Debt Service would purchase eight times more medicines in Mozambique

Abstract

Debt service is an expenditure that represents a high opportunity cost to Mozambican society, as it compromises the allocation and execution of resources for the health sector, affecting the purchase of medicines.

This analysis estimated the potential results of the amount spent on debt service in strengthening the medicine response capacity of the public health services. The analysis was based on information extracted from planning documents and official implementation reports. The estimation of the opportunity costs of debt service, in the acquisition of medications, were handled throug Excel statistical package.  

With this analysis, we defend that if the amounts spent on debt service were added to the budget for the acquisition of medicines, it would increase eightfold, as well as represent a tenfold increase in the capacity for medicine assistance for each national citizen, in an extreme scenario in which all Mozambicans need medicine annually. Certainly, this increase would be much greater if we considered the number of Mozambicans who actually need medicines provided by the public health services.

Introduction

Medicines are essential for the eradication of disease and the preservation of health. This is the reason it receives great attention. It is necessary to ensure availability and access to medicines for populations severely affected by diseases, a large portion of which are low-income populations. Therefore, the issue of medicines is very important, as it constitutes one of the determinants of health and one of the bases for social and economic development.

The scarcity of access to primary and specialized medical treatment is still a major challenge for public health, as it is present in the poor supply of health services, specifically the poor circulation of medicines, which is the subject of much attention nationally and internationally. According to the CIP, the lack of medicines endangers the lives of thousands of patients and users of the National Health Service (SNS), with particular emphasis on pregnant women, newborns, HIV and Tuberculosis patients.

The debate about access to medicines is not only related to geographical and economic availability and accessibility. It requires a multidimensional field, where the State must ensure the right to life and social justice, dealing with diverse public and private actors with multiple interests – often in opposition.

In this context, debt service is an expenditure that represents a high opportunity cost for Mozambican society, precisely because it compromises the allocation and execution of resources in the health sector, affecting the purchase of medicines. The mentioned opportunity cost for medicines represents the quantity of medicines that could be purchased with the amounts spent on debt service.

We extract sufficient reasons to raise a debate around the social costs of debt service, measured against the alternative use of the resources involved in the purchase of medicines, as it is done in the present analysis.

For the collection of data, in the present research, both the bibliographical and the documental techniques were used. In the documentary research, we explored the General State Account (CGE); State Budget (OE); Economic and Social Plan (PES); Budget Execution Report (REO) Health Sector.

The existence of a growing debt service suggests a reflection on the results that could be achieved with the amounts spent, if they were applied in the health sector, more specifically in the purchase of medicines. 

Where does the money spent on medicine procurement in Mozambique come from?

Between 2013 and 2020, total resources for medicine acquisition show an increasing trend. In 2018, it was a little higher than the double amount recorded in 2017, increasing from 7 to 15 billion meticais. This evolution is justified by the growth in funding through donations, as well as through the State Budget (OE), which, at the same time, compensate the effect of the fall in the Pro-health contribution.

Chart 1 – Funds from the Medicinal Products component (Million MZN)

In general, more than 80% of the medicines supplied in Mozambique, between 2013 and 2020, correspond to in-kind donations, showing that the health sector is overly depends on foreign aid, with a weak capacity to meet demand for the main medicines, associated with others unpredictabilities.

According to the Budget Execution Report data, for the 2021 fiscal year, a total value of 13.2 billion meticais has been allocated for the acquisition of medicines. This amount represents a 49% reduction compared to 2020 (25.7 billion meticais).  

Medicines Expenditure by Each Disease

From 2018 to the first half of 2021, funding was mostly allocated to the purchase of medicines against HIV, Malaria and Tuberculosis. This result may be associated with the fact that these diseases are taken into consideration in the Global Agenda of the Millennium Development Goals (MDGs) and also because they benefit the most from foreign aid. Among the three diseases, the one that received the most funding was HIV, with a total of $206.88 million. Afterward, funding was injected for malaria with a total of 71.61 million dollars, which, according to the annual report released by the WHO, Mozambique is the country with the third-highest percentage (5%) of malaria cases in the world and the eighth where the disease kills the most (3% of all victims), which raises a question about the primacy given to HIV in relation to expenditure on medicines.

Table 1- Most purchased medications (In millions of USD)

Undeclared Debt and Donations in the Acquisition of Medicines

Public debt affects the financing of public expenditure at the time of debt service payment. The higher the debt service, the greater the pressure on the State Budget, thus reducing the financing capacity for the health, sector in general, and for the medicine component in, particular. This is due to the fact that high debt service leads to less availability of budgetary options for the implementation of development policies oriented towards more investments in the health sector.

Donations for the purchase of medicines were significantly affected by the illegal debt scandal, going from 115.29 in 2015 to 120.08 million USD in 2016. From 2016 to 2018, funding for medicines reduced dramatically at a rate of 69.16%, dropping from 120.08 to 37.0398 respectively. In 2020, they peaked, justified by an increased contribution by Chemonics to fund the purchase of materials to prevent and combat Covid-19.

Chart 2 – donations expenditure  

Source: OCS based on Budget Execution Report (Health Sector, 2015 – 2021)

Donations represent the health sector’s largest source of financing for the medicines component, evidencing a high degree of dependence of the sector on external aid and poses a risk to the sector’s response capacity, taking into account the unpredictability of resources, especially for medicines. The table below shows the main donors.

The data below reveals, overall, that the most notable donor over the past five years has been UNICEF, with a share of 28.295%, relative to total expenditure in 2016, although it experienced a reduction to 14.538% in the first half of 2021. UNFPA, in the first three years, did not donate. However, by 2020, the trend was reversed with more resources being injected to address HIV, TB, malaria, sexual reproductive health, and Covid-19.

