## _wp12173 — 1. Uncommitted Expenditures

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---

### Introduction: purpose and high-level findings
- Purpose: examines public expenditure composition for the Slovak Republic and evaluates technical efficiency for education and health expenditure.
- Key findings:
  - The Slovak Republic allocates a larger share of expenditures to social benefits than the EU and OECD average.
  - It spends less on the wage bill compared with peers.
  - It spends relatively less on education and health compared with peers.
  - Education spending appears efficient in converting low levels of spending into outcomes; health spending does not.
  - Recent increases in health expenditures have not been reflected in improved outcomes, suggesting potential for significant budgetary savings without undermining outcome quality.
- Policy implication: identifying inefficiencies can offer substantial budgetary savings without sacrificing outcomes and help achieve fiscal sustainability.

### Literature review: context and prior evidence
- Cross-country evidence summarized:
  - Countries with public expenditures lower than 40 percent of GDP tend to be more efficient.
  - On average, countries could use 45 percent less resources to attain the same outcomes if fully efficient (Afonso and others, 2010).
  - Education inefficiency estimates: potential output increases of 11.6 percent using same resources (Afonso and St. Aubyn, 2005); 25 percent of education spending is wasteful in the EU relative to best practices (Clements, 2002).
  - Health-sector studies find substantial variation in technical efficiency and recommend staffing/wage planning, reallocating to cost-effective intermediate outputs, and implementing accountability/regulatory frameworks.
- Caveat: efficiency analysis is sensitive to choice/availability of input and output indicators and to exogenous factors beyond policy control.

### Features of the Slovak Republic’s public expenditure: levels and dynamics
- Government size dynamics:
  - Government shrank from 52.1 percent of GDP in 2000 to 34.3 percent of GDP in 2007.
  - Crisis-related stimulus contributed to a surge to 41.0 percent of GDP in 2010.
- Crisis-period growth:
  - Real growth rate of general government spending (2007-09): about 16.6 percent.
  - As a share of GDP, spending rose by 7.2 percent during the crisis.
- Comparative position:
  - Slovak Republic is well below the EU-OECD sample average in government size, positioned in the second quartile.
  - Post-crisis increase in government size was common across most countries; only Switzerland and Israel reduced government spending.

### Public expenditure composition (2009) — structure and trends
- General government expenditure composition (percent of total expenditure, 2009):
  - Compensation: 18.9%
  - Subsidies: 3.9%
  - Social benefits: 45.5%
  - Intermediate consumption: 12.9%
  - Net acquisition of NFA: 5.5%
  - Interest: 3.5%
  - Other: 9.8%
- EU average composition (percent of total expenditure, 2009):
  - Compensation: 24.1%
  - Subsidies: 3.3%
  - Social benefits: 39.5%
  - Intermediate consumption: 14.5%
  - Net acquisition of NFA: 6.9%
  - Interest: 4.6%
  - Other: 7.2%
- Social benefits composition (percent of social benefits expenditure, 2009):
  - Sickness/Health care: 31%
  - Disability: 10%
  - Old age: 37%
  - Survivors: 5%
  - Family/Children: 9%
  - Unemployment: 6%
  - Social exclusion n.e.c.: 2%
- Time trends:
  - Real increase in government spending since 2004 is almost fully attributable to the surge in social benefits expenditure.
  - Net acquisition of nonfinancial assets (NFA) has been relatively stable in real terms, rising only in 2009 as part of the crisis-response strategy.
  - Subsidies oscillated between 3.2 and 5 percent of total expenditure after a decline in 1998-2000.
  - Share of interest payments declined; share of social benefits increased.
  - Old-age benefits rose by 51.5 percent since 1997.

### Committed expenditures: definition and fiscal importance
- Definition: committed outlays are those over which the government has little discretion and cannot easily be cut back or reallocated (examples: past debts/interest, social benefits amendable only by law, subsidies reflecting welfare commitments).
- Fiscal relevance:
  - Committed spending accounted for more than half of total expenditures, implying limited discretionary room for short-run fiscal reallocation.
  - Legacy obligations and legally constrained benefit entitlements limit flexibility for fiscal adjustment.

### Uncommitted expenditures — trend and implications
- Uncommitted expenditures decreased by 6.3 percent to 47.1 percent of total expenditures in 2009 (last year with data available).
- The decreasing path in uncommitted expenditures contrasts with the EU average, which shows a progressive increase.
- Implication: less freedom for the government to change the structure of its spending.

