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PUBLIC FINANCIAL MANAGEMENT GMGF 5014

GOVERNMENT EXPENDITURE IN HEALTH SECTOR

MOHD FAKRULHISHAM BIN AHMAD

School of Government
College of Law, Government and International Studies (COLGIS)

Abstract

Public sector spending is the expenditure incurred by the federal government, state

governments and non-governmental enterprises (NFPEs). The government's

expenditure is divided into two types of expenditure, namely operating expenditure

and development expenditure. Every year the federal government will announce

government spending in the budget siding. In the budget siding, the government will

spend on each existing ministry to be used for the following year. The health sector is

one of the sectors involved in government spending. The government's expenditure

on this health sector can be considered important in ensuring that all citizens can enjoy

the best health facilities from the government. Every year the amount of government

expenditure in this health sector is also seen to increase in order to improve the quality

of health and life of the people. Hence the purpose of this writing is to evaluate and

respond to government spending on the health sector in this country.

1.0 INTRODUCTION

Government expenditure is an important element of a country to enable a

country's planning to take place. The budget allocation through the annual budget

presented by the Prime Minister has its own unique strategy to ensure that the nation's

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wealth continues to flourish and can be enjoyed by all citizens as well as to increase

the growth and development of the nation as a whole. Mohd Zainudin Saleh (2004)

states in Malaysia for example, this government's expenditure has contributed to the

expansion of economic production capacity primarily through human resource

development, technological advancement, infrastructure provision as well as research

and development (R & D). The Government also focuses on projects that can support

private sector-led growth strategies, particularly in improving infrastructure facilities to

meet the needs of modern economies and increasingly sociable communities.

All policies, strategies and programs implemented by the government through

its expenditure are basically aimed at improving the well-being of the people in which

it involves human development. It is the group's ability to define and develop a future

that involves a process of creation and development of quality of life. The

government's planning and strategy in various areas, particularly health and

infrastructure facilities through government spending is vital to building a better life

and being seen as an investment for economic growth.

Generally, total government spending is increasing every year. This can be

seen in 2017, the total government expenditure was RM262.8 billion compared to the

year 2000 of RM84.4 billion and 2010 at RM204.4 billion. In the health sector it

includes spending on building and upgrading hospitals, increasing the number of

doctors and nurses and the supply of medicines and equipment as well as the

expansion of 1Malaysia clinics. In 2017 the government allocated a total of 23 billion

to cover expenses in the health sector.

From the aspect of human development, the UNDP Report (2011) states that

Malaysia ranks 61 out of 187 countries with a Human Development Index value of

0.761 in a high level of development. Next to economic growth, Norain et al. (2010)

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states that starting in the 1980s, Malaysia experienced high economic growth following

the government's move to develop the industrial sector and adopt the Look East Policy

through cooperation and economic integration with the most advanced Asian countries

of Japan. Furthermore, the government's efforts to liberalize the domestic sector to

attract foreign investment have been seen to have boosted output growth in the 1990s.

Among the issues discussed is whether government spending is really able to boost

economic growth and how far the government's expenditure can affect human

development in terms of economic growth.

Thus, this paper is designed to explain the importance of government spending

on the health sector to economic growth through human development channels.

Writing will discuss past studies on government spending, human development and

economic growth as well as conclusions.

2.0 Literature Review

A remarkable economic success of a country can determine the expenditure of

healthcare by its citizens. The dominant view among economists as well as public

policy makers is that the government can play a very important role in economic

development, as the fiscal policy is an important instrument (Dr. Mwafaq M.

Dandan,2011). In this context, a well-planned public expenditure is crucial in

determining the healthcare expenditure of the country. There are a number of studies

discussing the relationship between healthcare expenditure and economic growth but

this paper will probe on the issue of public healthcare impact on healthcare

expenditure.

Some studies indicated that there is a growing interest and examining the

relationship between income and healthcare expenditure (Kareem Rasaki.O, 2014).

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Thus is it relevant to say that public expenditure plays an important role in healthcare

expenditure as well. In other study conducted in Nigeria, the study concluded that the

government recurrent and capital expenditure have significant influence on economic

growth in Nigeria. More so, the result of disaggregated analysis concluded that

agriculture, social and community services, health and services are significant

variables of government spending contributing to economic growth in Nigeria (Kareem

Rasaki.O, 2014) Therefore, it is sufficing to say that the government plays a huge role

here in providing a sound public expenditure for the country.

Serdar Kurt (2015) in his study concluded that there is a mutual interaction

between a population’s health level and its level of economic growth and development.

