2.13 Largest functions as a percentage of consolidated expenditures, 2007–20

Figure 2.13 shows that despite the deteriorating fiscal situation, the share of spending on education, economic activities, defense, and security and the judiciary significantly expanded.

The 2020 COVID-19 budget amendments sharply increased the share of the consolidated government budget going to health to 10.4 percent, equivalent to 4.24 percent of GDP. Reacting to COVID-19, the central government increased the planned allocation to health care, including earmarked health grants, by 1.0 percent of GDP, which helped expand the share of health within the central budget from 9.6 percent to 10.9 percent. The SNGs also increased their health care allocations funded from their revenue on top of earmarked health grants by 0.2 percent of GDP. Together, these measures helped raise planned consolidated health spending to the highest level in recent times (figure 2.12). However, investment in some nonhealth infrastructures received an even higher priority— for example, as shown in figure 2.13, consolidated spending on economic activities grew by 1.6 percent of GDP (within which, spending on roads increased by 2.1 percent of GDP).

The 2021 budget further increases central spending on health to 12.1 percent of total government spending, equivalent to 3.6 percent of GDP. At the time of writing, though the 2021 Budget Law containing the central budget health allocation was already approved, the SNGs had not yet approved their budgets, making it impossible to establish the consolidated 2021 health budget projections. At the central level, the 2021 budget signals a slight change in functional priorities. As already stated, central spending on health, including transfers to SNGs, would

FIGURE 2.13

Largest functions as a percentage of consolidated expenditures, 2007–20

30

% of consolidated expenditures (all tiers) 25

20

15

10

5

0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Social protection Security and judiciary Education Defense Economic activities Debt servicing Health care

continue to grow strongly as a share of spending, from 10.9 percent to 12.1 percent—and as a share of GDP, from 3.5 percent to 3.6 percent. The only other function experiencing a similar increase is education.

Comparisons with the OECD countries suggest that there might still be room to grow the share of the government’s budget going to health. In a broad comparison to OECD countries, most of whose health care systems are based on a strong role of the government in health care financing and also cover long-term care, the share of health spending in Ukraine is predictably lower, by 2.5 times, 11.5 percentage points in 2019. On the other hand, Ukraine allocates a significantly higher budgetary share to internal security (+3.9 percentage points), social protection (+3.8 percentage points), and education (+2.0 percentage points) compared to the OECD average.

Looking ahead, reconsideration of the importance of health versus functional priorities should involve a whole-of-government spending review using a scenario-based, medium-term macro-fiscal outlook. Significant reprioritization of government spending requires the review to detect inefficiencies and evaluate possibilities for resource reallocation across sectors. A spending review to assess the Ukrainian context for potential functional reprioritization would also depend significantly on the future economic outlook, the fiscal policies the government will choose in reaction to the crisis, and the approach to fiscal consolidation once the crisis subsides.

Increasing the budgetary share of PMG within the health budget

Because other health programs could not reasonably be cut back without dire consequences for population health, the scope for the expansion of the share of PMG in the health budget beyond that which is already planned is marginal. As discussed above, the PMG purchased through the NHSU is currently absorbing about 53 percent of the consolidated health budget. Another 21 percent of the consolidated health budget is spent on PMG-related utility and capital costs through the SNGs (and therefore reflected separately in the budget) and on some additional services that should be migrated to the PMG as part of the original reform design. This will substantially increase the budgetary share of the PMG within the health budget. The scope for significantly expanding PMG funding within the current health budget is therefore relatively small. However, a range of health programs could still be revisited through specific spending reviews. For instance, in 2019, the MoH conducted two spending reviews on some of its central programs, but the reports were not approved or taken forward by the ministry.

Rebalancing the intergovernmental revenue-sharing arrangement

Sharing the PMG funding responsibilities across government tiers may be finetuned in the long run to increase efficiency, but it would not increase the PMG resource envelope: • Local discretionary supplementation of the PMG running costs is already near the level before the reform, approximately 8 percent of the total amount of spending on PMG services. As discussed earlier in this report, the reform left the SNGs with the right to supplement PMG running costs. Before the