EDUCATION AND PUBLIC SECTOR MTEF IN LAO PDR:

PROGRESS ACHIEVED, LIMITATIONS AND PROSPECTS

Claude Tibi

May 2006


ABBREVIATIONS

ADB: Asian Development Bank

AusAid: Australian Agency for International Development

BEDP: Basic Education Development Program

CPI: Committee for Planning and Investment

DEB: District Education Bureau

DOF: Department of Finance

DOP: Department of Personnel

DPC: Department of Planning and Cooperation

DTT: Department of Teacher Training

EDWG: Education Donors Working Group

EFA: Education for All

EFAMOD: Education for All Simulation Model

EFA NPA: Education for All National Plan of Action

EMIS: Education Management Information System

ESDP: Education Sector Development Plan

FMIS: Financial Management Information System

GAR: Gross Admission Rate

GDP: Gross Domestic Product

GER: Gross Enrollment Rate

GOL: Government of Lao

LECS3: Lao Expenditure and Consumption Survey 3

LFC: Logical Framework and COSTAB Methodology

MOE: Ministry of Education

MOF: Ministry of Finance

MTEF: Medium-Term Expenditure Framework

NER: Net Enrollment Rate

NGO: Non-Government Organization

NGPES: National Growth and Poverty Eradication Strategy

NPEP: National Poverty Eradication Program

NUOL: National University of Lao

O&M: Operation and Maintenance

PB: Program Budget

PES: Provincial Education Service

PETS: Public Expenditure Tracking Study

PIP: Public Investment Program

PMIS: Personnel Management Information System

PPBS: Planning, Programming, Budgeting System

PPRE: Per Pupil Recurrent Expenditure

PRSC: Poverty Reduction Strategy Credit

RCB: Rationalisation des Choix Budgétaires

SIDA: Swedish International Development Agency

SM: Simulation Model

SWAp: Sector Wide Approach

TA: Technical Assistance

TT: Teacher Training

TTC: Teacher Training College

TTEST: Teacher Training Enhancement

TVET: Technical and Vocational Education and Training

UNESCO: United Nations Educational, Scientific and Cultural Organization

UNICEF: United Nations Children’s Fund

WB: World Bank


1. INTRODUCTION

MTEF are used in one form or another in a number of countries and are an avatar of the ‘Planning, Programming, Budgeting System’ (PPBS) and ‘Rationalisation des Choix Budgétaires’ (RCB: ‘Rationalizing Budgetary Decisions’) approaches initiated at the end of the 60s especially in the USA-UK and France. Later approaches included the ‘Zero-based Budget’ meant to overcome the ‘Committed Expenditure’ trap, which assumed that resources corresponding to on-going activities should be maintained and budget choices (new activities) limited to the difference between the sector ceiling and committed expenditure.

In the education sector, PPBS and RCB were meant to:

§ Align financial planning with substantive planning;

§ Account for the fact that education reform-change must be conducted in the long term and be sustained, while budgeting is annual. Since limited progress can be achieved each year, education budgets must keep a long term perspective;

§ Incorporate all sector activities into a logical framework.

In order to achieve those goals, four different and complementary tools have been designed. They are:

§ The project logical framework and COSTAB methodology (LFC);

§ The program budget (PB);

§ The MTEF; and

§ The long-term simulation (or projection) models (SM).

Each tool has a different finality, scope and time horizon, but all are attempting to incorporate interventions and activities into a logical framework and align resources with objectives and targets. To a large extent, program budgets, MTEF and SM have borrowed from the LFC approach, which is synthesized in Table 1, below.

Table 1: Logical Framework Approach

Objective / Intervention Rationale / Objectively verifiable Indicators / Sources / Hypotheses
Goal
Project purpose
Results
Activities / Means / Costs

Pre-requisites

2. ALIGNING FINANCIAL PLANNING WITH SUBSTANTIVE PLANNING: PROGRESS ACHIEVED IN LAO PDR

A number of education finance studies have been carried out in Lao PDR over the past 6/7 years. They include:

§ ‘Assessment of Some Basic Education Policy Issues in Lao PDR from a Cost and Financial Analysis’, Lao PDR, 1998;

§ ‘Education Financing in Lao PDR’, The World Bank and SIDA, 2001;

§ ‘Lao PDR Public Expenditure Review: Country Financial Accountability Assessment’, Joint Report of World Bank, International Monetary Fund and Asian Development Bank, 2002;

§ ‘Issues in Education Finance in Lao PDR’, TTEST/SIDA and DOF/MOE, 2004;

§ ‘Preliminary Report on Rapid Assessment Fieldwork: Public Expenditure Tracking Survey, Lao PDR, Education Sector’, The World Bank, 2005;

§ ‘Study on Public Expenditure Policy in Primary Education and Primary Health in Lao PDR, Contribution to the Preparation of a Public Expenditure Tracking Survey’, BCEOM, 2005

§ ‘Public Expenditure Management: Chapter 3, Education Sector’, The World Bank, 2006.