Maintaining a sustainable level of growth and development provides people

significantly better nutrition and disease treatment opportunities along with wider

access to preventive medical technology. A sustainable growth and development

enables better health conditions, increasing the share of population of healthy

individuals. This shows that a public expenditure is pivotal and should be able to cater

to people’s needs to able them to contribute more the development of the country.

Benjamin and Tin Wei Lai (1997) in their study the government expenditures

and economic growth in South Korea concluded that the government has played

animportant role in economic development of Korea. John Loizides and Vamvoukas

(2005) found that in all countries public expenditures causes growth in national income

either in the short or the long run. Niloy Bose, M Emranul Haque , and Denise R

Osborn(2003) carried out a study title "Public Expenditure and Economic Growth: A

Disaggregated Analysis for Developing Countries" this study found out that the share

of government capital expenditure in GDP is positively and significantly correlated with

economic growth, but current expenditure is insignificant.

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These literatures evidently show that there is a connection between public

expenditure and economic growth which is crucial in the discussion of this concept

paper that a public expenditure will also have a huge impact on the healthcare

expenditure.

3.0 Objective

The purpose of this writing is to discuss the matter of:

1. To clarify the role of the government in public spending on the health sector.

2. To explain and express opinions regarding government spending.

3. To provide suggestions or views in improving the quality of the health sector in the

country.

4. To provide information and knowledge regarding government health expenditure.

4.0 Discussion and Recommendation

Malaysia aspires to become a developed and high income nation by 2020. The

Government Transformation Program and the Economic Transformation Program,

enacted and implemented during the 10th Malaysia Plan period and 11th, will provide

a platform for achieving that goal. The country's health sector is no exception to this

stream of improvements. 1Care for 1Malaysia is a proposed transformation plan to

restructure the healthcare system so that quality services can be provided to the

people on the basis of "to-use, pay-for-money" principle.

Infrastructure and resources of the country's healthcare system are jointly

shared by the public and private sectors. As Malaysia gets closer to the level of high-

income countries, more health facilities are needed to accommodate population

growth; increase in life span leading to more senior citizens; disease pattern change

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with more chronic diseases; and advances in medical technology as well as increased

consumer expectations.

To reach the level of health infrastructure as in developed countries, more

investments are needed. Dependence on government to develop all health facilities

will delay this achievement and require more allocation for the health sector than the

entire government budget.

Hence, the private sector's continued investment and contribution to developing

a healthcare system is encouraged. However, in the current health financing situation,

such private sector development will widen the access gap between healthcare

providers between rural and urban populations, and among the poor and the poor.

Under the proposed 1Care for 1Malaysia transformation plan, all levels of the

people regardless of their level of ability, have the option of using government or

private health services. This can also ease the burden on expenses that the

government needs to bear.

In support of this health system transformation plan, the transformation of

health financing mechanisms is also needed, to combine health financing resources;

administering healthcare with more manageable; and control the rising healthcare

costs dramatically. At present, the financing of national health services comes from

two sources, namely government and private. Each contributed 55% and 45% of all

health expenses. Government funding comes from Government General Revenue,

while private expenditure mostly comes from private pocket or out-of-pocket (OOP),

private health insurance and financing by employers.

In 2016 government revenue fell RM7.4 billion and accordingly government

spending also fell by RM7.8 billion. The main reason why government revenue fell was

due to a drop in petroleum (oil and gas) yields after falling crude oil prices by over 70%

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from US $ 114 per barrel in 2014 to US $ 28 per barrel in early 2016. Although there

is an additional collection of government revenue through the GST, it is still unable to

cope with the collapse of government petroleum revenue.

Source from the Central Bank of Malaysia

The fall in government petroleum revenue is also a major reason why the

government cut spending since last year. Last year the government cut RM7.8 billion

in spending to maintain fiscal discipline and target deficit reduction. As a result, the

health sector has also been impacted by the cuts in spending budgets.

The issue of rising healthcare costs is often said in recent years. Worldwide

evidence suggests that getting rich in a country, the higher its health expenditure.

From 1997-2016, Malaysia's health spending has increased by an average of 12-13%

per annum, more than the general inflation rate. Without a transformation to health

financing mechanisms, the country's health spending is roughly estimated to reach

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RM102 billion by 2020. This expenditure will be borne by the people over OOP

spending and private health insurance.

The proposed health financing mechanism is a combination of government

general revenue and social health insurance (SHI) schemes. It involves the

contribution of workers, employers and governments. Hence, emphasis is placed on

individual and family responsibilities as well as the community and the corporate sector

to participate in co-operation with the Government, in the sharing of healthcare costs.

