Macro fiscal model for the costing of education sector budget norms (laos 2009)
COSTING OF BUDGET NORMS FOR THE EDUCATION SECTOR BASED ON THE EDUCATION SECTOR DEVELOPMENT FRAMEWORK AND MOF’s NEW SECTORAL MACRO-FISCAL MODELJean-Marc Lepain, Intergovernmental Fiscal AdvisorSeptember 30th 2009This survey is based on the official ESDF (Education Sector Development Framework) Modelapproved by the Prime Minister. Recently MoE has produced a new version but the changes areunlikely to affect the costing in a significantly manner as most changes occurs in year 2013 and after.Based on the ESDF Model, the consultant has developed a macro-fiscal model of 2008/09 budget fortesting various sector financing scenarios and the possible impact of the introduction of new budgetnorms. A. Impact on 2008/09 budget modelThis model is based on the following assumption taken from the ESDF model for the year 2010/11: Allocation for pre-schools: 310,000 kips per student Allocation for secondary schools: 49,000 kips per student Allocation for lower and upper secondary schools: 122,000 kips per student We have added an administration allocation for financing non-wage recurring expenditures of the provincial education administration (10% of other non-wage expenditures). This could be recalculated latter based on staff numbers. The model does not take into consideration Non Formal Education, Technical and Vocational Schools, and Teacher Training. More research and discussion with MoE are necessary to decided how should integrate those programmes into budget norms, if necessary. The children feeding programme being financed by donors is considered part of the investment budget.(Note that the ESDF model gives different rates for lower secondary [122.000 kips per student] andupper secondary [24.400 kips per student] but we did not have the enrolment numbers by province.For that reason we applied the same rate to lower and upper secondary. We have considered thatthe impact would be limited, except for Vientiane Capital and Vientiane Province)Based on this assumption the model shows the following results:
The proportion of non-wage expenditures in the recurrent budget will rise from 13.3% to 23%, still a low ratio by international standards for low and medium revenue countries. However the figure of 13.3% for Non-Wage/Recurrent covers important disparities across provinces with non-wage expenditures ranging from 45% in Saravanh to 2% in Vientiane Province. The total additional cost will be 70,153 millions kips, or 8.3 millions dollars, representing an increase of 6.5% of the education budget with non-wage expenditure reaching 144,742 millions kips. Under this system, three provinces (Vientiane Capital, Bolikamsay, and Saravanh) receive less than their previous allocations. They could be compensated by an ad hoc grants or another mechanism that needs to be discussed with MoE. B. Impact on subsequent budgetsTo calculate the cost of budget norms in 2010/11, we need to calculate the increase in the numberof students. Unfortunately the ESDF Model does not give data by province. At this stage the can giveonly an approximate cost based on simple assumptions: The model does not take into consideration inflation. Population is supposed to grow uniformly at the rate of 2.4% a year in each province. The national growth rate of each education programme is applied uniformly to each province. The growth rate in pre-school enrolment is 30% in 2009/10 and 25% in 2010/11 Growth rate for primary education is 2.8% in 2009/10 and 1% the following year. This is a growth rate that is lower than the population rate and that seems really low compare to the number of children without access to school.The new model shows that in FY2009/10, non-wage expenditures will grow from 144,742 M kips to152,874 M kips, or 18 M USD, representing an increase of 5.6%, without affecting significantly theratio wage/non-wage.In FY2010/11, non-wage expenditure rise to 169,950 M kips or 20 M USD, representing an increaseof 11%However it should be noted that considering the lack of financial resources in FY2008/09 andFY2010/11, the ESDF implementation is lagging behind and such high figures are unlikely tomaterialize quickly. The present model is also based on a number of oversimplifications that mightincrease the cost assessment.
C. Conclusion and Recommendations1) Conclusion The level of expenditure per student appears reasonable except for pre-school. The impact of budget norms on 2008/09 budget appears also reasonable with non-wage expenditures representing 23% The growth rate in enrolment seems to have been overestimated for pre-school but appear very low for secondary schools. It will require some clarification from MoE. At this stage we cannot conclude on the feasibility of the introduction of budget norms on the base of ESDF Model. Better and more realistic numbers are necessary as well as a realistic assessment of the fiscal envelop that could be made available of the year of implementation. MoF can also consider different implementation strategies that will dilute the impact other two or three years. The model does not take into account poverty and other cost factors.2) Recommendations MoE should define the scope of budget norms by giving the list of programmes to be included. MoF should ask MoE to present a more realistic three year implementation plan starting in FY2010/11 based on a revision of the ESDF Model that will include: Reconsideration of the priority given to pre-school A more realistic scenario for enrolment growth in all programmes Enrolment projections disaggregated by province The Fiscal Policy Department should prepare a matching three year fiscal envelope expressed either in percentage of GDP or in percentage of the General Budget. The Fiscal Policy Department should decide how Nam Theun 2 revenue earmarked for the education sector will apportioned to wages, non-wage and investment. As user fees play an important role in the ESDF model, a policy paper should be prepare to set rules for budgeting, accounting and reporting of user fees.