BUDGET EXECUTION Marion Jane Cros IN HEALTH: FROM Tseganeh Amsalu Guracha Noemi Schramm BOTTLENECKS TO Mideksa Adugna SOLUTIONS CASE STUDY SERIES ETHIOPIA Cover images: Upper © Dusit/Adobe Stock Lower © UNICEF Ethiopia/Mulugeta Ayene Health, Nutrition and Population (HNP) Discussion Paper BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS CASE STUDY SERIES ETHIOPIA Marion Jane Cros Tseganeh Amsalu Guracha Senior Health Specialist; Health, Nutrition and Population Senior Health Specialist; Health, Nutrition and Population Global Practice, World Bank; New Delhi, India Global Practice; World Bank; Addis Ababa, Ethiopia Noemi Schramm Mideksa Adugna Consultant; World Bank; Washington, DC, United States Consultant; World Bank; Addis Ababa, Ethiopia ABSTRACT: Ethiopia achieves a high overall rate of execution of its health budget. From 2016 to 2021 the health budget execution rate averaged 95 percent of the original budget allocation. The health budget execution rate was higher than the execution rates for overall government spending. The execution rate also increased each year (ultimately exceeding 100 percent in both 2019/20 and 2020/21 as a result of additional prioritisation to health spending during the pandemic). Nonetheless, the execution rate for regions was lower than for the federal government. The execution of the capital budget was also weaker, particularly at the regional and woreda levels. Data on execution rates for specific government programs are not available and may involve much more volatility than aggregated execution rates. Development partner spending managed outside of the federal Treasury also had much higher volatility in execution. Good practices that underpin Ethiopia’s high execution rates include relatively low levels of arrears; reasonable turnaround times for payroll changes and high accuracy of payroll expenditures; timeliness and good communication of budgeting processes; and shortening of timeframes for transfers from federal to decentralized levels. Areas that hold back the quality of budget execution include limited transparency on execution data; capacity constraints at the facility and woreda levels; external resources being managed outside of government systems; limited flexibility of spending for health facilities; and overly simplified procurement processes that prioritise only the lowest price. Disclaimer: The findings, interpretations and conclusions expressed in the paper are entirely those of the authors, and do not represent the views of the World Bank, its Executive Directors, or the countries they represent. Correspondence Details: Marion Jane Cros mcros@worldbank.org Budget execution in health: from bottlenecks to solutions © The International Bank for Reconstruction and Development / The World Bank, 2025 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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Unless otherwise credited, all images used in this report were created in part with Midjourney AI and overlayed with graphics created by DLD. Any resemblence to a real individual is accidental. This interactive document has been optimised for use on computers and tablets in portrait orientation. Click on this square to return to the contents page SECTION NAME Click on this section to return to the beginning of the section CONTENTS CONTENTS ACKNOWLEDGMENTSII 1. HEALTH FINANCING CONTEXT 01 2. BUDGET EXECUTION IN HEALTH 08 3. PUBLIC FINANCIAL MANAGEMENT CONTROLS FOR HEALTH SPENDING 13 4. GOOD PRACTICES AND BOTTLENECKS 17 REFERENCES21 LIST OF FIGURES FIGURE 1: ETHIOPIA FLOW OF FUNDS IN THE HEALTH SECTOR 05 FIGURE 2: GOVERNMENT HEALTH EXPENDITURES, 2016/17–2020/2106 FIGURE 3: ETHIOPIA HEALTH SPENDING PER CAPITA, 2010–1907 FIGURE 4: ETHIOPIA EXECUTION RATE OF ORIGINAL VS. ADJUSTED HEALTH BUDGET, 2013/14–2017/18 09 FIGURE 5: ETHIOPIA EXECUTION RATE OF HEALTH VS. OVERALL BUDGET, 2016/17–2020/21 10 FIGURE 6: ETHIOPIA BUDGET EXECUTION RATE BY CHANNEL, 2012/13–2017/18 10 FIGURE 7: ETHIOPIA HEALTH BUDGET EXECUTION FOR RECURRENT, CAPITAL, AND OVERALL COSTS, 2016/17–2020/21 11 LIST OF TABLES TABLE 1: ETHIOPIA AVERAGE FACILITY BUDGET EXECUTION RATE, 2017/18–2019/20 12 TABLE 2: SUMMARY OF BUDGET EXECUTION GOOD PRACTICES AND BOTTLENECKS IN ETHIOPIA 18 BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA i ACKNOWLEDGMENTS ACKNOWLEDGMENTS This study is part of a broader analytical collaboration between the World Health Organization (WHO) and the World Bank to address budget execution problems in the health sector. The study’s findings feed into a synthesis report, which is released concurrently: Budget Execution in Health: From Bottlenecks to Solutions. This study was authored by the Ethiopia World Bank team including Mideksa Adugna (Data Analyst Consultant), Marion Jane Cros (Senior Health Specialist), Tseganeh Amsalu Guracha (Senior Health Specialist), and Noemi Schramm (Lead Consultant). It follows a case study protocol developed by Hélène Barroy (Senior Health Finance Specialist, WHO), Moritz Piatti-Fünfkirchen (Senior Economist, World Bank), and Amna Silim (Senior Consultant). Quality assurance was provided by Hamish Colquhoun (Senior Consultant) and Moritz Piatti-Fünfkirchen (Senior Economist). Technical editing and communication support was provided by Zac Mills (Senior Consultant), Hamish Colquhoun (Senior Consultant), and Alexandra Michele Beith (Senior Consultant). The study benefitted from management oversight by Agnès Couffinhal (Global Program Lead for Health Financing) and Monique Vledder (Practice Manager, HNP). It was made possible through generous financial support from the Global Financing Facility (GFF). The authors are grateful to the World Bank for publishing this report as an HNP Discussion Paper. ii BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA 1.0 HEALTH FINANCING CONTEXT HEALTH FINANCING CONTEXT Ethiopia is administratively and fiscally emergencies, transforming woredas, and decentralized. Administratively, the country is improving health system responsiveness. divided into 12 regional governments and two city administrations; each region is divided into woreda (district) governments, with nearly 1,060 woredas in the country. Fiscally, the regional and Health Administration woreda governments are responsible for most health service delivery. While grants from In 2007, the government established the federal government constitute 70-80 percent Ethiopian Pharmaceutical Supply Agency of regional revenues, the regions raise revenue (EPSA) under the Ministry of Health.2 through income taxes (personal, sales, It has seven clusters and 19 branches corporate, profit, property, and other); fees throughout Ethiopia.3 Its main objective is to on agricultural land, licensing, royalty, forest procure affordable drugs, which are the main resources, water use, and other activities; drivers of out-of-pocket expenditures for and fees on health services, such as drugs.1 households (45 percent of outpatient spending and 43 percent of inpatient spending).4 Ethiopia aims to achieve universal health care The drugs are procured with donor and MoH by 2035. Its twenty-year health sector strategy, funds and are made available to facilities Envisioning Ethiopia’s Path to Universal Health and pharmacies on a commercial basis. Care through the Strengthening of Primary During fiscal 2018/19, total procurement Health Care by 2035, focuses on improving was valued at close to USD 500 million access and equity, management information (ETB 14.2 billion), with 55 percent coming systems, woreda management, and person- from domestic sources and 45 percent centered care. Under the strategy, the Second from health program funds.5 Health Sector Transformation Plan 2020/21– 2024/25 builds on the first plan (which revised In 2010, the government established the the Essential Health Service Package to improve Ethiopian Health Insurance Agency (EHIA). service availability, accessibility, acceptability, Its primary responsibility has been to set up and affordability) and guides health spending and manage the Community Based Health and policies. The second plan focuses on Insurance (CBHI) program. By June 2020, the accelerating progress toward universal health CBHI program covered 6.9 million households coverage, protecting people from health in 70 percent of all woredas, a third of the total 1 Telila, H.F. 2024. Fiscal Decentralization and Regional Economic Growth in Ethiopia: A Spatial  inistry of Health, Ethiopian Pharmaceuticals Supply Agency website: https://www.moh.gov.et/en/Ethiopian_Pharmaceuticals_ 2M Supply_Agency?language_content_entity=en#:~:text=Ethiopian%20Pharmaceutical%20Supply%20Agency%20 (EPSA,553%2F2007  orld Bank. November November 2019. Public Expenditure and Financial Accountability (PEFA) Performance Assessment Report 3W 2019, Performance Assessment Report, Final Report. Washington DC.  ederal Democratic Republic of Ethiopia. September 2019. Ethiopia National Health Accounts Report 2016/17. Addis Ababa: 4F Ministry of Health. 5 World Bank 2025, based on 2018/19 procurement data from the Ethiopian Pharmaceutical Supply Agency. 02 BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA HEALTH FINANCING CONTEXT population.6 CBHI membership is voluntary Pharmaceutical Supply Agency, Research and is based on household-level enrolment to Institute, and Ethiopian Drug and Medicine discourage adverse selection. Members receive Control Authority. The Ministry of Finance an identification card with a photo that provides (MoF) is fiscally responsible for federal hospitals. access to health facilities under contract with their respective CBHI program. The program reimburses facilities directly based on the claims submitted. Nonetheless, the Ethiopian Health Health System Insurance Agency is not yet fully functional. Ethiopia has three levels of health care: In 2019, the average annual CBHI member (i) primary care provided by health posts, premium per household was USD 6 (300 ETB). health centers, and primary hospitals that The federal government subsidizes 10 percent serve up to 100,000 people; (ii) secondary of the member premiums, and the regional and care hospitals that serve 1-1.5 million people; woreda governments subsidize full member and (iii) tertiary care (referral) hospitals that premiums for the poorest people (around 10 serve up to 5 million people. Within the three percent of the total population). The Treasury levels, Regional Health Bureaus focus on policy funds CBHI running costs, and woredas pool implementation, technical matters and regional member contributions. Each woreda has a priorities and the Woreda Health Office Health Insurance Board to govern their program; manages and coordinates health service the governing board is led by the woreda delivery. Across the country, 17,550 health posts administrator and includes members from offer basic primary services; 3,735 health relevant sectors. Each CBHI program holds an centers provide primary health services; and annual General Assembly to ensure community 353 hospitals offer various hospital-based care. ownership and active participation in design and implementation. The health facilities have four major sources of income: government budgetary allocations, As mentioned above, the regional and woreda user fees, external resources, and CBHI governments are fiscally responsible for reimbursements. Facilities prepare and submit most health service delivery. While the a budget request for government resources, Ministry of Health (MoH) is responsible for which is