child   health   hospital   equipment   improved   as   a   result   of   the   Health  Transition  Fund  and  RBF.  The  availability  of  key  equipment  greatly  improved  efficiencies  in  the   delivery  of  not  only  maternal  and  child  care  services,  but  other  services  as  well.  However,  2013  MoHCC   gap  analysis  revealed  a  lack  of  other  basic  equipment.  More  efficiency  gains  could  be  realized  if  both  the   primary   and   secondary   levels   meet   basic   equipment   standards.   Table   8   shows   the   general   mean   availability   of   selected   basic   equipment   in   sampled   facilities   in   all   the   10   provinces   of   the   country.   Private  and  mission  hospitals  are  more  resourced  that  the  public  hospitals.  Mission  clinics  are  also  more   resourced  that  public  and  private  clinics.   T ABLE   7 :   S ERVICE   A VAILABILITY  A ND   R EADINESS   A SSESSMENT   B Y   F ACILITY   T YPE   Facility  Type   Number  of   Basic   Basic   Standard   Diagnostics   Essential   General   Facilities   amenities   Equipment   precautions   mean  score   medicines   service   mean  score   mean  score   mean  score   (%)   mean  score   readiness   (%)   (%)   (%)   (%)   index  (%)   Public  Hospital   48   85   85   80   73   79   98   Public  Clinic   153   75   86   83   69   75   100   Private  Hospital   15   92   94   95   53   81   100   Private  Clinic   19   88   86   83   61   67   95                                                                                                                           26  Chiyaka,  Ignatio,  and  Naomi  Printz.  Zimbabwe  Assisted  Pull  System:  Design  of  Ordering  and  Resupply   Procedures.  Arlington,  Va.:  USAID  |  DELIVER  PROJECT,  Task  Order  4.   27  Rosen,   James   E.,   Julia   Bem,   and   Katherine   Wolf.   2015.   Evaluation   of   the   Zimbabwe   Assisted   Pull   System  (ZAPS):  Baseline  Report.  Arlington,  Va.:  USAID  |  DELIVER  PROJECT,  Task  Order  4.   36       Mission  Hospital   29   88   94   81   81   84   100   Mission  Clinic   11   75   89   82   70   78   100   Source:  MoHCC,  Zimbabwe  Service  Availability  and  Readiness  Assessment  2015   Additional  fiscal  space  can  be  generated  through  improved  administration.  MoHCC  is  likely  to  generate   some  fiscal  space  through  implementing  government  recommended  measures  such  as  standardization   of   fuel   benefits   for   staff,   efficient   use   of   mobile   and   telephones,   efficient   use   of   vehicles   and   discouraging   vehicle   use   during   non-­‐working   hours.   The   MoHCC   could   learn   lesson   from   the   United   Nations   Vehicle   management   system,   where   staff   use   pooled   vehicles   for   business,   meetings   and   workshops.     Hospital efficiency: turning inputs into outputs Although   there   is   scant   evidence   of   hospitals   as   a   major   source   of   inefficiencies,   a   comparative   analysis  of  hospitals’  performance  can  shed  some  light  on  inefficiencies.  A  study  by  Hensher28  showed   that   inefficiencies   in   low   and   middle   income   countries   occur   as   a   result   of   use   of   costly   inputs,   failure   to   minimize   inputs   used   in   the   health   system,   poor   remuneration   of   health   care   workers   and   failure   to   operate   service   delivery   at   the   appropriate   scale.   Huge   inefficiencies   exist   in   Zimbabwe’s   Central   Hospitals,  mission  and  other  public  hospitals29.  Inefficiency  levels  of  between  37  percent  and  39  percent   were   found   in   central   hospitals   and   34%   on   average   for   non-­‐profit   mission   and   public   hospitals   using   Data  Envelopment  Analysis  (DEA)  and  Stochastic  Frontier  Analysis  (SFA)  techniques.     In   Zimbabwe,   the   extremely   low   figures   for   bed   occupancy   and   turnover   could   be   a   sign   of   underutilization  of  hospital  beds  by  hospitals  or  a  case  of  expedited  discharges  of  patients.  Low  bed   occupancy   can   also   reflect   the   current   financial   access   barriers,   which   are   lower   for   mother   and   child   health   services   than   for   general   health   care   (Witter   et   al,   2016).The   average   length   of   a   hospital   stay   (where   shorter   is   better)   varies   between   two   and   six   days   for   provincial   hospitals   and   between   seven   and   nine   days   for   central   hospitals.   According   to   the   MoHCC   National   Health   Profile   2014,   bed   occupancy   rates   range   between   2   percent   and   7   percent   for   provincial   hospitals   and   between   4   percent   and  6  percent  for  central  hospitals.  