Health system spend pushed out as COVID response takes precedence

The Medium-Term Budget Policy Statement (MTBPS), due to be tabled on 11 November, is unique for several reasons. Firstly, the mini-budget comes as global economies are starting to adapt to life and build their economic recoveries around living with the virus as the new normal. The growing realisation that the global recovery is expected to be K-shaped- with some countries recovering and growing quickly, and others struggling through resurging cases and falling into a low-growth trap, constrains the ability to expand spending significantly while facing renewed COVID challenges. While South Africa has shown signs of an economic recovery, without addressing structural challenges, the country runs the risk of growing along the lower leg of the K. On top of this, the South African health system has continued to be buffeted by the pandemic, and has forced government to make significant budget adjustments, shifting funding across commitments, as well as moving funding obligations from outer years to the immediate term to provide an adequate response.

Since the Supplementary Budget of 2020, government has been forced to make reprioritisations - stemming from the deteriorating fiscal position - across a number of health spending areas to fund the COVID-19 response. Between Budget 2020 and Budget 2021, planned growth in health spending fell broadly from 5.1% average annual growth over the next three years, to a - 0.3% contraction average annually over the next three years as contained in Budget 2021.

Spending has also shifted in intended time impact - responding to the COVID-19 pandemic has seen a greater trend of bringing funding forward, from medium- and long-term commitments to fund immediate responses. For example, the Health Facility Revitalisation Grant experienced a R1bn reprioritisation away from infrastructure spend towards the immediate COVID response. In Budget 2021, reductions in healthcare spending were further worsened by a planned cut in facilities management and maintenance of - 9.7% annually over the next three years. As funding shifts away from infrastructure spend, the state and quality of facilities is expected to decline over the medium term, and require significant investment to bring this up to the required National Health Insurance (NHI) standard.

The largest reprioritisation item, R15bn derived from the Provincial Equitable Share (PES), represents a larger challenge. The PES represents allocations to provincial governments and allows for basic service delivery across provinces. The reprioritisation represents around 3% of the total PES spending and drawing funding from the PES highlights two realities about the current state of the fiscus. One, having to draw from the PES to fund immediate COVID-19 responses suggests that reprioritisations are likely to become more common but also more difficult as funding remains in short supply, the “low hanging-fruit” will become scarcer, and the cost of drawing from mainstream funding channels such as the PES will come at a greater cost to service delivery at a local level, especially in low-income and rural communities.

Within the context of the economic fall-out from the pandemic and the precarious fiscal situation, NHI remains a key policy priority of government and will require a significant increase in spending over the medium term to ensure it is successfully rolled out without damaging quality of healthcare. Looking ahead to the MTBPS, the key focus areas in the healthcare sphere will have to contain measures to provide damage control over the knock-on effects on the health system over the past year, most notably the continued fallout from COVID-19, and the effects of the July looting and rioting, while also showing commitment to balancing spending within the debt trajectory set out in the February budget. However, budgets dating back to 2018 have shown that, in light of the tough fiscal situation, government has been able to only fund readiness measures to prepare for the rollout of NHI. It expected that come November 11, spending will remain concentrated on combatting the continued effects of the COVID pandemic, expanding the vaccine roll out and providing socio-economic support measures to the affected population. As such, the trend of funding readiness and improving efficiencies of health systems should be the main commitment to NHI.