Public Expenditure On Education in Lao PDR: A Turbulent Decade of Transition (1990 - 2000)

Education Financing in Lao PDR
Patterns of Expenditure
A TURBULENT DECADE OF TRANSITION (1990 2000)
R. Noonan June 15, 2001
Sida / World Bank
Sida / World Bank
TABLE OF CONTENTS
TABLE OF CONTENTS ....................................................................................................................................... i APPENDIX A: STRUCTURE OF THE EDUCATION SYSTEM ................................................................... i LIST OF TABLES ................................................................................................................................................. i LIST OF FIGURES .............................................................................................................................................. ii ABBREVIATIONS .............................................................................................................................................. iii EXECUTIVE SUMMARY .................................................................................................................................. vi CHAPTER 1: ECONOMY AND EDUCATION IN LAO PDR....................................................................... 1 A. B. C. D. Introduction .............................................................................................................................................. 1 Economic Development Drama ................................................................................................................ 2 Social Effects of the Asian Economic Crisis ............................................................................................ 4 Education Sector Development................................................................................................................. 5
CHAPTER 2: PATTERNS OF EDUCATION SPENDING ............................................................................. 9 A. B. C. D. Sources of Education Financing ............................................................................................................... 9 The Recurrent and Investment Budgets ...................................................................................................12 Composition of Recurrent Expenditure ...................................................................................................23 Expenditure by Level of Education .........................................................................................................24
CHAPTER 3: BUDGETS AND EXPENDITURES .........................................................................................29 A. B. C. The Budget Process .................................................................................................................................29 Expenditure versus Budget ......................................................................................................................29 Reliability of the Data ..............................................................................................................................32
CHAPTER 4: CONCLUSIONS AND RECOMMENDATIONS ...................................................................34 A. B. Conclusions .............................................................................................................................................34 Recommendations....................................................................................................................................35
APPENDIX A: STRUCTURE OF THE EDUCATION SYSTEM APPENDIX B: OUTLINE OF MOE BUDGET PREPARATION PROCEDURES BIBLIOGRAPHY
LIST OF TABLES
Table 1: GDP, Government Budget, and Education Budget 1990 2000 ....................................................... 6 Table 2: Distribution of Expenditure by Level of Government (Million 1995 Kip) ....................................... 9 Table 3: Annual Local Revenue Reported by Luang Prabang PES (1997/98-1998/99) ................................11 Table 4: Foreign Resources for Education (1990 2000) (Billion Kip, Constant 1995) ...............................11 Table 5: Education Expenditure by Type of Expenditure, 1990 - 2000 (Million Kip, Current) ..................13 Table 6: Education Expenditure by Type of Expenditure, 1990 - 2000 (Million Kip, Constant 1995) ........14
Education Financing in Lao PDR 1990-2000, Part I R. Noonan (Sida / World Bank), 2011-07-16
Table 7: Percent Distribution of Recurrent Expenditure by Category of Expenditure.................................16 Table 8: Investment and Recurrent Budget 1990 2000, by Level (Million Kip, Constant 1995)...............18 Table 9: Investment and Recurrent Budget 1990 2000, by Source (Million Kip, Constant 1995) ............19 Table 10: Public Expenditure on Education in Laos in International Comparison .......................................21 Table 11: Public Recurrent Expenditure on Education, by Subsector (Million Kip, Constant 1995) .........25 Table 12: Percent of Public Recurrent Expenditure on Education, by Subsector ........................................25 Table 13: Public Recurrent Expenditure on Education, Indexed on 1990 (Constant Kip) ..........................26 Table 14: Outline of Education Sector Budget Process ....................................................................................29 Table 15: Deviations between Allocation and Expenditure (Total, Million Kip, Current) ...........................31 Table 16: Percent Deviations between Allocation and Expenditure (Total) ...................................................31 Table 17: Mean Distribution of Revenue 1994/95 1999/2000, by Source (%) .............................................32 Table 18: Differences in Reporting for Expenditure in Huaphan Province (Million Kip) ...........................33
LIST OF FIGURES
Figure 1: Consumer Price Index (CPI), 1990 - 2000 ......................................................................................... 3 Figure 2: Market Exchange Rate 1990 - 2000 ................................................................................................... 3 Figure 3: Growth in GDP per Capita, 1990 - 2000............................................................................................ 4 Figure 4: Growth in Government and Education Budget as %GDP, 1990 - 2000 ......................................... 7 Figure 5: Per Capita GDP, Government Budget, and Education Budget ....................................................... 7 Figure 6: Growth of GDP, Government Budget, and Education Budget ........................................................ 8 Figure 7: Education Budget by Level of Government (Real Kip) ..................................................................10 Figure 8: Education Budget by Level of Government (Percent) .....................................................................10 Figure 9: Growth in Foreign Expenditure ........................................................................................................12 Figure 10: Real Recurrent and Investment Expenditure, 1990 2000, by Level ..........................................15 Figure 11: Recurrent Budget as Percent of Total, 1990 2000, by Level ......................................................20 Figure 12: International Comparison of Percent Recurrent Expenditure .....................................................20 Figure 13: International Comparisons of Recurrent / Investment Ratio for 1996 ........................................22 Figure 14: Change in Expenditure Categories , 1990 2000...........................................................................23 Figure 15: Change in Distribution of Expenditure by Categories ..................................................................24 Figure 16: Change in Distribution of Recurrent Expenditure by Level of Education ..................................27 Figure 17: Distribution of Recurrent Expenditure between Levels of Education .........................................27 Figure 18: Distribution of Recurrent Expenditure by Level Indexed on 1990 ..............................................28 Figure 19: Budget Preparation Process ............................................................................................................30
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ABBREVIATIONS
ADB. Asian Development Bank. APL. Adaptable Program Loan (World Bank). ASEAN. Association of Southeast Asian Nations. AusAID. Australian Agency for International Development. BOL. Bank of Laos PDR. CBE. Campus based education (see DE). CCED. Committee for Community Education Development. CLC. Community Learning Centers (under the PES). CMIS. Construction Management Information System. CPC. Committee for Planning and Coordination (now State Planning Committee, SPC). CPI. Consumer Price Index. CRC. Convention on the Rights of the Child (UN). DE. Distance education (see CBE). DEB. District Education Bureau. DEB-C. District Education Bureau - Culture. DEB-E. District Education Bureau - Education. DEB/PA. District Education Bureau / Pedagogical Advisor. DGE. Department of General Education (MOE). DMC. Developing Member Country. DNFE. Department of Non-Formal Education (MOE). DOF. Department of Finance (MOE). DOPC. Department of Planning and Cooperation (MOE; replaced PSU; sometimes referred to as DPC). EFA. Education for All (World Conference in Jomtien, Thailand, 1990). EMIS. Educational Management Information System. FG. Focus Group. FIMC. Foreign Investment Management Committee. GBEP. Girls Basic Education Project. GDP. Gross Domestic Product. GER. Gross enrollment ratio. GOL. Government of Lao Peoples Democratic Republic. HEI. Higher education institution. IDA. International Development Association (soft-loan arm of the World Bank). IMF. International Monetary Fund.
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IUP. Institute of Pedagogy. K, KN. Kip (currency unit). LECS. Lao Expenditure and Consumption Survey. LPRP. Lao Peoples Revolutionary Party. LWU. Lao Womens Union. MGT. Multi-grade teaching. MOE. Ministry of Education. MOF. Ministry of Finance. MOPH. Ministry of Public Health. MPIC. Ministry of Propaganda, Information, and Culture. NEM. New Economic Mechanism (initiated 1986). NER. Net enrollment ratio. NFE. Non-formal education. NRIES. National Research Institute for Educational Sciences (NUOL; see also RIES). NSC. National Statistics Center. NTUC. National Teachers Upgrading Center. NUOL. National University of Lao PDR. PA. Pedagogical Advisor. PES. Provincial Education Services. PESS. Provincial Education and Sports Services. PFS. Provincial Financial Services. PIP. Public Investment Plan. PM. Prime Minister. PMIS. Personnel Management Information System. PPA. Pupil/Parent Association. PPS. Provincial Planning Service. ppp. Purchasing power parity. PPTA. Project Preparation Technical Assistance. PSU. Project support Unit (MOE, subsumed by DOPC). RIES. Research Institute for Educational Sciences (NUOL; see also NRIES). SCEP. Steering Committee on Educational Projects. SPC. State Planning Committee (formerly Committee for Planning and Coordination, CPC). SPU. Statistics and Planning Unit. SRE. State Run Enterprises. SRU. Slippery Rock University study of education financing in Laos (data from on-going study financed by World Bank). TA. Technical Assistance.
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TDC. Teaching Development Center. TG. Teachers Guide. TOT. Training of Trainers. TTC. Teacher Training College. TVET. Technical and Vocational Education and Training. UNDCP. United Nations Drug Control Program. UNDP. United Nations Development Program. UNICEF. United Nations Childrens Fund. USD. United States Dollars. WB. World Bank.
