Republic of Montenegro: Public Expenditure and ... - Vlada Crne Gore

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18 Chapter 2: Composition of Public Expenditure and Key Sources of Fiscal Pressure delivery is financed through the Health Insurance Fund (HIF) (see Box 2.1), whereas an unknown share is paid for out-of-pocket funds through private sources. 2.18 The current public health financing system may not be financially sustainable for several reasons. The financing system relies on relatively high payroll contribution rates (13.5 percent of gross salary compared to 6-8 percent in most of EU-15), which will have to be reduced in a planned manner in the medium term to encourage employment. In addition, contribution evasion, a limited contribution base, and inadequate budget transfers from the republic treasury for uninsured erode the revenue base. On the expenditure side, a generous benefits package as well as the insufficient link between access to benefits and contribution payments has underpinned the high and growing health expenditures. Financial sustainability requires revenue and expenditure management, while ensuring equity in access and efficiency in the delivery of care. 2.19 There is a need to improve equity and efficiency in health care. 23 Concerns about equity in access to care are caused by insufficient information on out-of-pocket payments and informal payments. An unknown proportion of private spending is used to finance care in a growing and uncontrolled private sector. Inefficiency in the provision of care are related to relatively long average lengths of stay in hospitals that keep occupancy rates high, low patientloads per staff, sub-optimal distribution of staff across health facilities, and a weak referral system that undervalues the role of Primary Health Care (PHC). The resulting oversupply of beds and staff should be adjusted to increase productivity levels, as is currently being done in Serbia. 24 2.20 Governance in health policy needs to be strengthened as well as the monitoring and evaluation function to support evidence-based policy making in health. Key governance measures to reach overall health goals include: monitoring and control the flow of private and public funds throughout the health system by institutionalizing international accounting standards and National Health Accounts (NHA); validation and resolution of the arrear situation and tightening policies to prevent the accumulation of new arrears; strengthening the purchasing function of the HIF; regulate private practice; improving the quality of service delivery in the public sector; and ensuring efficiency and equity in health care. 23 The efficiency, equity and governance issues in health will be analyzed in great depth in the second phase of this programmatic PEIR. 24 See Serbia Ministry of Health Action Plan, September 2005.
Chapter 2: Composition of Public Expenditure and Key Sources of Fiscal Pressure 19 Education 2.21 Montenegro’s spending on education, at about 5.4 percent of GDP in 2005, 25 is significantly above that of other countries in the region (Table 2.4) and reaches OECD levels without matching its outcomes by far. The proportion of government expenditure spent on education is 19.1 percent, and it is the third largest category of spending behind general public services and social care. This figure is high in international terms. 2.22 Driven by high wages, spending on education is high and needs to be contained. Indeed, the preliminary budget outturn for the 2005 and projections plans for 2006 indicate that spending on education will fall slightly. This pattern should continue if the government is to meet its objective of an overall reduction in public spending. However, expenditure reductions will need to be done in such a way so that the current performance of Table 2.4. Education Spending: Overall and on Wages in Selected Countries Education Spending Education Wages % of Govt spending % GDP % of Education Spending Albania 10.4 3.0 … SaM 7.9 3.5 … Japan 10.6 3.6 … Macedonia 10.5 3.7 … Greece 8.4 4.0 … Croatia 9.5 4.3 … BiH 1/ 10.9 4.3 79.9 Ireland 13.0 4.4 … Germany 9.8 4.8 78.8 Slovenia n.a. 5.1 … OECD average 2/ 12.9 5.4 74.4 Hungary 10.3 5.5 71.5 Poland n.a. 5.6 65.8 United States 15.2 5.6 71.4 BiH 3/ 10.9 5.6 79.9 Montenegro 19.1 5.7 82.3 France 11.0 5.8 72.4 Finland 12.7 6.4 59.5 New Zealand 20.8 6.7 … Malaysia 28.1 7.6 49.4 Notes: 1/ In percent of adjusted GDP (World Bank estimate). 2/ Figures for OECD countries, 2002; Figures for percent of education spending on wages exclude universities; Germany and Hungary for public institutions only. 3/ In percent of official GDP. Sources: OECD Education at a Glance 2005; LSMS; BiH Labor Market Update (Report No. 32650-BA, 2005); Montenegrin Ministry of Science and Education. the sector, though it has significant weaknesses, does not decline further. Section C below discusses in detail the key sources of fiscal pressure in education as well as opportunities for cost saving in the medium term. C. SOURCES OF FISCAL PRESSURE: WAGE BILL 2.23 Although the Government has made substantial progress in reducing the size of public employment in the past four years, the public sector wage bill continues to represent a relatively heavy burden on the economy. Spending on wages and salaries is higher than most European countries when measured as a share of GDP. As European integration brings 25 This includes spending by social funds as well, but does not include the small amount spent by municipalities.
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Republic of Montenegro: Public Expenditure and ... - Vlada Crne Gore

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