FISCAL SPACE FOR HEALTH IN MALAWI AND REVENUE …

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FISCAL SPACE FOR HEALTH IN MALAWI AND REVENUE

POTENTIAL OF `INNOVATIVE FINANCING'

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Public Disclosure Authorized

Public Disclosure Authorized

Table of Contents

LIST OF FIGURES.................................................................................................................................................. III

LIST OF TABLES.................................................................................................................................................... III

ACRONYMS............................................................................................................................................................. IV

ACKNOWLEDGEMENT ....................................................................................................................................... VI

1. INTRODUCTION ..............................................................................................................................................1

2. COUNTRY CONTEXT......................................................................................................................................5

2.1 POPULATION AND DEMOGRAPHIC CHARACTERISTICS...................................................................................5 2.2 HEALTH SERVICE DELIVERY.........................................................................................................................5 2.3 MACRO-FISCAL SITUATION ..........................................................................................................................8 2.4 HEALTH FINANCING....................................................................................................................................10

3. FISCAL SPACE ANALYSIS...........................................................................................................................12

3.1 CONDUCIVE MACROECONOMIC ENVIRONMENT..........................................................................................12 3.2 RE-PRIORITIZATION FOR HEALTH ...............................................................................................................14 3.3 GENERATING ADDITIONAL RESOURCES FOR HEALTH.................................................................................15 3.4 INCREASED HEALTH SECTOR-SPECIFIC FOREIGN AID .................................................................................16 3.5 IMPROVED EFFICIENCY IN THE HEALTH SECTOR ........................................................................................17

4. ANALYSIS OF PROPOSED AREAS FOR EARMARKED TAXATION .................................................24

4.1 METHODOLOGY ..........................................................................................................................................24 4.2 ARGUMENTS FOR AND AGAINST HYPOTHECATING (EARMARKING) TAX REVENUE FOR HEALTH..................25 4.3 EXPERT OPINION ON EARMARKED TAXES FOR HEALTH IN MALAWI ............................................................26 4.4 REVENUE FORECASTING .............................................................................................................................33

4.4.1 Fuel Levy ...............................................................................................................................................33 Demand for Fuel.............................................................................................................................................33 Effects of introducing a new fuel health levy .................................................................................................34 Revenue generation potential: sharing resources from MAREP and replacing the storage levy....................35

4.4.2 Motor Vehicle Insurance Levy ...............................................................................................................36 Demand for Motor Vehicle Insurance ............................................................................................................36 Effects of introducing health levy on motor vehicle insurance ......................................................................36 Health and economic justification for introducing a levy on motor vehicle insurance...................................37 Revenue Generation Potential ? Tax/levy on Motor Vehicles Insurance .......................................................40 Revenue Generation Potential ? Establishment of a Third Party Motor Compensation Fund (TPMCF) .......41

5. SUMMARY - REVENUE GENERATION POTENTIAL OF PROPOSED MEASURES........................43

6. CONCLUSIONS AND RECOMMENDATIONS ..........................................................................................46

REFERENCES ..........................................................................................................................................................47

ANNEXES ..................................................................................................................................................................52

ANNEX 1: EXTRACTIVES INDUSTRY .........................................................................................................................52 Mining activities in Malawi............................................................................................................................52 Effects of introducing a health levy in the Extractives Industry.....................................................................53 Revenue generation potential - Extractives Industry ......................................................................................53

ANNEX 2: ALCOHOL ................................................................................................................................................54 Demand for alcohol in Malawi .......................................................................................................................54 Effects of introducing a health levy on alcohol ..............................................................................................54 Revenue generation potential ? health levy on Alcohol .................................................................................55

ANNEX 3: TOBACCO.................................................................................................................................................56 Demand for tobacco products in Malawi........................................................................................................56 Effects of introducing a health levy on tobacco .............................................................................................56 Revenue generation potential ? health levy on Tobacco ................................................................................57

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ANNEX 4: DETAILED DATA INPUTS AND OUTPUTS ..................................................................................................48 A.4.1: Fuel ..........................................................................................................................................................48 A.4.2: Motor Vehicle Insurance ..........................................................................................................................49 A.4.3: Extractive Industries ................................................................................................................................50 A.4.4: Alcohol .....................................................................................................................................................51 A.4.5: Tobacco....................................................................................................................................................52

