Economic Contraction from COVID-19 in the Pacific: Implications for Health Financing

ABSTRACT Pacific Island countries (PIC) have emerged as among the most at-risk globally from the collateral economic damage resulting from the COVID-19 pandemic, despite being largely spared its direct health effects so far. Current projections indicate that all PIC will experience an economic contraction in 2020, ranging from −1.0% in Tuvalu to −21.7% in Fiji, worse than most countries globally on average. Given that more than 80% of financing for health in the Pacific comes from domestic and external public sources, the net impact of the economic contraction on resources for health will depend on whether overall public spending can offset the decline in economic activity and how health will be prioritized in government budgets relative to other sectors. Without active reprioritization, most countries could see a slowdown or even decline in per capita levels of public spending for health in the region, risking gains made in advancing universal health coverage in recent years. If health ministries do not act quickly and in consort with other ministries (particularly ministries of finance), including by taking active steps to improve the efficient use of existing resources and other measures to mitigate the economic effects of the crisis on resources for health, it is likely that current economic circumstances will result in unplanned changes. These changes may not deliver the health outcomes that the health ministries would select themselves and may result in a reversal of hard-fought health gains.


Introduction
The remote and geographic isolation of Pacific Island countries (PIC) has helped protect them from the global spread of the COVID-19 pandemic.Most countries closed their borders in March 2020 and combined with other lockdown measures have prevented severe mortality and morbidity impacts of the pandemic to date.As of October 2020, many PIC -including the Federated States of Micronesia (FSM), Kiribati, Marshall Islands, Nauru, Palau, Samoa, Tonga, Tuvalu, and Vanuatu-remained among the small number of countries globally that were free from COVID-19.Ongoing repatriation flights may result in imported infections, which will need careful management including via robust quarantine processes.There remains concern that disruptions to routine essential health service delivery and delays in health-seeking behavior caused by COVID-19 may see an increase in preventable deaths and illness from other causes.
Despite being largely spared its direct health effects, PIC have emerged as among the most at-risk globally from the collateral economic damage resulting from the pandemic.a As a result, unemployment, poverty, and income inequality are expected to rise as remittances and household incomes are adversely affected.Although no strangers to economic volatility and vulnerabilities-PIC are among the most at-risk to climate change and natural disasters-the economic crisis resulting from COVID-19 is unprecedented in its depth and scale in the region.PIC on average are expected to lose several years of gains in economic output, which may take as many years to recover.Although projections indicate a potential economic recovery beginning in 2021, this is dependent on significant positive developments in the COVID-19 situation globally, including the availability of an effective vaccine, treatment, or development of proven protocols for establishing safe travel zones.Furthermore, any economic recovery will most likely be slow, erratic, and in some cases may take several years to fully realize.
Part of the decline in economic activity has been a result of lockdown measures implemented both within PIC (resulting in declining consumption and services) as well as globally (causing reductions in investment and supply-chain disruptions).Others have been due to external vulnerabilities: tourism's share in GDP is high in several countries in the region (e.g., in Fiji, Palau, Vanuatu); others are highly dependent on remittances (e.g., Tonga, Samoa, Marshall Islands, Tuvalu, Kiribati) and exports (e.g., Papua New Guinea (PNG), Solomon Islands). 2Higher vulnerabilities in some countries will affect not only the magnitude of the economic impact but also its duration and uncertainty.Although there are country-specific differences, on average pre-crisis overall public spending in the Pacific was financed mostly by non-tax revenues followed by almost equal shares from tax revenues and external financing, with very low levels of deficit financing.There are some notable exceptions, however, e.g., in PNG and Fiji debt servicing burdens were already a relatively large share of government spending-higher than the share allocated toward health-even before COVID-19. 3From a fiscal standpoint, PIC are particularly vulnerable due to their relatively high dependence on external financing, including from bilateral development partners, an unreliable source of income given many donor countries are grappling with their own economic crises.Australia, China, the European Union, New Zealand, and the United States are all major development partners to Pacific health sectors, alongside multilateral development banks and the United Nations (UN) agencies.
As a result of the economic contraction from COVID-19, domestic government revenues are expected to decline across all PIC, both in levels and as shares of GDP. 3 Trends in external financing support will depend on the economic and revenue  impact of COVID-19 crisis in donor countries, prioritization of aid budgets in overall spending plans, and resources available for health within the multilateral system.Current indications are that external financing will remain largely unchanged as a share of GDP across most countries, although this is subject to tremendous uncertainty. 3As in other regions, countries are increasing borrowing to offset the decline in domestic government revenues, leading to projections of higher levels of public debt.Vanuatu, Marshall Islands, FSM, Palau, Samoa, Tuvalu, and Solomon Islands are expected to increase levels of per capita public spending by increasing borrowing, while others such as PNG, Fiji, Kiribati, and Nauru are currently projected to be unable to do so despite increasing borrowing.