EXECUTIVE SUMMARY
As in all countries, the development of the education system is based on its history. A large part of the Lao economy is based on traditional agriculture and forestry. Laos began its transition to market economy in 1986. During the first ten years of economic reform (from the mid-1980s through the mid-1990s) Laos achieved impressive growth and development. Beginning in the mid-1990s, however, education sector expenditure began to slide. The decline was worsened by the Asian economic crisis. The Asian economic crisis began in July 1997. Inflation rose sharply in 1998, the value of the Kip fell, the fiscal deficit grew, and foreign investment inflows fell. During the Asian economic crisis, high inflation reduced real incomes and purchasing power, forcing changes in consumption and saving patterns. With falling real incomes, school supplies were beyond the reach of many poor rural families. Despite Governments expressed objective of alleviating poverty while maintaining macroeconomic stability, poverty remained pervasive over the decade. Although the Sixth Party Congress (1996) adopted the Human Resource Development Program as one of eight priority programs, the social sectors were not protected from the vagaries of the economic developments of the latter half of the decade. The education sector in Laos made substantial progress in the early 1990s. Government devoted an increasing share of its GDP and public expenditure budget to education. This led to quantitative expansion of the education system, particularly at the primary and lower secondary level. Beginning in the mid-1990s, however, education sector spending began to fall. The Asian economic crisis brought about a worsening of the situation in the education sector. The education budget as a proportion of total government budget and as a proportion of GDP fell sharply. Education is financed mainly through public expenditure, with the financing responsibility shared between central and regional levels. Contributions are also made by local communities and foreign donor agencies. The standard summary categories for collection and reporting of financial data include central, regional (provincial), and consolidated. Many communities provide support to education, especially primary schooling. Such contributions are limited by the economic capacity of the community and are promoted by community interest in education. Such contributions are not usually reported to higher administrative level and are therefore not knowable from administrative statistics. One source of support for education is fees and charges collected by the PES and the education and training institutions under its responsibility. At the beginning of the decade, there was virtually no foreign support for the development of the education sector in Laos. By the middle of the decade, foreign funding accounted for over a third of all education sector spending in Laos and three-fourths of all investment spending. The growth of foreign investment funds, combined with low domestic recurrent spending, caused a severe imbalance between investment and recurrent expenditure. More schools and classrooms were built than could be staffed, operated, and maintained. By international comparison, Laos displays an extreme pattern. Over the decade, the total volume of resources first rose and then fell, but some categories of expenditure fared better than others. Real expenditure on operations and
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maintenance fell by 49 percent, but real expenditure on fellowships rose by 155 percent over the decade. There were also major changes in the distribution of expenditure by level of education. By the end of decade, total real education expenditure had fallen by 27 percent. It is significant of the transition from plan economy to market economy that in the early years of the decade, expenditure on technical and vocational education and training rose to more than twice its beginning-of-decade value, and then fell by the end of the decade to less than half of its beginning-of-decade value. Over the decade, the biggest winner was administration. The biggest loser was teacher training. In real terms, expenditure fell over the decade to slightly more than one-fourth of the beginning-of-decade value. Technical and vocational education and training was also a big loser. Other losers included upper secondary, lower secondary, pre-school, technical and vocational, and teacher training. The budget process is described. As is common to many systems, budget directives flow downward, budget requests flow upward, and budget decisions flow back down. There is some evidence to suggest lack of clarity among concepts related to financing education, namely between the concepts of budget allocation, cost, expenditure, and disbursement. This lack of clarity appears to reduce the reliability of education expenditure data.
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CHAPTER 1: ECONOMY AND EDUCATION IN LAO PDR A. Introduction
1. Purpose of this Study. The purpose of this study is to provide an evidential basis for making decisions about educational investments in support of basic education, especially primary education, during the decade 2001 - 2010. Such investment decisions are based on a wide range of evidence, but this document focuses on issues related to financing education, looking mostly at the cost side but not ignoring some important issues concerning the revenue side. In focusing on financing issues, four main criteria are usually considered: (a) Access; (b) Equity; (c) Efficiency; and (d) Sustainability. This report is the first in a series focusing on these four criteria.1 This report considers the macroeconomic context of education financing in Laos over the past decade and the associated overall patterns of expenditure in the education sector. 2. Chapter 1 provides an overview of economic development context and the main spending patterns in education during the past decade. Chapter 2 provides a brief overview of the situation in the education sector during the decade 1990 - 2000. Chapter 3 examines some problems related to the quality of the data. The budget process is described and some conceptual and measurement problems are discussed. Chapter 4 presents conclusions and recommendations. 3. The Lao Education System in Brief. The education system in Laos consists of five years at the primary level, three years in lower secondary and three years at the upper secondary level. The structure of the formal education system is shown in Appendix A. 4. Lao education is predominantly a public good financed almost completely by public funds, partly from central allocations, partly from provincial allocations, and partly from community support. 5. An important issue for Lao education in the early years of the first decade of the 21 st century is how the economic developments of the 1990s have affected the system. What has occurred to education spending over the decade and what are the repercussions for widening access to schooling and improving efficiency, equity, and sustainability in the provision of education? This paper provides an overview of the system in from 1990 - 2000 and establishing the framework for analysis of problems that have emerged or persist. In addition, it also tackles the issues posed above in the context of establishing the needs of the Lao education system and the nature of future investment programs that need to be developed to conserve the gains made in the last few years.
The evidence and findings presented here are based on work carried out by A. Mingat beginning in the mid- to late 1990s. The work was continued by J. Baptist in the late 1990s and into 2000. It was then carried further by R. Noonan beginning in late 2000. The report has also benefited from the study in progress by G. Brown and his students. The study could not have been carried out without the cooperation of the Department of Finance at the Ministry of Education, and has benefited especially from the efforts of Mr. Niphonh Manoukoune and Mr. Vimonh Sisouva. It has also benefited from the on-going study of education financing in Laos carried out by the Department of Government and Public Affairs ,Slippery Rock University, for the World Bank (cited in text and tables as SRU).
B.
Economic Development Drama
6. Background. Laos is a land-locked nation situated between Vietnam, Cambodia, China, and Myanmar. With a land area of 236,800 km2 and a population of just over 4 million people, Laos is one of the smallest nations in South East Asia. A large part of the Lao economy is based on traditional agriculture and forestry. 7. In common with other countries in the region, Laos embarked on the road to market economy reforms in 1986 with the New Economic Mechanism (NEM). A major reform program began in 1989. During the first ten years of economic reform from the mid 1980s through the mid 1990s Lao PDR achieved impressive growth, privatization of some stateowned enterprises, and macro-economic stability. Increased public and private investment and improved economic incentives contributed to real average annual GDP growth rates of around 7 percent with low inflation. 8. A Decade of Economic Turbulence. If the first half of the decade of the 1990s was characterized by centralization and growth, the latter half of the decade was characterized by decline and de-centralization. Growth and stability reached their zenith in the middle of the decade. Economic growth during the decade was uneven, as can be seen in Table 1. Annual growth in real GDP varied substantially over the decade, but the low for the period was -1.4 percent in 1998/99, followed by the high for the period of 12.6 in 1999/2000. In real terms, Government budget reached a high point in 1994/95 a high that was never re-captured during the decade. It is important to understand that the decline in education sector expenditure began already in the middle of the decade. It was worsened by the Asian economic crisis, but it did not originate with the Asian economic crisis. 9. The Asian economic crisis began in July 1997 with the severe devaluation of the Thai Baht. It had repercussions throughout most of Asia, but Laos was not recognized initially as one of the crisis countries, in part because of its relative economic isolation. The decline in 1998/99 was due partly to external factors and partly to internal factors, including loose monetary policy on the part of the Lao Government. Inflation rose sharply in 1998, reaching a peak month-on-month inflation of 24 percent in June 1998 and a peak year-on-year inflation of 167 percent in March 1999, as shown in Figure 1. At the same time, the value of the Kip fell perilously, as seen in Figure 2. The fiscal deficit (including grants) widened to 10 percent of GDP in 1998, and foreign investment inflows fell.2 10. The GDP per capita fell from a high of USD 400 in 1997 to USD 330 in approximately USD 330 in 2000, as can be seen in Figure 3. A more relevant statistic from a human development perspective would be the GDP per capita at purchasing power parity (ppp), estimated for 1997 at USD 1,300. This is to be compared with ppp values for Cambodia (1,290), Vietnam (1,630), and the mean for South East Asia and Pacific (3,697).3 The market exchange rate December 2000 was US$ 1 = Kip 8,237. Selected economic indicators for the period 1990/91 - 1999/2000 are given in Table 1.
IMF. IMF Concludes Article IV Consultation with Lao P.D.R. Website: http://www.imf.org/external/np/sec/pn/1999/PN99109.HTM, December 20, 1999.
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UNDP. Human Development Report 1999. New York: UNDP, 1999. Web site: http://www.undp.org/hdro/report.html, December 20, 1999.