The  bed  turnover  rate  ranges  between  2  percent  and  9  percent  for   provincial   hospitals   and   between   1   percent   and   3   percent   for   central   hospitals.   Hospital   discharges   range   between   7,000   and   13,000   people   per   year   for   provincial   hospital.   There   are   obvious   signs   of   over-­‐capacity   for   district   and   provincial   hospitals   as   certain   services   are   not   used   on   account   of   the   shortages   of   critical   health   personnel   such   as   doctors,   theater   nurses,   laboratory   scientist   and   radiographers.   For   example,   major   operations   range   between   35   and   629   per   year   for   provincial   hospitals  and  minor  operations  between  176  and  2,189  per  year.  In  terms  of  maternity  admissions,  the   central  hospitals  of  Harare,  Parirenyatwa,  Chitungwiza  and  Mpilo  had  normal  deliveries  of  54  percent,   59  percent,  62  percent  and  58  percent  respectively,  which  are  abnormally  higher  for  referral  hospitals30.                                                                                                                               28  Hensher   (2010)   “Financing   Health   system   through   efficiency   gains.”   Background   paper   prepared   for   Working   Group   2   of   the   Commission   on   Macroeconomics   and   Health.   Geneva.   World   Health   Organization.   29  Studies  done  by  Makochekanwa  &  Mapani  in  2015  and  Maredza  in  2012   30  MoHCC  (2014)  National  Health  Profile   37       7. How much fiscal space? Illustrative scenarios for health spending   While   the   previous   sections   have   explored   potential   sources   of   fiscal   space,   the   following   section   provides  illustrative  scenarios  for  health  spending,  financing  gaps  and  suggested  fiscal  space  scenarios  to   cover   the   financing   gaps.   The   scenarios   are   based   on   the   MoHCC   NHS   costings   and   latest   IMF   base   projections  for  Zimbabwe.     The  MoHCC  defined  three  scenarios  to  assess  how  cost  and  impact  differ  for  varying  packages,  targets   and   activities.   Examining   alternative   scenarios   allows   for   more   informed   decision-­‐making,   enabling   stakeholders  to  select  the  most  feasible  and  efficient  policy  option  scenario  and  targets  to  incorporate   for   final   estimation   of   activities   and   budgets.   The   draft   NHS   offered   an   ambitious   plan   that   could   not   be   sustained   by   current   or   anticipated   financial   resources.   This   ambitious   plan   corresponds   to   the   NHS3   costing   scenario  or  “Optimal”  scenario,  and  is  focused  on  scaling  up  current  interventions  and  increasing   both  human  resources  for  health  and  infrastructure  improvements.  The  prioritization  exercise  enabled   development   of   a   robust,   concise   yet   ambitious   NHS:   this   is   the   NHS2  costing  scenario,   or   “High   Impact   interventions”   scenario.   The   policy   direction   of   the   NHS2   scenario   centers   on:   addressing   bottlenecks   identified  through  an  analysis  conducted  during  NHS  development;  and  prioritizing  primary  health  care   (though  equally  addressing  the  referral  bottlenecks),  with  a  focus  on  preventative  programming.  Finally,   the   NHS1   costing   scenario   reflects   what   it   would   cost   to   maintain   current   coverage   level   for   health   interventions:  this  is  the  “baseline”  scenario  (Figure  26).     F IGURE   2 6:   O BJECTIVES   A ND   K EYS   A SSUMPTIONS   F OR   T HE   T HREE   C OSTING   S CENARIOS   • No  change  in  health  service  and  health  system  coverage   NHS  1:  "Baseline"   • No  change  in  investments   Maintain  2015  coverage  levels  for   • Flat-­‐lined  coverage  of  health  services   all  health  intervenoons   • No  capital  investments  (e.g.  construcoon  of  addioonal  health   facilioes   • Scale-­‐up  of  reproducove  and  MCH,  Malaria,  HIV,  Nutrioon   and  NCDs  intervenoons  with  emphasis  on  lower  levels  of   NHS  2:  "High  Impact  intervenpons"   care   Reduce  mortality  associated  with   • Shiw  provision  of  prevenove  services  at  the  primary  health   level   the  20  established  leading  causes   within  limits  of  the  proposed   • Infrastructure  improvements  at  the  primary  level  only   financial  space   • Investments  to  improve  availability  and  security  of  medicines   and  supplies   • Capacitaoon  of  skilled  Human  Resources   • Health  service  and  health  system  investments  implemented   as  planned   NHS  3:  "Oppmal  scenario"   • All  proposed  Infrastructure  (construcoon  and  renovaoon  of   Scale  up  opomally  most  health   health  facilioes  at  all  the  levels)  incorporated   service  intervenoons   • All  planned  HR  improvements  factored  into  this  model   (facilioes  and  admin  staff  recruitments  and  training)     Source:  MoHCC,  Costing  of  the  National  Health  Strategy  2016   Additional  health  sector  resource  needs  for  the  next  years  to  implement  the  NHS  are  significant  and   will   require   a   strong   commitment   from   the   government   in   favor   of   the   sector.   