Public Spending on Education and Health Care and the MDGs
Public Spending on Education and Health Care and the MDGs
whether countries meet the MDGs. In many countries, the government
will have a central role in ensuring that its citizens, especially the poor,
have access to education and health services by either providing these services
itself or financing private sector provision. As such, it is critical to
understand the link between government spending on these programs and
performance on indicators that measure the health and education status of
the population. Of special interest is how government spending affects the
achievement of the 48 social and human development indicators that have
been selected to monitor progress toward the achievement of the MDGs.
The bulk of the empirical evidence confirms that, over time, government
spending has a positive effect on educational performance.35 Higher
public spending on education tends to be associated with higher enrollment
rates and increased chances that a student will continue on to the
fifth grade.36 Higher public education spending is also associated with
lower illiteracy rates.37 Allocating a higher share of the education budget
to primary education is also found to strengthen educational attainment.
The correlation between higher public spending and improvements in education indicators is nevertheless modest, as these indicators are affected
more strongly by other factors, such as income levels and the sociodemographic
characteristics of the population.
Public health spending can also have a positive effect on health status.
Public outlays on health care are positively correlated with life expectancy
at birth38 and negatively correlated with malnutrition rates.39 However, the
majority of econometric studies find that per capita income is a much more
important determinant of health outcomes than health spending.40 Nonetheless,
many of these studies have focused on the nexus between total public
spending on health care and the health status of the population as a whole.
Since the poor are more likely to utilize public health services, a more useful
approach would be to assess the impact of government health spending
on the indicators measuring the health status of the poor. Recent research
along these lines confirms that government spending has a salutary effect
on the poor’s health status, underscoring the potential role of higher outlays
in helping countries meet the MDGs.41 Increased public expenditures for
improved water supplies and sanitation would also help improve health indicators,
as well as those relating to environmental sustainability.
The link between social spending and social indicators can be dramatically
strengthened by eliminating waste and inefficiency. In many countries,
governments are allocating too small a share of the education and
health budgets to activities with the most powerful effects on basic social
indicators. For example, a large share of budgetary resources in the social
sectors is often used for wages, leaving few resources for nonwage inputs
with high productivity, such as medicines and textbooks.42 Similarly, a
majority of the benefits from public spending on education and health care
do not accrue to the poor—including in low-income countries (Figure 1).
In education, about one-quarter of public spending provides benefits to the
richest 20 percent of the population, while the poorest 20 percent receives
about 15 percent of the benefits from this spending.43 In contrast, public spending on primary education is more pro-poor, yet in a sample of 52 developing
and transition economies for 1996, about one-fifth of education
spending was allocated to tertiary education, an area that also has lower
social rates of return.44 Similarly in the health care sector, spending on
basic preventive health care, such as immunization and prevention of diseases,
has a relatively larger impact on the poor,45 yet in a sample of 35
countries for 1997, almost two-thirds of public health care outlays were
absorbed by curative care (for example, hospitals and medical equipment)
rather than basic and preventive health care.46 In many cases, there is also
substantial leakage of public funds. For example, in Uganda, public expenditure tracking surveys revealed that during 1991–95, less than 15 percent
of central government nonwage budgetary allocations for primary education
actually reached the schools, with the remaining funds being used
by local government officials for noneducation purposes.47
In its policy advice, the IMF recognizes the need to raise the level of social
spending to help foster human development. Under IMF-supported
programs, for example, education and health spending has risen significantly.
Since the year preceding the program, education spending has increased
by more than 1 percentage point of GDP, and health outlays have
increased by about !/2 of 1 percentage point of GDP, in low-income program
countries (with smaller increases for program countries as a whole).
(See Figure 2.) Spending on the social sectors has also increased as a share
of total government spending. This has translated into sizable increases in
real social spending per person; the annual rate of real per capita growth
for both types of spending was about 2 percent for program countries as a
whole and 3–3!/2 percent for low-income program countries (Figure 3).
Spending increases have been accompanied by broad-based improvements
in social indicators for education and health, particularly in the indicators
associated with the MDGs. These improvements include those in primary
school enrollment (0.8 percent per year), female primary school enrollment
(1.2 percent per year), infant mortality (2.7 percent per year), immunization
rates for measles (3.0 percent per year), and births attended by
skilled staff (1.2 percent per year).
