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

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

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

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

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

Different Modeling Approaches Aggregate Fiscal Discipline 1.Sectoral Expenditure Envelope set by MOF (3-5 years); usually as part of MTEF 2.Within Sector: determine priorities, objectives, strategies (PER; sectoral analysis) 3.Cost Strategies 4.Is it consistent with resource availability? 5.Iterations – alternative strategies; suggest savings Simulation Model 1.Set Sectoral Objectives and Strategies (PER/sectoral analysis/sectoral plan) 2.Estimate costs 3.Check macro/budget implications 4.Estimate domestic resource gap – compare with external financing 5.Iterations – come up with realistic resource gap

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…)

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

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

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?

Macro Assumptions  Economic growth  Determines public receipts, public expenditures  Demographic growth  Determines growth of child population entering primary school  Usually invariant across scenarios

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

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

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?

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

DRC- Common Assumptions of Scenarios

DRC- Cost Saving Measures of Scenarios 3 and 4

DRC- Impact on Education Indicators

DRC- Expenditure Requirements (FC and 2001US $ )

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

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)

Benin – Issues  Primary GER – 97 % but high disparities between regions, gender and social groups  Quality very low – less than 10 percent of 3 rd 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)

Large Differences in Salaries of Primary Teachers Salary per teacher in $ (% of per cap GDP) % of total teachers Primary teachers1 860 (4.9)100 Permanent (7.9)56.1 Contractual 750 (2.0)19.9 Community 300 (0.8)23.9 Francophone Africa (6.3) Anglophone Africa (3.6)

Distribution of schools by pupil- teacher ratio in grade 1

Objectives for Primary Education GoalTargetImpact Primary completion 100 % (1.76 millions pupils by 2015) Classrooms/ teachers QualityPupil-teacher ratio : 40 Teachers Internal efficiency Repetition rate : 10 Reduces rooms/teachers

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

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)

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)

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?