Methodology for the introduction of budget norms and equalization norms in the education sector


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Methodology for the introduction of budget norms and equalization norms in the education sector

  1. 1. Methodology for theIntroduction of Budget Norms and Equalization Norms in the Education Sector Jean-Marc Lepain Intergovernmental Fiscal Advisor Manilay Thiphalansy Research Consultant
  2. 2. Part I.Defining the Budget Norm Policy Framework
  3. 3. Definition“A budget norm system is methodology for allocating budgetary funds based on expenditure needs in a fair and transparent manner with the objective of avoiding political bargaining and correcting horizontal imbalance. Budget norms are usually integrated in the design of grant transfer formulae.”
  4. 4. Objectives• correcting horizontal budgetary imbalance;• Ensuring that all provincial basic needs are covered;• Balancing operational cost and investment;• Ensuring maintenance of all infrastructures;• Ensuring a linkage between national and provincial budgeting and the national development strategy;• Ensuring budget predictability• Multi-year budget programming
  5. 5. PRESENT BUDGETING SYSTEM NEW BUDGETING SYSTEMPrinciples: Principles:• System based on revenue • System based on expenditure assignment needs• Allocations based on historical • Allocations based on objective trends criteria• One year budgeting • Multi-year budgetingConsequence: Consequence:• Horizontal imbalance • Equalization of expenditures• Lack of equity and transparency • Equity and transparency• Lack of predictability • Predictability• Insufficient funding for • Better funding for maintenance and maintenance and operation operation• Poor linkage with planning and • Better linkage with planning and national national strategy strategy• Lack of control of the Ministry • Better control of the Ministry over over provincial spending provincial spending
  6. 6. Horizontal ImbalanceDefinition: “Horizontal imbalance measures the disparity in revenue assignment between provinces based on their respective expenditure needs.”
  7. 7. Horizontal Imbalance in Laos Poverty Domestic Exp. Operating Exp. Capital Exp. Index /Population /Population /PopulationVientiane Capital 1,17 0,45 0,24 0,27Savannakhet 1,43 0,25 0,22 0,06Champasak 1,18 0,34 0,26 0,10Khammoune 1,34 0,32 0,31 0,07Luangphrabang 1,23 0,36 0,34 0,07Bolikhamxay 1,29 0,39 0,36 0,09Houphan 1,52 0,48 0,32 0,21Oudomxai 1,45 0,72 0,31 0,46Xayabury 1,25 0,49 0,31 0,23Xiengkhuang 1,42 0,48 0,42 0,12Vientiane Pro. 1,19 0,43 0,34 0,13Bokeo 1,21 0,53 0,38 0,25Phongsaly 1,51 0,40 0,34 0,15Luangnamtha 1,23 0,74 0,46 0,38Saravanh 1,54 0,28 0,23 0,09Attapeur 1,44 0,76 0,50 0,37Xekong 1,42 0,60 0,54 0,20
  8. 8. Two Types of Norms• Grant transfer norms• Budget formulation norms Maintenance Other goods and services Small investments
  9. 9. Sectors to be covered• Education• Health• Transport• Agriculture• General Administration (5 ministries)• Provincial Administration
  10. 10. Grant System+ Shared Revenue+ Equalization Grant+ Investment Grant+ Other conditional grants+ Ad hoc Grants to other organizations=--------------------------------------------------=Total transfer to provinces
  11. 11. Equalization Grant+ Provincial Fiscal Envelope- Targeted Local Revenue- Shared revenue-----------------------------------------= Equalization Grant
  12. 12. Fiscal Strategy• Fiscal envelope for Budget Norm: 5% of FY2007/08 (Fiscal Envelope for Education: 1,02% )• Implementation in three phases (Education and Health: Phase 1starting in FY2010/11)• Implementation Plan 6 years (Education Implementation Plan 4 years for recurrent expenditures and 3 years for investments)
  13. 13. Part IIMethodology
  14. 14. General Methodology• Policy framework and strategy• Calculation of the fiscal envelope available for budget norms• Budget Norm planning• Macro-fiscal modeling and consolidation• Budget norm implementation strategy• Transfer system design
  15. 15. Sectoral Budget Norm Calculation• Sector Profile and Policy Review• Expenditure Need Assessment• Macro-fiscal modeling• Consolidation and reporting• Validation
  16. 16. Sector Profile• Sector long term objectives in relation to MDG, NGPES and NSEDP• Program structure and objectives• Collection of relevant statistical data• Analysis of budget data• Indicators
  17. 17. Sector Policy Review• Review of performance• Analysis of budgetary and non budgetary issues• Analysis of budget alignment with objectives• Preparation of budget projection for the next three years• Recommendations
  18. 18. Expenditure Need Assessment• Analysis of cost drivers• Need assessment by economic categories• Balance between recurrent expenditures and Investment• Sizing of investments in relation to objectives• Identification of budget norm indicators
  19. 19. Macro-Fiscal Modeling• Analysis of budgetary trends• Development of sectoral fiscal model for the next three years• Testing of budget norm formula• Consolidation of all sectoral model in one macro-fiscal model
  20. 20. Implementation Strategy• Selection of indicative budget norms and budget norms for the intergovernmental transfer system.• Assessment of the number of years required to correct horizontal imbalance• Recommendation for multi-year implementation
  21. 21. Part IIIBudget Norm Selection
  22. 22. Education Budget NormsThe transfer should be based on:• number of children in age to go to school• Number of children registered• Literacy rate• Programmes• Cost factor (salaries including bonuses, training needs, etc.)• Maintenance needs and other non-wage expenditures
  23. 23. Equalization Norm• FY2007/08 Recurrent Budget = 85,000 kips per capita• FY2008/09 Recurrent Budget = 102,000 kips per capita• Minimum Investment Budget = 7% of Recurrent BudgetThe equalization norm based on minimum spending per capita must be replaced by a budget norm based on spending per children of different school programmes.
  24. 24. Structure of the Transfer FormulaA possible formula could be:• T = Transfer• Sp.I. = Spending Norm• N = Need Indicator• C = Cost Indicator T = (Sp.I. x N) + (Sp.I. x C)
  25. 25. Selection of a spending indicatorPossible spending indicator:• Spending per capital• Spending per child under age of 15• Spending per age class (1 to 5, 6 to 9, 9 to 15, etc.)• Spending per child by programme• Other indicators ?
  26. 26. Selection of Need Indicators• Literacy rate• Children Registered / Total Children Population• Girls registered/ Total number of children• Territory covered by school network• Number of teacher required (number of teachers/number of students)
  27. 27. Selection of Cost IndicatorsCost indicators should record variations in cost for similar services by province and by district.• Salary Indicators• Maintenance Cost• Management Cost
  28. 28. THANKS