Measures to improve the efficiency of public spending are incorporated
into a number of IMF-supported programs. About two-thirds of PRGFsupported
programs include such measures, drawing on countries’
poverty-reduction strategy papers (PRSPs) or the World Bank.48 Specific
measures vary, depending on country circumstances. For example, some
countries are increasing the share of spending for inputs other than wages
to improve the quality of spending (for example, The Gambia, Kenya, the
Lao People’s Democratic Republic, Niger, Senegal, and Zambia).49 Other countries (for example, Azerbaijan, Cameroon, Mali, and Uganda) are
granting selected wage increases to attract skilled workers, including in
the social sectors.
IMF-supported programs also emphasize targeting to increase the efficiency
of public spending. Some countries are reforming their subsidy
programs by replacing those subsidies from which all consumers—poor
and nonpoor alike—benefit with those that target only low-income
groups. In other countries where the poor do not have access to health care
and education services, the objective of reform is to increase equity by
making sure that public provisions reach the intended beneficiaries. This
can be facilitated by, for example, the elimination of primary school fees
(as was done in Tanzania and Uganda).
In many countries, higher spending is needed in areas other than health
care and education to enable them to move toward the MDGs. In addition
to emphasizing social programs, it is crucial to implement other complementary programs—such as those for water and sanitation, rural development,
and nutrition—to effectively improve social indicators and reduce
poverty. Some countries may also need to devote more resources to prepare
for the natural disasters to which they are prone. This is recognized
in PRGF-supported programs, where countries define “poverty-reducing
spending” in their poverty-reduction strategy papers (PRSPs). PRSPs have
defined a range of programs as poverty reducing, including spending on
primary education, basic health care, roads, rural development, agriculture,
judicial systems, and anti-corruption efforts. Based on budgetary projections
in 19 countries that most closely approximate the PRSP definition
of poverty-reducing spending, these outlays will rise, on average, by about
2 percent of GDP in the first years of their PRGF-supported programs
(most of which started in 2000). The share of total government spending
absorbed by these outlays will also rise.
Fiscal Dimensions of Sustainable Development
Prepared for
World Summit on Sustainable Development
Johannesburg, August 26–September 4, 2002
Public Spending on Education and Health Care and the MDGs - To learn more about this author, visit International Monetary Fund's Website.
Like this article? Share it with your friends
Government expenditure policy will have a key role in determining
whether countries meet the MDGs. In many countries, the government
will have a central role in ensuring that its citizens, especially the poor,
have access to education and health services by either providing these services
itself or financing private sector provision. As such, it is critical to
understand the link between government spending on these programs and
performance on indicators that measure the health and education status of
the population. Of special interest is how government spending affects the
achievement of the 48 social and human development indicators that have
been selected to monitor progress toward the achievement of the MDGs.
The bulk of the empirical evidence confirms that, over time, government
spending has a positive effect on educational performance.35 Higher
public spending on education tends to be associated with higher enrollment
rates and increased chances that a student will continue on to the
fifth grade.36 Higher public education spending is also associated with
lower illiteracy rates.37 Allocating a higher share of the education budget
to primary education is also found to strengthen educational attainment.
The correlation between higher public spending and improvements in education indicators is nevertheless modest, as these indicators are affected
more strongly by other factors, such as income levels and the sociodemographic
characteristics of the population.
Public health spending can also have a positive effect on health status.
Public outlays on health care are positively correlated with life expectancy
at birth38 and negatively correlated with malnutrition rates.39 However, the
majority of econometric studies find that per capita income is a much more
important determinant of health outcomes than health spending.40 Nonetheless,
many of these studies have focused on the nexus between total public
spending on health care and the health status of the population as a whole.
Since the poor are more likely to utilize public health services, a more useful
approach would be to assess the impact of government health spending
on the indicators measuring the health status of the poor. Recent research
along these lines confirms that government spending has a salutary effect
on the poor’s health status, underscoring the potential role of higher outlays
in helping countries meet the MDGs.41 Increased public expenditures for
improved water supplies and sanitation would also help improve health indicators,
as well as those relating to environmental sustainability.
The link between social spending and social indicators can be dramatically
strengthened by eliminating waste and inefficiency. In many countries,
governments are allocating too small a share of the education and
health budgets to activities with the most powerful effects on basic social
indicators. For example, a large share of budgetary resources in the social
sectors is often used for wages, leaving few resources for nonwage inputs
with high productivity, such as medicines and textbooks.42 Similarly, a
majority of the benefits from public spending on education and health care
do not accrue to the poor—including in low-income countries (Figure 1).
