Lending Institutions, Health Care, and Human Capital, Research Paper Example

Introduction

Post-civil war Sri Lanka became the first country in the entire South Asian region to start financial sector reforms. The primary objective of implementing such reforms was to improve socio-economic growth. Despite the efforts, the reforms were not free from interferences from the World Bank and IMF, whose funding conditions changed the prevailing power between the various political forces in the politically tensed country. Hence, questions on the real impacts of international lending institutions such as IMF and World Bank projects arise. Therefore, this paper looks at the impacts of such financial institutions on Sri Lanka’s social, economic and political development. It also looks at how healthy Sri Lankan population strengthens the economy and establishes the extent to which the Sri Lanka’s leadership has employed foreign aid in improving the healthcare system.

Effects of World Bank and the IMF on social, economic and political development

In 2002, Sri Lanka made amends to go ahead with its financial sector reforms after a two-decade civil war. Most reforms were supported by the World Bank and IMF. In April 2002, the IMF approved $375 million for poverty reduction and growth facilitation. The World Bank further successively funded projects in 2009. The funding from the World Bank and IMF has helped the country in a range of ways (Limpach & Michaelowa, 2010).

Sri Lanka has witnessed unprecedented growth in key economic sectors. For instance, the funding used in financial reforms saw the country’s residents gain easy access to credit facilities. For instance, only 55 banks existed in the country in 2001 and later increased to 500 in 2006 (Edirisuriya, 2007). By 2011, Sri Lanka experienced the fastest growth in South Asia (World Bank 2013).

The World Bank and IMF funding have often made their financial assistance to be conditioned on specific institutional reforms in recipient countries. Politically, this had effects on Sri Lanka. The institutions made it a condition that for Sri Lanka to acquire the loan, it had to end the 2-decade civil war as well as democratize. After the ceasefire in 2000, funding was granted to the country (Edirisuriya, 2007).

The World Bank and IMF funds helped Sri Lanka to attain one of the highest levels of social progress. The funds sponsored hospital and school projects around the country. As a consequence, the attained literacy of 91.6 percent and life expectancy of 73.1 years by 2010 for such a country with low income level (Alleyne & Cohen, 2002).

The great private sector involvement in primary social services and public enterprises has led to increased poverty reduction. The Poverty Reduction Strategy Paper (PRSP) projects provided employments for the Sri Lankan population leading to 2.9 percent growth of per capita GDP. By 2011, unemployment rate was only 4.2 percent

Ways in which healthy population strengthens the economy of Sri Lanka

Healthy population strengthens the economy of Sri Lanka in four substantive ways.

A healthy population is mentally and physically energetic, making it less likely to miss work because of illnesses. A healthy population is also productive and earns higher wages, which promote the country’s economy through taxation (Alsan et al., 2006). The population of Sri Lanka is generally healthy and highly productive, with life expectancy of 73.1 years, as of 2010. The country has a productive population with a high income per capita. This ensures that the Sri Lankan population spends a lot of time on productive work rather than treating illnesses. In this way, the Sri Lankan economy is more productive, and hence stronger.

Similarly, a healthy population minimizes income inequality in an economy. Studies have shown that level of income determines access to quality healthcare since wealthier and healthier people live longer and are more productive than a deprived and less healthy population (NBER, 2014). Since health is correlated to relative poverty, income levels depend on health of individuals. Conversely, income inequality affects health of individuals in the aggregate. Income equality is a significant indicator of equity in a country’s economy. It also has implications on other social outcomes such as life satisfaction and crime. Additionally, it is a significant ingredient that promotes and sustains economic growth. On the other hand, severe income inequality may increase social inequity and tension, which promotes political instability and high crime rate that discourages foreign investment.  Sri Lanka is among the countries in the world with the least income disparity, showing stability in economy (Alleyne & Cohen, 2002). This promotes economic growth as the country fully uses the capabilities and skills of its citizens. It also has low crime rate that attracts investments.