approved by the facility management developing health policies, coordinating health and the facility governing board. The requested program implementation and infrastructure budget is consolidated at the woreda level expansion, and ensuring essential drugs; it is within the broader budget envelope and then fiscally responsible for select agencies, consolidated at the regional level and sent to including the Public Health Institute, Ethiopian the regional council for approval. Woredas are Health Insurance Authority, Ethiopian responsible for consolidating the budgets of the  ederal Democratic Republic of Ethiopia. April 2022. Ethiopia National Health Accounts Report 2019/20. Addis Ababa: 6F Ministry of Health. BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA 03 HEALTH FINANCING CONTEXT health posts and centers, 7 while regional in 2020; spending priorities are agreed every governments are responsible for consolidating year at a Joint Consultative Forum between the budgets for hospitals. the MoH and development partners. SDG Funds cannot be used to pay salaries. Most of the Channel 2a funds are executed at the federal Health Financing level, with goods and services transferred in-kind and in-cash to regional and woreda governments. Health funds flow through three channels (see These regional and woreda governments are Figure 1). Channel 1 funds originate from domestic required to adhere to the public financial funding (taxes and other revenues) and budget management requirements outlined in the support from development partners, and they Financial Management Manual and to achieve are managed by the MoF. Under Channel 1, the the results in the performance contracts. MoF allocates block grants to the region (Channel These transactions are recorded in the (new) 1a) or sector earmarked funds (Channel 1b). Integrated Financial Management Information Channel 1a funds are allocated through the System (iFMIS). Channel 2b resources are Appropriation Act (the federal budget), while partially planned for and executed in program- Channel 1b funds are earmarked for specific based budgets and are recorded as external use in line with federal priorities and transferred resources under the federal capital budget. to the implementing budget entity. These Mostly of these funds pass through vertical transactions are recorded in the Integrated programs (such as, Gavi or UN agencies). Budget and Expenditures (IBEX) system.8 These transactions are recorded in the IFMIS. Channel 2 funds originate from development Channel 3 funds are transferred directly from partners and are managed by the MoH. There development partners to nongovernmental are two subchannels: general funds (Channel implementing partners. Channel 3 funds are 2a) and earmarked funds (Channel 2b). Channel not recorded in the federal capital budget but 2a resources are planned for and executed in are tracked in an annual resource mapping program-based budgets and are recorded as exercise (which occurs outside of the external resources under the federal capital government’s systems) as part of the Health budget. Most of these funds pass through the Sector Strategic Plan. Further, the mapping Sustainable Development Goal Performance exercise tracks estimated expenditure (not Fund (SDG Fund), a pooled funding mechanism. actual expenditure) because of different The SDG Fund operates under a Joint Financing government and development partner fiscal Agreement signed with 11 development partners year-ends.  he woreda Finance and Economic Development Office is responsible for overseeing and strengthening the public financial 7T management practices at the facility level. n Ethiopia, there are two management information systems: Integrated Financial Management Information System (iFMIS) and 8I Integrated Budget and Expenditure System (IBEX), both running concurrently. As of 2019, most users were still using IBEX, while iFMIS was gradually being introduced. IBEX is used for budget planning, execution, and reporting at both the federal and lower levels, whereas iFMIS is currently only used at the federal level. A notable feature of iFMIS is its integration of personnel and payroll records, an improvement over IBEX which does not have this capability. 04 BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA EXECUTIVE SUMMARY Figure 1 l Funders l Strategic purchasers / policy makers Ethiopia Flow of Funds in the Health Sector l Service delivery points Channel 2a and 2b Budget support Development Ministry Channel 1a + 1b partners of Finance Ch 1a Channel 1a Channel 1b an + 1b ne Ministry Health Other health l of Health Insurance agencies Regional government Channel 2a and 2b Channel 1a Channel 1b Channel 1a + 1b Woreda CBHI Federal Primary Secondary Tertiary university facilities facilities facilities hospitals Patients / care seekers Source: World Bank 2025, based on World Bank. November 2019. Public Expenditure and Financial Accountability (PEFA) Performance Assessment Report 2019, Performance Assessment Report, Final Report. Washington DC. BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA 05 BUDGET EXECUTION IN HEALTH In 2019/20, Ethiopia’s total health executed on recurrent costs and one-third expenditure was reported at USD 3.62 billion on capital costs.10 As a share of total (ETB 127 billion), or 6.3 percent of the total government expenditure, the health sector gross domestic product.9 In real terms, budget increased to 9.4 percent in 2020/21, government health spending increased by 52 below the Abuja target of 15 percent but higher percent from USD 1.1 billion (ETB 25.7 billion) than the average for low-income countries of in 2016/17 to USD 1.8 billion (ETB 62.9 billion) 6.2 percent. The increase was driven in 2020/21 (Figure 2). Two-thirds of this was significantly by external on-budget support. Figure 2 l Capital expenditures Government Health Expenditures, 2016/17–2020/21 l Recurrent expenditures 2,000,000,000 1,800,000,000 1,600,000,000 1,400,000,000 U.S. Dollar 1,200,000,000 65% 69% 1,000,000,000 65% 66% 800,000,000 65% 600,000,000 400,000,000 35% 35% 34% 31% 200,000,000 35% 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021 Source: World Bank 2025, based on National Bank of Ethiopia Quarterly Bulletins 2016/17–2020/21.  