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PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB2821 Project Name Health Sector Reform Program (APL 2) Region EUROPE AND CENTRAL ASIA Public Disclosure Authorized Sector Health 90%; Tertiary education 10% Project ID P104467 Borrower(s) REPUBLIC OF ARMENIA Implementing Agency MINISTRY OF HEALTH Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared January 23, 2007 Date of Appraisal January 24, 2007 Authorization Date of Board Approval March 13, 2007 1. Country and Sector Background Public Disclosure Authorized Country Issues Economic growth and macroeconomic management are strong. GDP growth has averaged over 10 percent per annum over the past five years, reaching 14 percent in 2005, and an estimated 13 percent in 2006. Prudent macroeconomic policies have maintained sustainable external and internal balances, kept inflation low, and reduced Armenia’s debt burden. The fiscal deficit has also remained low and has been financed by non-inflationary sources. Armenia is fully on track with its IMF Poverty Reduction and Growth Facility (PRGF) Program. With sustained high and broad-based economic growth, poverty in Armenia has continued to decline. Armenia saw a significant reduction in overall poverty, with the proportion of poor declining from 51 percent in 2001 to 30 percent in 2005. Growth reduced extreme poverty even Public Disclosure Authorized faster from 16 percent in 2001 to below 5 percent in 2005. The recent household survey also reveals equally strong declines in urban and rural poverty, and in income inequality. Armenia continues to make progress on the reform agenda, though challenges remain. Armenia has made strong progress towards an open economy, as evidenced by the improvement in its IDA Performance-Based Allocation (PBA) score, now the highest of all IDA countries. Nevertheless, challenges remain. Though wages have been increasing, unemployment remains high at one-third of the labor force. Improvements are also needed, inter alia, in eliminating distortions associated with corruption and building the human capital necessary for a competitive knowledge economy. Armenia has a strong and comprehensive poverty reduction strategy in place. The recent CAS progress report refers to Armenia having had a successful Poverty Reduction and Strategy Paper Public Disclosure Authorized (PRSP) implementation, in which most of the targets have been met or exceeded and which was marked by a high level of participation. The government is currently preparing a full PRSP update, which will set new targets and refine policy actions. Armenia has achieved or exceeded most targets that it had set for itself. Key achievements included: (i) stronger that anticipated economic growth and poverty reduction; (ii) substantial improvements in fiscal resources and policy, though tax and customs administrations continue to require improvement; (iii) increased spending in the social sectors and good progress in implementing systemic social sector reforms; and (iv) good progress in infrastructure and rural development, although further increasing private sector involvement and reducing rural poverty remain challenges. Armenia also remains on target to achieve most if not all of its Millennium Development Goals (MDGs) by 2015. In 2005, Armenia published the first progress report on meeting the MDGs. Achievement of all of these goals is assessed as either possible or likely. Rates of poverty, infant mortality and maternal mortality have fallen rapidly over the past few years. There is virtually full enrollment in primary schools, and the country is in the midst of education reforms. At the same time, challenges continue to exist in promoting gender equality, combating communicable diseases, ensuring environmental sustainability and implementing the Government’s anti- corruption agenda. Sector Issues Health outcomes Armenia compares favorably with countries of similar level of socio-economic development in terms of health outcomes, but suffers from a double burden of infectious and non-communicable diseases. A steady downward trend in infant, under-five and maternal mortality has been observed; between 2000 and 2004, the Infant Mortality Rate (IMR) and the Under-five Mortality Rate (U5MR) fell from 15.6 and 19.8 to 12.3 and 13.6 per 1,000 live births, respectively.1 During the same time span, the Maternal Mortality Ratio (MMR) fell from 52.5 to 16 per 100,000 live births. As a result, life expectancy at birth in 2004 was 70.3 years for men (higher than in most of the ECA countries) and 76.4 years for women. Table 1: Armenia: Health status indicators in the international context (2003) Armenia Europe NMS CIS CSEC Life expectancy at birth, in years (LE0) 73.1 74.1 74.3 66.9 68.9 Infant deaths per 1,000 live births (IMR) 11.5 9.0 6.6 14.5 19.8 Maternal deaths per 100,000 live births (MMR) 19.7 15.6 6.0 31.8 