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 Discipline1. 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 Model1. 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 elementsBase year dataObjectivesAssumptions about macro environmentPolicy parametersResults

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 analysisIf 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 analysisWhat are the critical decisions confronting the

government?

Macro Assumptions

Economic growthDetermines public receipts, public expenditures

Demographic growthDetermines growth of child population entering

primary school

Usually invariant across scenarios

Sector Objectives

Pre-primaryPopulation coverage

PrimaryEntry and completion rates (usually 100%)

Secondary and higherTransition rates

Years by which objectives are to be achieved can also vary

Key Policy Parameters (1)

Internal efficiencyRepetition and drop out rates

Service delivery targets (access/quality)School availability (proximity to habitation) and sizeTeacher pay (by category of teacher)Pupil-teacher ratio Ratio of teachers to non-teaching staff Use of multigrade teachingSpending on non-salary items

Year for attainment of target is also variable

Key Policy Parameters (2)

ConstructionType of construction (community?)

Financing% of enrolment in private sector (residual determines

maximum for public financing)Set public financing as ratio of domestic resourcesHousehold 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

2004 2015 – all scenarios Population growth 6 yrs – 2%

6-11 yrs – 2% 12-17 yrs – 2% population – 1.5%

Macro economic framework GDP growth rate 6% 7% (from 2005) Public expenditure/GDP ratio 20% 22% (from 2006) Public receipts/GDP ratio 9% 14% (from 2015) Percentage enrolled in private institutions Pre-primary 98% 10% in scenario 1

98% in all other scenarios Primary 10% 10% Secondary 11% 20% Higher 19% 25%

Scenario Policy Variables Description Scenario 1

Expanded Access and High Quality at all levels

Universal completion of primary education by 2015 universal access to pre-primary education by 2015 continuation of the existing high transition rates between

primary and secondary, and secondary and higher education. . provision of canteens in all primary schools and food aid to 30

% of students substantial quality improvement at all levels is envisaged

through high investment and recurrent expenditures, rehabilitation of infrastructure, elimination of double shifting

maximum class size norms are enforced, in order to reduce overcrowding in classes that exceed the maximum norm

Scenario 2

Limited Access to Pre-school

access to pre-primary education is limited to current level (14 percent of class 1 entrants, according to MICS 2001)

all other parameters same as Scenario 1 Scenario 3

Multigrade teaching and rationalisation of staffing norms

multigrade teaching in primary revision of staffing norms and reducing disparities between

Kinshasa and other provinces all other assumptions same as in Scenario 2

Scenario 4

Enrolment management at post-primary levels

transition rate between lower secondary (tronc commun) and higher secondary is reduced

transition rate between higher secondary and higher education is reduced

all other assumptions same as in Scenario 3 Note: All scenarios assume universal admission to class 1 by 2007 and universal completion of primary education by 2015.

DRC- Cost Saving Measures of Scenarios 3 and 4

2004 Scenario 1 Scenario 2 Scenario 3 Scenario 4 Primary Average class size 35 36.2 36.2 36.5 36.5 Pupil-teacher ratio 34 35.3 35.3 34.8 34.8 Multigrade in small schools No No No Yes Yes Maximum size of multigrade classes

N.A. N.A N.A 35 35

Rate of substitute teachers a 2.2% 2.4% 2.4% 5.0% 5.0% Ratio Classes/(Directeurs and Directeurs-adjoints without teaching charge)

8.3 13 13 29 29

Ratio Classes/(Workers and guards)

65 148 148 35 35

Secondary Average class size 26 36.7 36.7 39.6 39.9 Pupil-teacher ratio 16 22.1 22.1 23.8 24.5 Teacher/non-teacher ratio 5.2 6.5 6.5 4.8 4.0 Higher Pupil-teacher ratio 20 20 20 20 20 Teacher/non-teacher ratio 0.7 0.7 0.7 1.0 1.0 Note : a The rate is equivalent to the ratio of substitute teachers to teachers teaching in class. Substitute teachers comprise extra teachers (surnuméraire) and the replacement teachers for women teachers on maternity leave (instituteurs de relève)

DRC- Impact on Education Indicators 2015 (unless otherwise indicated) 2001-02 or

status quo Scenarios 1-3 Scenario 4

Coverage Indicators Primary GER 64% 106% 106% Primary NER 42% 90% 90% Secondary GER 23% 44% 33% Higher education students/100000 population

358 834 226

Size of education system Number of students

Primary 5 464 261 13 330 800 13 330 800 Secondary 1 615 443 4 619 108 3 478 275 Higher 197 285 599 755 162 110

Number of teachers Primary 145 225 339 391 (344 863) 344 863 Secondary 94 618 168 198 (155 844) 113 742 Higher 7 899 22 521 6 078 Number of graduates leaving the education system in millions (2009-2022) Primary 1.73 4.18 5.11 Lower secondary 2.44 1.13 6.40 Higher secondary 1.05 3.40 2.82 Undergraduates 0.09 0.14 0.29 Post graduates 0.20 1.02 0.20 Satisfaction of labor market needs (2009-2022) Lower secondary 932% 105% 432% Higher secondary 179% 382% 391% Undergraduates 204% 214% 371% Post graduates 729% 2295% 403%

DRC- Expenditure Requirements (FC and 2001US $ )

Cumulative Expenditures on Education 2005-2014 Education Expenditure in 2015 Total (all

sources, public + private)

In public sector institutions

Investment in public sector

institutions

External Aid

Total Exp

Public Expenditure (including external

aid)

Domestic public

expenditure

Scenarios

FC (bill)

US$ (bill)

F C (bill)

US $ (bill)

% of public sector exp.

US $ (bill)

% of GDP

% of total education

expenditure

% of state budget

Scen. 1 4 793 13.0 4 287 11.5 38% 4.9 17.5% 73% 35 % Scen. 2 3 760 10.2 3 188 8.6 30% 3.1 14.9% 71% 28 % Scen. 3 3 670 9.9 3 097 8.4 31% 3.1 14.5% 70% 26 % Scen. 4 3 126 8.5 2 626 7.1 31% 2.7 11.2% 70% 19 %

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 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)

Large Differences in Salaries of Primary Teachers

Salary per teacher in $ (% of per cap GDP)

% of total teachers

Primary teachers 1 860 (4.9) 100

Permanent 3 011 (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

Class size

18

5

16

5

14

5

12

5

10

5

85

65

45

255

Distribution of Class Size in Grade 1, 2002-03N

um

ber

of

sch

oo

ls

1000

800

600

400

200

0

Objectives for Primary Education

Goal Target Impact

Primary completion

100 % (1.76 millions pupils by 2015)

Classrooms/ teachers

Quality Pupil-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?