This accumulated fund will be managed by a government organization responsible for

the Ministry of Health (MOH).

By 2030, Malaysians will grow old like Japan. Asia and Malaysia, in particular,

are among the fastest-growing population groups in the world. According to

Singapore-based Asia Pasific Risk Center (APRC), the region's aging situation will

cost $ 20 trillion in healthcare costs by 2030.

Japan spends 8% of its GDP for healthcare; where 80% of this expenditure is

funded by the government, while Malaysia is lagging behind with only 4.4% of GDP

allocated for health care and only 52.4% financed by the government. Total public and

private healthcare expenditure is RM50.3 billion; where 93% is spent on Operating

costs and only 7% is allocated for Development.

The percentage of GDP spent on healthcare places Malaysia at the world's

156th position. The majority of Malaysians use public healthcare facilities. 75% of

Malaysians use the hospital treatment system and 90% of Malaysians use the public

healthcare outpatient system. Nevertheless, the government only spent 52.4% on

healthcare. This proves two things; higher costs for private facilities and the ability of

the majority of the people to use the private healthcare system.

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An attempt to formulate a healthcare system in just one plan is not an easy task.

The healthcare system is complicated, as it has various indicators that need to be

measured with different levels of performance. These include patients, doctors,

medical suppliers, business networks, and agencies that support healthcare activities,

including the government.

How do we want to measure the healthcare of a country? An effective

healthcare performance measurement system is very important in ensuring that we do

not follow America's footsteps. A continuous monitoring plan can ensure quality

improvement, effectiveness, accountability and most essential capability. These

measurements should also cover the overall aspects of health care including patient

satisfaction, medical practitioner efficiencies, medical care, clinical quality, equipment,

technology and financial performance.

How do we measure achievement? If the ability to bear health costs becomes

measurable, the cost of delivering infants in hospitals in the UK and Australia with the

duration of stay in the hospital for 2.6 days is at the median per month salary compared

to the median 3-month salary in Malaysia. Maternity costs are deliberately chosen for

example because pregnancy and birth are the number one hospital admission of 19.9%

for public and private hospitals (Ministry of Health, 2016).

There is a constant debate whether health care is an individual or government

responsibility. It's easy to accuse individuals of not taking care of their health while the

government is doing their best to ensure the best service. However, a person with high

awareness of healthcare will not be able to do anything if the public health environment

provided does not have good quality standards. The Government has the

responsibility to ensure the best quality of clean water supply, comprehensive

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immunization program, healthy food and affordable accommodation, and more

environmental and environmental issues.

In 1983, the Malaysian government launched a privatization policy that enabled

private parties to play a greater role by taking over government responsibilities in

various areas including healthcare. Since then healthcare costs have risen

dramatically. Private hospitals traditionally formerly managed by non-governmental

organizations and religious bodies are increasingly being taken over by profit-oriented

private hospital management. The idea of implementation is simple, the rich are able

to seek treatment in private hospitals and this will reduce the burden on government

hospitals which in turn will provide better services to less fortunate patients.

Not only that, in 1993 pharmaceutical services under the Ministry of Health had

also been privatized. In fact, Renong has been granted exclusive long-term contracts

to supply medicines to the extent that the allocation of government supplies has

doubled for the following year. But privatization is still ongoing, with other support

services such as laundry and linen, clinical waste management, cleaning, engineering

and maintenance services were privatized three years later in 1996. In just one year,

the cost of the service increased to RM450 million from RM140 million.

The effects of privatization, experienced doctors and high qualified graduates

also move to the private sector. Within twenty years alone, the privatization sector had

two-thirds of all physicians and surgeons. Human resource issues occur. Finally the

waiting time and quality of service at government hospitals are facing major problems.

There is also a tragedy when a patient is diagnosed late or late in the treatment of

death.

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As previously described, the cost of health care in private hospitals is very high.

For example, the cost of delivering Class 1 to a public hospital is only RM800

compared to the cost of the same treatment at a private hospital for a total of RM3500-

RM6000. Recently, the cost of drugs has also increased sharply since the

implementation of the GST. In the private sector, GST costs are transferred to patients

as they are not absorbed by private medical institutions.