A healthy population minimizes spending on healthcare. This in turn assists in strengthening the economy of the state. For instance, poor health leads to great spending on medication rather than on growth and development. Those affected by chronic illnesses may spend a lot of money on medication, leading to a poverty cycle (Alleyne & Cohen, 2002). The Government of Sri Lanka, for instance, spends less on healthcare. According to 2010 figures, an estimated 2.9 percent of GDP is spent on healthcare (The Guardian, 2012).  The small expenditure on healthcare shows that the Sri Lankan government spends much of the expenditure on activities that promote social and economic benefits such as constructions projects, agriculture and industrial development.

A healthy population minimizes infant mortality rate. High infant mortality rates signify disproportionate societal loss. Some researchers have argued that children who die before they attain adulthood signify an economic waste (Alleyne & Cohen, 2002). In Sri lank, for instance, there is a low child mortality rate, with only 10 per 1000 children, showing low economic waste. Low child mortality strengthens the Sri Lankan economy. This ensures that the country has a stable population base that can support its economic activities. For instance, with the current small population of 21 million, the country’s economy experiences a rapid growth that constantly needs stable workforce as the Baby Boomer generation retires.

Use of foreign aid to improve health care system

The Sri Lanka leadership has used foreign aid to improve health care system. The PRSP that was funded by IMP and World Bank has promoted private sector healthcare, with the view of promoting healthcare service delivery to the poor. Further, the health expenditure adopted by the government reflects the structure of a public hospital-dominated healthcare system (Rannan-Eliya & Sikurajapathy, 2009). Government spending has concentrated on hospitals and increasing risk protection and equity in access. This has led the country’s health system to protect the poor against catastrophic financial risks associated with illnesses. The funding has also been used to subsidize health and food subsidies. The funding has been used to expand healthcare coverage in Sri Lanka, with the focus on the poor (World Bank, 2013).

Conclusion

Funding by IMF and IMF has led Sri Lanka to witness unprecedented growth in its key economic sectors. It has also contributed to end of civil war in the country. The country has also been able to attain one of the highest levels of social progress. The great private sector involvement in primary social services and public enterprises has led to increased poverty reduction. Next, healthy population strengthens the economy of Sri Lanka in promoting the productiveness of the residents, promoting health and equality and reducing poverty. In Sri Lanka’s low infant mortality rate signifies low economic waste. The Sri Lanka leadership has used foreign aid to improve health care system, leading the country’s health system to protect the poor against catastrophic financial risks associated with illnesses.

References

Alleyne, G. & Cohen, D. (2002). The Report of Working Group 1 of the Commission on Macroeconomics and Health. Geneva: World Health Organization

Alsan, M., Bloom, D., Canning, D. & Jamison, D. (2006). The Consequences of Population Health for Economic Performance. Retrieved: <http://www.hsph.harvard.edu/pgda/WorkingPapers/2006/PGDA_WP_13.pdf>

Edirisuriya, P. (2007). “Effects Of Financial Sector Reforms In Sri Lanka: Evidence From The Banking Sector.” Asia Pacific Journal of Finance and Banking Research, 1(1), 45-62

Limpach, S. & Michaelowa, K. (2010). The Impact of World Bank and IMF Programs on Democratization in Developing Countries. Zurich: University of Zurich

NBER (2014). Health, Income, and Inequality. Retrieved: <http://www.nber.org/reporter/spring03/health.html>

Paloni, A & Zanardi, M. (2006). The IMF, World Bank and Policy Reform. New York: Taylor and Francis group

Rannan-Eliya, R. & Sikurajapathy, L. (2009). Sri Lanka: “Good Practice” in Expanding Health Care Coverage. The International Bank for Reconstruction and Development: Washington

The Guardian (2010). Healthcare spending around the world, country by country. Retrieved from The Guardian’s websites: <http://www.theguardian.com/news/datablog/2012/jun/30/healthcare-spending-world-country>

World Bank. (2013). Sri Lanka Overview. Retrieved from The World Bank website: <http://www.worldbank.org/en/country/srilanka/overview>