Mortality from COVID-19 and Budget Possibilities of the Country – Tetiana Bogdan’s blog

Ukraine belongs to the first quartile of world countries in terms of COVID-19 deaths and the level of funding for the national healthcare sector is far from desirable. Is there a relationship between public funding in this area and the effectiveness of the fight against COVID-19? What place does Ukraine occupy in the international ratings of fiscal policy adaptability and humanitarian consequences of the pandemic?

“Austerity Raises COVID Deaths” is the famous title of the article by Servaas Storm, Professor at Delft University (Netherlands).

In this article, he showed that in advanced economies, more COVID-19 cases and deaths were due to significant social inequality and low level of funding for health systems.

Professor Storm proved a statistically significant relation between the level of government spending on COVID-19 (per capita) and the mortality rate of COVID-19 (per 100,000 population).

The obtained regressions showed that in developed countries the higher the government spending per capita, the lower the mortality from coronavirus (see Fig. 1).

As of May 19, 2021, 48,696 deaths from COVID-19 were recorded in Ukraine.

Many Ukrainian families have experienced terrible tragedies, and many continue to suffer from the insidious disease.

According to the mortality rate per 100,000 population, Ukraine ranks 40th among 206 countries (according to worldometers.info).

The Ukrainian rate of 112 deaths per 100,000 population is many times higher than the world average – 44 deaths.

At the same time, the number of tests performed for COVID in Ukraine is one of the lowest in the world – 227 per 1 000 population.

Ukraine is also characterized by a low level of health care funding. According to the consolidated budget, this figure in 2020 was only 4% of GDP.

Figure 2 shows the 40 “leading” countries in terms of population mortality from COVID-19, including Ukraine.

The highest mortality rates were in relatively poor Hungary, the Czech Republic, Bosnia, Bulgaria, Macedonia, Montenegro, Slovakia, Brazil, Peru, Poland, and Croatia (with the exception of San Marino, Italy, and Belgium).

This situation has its own logical explanation. Studies in the United States have shown that in the U.S. COVID-19 deaths, hospitalizations and cases have disproportionately affected Black, Latino and Indigenous people, who carry a greater burden of chronic diseases from living in disinvested communities with poor food options and poisoned air quality and have less access to health care. 

Among developed countries, Professor Storm explains relatively low COVID-19 death rates in Korea and New Zealand to very high in Belgium and Italy by the following factors.

• First, the differences in public health competence and the qualification level of their medical staff;

• Second, the variation of structural socio-economic characteristics of countries;

• Third, the presence or absence of fiscal constraints on medical systems.

For example, in countries such as France, Spain, and Italy, where per-capita spending was relatively low and COVID-19 mortality relatively high, the fiscal capacity of government was compromised.

These countries, as members of the euro area, had limited access to financial (bond) markets and no national lender-of-last-resort.

In addition, the potential of their Treasuries / Ministries of Finance to attract funds in the capital markets was insignificant given the high level of public debt.

In Ukraine, since the beginning of the coronavirus pandemic, most people have been deprived of opportunities for quality diagnostics, forced to perform tests on their own, pay for consultations with physicians/infectious disease specialists, and have not been able to receive specialized care in case of moderate to severe disease.

During the pandemic, a sad “know-how” was introduced into Ukrainian public health practice – home treatment of patients with moderate to severe pneumonia (often without the basic help of family doctors).

And hospitalization of patients in serious condition in many cases ended in their death (unfortunately, in Ukraine there are no studies of the adequacy of efforts of medical staff to treat critically ill patients).

At the same time, private insurance companies and medical institutions massively refused to treat patients with COVID-19 and did not recognize the disease as an insured event.

This situation was explained by chronic underfunding and degradation of the public healthcare sector in Ukraine, lack of capacity of medical institutions, demoralization of medical staff, “failures” of the market in health insurance, irresponsibility and impunity of officials in the healthcare system and at higher levels of public administration.

