Countries in Latin America and the Caribbean (LAC) are facing a stark new reality. After three years of pandemic which has impacted the region disproportionately, LAC is experiencing the worst economic downturn in 100 years, with falling government revenues, and the sharp uphill trajectory prices of fuel, food and other essential items all piling on the pressure.
In this region, levels of public spending on health have been historically extremely low (in 2019, LAC countries spent on average just 3.7 percent of Gross Domestic Product (GDP) on health, far less than the 6 percent recommended by PAHO), and out-of pocket (OOP) expenditure costs have been high (34 percent of total health expenditures in 2019 in the region were OOP, well above the 21 percent average in OECD countries and the 20 percent recommended by PAHO.) As such, this grim economic outlook is likely to have significant consequences for access to healthcare and on health outcomes, which could be devastating for the most vulnerable populations.
In this blog, we look at how economic conditions are likely to further compromise public health financing in the region, how smaller health budgets will be coupled with increasing demands, and what policymakers can do to minimize the negative impact on the health of their populations.
Slow growth will have a significant impact on health budgets
As a result of the combined impacts of the pandemic, the war in Ukraine, and the increasingly global economic crisis, Latin American economies are only expected to grow 2.5 percent in 2022. This sluggish growth and the associated erosion of public revenues that started during the pandemic—most LAC countries recorded an economic decline equivalent to 0.8 percentage points of GDP in 2020—will very likely have a significant impact on health budgets as economic growth has historically been the main determinant of real increases in health spending.
In September 2021, World Bank experts said it would take years for health expenditures in the region to get back to pre-pandemic growth rates as a consequence of the pandemic. They predicted that by 2021-2022, about one third of LAC countries would go back to the status quo level of investments in health—while about one-third (12 of 29) would see their health expenditures drop below pre-COVID-19 levels until 2026. Now, these already dire predictions seem optimistic!
Increased demands will complicate things further
While resources will be scarce on the revenue side, countries will also have to manage increased pressure on their health expenditure. This pressure was already mounting because ofdemographic and epidemiologic changes, as well as increased health expenditure projections driven by factors such as changes to health technology,according to a recent study by JHU. New responsibilities and new costs have also emerged as a result of the pandemic, including financing vaccines, providing testing, preparing for future pandemics, and catching up on providing essential health servicesdisrupted during the pandemic—services that often disproportionally benefit the poorest populations. UNFPA estimates, for example, that the pandemic and its negative impact on contraception provision might result in a five-year setback in the reduction of teen pregnancy, which is expected to rise from 61 to 65 live births per 1,000 adolescents aged 15 to 19.
Additionally, the pandemic and the new macroeconomic context have and will likely continue to increase poverty, unemployment, and commodity prices worldwide—all of which will createadditional pressure on public health spending. The extreme poverty rate in Latin America rose to 13.8 percent in 2021, representing a 27-year setback. Furthermore, 26 million people in LAC lost their jobs during the pandemic., (A partial employment recovery in 2021 was led by the growth of informal employment, while the share of formal employment fell by almost 5 percentage points.) For every person who lost their job there is also a family that lost its ability to contribute to the health system—and that may need subsidies. So, a far larger share of the population will now be heavily dependent on public subsidies and public health systems.
What can be done to minimize the negative consequences of this new economic reality?
With reduced fiscal space for health, some argue that the solution is to improve the efficiency of healthcare spending. This sounds good on paper, but there is limited flexibility to change and reallocate public expenditure, especially as politics does not often favour covering only “best-buy” interventions, something we can see from the limited use of economic evaluations for healthcare decision making in Latin America. Even if value-for-money measures can be adopted, efficiency gains won’t emerge rapidly, nor will they always translate into more budget for health. The question then becomes more often than not what and how to cut, and maybe even more importantly, what not to cut. The risk is that “scissors” will be too readily used on those services which are less-protected by politics and existing legal frameworks, which include essential services.
It therefore is crucial to create “safe zones” for certain health expenditures, especially those that will make the biggest difference for health and those that protect the most vulnerable first. Essential services such as family planning, primary preventative care, and early diagnosis of chronic diseases—while highly cost effective—are often not explicitly protected and financed, as political dealmaking favors stakeholders offering/selling more complex, expensive care.
As seen elsewhere in the world, sometimes it is precisely these type of essential public health services that are most vulnerable to budget cuts. Reemphasizing essential services in this new economic context would be a fundamental policy shift in a region that has been focusing more on financing on catastrophic care, including catastrophic funds in Chile, Peru or Uruguay and on high-cost medicines, and less on paying for cost-effective essential services.
Now, as health budgets are stretched to unprecedented levels, the time has come to explicitly define a set of essential health services that will be financed and provided, and create health funds which guarantee access to these services. These strategies are essential to protect core, essential services against “across the board” budget cuts and secure the best health outcomes given current financing constraints.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.
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