Over   the   five-­‐year   period,  the  entire  plan  would  cost  $6.9bn,  $7.6bn  and  $8.5bn  for  NHS  1,  2  and  3  respectively  (Table  9).     38       At  the  end  of  the  period,  the  per  capita  cost  would  be  $73,  $93  and  $100  for  NHS  1,  2  and  3  respectively.   This   requires   a   significant   increase   in   spending   on   health   from   the   baseline   level,   in   particular   in   government   spending   on   health   as   most   resources   are   expected   to   be   mobilized   domestically.   The   below  analysis  suggests  that  the  national  health  strategy’s  three  scenarios  are  unrealistic  in  the  current   context  but  that  reprioritization  and  some  additional  revenue  generation  are  viable  options.   T ABLE   8 :   T OTAL   C OST   F OR   T HE   T HREE  S CENARIOS  ( M ILLION   U SD)   Scenarios   2015   2016   2017   2018   2019   2020   Total   NHS  1   $955.3     $1,179.1     $1,306.5     $1,187.0     $1,159.9     $1,149.1     $6,936.9     NHS  2   $955.3     $1,193.9     $1,325.1     $1,349.7     $1,387.1     $1,397.7     $7,608.8     NHS  3   $955.3     $1,269.7     $1,559.4     $1,630.6     $1,624.1     $1,494.1     $8,533.2     Source:  NHS  costing  (2016)   In   the   short   to   medium   term,   economic   growth   will   not   generate   fiscal   space   for   health   if   the   GDP   share  of  public  spending  on  health  remains  unchanged.   According   to   IMF   projections   made   in   October   2016,   the   average   annual   GDP   growth   will   average   0.4   percent   between   2016   and   2020.   On   current   trends,   public   spending   on   health   per   capita   would   slightly   decrease   by   2020   in   constant   terms   and   reach  US$  27  per  capita  in  2020,  compared  to  an  average  of  US$  28  per  capita  between  2012  and  2014.     Increasing   fiscal   space   for   health   through   reprioritization   of   expenditures   could   narrow   the   funding   gap   in   the   health   sector.   By   2020,   reprioritization   of   health   expenditure   even   to   15   percent   of   government   spending   (Abuja   target)   would   not   cover   any   of   the   National   Health   Strategy’s   costed   scenarios  (Figure  27)  as  GDP  and  expenditures  are  not  expected  to  increase  significantly  over  the  period.   Reprioritization   is   also   likely   to   meet   some   resistance   from   other   sectors   of   the   economy   who   are   competing  for  minimal  resources.   F IGURE   27:   F UNDING   REQUIREMENTS   OF   NHS   SCENARIOS   VERSUS   SCENARIOS   FOR   INCREASED   GOVERNMENT   SPENDING   O N   H EALTH   $2,000     US$  Millions   $1,500     $1,000     $500     $0     2015   2016   2017   2018   2019   2020   NHS1   NHS2   NHS3   10%  of  Current  General  Government  spending   12%  of  government  spending   15%  of  government  spending     Source:  Authors  own  calculations   Earmarking   cigarette   and   alcohol   excise   taxes   for   health   will   generate   additional   financing   of   US$10   million  and  US$18  million  respectively  by  2020.   While   these   options   will   create   some   fiscal   space,  they   will   only   marginally   contribute   to   narrow   the   funding   gap   for  the   National   Health   Strategy   Scenario   2,   which  is  the  preferred  scenario  (Figure  28).  In  2013  MoFED  used  earmarked  funds  from  cigarettes  and   beer  excise  taxes  for  allocation  to  the  Ministry  of  Education  and  Culture.   39       Earmarking  1%  of  VAT  will  generate  additional  US$138  million  by  202031  and  could  significantly  narrow   the   funding   gap   (Figure   28).   However,   the   feasibility   of   earmarking   VAT   to   health   rests   on   the   government  and  other  stakeholders  accepting  such  a  proposal  given  the  current  economic  situation  and   competing  interests.   