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 governments 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 Share of Public Expenditures in Education by Academic Levels (%),

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 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

College and Higher Education Colleges and Universities have the highest private sectors 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

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 Hospitals Policlinics and Ambulatories Shares of Primary and Secondary Healthcare in Total Health Expenditures (%),

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 HealthcareSecondary Healthcare

Utilization Rates in Healthcare Percentage of people suffered from illness and injury and consulted in each quintile (%),2003 Quintiles12345 Policlinics Diagnostic Center Hospitals Private Physician Other 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 Utilization rates of Family Poverty Benefits per population quintiles (%),

Gross Benefit Incidence Analysis Benefit incidence is computed based on government expenditures in three sectors: 1. Education 2. Health 3. Poverty Family Benefits Analysis focuses on direct expenditures comprising more than 70%

Benefit Incidences in Education, Benefit Incidence in Pre-primary Education, Benefit Incidence in Primary Education,

Benefit Incidences, Benefit Incidence in Higher Education, Benefit Incidence of Poverty Family Benefits,

Benefit Incidences in Health, PoliclinicsHospitals

Gross Benefit Incidence 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