After a few weeks break, we continue with our Fridays Academy series where we left it. As usual, from Raj Nallari and Breda Griffith's lecture notes.
The PRSP and Funding for Health
From the late 1990s, the multilaterals, working through the Enhanced HIPC Initiative and the PRSP, have recognized the importance of social spending for health and education in the macroeconomic framework by strengthening the link between debt relief, poverty and social policies. Funds freed up because of debt relief can now be increasingly targeted for government spending on public services that directly benefit the poor.
According to Gupta et al. (2001), countries that have reached their completion point should benefit from a reduction in debt service payments of 1.9 percentage points of GDP on average a year. For some countries, the savings from debt relief would be even more substantial—9 percent of GDP in Guyana over the coming years, Exhibit below.
Total revenue, Total Spending and Spending on Health in HIPCs that have reached the Decision Point
Source: Gupta et al., 2001
The savings freed up by debt relief can then be allocated towards social spending. Measures to increase the poor’s access to health care and education form part of the country’s poverty reduction strategy (PRS) that is delineated in their PRSP. The increased focus on poverty reduction programs in the PRSP is likely to change the composition of total public spending and increase the budget allocation for health and education.
Annual percentage change in health spending and social indicators, 1985-99
The PRSPs of the 23 countries at the decision point in 2001 contain measures for increased spending on primary and preventive health care and primary education and the countries have increased significantly public health care spending in per capita terms. Yet health care spending in the HIPCs lagged behind that of other non-HIPC countries that were eligible for debt relief under the IMF’s PRGF in 1999, Exhibit above. About 9 percent of total government outlays went toward health care in the HIPCs in 1999, ranging from US$3 a person in Madagascar to US$35 a person in Bolivia and Guyana. Ample scope remains to increase productively the proportion of public spending going to health care.
However, targeting public health care alone, although on the surface compelling, may not be the most expedient way of spending funds made available under debt relief to improve social outcomes. Targeting other high priority areas such as water and sanitation and nutrition will also improve the health of the poor. Furthermore, available evidence suggests that increased outlays on health care do not always translate into better health care indicators. Moreover, a focus on health care indicators alone as a measure of government policy can be misleading. Health care indicators need to be treated with caution. Limited data and changes in the methodologies used over time also affect changes in these indicators as well as factors other than government expenditures—household income, general economic conditions, improvements in health technology and the activities of nongovernmental organizations and other private sector providers (Gupta, 1998).
In addition, benefit incidence studies suggest that the poor gain very little from increased health outlays. A more comprehensive strategy for improving health care spending would focus on removing the inefficiencies that exist with regard to spending, and reallocating funds to programs such as prenatal care and vaccinations against preventable diseases that are more beneficial to the poor (Gupta et al., 2001). This has been the approach adopted in the PRSPs of the 23 countries at decision point—a commitment to increased public outlays on health care covering a wide range of poverty reduction programs. Funds for the health sector alone are expected to increase by 0.4 percentage points of GDP between 1999 and 2001, less than the total amount of HIPC debt relief.
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