Modeling Fiscal Implications of Education Policies

1. Part 2 Modeling Fiscal Implications of Education Policies Sajitha Bashir May 3, 2006

2. Structure of the Presentation • Why model fiscal implications of education policy? • Structure of models • Choice of Scenarios • Examples – DRC and Benin • Limitations

3. What will NOT be covered… • How to build a model • Building a model is a technical exercise; takes time and care. But it is a tool which can be done by a technician • For the PER author, what is important is to understand how to use this tool

4. Why Undertake Fiscal Modeling? • PER analysis should reveal areas where public resources are • not aligned with government objectives; • not used efficiently; • do not promote equity • Government Education Plan sets out objectives and strategies - usually without costs

5. Usefulness of Fiscal Modeling in PER • Identifies fiscal impact of measures to improve efficiency • Can assess sustainability/feasibility of proposed plan Has impact on policy discussions, especially with Ministry of Finance

6. Different Modeling Approaches • Aggregate Fiscal Discipline • Sectoral Expenditure Envelope set by MOF (3-5 years); usually as part of MTEF • Within Sector: determine priorities, objectives, strategies (PER; sectoral analysis) • Cost Strategies • Is it consistent with resource availability? • Iterations – alternative strategies; suggest savings • Simulation Model • Set Sectoral Objectives and Strategies (PER/sectoral analysis/sectoral plan) • Estimate costs • Check macro/budget implications • Estimate domestic resource gap – compare with external financing • Iterations – come up with realistic resource gap

7. Simulation Model Purpose • Evaluate tradeoffs required to arrive at fiscally sustainable and technically sound educational strategy consistent with government objectives for coverage, quality, equity Method • Develop different scenarios with varying assumptions Results • Evolution of expenditures by type • Evolution of education system (pupil numbers, staff, schools, classes…)

8. Structure of Model • Spreadsheet – all quantifiable variables of education system are linked to each other • Five categories of elements • Base year data • Objectives • Assumptions about macro environment • Policy parameters • Results

9. Simple or Complex Models? • Model whole education sector? • Usually desirable to see sub-sectoral trade-offs • Level of complexity should be determined by purpose of exercise and results of sectoral analysis • If focus is on primary, more detailed strategies at primary level

10. Limit Number of Scenarios • Macro Assumptions x Objectives x Policy Parameters = potentially scores of scenarios • Choose 3 –5 scenarios! • Judgment is required – base selections on PER/sectoral analysis • What are the critical decisions confronting the government?

11. Macro Assumptions • Economic growth • Determines public receipts, public expenditures • Demographic growth • Determines growth of child population entering primary school • Usually invariant across scenarios

12. Sector Objectives • Pre-primary • Population coverage • Primary • Entry and completion rates (usually 100%) • Secondary and higher • Transition rates Years by which objectives are to be achieved can also vary

13. Key Policy Parameters (1) • Internal efficiency • Repetition and drop out rates • Service delivery targets (access/quality) • School availability (proximity to habitation) and size • Teacher pay (by category of teacher) • Pupil-teacher ratio • Ratio of teachers to non-teaching staff • Use of multigrade teaching • Spending on non-salary items • Year for attainment of target is also variable

14. Key Policy Parameters (2) • Construction • Type of construction (community?) • Financing • % of enrolment in private sector (residual determines maximum for public financing) • Set public financing as ratio of domestic resources • Household financing in public sector (by category of expenditure and sub-sector) – reasonable in relation to household income? • External financing (by category of expenditure and sub-sector) - realistic?

15. Illustration – Democratic Republic of Congo • Challenges: limited public resources; high dependence on private financing; low coverage even at primary level but rapid growth at other levels; inefficiency in public spending • Policy issues: expansion of post primary levels; abolition of fees; raising teacher salaries • EFA plan sets ambitious objectives and strategies which are not costed

16. DRC- Common Assumptions of Scenarios

18. DRC- Cost Saving Measures of Scenarios 3 and 4

19. DRC- Impact on Education Indicators

20. DRC- Expenditure Requirements (FC and 2001US $ )

21. DRC - Preliminary Conclusions • Universal pre-school is not feasible • Staffing rationalization/use of multigrade teaching yields considerable savings • Reducing transition rates in post primary education is still required Scenario 4 is most acceptable: • Examine relative unit costs and composition of expenditures to further assess suitability

22. Other trade-offs are possible… • Eliminate school feeding - expensive even when targeted to 30 % of pupils • What is its objective ? (increase attendance? improve student attentiveness?) Are resources better used elsewhere – e.g., to raise teachers’ salaries? • Raise pupil-teacher ratio • Stagger construction • Raise private financing share in higher education (but equity trade-off)

23. Benin – Issues • Primary GER – 97 % but high disparities between regions, gender and social groups • Quality very low – less than 10 percent of 3rd graders could read with comprehension • Primary completion rate – 46 % • Repetition rate – 36 % in final primary grade • Less than 2 % of domestic education budget on books and teacher training • Very rapid growth in higher education (mainly private, but also public)

24. Large Differences in Salaries of Primary Teachers

25. Distribution of schools by pupil-teacher ratio in grade 1

26. Objectives for Primary Education

27. Expenditure requirements – policy trade-offs • Number of teachers will need to double • If only permanent teachers at current salary levels: expenditure needs will multiply by 4 • Using contractual/community teachers: expenditures will multiply by 3 • A new statute for teachers? • Post primary transition rate will also need to be reduced

28. Major Reforms to Improve Quality – Difficult to Model • Example: Benin – French as language of instruction from class 1 may be impeding quality • Alternatives are: • use local language (18 in Benin) • use small groups in classes 1 and 2 (teaching aides?) • Use radio instruction to reinforce learning • How do you model costs? • Use some key cost drivers (eg additional teachers; teacher support; additional materials)

29. To Improve Efficiency of Public Spending – Link with Budgetary Processes • Usually modeling serves analytical purpose – illustrates possible choices • Whether it is used in practice to guide policy choices depends on institutional framework • Often difficult to link with budget preparation • Policy parameters with greatest fiscal impact often the most difficult to change (e.g., teacher pay policy, ratios of teachers to administrative staff)

30. Address Public Expenditure Management and Institutional Framework • Who undertakes modeling in the sector? • Are results evaluated by key policy makers? • Are scenarios used in budget preparation? – eg is discussion within MTEF framework based on these trade-offs? • Is the model updated regularly? • Is there willingness to undertake this work within the government? • If so, what are capacity building requirements?