F IGURE   28:   F ISCAL   SPACE   PROJECTIONS   FROM   REPRIORITIZATION   OF   HEALTH ,   SIN   TAXES   AND   EARMARKING   OF   1   PERCENT   O F   V AT   ( AGAINST   N HS2   C OST   E STIMATES )     1600   NHS2   $660  million  gap/year  (average) 1400   MoHCC  Constant  (10%)   1200   US$  Million   1000   12%  of  government  spending   800   600   15%  of  government  spending   400   15%  GoZ  +  Earmarked  Taxes  (Cigarezes   200   and  Beer,  25%  of  excise  tax)   0   15%  GoZ  +  Earmarked  Taxes  (Cigarezes   2015   2016   2017   2018   2019   2020   and  Beer,  25%  of  excise  tax)+  1%     Source:  Authors  own  calculations   International   re-­‐engagement   would   create   additional   fiscal   space   through   opening   up   of   lines   of   credit.   Under   the   IMF   baseline   and   alternative   growth   scenarios,   Zimbabwe   does   not   have   any   debt   relief  and  will  continue  to  pay  token  amounts  to  the  World  Bank  Group,  International  Monetary  Fund,   the   African   Development   Bank   and   the   European   International   Bank.   However,   should   the   country   embark   on   the   IMF   alternative   scenario,   its   debt   burden   will   likely   reduce   marginally,   creating   some   additional  fiscal  space  through  opening  up  concessionary  lines  of  credit  from  the  Paris  Club.     In  the  short  to  medium  term,  the  National  Health  Strategy  cannot  be  implemented  without  significant   support   from   DAH.   Figure   28   revealed   that   even   with   the   most   optimistic   scenarios   for   domestic   resources   mobilization   (15   percent   of   government   spending   allocated   to   health,   sin   taxes   and   earmarking  of  one  percent  of  VAT),  the  funding  gap  for  NHS2  would  average  $660  million  annually.  At   the   time   of   this   fiscal   space   analysis,   DAH   projections   from   the   2016   donor   mapping   were   not   available;   however,  indication  from  the  commitments  to  HDF  (Figure  18)  suggest  that  DAH  will  likely  decrease  in   the  coming  years.  Figure  29  illustrates  that  even  with  continued  support  from  development  partners  to   the  level  registered  between  2014  and  2016  and  provided  all  other  measures  to  raise  domestic  spending   on   health   are   also   implemented,   some   funding   gap   will   remain.   The   fact   that   even   most   optimistic   projections   and   assumptions   cannot   cover   the   cost   of   NHS2   by   2020   highlights   the   critical   need   for   efficiency   gains   within   the   health   sector.   If   such   gains   are   not   achieved,   it   is   likely   that   the   health   financing  burden  will  fall  on  households,  creating  financial  barriers  to  health  care  and  inequities  which   would  go  against  the  principles  of  the  health  financing  policy.                                                                                                                               31  Atchison   Actuaries   &   Consultants   with   TARSC   and   MoHCW   (2013)   Projections   for   the   use   of   Earmarked   Value   Added   Tax   for   health   financing   in   Zimbabwe,   Atchison   Actuaries,   TARSC,   MoHCC,   Harare   40       F IGURE   29:   F ISCAL   SPACE   PROJECTIONS   FROM   REPRIORITIZATION   OF   HEALTH ,   SIN   TAXES ,   EARMARKING   OF   1   PERCENT   O F   V AT   A ND   C ONTINUED   D AH   F LOWS   ( AGAINST   N HS2   C OST   E STIMATES )   1600   NHS2   1400   MoHCC  Constant  (10%)   1200   US$  Millions   1000   12%  of  government  spending   800   15%  of  government  spending   600   400   Adding  sin  taxes   200   Adding  earmarking  of  1%  VAT   0   2015   2016   2017   2018   2019   2020   Adding  DAH  (average  2014-­‐16)       Source:  Authors  own  calculations   In  the  medium  to  long  term,  additional  fiscal  space  could  be  realized  by  introducing  a  national  health   scheme   funded   by   both   the   formal   and   informal   sectors.  Targeting  inclusive  and  progressive  sources  of   income   from   both   the   formally   and   informally   employed   would   help   address   some   of   the   fiscal   requirements   for   the   health   sector.   A   number   of   countries   (Ghana,   for   example)   use   VAT   as   a   major   source  of  national  health  scheme  financing.  Zimbabwe  could  explore  VAT  as  a  non-­‐regressive  source  of   funding  for  the  National  Health  Insurance  (NHI),  given  that  a  number  of  products  accessed  by  the  poor   do  not  have  any  VAT.  In  the  short  term,  actuarial  analysis  and  projections  coupled  with   proactive  and   robust  stakeholder  consultations  will  reveal  the  potential  of  the  NHI.       41       8. Way forward   The   above   fiscal   space   analysis   looked   in   turn   at   the   five   pillars   of   fiscal   space   for   health   to   identify   constraints   and   potential   sources   of   fiscal   space   for   health   during   the   period   of   the   National   Health   Strategy   2016-­‐2020,   bearing   in   mind   the   resources   needed   to   implement   the   strategy.   