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to its priorities. A suggestion was made that a certain % of the budget should be ring fenced for the health
sector.
The MOF noted that the MOH prepared a good budget bid and that the MOF forwarded its proposals for
consideration to the government rather than rejecting them, so it appears that the decision not to fund the
proposals was made at the political level. To strengthen the MOH‟s arguments for a larger share of the
expenditure in future budgets it could present information on the trend in expenditure on health compared
to other areas as a % of GDP, as a % of the State budget and in comparison to other countries. The draft
Health Sector Strategy lacks this analysis and leaves the MOH in a weak position to argue its case for
increased funding.
Ring fencing budget shares for a sector is often argued against as poor practice in public finances as it
prevents a full consideration of relative priorities between sectors, particularly as the ring fencing if adopted
for one sector can spread to ring fencing for other sectors. Some countries have operated poverty
reduction ring fencing for some sectors and as a result have neglected investment in other areas that
promoted economic growth, such as infrastructure investment. There can be other problems with ring
fencing, for example in Vietnam the rings fencing of 20% of the budget for education caused problems for
provinces with rapidly growing revenues that they were unable to apply effectively to education and
prevented them from investing in other priority areas. It was also difficult to apply the ring fencing through
the local government and central government spending as local governments had some autonomy over
expenditure and did not always spend the amount of the transfer from central government calculated for a
sector on that particular sector. Any proposal for ring fencing should consider these and other issues.
A more effective approach would be to present well justified proposals for expenditure including the
analysis of the budget shares and to demonstrate results from the use of the budget funds.
Changing the use of funds during the year from the appropriations in the budget
The comment was made that it can be difficult to fund emerging priorities during the year and to move
expenditure.
While the Public Finance Law has reasonably generous virement provisions, in practice they can be
laborious to implement as the budget is executed at a detailed level. There are four larger groups of
expenditure: capital, salaries and wages, goods and service and other recurrent expenditure, with more
detailed categories below these classifications such as types of utility expenditures. This arrangement for
the budget is common when countries are focused on control of expenditure and cash management. As
budget systems evolve, larger classifications of expenditure are used and greater flexibilities are provided
to budget organisations to move expenditures, but these flexibilities are accompanied by increased
accountability for performance and greater internal financial management controls. Taking this stage of
evolution into account, the MOH could explore options to accelerate their flexibilities to manage funds by
offering to pilot aspects of performance based budgeting which is commonly accompanied by greater
flexibilities in the management of resources, in return for greater demonstration of service and financial
performance. The suggestions relating to the statement of service performance and the use of service
agreements discussed in this appendix in relation to hospitals are examples of some elements of
performance based budgeting that can be used to support an argument for greater flexibility in the use of
resources.
Revenue earned by institutions are not fully returned to institutions
The comment was made that the arrangement of concluding an MOU each year with the MOF on the
percentage of earned revenues to be allocated to the health sector is an unnecessary process as the
revenues should be 100% allocated to the institutions. This would improve the incentives to collect the
revenue and provide resources for projects to improve services and working conditions.
The MOH could develop a policy proposal to government to support this proposition for the health sector.
The proposal could set out:
Description of the issues with the current arrangements
Proposal for change and description of benefits of the change. The MOH may wish to present
various options such as retention of revenue for some institutions only rather than all institutions
particularly if there are particular risks with conflicts of interest as with regulatory and licensing
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