ederal Democratic Republic of Ethiopia. April 2022. Ethiopia National Health Accounts Report 2019/20. 9F Addis Ababa: Ministry of Health. 10 World Bank 2025, Based on National Bank of Ethiopia Quarterly Bulletins 2016/17–2020/21. 06 BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA BUDGET EXECUTION IN HEALTH Channel 1 and 2 disbursements averaged resources executed outside of the government’s approximately USD 550 million (ETB 15.6 budget were substantial, with just under USD billion) per year 2011/12–2018/19, of which 300 million (ETB 8.5 billion) a year spent directly approximately USD 150 million (ETB 4.3 billion) by development partners on service providers was derived from the SDG Fund.11 Channel 3 and purchasers. disbursements averaged USD 290 million (ETB 8.2 billion) per year during this period.12 Overall, Over the last 10 years, out-of-pocket based on the NHA 2019/20 data, the MoF spent expenditures contributed around half 35 percent of total government health funding, the total health expenditure, with donors with the regions and woredas spending 65 contributing around a third and government percent. Other health agencies accounted for around a fourth (Figure 3). Total health only 0.1 percent of spending. Channel 2 sources, spending was USD 26 (ETB 582) per capita, in part driven by the SDG Fund, made up 64 significantly below the Sub-Saharan average percent of total external resources given to the of USD 79 per capita (ETB 1,770).13 Between health sector in the six years between 2012 and 2015 and 2019, total out-of-pocket 2018, while the remaining 36 percent were expenditures were relatively consistent, while channelled off-budget (Channel 3). The external government per capita spending stagnated. Figure 3 l Government l Donors Ethiopia Health Spending per Capita, 2010–19 l Other private l Out of pocket 30 25 38% 20 35% 34% 35% U.S. Dollar 37% 38% 42% 42% 15 42% 18% 20% 47% 35% 36% 34% 23% 10 28% 23% 19% 20% 34% 7% 20% 5% 5% 5% 5 38% 6% 6% 27% 25% 25% 25% 23% 23% 7% 23% 18% 17% 0 9% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: World Health Organization Global Health Expenditure Database  hannel 1 figures are based on: World Bank BOOST Open Budget Portal Database and National Bank of Ethiopia Quarterly 11 C Bulletins 2016/17–2020/21. 12 Channel 3 figures are based on: World Bank. November November 2019. Public Expenditure and Financial Accountability (PEFA) Performance Assessment Report 2019, Performance Assessment Report, Final Report. Washington DC. 13 World Health Organization Global Health Expenditure Database. BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA 07 2.0 BUDGET EXECUTION IN HEALTH BUDGET EXECUTION IN HEALTH Ethiopia typically uses a mid-year However, the execution rates for the adjusted supplementary budget which makes budget dropped below 100 percent (Figure 4). significant adjustments to health The adjusted allocations increased at expenditure.14 Between fiscal 2013/14 and the regional level although to a lesser extent 2017/18, the federal government overspent than at the federal level.15 the original health budget allocation. Figure 4 l Average for regions Ethiopia Execution Rate of Original vs. Adjusted l Federal government Health Budget, 2013/14–2017/18 300% Execution Rate 251% 260% 250% 200% 136% 150% 128% 95% 92% 94% 83% 103% 97% 100% 85% 88% 83% 90% 88% 88% 80% 78% 67% 65% 50% 0% 2013/14 2014/15 2015/16 2016/17 2017/18 2013/14 2014/15 2015/16 2016/17 2017/18 Original budget Adjusted budget Source: World Bank 2025, based on World Bank BOOST Open Budget Database. Note: Channel 1 and 2 only. The execution rate of the health budget and 2020/21, the health budget execution (Channels 1 and 2) was higher than the rate eclipsed 100 percent, which reflected execution rate of the general budget between the relative priority given to health expenditures fiscal 2016/17 and 2020/21 (Figure 5)15. In this compared to other government expenditures period, the adjusted health budget averaged during the Covid-19 pandemic. a 98 percent execution rate. In fiscal 2019/20 14 The Ethiopian fiscal year runs from July 8 to July 7. 15 Primary data were obtained from the National Bank of Ethiopia through its quarterly bulletins for health budget and overall government budget execution, including breakdowns for capital and recurrent budgets. This covers 2016/17–2020/21. For breakdowns into different levels of government or different channels of spending, the World Bank BOOST Open Budget Database was used, which includes execution data until 2017/18. BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA 09 HEALTH FINANCING CONTEXT Figure 5 l Health Ethiopia Execution Rate of Health vs. Overall Budget, l Total government 2016/17–2020/21 120% Budget Execution Rate 108% 103% 100% 100% 95% 94% 96% 98% 94% 90% 88% 80% 60% 40% 20% 0% 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021 Source: National Bank of Ethiopia, Quarterly Bulletins 2016/17–2020/21. Addis Ababa. The execution rate varied across Channels 2 have limited budget credibility, as expenditure and 3 between fiscal 2012/13 and 2017/18 rates are volatile. The Health Sector (Figure 6).16 Channel 2 had execution rates Transformation Plan II 2020/21–2024/25 ranging from 73 percent to 191 percent, with an continues to estimate similarly high levels average of 115 percent. Channel 3 had execution of total external resources (USD 1.06 billion rates between 60 percent and 334 percent, (ETB 41.87 billion) a year for all three channels). with an average of 145 percent. Both channels Figure 6 l Channel 2 Ethiopia Budget Execution Rate by Channel, l Channel 3 2012/13–2017/18 350% 334% Budget Execution Rate 300% average for channel 3: 145% 250% average for channel 2: 115% 200% 191% 150% 131% 135% 127% 110% 120% 102% 100% 100% 79% 60% 73% 50% 0% 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 Source: National Bank of Ethiopia, Quarterly Bulletins 2016/17–2020/21. Addis Ababa. 