51.5 SDR, diseases of circulatory system, all ages per 714.9 479.4 452.7 821.4 741.5 100,000 SDR, ischemic heart disease, all ages per 100,000 387.3 222.7 176.1 433.8 362.3 SDR all causes, all ages, per 100,000 1083.3 962.6 931.3 1431.2 1311.2 SDR, diseases of the respiratory system, all ages 63.4 55.5 42.7 70.1 63.1 per 100,000 SDR, selected smoking related causes, all ages per 653.2 243.7 370.7 716.4 577.0 100,000 Tuberculosis incidence per 100,000 47.9 42.4 26.3 87.3 69.0 1 According to the 2005 Demographic and Health Survey, these rates are higher, 26 and 30 per live births, respectively. Clinically diagnosed AIDS incidence per 100,000 0.3 1.1 0.4 0.7 0.6 Diabetes prevalence, in % 1.0 n.a. 4.9 1.4 1.6 Source: World Health Organization (WHO): Health for All (HFA) data base. Note: Europe: 52 countries in the WHO European Region. NMS: New Member States—10 new member states of the European Union from May 1, 2004. CIS: 12 countries of the Commonwealth of Independent States; CSEC: 25 countries in the WHO European Region with higher levels of mortality (Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Estonia, Georgia, Hungary, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Poland, Republic of Moldova, Romania, Russian Federation, Serbia and Montenegro, Slovakia, Tajikistan, FYR Macedonia, Turkey, Turkmenistan, and Ukraine). Armenia is also in the midst of an epidemiological transition characterized with a decline in communicable diseases and an increase in the prevalence of chronic diseases. The leading causes of premature adult death under the age of 65 are, in order of magnitude, diseases of the circulatory system - heart disease, stroke and related conditions, cancer, external injuries and poisoning - including suicide and traffic accidents, and diseases of the respiratory and of the digestive system.2 The HIV prevalence rate is lower than in most of the Commonwealth of Independent States (CIS), but a potential threat exists due to large numbers of migrant workers population working in higher HIV prevalence countries such as Russia and Ukraine. Tuberculosis prevalence rate at 98 per 100,000 population remains higher than the European average. In 2004, DOTS case detection and treatment success rates were 63 percent and 77 percent respectively, a slight improvement over the previous years. Overall, disease surveillance, prevention and control system is slowly improving its capacity to better detect and manage the resurgence of communicable diseases as funding levels increase. Health services utilization Despite recent improvements, access to and use of health services remain low, favoring polyclinics and hospitals over Primary Health Care (PHC) facilities. After an impressive downward trend in admission rates and outpatient visits during the 1990s, health services utilization is again on the rise, although still low by EU standards and CIS averages.3 In view of the increase in overall mortality and morbidity, especially in the adult population, there is a concern that the sick may postpone seeking care and use of services as result of lack of resources, high out-of-pocket payments and low perceived quality of care, especially in rural areas. In 2003, for instance, the percentage of individuals who did not seek care when ill or injured was on average 70.5 percent, varying between 62 percent for the top quintile and 78 percent for the lowest quintile. As for the out-of-pocket (OOP) informal payments, they are mostly paid in hospitals; in 2001, about 72 percent of those who sought healthcare in a hospital and about 60 percent of those who sought care in a polyclinic reported to have made informal payments averaging 20,000ADM (approx. US$40) and 6,700ADM (approx. US$13), quite high figures with significant impoverishing effects on the household. In rural areas a higher proportion of the sick make informal payments for outpatient services whereas the reverse occurs in urban areas for inpatient services. In both rural and urban areas, the proportion of those who 2 World Health Organization Regional Office for Europe 2005. 3 Between 1991 and 2001, the inpatient admission rate dropped from 12.1 admissions to 4.9 per 100. Similarly, the number of outpatient contacts per person per year dropped from 9 in 1985 down to 1.8 in 2001. The EU and CIS averages are 18.4 and 19.8 for inpatient admission rate and 8.4 and 8.7 for the number of contacts per year, respectively. make OOP informal payments is lower amongst the poorest quintile, mainly because of refraining from seeking care. On the other hand, however, the recent increase in the public health spending has a positive effect on the use of both inpatient and outpatient services, especially for the poor.4 Health system governance and organization Health system governance in Armenia is increasingly becoming pluralistic and decentralized, albeit with still a limited role for the population.