1. Economics of Education II: Intermediate Economic Analysis of Education Sector Projects Fiscal Impact Analysis Peter Moock

2. 2 Economic Analysis of Projects effectiveness analysis cost-effectiveness analysis cost-benefit analysis –discounting –net present value –rate of return analysis costsbenefits

3. 3 Internal Rate of Return discount rate that equates project costs and benefits compare alternative projects profitable investment, yes, but affordable? costsbenefits

4. 4 “Social Rate of Return” Private rate of return Social rate of return External benefits Rationale for public sector involvement Capital market imperfections External costs

5. 5 Financial Analysis Is the project financially sustainable? Fiscal impact analysis How affordable are the public and private costs? What are longer-term recurrent-cost implications of project? What is the scope/justification for increased cost recovery?

6. 6 Decentralized Financial Analysis

7. 7 Incidence analysis Who are the winners? Who are the losers? What are the benefits and the costs for the poor, the very poor? Consistent with project objectives/rationale? Consistent with equity (poverty alleviation) goal as well as efficiency goal?

8. 8 Fiscal Analysis Examples Vietnam –Education Financing Sector Study –1997 ESW Lesotho –Second Education Sector Development Project –1999-2002 Indonesia –Sulawesi and Eastern Island Basic Education Project –1999-2006

9. 9 Vietnam Education Financing Sector Study (VEFSS) Published as World Bank Country Study, “Vietnam Education Financing,” Washington, DC, 1997 (ISBN 0-8213- 4023-9).

10. 10 Vietnam Education Financing Sector Study (VEFSS) 1. Demographic and macro-economic context 2. Education and training sector 3. Education expenditure and finance 4. Unit costs and internal efficiency 5. External efficiency and equity 6. Future directions for education finance –Vietnam in relation to HPAEs –Enrollment projections and fiscal affordability –Promising policy options

11. 11 Vietnam Budget projection, 1994-2004 GDP: about 10% per year (Revised Minimum Standards Model) State Budget as percent of GDP: constant at 26% Debt repayment: rise, then fall Recurrent spending as percent of State Budget: fall from 83% to 73% Education’s share of recurrent budget: constant at 13.3% (conservative)

12. 12 VEFSS

13. 13 VEFSS Expenditure Scenarios Baseline (no change) scenario –driven by population projections –GERs and unit costs at 1994 levels Plan scenario –Govt (MPI) enrollment targets –higher than Baseline -- by as little as 2% in case of technical to 138% in case of vocational

14. 14 VEFSS

15. 15 VEFSS - study recommendations Target subsidies to basic and to poor Cost recovery in tertiary Go slow with vocational Reduce dropout and repetition Quality enhancement –monitor learning –increase instructional hours –teacher upgrading and regular in-service trng –increase govt spending on textbooks and learning materials

16. 16 VEFSS

17. 17 VEFSS

18. 18 Lesotho Second Education Sector Development Project “to increase the number of Basotho that benefit from the education and graduate with skills enabling them to meet labor market demand” effective: 6/30/99 expected closing: 12/31/02

19. 19 Lesotho Second Education Sector Development Project project costs - $25 million IDA funding - $19 million four components 1. ECD - $0.5 2. Primary/Secondary - $23 (IDA $19) 3. TVET - $1 4. NFE - $0.5

20. 20 Lesotho - Project Component 1 Early Childhood Development Component 1 - ECD “increase coverage and improve quality” phase I –policy memo to define GOL and NGO roles –feasibility study to explore attaching community-run ECD centers to primary schools –pilot models in two or more isolated districts subsequent phases - expand coverage

21. 21 Lesotho - Project Component 2 Primary and Secondary Education Component 2 - Primary and secondary “increase access and equity and enhance quality and efficiency” six sub-components 1. curriculum and assessment 2. teacher development 3. physical construction 4. school-level management 5. targeted equity-based program 6. capacity building in planning, monitoring and evaluation

22. 22 Lesotho - Project Component 3 Technical and Vocational Education and Training Component 3 - TVET “improve efficiency and cost-effectiveness of TVET system” Phase I –policy and institutional framework for demand-driven system –skills needs assessment Phase II - investments identified in phase I