In   light   of   the   above   analysis   as   well   as   opportunities   and   constraints   identified,   this   section   highlights   options   to   consider  to  generate  fiscal  space  for  health.  Further  analysis  on  the  technical  and  political  feasibility  of   some  of  the  recommendations  may  be  needed.   The  current  financial  crisis  and  macroeconomic  situation  in  Zimbabwe  do  not  constitute  an  enabling   environment  for   generating  fiscal   space   for   health.  Economic  growth  is  expected  to  be  insignificant  and   revenues   to   level   off   in   the   coming   years   making   it   necessary   to   restrain   expenditures.   Resources   for   health  would  benefit  from  GDP  growth  (given  the  2.1  elasticity)  but  given  the  limited  growth  forecasts   this   will   only   have   a   marginal   effect   on   fiscal   space   for   health.   Interventions   that   would   support   additional  revenue  generation  and  stimulate  growth  fall  outside  of  the  scope  of  the  health  sector  and   are  thus  not  discussed  in  this  study.   As   overall   Government’s   revenues   and   expenditures   will   not   increase   in   the   short   to   medium   term,   expanding   fiscal   space   for   health   would   require   reprioritization   of   health   in   total   government   spending.   The  health  financing  policy  (2016-­‐2025)  makes  reference  to  the  aspirational  Abuja  target  of   15   percent   of   government   budget   allocated   to   health.   Although   Zimbabwe   spends   relatively   less   on   health  (as  a  share  of  total  government  spending)  than  most  other  countries  in  the  region,  historical  data   do   not   support   the   idea   that   reprioritization   is   likely   to   happen,   and   particularly   not   to   the   extend   needed  to  reach  the  Abuja  target.  Indeed,  since  2010  the  share  of  government  spending  on  health  has   decreased.   There   is   however   room   for   improvement   as   the   MoHCC   has   generated   several   pieces   of   evidence  that  can  be  used  to  advocate  for  more  resources,  linking  additional  resources  with   expected   results.  The  MoHCC  can  use  the  National  Health  Strategy,  the  NHS  costing,  the  resource  mapping,  the   2015   National   Health   Accounts   and   the   fiscal   space   analysis   to   demonstrate   the   funding   needs   of   the   sector,   current   misallocation   of   funds,   lack   of   funding   for   critical   programs,   inequalities   in   health   financing   and   lack   of   predictable   and   sustainable   financing   of   key   health   programs.   These   documents   constitute   key   tools   for   evidence-­‐based   planning   and   budgeting   and   could   help   the   MoHCC   obtain   reprioritization   of   government   resources   toward   the   health   sector.   Strengthening   planning   and   budgeting   processes   within   MoHCC   could   further   help   the   Ministry   to   prioritize   programs.   Moving   away   from  the  line  item  discussion  to  a  more  informed  discussion  with  MOFED  would  strengthen  the  ability  of   MoHCC   to   argue   for   more   resources.   MoHCC   is   a   pilot   Ministry   for   Program   Based   Budgeting   and   it   should  seize  that  opportunity  to  reprioritize  health  in  total  government  spending.  Finally,  fast-­‐tracking   disbursement   of   budget   allocated   to   the   Ministry   would   help   address   the   suboptimal   budget   execution,   in   particular   for   capital   expenditures.   Further   analysis   to   understand   constraints   in   public   financial   management  could  help  in  that  respect.     Generating   sector   specific   resources   represents   an   attractive   way   of   generating   fiscal   space   for   health   in   the   context   of   Zimbabwe   and   the   recent   introduction   of   a   levy   on   airtime   and   data   to   secure   funding   for   drugs   and   equipment   is   a   positive   step.   The  fiscal  space  analysis  presented  the  potential   contribution  of  sin  taxes,  in  particular  taxes  on  tobacco,  wine  and  beer  should  they  be  earmarked  to  the   health  sector  or  a  specific   subprogram.  For  instance,  sin  taxes  could  be  earmarked  to  NCD  prevention   programs  to  promote  healthy  lifestyles,  which  are  currently  underfunded.  The  analysis  shows  that  not   trivial,  although  limited  resources,  could  be  generated  from  raising  taxation  on  those  goods  and  services   and   their   feasibility   is   worth   further   exploring.   Whether   those   taxes   should   be   earmarked   or   not   is   a   matter  of  public  choice  and  would  need  discussion  among  relevant  stakeholders  in  Zimbabwe.     