MYANMAR PUBLIC EXPENDITURE REVIEW: OVERVIEW

The World Bank group

May 13, 2015

OUTLINE

o Introduction

o Budget sustainability

o Rebalancing the Budget

o Education spending and financing

o Health spending and financing

o Intergovernmental fiscal relations

o Conclusion

PER BACKGROUND AND OBJECTIVES

o Background:o Big shifts in Union Budget policies since 2011

o Government spending almost doubled.

o Spending refocused to address service delivery gaps.

o PER objectiveso Analyze alignment of Union Budget with development priorities.

o Options to further strengthen Budget policies for development.

o Initiate regular analysis and dialogue on Budget policies.

PER SCOPE

Public Sector

State Economic

EnterprisesRegionsStates

Central Government

Non-FinancialFinancial

Cantons

Development

Committees

MinistriesState Administrative Organizations

General Government

SIZE OF GENERAL GOVERNMENT OPERATIONS

0

5

10

15

20

25

30

35

40

5 10 15 20 25 30 35 40

Govern

ment re

venue (

% o

f G

DP,

09

-12 a

vg)

Government spending (% of GDP, 09-12 avg)

Vietnam

Nigeria

Lao PDR

Myanmar

Averages

Bubble size reflects

growth performance

(2009-2012 average)

Ghana

Economic growth in Myanmar has been above average for selected countries

though the size of general government operations is relatively small

AGGREGATE FISCAL DEVELOPMENTS

6.3

9.6

0

5

10

15

20

25

30

Mala

ysia

Thaila

nd

Vie

tnam

Lao P

.D.R

.

Philip

pine

s

Indone

sia

Ca

mbodia

Mya

nmar

Reve

nue (%

of

GD

P)

2009 2010 2011

2012 2013

7.2

13.5

0

5

10

15

20

25

30

35

Georg

ia

Vie

tnam

Sri La

nka

Pakista

n

Philip

pine

s

Lao P

DR

Nig

eria

Mya

nmar

Spend

ing (%

of

GD

P) 2009 2010 2011

2012 2013

-1.6 -0.8

-3.3

-4.6

-3.9 -3.9

-2.7

-1.1 -0.2 -2.5

-3.7-2.8

-2.5

-1.2

3.4 3.4

2.5 2.52 2.2

2.9

-6

-4

-2

0

2

4

20

07

/08

20

08

/09

20

09

/10

20

10

/11

20

11

/12

20

12

/13

20

13

/14

Overall balance Primary balance

Recurrent balance

A large jump in revenue thanks to

one off windfalls….

…provided fiscal space for a

near doubling in spending…

…and helped maintain a

prudent fiscal stance.

DEFICIT FINANCING

16 17 20 21 23 23 21

2013 11 9 8

16 19

41

28 2620 19

9

0

10

20

30

40

50

60

70

80

20

07

/08

20

08

/09

20

09

/10

20

10

/11

20

11

/12

20

12

/13

20

13

/14

Domestic External

External arrears

4.64.5

4.43.6 3.4 2.4

2.0

3.4

3.51.8

1.3 0.8

-2

0

2

4

6

20

02

/03

20

03

/04

20

04

/05

20

05

/06

20

06

/07

20

07

/08

20

08

/09

20

09

/10

20

10

/11

20

11

/12

20

12

/13

20

13

/14

Perc

ent

of

GD

P (

%)

Foreign Loans Domestic Banks

CBM Other

1.21.0

0.70.3

1.01.2

1.4

3.3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Lowermiddleincome

Middleincome

Uppermiddleincome

Myanmar

Net domestic financing (% of GDP)

Net external financing (% of GDP)

Falling public debt stock

thanks to arrears clearance…

…gradual diversification

in financing sources…

…though reliance on non-

concessional domestic finance.

MEDIUM-TERM FISCAL FRAMEWORK

o Baseline:• 8.5 percent growth

• 16 percent decline in gas prices

• 7 percent real increase in spending

o Sharp decline in gas prices:• 7 percent real decline in spending by 20/21

• 20 percent of capital budget in baseline

o Low non-gas revenue:• Revenue at 6 percent of GDP

• 13 percent real decline in spending by

20/21

o Slower growth:• 6.5 percent economic growth

• 7 percent real decline in spending by 20/21

8.5 8.6 8.8 8.9 9.1 9.2

8.5 7.8 7.3 6.9 6.6 6.3

0

5

10

15

20

25

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Optimistic (DEC growth + 1 SD 18%)

Baseline

Pessimistic (DEC growth - 1 SD 18%)

Low Case

Gas price projections (US$/MMBTU)