Figure 1: Consumer Price Index (CPI), 1990 - 2000
Figure 2: Market Exchange Rate 1990 - 2000
Figure 3: Growth in GDP per Capita, 1990 - 2000
11. In order to regain and maintain a solid macroeconomic platform for growth, the IMF advocated that fiscal reform focus on enhancing revenues (so that key government services could be provided without inflationary financing) and financial reform focus on the nowinsolvent banking sector (which went under during the crisis due to sizeable non-performing loans). By mid-2000, the economy appeared to be back on track. The macroeconomic situation had improved significantly, thanks to Governments tight monetary policy in place since August 1999 and the gradual improvement of the economic situation in the region generally. Between February and December 2000, monthly inflation (CPI) averaged around 1.5 percent, and the Kip remained stable at a level 20 percent stronger than at end-June 1999. That was a remarkable recovery from two years of macroeconomic turbulence during which annual inflation reached above 160 percent and the Kip lost 90 percent of its value. C. Social Effects of the Asian Economic Crisis
12. During the Asian economic crisis, high inflation reduced real incomes and purchasing power, forcing changes in consumption and saving patterns. Diets were adjusted, spending on clothing was reduced, and non-farming households turned to growing more of their own food. With the declining value of the Kip, the costs of school supplies and drugs increased significantly. With falling real incomes, school supplies and drugs were beyond the reach of many poor rural families. 13. The falling value of the Kip had different effects on different parts of the economy. Farmers who could export their produce (mainly to Thailand) benefited from higher agricultural prices in Thai markets as the Kip fell in value. Those farmers became more affluent. Farmers with inadequate access to external markets, however, suffered significant real income erosion and declining living conditions. 14. Traditional patterns of labor migration shifted. The number of Chinese laborers who had migrated to work in the construction industry decreased with the weakening of the Kip
against the Yuan, opening up positions in the industry for Lao laborers. At the same time, however, Lao laborers in neighboring Thailand came under pressure to return home, as competition from Thai laborers increased, even for unskilled jobs.4 15. The Unprotected Social Sectors. Despite Governments expressed objective of alleviating poverty while maintaining macroeconomic stability, poverty remained pervasive over the decade. The Public Expenditure Review for Lao PDR, published in February 1997 noted that mobilizing resources to finance substantial public expenditures, especially toward the fulfillment of basic needs, would still be critical in improving the future living conditions of the poor and thereby reaping the full benefits of economic reforms. 16. The Sixth Party Congress (1996) adopted the Human Resource Development Program as one of eight priority programs in the Public Investment Program up to 2000. Government has now prepared an Educational Development Plan 2001 - 2005 and a National Educational Strategy Plan 2001 - 2020. 17. Despite the formal policy, however, the social sectors were not protected from the vagaries of the economic developments of the latter half of the decade. D. Education Sector Development
18. The education sector in Laos made substantial progress in the early 1990s. Government devoted an increasing share of its GDP and public expenditure budget to education, as can be seen in Table 1 and Figure 4. Spending on education rose from 7.2 percent of government budget and 1.9 percent of GDP in 1990/91 to 13.9 percent of government budget and 3.6 percent of GDP 1994/95. This was approaching a regional standard of approximately 14-15 percent and 4 percent, respectively. 19. This led to massive quantitative expansion of the education system, particularly at the primary and lower secondary level. Enrollments at the primary level increased more than 40 percent between 1991 and 1997/98 (from 580,000 to 822,000 students). At the secondary level growth has been even more dramatic, doubling in 7 years. At lower secondary school, enrollments rose from 90,000 in 1991 to 150,000 in 1997/98. At upper secondary enrollments rose from 32,000 in 1991 to 57,000 in 1997/98. 20. This expansion came before the Asian economic crisis. Even before the Asian economic crisis, however, there were dramatic declines in educational spending, as can be seen in Table 1 and Figure 4. Since the 1995/96, government spending on education fell dramatically, and by 1999/2000, spending had fallen to a low of 7.2 percent of government budget and 1.4 percent of GDP. The dramatic decline in education financing in the latter half of the 1990s brought about a disastrous worsening of the situation in the education sector. Most significantly, it has placed Laos commitment to basic education for all in jeopardy. 21. On a per capita basis, the government budget for education reached a high for the decade of 13.9 percent of the total government budget and 3.6 percent of GDP in 1994/95. From that high, the education budget per capita fell nearly continuously to a low for the decade of 5.8% of the total government budget and 1.2 percent of the GDP, as seen in Table 1 above and Diagram 4 below. During discussions between GOL and the World Bank in
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Source: Ngozi Okonjo-Iweala, Victoria Kwakwa, Andrea Beckwith, and Zafar Ahmed. Impact of Asia's Financial Crisis on Cambodia and the Lao PDR. Finance and Development. A quarterly magazine of the IMF September 1999, Volume 36, Number 3. Web site: (http://www.imf.org/external/pubs/ft/fandd/1999/09/OKONJO.HTM, 1999-12-16)
November and December 2000, GOL agreed to target an allocation of at least 14 percent of its budget to education, an amount that should equal at least 4 percent of GDP. 22. The lack of protection for the education sector is illustrated clearly in Figure 4. In the latter half of the decade, in the face of slow growth, stagnation, and decline in the real economy, total government expenditure tended toward overall decline as a percent of GDP. Far from protecting the education sector, however, the education budget as a proportion of total government budget and as a proportion of GDP fell four years in a row (1994/95 1998/99).
Table 1: GDP, Government Budget, and Education Budget 1990 2000

No. Year Nominal (Billion Kip) 1 GDP 2 Government Budget 3 Education Budget 4 Education Recurrent 5 Primary Ed. Recurrent Real(Billion Kip) 6 Inflation Index (1995) 7 GDP 8 Growth Rate GDP 9 Government Budget 10 Education Budget 11 Education Recurrent 12 Primary Ed. Recurrent 13 14 15 16 17 18 19 20 21 22 23 Population (million) GDP/capita (Kip 1000) Growth Rate GDP/c Gov. Budget/c (Kip) Educ. Budget/c (Kip) Educ. Rec./c (Kip) Prim. Ed. Rec./c (Kip) Gov. as % of GDP Educ. as % of GDP Educ. Rec. % of GDP Prim. Ed. Rec. % GDP 90/91 726 188 13.5 11.7 5.0 91/92 848 148 14.9 11.2 4.9 92/93 940 202 18.9 14.0 6.0 93/94 1,116 252 24.4 15.4 6.8 94/95 1,350 352 49.0 26.2 12.1 95/96 1,655 340 46.6 27.7 13.6 96/97 2,086 494 64.4 35.5 18.6 97/98 3,730 715 72.1 40.2 18.0 98/99 8,839 1,759 101.7 53.9 26.3 99/00 13,780 2,774 198.5 103.7 50.5
0.67 0.71 1,082 1,197 10.6 280.31 208.27 20.1 21.0 17.4 15.8 7.5 6.9 3.9 4.0 277.4 299.2 7.9 71,873 52,069 5,146 5,246 4,469 3,959 1,926 1,734 25.9 1.9 1.6 0.7 7.2 6.2 2.7 17.4 1.8 1.3 0.6 10.1 7.6 3.3
0.77 1,220 1.9 262.13 24.5 18.2 7.8 4.1 297.5 -0.6 63,933 5,980 4,437 1,903 21.5 2.0 1.5 0.6 9.4 6.9 3.0
0.82 1,356 11.2 306.21 29.6 18.8 8.2 4.2 322.9 8.5 72,907 7,049 4,470 1,953 22.6 2.2 1.4 0.6 9.7 6.1 2.7 776 342 77.3 7.5
0.94 1,431 5.5 373.20 52.0 27.8 12.8 4.4 329.0 1.9 85,793 11,948 6,391 2,940 26.1 3.6 1.9 0.9 13.9 7.4 3.4 785 395 103.1 14.4
1.11 1,488 4.0 305.74 41.9 24.9 12.2 4.6 321.3 -2.3 66,035 9,042 5,388 2,646 20.6 2.8 1.7 0.8 13.7 8.2 4.0 967 370 75.9 10.4
1.34 1,560 4.8 369.25 48.1 26.5 13.9 4.7 329.1 2.4 77,900 10,152 5,601 2,941 23.7 3.1 1.7 0.9 13.0 7.2 3.8 1040 423 100.1 13.1
2.24 1,665 6.7 319.04 32.2 18.0 8.0 4.9 341.9 3.9 65,512 6,612 3,686 1,651 19.2 1.9 1.1 0.5 10.1 5.6 2.5 2180 351 67.3 6.8
5.38 1,642 -1.4 326.74 18.9 10.0 4.9 5.0 329.1 -3.7 65,478 3,788 2,005 978 19.9 1.2 0.6 0.3 5.8 3.1 1.5 5194 341 67.9 3.9
7.45 1,849 12.6 372.16 26.6 13.9 6.8 5.1 360.4 9.5 72,545 5,191 2,713 1,321 20.1 1.4 0.8 0.4 7.2 3.7 1.8 8558 314 63.2 4.5
24 Educ. as % Gov. 25 Educ. Rec. % of Gov. 26 Prim. Ed. Rec. % Gov.
US$ (Nominal) 27Exchange Rate (Kip/$) 759 769 776 28GDP/Capita 245 276 295 29Gov. Budget/Capita 63.5 48.0 63.5 30Ed. Budget/Capita 4.5 4.8 5.9 Sources: Macroeconomic data: World Bank estimates
Figure 4: Growth in Government and Education Budget as %GDP, 1990 - 2000
Figure 5: Per Capita GDP, Government Budget, and Education Budget
Figure 6: Growth of GDP, Government Budget, and Education Budget
23. The consequences in terms of real expenditure can be seen in Table 1 (line 10). Total government expenditure on education reached a high of Kip 52 billion in 1994/95 but fell to slightly more than half that level by 1999/200 (constant Kip, 1995 value). Meanwhile the population has grown at a rate of approximately 2.5 - 2.7 percent per year, exacerbating all downward movements and moderating all the upward movements, as shown in Figure 5. 24. The net policy effect on education expenditure trends over the decade of the 1990s is illustrated in Figure 6. In real terms, GDP has risen; total government budget (including both central and provincial budgets) has remained largely constant; education expenditure rose until the middle of the decade and then fell.
CHAPTER 2: PATTERNS OF EDUCATION SPENDING A. Sources of Education Financing
25. Education is financed mainly through public expenditure, with the financing responsibility shared between central and regional levels. Contributions are also made by local communities and foreign donor agencies. In total, revenue for education comes from the following sources: Central government; Regional governments; Communities; Other domestic sources; and Foreign agencies.
