DISTRIBUTIONAL IMPACT OF PUBLIC EXPENDITURES IN ARMENIA Shoghik Hovhannisyan Terry Sanford Institute of Public Policy Duke University.

DISTRIBUTIONAL IMPACT OF PUBLIC EXPENDITURES IN ARMENIA

Shoghik Hovhannisyan

Terry Sanford Institute of Public Policy Duke University

Policy Question To what extent are the Armenian government’s

propoor public policies successful in targeting vulnerable groups of population?

What is the distributional impact of public expenditures on different income clusters?

How justified is the State participation at various institutional levels in education and healthcare?

Benefit Incidence Analysis (BIA)

BIA is a direct impact analysis of public expenditures

BIA involves a three-step methodology: 1. Aggregating households into the quintiles of

population

2. Imputing subsidies to household quintiles

3. Estimating gross benefit incidence including Health, Education and Poverty Family Benefits

Education

Education is one of the most crucial factor in avoiding poverty

Public expenditures on Education and Science have the highest share in total government expenditures- 13.6%

Analysis focuses on pre-primary, primary, college and higher education institutions

Budget mechanisms in the sector include both global budgeting and line-item methods

8.5

6.3

6.6

7.5

61.4

68.9

66.6

63.1

4.9

3.6

3.9

12.3

10.5

11.3

12.1

3.8

1999

2001

2002

2003Universities

Colleges

Primary, lower andupper secondaryacademic education

Local Budgets forpreschools

Share of Public Expenditures in Education by Academic Levels (%), 1993-2003

Pre-primary Education

Only 18% of children attends pre-primary education establishments

Private ownership emerged only in 2000

There are significant disparities between the Capital city and other regional units

0

5

10

15

20

25

30

35

Total 20.44 19.34 17.68 16.02 26.52

Capital 21.93 15.24 15.61 17.47 29.74

Other urban 33.33 25.98 17.65 16.67 6.37

Rural 19.25 25.29 19.83 18.97 16.67

1 2 3 4 5

Utilization rates in pre-primary education per population quintiles (%), 2003

Primary and Secondary Education

Primary and secondary education requires 65% of total education expenditures

State is a primary service provider

Allocation of resources is mostly based on global budgeting system

Utilization rates in primary and secondary education per population quintiles (%), 2003

0

5

10

15

20

25

30

Primary education 17.6 16.48 20.43 20.46 25.03

Capital 22.3 17.4 18.4 18.9 23.0

Other urban 26.5 28.4 26.5 28.4 26.5

Rural 15.9 17.9 20.6 21.1 24.5

1 2 3 4

College and Higher Education

Colleges and Universities have the highest private sector’s participation- 19 percent

These institutions provide also paid services and rely less on public resources

Utilization rates in colleges and higher education per population quintiles (%), 2003

19.15

17.02

21.28

19.15

23.4

12.5

18.27

24.04

21.15

24.04

1

2

3

4

5

higher education

Technicum

Health Government health expenditures have

sharply decreased

Armenia has the lowest utilization rates in healthcare among CIS countries

Reforms include transformation from

input based financing to output based system

Primary and secondary healthcare services have the highest share in total health expenditures

Basic Benefit Package consists of two types of free services

HospitalsPoliclinics andAmbulatories

199953.8 22.7

200054 17.9

200156.5 19.1

200255.3 23.2

200351.3 39.7

Shares of Primary and Secondary Healthcare in Total Health Expenditures (%), 1999-2003

Primary and Secondary Healthcare

Policlinics with the ambulatory systems serve as primary healthcare institutions

Prioritization of Primary healthcare

Allocation of public resources

based on catchment area population and capitation rates

Reorganization of Hospitals

Allocation of resources in Capital based on actual number of cases

Financing of services at the regional level has incremental nature depending on relative number of poor and vulnerable people

Primary Healthcare Secondary Healthcare

Utilization Rates in Healthcare

34.15

33.65

36.96

33.06

32.89

5.05

5.12

5.33

5.27

4.79

1

2

3

4

5

Consulted

Suffered from illness andinjury and consulted

Percentage of people suffered from illness and injury and consulted in each quintile (%),2003