In education, about one-quarter of public spending provides benefits to the
richest 20 percent of the population, while the poorest 20 percent receives
about 15 percent of the benefits from this spending.43 In contrast, public spending on primary education is more pro-poor, yet in a sample of 52 developing
and transition economies for 1996, about one-fifth of education
spending was allocated to tertiary education, an area that also has lower
social rates of return.44 Similarly in the health care sector, spending on
basic preventive health care, such as immunization and prevention of diseases,
has a relatively larger impact on the poor,45 yet in a sample of 35
countries for 1997, almost two-thirds of public health care outlays were
absorbed by curative care (for example, hospitals and medical equipment)
rather than basic and preventive health care.46 In many cases, there is also
substantial leakage of public funds. For example, in Uganda, public expenditure tracking surveys revealed that during 1991–95, less than 15 percent
of central government nonwage budgetary allocations for primary education
actually reached the schools, with the remaining funds being used
by local government officials for noneducation purposes.47
In its policy advice, the IMF recognizes the need to raise the level of social
spending to help foster human development. Under IMF-supported
programs, for example, education and health spending has risen significantly.
Since the year preceding the program, education spending has increased
by more than 1 percentage point of GDP, and health outlays have
increased by about !/2 of 1 percentage point of GDP, in low-income program
countries (with smaller increases for program countries as a whole).
(See Figure 2.) Spending on the social sectors has also increased as a share
of total government spending. This has translated into sizable increases in
real social spending per person; the annual rate of real per capita growth
for both types of spending was about 2 percent for program countries as a
whole and 3–3!/2 percent for low-income program countries (Figure 3).
Spending increases have been accompanied by broad-based improvements
in social indicators for education and health, particularly in the indicators
associated with the MDGs. These improvements include those in primary
school enrollment (0.8 percent per year), female primary school enrollment
(1.2 percent per year), infant mortality (2.7 percent per year), immunization
rates for measles (3.0 percent per year), and births attended by
skilled staff (1.2 percent per year).
Measures to improve the efficiency of public spending are incorporated
into a number of IMF-supported programs. About two-thirds of PRGFsupported
programs include such measures, drawing on countries’
poverty-reduction strategy papers (PRSPs) or the World Bank.48 Specific
measures vary, depending on country circumstances. For example, some
countries are increasing the share of spending for inputs other than wages
to improve the quality of spending (for example, The Gambia, Kenya, the
Lao People’s Democratic Republic, Niger, Senegal, and Zambia).49 Other countries (for example, Azerbaijan, Cameroon, Mali, and Uganda) are
granting selected wage increases to attract skilled workers, including in
the social sectors.
IMF-supported programs also emphasize targeting to increase the efficiency
of public spending. Some countries are reforming their subsidy
programs by replacing those subsidies from which all consumers—poor
and nonpoor alike—benefit with those that target only low-income
groups. In other countries where the poor do not have access to health care
and education services, the objective of reform is to increase equity by
making sure that public provisions reach the intended beneficiaries. This
can be facilitated by, for example, the elimination of primary school fees
(as was done in Tanzania and Uganda).
In many countries, higher spending is needed in areas other than health
care and education to enable them to move toward the MDGs. In addition
to emphasizing social programs, it is crucial to implement other complementary programs—such as those for water and sanitation, rural development,
and nutrition—to effectively improve social indicators and reduce
poverty. Some countries may also need to devote more resources to prepare
for the natural disasters to which they are prone. This is recognized
in PRGF-supported programs, where countries define “poverty-reducing
spending” in their poverty-reduction strategy papers (PRSPs). PRSPs have
defined a range of programs as poverty reducing, including spending on
primary education, basic health care, roads, rural development, agriculture,
judicial systems, and anti-corruption efforts. Based on budgetary projections
in 19 countries that most closely approximate the PRSP definition
of poverty-reducing spending, these outlays will rise, on average, by about
2 percent of GDP in the first years of their PRGF-supported programs
(most of which started in 2000). The share of total government spending
absorbed by these outlays will also rise.
Fiscal Dimensions of Sustainable Development
Prepared for
World Summit on Sustainable Development
Johannesburg, August 26–September 4, 2002
Public Spending on Education and Health Care and the MDGs - To learn more about this author, visit International Monetary Fund's Website.
Like this article? Share it with your friends
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