### Spending agencies — distribution and capital composition (2009)
- Largest shares of total expenditures by agency:
  - Ministry of Education, Research, and Sport: 15.1 percent
  - Ministry of Labour, Social Affairs, and Family: 13.6 percent
  - General Treasury Administration: 11.7 percent
  - Ministry of Health: 9.7 percent
  - Ministry of Transport, Construction, and Regional Development: 9.4 percent
- Combined share: about 60 percent of total expenditures.
- Capital expenditure shares by agency:
  - Ministry of Education, Research, and Sport: 4.6 percent (of agency expenditure)
  - Ministry of Health: 3.6 percent (of agency expenditure)
  - Ministry of Transport, Construction, and Regional Development: 62.6 percent (of agency expenditure) and 36.3 percent (of the country’s total capital expenditures)
  - Aggregated transport/construction ministries cover almost half of total capital expenditure.
- Total public expenditure (2009, aggregated): Total 11,683.2 (Millions of EUR of 2005), Capital 16.2 (in percent of agency's expenditure), Capital share of total capital expenditure 100.0.

### Technical efficiency — methodology overview
- Efficiency defined as ability to obtain maximum output from a given set of inputs (Farrell, 1957).
- Techniques:
  - DEA: non-parametric linear programming; can include more than one output; assumes input-output separability.
  - SFA: parametric econometric methods; typically allows only one output; better at coping with measurement error.
- Choice rationale: DEA chosen given small, technologically homogeneous EU-OECD sample and generally good data practices.
- DEA implementation notes for education:
  - Input: sum of real primary and secondary education public expenditure per pupil in PPP terms (5-year averages for 2000–04 and 2005–09).
  - Output: PISA scores (average of reading, mathematics, science).
  - DEA runs allow for variable returns to scale; efficiency measured as potential contraction of inputs to achieve same outputs.

### Education — spending, outcomes, and efficiency findings
- Spending levels and trends:
  - Slovak Republic average spending for 2005–09: 3.8 percent of GDP.
  - Sample average (2005–09): 5.1 percent of GDP.
  - Education spending declined by 0.6 percent of GDP in 2008; Eurostat data for 2009 suggest a rebound to 4.3 percent of GDP (2009 spike inflated by a decrease of 6 percent in nominal GDP).
- Enrollment and demographic shifts:
  - Public school enrollment: 91.2 percent in 2009; ratio dropped by 4 percentage points since 1998.
  - Primary students dropped by 32.8 percent since 1997; secondary students dropped by 15.1 percent; tertiary students doubled.
  - Enrollment rate aged 15-19: 85.1 percent in 2009, outperforming the EU-OECD average by almost 3 percentage points.
  - Enrollment rate aged 20-29: rose but remains behind EU-OECD average by 5.9 percentage points.
- Graduation and outcomes:
  - Net graduation for upper secondary stabilized at rates higher than 80 percent (comparable to sample average).
  - Tertiary graduation rates outperform the EU-OECD average; notable increase in 2008–2009 attributed to new university degrees.
- Student-teacher ratios:
  - Primary: decreased from 20.7 in 2001 to 17.7 in 2009 (a 14.5 percent reduction); still 3.9 students higher than the EU-OECD average.
  - Upper secondary: 15.1 students per teacher in 2009, 3.3 students more than EU-OECD countries.
  - Tertiary: ratio essentially in line with the sample average.
- DEA results and interpretation:
  - Real spending per student increased by 16.5 percent between periods but remains one of the lowest in the group.
  - DEA production frontier for 2005–09 defined by Finland, Poland, Romania, and the Slovak Republic.
  - Results suggest the Slovak Republic has been one of the most efficient countries in the use of resources dedicated to primary and secondary education.
  - Caveat: DEA may overstate secondary education efficiency because PISA scores reflect skills of 15-year-olds (early to middle secondary), so good outcomes could reflect primary education efficiency more than combined primary–secondary performance.
- Policy recommendations:
  - Consider reduction in the overall education workforce given falling primary and secondary student numbers, to free resources for quality improvements and targeting needy students.
  - Redirect freed resources to other sectors if warranted.
  - Adopt a medium-term perspective to the education budget.
  - Introduce results- or performance-oriented budgeting.
  - Increase competition and regulate educational supply and demand choices.

### Health — reforms, spending levels, and trends
- Reforms during 2003-04:
  - (i) introduction of co-payments for patients,
  - (ii) creation of voluntary health insurance,
  - (iii) establishment of state-owned health insurance companies as joint-stock companies,
  - (iv) conversion of hospitals into non-profit semi-independent entities.
- Outcome: reforms were unpopular, did not resolve financial problems, and key elements were reversed by the new government in 2006.
- Spending levels and trends:
  - Slovak Republic spent relatively little on health—some 5¼ percent of GDP per year, on average, over the last 13 years.
  - During 1995–99, health expenditures as a share of GDP were in line with the EU-OECD average; sample average increased to almost 6 percent of GDP in 2005-08.
  - The Slovak Republic reduced its expenditures by almost 1 percentage point of GDP since the 1997-2000 period.
  - After 2000, Slovak health expenditures fluctuated between 5.0 and 5.4 percent of GDP.

