Abstract:
Health expenditure plays a crucial role in ensuring quality and accessible healthcare services. On
the other hand, inflation erodes the real value of these expenditures, particularly in developing
countries like Sri Lanka. This study examines the relationship between health expenditure and
inflation in Sri Lanka from 2000 to 2021. The sub-objectives include analyzing both short-run and
long-run relationships and proposing relevant policy recommendations. Data were collected from
the Central Bank of Sri Lanka and the World Bank. Microsoft Excel and E-Views software were
used for analysis, employing models such as ARDL (Autoregressive Distributed Lag) and the error
correction model (ECM). The findings indicate that variables such as inflation and GDP per capita
significantly influence health expenditure. The results reveal a strong long-run correlation between
inflation and health expenditure, suggesting that the healthcare sector is persistently affected by
economic inflation. In the short run, changes in health spending exhibit a moderate response to
inflation fluctuations. Based on these findings, the study proposes policy recommendations to
address gaps in Sri Lanka’s healthcare financing system. These include increasing public funding,
improving fiscal forecasting and planning, and implementing measures to control inflation to
ensure equitable healthcare provision.
