Public Spending on Human Development

• Author: Sanjeev Gupta, Benedict Clements, and Erwin Tiongson
• Position: Chief of the Expenditure Policy Division in the IMF's Fiscal Affairs Department/Senior Economist in the Expenditure Policy Division of the IMF's Fiscal Affairs Department/Research Officer in the Expenditure Policy Division of the IMF's Fiscal Affairs Department

Social indicators are improving in many developing countries as public spending on education and health increases. But a greater share of investment in human capital should be channeled toward primary education and preventive health care.

PUBLIC spending on education and health, because of its positive effects on the formation of human capital, can boost economic growth while promoting equity and reducing poverty. How productive and beneficial spending on education and health is, however, depends on how funds are allocated within these sectors.

Compiling the data

The analysis of trends in public spending on education and health in developing and transition countries, and of the effectiveness of such spending in fostering human development, has been hampered by the lack of comprehensive data covering a large number of countries. For its internal use, the IMF has compiled consistent cross-country data on education and health spending for a sample of 118 developing and transition countries, 66 of which are implementing or have implemented IMF-supported structural adjustment programs. Of the 66, 32 are low-income countries with programs under the IMF's Enhanced Structural Adjustment Facility (ESAF).

Cross-country comparisons of government spending on education and health must be made with caution. What is covered by the data may vary from country to country, and data on local government spending are rarely available. Much of the available information on the sectoral composition of expenditures is not consistent with the best available estimates of total spending on education and health. In addition, the fact that data on social spending exclude private sector outlays-which are substantial in many countries-needs to be kept in view when interpreting the relationship between government social spending and social indicators.

Data from a sample of 118 developing and transition countries (see box) show that, since the mid-1980s, real per capita spending on education and health has increased, on average, in developing countries, but decreased in the transition economies. Comparable increases can be observed for countries that had IMF-supported adjustment programs during the same period. However, a relatively high percentage of public spending is allocated to tertiary education (post-secondary and university level) and curative health care. Thus, there is scope for improving social outcomes by changing the composition of public expenditures.

General patterns

In the latest year for which data are available for our sample (1996 in most cases), public expenditures on education averaged about 4 percent of GDP and 14 percent of total government spending (Chart 1). While there was little variation across regions, there was considerable variation from country to country: the standard deviation from the mean was about 2 percent of GDP. Health expenditures were lower than education expenditures (about 2 percent of GDP), with greater variation from region to region and somewhat higher fluctuations from...