### Health expenditures and resources (2009)
- Public share of total health expenditures in 2009: 65.7 percent.
- This is 6.5 percentage points lower than the EU-OECD average.
- Trends in health care resources:
  - Persistent decrease in the numbers of physicians, nurses, and hospital beds.
  - Density of nurses is lower than the EU-OECD average.
  - Density of physicians is in line with the sample average.
  - Number of beds is higher than the average for EU-OECD members.
- Public expenditure composition:
  - Large share of committed expenditure (subsidies, social benefits, interest) increased over time.
  - Share of social benefits accounts for almost half of total expenditures.
  - Wage bill is considerably smaller compared with the EU-OECD average.
  - Share of interest payments fell from 9.0 percent of total expenditures in 2001 to 3.5 in 2009.

### Health outcomes and comparative indicators
- Immunizations: less than 1 percent of children are not immunized against measles and DTP (immunization performance is above average).
- Life expectancy: 75 years in 2009, 4.3 years lower than the sample average.
- Infant mortality: almost one death higher per 1000 births than in EU-OECD countries.
- Historical per-capita expenditure and outcomes:
  - EU-OECD average real health expenditure per capita increased from 1,577 to 1,855 dollars in purchasing parity terms (a 17.7 percent increase).
  - EU-OECD life expectancy recorded a 1 year increase from 72.2 years.
  - Slovak Republic health expenditure rose from 761 to 965 international dollars (26.8 percent increase).
  - Slovak Republic experienced a lower increase in life expectancy between the two periods: 0.73 years.

### Efficiency analysis (DEA) — life expectancy and infant mortality
- Life expectancy DEA (average 2000–04):
  - Slovak Republic efficiency score: 0.4 (far from the production frontier).
  - If operating at the efficiency of the most efficient countries (Cyprus, Israel, Japan, Malta, Mexico), the Slovak Republic could have saved up to 60 percent of its financial resources.
  - This 60 percent potential saving is 9.1 percentage points larger than the sample average.
- Change in efficiency (2005–08 versus 2000–04):
  - Sample average increased efficiency by 4.5 percentage points.
  - Slovak Republic experienced a 4 percentage point reduction in efficiency.
  - Room for savings expanded to 64 percent of total health expenditures per capita.
  - Implied potential budgetary savings: 3.4 percent of GDP (0.5 percent of GDP more than in 2000–04).
- Infant mortality DEA:
  - Infant mortality fell by 13.2 percent (or by one infant per 1,000 live births) from 2000–04 to 2005–08.
  - EU-OECD average infant mortality fell by 18.9 percent over the same comparison.
  - In 2000–04, the Slovak Republic’s outcome was achievable with 57 percent of the resources actually utilized (given best-practice efficiency).
  - In 2005–08, the outcome became achievable with 52 percent of the resources actually utilized.
  - Overall, outcomes and efficiency are slightly below the EU-OECD average; the Slovak Republic is in the lower left quadrant in graduation plots (below-average outcomes and below-average efficiency).

### Fiscal context and implications
- Medium-term consolidation plans limit the possibility of expenditure increases for health and other sectors.
- Upward pressures on health care costs arise from rising income, population aging, and improved medical technologies.
- Fiscal constraints necessitate intensified efforts to increase efficiency.
- Analysis suggests that reducing inefficiencies in public health spending could save up to 3.5 percent of GDP without sacrificing health outcomes.

### Policy options and reform measures (examples)
- Budgetary and oversight mechanisms:
  - Budget caps and central oversight of budget allocations (examples: Italy, Japan, Sweden).
- Market and competition measures:
  - Strengthen market mechanisms by introducing greater competition and choice (examples: Germany, Japan).
  - Allow greater competition among hospitals (examples: United Kingdom, Sweden).
- Role of private insurance:
  - Extend use of supplementary and complementary private insurance to dampen public health cost growth (examples: Australia, Canada, France).
- Payment and provider incentives:
  - Shift payment methods from fee-for-service to case-based payments (examples: Finland, Germany, Italy, United Kingdom).
  - Replace fee-for-service with lump-sum amounts to create cost-effectiveness incentives for practitioners.
- Demand-side reforms:
  - Abolish tax deductions for medical expenses (example: Finland).
  - Increase cost sharing to raise consumer awareness (with caution to avoid deterioration in health outcomes).
- Supply-side and pharmaceutical measures:
  - Reduce the cost of hospital care and privatize hospitals.
  - Contain pharmaceutical costs by encouraging prescribing/supplying the cheapest generic drug, tighten reference pricing, and standardize reimbursement by diagnosis treatment.