16 Budget execution data on Channel 1 was not available. 10 BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA HEALTH FINANCING CONTEXT The execution rate of the adjusted capital a subgroup responsible for resource budget and adjusted recurrent budget was mobilization and allocation. Around 91 90 and 103 percent, respectively, between percent of the total Covid-19 resources 2016/17 and 2020/21 (Figure 7). These rates were managed by the federal government, were slightly above the general adjusted with development partners managing around average: on average, the execution rate of 9 percent.17 This is despite the government the adjusted health budget was 98 percent only financing around 50 percent of the and the execution rate of the overall budget expenditure itself.18 Public financial was 95 percent. In 2020/21, the capital budget management rules were followed, though was marginally over-executed. This probably the MoH had greater allocation flexibility. related to the additional procurement for the The funds were allocated under a single Covid-19 pandemic. The federal government cost center (Covid-19 response), which set up a Covid-19 task force, which included also covered procurement costs. Figure 7 l Health l Total government Ethiopia Health Budget Execution for Recurrent, Capital, and Overall Costs, 2016/17–2020/21 l Overall 140% 120% 115% 108% 104% Budget Execution Rate 100% 102% 103% 100% 97% 100% 94% 96% 96% 90% 89% 89% 80% 75% 60% 40% 20% 0% 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021 Source: World Bank 2025, based on National Bank of Ethiopia Quarterly Bulletins 2016/17–2020/21. Addis Ababa. Note: Channel 1 and 2 only.  ederal Democratic Republic of Ethiopia. April 2022. Ethiopia National Health Accounts Report 2019/20. Addis Ababa: 17 F Ministry of Health. 18 Ibid. BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA 11 HEALTH FINANCING CONTEXT Most facilities are not linked to the iFMIS, health posts/centers and hospitals limiting data collection and accessibility. for the three funding sources, based Table 1 shows a high average execution rate at on available data. Table 1: Ethiopia Average Facility Budget Execution Rate, 2017/18–2019/20 Treasury Internal Revenue Donor/External Resources Average of Fiscal 2017/18–2019/20 Health Post and Center 93% 98% 100% Hospital 95% 97% 89% Source: Case study protocol information provided by the Ministry of Finance. 12 BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA 3.0 PUBLIC FINANCIAL MANAGEMENT CONTROLS FOR HEALTH SPENDING PUBLIC FINANCIAL MANAGEMENT CONTROLS FOR HEALTH SPENDING Ethiopia has public financial management and external approvals from the Ethiopian Food controls in place to ensure health care funds and Drug Administration; basing the winning bid reach their intended beneficiaries. All receipts solely on price (even after it passed through the and payments flow through a Single Treasury initial approval and registration process). In Account with a few exceptions (mainly donor 2018, the procurement process was manual; in projects). Payroll and procurement are 2020, the agency distributed drugs and medical decentralized to the budget holders. commodities valued at almost USD 1 billion (ETB 34 billion.21 For payroll expenditures, a monthly list detailing payees and attendance is submitted Across the three levels of health care, to the Woreda Finance Office. Salaries are paid procurement, oversight, and compliance are to the personnel accounts between the 25th opaque. Under public procurement law, hospital and 30th of each month. Changes in personnel service providers can procure supplies, rental or payroll records are updated within 2 days for services, equipment maintenance, and facilities linked to the iFMIS or within 4 weeks for generator services based on framework facilities not linked to the iFMIS.19 Only 0.7 agreements. They submit annual budgets to the percent of personnel changes were retroactive respective supervisory ministry (the MoH at the adjustments in the MoH,20 indicating that payroll secondary level and MoF at the tertiary level). management is largely up to date. There were Generally, procurement bids are published in no significant issues with ghost workers public newspapers and finance officers retain recounted in the internal audit reports. the bid evaluation outcomes on file.22 However, the supervising ministry does not monitor the The Ethiopian Pharmaceutical Supply Agency framework agreements and the procurement procures most drugs and medical methods are not published in a public register. commodities. A 2018 situational analysis uncovered significant financial management Health facilities lack a uniform system to plan challenges. Among the challenges, three stand and monitor their spending and a connection out: first, the financial management system did to the Integrated Financial Management not break down costs into specific line items, Information System (iFMIS) or the Integrated instead grouping costs into a limited number of Budget and Expenditures (IBEX) system. The cost centers; second, financial