26. Central and Regional Expenditure. In terms of administrative level, the standard summary categories for collection and reporting of financial data include central, regional, and consolidated. Regional refers to provincial level, Vientiane municipality, and Special Zones, which have been successively merged into surrounding provinces. Consolidated figures summarize Central plus Regional figures. Table 2 reports education expenditure by type of expenditure in current and constant (1995) value for the period 1990 1999/2000. The total volume of funding, as reported by MOE. The total volume of financing is shown in Figure 7, and the distribution between central and regional level is shown in Figure 8. Table 2: Distribution of Expenditure by Level of Government (Million 1995 Kip)
Year Constant Kip (1994/95) Central Regional Consolidated 90 91 92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 9,768 16,862 26,630
4,048 4,352 7,039 8,495 12,163 26,543 19,199 24,584 17,106 6,304 16,028 14,528 13,598 16,022 17,441 25,430 22,667 23,536 15,093 12,598 20,076 18,880 20,637 24,517 29,604 51,972 41,866 48,120 32,199 18,902
Percent Central 20.2 Regional 79.8 Consolidated 100.0 Source: MOE January 2001.
23.1 76.9 100.0
34.1 65.9 100.0
34.7 65.3 100.0
41.1 58.9 100.0
51.1 48.9 100.0
45.9 54.1 100.0
51.1 48.9 100.0
53.1 46.9 100.0
33.4 66.6 100.0
36.7 63.3 100.0
27. From Table 2 and Figure 7 it can be seen that the total (central and regional funds consolidated) volume of public financing for education rose dramatically during the period 1991 1994/95, only to fall equally dramatically during the period 1997/98 1998/99. This development in the consolidated funds was a reflection of the virtually the same trend for both central and regional resources. Nevertheless, during almost the whole period 1990 1997/98, central funding grew as a proportion of total funding, as can be seen in Figure 8. This rapid growth in central financing was followed by a sharp decline between 1997/98 and 1998/99.
Figure 7: Education Budget by Level of Government (Real Kip)
Figure 8: Education Budget by Level of Government (Percent)
10
28. Community Expenditure. Many communities contribute resources to education, especially primary schooling. Such contributions are inevitably limited by the economic capacity of the community and are driven by community interest in education. Such contributions are usually not reported to higher administrative level and are therefore not knowable from administrative statistics. 29. One significant source of community support is sometimes reported to provincial level, namely fees and charges collected by the PES and the education and training institutions under its responsibility. Evidence from the Luang Prabang PES is reported in Table 3. By far the largest category of local revenue is feed for middle school certificates and lower middle school training certificates. The second largest category is charges for water and electricity in dormitories. All remaining categories represent only 3 percent of the total local revenue. The local revenue represents approximately 0.2 percent of the total education budget for Luang Prabang province. Table 3: Annual Local Revenue Reported by Luang Prabang PES (1997/98-1998/99)
Amount Fees for lower middle school certificates (Kip 1000/certificate), lower middle school training certificates (Kip 1000/certificate), school book rental (Kip 300 per book per year) 4,710,000 Fees for training programs in mechanics and woodworking Charges for water and electricity in dormitories, staff dormitories Rental of coconut trees (Kip 2500 3000 per tree per year), equipment Production (agricultural, handicraft) Total local revenue Local as % of total provincial revenue (approximate) Note: The data represent revenue collected during 8 month in 1997/98 and 6 months in 1998/99 Source: SRU. Analysis by author. 60,000 521,500 39,500 70,000 % 87 1 10 1 1
5,401,000 100 0.2
30. Foreign Expenditure. At the beginning of the decade of the 1990s, Laos received almost no foreign support to the education sector. Beginning in 1992, foreign investment grew rapidly to a peak in 1994/95, and then fell as Governments own investment and recurrent expenditure fell, as shown in Table 4 and Figure 9. In absolute terms, changes in foreign investment tended to reflect changes in domestic spending, but over the decade, foreign funds grew as a proportion of total expenditure. Throughout the latter half of the decade, foreign funds represented more than 30 percent of the total public education budget. Donor and lending agencies prominent in the Lao education sector in the second half of the 1990s include IDA, the ADB, AusAid, JICA, NORAD, the Swiss government, GTZ, the French government, and UNDP/UNICEF. Table 4: Foreign Resources for Education (1990 2000) (Billion Kip, Constant 1995)
Year 1990 1991 1992 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00 20,076 18,880 20,637 24,517 29,604 51,972 41,866 48,120 32,199 18,902 26,630 0 0 3,855 4,245 7,440 19,273 12,679 16,767 11,214 6,423 9,469 0.0 0.0 18.7 17.3 25.1 37.1 30.3 34.8 34.8 34.0 35.6
Total Budget Foreign % Foreign Source: MOE January 2001.
11
Figure 9: Growth in Foreign Expenditure
B.
The Recurrent and Investment Budgets
31. Categories of expenditure are standardized in the official nomenclature. Budgeting procedures and the budget nomenclature are reported in Appendix B. The main categories of expenditure is divided into recurrent and investment. Recurrent expenditure is divided into salaries, operation, maintenance, and fellowships. Investment expenditure is divided between GOL and foreign. 32. Expenditure development over the decade, broken down by these main categories and reported in current and constant Kip, is given in Tables 5 and 6 and illustrated in Figure 10. The expenditure patterns seen in Tables 5 and 6 fall roughly into three periods, reflecting changes in overall government organization, namely the degree of centralization of financing and control. During the period 1990 1992, financing was decentralized. Between 1992/93 and 1997/98, financing was centralized. From 1997/98 onward, financing was decentralized again. 33. Total Expenditure. During the opening period (decentralized), the central government financing of education was substantially lower than the combined financing of the provinces. In 1990, the total central government financing was approximately one-fourth as much as the combined regional financing. During this period, central government financing rose and regional financing fell. By 1992, central financing was just over half as much as the combined regional financing. This trend continued into the next period (centralization), and in 1994/95, 1996/97, and 1997/98, central financing exceeded regional financing. Then from 1998/99 (decentralized), centralized financing fell substantially below regional financing.
12
Table 5: Education Expenditure by Type of Expenditure, 1990 - 2000 (Million Kip, Current)
Year Central Recurrent Salaries Operation Maintenance Fellowships Investment GOL Foreign Regional Recurrent Salaries Operation Maintenance Fellowships Investment GOL Foreign Consolidated Recurrent Salaries Operation Maintenance Fellowships Investment GOL Foreign Decentralized 1991 2,919 2,121 801 286 429 605 798 798 0 9,744 9,568 8,747 375 202 244 176 0 0 12,663 11,689 9,548 661 631 849 974 974 0 Centralization of Financial Responsibility 1993/94 1994/95 1995/96 1996/97 10,010 25,035 21,350 32,877 2,727 4,457 4,869 6,654 1,007 1,762 1,671 2,856 326 417 490 678 420 537 605 366 974 1,741 2,103 2,754 7,283 20,578 16,481 26,223 1,160 2,400 2,381 3,800 6,123 18,178 14,100 22,423 14,353 12,722 11,520 472 249 481 1,631 1,631 0 24,363 15,449 12,527 798 669 1,455 8,914 2,791 6,123 23,985 21,764 20,234 699 163 668 2,221 2,221 0 49,020 26,221 21,996 1,116 700 2,409 22,799 4,621 18,178 25,207 22,875 21,136 746 175 818 2,332 2,332 0 46,557 27,744 22,807 1,236 780 2,921 18,813 4,713 14,100 31,475 28,850 26,394 804 296 1,356 2,625 2,625 0 64,352 35,504 29,250 1,482 662 4,110 28,848 6,425 22,423 Decentralized 1998/99 1999/00 33,934 72,809 12,181 15,390 3,019 6,791 867 972 867 972 7,429 6,655 21,753 57,419 4,500 10,707 17,253 46,712 67,811 41,671 31,647 2,052 684 7,288 26,140 8,822 17,318 101,745 53,852 34,666 2,919 1,551 14,717 47,893 13,322 34,571 125,684 88,346 63,116 4,060 1,353 19,817 37,338 13,470 23,868 198,493 103,736 69,907 5,032 2,325 26,472 94,757 24,177 70,580
1990 2,390 1,945 785 230 346 584 445 445 0 9,463 9,365 8,563 367 198 237 98 0 0 11,853 11,310 9,348 598 543 821 543 543 0
1992 4,988 1,708 749 178 268 513 3,280 548 2,732 9,636 9,515 8,589 369 199 358 121 0 0 14,624 11,223 9,338 548 466 871 3,401 669 2,732
1992/93 6,550 2,561 1,038 264 419 840 3,989 716 3,273 12,353 11,464 10,388 472 249 355 889 889 0 18,903 14,025 11,426 736 668 1,195 4,878 1,605 3,273
1997/98 38,326 9,406 3,662 579 579 4,587 28,920 3,795 25,125 33,814 30,814 24,247 662 221 5,684 3,000 3,000 0 72,140 40,220 27,909 1,241 799 10,271 31,920 6,795 25,125
Source: MOE, Dept. of Accounting and Finance Control. January 2001. See Appendix B, Notes to Table 12.