42       Expanding  revenues  from  VAT  and  possibly  earmarking  them  for  health  seems  to  be  a  medium  term   rather  than  a  short  term  option.   Zimbabwe’s  taxation  level  is  already  high  and  increasing  VAT  is  not  a   recommended   option.   However,   improved   revenue   collection   and   a   broadened   tax   base   could   generate   more  revenues.  Measures  that  would  incentivize  the  95  percent  of  the  active  population  currently  in  the   informal  sector  to  register  and  enter  the  formal  economy  should  be  contemplated.  They  could  have  a   positive   effect   on   revenue   collection   in   the   medium   term,   with   positive   benefit   for   the   economy   in   general   and   for   the   health   sector   in   particular.   If   VAT   revenues   increase   and   the   country   eventually   sets   up   a   National   Health  Insurance,  part  of  the  VAT   could  be  earmarked  to  it,  as   in  Ghana.  In  the  short  term   however,  earmarking  part  of  VAT  revenues  to  health  would  not  be  a  viable  solution  as  this  would  have  a   negative  impact  on  the  rest  of  the  economy.  In  the  short  term,  informal  sector  contributions  could  be   collected   from   local   authorities   which   have   better   information   on   the   informal   sector.   Taxing   local   businesses  currently  in  the  informal  sector  could  raise  revenues  for  local  authorities  that  could  be  used   to   fund   primary   care.   Recently,   the   idea   of   instituting   a   “vendors’   levy”   was   announced.   Further   investigation  would  be  needed  to  see  the  feasibility  of  such  a  measure  and  how  it  could  benefit  public   spending  on  health.   Reliance  on  DAH  to  finance  major  health  programs  is  likely  to  remain  in  the  near  future  but  reduced   fragmentation   and   better   alignment   with   Government’s   priority   would   improve   its   efficiency.   Currently,   DAH   is   the   first   financing   source   of   the   health   sector   but   it   remains   fragmented   and   there   is   a   mismatch   between   DAH   priority   areas   and   those   of   the   countries,   with   critical   areas,   like   NCD   prevention   and   treatment   being   underfunded.   Enhancing   aid   effectiveness   through   increased   predictability,   reduced   fragmentation   and   better   alignment   to   country   needs   will   be   necessary.   The   pooling  of  funds  through  HDF  is  a  good  step  towards  reduced  fragmentation  and  efforts  in  that  direction   should   be   pursued.   Reducing   vertical   funding   (in   particular   for   HIV/AIDS)   and   ensuring   that   those   programs  contribute  to  broader   health  system  investments  would  also  contribute  to  enhance  efficiency   in   donor   funding.   Greater   focus   of   DAH   on   health   systems   strengthening   would   be   a   critical   step   to   reduce  reliance  on  external  support  by  supporting  the  health  sector  to  deliver  more  and  better  quality   health  services  on  the  long  run.  The  resource  mapping  performed  annually  by  CHAI  and  the  MoHCC  as   well  as  the  National  Health  Accounts  provide  a  wealth  of  information  regarding  donor  funding,  areas  of   support   and   more   neglected   areas:   using   such   evidence   to   build   the   case   for   donor   support   and   for   reshaping  it  could  help  MoHCC  achieve  greater  value  for  money  from  the  external  support  it  receives.   Limited   forecasts   related   to   donor   financing   point   to   a   decrease   in   external   support,   as   is   observed   in   other   countries;   in   that   context,   it   is   critical   that   the   Government   of   Zimbabwe   secures   enough   resources   to   ensure   sustainable   funding   of   critical   programs   that   are   currently   funded   by   external   partners.     Better   integration   and   coordination   of   support   at   provincial   and   district   levels   could   help   achieve   efficiency   gains.   The   co-­‐existence   of   input   and   output   based   financing   at   local   level   as   well   as   the   multitude   of   vertical   programs   creates   inefficiencies.   Parallel   systems   place   a   heavy   burden   on   health   workers   and   prevent   economies   of   scale   and   synergies.   For   example,   both   Global   Fund   and   RBF   provide   resources  for  supervision  of  the  same  malaria  activities.  Zimbabwe  could  benefit  from  the  experience  of   some   countries   which   are   developing   innovative   ways   of   reducing   fragmentation   and   inefficiencies   at   the   local   level:   the   “single   contract”   in   DRC   allows   to   align   government   and   donors’   funding   at   the   provincial  level  under  one  plan,  one  audit  and  using  harmonized  procedures.     