Quintiles 1 2 3 4 5

Policlinics 15.6 19.2 19.2 20.5 25.4

DiagnosticCenter 12.5 18.7 21.9 25 21.9

Hospitals 17.5 15.5 21.5 20.5 25

PrivatePhysician 29.0 11.3 21.0 24.2 14.5

Other 11.8 23.5 35.3 20.6 8.82

Utilization rates in healthcare by different institutions and quintiles of the population (%), 2003

Poverty Family Benefits

Poverty Family Benefit System was introduced in 1999

Number of households receiving Poverty Family Benefits decreased from 230 thsnd. in 1999 to 150 thsnd. in 2002

Amount of budget allocations decreased from 8.5% to 5.4% in total

Q 1999 2001 2002 2003

1 19.4 17.7 16.5 25.1

2 19.3 16.3 18.5 26.2

3 20.5 19.5 19.2 27.1

4 19.7 22.2 20.4 21.6

5 21.1 24.2 25.4 0.0

Utilization rates of Family Poverty Benefits per population quintiles (%), 1999-2003

Gross Benefit Incidence Analysis Benefit incidence is computed based on

government expenditures in three sectors:

1. Education2. Health3. Poverty Family Benefits

Analysis focuses on direct expenditures comprising more than 70%

Benefit Incidences in Education, 1999-2003

0

0.2

0.4

0.6

0.8

1

1 0.67 0.36 0.55 0.76

2 0.78 0.7 0.87 0.72

3 0.65 0.5 0.53 0.65

4 0.78 0.74 0.95 0.59

5 0.57 0.86 0.89 0.98

1999 2001 2002 2003

Benefit Incidence in Pre-primary Education, 1999-2003

0

2

4

6

8

10

1 5.08 3.66 4.61 5.86

2 5.25 7.09 7.27 5.49

3 5.25 5.03 4.44 6.8

4 4.82 7.55 7.98 6.81

5 4.5 8.69 7.45 8.33

1999 2001 2002 2003

Benefit Incidence in Primary Education, 1999-2003

Benefit Incidences, 1999-2003

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

1 0.36 1.02 0.44 0.71

2 0.83 0.69 1.1 1.04

3 0.86 1.06 1.03 1.37

4 1.41 0.88 1.54 1.21

5 1.55 1.76 1.98 1.37

1999 2001 2002 2003

Benefit Incidence in Higher Education, 1999-2003

0

1

2

3

4

5

6

7

8

1 6.81 4.71 3.63 4.75

2 6.77 4.34 4.09 4.97

3 7.19 5.18 4.23 5.14

4 6.92 5.89 4.5 4.09

5 7.41 6.44 5.61 0

1999 2001 2002 2003

Benefit Incidence of Poverty Family Benefits, 1999-2003

Benefit Incidences in Health, 1999-2003

Policlinics Hospitals

1999 2001 2002 2003 1999 2001 2002 2003

1 0.34 0.29 0.28 0.50 0.61 0.55 0.80 0.94

2 0.35 0.26 0.46 0.58 0.70 1.16 1.25 1.67

3 0.37 0.27 0.33 0.85 0.72 1.35 0.85 1.00

4 0.30 0.34 0.32 0.62 1.13 1.53 1.20 1.60

5 0.49 0.20 0.42 0.69 1.39 1.96 1.93 1.93

Gross Benefit Incidence

0

5

10

15

20

1 13.88 10.59 10.31 13.63

2 14.68 14.24 15.04 14.57

3 15.06 13.39 11.4 15.81

4 15.35 16.94 16.49 14.8

5 15.91 19.91 18.27 13.19

1999 2001 2002 2003

Benefit Incidence for two poorest groups declines drastically in 2001 by 13 percent

For two highest quintiles Benefit Incidence increases by 17 percent

These indicators improve from 2001 to 2003

Conclusions Main social expenditures are almost evenly distributed

among population groups in 2003

In Education the richest groups gain higher benefits in all academic levels

Primary healthcare has more pro-poor effect than secondary healthcare

Significant improvement in distribution of Poverty Family Benefits