Table 2: Trend of donations for medicines in Mozambique (2015-2021)

Source: OCS based on Budget Execution Report (Heath Sector – 2021)

Why is the Cost of Debt Increasingly High?

This analysis disaggregates public debt, looking primarily at debt service, and prominently at hidden debts, which captures different sources of vulnerability that can arise from public borrowing, depending on the type of creditor. With the disclosure of hidden debts, debt service increased from 2015 to 2016, more than doubling. This rapid increase is due to payments made on previously incurred debts and rising interest rates, which represent a consequence of the hidden debt crisis.

Table 1 – Description of Public Debt (in billion meticais)

From 2010 to 2020, the behavior of the Mozambican public debt, in general, had two distinct moments:

a) The first corresponds to the period up to the discovery of the “hidden debts” (2010 to 2016), in which the debt stock grows exponentially (average annual rate of 23%). This growth results from the opening of the international institutions to Mozambique, in the scope of credit contracting as a way to reward its discipline in this regard;

b) The second moment refers to the period after the disclosure of the “hidden debts” (2017 to 2020), in which the Total Debt grows moderately, with an average annual rate of 3%. This result is due to the discrediting of the country due to the discovery of the illegal debts.

From 2010 to 2020, public debt almost octupled, rising from 119.9 billion meticais to 948.7 billion. From 2016, the stock of public debt was at unsustainable levels, after the inclusion of illegal debts, discovered in the public accounts of the credits guaranteed by the State in favor of the companies EMATUM, MAM and PROÍNDICOS. This scenario caused the government to turn to relatively more expensive creditors, such as the bilateral debts which translate into high costs for servicing the debt.

The table above reveals that from 2010 -2013, multilateral external public debt proved to be larger than bilateral public debt, representing greater pressure on debt contraction in multilateral institutions such as the International Monetary Fund (IMF), the World Bank and the African Development Bank. However, from 2014 onwards, the authorities began to turn to the multilateral initiative, with the increasing use of credit from emerging countries such as: Japan, China, Brazil and India.

Another alternative, adopted by the government, as a way to compensate for the loss of subsidized credits and direct funding to the OE, was domestic public debt, which, despite making up on average 20% of the debt stock, also suffered the impact of the discovery of “hidden debts”, having increased significantly from 2015 to 2016, from 432.2 billion to 701.7 billion meticais, respectively. In 2020, there was a growth in debt to 948.7 billion meticais, with this increase influenced mostly by domestic debt.

What result would we have if the amount spent on debt service was used to purchase medicines?

Debt Service VS Expenditure on Medication

The chart below compares medicine expenditure to debt service expenditure. This comparison constitutes an effort to demonstrate how the National Health System could be revolutionized in terms of medicine capacity to the detriment of debt repayment.     

The debts incurred by the companies, such as EMATUM (USD 850 million), Proíndicus (USD 622 million) and MAM (USD 535 million) and security sector (little over USD 221 million) total about USD 2.2 billion.

In the year of 2017, the value of the debt incurred by the EMATUM company would have made it possible to purchase seven times the amount of medicines and medical material purchased throughout the National Health System, and it could minimize the lack of medicines or even eradicate some diseases, saving lives and restoring the well-being of the most victimized Mozambicans.  

With the overall value of the illegal debts, the Mozambican State could have acquired, on average, 10 times more medicines purchased in the last seven years, making it possible to provide medical assistance to a significant number of Mozambicans with diseases such as HIV, Malaria, Tuberculosis, etc, since the lack of medication can mean extended illness and serious motive to death.  

Chart 3 – Description of Debt Service and Acquisition of Medicine (in billions of meticais)  

Debt service corresponds, on average, to eight times the expenditure allocated to the acquisition of medicines, between 2013 and 2020. In this period, debt service hosted, on average, 39.2% of the State Budget, six times the portion allocated for the acquisition of medicines. Mozambique allocated, on average, about 389.5 meticais per inhabitant, per year, for the acquisition of medicines, a value corresponding to 13% of the debt service in the period under analysis.

This analysis on strengthening the response capacity of the heath sector, related to the need for medical assistance, catapult the fallowing conclusion: debt service represents a very high opportunity cost in the health sector, generating limitations for medical assistance, as well as causing the loss of lives.

Conclusions

Taking into account that the main sources of expenditure funding, for the purchase of medicines, come form State Budget and Donations, it is observed that the health sector tends to be highlly sacrificed. Such sacrifife can be noted through decrease of investiment on heath sector, whereas the application of values is destineted to debt service, instead of acquisition of basic necessities, including medicines.

Therefore, it is concluded that if the amounts spent on debt service were added to the budget for the acquisition of medicines, they would have a positive multiplier effect, increasing the investment on medicines eight times, from 106163.7 to 116947.6 million meticais.

The same amounts would signify an increase corresponding to a tenfold increase in the medication assistance capacity for each national citizen, going from 389.5 million to 4170.1 million meticais, taking into consideration an extreme scenario in which all Mozambicans need medication in one year. Certainly, this increase would be much larger if we consider the number of Mozambicans who actually need medicines, provided by the public health services.

This analysis suggests the need for a profound reflection on public indebtedness, as well as on the financing of the State budget, since the social sacrifices, practised in the payment of these debts, are quite high, raising doubts about the efficiency of this financing mechanism, in a context where financing options are increasingly expensive for Mozambique.

Mozambique is considered the country with the third highest percentage (5%) of malaria cases in the world and the eighth, where this disease kills the most (3% of all victims). This facts guide us to raise a question about the primacy attributed to the fight against HIV in relation to funding for the acquisition of medicines. From this position, another question arises about the hierarchy of needs and proportions of funding.