Getting  more  out  of  the  current  level  of  resources  flowing  to  the  sector  by  achieving  efficiency  gains   seems  to  be  the  most  urgent  and  plausible  option  for  generating  fiscal  space  for  health  in  Zimbabwe   given   the   current   financial   crisis.   Zimbabwe’s   burden   of   disease   is   evolving   with   NCDs   representing   a   growing   share.   Still,   communicable   diseases   remain   the   major   concern.   The   burden   of   disease   of   the   population,  in  particular  that  of  the  most  vulnerable,  should  drive  the  allocation  of  public  funds  to  the   43       health   sector.   Looking   at   the   disease   profile   and   health   seeking   behaviors   of   the   poorest,   it   is   necessary   to  reallocate  more  resources  to  the  lowest  levels  of  care,  where  most  of  the  vulnerable  go  and  where   the   majority   of   cases   can   be   treated   at   a   lower   cost.   Pulling   out   some   resources   from   curative   to   preventive  services  could  also  avoid  a  large  burden  on  health  systems  and  health  financing  by  reducing   the  incidence  of  NCDs  and  communicable  diseases  which  are  costly  to  treat.   Improving   budget   processes,   from   planning   to   execution   and   implementing   PFM   reforms   could   better   turn   allocated   funds   into   inputs.   Implementing   recommendations   from   the   AG’s   reports   related   to   budget  control  procedures,  accounting  procedures,  governance  and  procurement  system  will  be  critical   to  move  toward  greater  technical  efficiency.  Strengthening  program  based  budgeting  and  moving  away   from   line   item   budgeting   will   allow   monitoring   progress   and   tying   resources   for   results.   Making   the   needs-­‐based   resources   allocation   formula   effective   will   also   improve   alignment   of   available   resources   and  population  needs  for  higher  impact.     The  large  wage  bill  represents  a  major  constraint  for  the  country  as  a  whole  and  the  health  sector  in   particular   and   no   substantive   efficiency   gain   could   be   achieved   within   the   sector   without   implementing  the  public  sector  wage  reform.  More  than  85  percent  of  the  MoHCC  budget  is  spent  on   salaries  creating  rigidities  and  leaving  only  little  resources  to  fund  health  programs.  In  parallel,  MoHCC   reports   significant   shortages   of   some   categories   of   human   resources   for   health.   It   is   critical   that   the   Government   addresses   this   double   issue   and   defines   a   clear   strategy   for   the   management   of   human   resources  for  health  that  could  include  converting  some  of  the  posts  as  more  low  cost  staff  are  needed   at   the   lower   levels   of   care.   A   health   sector   audit   by   the   health   service   Board   is   planned   for   2017.   It   should  bring  more  insights  to  address  this  issue.   Hospitals  are  a  critical  component  of  the  health  system  in  Zimbabwe  but  their  efficiency  is   uncertain.   Limited  evidence  reveals  that  hospitals  at  all  levels  are  not  efficient,  which  is  confirmed  by  the  low  bed   occupancy  rate.  A  hospital  efficiency  study  on  62  hospitals  has  been  commissioned  and  will  bring  more   evidence   on   hospital   efficiency   in   the   country.   Further   analysis,   including   qualitative   analysis,   will   be   needed  to  understand  the  reason  for  poor  efficiency  and  recommend  concrete  actions  and  strategies  to   address  them.     The   efficiency   of   the   health   sector   is   impeded   by   poor   availability   of   major   inputs   in   health   care   facilities.   The   health   system   in   Zimbabwe   is   lacking   the   basic   inputs   (human   resources,   drugs,   equipment)  required  to  deliver  quality  health  services.  There  is  evidence  that  PBF  can  help  address  some   of  those  structural  issues  as  demonstrated  by  the  recent  evaluation  of  PBF.  In  addition,  some  countries   like  Rwanda,  granted  autonomy  to  health  care  facilities  to  achieve  greater  efficiency,  allowing  them  to   use  their  own  funds,  to  manage  human  resources  and  to  buy  drugs  and  equipment.  This  option  could  be   explored  in  Zimbabwe  to  address  the  systems’  inefficiencies.     Addressing   issues   affecting   the   supply   chain   would   allow   achieving   major   efficiency   gains.   