1

FISCAL SPACE AND: IMPLICATIONS TO FISCAL SPACE AND: IMPLICATIONS TO THE HEALTH SECTORTHE HEALTH SECTOR

By: Mr. David N. NdopuBy: Mr. David N. Ndopu

DIRECTORDIRECTOR

MINISTRY OF FINANCE AND NATIONAL PLANNINGMINISTRY OF FINANCE AND NATIONAL PLANNINGDepartment of Economic and Technical CooperationDepartment of Economic and Technical Cooperation

REPUBLICREPUBLIC OF ZAMBIAOF ZAMBIA

FISCAL SPACE

Definition:

“room in a Government’s budget that allows it to provide resources for desired purpose without jeopardizing the sustainability of its financial position or the stability of the economy.”

2

GENERAL OUTLINE

In some countries, there may be room for increased taxes or reallocation of expenditure.

In others, tax burden already at limits of what is desirable for a low-income country (LIC); or a significant share of expenditures are likely to be nondiscretionary or difficult to prune.

In some, high domestic debt burdens, combined with high real interest rates, make it difficult to find fiscal space without action to reduce the burden of domestic debt (requiring responsible fiscal consolidation efforts).

3

SOURCES OF FISCAL SPACE

Domestic borrowing: can be an important source of debt burden.

A higher tax burden: raising tax rates, new taxes and strengthening revenue administration efforts.

Cutting expenditure, particular unproductive expenditure.

Enhancing effectiveness of current spending in health and other sectors.

Promoting a high growth mix of expenditure - higher growth rates can facilitate greater revenue potential.

4

SOURCES OF FISCAL SPACE CONT’

External resources: External grants: an obvious source of

additional source of fiscal space but still subject to sustainability or/and predictability.

Loans: Concessional borrowing.

5

FUNDING FOR THE HEALTH SECTOR: WHAT IS THE MESSAGE FOR ZAMBIA?

There is very limited scope to use domestic resources to finance more spending, especially in short-run, with taxes high, expenditure relatively inflexible, and large domestic debt, especially with adverse debt dynamics (difference between growth rate and interest rates).

Also for Zambia printing money not option because of the macroeconomic parameters.

In medium term, must rationalize spending. Grants and concessional loans necessary.

6

CRITICAL CONCERNS IN FISCAL SPACE

There is likely to be competition from other parts of government for any available fiscal space.

Infrastructure vital for growth. Other social sector needs.What is the situation in Zambia regarding

the funding towards the health sector?

7

SECTOR ALLOCATION

8

FNDP SECTOR ALLOCATION

9

BROAD FNDP SECTORAL ALLOCATIONS (K’ BILLION) FOR HEALTH

10

2006 2007 2008 2009 2010

GRZ 554.05 815.7 968.81 1, 094.27 1, 326.88

DONORS 566.62 533.61 559.09 652.49 699.81

TOTAL 1, 120.7 1, 349.3 1, 527.9 1, 746.8 2, 026.7

Budget Allocation

1, 098.4 1, 294.0 1, 586.6

Percentageof total budget

10.7% 10.7% 11.5%

SUSTAINABILITY IS A CRITICAL CONCERN IN CONSIDERING THE USE OF FISCAL SPACE FOR HEALTH

The issues are several: Grants preferable to loans (even

concessional); do not raise debt service issues. But even with grants,

How should a government respond to a sizeable increase in sectoral grant support but with no guarantees of sustained external support beyond 2-3 years?

11

SUSTAINABILITY IS A CRITICAL CONCERN IN CONSIDERING THE USE OF FISCAL SPACE FOR HEALTH

Particularly for human resources for health (HRH), we must train and employ for a long period; Can we count on donors providing resources for a long enough time period that we can make employment commitments?

Concern of a minister of finance: expand a program and then find that in a subsequent year, other cutbacks or borrowing will be required to sustain a program. Limits on the extent of such exposure.

Greater long-term predictability in donor assistance thus enhances fiscal space!

12

CONCLUSION

Significant limits on how much fiscal space can be created in the absence of external grant/concessional loan support in short to medium term.

There is competition for such fiscal space. Greater predictability over the long-term in

donor assistance can create more effective fiscal space.

Caution is needed, post-debt cancellation, with new borrowing.

The need for an integrated sectoral plan to determine how to expand the health sector is critical.

13

Thank you for listening

14