Economics of Education II: Intermediate Economic Analysis of Education Sector Projects

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Economics of Education II Intermediate Economic
Analysis of Education Sector Projects

• Fiscal Impact Analysis
• Peter Moock

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Economic Analysis of Projects

• effectiveness analysis
• cost-effectiveness analysis
• cost-benefit analysis
• discounting
• net present value
• rate of return analysis

costs
benefits
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Internal Rate of Return

• discount rate that equates project costs and
  benefits
• compare alternative projects
• profitable investment, yes, but affordable?

costs
benefits
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Social Rate of Return
Capital market imperfections
External costs
External benefits
Private rate of return
Rationale for public sector involvement
Social rate of return
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Financial Analysis
Fiscal impact analysis
What is the scope/justification for increased
cost recovery?
How affordable are the public and private costs?
Is the project financially sustainable?
What are longer-term recurrent-cost implications
of project?
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Decentralized Financial Analysis
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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?
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Fiscal AnalysisExamples

• 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

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VietnamEducation Financing Sector Study (VEFSS)

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

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VietnamEducation 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

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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
• Educations share of recurrent budget constant
  at 13.3 (conservative)

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VEFSS
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VEFSSExpenditure 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

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VEFSS
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VEFSS - study recommendations

• Quality enhancement
• monitor learning
• increase instructional hours
• teacher upgrading and regular in-service trng
• increase govt spending on textbooks and learning
  materials

• Target subsidies to basic and to poor
• Cost recovery in tertiary
• Go slow with vocational
• Reduce dropout and repetition

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VEFSS
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VEFSS
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LesothoSecond 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

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LesothoSecond 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

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Lesotho - Project Component 1Early 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

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Lesotho - Project Component 2Primary 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

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Lesotho - Project Component 3Technical 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

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Lesotho - Project Component 4Non-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

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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

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Lesotho - Scenario I (continued)

• Also by 2010
• primary student-teacher ratio fall from 481 to
  401
• secondary student-teacher ratio increase from
  251 to 301
• 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)

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Lesotho - Scenario I
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Lesotho - Scenario I
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Lesotho - Scenario I
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Lesotho - Scenario I
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Lesotho - Scenario I
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Lesotho - Scenario IIUPE with reduced repetition

• Repetition rates fall more rapidly
• Otherwise same as Scenario I

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Lesotho - Scenario IIIFree 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

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Lesotho - Comparison of 3 Scenarios
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Lesotho - Comparison of 3 Scenarios
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Lesotho - Comparison of 3 Scenarios
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Lesotho - Policy Simulation Model Assessment
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IndonesiaSulawesi 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

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IndonesiaSulawesi 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

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IndonesiaSulawesi 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

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Indonesia - Project Component 1Crisis 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

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Indonesia - Project Component 2Institutional
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

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Indonesia - Project Component 3Quality
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

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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

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Indonesia- Fiscal Impact Analysis
Projected growth of basic education budget
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Indonesia - Maluku
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Indonesia - Maluku
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Indonesia - Maluku
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Indonesia - Maluku
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Indonesia - Maluku
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Indonesia - Fiscal Impact Analysis Assessment
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Fiscal Impact Analysis Summary