### Concluding remarks — summary points
- The Slovak Republic experienced the highest spike in real public expenditure from 2007 to 2009, more than doubling the average increase of 7.7 percent in Europe and other advanced economies.
- Compared with peers, the Slovak Republic spends less on education and health.
- DEA suggests:
  - Primary and secondary education expenditures have produced desirable results in a relatively efficient manner.
  - The health system is inefficient in converting health care resources into health outcomes and is a large distance from the efficiency frontier.
- Potential fiscal space:
  - Reducing inefficiencies in public health spending could save up to 3.5 percent of GDP without sacrificing health outcomes.
- Recommended reform directions:
  - Education: formulate the budget in a medium-term framework, improve responsiveness to changes in the school population, and increase competition in the supply of public services.
  - Health: allow greater competition with the private insurance sector, increase cost sharing, privatize hospitals, and strengthen incentives for practitioners to provide cost-effective services.

*Source: IMF staff analysis in "1. Uncommitted Expenditures" (excerpts as provided).*

### 1. Uncommitted Expenditures ............................................................................................

### 1. Uncommitted Expenditures

### Introduction: purpose and high-level findings
- Paper examines public expenditure composition for the Slovak Republic and evaluates technical efficiency for education and health expenditure.
- Key findings:
  - The Slovak Republic allocates a larger share of expenditures to social benefits than the EU and OECD average.
  - It spends less on the wage bill compared with peers.
  - It spends relatively less on education and health compared with peers.
  - Education spending appears efficient in converting low levels of spending into outcomes; health spending does not.
  - Recent increases in health expenditures have not been reflected in improved outcomes, suggesting potential for significant budgetary savings without undermining outcome quality.
- Policy implication: identifying inefficiencies is critical because efficiency improvements can offer substantial budgetary savings without sacrificing outcomes and help achieve fiscal sustainability.

### Literature review: context and prior evidence
- Efficiency of public spending has been widely studied across overall public sector, education, and health.
- Cross-country studies cited indicate:
  - Countries with small public sectors (public expenditures lower than 40 percent of GDP) tend to be more efficient.
  - On average, countries could use 45 percent less resources to attain the same outcomes if fully efficient (Afonso and others, 2010).
  - In education, inefficiency estimates include potential output increases of 11.6 percent using same resources (Afonso and St. Aubyn, 2005) and estimates that 25 percent of education spending is wasteful in the EU relative to best practices (Clements, 2002).
  - Health-sector studies find substantial variation in technical efficiency across countries and identify reform directions: careful staffing and wage planning, reallocating to cost-effective intermediate outputs, implementing accountability/regulatory frameworks.
- Caveats: efficiency analysis is sensitive to choice/availability of input and output indicators and to exogenous factors beyond policy control.

### Features of the Slovak Republic’s public expenditure: levels and dynamics
- Government size dynamics:
  - Government shrank from 52.1 percent of GDP in 2000 to 34.3 percent of GDP in 2007.
  - Crisis-related stimulus contributed to a surge to 41.0 percent of GDP in 2010.
- Crisis-period growth:
  - Slovak Republic had a real growth rate of about 16.6 percent in general government spending (2007-09), at the rightmost end of the EU-OECD distribution.
  - As a share of GDP, spending rose by 7.2 percent during the crisis—one of the largest increases in the EU-OECD.
- Comparative position:
  - Slovak Republic is well below the EU-OECD sample average in government size, positioned in the second quartile of the distribution.
  - The post-crisis increase in government size was common across most countries; only Switzerland and Israel reduced government spending.

### Public expenditure composition (2009) — structure and trends
- Slovak Republic general government expenditure composition (percent of total expenditure, 2009):
  - Compensation: 18.9%
  - Subsidies: 3.9%
  - Social benefits: 45.5%
  - Intermediate consumption: 12.9%
  - Net acquisition of NFA: 5.5%
  - Interest: 3.5%
  - Other: 9.8%
- EU average composition (percent of total expenditure, 2009):
  - Compensation: 24.1%
  - Subsidies: 3.3%
  - Social benefits: 39.5%
  - Intermediate consumption: 14.5%
  - Net acquisition of NFA: 6.9%
  - Interest: 4.6%
  - Other: 7.2%
- Social benefits composition in the Slovak Republic (percent of social benefits expenditure, 2009):
  - Sickness/Health care: 31%
  - Disability: 10%
  - Old age: 37%
  - Survivors: 5%
  - Family/Children: 9%
  - Unemployment: 6%
  - Social exclusion n.e.c.: 2%
- Time trends:
  - Real increase in government spending since 2004 is almost fully attributable to the surge in social benefits expenditure.
  - Net acquisition of nonfinancial assets (NFA) has been relatively stable in real terms, rising only in 2009 as part of the crisis-response strategy.
  - Subsidies are the most volatile category, oscillating between 3.2 and 5 percent of total expenditure after a decline in 1998-2000.
  - The share of interest payments in expenditure has been gradually declining; the share of social benefits has been increasing.
  - Old-age benefits rose by 51.5 percent since 1997, reflecting demographic aging pressures.