All these factors undoubtedly affected the severity of the disease in many people, the rates of healing and mortality in the country.

In this context, it is necessary to find out the nature of Ukraine’s fiscal policy and to what extent such a policy contributes to overcoming the unprecedented epidemiological crisis. To do this, we will use the indicator of cyclically adjusted primary balance (CAPB) of the general government sector. Arithmetically, it is equal to the difference between revenues and primary expenditures, adjusted for the size of the GDP gap.

In 2020, the CAPB in Ukraine was -1.8% of GDP, and in 2021 it is projected at -1.2% of GDP (IMF data).

This means that the impact of general government operations on the level of aggregate demand in Ukraine in 2020 and 2021 is positive.

This situation contrasts sharply with the period of 2014-2019, when fiscal policy was restrictive, i.e. it narrowed aggregate demand.

But if we compare the cyclically adjusted primary balance in Ukraine with the indicators of other countries (both advanced and emerging market economies), we have to state that the fiscal policy in Ukraine is not easy enough.

For example, the Ukrainian САВР at -1.8% of GDP in 2020 is many times lower than the average САВР in emerging market economies (-6.2% of GDP) and the average САВР in advanced economies (-7.6 % Of GDP).

The expected values ​​of САВР in 2021 reproduce similar last year’s ratios (see Fig. 3).

Another useful indicator is the fiscal impulse, which is calculated as the difference with the inverse of the cyclically adjusted primary balance of the current and previous periods. According to the theory, the negative value of the fiscal impulse occurs during the period of fiscal consolidation, and the positive – during the period of fiscal expansion.

Figure 3 shows the dynamics of fiscal impulse in Ukraine and different groups of countries in 2020 and 2021 (IMF data).

As we can see, the fiscal impulse in Ukraine has positive values, both in 2020 and 2021, at 2.4% and 1.8% of GDP compared to 2019.

That is, fiscal expansion in Ukraine in 2020-2021 supported aggregate demand and provided some support to health care.

But if we compare the value of the fiscal impulse in Ukraine (2.4% of GDP) with the average in emerging market economies (3.4%) and in advanced economies (5.8%), the fact that moderate stimulus effects of fiscal policy in Ukraine in contrast to other countries is again evident.

This conclusion is confirmed by the data of some countries – the Czech Republic, Slovakia, Hungary, Poland, China.

Figure 4 shows that these countries, compared to Ukraine, had significantly higher values ​​of both fiscal impulses and cyclically adjusted primary balances.

According to the IMF, significant fiscal rescue packages in such countries have helped save lives, provided support to vulnerable groups and companies.

Quite modest indicators of fiscal impulse and CAPB in Ukraine, compared to other countries, were explained by limited opportunities for private borrowing of the Government, insufficient external financial support of our country, as well as archaic monetary policy of the central bank, which categorically ruled out “quantitative easing” in Ukraine.

Thus, the unpreparedness of Ukraine’s healthcare sector for the spread of the pandemic, the poor quality of management at all levels of the system and the inadequacy of its financial support to the severity of epidemiological challenges have become key factors of unsatisfactory medical care and high mortality from COVID-19.

In the West, leading scientists and officials are now emphasizing that restrictive fiscal policies in advanced economies have created the basis for low levels of investment in health care and social protection for decades.

“Austerity weakened economies and governments, increased social and political fragmentation, and, by aggravating economic and health inequalities, made populations significantly more vulnerable to the coronavirus” – as has been clinically documented by the Marmot Commission and the Lancet Commission.

In looking to the future, leading scientists recognize that, in the long run, a fairer and more progressive taxation should play an important role in mitigating these problems, re-allocating income from speculative finance and rental business toward investment in productive activities and human capital development capabilities (modern education and quality medicine), as well as in social protection. 

Tetiana Bogdan, Doctor of Economics, Scientific Director at the Growford Institute for Business.Censor.