According to the Health Ministry (2016), we have 46,491 doctors in public and

private hospitals; which gives us a ratio of 1: 656 to population, dentist at ratio 1: 4,775,

pharmacist at ratio 1: 2,900, optical specialist ratio is 1: 2,900 and eye specialist with

ratio 1: 19,053. The 11th Malaysia Plan (2016-2020) sets a ratio of 1: 400 which means

the target of 75,000 doctors by 2020. Do we have enough training hospitals and

enough medical student supplies to achieve that goal? This means that 28,905 new

doctors are required within 4 years.

However, the Health Ministry said they did not have enough facilities to absorb

new graduates for practical and houseman ship training. Therefore, new medical

students are forced to be frozen. This does not mean that we do not have enough

hospitals. There are currently 143 public hospitals with 41,389 beds and 183 private

hospitals with 12,963 beds. Since 75% of Malaysians choose a public hospital, this

means that a public hospital needs to serve 157,342 Malaysians while a private

hospital needs to serve 40,983 Malaysians.

Currently there are only 44 training hospitals. The lack of training hospitals is

translated into the extra time that medical graduates must go before they can be

placed. Existing medical officers buried with excessive workloads are also unable to

provide the best training to new medical graduates. In addressing this problem, the

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government can build more training hospitals, and we also need to re-evaluate existing

regulations and allow medical graduates to undergo overseas training overseas at

universities receiving approval to do so by the Ministry of Education. The rural clinic

can also be upgraded to a fully equipped mini hospital with a qualified physician. This

will growth the location for trainees and medical doctors.

In the future, payments to doctors should not be based on the services provided,

thereby avoiding investigations and treatment is not required. The inequality of income

between public and private healthcare staff members needs to be clarified. It is

important for the country to invest more in public health facilities by multiplying the

number of our medical officers, hospitals and training hospitals over the next ten years.

Privatization needs to be revised, national healthcare insurance for the poor should be

established, cost reduction assessments for a comprehensive health care network,

non-profit oriented hospital establishment, national healthcare precatory assessment

system and more health awareness programs need to be introduced.

5.0 Conclusion

Overall, government expenditure plays an important role in generating

economic growth through human development where budget allocation is channelled

to key sectors, particularly the health sector as the basis for human quality assurance

and national development. However, some important points should be investigated in

solving this problem. First of all, in terms of government spending where planning and

project selection should be based on priorities. Hence, the emphasis given by the

government in budget allocation is an effective measure in meeting the commercial

and industrial requirements by providing a healthy and highly skilled workforce and

providing infrastructure in ensuring the health sector is well worth the money.

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The lifestyle of today's society also needs to be changed in strengthening them

to maintain their health. According to the State Housing Report II issued in August

2016 by the Khazanah Research Institute (KRI), most households, especially in urban

areas, are unable to afford adequate nutrition-based diet after taking into account other

expenses to be spent. This directly affects their health situation. This is a reflection of

many things that indirectly affect healthcare. Therefore, health care is not the absolute

responsibility of the Ministry of Health, but the common responsibility of every

Malaysian.

Collective tax collection, real estate tax, goods and services tax, road tax and

various funds collected from the community, should be translated into the benefit of

the people. Money collected by the government should be transferred back to two

major government responsibilities - health and education. The budget should be

allocated to medical activities and programs. This will ultimately bring many benefits

to the government, ensuring a healthy and productive workforce that ultimately

contributes to the country's economy.

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6.0 Reference

Dr. Mwafaq M. Dandan, 2011. GOVERNMENT EXPENDITURES AND ECONOMIC


GROWTH IN JORDAN. 2011 International Conference on Economics and Finance
Research, IPEDR vol.4 (2011) © (2011) IACSIT Press, Singapore.

Benjamine S. Cheng and Tin Wei Lai, 1997. Government Expenditures and Economic
Growth in South Korea: A VAR Approach. Journal of Economic Development, Volume
22, number 1, June 1997.

Serdar Kurt, 2015. Government Health Expenditures and Economic Growth: A Feder–
Ram Approach for the Case of Turkey. International Journal of Economics and
Financial Issues, 2015.

Kareem Rasaki .O, 2014. The Impact of Public Sector Spending on Economic Growth
of Nigeria. Journal of Economics and Sustainable Development, Vol.5, No.3, 2014.

John loizides and George Vamvoukeas. Government Expenditures and Economic


Growth: Evidence from Trivariate Causality Testing .Journal of Applied Economics,
vol.VIII, NO.1 (MAY 2005), 125-152.

Niloy Bose, M Emranul Haque and Denise R Osborn. Public Expenditure and
Economice Growth Disaggregated Analysis for Developing Countries.

https://www.moh.gov.my

https://www.bnm.gov.my

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Appendix

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