### Committed expenditures: definition and fiscal importance
- Definition used in this study: committed outlays are those over which the government has little discretion and cannot easily be cut back or reallocated (examples: past debts/interest, social benefits amendable only by law, subsidies reflecting welfare commitments).
- Fiscal relevance:
  - Committed spending accounted for more than half of total expenditures (table referenced in source) — implying limited discretionary room for short-run fiscal reallocation.
  - Legacy obligations and legally constrained benefit entitlements limit flexibility for fiscal adjustment.

### Sector-specific efficiency highlights and policy implications
- Education:
  - Slovak Republic spends relatively less on education compared with peers but appears efficient in converting low spending into outcomes.
  - Cross-country literature suggests scope for reallocating spending composition and improving staffing/wage planning to enhance efficiency further.
- Health:
  - Slovak Republic spends relatively less on health compared with peers but is inefficient in converting inputs into outcomes.
  - Recent increases in health spending have not yielded improved outcomes, indicating scope for budgetary savings through efficiency gains.
  - Recommended reforms drawn from literature: careful planning of staffing and wages, reallocating spending toward cost-effective intermediate outputs, and strengthening regulatory frameworks to ensure accountability.

*Source: IMF staff analysis in "1. Uncommitted Expenditures" (excerpts as provided).*

### 2004. Uncommitted expenditures decreased by 6.3 percent to 47.1 percent of total

### 2004. Uncommitted expenditures decreased by 6.3 percent to 47.1 percent of total

### Uncommitted expenditures — trend and implications
- Uncommitted expenditures decreased by 6.3 percent to 47.1 percent of total expenditures in 2009, the last year in which data are available.
- The decreasing path in uncommitted expenditures contrasts with the EU average, which shows a progressive increase, although with a smaller variation.
- Implication: less freedom for the government to change the structure of its spending.

### Spending agencies — distribution and capital composition
- Largest shares of total expenditures by agency (2009):
  - Ministry of Education, Research, and Sport: 15.1 percent
  - Ministry of Labour, Social Affairs, and Family: 13.6 percent
  - General Treasury Administration: 11.7 percent
  - Ministry of Health: 9.7 percent
  - Ministry of Transport, Construction, and Regional Development: 9.4 percent
- Combined, these agencies account for about 60 percent of total expenditures.
- Capital expenditure shares by agency:
  - Ministry of Education, Research, and Sport: 4.6 percent (of agency expenditure)
  - Ministry of Health: 3.6 percent (of agency expenditure)
  - Ministry of Transport, Construction, and Regional Development: 62.6 percent (of agency expenditure) and 36.3 percent (of the country’s total capital expenditures)
  - Ministry of Construction and Regional Development shows similar percentages; aggregated, these two ministries cover almost half of the total capital expenditure.
- Total public expenditure (2009, aggregated from table): Total 11,683.2 (Millions of EUR of 2005), Capital 16.2 (in percent of agency's expenditure), Capital share of total capital expenditure 100.0 (table totals).

### Technical efficiency — methodology overview
- Efficiency defined as ability to obtain maximum output from a given set of inputs (Farrell, 1957).
- Common techniques: Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA).
  - DEA: non-parametric linear programming; can include more than one output; assumes input-output separability.
  - SFA: parametric econometric methods; typically allows only one output; better at coping with measurement error.
- Choice rationale: given a small and broadly technologically homogeneous sample of EU-OECD countries and generally good data practices, the paper opts for DEA.
- DEA implementation notes:
  - Education sector input: sum of real primary and secondary education public expenditure per pupil in PPP terms (5-year averages for 2000–04 and 2005–09).
  - Education sector output: PISA scores (average of reading, mathematics, science).
  - DEA runs allow for variable returns to scale; efficiency measured as potential contraction of inputs to achieve same outputs.

