Current Issues and Empirical Studies in Public Finance

2.1. Impact of the COVID-19 Crisis

The COVID-19 outbreak began in China in December 2019 but soon spread to Europe and the United States. At the beginning of the pandemic, it was hoped that warm weather would protect many developing countries from the virus, but this hope has not been realized. There are still cases of infection in Africa, South Asia, and Latin America.

←12 | 13→As shown in the red column in Figure 1, 17 of the 30 countries with the most reported cases were developing countries at the time of this study. This is not only because many developing and emerging countries have large populations.

Developing and emerging market economies differ from advanced economies in the structure of their economies and the tools they can use to implement macroeconomic policies to reduce the magnitude and economic cost of the pandemic-related recession. The main differences are as follows (Centre for Economic Policy Research, 2020:9–10):

• – High levels of poverty and inequality existed before the pandemic.
• – Too many informal workers or workers in small businesses.
• – The size of the tourism sector in some countries.
• – The prevalence of civil unrest, violent riots, and civil wars.←13 | 14→
• – Relatively small public sectors and tax bases.
• – Limited fiscal space.
• – Insecure access to international financial markets.

As of June 2021, the number of people who died due to the novel coronavirus (COVID-19) has exceeded 3.7 million worldwide. The highest number of deaths is in the USA at 611 thousand and 20. USA with 467 thousand 706 deaths due to COVID-19, Brazil with 338 thousand 13, Mexico with 228 thousand 146, Peru with 184 thousand 942, England with 127 thousand 974, Italy with 126 thousand 283, Russia with 122 thousand 660, followed by France with 109 thousand 758, Colombia with 89 thousand 808 and Germany with 89 thousand 510. In Turkey, a total of 47,768 people lost their lives on June 2 (Dünya newspaper, 2021). Brazil followed the USA with 467 thousand 706, India with 338 thousand 13, Mexico with 228 thousand 146, Peru with 184 thousand 942, England with 127 thousand 974, Italy with 126 thousand 283, Russia with 122 thousand 660, France with 109 thousand 758, Colombia with 89 thousand 808 and Germany with 89 thousand 510 in deaths caused by COVID. In Turkey, a total of 47 thousand 768 people died on June 2 (Dünya Newspaper, 2021).

The COVID-19 pandemic has disrupted lives and impacted the global economy in all countries and communities. The pandemic has had a more significant impact on economic growth in 2020 than the negative impacts that have occurred in nearly a century. Recent forecasts show that the growth figures for the global economy will decrease from −4.5 % to −6.0 % in 2020 due to the pandemic. A partial recovery of 2.5 % to 5.2 % is expected in 2021. World trade is expected to decline to 5.3 % in 2020 and increase to 8.0 % in 2021. Economic growth in 2020 has not been affected as much as initially expected, albeit partially, due to governments’ monetary and fiscal policies. It is estimated that developed economies, which constitute 60 % of the global economic activity, will continue to operate below their potential until at least 2024, with negative effects on national and individual welfare. Compared to the global economic slowdown in the first half of 2020, while the advanced economies recovered in the last quarter of 2020, growth in developing economies has lagged behind (Congressional Research Service, 2021:2).←14 | 15→

The recovery rate in all regions and different income groups depends on developments in vaccine trials, economic support, and a number of structural factors such as tourism. The developed-country United States will reach pre-COVID-19 GDP this year. However, the other countries in the group will not reach pre-COVID-19 GDP ratios until 2022. Similarly, China, one of the emerging and developing economies, had already reached its pre-COVID-19 GDP in 2020, but many other developing countries are not expected to reach that number until 2023. Different recovery courses are likely to create significant differences in living standards between developing countries and others compared to pre-pandemic conditions. Cumulative per capita income losses in emerging and developing economies excluding China in 2019 are expected to be equivalent to 20 % of GDP, compared with pre-pandemic projections in 2020–22, while losses in developed economies are expected to be relatively smaller at 11 %. This matter has reversed the progress in poverty reduction. In 2020, 95 million people were projected to become poorer and 80 million more undernourished than before (IMF, 2021a:XIII).