The   existence  of  parallel  distribution  systems  has  a  direct  impact  of  costs  and  availability  of  drugs.  Vertical   programs   tend   to   fund   drugs   in   an   uncoordinated   way   which   creates   parallel   distribution   systems.   Merging   such   systems   in   the   medium-­‐term   would   result   in   significant   efficiency   gains.   The   current   transition   to   the   push   system   in   most   of   the   country   and   greater   coordination   of   various   financing   streams   and   distribution   systems   for   commodities   are   positive   steps.   A   shift   to   one   integrated   distribution  system  in  the  medium-­‐term  would  likely  bring  significant  gains.         44       9. References   American  Cancer  Society  (2015).  The  Tobacco  Atlas,  Fifth  Edition.     Atchison  Actuaries  &  Consultants  with  TARSC  and  MoHCW  (2013).  Projections  for  the  use  of  Earmarked   Value  Added  Tax  for  health  financing  in  Zimbabwe,  Atchison  Actuaries,  TARSC,  MoHCC,  Harare.   Cashin,   C.   and   Tandon,   A.   (2010).   Assessing   Public   Expenditure   on   Health   from   a   Fiscal   Space   Perspective,  the  World  Bank.     Chiyaka,  Ignatio,  and  Naomi  Printz.  Zimbabwe  Assisted  Pull  System:  Design  of  Ordering  and  Resupply   Procedures.  Arlington,  Va.:  USAID  |  DELIVER  PROJECT,  Task  Order  4.   Heller,  P.  (2006).  The  prospects  of  creating  ‘fiscal  space’  for  the  health  sector.  Health  Policy  Plan.  (March   2006)  21  (2):  75-­‐79.   IMF  (2014).  Government  Finance  Statistics  Manual  (GFSM).     IMF  (2016).  IMF  Country  report  No.  16/109.     Kutzin,   J.   and   Mclntyre,   D.   (2016).   Health   Financing   Country   Diagnostic:   A   Foundation   for   National   Strategy  Development,  World  Health  Organization.     Lustig,  N.  (2012).  Commitment  to  Equity:  Diagnostic  Questionnaire.  CEQ  Working  Paper  No.  2.   MoFED  (2016).  Mid-­‐Year  Policy  Review,  Harare.   MoFED   (2016).   The   National   Budget   Statement:   “Building   a   conducive   environment   that   attracts   foreign   direct  investment”,  Harare.   MoHCC  (2015).  Zimbabwe  Service  Availability  and  Readiness  Assessment  2015,  Harare.   MoHCC  (2016).  Costing  of  the  National  Health  Strategy  2016-­‐2020,  Harare.   MoHCC  (2016).  Resource  mapping,  Harare.   MoHCW,  TARSC  (2013).  Report  on  Stakeholder  Review  of  options  for  Domestic  health  Financing,  16   August,  Harare,  MoHCW,  TARSC/  EQUINET  Harare.   National  AIDS  Council  Zimbabwe  of  1999  (2001).  NAC  Act  Chapter  15  Section  14  subsection  14  and  15  of   the  Finance  Act,  Chapter  23:04,  Government  Printers,  Harare.   National  AIDS  Council  Zimbabwe  of  1999  (2001).  NAC  Act  Chapter  15:14  of  2000,  Government  Printers,   Harare.   Rosen,  James  E.,  Julia  Bem,  and  Katherine  Wolf  (2015).  Evaluation  of  the  Zimbabwe  Assisted  Pull  System   (ZAPS):  Baseline  Report.  Arlington,  Va.:  USAID  |  DELIVER  PROJECT,  Task  Order  4.   45       Shepard,  D.  and  Zeng,  W.  (2016).  Conference  Presentation:  Cost  Effectiveness  Analysis  of  Results-­‐Based   Financing  in  Zimbabwe,  Cresta  Lodge  Harare,  Zimbabwe.   TARSC,  Atchison  Actuaries  (2014).  Proposals  for  integrating  equity  in  allocation  of  recurrent  resources  to   support  universal  coverage  in  Zimbabwe,  TARSC,  MoHCC,  Harare.   USAID  (2013).  Data  for  Efficiency:  A  Tool  for  Assessing  Health  Systems  Resource  Use  Efficiency.  Health   Finance  and  warweGovernance.     WHO  (2001).  Macroeconomics  and  Health:  Investing  in  Health  for  Economic  Development.  Report  of  the   Commission  on  Macroeconomics  and  Health.     WHO  (2010).  Health  Systems  Financing:  The  Path  to  Universal  Health  Coverage.  World  Health  Report.   Witter,   S.,   Naylor,   M.,   Caffrey,   M.   and   Carasso,   K.   Assessment   and   redesign   of   the   systems   for   RBF,   Human  Resources  for  Health  and  Pharmaceuticals  in  Zimbabwe.  Final  report  (draft).  December  2016.       World   Bank,   MoHCC   (2015).   Health   Public   Expenditure   Review   Zimbabwe.   Report   No.   97175-­‐ZW.   Washington  DC.     World   Bank   (2016).   Zimbabwe   Economic   Update.   What   has   changed   since   February?   PowerPoint   Presentation.  September  15,  2016.  Harare.     Zimbabwe  Economic  Policy  Analysis  and  Research  Unit  (ZEPARU)  (2014).  Cost  Driver  Analysis  of  the   Zimbabwe  Economy,  cited  in  IMF  Country  Report  May  2016,  Harare.   ZIMRA  (2015).  Revenue  Performance  Report  for  the  Year  ended  31  December  2015,  Harare.   ZIMSTATS  (2015).  2014  Labor  Force  Survey,  Harare.     ZIMSTATS  (2015).  National  Accounts  2009-­‐2014  Report,  Harare.         46