OREANDA-NEWS. Strengthening incentives for local and regional governments and enhancing the quality and efficiency of public spending in the education and health sectors is critical for improving living standards and human capital in Belarus, says a new World Bank report Belarus Public Expenditure Review: Enhancing Public Services in Times of Austerity. According to the report, productivity of public spending is of particular importance, given fragile macroeconomic stability, tight public finances, and constrained public expenditures, even in priority sectors such as health and education.

"Belarus has emerged from macroeconomic crises of the past years, but faces both formidable challenges and unique opportunities to build the foundation for sustained and shared prosperity," said Qimiao Fan, World Bank Director for Belarus, Moldova and Ukraine. "Enhancing the quality and efficiency of spending in critical sectors will improve living standards and human capital in Belarus. We hope our analytical program and partnership with the country will contribute to creating consensus in important policy areas and building capacity in the country."

The report looks at macro-fiscal policy, intergovernmental fiscal relations, and spending in health and education. More than half of government spending in Belarus is channeled through sub-national governments, while education and health spending together accounts for a quarter of government spending, largely at the sub-national level. Proposed reform options are oriented towards sustaining macroeconomic stability while addressing key challenges in financing public services in health and education.

First, the report underlines the need to sustain tight fiscal policies. A balanced budget is key to securing macroeconomic stability. This means further moderation in public sector wages and pensions to contain inflationary pressures. In addition, there is space to further rationalize and reduce subsidies, while further cuts to public investment should be avoided to ensure that Belarus maintains and improves its infrastructure, which is needed for growth.

Second, in light of significant spending commitments to the education and health sectors and tight fiscal constraints, further efforts need to focus on raising spending efficiency and containing costs at the national and sub-national levels over the medium term. This is particularly important as both sectors are characterized by large delivery systems (schools, hospitals, polyclinics) that could become fiscally unaffordable if wages were to rise.

Third, the health and education sectors need to adapt to an aging and declining population, with fewer students and a greater burden of chronic and degenerative diseases, which will change public service demand and have important fiscal implications.

"The report is the second volume of a two-phase Public Expenditure Review, offering fiscal reform options available across priority areas of the budget," said Sebastian Eckardt, World Bank Senior Economist, and lead author of the report. "The policy recommendations aim to identify reform opportunities to enhance the quality of key public services in a fiscally constrained environment. The report provides practical suggestions to improve the efficiency of public spending and areas for alignment with international good practices."

The first volume of the Public Expenditure Review was delivered in November 2011 and focused on providing policy options for a sustainable pension system, better targeted social assistance, and rationalization of energy and agricultural subsidies. Together the sectors studied under the first volume cover about 20 percent of consolidated general government expenditure.

Belarus joined the World Bank in 1992. Since then, the Bank’s lending commitments in Belarus have totaled USD 865 million for 12 projects. About 30 national programs have received grant financing totalling USD 23.7 million. The World Bank’s analytical and advisory activity program addresses main challenges and reform priorities of the country.