The longer the epidemic lasts, the greater the burden on public finances. Public deficits and public debt have increased at an unprecedented rate, accompanied by a sharp drop in income due to the decline in production, and massive financial support has been provided. In 2020, the average fiscal deficit was 11.7 % in developed economies, 9.8 % in emerging economies, and 5.5 % in underdeveloped economies. In 2020, global public debt was 97.3 % of GDP, 13 % higher than the pre-pandemic forecast level. Central banks in developed and some emerging economies have cut policy rates and purchased government bonds to preserve their authority. Thus they facilitated the financial response to the pandemic. In 2021, fiscal deficits were expected to reverse due to the expiration of the support given due to the pandemic or reversal of the trend for expansionary policies and the influence of automatic stabilizers (IMF, 2021b:1).

2.2. Development of Health Expenditures

Although impossible to predict with certainty, the health and economic shocks triggered by COVID-19 will, directly and indirectly, affect health spending and progress toward universal health coverage. COVID-19 has had a destructive impact on global health systems. Since the health sector ←15 | 16→takes a minimal share of the budget, all countries have responded to the COVID-19 health and related economic crisis with exceptional budgetary allocations. Health budgets of low-income countries for 2020 have been disproportionately affected by the COVID-19 health response. The health crisis is indicated by a deep global economic crisis that may have a long-lasting impact on health financing.

In 2018, global healthcare spending reached $ 8.3 trillion, or in other words, 10 % of global GDP. This is the first time healthcare spending has grown more slowly than GDP in five years. Per capita, public health spending increased over the 2000–2018 period but grew more slowly after the 2008–2009 economic crisis. As a share of total healthcare spending, personal spending is over 40 % in low- and lower-middle-income countries. The decline in government revenues due to the economic crisis led many countries to take out additional loans (WHO, 202012).

Between 2000 and 2017, global healthcare expenditures grew by 3.9 % per year in real terms, while global GDP grew by 3.0 %. As shown in ←16 | 17→Figure 2, the increase in healthcare expenditures between 2000 and 2017 in low-income countries was 7.8 %, while economic growth was 6.4 %. While healthcare expenditures in middle-income countries are growing at more than 6 % per year, healthcare expenditures in high-income countries are averaging 3.5 % per year, about twice the economic growth rate.

According to Figure 3, Switzerland has the highest health expenditure/GDP ratio among OECD countries at 12.1 %, while Turkey has the lowest health expenditure/GDP ratio at 4.4 %.

←17 | 18→Figure 5 shows that EU countries will spend an average of 8.3 % of their GDP on health services in 2019. This figure has remained largely unchanged since 2014, as growth in health spending has been broadly in line with overall economic growth. In 2019, a quarter of EU member states spent at least 10 % of their GDP on healthcare, with Germany (11.7 %) and France (11.2 %) showing the highest shares. The lowest percentages of GDP spent on health services are found in Luxembourg (5.4 %), Romania (5.7 %), Poland (6.2 %), and Latvia (6.3 %). As shown in Figure 4, the average share of health expenditure in GDP in the EU-27 was over 8 % and is about twice as high as the share of health expenditure in GDP in Turkey.

According to Figure 6, the USA is at the top of the table with 10 thousand 586 dollars in terms of health expenditure per capita in 2018. Switzerland follows the USA with 7 thousand 317 dollars and Norway with 6 thousand 187 dollars. The OECD average was 3 thousand 994 dollars. This figure is about four times the health expenditure per capita in Turkey. According to the 2020 Health and Glance report published by the OECD, the annual increase in health expenditures per capita in Turkey was 0.6 % between 2008–2013 and 3.2 % between 2013–2019 (OECD, 2019:151).←18 | 19→