reports were not isolation of the health system makes it produced; and third, the procurement process impossible to consolidate financial reports, such was slow: (i) on average, taking a year to as comparing funds transferred to facilities with complete; requiring (time-consuming) internal their actual expenditures. Guidelines for general 19 According to the latest Public Expenditure and Financial Accountability data (2019), 67 public agencies use the iFMIS, while 145 public agencies use the IBEX.  orld Bank. November November 2019. Public Expenditure and Financial Accountability (PEFA) Performance Assessment Report 20 W 2019, Performance Assessment Report, Final Report. Washington DC. 21 Federal  Democratic Republic of Ethiopia. September 2018. Revised Pharmaceutical Supply Transformation Plan 2018–2020. Addis Ababa: Ethiopian Pharmaceutical Supplies Agency.  orld Bank. November November 2019. Public Expenditure and Financial Accountability (PEFA) Performance Assessment Report 22 W 2019, Performance Assessment Report, Final Report. Washington DC. 14 BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA PUBLIC FINANCIAL MANAGEMENT CONTROLS FOR HEALTH SPENDING financial management and the procurement measures as described under non-salary processes seem to generally be available, expenditures apply. according to a small sample of health facilities surveyed,23 and nearly all facilities followed the There is no limit on the number of in-year guidelines. In comparison, ministries agencies, budget reallocations.25 This is beneficial for and departments use the iFMIS and IBEX to plan budget flexibility but can reduce the incentive and monitor their spending. to plan and budget. The MoF solely approves all reallocations, and the approval process can The SDG Fund requires procurement over be tedious. The MoF can also delegate this USD 25 million (ETB 575 million) to be power to other public bodies. submitted for “no objection” to the fund contributors. (A split into smaller amounts As mentioned above, CBHI member is not allowed.) This is an extra measure of premiums are offset by federal and regional/ accountability for high-value procurement woreda subsidies.26 These subsidies are usually but can also slow execution. Contributors are paid based on bank statements submitted to required to reply to the request within six the district CBHI scheme, showing the total weeks; thereafter, the MoH can proceed amount and number of premiums collected for with the procurement. each CBHI. However, controls for premium collection are lacking. The Health Insurance In 2017, the U.K. Department for International Agency instituted a 2 percent incentive for Development reviewed and highlighted collectors to increase their motivation and weaknesses in the management of public improve the efficiency in collecting investment projects. Since then, a new contributions. In practice, the incentive has not public investment framework has been been uniformly applied across CBHI programs developed to strengthen project appraisal, and there is no evidence yet of its effectiveness. selection, costing, and monitoring. It is now Premiums paid are still not deposited promptly mandatory to include an economic analysis for in the bank, and cash collection vouchers are a project to be approved in the capital budget.24 not returned on time. There is also no This reform was ongoing at the end of 2019, verification of the amount collected and and an assessment of the efficacy and deposited. Where audits have revealed default implementation of this new framework for or potential fraud, woredas have failed to take public investment is not yet available. For legal measures against collectors.27 Recently, smaller capital expenditures, the control more regional and woreda finance offices have 23 World Bank. 2020. Assessment of Financial Management at the Health Facility Level, unpublished report. 24 World Bank. November November 2019. Public Expenditure and Financial Accountability (PEFA) Performance Assessment Report 2019, Performance Assessment Report, Final Report. Washington DC. 25 Under  Ethiopian law, Financial Administration Proclamation No 648/2009 does not allow for transfers from the capital budget to the recurrent budget.  ederal Democratic Republic of Ethiopia. July 2020. Health Insurance Strategic Plan 2020/21–2024/25. Addis Ababa: Ethiopian 26 F Health Insurance Agency. 27 World Bank. June 2021. Political Economy and Financial Sustainability of Social Health Insurance in Ethiopia. Washington DC. BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA 15 PUBLIC FINANCIAL MANAGEMENT CONTROLS FOR HEALTH SPENDING been integrated into the financial audit process from the MoF having a cash shortage and not and, as a result, the CBHI program audited being able to approve payment. There were increased from 38 percent in 2017/18 to 69 also incidences of hospitals owing cash to the percent in 2019/20. Nonetheless, implementation Ethiopian Pharmaceutical Supply Agency for is irregular, and the Ethiopian Health Insurance medical equipment and drugs where the stock Service strategy mentions the low quality of arrears is more than 12 months old. of audits. Facilities maintain a cash register, a file CBHI programs mobilized ETB 3.2 billion for invoices and receipts of expenditures, (more than USD 105 million) and reimbursed a fixed asset register, and bank statements ETB 2.12 billion (more than USD 70 million) to to execute their budget. A facility’s governing health facilities for services provided to board is charged with internal controls, beneficiaries between 2015/16 and 2018/19.28 although audit reports have highlighted that Despite the overall positive balance, some CBHI concrete controls are lacking.30 One of the programs were