Implications for Health Financing
The impact of COVID-19 on overall financing for health in the Pacific will also depend on what happens to health's share of public spending and how well that is managed.For example, pre-crisis per capita public spending on health in Fiji was approximately 122 USD, a function of a per capita GDP of 6,000 USD, public spending's share of GDP of 29%, and health's share of public spending of about 7%. 4 Even if Fiji's per capita GDP contracts to 5,000 USD due to COVID-19, the final impact on per capita public spending on health will depend on what happens to overall public spending's share of GDP and to health's share of public spending.Implementation of countercyclical fiscal and monetary policies that result in higher public spending shares of GDP, combined with higher shares of health in public budgets, could potentially mitigate the overall effect on levels of per capita public spending b .Fiji's public spending share of GDP is expected to increase to 32%; however, this will not be enough to offset the decline in per capita GDP and, if health's share of public spending remains at 7%, Fiji will see a contraction in its level of per capita public spending on health to 112 USD, reversing it back to levels several years ago.Scenarios such as this are putting at risk years of gains made in advancing universal health coverage (UHC) across the region, especially in increasing service capacity and control of infectious diseases.At the same time, the growing burden of non-communicable diseases (NCDs) and related service needs is further stretching limited health resources (Figure 2).
The World Health Organization (WHO) estimates indicate pre-crisis average per capita spending on health among PIC to be almost 500 USD (roughly 9% of per capita GDP).In 2017, more than 80% of financing for health came from public sources, both from domestic government revenues and from external financing channeled via the government budget.The remainder was from non-budgetary external financing and from household out-of-pocket (OOP) sources (Figure 3).Unlike East Asian low-and middle-income countries, where OOP financing is the dominant financing source, PIC are notable in their relatively low dependence on OOP financing for health (<10% of total health spending on average) but-reflecting the situation across most sectorsalso in having a relatively large share (>20%) coming from external sources.Increases in public financing for health in recent years have helped improve several dimensions of UHC attainment globally as well as across PIC, although gaps remain especially with NCDs. 5 In many PIC, health already captures a relatively high shares of the government budget (about 12% on average).The economic impact of COVID-19 means it will be difficult to increase this share, which may result in a decline in spending levels in real terms.Higher debt levels imply greater debt servicing needs in future; hence, fiscal tightening across all sectors (including health) may continue for several years beyond the end of the current crisis.Although OOP is a relatively minor source of health financing in the Pacific, prior global experiences with economic contractions suggest that this source of financing will decline even further, both due to declining utilization of health services and lower household incomes. 3e implications are that public spending for health would need to increase even more than trends in previous years to offset the expected decline in OOP spending.