FISCAL RISK MANAGEMENT

o Debt management

o Develop, adopt and publish borrowing plan

o Explicitly assign authority to approve loans to MOF under Public Debt Law

o Commodity price volatility

o Review treatment of hydrocarbon SEE profits

o Integrate gas price developments in MTFF

o Consider fiscal rules linked to commodity revenues

o Fiscal oversight of State Economic Enterprises

o Initiate TA on SEE classification, regulations, revenue treatment, fiscal reporting and fiscal risk monitoring

o Adopt comprehensive framework for fiscal oversight of SEEs

GOVERNMENT REVENUE

26 26

21 20

17 1817

16

6

25

22

2423

22

1918

17

12

0

5

10

15

20

25

30

Mala

ysi

a

Vie

tna

m

Tha

iland

Chin

a

Lao P

.D.R

.

Phi

lip

pin

es

Indonesi

a

Cam

bodia

Myanm

ar

2009 2010 2011

2012 2013

2.4

5.7

1.3

2.1

6.4

0.3

0.61.0

2.2

3.4

0

2

4

6

8

10

12

14

16

18

20

Myanmar Asian Sample(Central Gov.)

Perc

en

t o

f G

DP

(%

)Non-Tax

SocialContrib.

OtherTaxes

Goods andServices

Customs

Income Tax

Philippines

Mongolia

CambodiaLao PDR

Korea

Thailand

China

IndonesiaMalaysia

Myanmar

0

1

2

3

4

5

6

7

8

9

10

18 38 58 78

Cus

tom

s d

utie

s (%

of

imp

ort

s)

Imports (% of GDP)

Size of bubbles

reflects

customs revenue/GDP

Government revenue/GDP has

historically been below potential…

…across all types of tax and

non-tax revenue…

…including customs receipts,

which are traditionally large in

comparator countries.

FUNCTIONAL SPENDING

20.7

1.7

7.2

45.4

1.5

0 20 40 60

705 Environmental Protection

708 Recreation etc.

706 Housing etc.

703 Public Order and Safety

702 Defense

707 Health

709 Education

704 Economic Affairs

701 General Public Service

710 Social Protection

Percent of Total Expenditures

Myanmar 2009/10

Lower Middle Income

28.7

6.4

12.5

23.0

4.8

0 20 40

705 Environmental Protection

708 Recreation etc.

706 Housing etc.

703 Public Order and Safety

702 Defense

707 Health

709 Education

704 Economic Affairs

701 General Public Service

710 Social Protection

Percent of Total Expenditures

Myanmar 2013/14

Lower Middle Income

In 2009/10, spending on general public services

and defense far exceeded the average share of

budgets in lower middle income countries.

By 2013/14 there was a gradual rebalancing

towards social services, economic services,

social protection.

ECONOMIC SPENDING

1.7

63.5

8.7

15.9

0 10 20 30 40 50 60 70

26 Grants

24 Interest Payments

25 Subsidies and Transfers

27 Social Benefits

31 Capital Investment

22 Use of Goods and Services

21 Employee Compensation

Percent of Total Expenditures

Myanmar 2009/10

Lower Middle Income

5.1

38.3

17.7

20.5

0 10 20 30 40 50 60 70

26 Grants

24 Interest Payments

25 Subsidies and Transfers

27 Social Benefits

31 Capital Investment

22 Use of Goods and Services

21 Employee Compensation

Percent of Total Expenditures

Myanmar 2013/14

Lower Middle Income

In 2009/10, capital investment dominated

the budget, crowding out employee

compensation and non-wage recurrent spending.

By 2013/14, capital investment declined sharply

creating fiscal space for wages and salaries,

and other operational expenditure.

WAGE BILL

HIC

OEC

LIC

LMC

UMC

Myanmar

0

1

2

3

4

5

6

7

8

9

10

10.0 20.0 30.0 40.0

Civ

il s

erv

ice a

s a

perc

enta

ge o

f po

pu

latio

n

(20

02-2

008

avera

ge)

Wages and salaries as a percentage of total expense (2002-2008 average, 2009 for Myanmar)

0.8

0.5

0.3

1.5

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Lower MiddleIncome

Countries

Upper MiddleIncome

Countries

High IncomeCountries

Myanmar(Gen. Gov.)

Ratio

of

inv

est

ment to

em

plo

yee

com

pen

sation

The wage bill increased rapidly over the review period, though various indicators suggest

that this is not large compared to other countries or potential needs. Additional increase

however should be closely linked to sustainability and pay and grading considerations.