in deficit. The process for facility main challenges is that the facilities are not reimbursement also changed in 2021. Prior to connected to the financial management system 2021, the CBHI program reimbursed 75 percent of higher administrative units. Unused of the claimed costs, and the remaining 25 government budget funds must be returned percent after clinical audits showed that the at the end of the fiscal year, while user fees, quality and administrative processes of the CBHI reimbursements, and other income (such health facilities to be adequate. However, the as, in-kind contributions from donors through budgeting for clinical audits was not adequate, Channel 3) can be retained at the facility across resulting in irregular audits. The Ethiopian Health fiscal years. If facility audits show (deliberate Insurance Service changed the rules in 2020: or indeliberate) fund mismanagement, the staff CBHI programs now reimburse 100 percent of in charge can face consequences and penalties, the claimed costs and woredas conduct risk- ranging from fund repayment from personal based audits of the facilities. assets to demotion, career non-progression, or criminal pursuit. An indirect consequence Across the government, arrears are limited is that fear of punishment can hinder budget at fiscal year-end, and payment discipline owners to implement the budgets, lowering is high with cash shortages being the execution rates. primary challenge.29 There were examples of tertiary hospitals that incurred arrears due to unpaid capital projects. Yet, those arrears represented less than 1 percent of actual annual expenditures for the fiscal year and resulted 28 Federal Democratic Republic of Ethiopia. July 2020. Health Insurance Strategic Plan 2020/21–2024/25. Addis Ababa: Ethiopian Health Insurance Agency.  orld Bank. November November 2019. Public Expenditure and Financial Accountability (PEFA) Performance Assessment Report 29 W 2019, Performance Assessment Report, Final Report. Washington DC. 30 World Bank. June 2020. Assessment of Financial Management at the Health Facility Level, unpublished. 2020. 16 BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA 4.0 GOOD PRACTICES AND BOTTLENECKS The good practices and bottlenecks outlined in Table 2 should be analyzed in relation to their impact on budget execution—both in terms of improving expenditure efficiency and contributing to poor execution rates. When interpreting these factors, it is essential to consider how certain practices enhance budget execution, such as strengthening planning and financial management systems, timely requisition submissions, and improved reporting mechanisms. Conversely, bottlenecks such as limited transparency on execution, procurement inefficiencies, and capacity constraints within the health system can lead to low execution rates, preventing timely implementation of planned activities. GOOD PRACTICES AND BOTTLENECKS Table 2: Summary of Budget Execution Good Practices and Bottlenecks in Ethiopia Issue Explanation Good Practices Relatively low levels of arrears. The overall payment discipline of the government is high, with few arrears reported at the end of the fiscal year. The grace pe-riod of one month at the end of the fiscal year, and the regular reporting on arrears from various budget entities, has helped achieve this low level. These practices should be maintained and further strengthened to address the few examples of hospitals that committed to capital projects but have not fully paid given late-arriving transfers from the federal level due to cash flow constraints. Reasonable turnaround Payroll changes are responded to within days if the unit times for payroll changes is linked to the iFMIS but delays more if the unit is not linked and high accuracy of pay-roll to the iFMIS. As a result, the payroll is largely accurate and expenditures. up to date, which avoids ineligible expenditures. Budgeting timelines are The budget calendar is adhered to and budgets for adhered to, and budgets are upcoming fiscal years, including details of transfers communicated in time across to region and woreda levels, are timely communicated to the government. regions and woredas. This adherence helps the regions and woredas with their planning and commitment processes. Payment delays have Payment delays from the federal level to the regions and improved. woredas have shortened. However, further opportunity to reduce the delays all together, by improving cash management, would allow the regional and woreda governments more time to implement their budgets and increase their execution rates. …table continued next page 18 BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA GOOD PRACTICES AND BOTTLENECKS Table 2: Summary of Budget Execution Good Practices and Bottlenecks in Ethiopia Issue Explanation Bottlenecks Limited transparency on Budget execution data are not publicly available, making execution data. ac-countability more difficult and decreasing transparency. Health stakeholders are involved in the annual planning session but have limited insights into budget execution progress. Not all transactions rec-orded Approximately 20 percent of woreda expenditures are in iFMIS/IBEX. not classi-fied in the IBEX.33 Further, programs and subprograms are not codified in the IBEX at the woreda level. Seven standardized uniform codes are used across all levels of government. Howev-er, program- and subprogram-specific codes remain discretion-ary, making it difficult to track expenditures across priority needs. Capacity constraints at the Facilities and woredas tend to over-budget due to facility and woreda levels for anticipated funding cuts that then may not materialize, overall financial man-agement, which in turn leads to under-execution