13
Table 6: Education Expenditure by Type of Expenditure, 1990 - 2000 (Million Kip, Constant 1995)
Decentralized 1990 1991 4,048 4,352 3,294 3,162 1,330 1,194 390 426 585 640 989 902 754 1,190 754 1,190 0 0 16,028 15,862 14,503 622 335 401 166 0 0 14,528 14,266 13,042 559 301 364 262 0 0 Centralization of Financial Responsibility 1993/94 1994/95 1995/96 1996/97 12,163 26,543 19,199 24,584 3,314 4,725 4,378 4,976 1,224 1,868 1,503 2,136 396 442 441 507 510 569 544 274 1,184 1,846 1,891 2,059 8,850 21,817 14,820 19,609 1,410 2,545 2,141 2,841 7,440 19,273 12,679 16,767 17,441 15,459 13,998 574 303 584 1,982 1,982 0 25,430 23,075 21,453 741 173 708 2,355 2,355 0 22,667 20,570 19,006 671 157 736 2,097 2,097 0 41,866 24,948 20,509 1,111 701 2,627 16,917 4,238 12,679 23,536 21,573 19,736 601 221 1,014 1,963 1,963 0 48,120 26,549 21,872 1,108 495 3,073 21,571 4,804 16,767 Decentralized 1998/99 1999/00 6,304 9,768 2,263 2,065 561 911 161 130 161 130 1,380 893 4,041 7,703 836 1,436 3,205 6,267 12,598 7,742 5,879 381 127 1,354 4,856 1,639 3,217 18,902 10,005 6,440 542 288 2,734 8,898 2,475 6,423 16,862 11,852 8,468 545 182 2,659 5,009 1,807 3,202 26,630 13,917 9,379 675 312 3,551 12,712 3,244 9,469
Year Central Recurrent Salaries Operation Maintenance Fellowships Investment GOL Foreign Regional Recurrent Salaries Operation Maintenance Fellowships Investment GOL Foreign
1992 7,039 2,410 1,057 252 378 724 4,629 773 3,855 13,598 13,427 12,121 521 281 505 171 0 0
1992/93 8,495 3,322 1,346 342 543 1,089 5,174 929 4,245 16,022 14,869 13,473 612 323 460 1,153 1,153 0
1997/98 17,106 4,198 1,634 258 258 2,047 12,908 1,694 11,214 15,093 13,754 10,822 296 99 2,537 1,339 1,339 0 32,199 17,952 12,457 554 357 4,584 14,247 3,033 11,214
20,076 18,880 20,637 24,517 29,604 51,972 Consolidated Recurrent 19,156 17,428 15,838 18,191 18,772 27,800 Salaries 15,833 14,236 13,177 14,820 15,222 23,321 Operation 1,012 986 773 955 970 1,183 Maintenance 920 941 658 866 813 742 Fellowships 1,391 1,266 1,229 1,550 1,768 2,554 Investment 920 1,452 4,799 6,327 10,832 24,172 GOL 920 1,452 944 2,082 3,391 4,899 Foreign 0 0 3,855 4,245 7,440 19,273 Source: MOE, Dept. of Accounting and Finance Control. January 2001. See Appendix B, Notes to Table 13.
14
Figure 10: Real Recurrent and Investment Expenditure, 1990 2000, by Level
34. Recurrent Expenditure. Throughout the decade, the locus of recurrent expenditure has been at regional level. Regional recurrent expenditure remained at approximately four to five times as high as central recurrent expenditure. As seen in Table 6, recurrent expenditure remained remarkably stable throughout the decade at the central level, as measured in constant Kip. Even at the regional level, recurrent expenditure remained relatively stable, except for a sudden boost during the period 1994/95 1996/97, followed by a sudden decline. 35. As can be seen in Table 7, during the early years of the decade, the proportional distribution of central level recurrent expenditure remained relatively stable, with some 40 percent going to salaries, around 30 percent going to fellowships, and the remainder going to operation and maintenance. In the middle of the decade, the proportion going to salaries, operations, and maintenance began to decline, and the proportion going to fellowships rose to over 60 percent. 36. At the regional level too, the proportional distribution of recurrent expenditure remained relatively stable during the first half of the decade. More than 90 percent of recurrent expenditure went to salaries, around 3 percent went to fellowships, and 6 percent went to operation and maintenance. From mid-decade, however, the proportion spent on salaries fell dramatically, and the proportion spent on fellowships rose equally dramatically. The small proportion spent on operation and maintenance fell.
15
Table 7: Percent Distribution of Recurrent Expenditure by Category of Expenditure

Decentralized 1990 1991 40.4 11.8 17.8 30.0 100.0 37.8 13.5 20.2 28.5 100.0 Centralization of Financial Responsibility 1993/94 1994/95 1995/96 1996/97 36.9 12.0 15.4 35.7 100.0 39.5 9.4 12.0 39.1 100.0 34.3 10.1 12.4 43.2 100.0 42.9 10.2 5.5 41.4 100.0 Decentralized 1998/99 1999/00 24.8 7.1 7.1 61.0 100.0 44.1 6.3 6.3 43.2 100.0
Year Central Salaries Operation Maintenance Fellowships Total Recurrent Regional Salaries Operation Maintenance Fellowships Total Recurrent Consolidated Salaries Operation Maintenance Fellowships
1992 43.9 10.4 15.7 30.0 100.0
1992/93 40.5 10.3 16.4 32.8 100.0
1997/98 38.9 6.2 6.2 48.8 100.0
91.4 3.9 2.1 2.5 100.0
91.4 3.9 2.1 2.6 100.0
90.3 3.9 2.1 3.8 100.0
90.6 4.1 2.2 3.1 100.0
90.6 3.7 2.0 3.8 100.0
93.0 3.2 0.7 3.1 100.0
92.4 3.3 0.8 3.6 100.0
91.5 2.8 1.0 4.7 100.0
78.7 2.1 0.7 18.4 100.0
75.9 4.9 1.6 17.5 100.0
71.4 4.6 1.5 22.4 100.0
82.7 5.3 4.8 7.3
81.7 5.7 5.4 7.3
83.2 4.9 4.2 7.8
81.5 5.2 4.8 8.5 100.0
81.1 5.2 4.3 9.4 100.0
83.9 4.3 2.7 9.2 100.0
82.2 4.5 2.8 10.5 100.0
82.4 4.2 1.9 11.6 100.0
69.4 3.1 2.0 25.5 100.0
64.4 5.4 2.9 27.3 100.0
67.4 4.9 2.2 25.5 100.0
Total Recurrent 100.0 100.0 100.0 Source: MOE, Dept. of Accounting and Finance Control. January 2001.
16
37. Investment Expenditure. Investment is financed by either GOL or foreign sources. In constant Kip, GOLs investment at central level showed relative stability, rising gradually toward the middle of the decade and then falling toward the end of the decade to a level only slightly higher than at the beginning. At the regional level, GOLs investment rose from virtually nothing to approximate parity with central level GOL investment for most of the decade. 38. As can be seen in Table 8, at the central level, total investment (GOL plus foreign) rose from 19 percent in 1990 to a peak of 82 percent in 1994/95 and then varied between approximately 70 and 80 percent for most of the remainder of the decade. At the regional level, investment was a very small percent of total expenditure during the first decentralized period, rising to around 10 percent during the centralized period, and then rising again to some 30 percent in the second decentralized period. As a proportion of consolidated expenditure, investment rose from 5 percent at the beginning of the decade to nearly 50 percent at the end of the decade. 39. As seen in Tables 6 9, the most profound changes in financing during the decade of the 1990s was in investment. A simple indicator of volatility is the ratio of high to low values. In constant value, consolidated recurrent expenditure ranged from a low of Kip 10.0 billion to a high of Kip 27.8 billion, which corresponds to a high/low ratio of 2.8. Consolidated investment expenditure ranged from a low of Kip 0.9 billion to a high Kip 24.2 billion, which corresponds to a high/low ratio of 26.3. Over the decade, change in investment was almost a whole order of magnitude greater than change in recurrent expenditure. 40. As seen in Table 9, consolidated investment rose from under 5 percent of total public education expenditure in 1990 to nearly 48 percent in 1999/00. At the same time, as the total and relative volume of investment rose, the total and relative volume of foreign financing also rose, as seen in Table 9 (see also Table 4 and Figure 9). At the beginning of the decade, foreign funds accounted for virtually none of the investment. By the end of the decade, foreign funds accounted for nearly three-quarters of all investment and over one-third of total public expenditure on education. Although foreign investment has been necessary for the rapid development of the education system, it has also caused a serious imbalance, namely between recurrent expenditure and investment. The imbalance is illustrated in Figure 11. The consolidated budget shows an almost continuous decline in recurrent expenditure as a proportion of total expenditure. 41. Comparative Perspectives on Investment. Some comparative evidence concerning the balance between recurrent and investment expenditure can be seen in Figure 12. Of the 119 countries for which data were available for 1996, Laos devoted the lowest proportion of its total public education budget to recurrent expenditure. 42. Summary evidence for regions and selected individual countries is given in Table 10. Regional averages ranged from 82.2 (17.8 percent going to investment) for East Asia to 94.7 (5.3 percent going to investment) for Oceania. By stark contrast, recurrent expenditure in Laos accounted for only 55 percent of its total expenditure on education. By the end of the decade it had fallen to just over 52 percent. 43. The ratio of recurrent to investment expenditure provides another way of looking at the balance and is illustrated Figure 13. A low recurrent/investment ratio indicates relatively strong emphasis on investment, and a high recurrent/investment ratio indicates relatively weak emphasis on investment.