EDUCATION FINANCING

31%63%

6%

Total Gov't expenditure

Household Expenditure

Externally financed spending

3.7%

14.7%

8.5%

13.4%

32.5%

20.4%

3.9% 2.9%

Transportation costs School fees

Contributions Text books

School stationeries Private tutoring

Boarding Other costs

Government under-spending on education and prohibitive household financing requirements

have left major gaps in education outcomes. In 2009, around 63 percent of total education

spending came from households, compared to 19 percent across other countries.

EDUCATION POLICIES AND SPENDING

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

19

70

19

75

19

80

19

85

19

90

19

95

20

00

20

05

20

10

Perc

ent of

GD

P

0.7

1.6 1.62.1 2.3

2.7

3.33.5 3.7

4.1

5.3

6.3

3.63.3

0

1

2

3

4

5

6

7

Mya

nmar

[201

1/12

]

Cam

bodi

a [2

007]

Mya

nmar

[201

2/13

]

Mya

nmar

[201

3/14

]

Lao

PDR

[200

9]

Phili

ppin

es [2

009]

Sing

apor

e 20

12]

Indo

nesi

a [2

009]

Brun

ei [2

011]

Thai

land

[200

9]

Viet

nam

[200

8]

Mal

aysi

a [2

009]

ASEA

N

Low

inco

me

Per

cent

of

GD

P

.Reforms initiated since 2012/13: elimination of primary and secondary school fees, compulsory

primary education, 79,000 more teachers, expansion of stipend program for poor students,

and delegation of some spending authority. Quadrupling in general government spending.

POLICY PRIORITIES

o Quality of education:

o Introduce and regularly undertake assessment of learning outcomes.

o Linking plans to spending:

o Strengthen capacity on administrative, performance and fiscal data.

o Establish policy analysis unit.

o Fiscal space for emerging priorities:

o costing of selected new initiatives (e.g. more school years, teacher training)

o Explore options for creating fiscal space including efficiency gains within the sector

o Delegation of spending authority:

o Gradual devolution of management responsibilities within a framework of accountability for results.

HEALTH FINANCING

8.5 13.5 13.6

35.141.2

82.3 77.1 79.3

59.654.2

9.2 9.4 7.1 5.3 4.6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009-10 2010-11 2011-12 2012-13 2013-14

Perc

ent of

health c

are

spendin

g

External Sources Private Out-of-Pocket All Public Sources

14 15 16

3335

4042

4648 50

54 56 56 5759

0

10

20

30

40

50

60

70

Tha

ila

nd

Bhu

tan

Jap

an

Rep. of

Kore

a

Chin

a

Lao P

DR

Ma

laysi

a

Sri

La

nka

Nepa

l

Indonesi

a

Myanm

ar

Vie

t N

am

Phi

lippin

es

Cam

bodia

India

Perc

en

t o

f hea

lth

ca

re s

pen

din

g

In 2012, government spending on public health was $1.6 per capita per year, with out of

pocket payments by households accounting for almost 80 percent of total health spending. This

created serious obstacles to healthcare access and some of the lowest health outcomes among

ASEAN countries.

HEALTH POLICIES AND SPENDING

1.11.2 1.2

3.3

3.8

0.2 0.2 0.2

0.80.9

0

1

2

3

4

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

2009-10 2010-11 2011-12 2012-13 2013-14

Perce

nt of to

tal g

ove

rnment sp

end

ing

US$

per

pers

on

per

yea

r

(left axis) US$ per person per year

(right axis) Percent of total government spending

(right axis) Percent of GDP

2329 27

51

39

7771 73

49

61

0

10

20

30

40

50

60

70

80

90

0

100,000

200,000

300,000

400,000

500,000

600,000

2009-10 2010-11 2011-12 2012-13 2013-14

Perce

nt

Million

Kya

ts

(left axis) Total MOH Spending on Health

(right axis) Capital Spending, percent of Total MOHSpending(right axis) Current Spending, percent of Total MOHSpending

55 53 48

21 18

43

5

21 30

23 29 27

5139

0%

20%

40%

60%

80%

100%

2009-10 2010-11 2011-12 2012-13 2013-14

Perc

en

t o

f To

tal

Capital Entertainment & Meals

Transfer Payments Maintenance Charges

Non-Clinical Goods & Services Drugs & Medical Consumables

Travelling Allowance Pay &Allowances

Overall level of spending by MoH

has risen nine fold since 2011/12…

…driven in big part by capital

spending, including machinery

and equipment and construction

of primary care facilities…

…wage bill has tripled to hire

more health professionals. Big

increase is on drugs and

medical consumables, to alleviate

out of pocket payments.