A comprehensive and stimulating feasibility study of a Sector Wide Approach (SWAp) in education in Lao PDR was also carried out in 2005 by Christopher Shaw, SIDA consultant[1].

Attempts to build a public sector and line ministries MTEF in Lao PDR are linked with the design and operationalization of the poverty reduction strategy. This strategy, initially named ‘National Poverty Eradication Program’ (NPEP) and later re-baptized ‘National Growth and Poverty Eradication Strategy’ (NGPES), is based on an approach to poverty under which districts[2] are categorized by poverty level[3]. The MTEF was meant to assess the resources needed to implement NPEP in the four sectors targeted by the strategy (agriculture, education, health and infrastructure) and protect them, based on macroeconomic and fiscal projections done by MOF and CPI.

The first draft MTEF was designed in 2001 in cooperation with the authors of NPEP. This MTEF was however focusing mostly on investments and limited by the lack of reliable and relevant information on domestic and externally funded investments.

Mid-2004, the Government-NGPES working group decided to align the NGPES sector programs with the budget process and the National Socio-Economic Development Plan Process. A second MTEF was produced in 2004 to cost the implementation of NGPES for the duration of the next development plan (2006-2010) in the 47 poorest districts. In the meantime, though, MOE with assistance from UNESCO had produced and costed the ‘Education for All’ National Plan of Action (2003-2015), which had been endorsed by the Cabinet, under the chair of the Prime Minister. EFA NPA was based on a SM[4] encompassing the overall education sector, and integrated into macroeconomic and fiscal projections as well as population projections[5]. Since NGPES goals and objectives in the education sector were mostly the same as EFA[6], while being limited to the 47 poorest districts, the staff in charge of NGPES costing were faced with two critical decisions:

§ Should MTEF use EFAMOD to assess resources needed for NGPES or should the team design a new, specific set of projections?

§ Could MTEF ignore intermediary targets set for EFA in 2010 and how to relate NGPES targets in the 47 poorest districts to those EFA targets, which were nation-wide?

§

It was decided to design new projections[7], based on NGPES targets (see Appendix I) which not only were not consistent with EFA targets, but also referred partly to targets set by the MOE ‘Strategic Vision until 2020’ which were using general indicators, not adapted to short-medium term specific sub-sector projections. Carrying out projections based on the EFA program structure in a territorial sub-set of the country, while ignoring national EFA strategy and targets looked rather surprising. On the other hand, NGPES costing had to be integrated into an overall education sector costing, which used what was called ‘adapted’ EFA projections. The main limitation of NGPES costing and planning, though, was that districts are not decision-making units when it comes to planning and budgeting. Under the decentralization decree, provinces are responsible for designing and implementing plans, while districts only build annual action plans based on the provincial plan and under the PES responsibility. While it was meaningful to approach poverty from a territorial point of view and categorize the smallest administrative units (villages and districts) according to poverty level, this was not very useful when it came to operationalize the poverty reduction strategy. In addition, since district poverty criteria included access to road, urban poverty was ignored, while there are significant pockets of urban poverty in the country.

The last costing exercise (2005-2006) is linked to the ‘Poverty Reduction Strategy Credit’ (PRSC) aiming at supporting the implementation of NGPES and approved by the World Bank in the first half of 2005. The PRSC policy matrix included the condition that the costing and prioritization of education programs would be integrated into the public sector MTEF. This MTEF was supervised by the World Bank and carried out in cooperation with MOF. The purpose was now no longer to cost NGPES in the 47 poorest districts, rather to cost the sector plans (2006-2010) for agriculture, education, health and infrastructure and integrate those cost projections into MOF-WB macroeconomic and fiscal projections. While sector plans have been approved, and costing finalized (see Appendix III for a sample of tables produced for the education sector and primary education), negotiations are still going on regarding the financial ceilings for the recurrent and investment budgets of each sector.

In addition to those assessments, an ADB TA has been recently fielded to design a MTEF for the public sector and the four NGPES line ministries.