17
Table 8: Investment and Recurrent Budget 1990 2000, by Level (Million Kip, Constant 1995)
Decentralized 1991 4,352 3,162 1,190 73 27 14,528 14,266 262 98 2 Centralization of Financial Responsibility 1993/94 1994/95 1995/96 1996/97 12,163 26,543 19,199 24,584 3,314 4,725 4,378 4,976 8,850 21,817 14,820 19,609 27 18 23 20 73 82 77 80 17,441 15,459 1,982 89 11 29,604 18,772 10,832 63 37 25,430 23,075 2,355 91 9 51,972 27,800 24,172 53 47 22,667 20,570 2,097 91 9 41,866 24,948 16,917 60 40 23,536 21,573 1,963 92 8 48,120 26,549 21,571 55 45 Decentralized 1998/99 1999/00 6,304 9,768 2,263 2,065 4,041 7,703 36 21 64 79 12,598 7,742 4,856 61 39 18,902 10,005 8,898 53 47 16,862 11,852 5,009 70 30 26,630 13,917 12,712 52 48
Year Central Recurrent Investment Rec. as % Total Invest. as % Total Regional Recurrent Investment Rec. as % Total Invest. as % Total
1990 4,048 3,294 754 81 19 16,028 15,862 166 99 1
1992 7,039 2,410 4,629 34 66 13,598 13,427 171 99 1
1992/93 8,495 3,322 5,174 39 61 16,022 14,869 1,153 93 7 24,517 18,191 6,327 74 26
1997/98 17,106 4,198 12,908 25 75 15,093 13,754 1,339 91 9 32,199 17,952 14,247 56 44
Consolidated 20,076 18,880 20,637 Recurrent 19,156 17,428 15,838 Investment 920 1,452 4,799 Rec. as % Total 95 92 77 Invest. as % Total 5 8 23 Source: MOE, Dept. of Accounting and Finance Control. January 2001.
18
Table 9: Investment and Recurrent Budget 1990 2000, by Source (Million Kip, Constant 1995)
Decentralized 1991 18,880 17,428 1,452 1,452 0 92.3 7.7 12.0 7.7 0.0 Centralization of Financial Responsibility 1993/94 1994/95 1995/96 1996/97 29,604 51,972 41,866 48,120 18,772 27,800 24,948 26,549 10,832 24,172 16,917 21,571 3,391 4,899 4,238 4,804 7,440 19,273 12,679 16,767 63.4 36.6 1.7 11.5 25.1 31.3 68.7 53.5 46.5 1.2 9.4 37.1 20.3 79.7 59.6 40.4 1.5 10.1 30.3 25.1 74.9 55.2 44.8 1.2 10.0 34.8 22.3 77.7 Decentralized 1998/99 1999/00 18,902 26,630 10,005 13,917 8,898 12,712 2,475 3,244 6,423 9,469 52.9 47.1 1.1 13.1 34.0 27.8 72.2 52.3 47.7 1.1 12.2 35.6 25.5 74.5
Year Total Budget Recurrent Investment GOL Foreign Recurrent as % Total Investment as % Total Rec./Invest. Ratio GOL as % Total Foreign as % Total
1990 20,076 19,156 920 920 0 95.4 4.6 20.8 4.6 0.0
1992 20,637 15,838 4,799 944 3,855 76.7 23.3 3.3 4.6 18.7
1992/93 24,517 18,191 6,327 2,082 4,245 74.2 25.8 2.9 8.5 17.3 32.9 67.1
1997/98 32,199 17,952 14,247 3,033 11,214 55.8 44.2 1.3 9.4 34.8 21.3 78.7
GOL as % Invest. 100.0 100.0 19.7 Foreign as % Invest. 0.0 0.0 80.3 Source: MOE, Dept. of Accounting and Finance Control. January 2001
19
Figure 11: Recurrent Budget as Percent of Total, 1990 2000, by Level
Figure 12: International Comparison of Percent Recurrent Expenditure
44. Emphasis on investment is influenced by population growth rates, which dictate the need for expansion of school systems, and by economic growth rates, which condition the resources available for expansion.
20
Table 10: Public Expenditure on Education in Laos in International Comparison

Public Expenditure on Education % GNP % Gov. Expenditure 1990 1996 1990 1996 4.4 4.3 3.5 5.2 4.9 4.4 4.1 4.5 4.8 5.1 4.1 5.6 7.3 4.0 3.6 5.1 17.6 14.9 13.4 13.3 14.6 15.1 14.5 14.8 19.1 16.0 15.6 14.0 13.5 14.3 14.1 15.4 Current Exp. as % Total 1990 1996 % Ratio % 86.8 91.4 92.9 90.8 96.2 87.5 85.7 90.9 6.6 10.6 13.1 9.9 25.2 7.0 6.0 12.1 88.3 91.4 88.3 92.7 94.7 85.1 82.2 90.1
Region / Country Regional Average Africa North America South America Europe Oceania Asia East Asia Average
Ratio 7.6 10.7 7.5 12.7 17.7 5.7 4.6 10.3
Southeast Asia & Selected Other Asia Cambodia ... China excluding HK SAR 2.3 Hong Kong SAR Lao Peoples Dem. Rep. Malaysia Philippines Republic of Korea Singapore Thailand Viet Nam 2.8 1.9 5.5 2.9 3.5 3.0 3.6 2.1
2.9 2.3 2.9 3.1 5.2 3.2 3.7 3.0 4.8 2.9
... 12.8 17.4 7.2 18.3 10.1 ... 18.2 20.0 7.5
... ... ... 13.0 15.4 17.6 17.5 23.4 ... ...
... 93.2 ... 95.0 77.3 92.4 89.2 87.3 83.6 90.3
... 13.7 ... 19.0 3.4 12.2 8.3 6.9 5.1 9.3
63.5 87.5 95.1 55.0 81.2 86.4 ... 76.0 75.2 93.4
... 7.0 ... 1.2 4.3 6.4 ... 3.2 3.0 14.2
3.2 3.4 14.9 18.5 87.6 8.4 82.3 6.3 Average excl. Laos Note: These figures are reported by MOE January 2001, analyzed by author. They differ from the UNESCO data collected in 1997. The 2001 data are more complete and accurate. Figures refer to GDP, rather than GDP, and to years 1990/91, 1996/97. Source: Unesco Institute of Statistics, June 2001
21
Figure 13: International Comparisons of Recurrent / Investment Ratio for 1996
45. In general, developed countries in Europe and North America take a median position in terms of the recurrent/investment ratio. These societies tend to have relatively low population growth rates, and their school systems have grown gradually as the population and the economy have developed. The Asian regional average, by contrast, shows a relatively strong emphasis on investment, and the East Asian regional average shows even stronger emphasis on investment.5 This investment emphasis can be explained by the relatively high growth rates in population and the economy. Africa shows lower emphasis on investment than Asia, especially East Asia. Africa, like Asia, tends to show relatively high population growth rates, but lower economic growth rates tend to mitigate the emphasis on investment. 46. The lower half of Figure 12 shows recurrent/investment ratios for individual countries. Neighboring Vietnam showed quite low investment by regional standards, while the other countries shown tended more toward the regional mean.6 By any comparison, Laos recurrent/investment ratio was extremely low. In fact, according to the MOE revised estimated for 1996, Laos recurrent/investment ratio was lowest among all 119 countries for which data were available. 47. The evidence presented in Table 10 and shown in Figures 12 and 13 in no way proves that the recurrent/investment ratio in Laos is too low. That argument will be presented later. What it does show is that the balance between recurrent and investment expenditure in Laos is quite out of alignment with other countries around the world.
In this dataset, Asia covers 34 countries, including the Middle East and Caucasian Republics. East Asia covers 21 countries and is the subset of Asia not including the Middle East and Caucasian Republics.
6
Vietnam showed low education sector investment in 1996, but several major foreign-financed education sector investment projects were in the pipeline by then. By the end of the decade, investment had increased substantially, bringing Vietnam into line with the Asian regional average. Meanwhile the recurrent/investment ratio in Laos had fallen to 1.1.
22
48. The rapid expansion of education sector investment beginning in the early 1990s was anticipated to generate significant demands on the recurrent budget7. As more and more schools have been established nation wide, the financial requirements for salaries, operating costs and maintenance have grown substantially, but the recurrent budget has not kept up, as shown above. C. Composition of Recurrent Expenditure
49. Changes in the overall real recurrent expenditure over the decade were accompanied by systematic changes in the allocation among expenditure categories, as can be seen in Table 6 and Figure 14. As investment rose, new schools were built, and new classes were added, real expenditure on salaries first rose and then fell precipitously. Real expenditure on salaries rose again sharply in the final year, but by the end of the decade it had fallen by 41 percent. All major expenditure categories showed the same basic movements, but some rose and fell more than others. Over the decade, real expenditure on operations and maintenance fell by 49 percent. Real expenditure on fellowships fared better, rising by 155 percent over the decade.
Figure 14: Change in Expenditure Categories , 1990 2000
50. The proportional distribution of real expenditure over the decade can be as can be seen in Table 7 and Figure 15. While expenditure on salaries fell from 83 percent of the budget to 67 percent. Operations and maintenance fell from 10 percent to 7 percent. Fellowships rose from 7 percent to over 25 percent.
World Bank. Lao PDR. Financing and Management of Education: Strategic Considerations for Strengthening the Education Sector. White Cover. Washington, D. C.: World Bank, 1997.
23
Figure 15: Change in Distribution of Expenditure by Categories
51. Fellowships support students in technical and vocational institutions, the five teacher training colleges and the university. On average, students receive about Kip 45,000 per month to cover living costs. There are no tuition fees for regular students. The current policy of the government is to reduce these fellowships, as they are unsustainable but the timetable is not decided. D. Expenditure by Level of Education
52. The decade which saw major changes in the overall level of financing, in the proportion of the total budget going to recurrent or investment expenditure, the level of foreign investment, and allocation by expenditure categories, also saw major changes in the distribution of expenditure by level of education. Table 11 and Figure 16 shows the real expenditure trend by level of education for the decade. Table 12 and Figure 17 show the proportional distribution, and Table 13 and Figure 18 show the changes over the decade as indexed on the 1990 levels using the constant Kip values shown in Table 11. 53. The overall shape of the curves in Figure 16 is largely reflective of the shape first seen in Figure 7. It is the overall level of expenditure that determines the shape of both sets of curves. Table 12 and Figure 17 show changes in the proportional distribution of the total budget between levels or sub-sectors of education. It can be seen that the changes have been substantial. The clearest picture of the changing allocation of resources by level of the education system, however, can be seen in Table 13 and Figure 18. The picture shown by Figure 18 is one of turbulence.