### Education — spending, outcomes, and efficiency findings
- Spending levels and trends:
  - Slovak Republic average spending for the period 2005–09: 3.8 percent of GDP.
  - Sample average (2005–09): 5.1 percent of GDP.
  - Education spending declined by 0.6 percent of GDP in 2008; latest Eurostat data for 2009 suggest a rebound to 4.3 percent of GDP (noting the 2009 spike is inflated by a decrease of 6 percent in nominal GDP).
- Enrollment and demographic shifts:
  - High percentage of children enrolled in public schools: 91.2 percent in 2009; ratio dropped by 4 percentage points since 1998.
  - Number of primary students dropped by 32.8 percent since 1997; secondary students dropped by 15.1 percent; tertiary students doubled.
  - Enrollment rate aged 15-19: 85.1 percent in 2009, outperforming the EU-OECD average by almost 3 percentage points.
  - Enrollment rate aged 20-29: rose but remains behind EU-OECD average by 5.9 percentage points.
- Graduation and outcomes:
  - Net graduation for upper secondary stabilized at rates higher than 80 percent (comparable to sample average).
  - Tertiary graduation rates clearly outperform the EU-OECD average; notable increase in 2008–2009 attributed to new university degrees.
- Student-teacher ratios:
  - Primary: decreased from 20.7 in 2001 to 17.7 in 2009 (a 14.5 percent reduction), but still 3.9 students higher than the EU-OECD average.
  - Upper secondary: 15.1 students per teacher in 2009, 3.3 students more than EU-OECD countries.
  - Tertiary: ratio essentially in line with the sample average.
- DEA results and interpretation:
  - Real spending per student increased by 16.5 percent between periods but remains one of the lowest in the group.
  - DEA production frontier for 2005–09 defined by Finland, Poland, Romania (which spends the least on primary education), and the Slovak Republic.
  - Results suggest the Slovak Republic has been one of the most efficient countries in the use of resources dedicated to primary and secondary education.
  - Caveat: DEA may overstate secondary education efficiency because PISA scores reflect skills of 15-year-olds (early to middle secondary), so good outcomes could reflect primary education efficiency more than combined primary–secondary performance.
- Policy recommendations and reform options:
  - With falling numbers of primary and secondary students, consider a reduction in the overall education workforce to free resources for quality improvements and targeting needy students.
  - Free resources could be redirected to other sectors.
  - Adopt a medium-term perspective to the education budget (examples cited: Czech Republic, Estonia, Cyprus, Romania).
  - Introduce results- or performance-oriented budgeting (examples cited: Netherlands, Slovenia).
  - Reforms to augment competition to sharpen price signals and regulate educational supply and demand choices.

### Health — reforms, spending levels, and trends
- Reforms during 2003-04 included:
  - (i) introduction of co-payments for patients,
  - (ii) creation of voluntary health insurance,
  - (iii) establishment of state-owned health insurance companies as joint-stock companies,
  - (iv) conversion of hospitals into non-profit semi-independent entities.
- Outcome of reforms:
  - Reforms were unpopular and did not succeed in resolving the financial problems of the sector; they were not sufficiently strong to achieve intended objectives (Verhoeven and others, 2007b).
  - The financial burden on public finances did not diminish; the new government in 2006 reversed key elements of the reforms.
- Spending levels and trends:
  - Slovak Republic spent relatively little on health—some 5¼ percent of GDP per year, on average, over the last 13 years.
  - During 1995–99, health expenditures as a share of GDP were in line with the EU-OECD average; sample average increased to almost 6 percent of GDP in the period 2005-08.
  - The Slovak Republic reduced its expenditures by almost 1 percentage point of GDP since the 1997-2000 period.
  - After 2000, Slovak health expenditures fluctuated between 5.0 and 5.4 percent of GDP, while other groups continued an upward trend.

*Italic: Source — IMF staff report content unit _wp12173 - 2004. Uncommitted expenditures decreased by 6.3 percent to 47.1 percent of total*

### 25.9 percentage points. In 2009, only 65.7 percent of the total expenditures are public, and

### _wp12173 - 25.9 percentage points. In 2009, only 65.7 percent of the total expenditures are public, and

### Health expenditures and resources
- In 2009, only 65.7 percent of the total expenditures are public.
- This 65.7 percent is 6.5 percentage points lower than the EU-OECD average.
- Trends in health care resources:
  - Persistent decrease in the numbers of physicians, nurses, and hospital beds.
  - Density of nurses is lower than the EU-OECD average.
  - Density of physicians is in line with the sample average.
  - Number of beds is higher than the average for EU-OECD members.
- Public expenditure composition and commitments:
  - Relatively large share of committed expenditure (subsidies, social benefits, and interest payments) which increased over time.
  - Share of social benefits accounts for almost half of total expenditures.
  - Wage bill is considerably smaller compared with the EU-OECD average.
  - Share of interest payments fell from 9.0 percent of total expenditures in 2001 to 3.5 in 2009.

### Health outcomes and comparative indicators
- Immunizations:
  - Less than 1 percent of the children are not immunized against measles and DTP (i.e., immunization performance is above average).
- Life expectancy and infant mortality:
  - Life expectancy is 75 years in 2009, 4.3 years lower than the sample average.
  - Infant mortality is almost one death higher per 1000 births in the Slovak Republic than in the EU-OECD countries.
- Historical per-capita expenditure and outcomes (sample averages and Slovak Republic):
  - EU-OECD average real health expenditure per capita increased from 1,577 to 1,855 dollars in purchasing parity terms (a 17.7 percent increase).
  - EU-OECD life expectancy recorded a 1 year increase from 72.2 years.
  - Slovak Republic health expenditure rose from 761 to 965 international dollars (26.8 percent increase).
  - Slovak Republic experienced a lower increase in life expectancy between the two periods: 0.73 years.