Finally, the ‘Basic Education Development Program’ (BEDP), prepared by UNESCO Bangkok under a TA contract with ADB, suggests a follow-up to the work already undertaken in the education MTEF area, especially by the World Bank and SIDA (see below: suggestions for the future).

3. BUILDING A MTEF: ISSUES IN LAO PDR

The design of an actual MTEF in Lao PDR faces different difficulties, which must be addressed by MOE and GOL in the years to come:

§ Information limitations;

§ Methodological problems;

§ Limitations deriving from administrative culture and processes;

§ Policy issues; and

§ Aid agencies’ interventions.

Before developing those points, let us first remind that MTEF is a medium-term (2 to 3 years) rolling prospective budget based on sector projections. One critical issue is therefore how to integrate projections with the budget format and process. Historically, this has been done in two different ways:

§ In industrialized and some developing countries, designers started from the budget format, eventually re-formatted with a program categorization[8], and incorporated sector projections and targets into the budget as best as possible;

§ In a number of developing countries, the opposite approach was used. Designers started from existing medium-long term simulation models and adapted them to the country’s budget format as best as possible.

In the education sector, simulation models are deterministic, not econometric, and based on students’ flows. Their rationale is synthesized in Box 1:

BOX 1: SM RATIONALE

Admission ----- Progress ----- Graduation ----- Admission into the next level ----- etc

Enrollments by level

Real resources requested (classrooms, teachers and non-teaching staff, textbooks and teachers’ guides, furniture, equipment…), assessed on the basis of quantitative expansion, quality improvement and strengthened management

Funds requested from different government levels, households, aid agencies, NGOs (based on costed real resources)

Funds available (based on macroeconomic-fiscal projections and assumptions about external aid flows)

Financial gap

Revision

In order to align sector projections with the budget format, the program structure of the SM must be aligned with that of the budget, which raises different difficulties at sub-program level interventions such as improving the quality of primary education, since budget program subdivisions are rarely functional. Similar problems are encountered with cross-cutting programs, which correspond neither to the budget nor the SM format.

3.1 Information

Lao PDR education budget[9] is formatted by implementing unit, which are: MOE; TTCs; NUOL; Technical and Vocational Colleges; and Provinces. Although administration of preschool, primary and secondary education lies with district education bureaus (DEB) and provincial education services (PES), PES budgets[10] are not formatted by level of education and expenditure. In addition, the recurrent budget includes only 3 main categories of expenditure: (i) salaries and indemnities; (ii) operating expenses; and (iii) subsidies. The investment budget is only subdivided into internal and external budget.

Based on surveys carried out in provinces, TTEST has been able to produce provincial recurrent budgets broken down by level of education and expenditure for year 2001, but this work was not pursued at provincial level. The situation is worse regarding the investment budget, where there is a near total lack of disaggregated information, for either domestic or externally funded investments. Designing a MTEF with such budget data is nearly impossible, since no sensible relation can be established between the budget and the expansion and qualitative improvement of each level of education (see next paragraph).

Recurrent budget projections are based on budget analysis and assessment of per pupil recurrent expenditure[11] (PPRE) by level-type of education. Since salaries represent around 80% of the recurrent budget, PPRE projections are highly dependent on the accuracy of the two key variables determining PPRE on salaries, which are: average staff salary and pupil-teacher ratio (or equivalent, such as teacher per class and class size). There are however uncertainties on the actual value of both variables. The number of quota staff[12] provided by provinces may tend to be overestimated since it is a basis for negotiating the future number of quota staff. Staff numbers available at DOP and DTT are not identical and they also differ from MOF data. In addition, while all provinces and districts have data on contract teachers, no such data are available at MOE.

Student admissions and enrollments generated by MOE EMIS through the annual school census are most probably over-evaluated. Over the past 15 years, Gross Admission Rate (GAR) has been consistently higher than 100%, with the justification that admissions include over-age children. It may however be easily demonstrated that such values can be observed only for limited time periods, because of compensation of admissions along time[13][14]. Similarly, the Net Enrollment Rate (NER) in primary education computed from LECS3[15] data (71.5%) is 5 points lower than the NER computed from MOE data[16]. Biased data on admissions and enrollments make enrollment projections not only unreliable but also uneasy to justify with MOE, since using such data for reaching a 100% admission target means a reduction in the official GAR, which will be considered as a step backward by MOE officials who are used to systematic annual increases in numbers and rates. Objectively verifiable indicators are not synonymous of reliable indicators.

One critical pre-requisite to the design of a MTEF is therefore the improvement and sustainability of MOE EMIS, which implies:

§ Improving the reliability of data from the annual school census (enrollments, teachers, classes, etc.);