Sad plight of underfunded education and health sectors

Thursday, 2 October 2014 00:00 -     - {{hitsCtrl.values.hits}}

By Economicus Two salient characteristics appear in the Sri Lankan fiscal scenario. First, the necessity to keep budget deficits very low, which is often mandated by multilateral financial institutions; and second, a revenue structure that does not expand with the requirements of the economy. When these two constraints are already imposed on the equation, the only opportunity left is in cutting expenditure. With capital expenditure at perhaps the lowest levels that can be justified, the present trend is to cut current expenditure. Within current expenditure the axe falls differently on each sector. Table 1 indicates the movements of current and capital expenditure over the period 2009 to 2013 in absolute terms as well as percentages of GDP. It is the bottom part of Table 1 that is of more relevance. Current expenditures have been reduced from 18% of GDP in 2009 to 14% of GDP in 2013. That is a reduction of a whopping four percentage points! The point to be made is that this reduction fell on both the education and health sectors of the economy. In Table 2 we isolate the social services sector of Table 1, and introduce its categories. The green shaded area says it all. Expenditure on education had fallen to 1.8% of GDP by 2013. In India, public expenditure on education is 3.4% of GDP, Pakistan 2.1%, South Korea 5.2%, Maldives 5.9%, Bangladesh 2.2%, Philippines 2.7%, Vietnam 6.3%, and Thailand 7.6%. The education budget should be at least 3 to 3.5% of GDP in a high growth economy like Sri Lanka. It becomes ironical that a country trying to become a knowledge hub should reduce rather than increase its expenditure share on education. Health expenditure around 1.4% of GDP is also seriously underfunded. India spends 4% of its GDP on the health sector, Malaysia 3.9%, Bangladesh 3.6%, Maldives 8.5%, South Korea 7.5% and Pakistan 3.9%. The health budget in Sri Lanka should be at least 3% of GDP. It is indeed a sad plight when two critical sectors in the economy are underfunded greatly. Both education and health have increasing returns on output, and their current underfunding will be very adversely felt in the economy in the years to come.