### Efficiency analysis (DEA) — life expectancy and infant mortality
- Life expectancy DEA (average 2000–04):
  - Slovak Republic showed up far from the production frontier and achieved an efficiency score of 0.4.
  - Being at efficiency score 0.4 implies that, to reach the same outcome level, large resource savings were possible.
  - If operating at the efficiency level of the most efficient countries in the sample (Cyprus, Israel, Japan, Malta, and Mexico), the Slovak Republic could have saved up to 60 percent of its financial resources.
  - This 60 percent potential saving is 9.1 percentage points larger than the sample average.
- Change in efficiency (2005–08 versus 2000–04):
  - Sample average increased its efficiency by 4.5 percentage points.
  - Slovak Republic experienced a 4 percentage point reduction in efficiency.
  - Room for savings expanded to 64 percent of the total health expenditures per capita.
  - This implies potential budgetary savings of 3.4 percent of GDP (0.5 percent of GDP more than in 2000–04).
- Infant mortality DEA:
  - Slovak Republic reduced infant mortality by 13.2 percent (or by one infant per 1,000 live births) from 2000–04 to 2005–08.
  - EU-OECD average infant mortality fell by 18.9 percent over the same comparison.
  - In 2000–04 the Slovak Republic’s outcome was achievable with 57 percent of the resources actually utilized (given best-practice efficiency).
  - In 2005–08 the outcome became achievable with 52 percent of the resources actually utilized (given best-practice efficiency).
  - Efficiency scores for both periods are only slightly below the EU-OECD average; the Slovak Republic remains in the lower left quadrant in graduation plots, indicating below-average outcomes and below-average efficiency relative to the sample.

### Fiscal context and implications
- Medium-term consolidation plans limit the possibility of expenditure increases for health and other sectors.
- Upward pressures on health care costs continue from rising income, population aging, and improved medical technologies.
- Fiscal constraints necessitate intensified efforts to increase efficiency.
- The analysis suggests that reducing inefficiencies in public health spending could save up to 3.5 percent of GDP without sacrificing health outcomes.

### Policy options and reform measures (examples and international experiences)
- Budgetary and oversight mechanisms:
  - Budget caps and central oversight of budget allocations (examples: Italy, Japan, Sweden).
- Market and competition measures:
  - Strengthen market mechanisms by introducing greater competition and choice (examples: Germany, Japan).
  - Allow greater competition among hospitals (examples: United Kingdom, Sweden).
- Role of private insurance:
  - Extend use of supplementary and complementary private insurance to dampen public health cost growth (examples: Australia, Canada, France).
- Payment and provider incentives:
  - Shift payment methods from fee-for-service to case-based payments (examples: Finland, Germany, Italy, United Kingdom).
  - Replace fee-for-service with lump-sum amounts to create cost-effectiveness incentives for practitioners.
- Demand-side reforms:
  - Abolish tax deductions for medical expenses (example: Finland).
  - Increase cost sharing to raise consumer awareness (with caution to avoid deterioration in health outcomes).
- Supply-side and pharmaceutical measures:
  - Reduce the cost of hospital care and privatize hospitals.
  - Contain pharmaceutical costs by encouraging prescribing of substances or pharmacists supplying the cheapest generic drug.
  - Tighten reference pricing for pharmaceuticals and standardize reimbursement for medical procedures classified by diagnosis treatment.

### Concluding remarks (summary points)
- The Slovak Republic experienced the highest spike in real public expenditure from 2007 to 2009, more than doubling the average increase of 7.7 percent in Europe and other advanced economies.
- Compared with peer countries, the Slovak Republic spends less on education and health.
- DEA suggests:
  - Public expenditures in primary and secondary education have produced desirable results in a relatively efficient manner.
  - The health system is inefficient in converting health care resources into health outcomes and is a large distance from the efficiency frontier defined by the most efficient countries in the sample.
- Potential fiscal space:
  - Reducing inefficiencies in public health spending could save up to 3.5 percent of GDP without sacrificing health outcomes.
- Recommended reform directions:
  - In education: formulate the budget in a medium-term framework, improve responsiveness to changes in the school population, and increase competition in the supply of public services.
  - In health: allow greater competition with the private insurance sector, increase cost sharing, privatize hospitals, and strengthen incentives for practitioners to provide cost-effective services.

