In a seminal Health Policy and Planning article, Peter Heller identified five opportunities for expanding fiscal space for health: (i) raising revenue, (ii) reprioritizing expenditure, (iii) borrowing, (iv) using seigniorage and (v) mobilizing external. In 2010, the World Bank refined this concept by recognizing five pillars for fiscal space for health expansion in low- and middle-income countries (LMICs): (i) economic growth, (ii) budget prioritization, (iii) earmarking of certain revenues, (iv) improved efficiency of spending in health and (v) external resources.

Empirical studies in about 40 countries since the development of the framework have shown that the macro-fiscal performance of an economy is an important consideration behind rising public funding for health. Further evidence suggests that increasing the share of a budget dedicated to health has the potential to significantly expand health sector resources where the initial allocations are low. Earmarked revenues provide relatively fewer resources overall for the sector. The fourth pillar in Tandon and Cashin’s approach, the efficiency component, has provided mixed evidence on the extent to which efficiency gains can be translated into more resources for the sector. Country experience indicates, however, that efficiency gains do not automatically translate into greater budget for health. Public financial management (PFM) systems must allow those gains to be kept within the health sector and repurposed towards priority health needs.

Improved financial management policies and tools in the health sector can also create space in the sector’s budget, particularly in publicly funded systems. Poor PFM is a constraint on fiscal discipline and a barrier to realizing the potential of fiscal space. A growing body of evidence shows the impact PFM processes have on public spending, specifically on health expenditure. The most cited examples are the late, incomplete and misaligned budget releases in many LMICs, which significantly limit the actual budget envelope available for the sector. Conversely, PFM rules that are effective, such as releasing funds in a predictable manner, and flexible, such as allowing funds to be reallocated across budget lines, are likely to increase the possibility of maximizing the existing budget envelope for health.