23. 23 Lesotho - Project Component 4 Non-formal Education Component 4 - NFE “improve quality of life for Basotho who have missed out on formal schooling by equipping them with skills” Phase I - define policies and priorities Phase II - investments defined in Phase I

24. 24 Lesotho - Policy Simulation Model Scenario I - UPE By 2010: –all children enter school at age 6 and complete grade 7 (dropout from 7.5% to zero) –primary repetition rate halved (from 20% to 10%) –60% of primary graduates enter secondary (up from 54%) –secondary repetition rate halved (from 10% to 5%) –secondary dropout rate also halved

25. 25 Lesotho - Scenario I (continued) Also by 2010: –primary student-teacher ratio fall from 48:1 to 40:1 –secondary student-teacher ratio increase from 25:1 to 30:1 –teachers' salaries remain constant in real terms (incorporating step increases only) –unit costs of classroom construction, books and other inputs remain same in real terms –higher education expenditure assumed to grow by 2.5% annually in real terms Government expenditure to grow in line with GDP growth (3% per annum)

26. 26 Lesotho - Scenario I

27. 27 Lesotho - Scenario I

28. 28 Lesotho - Scenario I

29. 29 Lesotho - Scenario I

30. 30 Lesotho - Scenario I

31. 31 Lesotho - Scenario II UPE with reduced repetition Repetition rates fall more rapidly Otherwise same as Scenario I

32. 32 Lesotho - Scenario III Free primary education Government pay entire costs of textbooks, learning materials and school maintenance Estimated to be Maloti 210 per student Assumes 3-year life span for textbooks Otherwise same as Scenario II

33. 33 Lesotho - Comparison of 3 Scenarios

34. 34 Lesotho - Comparison of 3 Scenarios

35. 35 Lesotho - Comparison of 3 Scenarios

36. Lesotho - Policy Simulation Model Assessment

37. 37 Indonesia Sulawesi and Eastern Islands Basic Education Project “to mitigate the effect of the economic crisis by –maintaining enrollment rates and transition rates for the poor –preventing quality deterioration by ensuring schools can meet essential operating and maintenance costs, and –realizing efficiency gains

38. 38 Indonesia Sulawesi and Eastern Islands Basic Education Project “and to support recovery and return to medium-term education strategy of –improving quality of basic education, and –decentralizing educational planning, management and implementation to districts and below effective: 7/1/99 expected closing: 4/30/06

39. 39 Indonesia Sulawesi and Eastern Islands Basic Education Project project costs - $71 IBRD funding - $48 IDA funding - $16 four components 1. Crisis Relief - $30 2. Institutional Reform - $8 3. Quality Improvements - $27 4. Project Management - $6

40. 40 Indonesia - Project Component 1 Crisis Relief Component 1 - crisis relief Sulawesi (11%), Maluku (20%), Irian Jaya (22%), Timor Timur (32%) - poverty rates in parenthesis (national rate 11%) Scholarships to poor junior secondary school students and families Special assistance to primary and junior secondary schools serving poor communities

41. 41 Indonesia - Project Component 2 Institutional Reform Component 2 - institutional reform District plans for school rationalization and consolidation Capacity assessment of district staff in MOEC, MOHA, MORA and Bappeda with evaluation of training requirements and determination of staff relocation between agencies Monitoring and evaluation systems

42. 42 Indonesia - Project Component 3 Quality Improvements Component 3 - quality improvements District quality improvement plans Quality components from a positive list –school rehabilitation and maintenance –training of teachers and other staff –teaching and learning materials and equipment –incentives for teachers in rural, remote schools –matching grants for private schools At national level, establishment of Policy Reform Working Group on Teachers

43. 43 Indonesia - Historical Precedent structural adjustment of late 1980s - Education sector not protected budget declined by 12 percent in real terms between 85/86 and 89/90 education expenditure from 4.13% to 2.74% of GDP real expenditure on basic fell by 71% 85/86 level not regained until 96/97

44. 44 Indonesia- Fiscal Impact Analysis Projected growth of basic education budget

45. 45 Indonesia - Maluku

46. 46 Indonesia - Maluku

47. 47 Indonesia - Maluku

48. 48 Indonesia - Maluku

49. 49 Indonesia - Maluku

50. Indonesia - Fiscal Impact Analysis Assessment

51. Fiscal Impact Analysis Summary