24
Table 11: Public Recurrent Expenditure on Education, by Subsector (Million Kip, Constant 1995)
Sub-sector Pre-school Primary Lower Secondary Upper Secondary Technical and Vocational Teacher Training Higher Education Administration Total Source: MOE, March 2001 1990
785 8,371 3,544 1,743 843 1,360 1,111 1,398 19,156
1991
611 7,519 3,227 1,622 872 1,239 1,029 1,308 17,428
1992
570 6,937 2,962 1,394 1,251 855 792 1,077 15,838
1992/93
600 7,796 3,307 1,490 1,363 1,109 1,163 1,363 18,191
1993/94
639 8,212 3,382 1,560 1,428 977 1,184 1,391 18,772
1994/95
916 12,763 4,689 1,970 1,803 1,332 2,331 1,998 27,800
1995/96
924 12,262 3,971 1,723 1,473 924 1,349 2,323 24,948
1996/97
975 13,827 4,583 1,923 632 553 1,712 2,344 26,549
1997/98
628 8,034 2,887 1,722 359 538 1,327 2,457 17,952
1998/99
363 4,869 1,643 792 343 293 642 1,061 10,005
1999/00
501 6,751 2,309 1,148 362 371 940 1,536 13,917
Table 12: Percent of Public Recurrent Expenditure on Education, by Subsector

Sub-sector Pre-school Primary Lower Secondary Upper Secondary Technical and Vocational Teacher Training Higher Education Administration Total Source: MOE, March 2001 1990 4.1 43.7 18.5 9.1 4.4 7.1 5.8 7.3 100.0 1991 3.5 43.1 18.5 9.3 5.0 7.1 5.9 7.5 100.0 1992 3.6 43.8 18.7 8.8 7.9 5.4 5.0 6.8 100.0 1992/93 3.3 42.9 18.2 8.2 7.5 6.1 6.4 7.5 100.0 1993/94 3.4 43.7 18.0 8.3 7.6 5.2 6.3 7.4 100.0 1994/95 3.3 45.9 16.9 7.1 6.5 4.8 8.4 7.2 100.0 1995/96 3.7 49.1 15.9 6.9 5.9 3.7 5.4 9.3 100.0 1996/97 3.7 52.1 17.3 7.2 2.4 2.1 6.4 8.8 100.0 1997/98 3.5 44.8 16.1 9.6 2.0 3.0 7.4 13.7 100.1 1998/99 3.6 48.7 16.4 7.9 3.4 2.9 6.4 10.6 100.0 1999/00 3.6 48.5 16.6 8.2 2.6 2.7 6.8 11.0 100.0
25
Table 13: Public Recurrent Expenditure on Education, Indexed on 1990 (Constant Kip)
Sub-sector Pre-school Primary Lower Secondary Upper Secondary Technical and Vocational Teacher Training Higher Education Administration Total 90 100 100 100 100 100 100 100 100 100 91 78 90 91 93 103 91 93 94 91 92 73 83 84 80 148 63 71 77 83 92/93 76 93 93 85 162 82 105 97 95 93/94 81 98 95 89 169 72 107 99 98 94/95 117 152 132 113 214 98 210 143 145 95/96 118 146 112 99 175 68 121 166 130 96/97 124 165 129 110 75 41 154 168 139 97/98 80 96 81 99 43 40 119 176 94 98/99 46 58 46 45 41 22 58 76 52 99/00 64 81 65 66 43 27 85 110 73
Source: MOE, March 2001 Note: Shaded lines represent winners, that is categories for which the end-of-decade index value is higher than the end-of-decade index value for total expenditure. All other categories are losers. Bold italics represent the biggest loser.
26
Figure 16: Change in Distribution of Recurrent Expenditure by Level of Education
Figure 17: Distribution of Recurrent Expenditure between Levels of Education
54. As seen in Table 13, the end-of-decade index value for overall expenditure was 73 that is, by the end of the decade the level of public recurrent expenditure in real terms had fallen to 73 percent of the beginning-of-decade value. The index values show a level of turbulence exceeding that of the previous tables describing education sector recurrent expenditure.
27
Figure 18: Distribution of Recurrent Expenditure by Level Indexed on 1990
55. The turbulence in the distribution by educational level is at least in part a consequence of the transition itself. This can be seen in the expenditure pattern for technical and vocational education and training. In the early years of the decade, expenditure on technical and vocational education and training rose to more than twice its beginning-of-decade value, and then fell by the end of the decade to less than half of its beginning-of-decade value. The rise would appear to reflect the hope to utilize the technical and vocational education and training system as a tool for economic growth in a global market economy. The fall would appear to reflect a realization that the technical and vocational education and training system, designed for a planned economy relatively isolated from the global market economy, would need serious reform before it could serve its new purpose. This is normal for technical and vocational education and training system in transitional economies.8 56. The sub-sectoral categories can be divided into winners and losers. The winners are those categories for which the end-of-decade index value is higher than the end-ofdecade index value for total expenditure. The losers are all the others those for which the end-of-decade index value is lower than the end-of-decade index value for total expenditure. After the turbulence of the 1990s, the winners were primary education, higher education, and administration. The biggest winner was administration. The losers included upper secondary, lower secondary, pre-school, technical and vocational, and teacher training. The biggest loser was teacher training. In real terms, expenditure fell over the decade to slightly more than one-fourth of the beginning-of-decade value. Moreover, teacher training was a systematic loser amid all the turbulence, in only three years did teacher training not experience a reduction in expenditure.
Richard Noonan. Training Strategies for Transitional Economies: Some Brief Observations. Occasional Papers, No. 1. Stockholm: Swedec International Management Institute. Revised November 12, 1996.
28
CHAPTER 3: BUDGETS AND EXPENDITURES
A.
The Budget Process
57. The fiscal year in Laos begins on October the 1st and ends on September 30th the following year. This fiscal calendar was introduced in 1992 to replace the January - December calendar year. 58. In general terms, directives flow downward from the central level toward the district level, budget requests flow upward to the central level again, budget allocation is conducted at the top, final budgets flow downward again, and with final allocations made at each subsequent level. The annual budget for the education sector is prepared in eleven main stages, as outlined in Table 14 and illustrated in Figure 19. The budget process is described in further detail in Appendix B: Outline of MOE Budget Preparation Procedures. Table 14: Outline of Education Sector Budget Process
Step
1 2
Locus and Process

The Office of the Prime Minister (PM), the State Planning Committee (SPC) and The Ministry of Finance (MOF) prepare general framework of procedures and guidelines, which are sent to MOE and the other ministries. MOE produces guidelines outlining national priority and targets for the education and training sector, which are sent to all Provincial Education Services (PES) and higher education institutions (HEIs NUOL, TTC, and others) in January, and the PESs send the MOE guidelines to District Education Bureaus (DEBs). The DEBs prepare their draft budgets, which are returned to the PESs. The PESs summarize and consolidate the DEB draft budgets and their own budgets, which are submitted to the Provincial Planning Service (PPS) and Provincial Finance Service (PFS). The draft budgets prepared by PES and HEIs in May contain both the investment and recurrent needs of the each province and the various institutions. The PPSs and PFSs submit the draft consolidated budgets to the Department of Planning and Cooperation (DOPC) and Department of Finance (DOF) in the central MOE office. DOPC and DOF review the draft budget plans submitted and consolidate them into a single MOE draft budget. The MOE draft budget is represented at a meeting, chaired by the Minister of Education in June. At this meeting, MOE priorities are fixed based on the SPC and MOF guidelines and the provincial budget requests. The outcome of this meeting is the consolidated first draft of MOEs budget, which is submitted to SPC and MOF in July. When all ministries have submitted their draft budgets, SPC and MOF chair several seminars to discuss the financial report, anticipated revenue, and the anticipated loan-grants activities for the forthcoming year. Based on the outcomes of the discussions and the submitted draft budgets from the various ministries, SPC and MOF prepare a final budget plan to be submitted in a July governments meeting. The National Assembly then reviews and approves the plan in late September. When the plan is approved, the Prime Minister decrees the execution of the budget plans and SPC and MOF distribute them to the various ministries and provinces. MOE upon receiving the approved plan for education distributes it to PESs and the HEIs for execution in late October. The PESs allocate the provincial education budget among the DEBs.
3 4
5 6
8 9 10 11
B.
Expenditure versus Budget
59. Budget is one thing; expenditure is another. In principle there should be a high degree of correspondence between budget and expenditure. That is the aim of MOEs Department of Finance (DOF). In practice, sometimes there are differences. Interpretation of surpluses and deficits is fraught with risk, however. In order to assure a clear understanding of financial
29
flows, clear distinction is needed between four related concepts according to accepted auditing practice:
Figure 19: Budget Preparation Process
Budget; Cost; Expenditure; and Disbursement.