*Sources: WDI and IMF WEO.*

### References

### References

### Foundational theory and efficiency measurement
- Aigner, Dennis, and Shih-fan Chu, 1968, “Estimating the Industry Production Function,” American Economic Review, Vol.58, pp. 826–39.
- Debreu, Gerard, 1951, “The Coefficient of Resource Utilization,” Econometrica, Vol. 19, pp. 273–92.
- Farrell, Michel J., 1957, “The Measurement of Productive Efficiency," Journal of the Royal Statistical Society, Vol. 120. No. 3, pp. 253–90.
- Koopmans, Tjalling C., 1951, “Analysis of Production as an Efficient Combination of Activities,” in T.C. Koopmans, ed. Activity Analysis of Production and Allocation Wiley, New York.
- Theil, Henri, 1980, System-Wide Explorations in International Economics, Input-Output Analysis and Marketing Research, Amsterdam: North-Holland

### Data envelopment analysis and related methods
- Charnes, Abraham, William W. Cooper, and Eduardo Rhodes, 1978, “Measuring the Efficiency of Decision Making Units," European Journal of Operational Research, Vol. 2, pp. 429–44.
- Cooper, W. William, Lawrence M. Seiford, and Kaoru Tone, 2000, “Data Envelopment Analysis: A Comprehensive Text with Models, Applications, References and DEA-Solver Software," Kluwer Academic Publishers, Boston.
- Hadi, Ali S., and Robert F. Ling, 1998, “Some Cautionary Notes on the Use of Principal Components Regression," The American Statistician, Vol. 52, pp. 15–9.
- Spinks, Jean, and Bruce Hollingsworth, 2009, “Cross-country Comparisons of Technical Efficiency of Health Production: a Demonstration of Pitfalls,” Applied Economics, Vol. 41, pp. 417–27.

### Public sector efficiency, public expenditure, and institutions
- Afonso, António, and Miguel St. Aubyn, 2005, “Cross-country Efficiency of Secondary Education Provision: a Semi-parametric Analysis with Non-discretionary Inputs,” European Central Bank, Working Paper No. 494.
- Afonso, António, and Victor Gaspar, 2007, “Dupuit, Pigou and Cost of Inefficiency in Public Services Provision,” Public Choice, Vol. 132, No. 3, pp. 485–502.
- Afonso, António, Ludger Schuknecht, and Vito Tanzi, 2005, “Public Sector Efficiency: an International Comparison,” Public Choice, Vol. 123, pp. 321–47.
- Afonso, António, and Vito Tanzi, 2010, “Public Sector Efficiency: Evidence for New EU Member States and Emerging Markets,” Applied Economics, Vol. 42, No. 17, pp. 2147–64.
- Mandl, Ulrike, Adriaan Dierx, and Fabienne Ilzkovitz, 2008, “The effectiveness and efficiency of public spending,” Economic Papers, no. 301, European Commission.
- ECB, 2006, “The Importance of Public Expenditure Reform for Economic Growth and Stability,” ECB Monthly Bulletin, pp. 61–73.

### Education efficiency and public spending on education
- Clements, Benedict, 1999, “The Efficiency of Education Expenditure in Portugal,” IMF Working Paper 99/179.
- Clements, Benedict, 2002, “How Efficient is Education Spending in Europe,” European Review of Economics and Finance, Vol. 1, No. 1, pp. 3–26.
- Sopek, Petar, 2011, “Efficiency of Public Expenditure on Education in Croatia,” Institute of Public Finance, No. 61, September.
- Verhoeven, Marijn, Vitoria Gunnarsson and Stéphane Carcillo, 2007a, “Education and Health in G7 Countries: Achieving Better Outcomes with Less Spending,” IMF Working Paper 07/263. (Washington: International Monetary Fund).

### Health sector efficiency and health care reform
- Clements, Benedict, David Coady, and Sanjeev Gupta, 2012, The Economics of Public Health Care Reform in Advanced and Emerging Economies (Washington: International Monetary Fund).
- Gruber, Jonathan, 2006, “The Role of Consumer Copayments for Health Care: Lessons from the RAND Health Insurance Experiment and Beyond,” Washington, D.C., the Henrly J. Jauser Foundation.
- Joumard, Isabelle, Cristophe André, and Chantal Nicq, 2010, “Health Care Systems: Efficiency and Institutions,” OECD Economics Department Working Papers, No. 769, OECD Publishing.
- Verhoeven, Marijn, and Sergio Lugaresi, 2007b, “The Health Sector in the Slovak Republic: Efficiency and Reform," IMF Working Paper 07/226. (Washington: International Monetary Fund).

### Country and sectoral benchmarking papers
- Hauner, David, 2007, “Benchmarking the Efficiency of Public Expenditure in the Russian Federation," IMF Working Paper 07/246 (Washington: International Monetary Fund).
- Spinks, Jean, and Bruce Hollingsworth, 2009, “Cross-country Comparisons of Technical Efficiency of Health Production: a Demonstration of Pitfalls,” Applied Economics, Vol. 41, pp. 417–27.

### Manuals, handbooks, and reports
- Chu, Ke-young, and Richard Hemming, 1991, Public Expenditure Handbook (Washington: International Monetary Fund).
- IMF, 2011, “Staff Report for the Article IV Consultation,” June, http://www.imf.org/external/pubs/ft/scr/2011/cr11122.pdf.

*References list as provided in the source document*

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