POLICY PRIORITIES

o Efficiency of spending:o Increase spending on areas with strong public goods characteristics (e.g.

prevention and treatment of communicable diseases) can improve allocative and technical efficiency.

o Formulation of a comprehensive policy for the strategic, cost-effective and timely procurement of pharmaceuticals could improve technical efficiency.

o Available data suggests that improved linkage between the capital and recurrent budget can improve technical efficiency over the medium-term.

o Equity of spending:o Despite increased spending on rural health facilities, available data suggests that

the gap between spending on urban and rural facilities increased between 2009 and 2013, which should be reviewed.

o Households face a real risk of incurring large medical care expenditures if any member falls ill due to the absence of any prepayment mechanisms, such as health insurance. Review options for enhancing universal healthcare access.

EXPENDITURE DECENTRALIZATION

0

10

20

30

40

50

60

0 20 40 60

Sub-N

ational re

venue/g

enera

l govt

rev. (%

)

Sub-national spending/general govt spending (%)

Myanmar

2732

40 44 45 46 47 51 52 5360

66

7985

7368

60 56 55 54 53 49 48 4740

34

2115

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Tanintha

yi

Ayeyaw

ad

dy

Yang

on

Chin

Mag

wa

y

Kaya

h

Kach

in

Mon

Bag

o

Sha

n

Mand

ala

y

Kayin

Sag

aing

Rakhine

Current Capital

State/Region expenditure as a share of overall

public sector expenditure is unsurprisingly low

relative to international comparators.

Capital spending as a ratio of State/Region

budgets is high, with 11 States/Regions spending

at least 40 percent of their budgets on capital

SPENDING AND POVERTY

Bago

Mon

AyeyawaddyManadalay

Sagaing

Kayin

Magway

Yangon

Rakhine

Shan

Taninthayi

Kachin

Kayah

Chin

-150

-100

-50

0

50

100

150

200

250

300

350

0 20 40 60 80

Perc

ent

age c

hang

e in

leve

l of

tra

nsfe

r to

Sta

te o

r Reg

ion

(20

12

/1

3-2

01

3/14)

Poverty incidence

Size of the bubble

reflects per capita

spending in each

State or Region

The level of per capita spending across States/Regions seems weakly correlated with poverty

levels. Authorities in poorer States/Regions with low population density are expected to play a

bigger role due. However, a fuller picture of per capita spending and poverty links would also

require analysis of Union spending in each State/Region

REVENUE DECENTRALIZATIONThe overall level of revenue of States/Regions is unsurprisingly low, in line with limited spending

assignments. All major sources of general government revenue (i.e. commercial tax, personal

and corporate income taxes, customs duties, stamp duties, various fees and fines, and the

majority of revenues derived from natural resources) accrue to the Union government.

LOCAL REVENUE

17%

50%

33%Tax

Non-tax

Capital

Ayeyawaddy

Bago

Chin

Kachin

KayahKayin

MagwayMandalay

Mon

Rakhine

Sagaing

Shan

Taninthayi

Yangon

R² = 0.0606

0

10

20

30

40

50

60

70

80

0 5000 10000 15000 20000 25000

Pove

rty inc

idenc

e (

%)

Per capita tax and non-tax receipts (Kyat)

Around half of own source revenue in 2013/14

came from non-tax, a third from capital receipts,

and around 17 percent from taxes

The burden of State/Region revenue does not

seem to be very progressive when comparing

revenue collection per capita to poverty incidence

FISCAL TRANSFERS

0

0.2

0.4

0.6

0.8

1

0 0.2 0.4 0.6 0.8 1

Cum

ula

tive s

hare

of

per

capita r

eso

urc

es

Cumulative share of states and regions from low to high per capita resources

Equality

Own sourcetax

Own sourcetax andnon-tax

Fiscal transfers have helped equalize per capita receipts across States/Regions. A rules-based

system to determine fiscal transfers would further strengthen transparency and predictability.

Two possible options: (i) determine fiscal gap based on revenue forecast and spending needs

based development criteria; (ii) apply formula on pre-determined envelope.

CONCLUSION

o Major rebalancing in Union Budget policies, as government embarks on a process to use the Budget as an instrument for development.

o As revenue windfalls begin to recede, increased pressure on fiscal balances as government looks to delivering on development needs on the back of constrained fiscal space.

o Early results evident within social sectors. Further refinement in priorities will help to further build on those.

o Myanmar entering early phases of decentralization debate. Important to coordinate across stakeholders and develop a common vision.

o PER provides an entry point for more engagement and policy dialogue on budget policy issues.