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List of Figures

Figure 1: Provision of Maternal and Child Health Services ................................................................................. 7 Figure 2: Percentage of Health Facilities in Malawi with Essential Services.......................................................8 Figure 3: Composition of Total Health Expenditure: Proportions and Nominal Figures ................................... 11 Figure 4: Elasticity of Health Expenditures to GDP in Malawi: 2007/08- 2014/15 ........................................... 13 Figure 5: Distribution of Total Government Expenditures by key sectors ......................................................... 15 Figure 6: Government and Total Health Expenditures (% of GDP): 2014 ......................................................... 15 Figure 7: Trends in External (Donor) Health Expenditure ? US$ millions ........................................................ 17 Figure 8: Breakdown of Government Health Budget by Key Line Items .......................................................... 20 Figure 9: Domestic Demand for Fuel and Evolution of Fuel Pump Prices.........................................................33 Figure 10: Potential Revenue from Storage Levy (SL) (MK millions) .............................................................. 35 Figure 11: Potential Revenue from MAREP and Storage Levy (SL) (MK millions) ......................................... 35 Figure 12: No. of Vehicles Vs Gross Premiums from motor vehicle insurance ................................................. 36 Figure 13: Gross Premiums Vs Aggregate Insurance Claims.............................................................................37 Figure 14: No. of Vehicles vs Accidents: Malawi 1995-2015............................................................................38 Figure 15: Road traffic fatality rates per 100,000 population (2013) ................................................................. 39 Figure 16: Road Accident related Injuries and Deaths and insurance claims ..................................................... 39 Figure 17: Projected Revenue - Tax/Levy on Motor Vehicle Insurance Premiums (MK) ................................. 41 Figure 18: Potential Revenue - Third Party Motor Compensation Fund (MK) .................................................. 42 Figure 19: MAREP, Storage and MV Insurance (MK million) .......................................................................... 45 Figure A.1: Production value vs Revenues ? Malawi Extractive Sector 2012/13-2015/16................................52 Figure A.2: Production, sales, and tax revenue from alcohol in Malawi ............................................................ 54 Figure A.3: Production, sales, and tax revenue from Cigarettes in Malawi........................................................ 56

List of Tables

Table 1. Health Outcome indicators ? Malawi vs Low Income Countries ........................................................... 6 Table 2: Macroeconomic, Fiscal, and Health Financing Indicators: Malawi 2012-2016 ..................................... 9 Table 3: Health Expenditures: Malawi vs Sub-Sahara Africa and Low Income Countries - 2014.....................11 Table 4: Financing Agents by share of Total Health Expenditure ...................................................................... 17 Table 5: Sources of inefficiency in Malawi's health sector and Potential Savings Per Capita (US$) ................ 20 Table 6: Summary ? Analysis of Fiscal Space for Health in Malawi ................................................................. 21 Table 7: Proposed Tax Rate................................................................................................................................24 Table 8: Responses from Stakeholders and Document Reviews on the Proposed Sources of Earmarking........30 Table 9: Accident Statistics: Malawi 2013/14-2015/16......................................................................................38 Table 10: Projections Summary - Storage levy, Motor Vehicle Insurance, and MAREP (MK) ........................ 44 Table A.1.1: Potential Mining Projects...............................................................................................................53 Table A.1.2: Projected Revenue - Extractive Health Levy (MK million) .......................................................... 53 Table A.2.1: Projected Revenue - Health Levy on Alcohol (MK millions) ....................................................... 55 Table A.3.1: Projected Revenue - Health Levy on Tobacco (Cigarettes) (MK millions)...................................57

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Acronyms

AfDB ANC APM ART BoP CHAM CIT CPI DALY EHP EITI EPC ETR FOB GDP GoM GSMA HIV/AIDS HNP IBLC IFMIS IMF MAREP MDG MERA MK MMR MNCH MoFED MoH MRA NGO NHA NHIS NSO OOPS

African Development Bank Antenatal Care Automatic Pricing Mechanism Antiretroviral Therapy Balance of Payments Christian Health Association of Malawi Corporate Income Tax Consumer Price Index Disability Adjusted Life Year Essential Health Package Extractive Industries Transparency Initiative Energy Pricing Committee Effective Tax Rate Free on Board Gross Domestic Product Government of Malawi Global System for Mobile communication Association Human Immunodeficiency Virus and Acquired Immune Deficiency Syndrome Health, Nutrition and Population In-Bond Landed Cost Integrated Financial Management Information System International Monetary Fund Malawi Rural Electrification Programme Millennium Development Goal Malawi Energy Regulatory Authority Malawi Kwacha Maternal Mortality Ratio Maternal, Newborn and Child Health Ministry of Finance, Economic Planning and Development Ministry of Health Malawi Revenue Authority Non-Governmental Organization National Health Accounts National Health Insurance Scheme National Statistics Office Out of Pocket Spending

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