Discussion
In the era of COVID, most Pacific governments will need to reassess how to use and allocate their limited resources more effectively: for sustaining progress toward UHC, including improving service coverage for NCDs and ensuring pandemic preparedness.Without countries going into extreme debt, this would mean fewer public resources available with smaller annual budget allocations for each ministry over the coming years.The health ministries will therefore need to make a stronger case for continued investments to maintain or even increase allocations.To do this effectively, health ministries need to demonstrate what health benefits are being (or likely to be) achieved as a result of the resources provided.The ministry of health's budget submission needs to be realistic and sustainable in the context of the overall resources available.This will inevitably require some level of demonstrated (re)prioritization and (re)allocation of existing resources within health budgets in line with agreed strategies to address priorities to improve overall population health.(Re)prioritization and (re)allocation of resources need to be informed by the lessons from COVID-19 response, and there are many.This must include more focused efforts to strengthen the weak systems that undermine the delivery of quality essential health services for all.As part of ongoing efforts to improve governance and accountability for the way resources are managed in the health sector, each ministry management team is encouraged to urgently review its workplan and budget for this year, to (re)prioritize and (re)allocate resources in a way that responds to the lessons so far.Ministry teams are encouraged to ask 'are we doing the best we can to reprioritize and reallocate resources to achieve the necessary improvements in core health areas such as infection prevention and control (including waste management), supply chain management, diagnostic services, and improved data for decision-making?' 6 There is an opportunity during this pandemic to restructure health sectors to be more efficient and to make better use of technology to improve informed decisionmaking.Examples include public health surveillance systems that can detect outbreaks early for quick response actions, hospital information systems with unique patient identification cards to improve quality of care, and/or financial management systems that enable timely reconciliation of expenditures against budget codes.In PNG, provincial health authorities have engaged with community groups, local districts, and extractive resource companies providing health services to develop common budgets and financing plans.
The health sector can also work more closely with ministries of finance in identifying and addressing public financial management and public administration-related bottlenecks that can impair attempts to make the health sector more efficient, including rigid line-item budgeting and lack of flexibility in use of funds.Many of these bottlenecks were known prior to the arrival of COVID-19 and dealing with the pandemic only magnified the need, and at times offered opportunities and solutions to address them.Ministries of health can also consider being more active in working with ministries of finance or public service commissions to find solutions to these bottlenecks that ultimately can slow spending, discourage multi-sectoral responses and prevent attempts to increase the allocative and technical efficiency of health spending.Without these sorts of improvements, countries will not have the strong foundation needed to respond effectively to the current and future threats to economic and health security that are predicted to become more frequent and more severe over coming years. 7he same approach-focussing on efficiency and effectiveness-will ideally be used to inform the preparation of next year's budget submission and the ones after that.Working with a mediumterm plan for strengthening health systems to improve health security as a foundational step for UHC can help to bolster the case for adequate per capita health funding while government revenue is declining.Getting development partners to more actively engage in the annual planning and budget processes will also help health officials to maximize all resources available to their ministry.The positive aspect of COVID-19 is that it presents an opportunity for PIC to come together with UN agencies, bi-lateral efforts, and multi-lateral banks to systematically address both the economic and health challenges facing the region.
In the medium term, this could also be an opportune time for countries to consider significantly ramping up health taxes-taxes on goods and services that have harmful health effects such as on tobacco, alcohol, sugar-sweetened beverages, and carbon emissions-and to remove subsidies on fossil fuels where extant.Given declining outputs and government revenues resulting from the pandemic, health taxes can help plug some of the shortfalls and are far less likely to face political opposition given the tightening fiscal environment.The nature of excise duties means that health taxes may be easier to collect than broader consumption taxes.Soft earmarks of revenues raised and targeted toward pro-poor health programs could help offset some concerns related to the potential lack of progressivity of some such measures.

Conclusions
Despite being spared the direct health effects from COVID-19 so far, the economic contraction effects are expected to be substantial for most PIC, risking availability of resources for the health sector and potentially reversing years of gains made in improving UHC.If health ministries do not act quickly and in consort with other ministries (particularly the ministry of finance), it is likely that current economic circumstances will result in unplanned changes.Such changes may not deliver the health outcomes that the health ministries would select themselves and may result in a worsening of mortality and morbidity trends.Countries and multi/ bilateral institutions providing funding and technical support have a role to play by supporting governments (particularly the health sector) in planning their budgets as well as in generating data and using this for decision-making.The time for action is now.

Figure 1 .
Figure 1.All Pacific countries are expected to contract in 2020.Source: World Bank (2020a).

Figure 2 .
Figure 2. UHC service coverage gains have occurred in the Pacific in recent years, except for non-communicable diseases.Source: WHO (2019).

Figure 3 .
Figure 3. Financing for health comes largely from domestic and external government sources in the Pacific.Source: WHO (2020).