of budgets. with a specific focus on a) In this case, the facilities have unplanned resources adequate budgeting and b) that are available without the necessary capacities to pro-curement regulations. implement the budget in full. Capital budgets are more under-executed than recurrent budgets, partly due to ca-pacity and knowledge constraints about procurement rules and regulations. Recent reforms to public investment management are targeting improvements in the efficiency and efficacy of capi-tal expenditures, including the rates of budget execution. …table continued next page BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA 19 GOOD PRACTICES AND BOTTLENECKS Table 2: Summary of Budget Execution Good Practices and Bottlenecks in Ethiopia Issue Explanation External resources not Channel 3 resources are tracked in the annual resource captured in the government’s map-ping exercises, which occurs outside of the financial management government’s systems. The information is a mix of actual systems. spending and commit-ments, depending on the timing of the exercise and alignment of donor fiscal years with the government’s fiscal year. The in-formation is also not shareable for the wider public, which undermines transparency and accountability. Limited flexibility of spending Health facility levels have different rules and regulations at the health facility level. at-tached to each funding source (fees collected, Treasury funds received, in-kind support, CBHI reimbursements). Giving greater flexibility in the use of the funds (within limits) could increase the availability of essential medicines and other recurrent commodi-ties. Procured products are There may be a tendency toward lower quality products assessed solely based on the (shelf life, storage conditions, among other). Adjusting the lowest price. procure-ment guidelines to include assessment criteria beyond pricing could increase the quality of products and overall efficiency gains. 20 BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA REFEERNCES REFERENCES Audit Services Corporation. 2019. Independent Auditor’s Report and Financial Statement on the Financial Statements of the Federal Democratic Republic of Ethiopia, Ministry of Health, Sustainable Development Goals Performance Fund (SDG PF). Addis Ababa. https:// documents1.worldbank.org/curated/en/191371600847299190/pdf/Ethiopia-audited-financial- statement-for-the-Health-MDG-program-July-7-2020-pdf.pdf Bitràn, R. 2021. Political Economy and Financial Sustainability of Social Health Insurance in Ethiopia. Washington DC: World Bank Group. unpublished Federal Democratic Republic of Ethiopia. 2015. Joint Financing Agreement between the Federal Government of Ethiopia and Development Partners on Support to the Sustainable Development Goals Performance Fund. Addis Ababa. https://www.uhc2030.org/fileadmin/ uploads/ihp/Documents/Country_Pages/Ethiopia/Final_JFA_July_15.pdf Federal Democratic Republic of Ethiopia. September 2018. Revised Pharmaceutical Supply Transformation Plan 2018-2020. Addis Ababa: Ethiopian Pharmaceutical Supplies Agency. Federal Democratic Republic of Ethiopia. September 2019. Ethiopia National Health Accounts Report 2016/17. Addis Ababa: Ministry of Health. https://cdn.prod.website-files. com/66d78d6d9b428ea18db89ec2/66e87085cec0118e5c028408_Final_NHA_VII_for_print_ January_2020_38339982f4.pdf Federal Democratic Republic of Ethiopia. July 2020. Health Insurance Strategic Plan 2020/21– 2024/25. Addis Ababa: Ethiopian Health Insurance Agency. Federal Government of Ethiopia. 2023. Health Sector Transformation Plan Mid-Term Review Volume I Comprehensive Report. https://arm.moh.gov.et/wp-content/uploads/2023/10/HSTP- II-MTR-final-report-.pdf Federal Democratic Republic of Ethiopia. April 2022. Ethiopia National Health Accounts Report 2019/20. Addis Ababa: Ministry of Health. Fölscher, A., M. Betley, A. Shall, and M. Wondirad. 2022. Rapid Assessment of Program-Based Budgeting in Ethiopia and Performance-Based Financing in the Health Sector in Ethiopia, unpublished. Telila, H.F. 2024. Fiscal Decentralization and Regional Economic Growth in Ethiopia: A Spatial Econometrics Approach. Background Paper No. 2. Addis Ababa: United Nations Development Programme. National Bank of Ethiopia. 2018. Quarterly Bulletin 4th Quarter 2017/18. Addis Ababa. National Bank of Ethiopia. 2019. Quarterly Bulletin 4th Quarter 2018/19. Addis Ababa. BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA 21 REFEERNCES National Bank of Ethiopia. 2020. Quarterly Bulletin 4th Quarter 2019/20. Addis Ababa. National Bank of Ethiopia. 2021. Quarterly Bulletin 4th Quarter 2020/21. Addis Ababa. National Bank of Ethiopia. 2022. Quarterly Bulletin 1st Quarter 2021/22. Addis Ababa. World Bank. November November 2019. Public Expenditure and Financial Accountability (PEFA) Performance Assessment Report 2019, Performance Assessment Report, Final Report. Washington DC. World Bank. 2020. Assessment of Financial Management at Health Facility Level, unpublished. World Bank. 2020. Ethiopia Public Expenditure Review: Health. Washington DC. Unpublished. World Bank. 2021. Assessment of Woreda-Level Budget, Planning Process, and Flow of Funding in Human Capital Sectors. Washington DC. World Bank. 2021. Political Economy and Financial Sustainability of Social Health Insurance in Ethiopia. Washington DC. 22 BUDGET EXECUTION IN HEALTH: FROM BOTTLENECKS TO SOLUTIONS - CASE STUDY SERIES - ETHIOPIA ECO-AUDIT Environmental Benefits Statement The majority of our books are printed on Forest Stewardship Council (FSC)–certified The World Bank Group is committed to paper, with nearly all containing 50–100 reducing its environmental footprint. In percent recycled content. 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