60. The budget represent the amount of money allocated for a specific period of time. Cost represents the monetary value of goods acquired or used or services rendered over a specific period of time. Expenditure is the cost implied at the time a financial commitment is made. Disbursement is the amount of money actually paid out. 61. Consider school teacher salaries, for example. School teachers are usually employed to provide a specified number of hours of instructional service per year. Specific costs are associated with employment agreement or contract, including salary, allowances, subsidies, social fees, etc. Costs are incurred when teachers provide teaching services each hour of teaching carries with it salary and associated costs. At the end of the month (assuming monthly salary payments), salary and associated expenses are incurred (for example when monthly time-sheets are turned in). Money is disbursed when the salary and associated costs
30
expenses are paid. If salary and associated costs are not paid by the end of the month (no money is disbursed), then a spending deficit is incurred. 62. MOE has current data about budgets, because MOE receives its allocation, and MOE allocates in turn to province level. Timely data on allocations are available, but expenditure data often lag many months, apparently in part because of delays in disbursements. This suggests a lack of clarity concerning the distinctions discussed above. An example can be found in a study of 11 provinces, which revealed very substantial differences between budget and expenditure for 1993/99 1999/2000, as shown in Tables 15 and 16.9 Table 15: Deviations between Allocation and Expenditure (Total, Million Kip, Current)
Province
Bokeo Borikhamsay Champasak Huaphan Khammuan Luang Nam Tha Luang Prabang Oudomxay Savanakhet Sayabuli Sekong Xieng Kuang Source: SRU. Analysis by author.
1993/94
206 0 248 503 130 -1 0 0
1994/95
3 0 94 1 -7 4 -1,034 44 0 92
1995/96
-32 -59 0 -47 0 113 192 54 49 88 0 120
Year 1996/97
-21 -8 0 -111 17 -50 165 -94 -430 -174 0 89
1997/98
-33 78 0 174 -36 386 0 289 260 -9 49
1998/99
152 814 0 1,222 -290 693 2,418 344 -235 1,779 -659 653
1999/00
-561 -1,254 -10,768 1,360 282 635 -2,297 -3,631 -427 -
Table 16: Percent Deviations between Allocation and Expenditure (Total)

Province
Bokeo Borikhamsay Champasak Huaphan Khammuan Luang Nam Tha Luang Prabang Oudomxay Savanakhet Sayabuli Sekong Xieng Kuang Average Source: SRU. Analysis by author.
1993/94
-41 0 -39 -48 -42 0 0 0 -21
1994/95
0 0 -8 0 0 -1 27 -2 0 -9 1
1995/96
5 6 0 4 0 -14 -11 -10 -1 -5 0 -11 -3
Year 1996/97
5 1 0 7 -1 6 -8 11 9 8 0 -6 3
1997/98
4 -7 0 -10 3 -15 0 -6 -11 1 -3 -4
1998/99
-29 -52 0 -61 12 -47 -99 -17 2 -62 37 -26 -29
1999/00
55 42 88 -35 -10 -11 70 66 41 34
63. Table 15 shows great variation between years and between provinces. Budget year 1998/99 was the decades low year for education sector consolidated budget, and 8 of the 12
9
SRU. Laos Education Expenditure Study. Department of Government and Public Affairs, Slippery Rock University, Slippery Rock, Pennsylvania. 2000. (Financed by the World Bank).
31
provinces reported significant deficit spending (more than 5 percent deficit, compared with budget), as seen in Table 16. Expenditure in 1999/2000 showed a substantial overall surplus in spending. That year showed a rise of more than 40 percent in overall allocations, as shown in Tables 1 and 6 above. C. Reliability of the Data
64. At the central level, budget data on central revenues are reported reliably and timely. Reporting of expenditure from the provinces to central level, however, is not always timely. Because it is not always timely, preliminary estimates are often used. These preliminary estimates can contain substantial errors which sometimes can remain for more than a year. 65. Estimation of actual expenditure is difficult in part because there is no regular mechanism for obtaining a national overview of the distribution of the revenue, that is, the financing sources covering national, provincial, district, and foreign resources. As a result, the full extent of public support for education is not directly knowable from MOE statistics, but it can be studied on a sample survey basis. The SRU study examined the distribution of revenue for the period 1994/95 1999/2000 in three provinces. 10 The results, as reported by the Provincial Education Services, are given in Table 17. This table shows substantial variation between provinces. In Huaphan and Sayabuli provinces, the bulk of revenue comes from provincial sources. By contrast, in Oudomxay province most revenue come from central government. Given the apparent variation seen in Table 17, it would not be appropriate to base estimates on general assumptions about the relative contributions of the various sources. Table 17: Mean Distribution of Revenue 1994/95 1999/2000, by Source (%)
Province Huaphan Oudomxay Sayabuli Source: SRU. Analysis by author. Central 3.7 82.0 1.7 Provincial Other Domestic 93.2 0.1 0.0 0.0 97.8 0.0 Foreign 3.1 18.0 0.5 Total % 100.0 100.0 100.0
66. The data in Table 17 probably underestimates Other Domestic sources. Communities often provide support in cash or kind to education. Communities support construction of schools, provide teachers with cash supplements, food, housing, or plots of land. In-kind contributions are difficult to estimate and are probably seldom if ever reported. 67. In addition to estimation problems as reported above, differences in accounting practices or irregularities in reporting appear to weaken expenditure estimates. For one province, the SRU study found substantial differences between budget and expenditure figures as reported by MOE and the corresponding figures reported by Provincial Education Services, as shown in Table 18. Differences in reported estimates were greater than differences in reported budgets. 68. More significant than the reported differences are the reported similarities, namely the equivalence between the budget and expenditure, as reported by the PES. The equality of these figures seen in Table 18 cannot come about by chance or good financial management. It
10
SRU. Op cit.
32
can only come about because the PES is not making a distinction between budget and expenditure. Table 18: Differences in Reporting for Expenditure in Huaphan Province (Million Kip)
Year PFS / MOE 1994-95 1,128 1995-96 1,241 1996-97 1,628 1997-98 1,753 1998-99 2,006 1999-2000 3,899 Source: SRU. Analysis by author. Budget PES Difference 1,195 66 1,293 52 1,766 139 1,906 152 2,330 324 4,023 124 % Diff. 5.9 4.2 8.5 8.7 16.1 3.2 PFS / MOE 1,222 1,194 1,517 1,927 3,228 5,254 Expenditure PES Difference 1,195 -28 1,293 100 1,766 249 1,906 -21 2,330 -898 4,023 -1,231 % Diff. -2.3 8.3 16.4 -1.1 -27.8 -23.4
69. The data in Table 18 represent three separate data series related to the costs of education. Without closer study, there is no way of knowing which of these series is most reliable. This evidence (week indeed) would suggest errors of estimates of budgets on the order of 5 - 10 percent, and errors of estimates of expenditure on the order of 10 - 15 percent. 70. Without wider data collection, there is no way of knowing the extent to which the evidence shown in Table 18 is representative of the reporting in the country as a whole.
33
CHAPTER 4: CONCLUSIONS AND RECOMMENDATIONS
A.
Conclusions
71. During the first ten years of economic reform (from the mid-1980s through the mid1990s) Laos achieved impressive growth and development. Beginning in the mid-1990s, however, education sector expenditure began to fall. The decline was worsened (but not caused by) the Asian economic crisis. The Asian economic crisis began in July 1997, some two years after education sector expenditure had begun to fall. 72. The Asian economic crisis forced changes in consumption and saving patterns. With falling real incomes, school supplies were beyond the reach of many poor rural families. Despite Governments expressed objective of alleviating poverty while maintaining macroeconomic stability, poverty remained pervasive over the decade. The social sectors were not protected from the vagaries of the economic developments of the latter half of the decade. 73. The education sector in Laos made substantial progress in the early years of the 1990s. Government devoted an increasing share of its GDP and public expenditure budget to education. This led to quantitative expansion of the education system, particularly at the primary and lower secondary level. Beginning in the mid-1990s, however, education sector spending began to fall. The Asian economic crisis brought about a worsening of the situation in the education sector. The education budget as a proportion of total government budget and as a proportion of GDP fell sharply. 74. Education is financed mainly through public expenditure, with the financing responsibility shared between central and regional levels. Contributions are also made by local communities and foreign donor agencies. The standard summary categories for collection and reporting of financial data include central, regional (provincial), and consolidated. Many communities support education, especially primary schooling. Such contributions are not usually reported to higher administrative level and are therefore not knowable from administrative statistics. One source of support for education is fees and charges collected by the PES and the education and training institutions under its responsibility. 75. At the beginning of the decade, there was virtually no foreign support for the development of the education sector in Laos. By the middle of the decade, foreign funding accounted for over a third of all education sector spending in Laos and three-fourths of all investment spending. 76. The growth of foreign investment funds, combined with low domestic recurrent spending, caused a severe imbalance between investment and recurrent expenditure. More schools and classrooms were built than could be staffed, operated, and maintained. By international comparison, Laos displays an extreme pattern. 77. Over the decade, the total volume of resources first rose and then fell, but some categories of expenditure fared better than others. Real expenditure on operations and maintenance fell by 49 percent, but real expenditure on fellowships rose by 155 percent over the decade. 78. There were major changes in the distribution of expenditure by level of education. By the end of decade, total real education sector expenditure had fallen by 27 percent. It is
34
significant of the transition from plan economy to market economy that in the early years of the decade, expenditure on technical and vocational education and training rose to more than twice its beginning-of-decade value, and then fell by the end of the decade to less than half of its beginning-of-decade value. Over the decade, the biggest winner was administration. The biggest loser was teacher training. In real terms, expenditure fell over the decade to slightly more than one-fourth of the beginning-of-decade value. Technical and vocational education and training was also a big loser. Other losers included upper secondary, lower secondary, pre-school, technical and vocational, and teacher training. 79. There is some evidence to suggest lack of clarity among concepts related to financing education, namely between the concepts of budget allocation, cost, expenditure, and disbursement. This lack of clarity appears to reduce the reliability of education expenditure data. B. Recommendations
80. The Balance between Investment and Recurrent Expenditure. Laos has signed the declaration on Basic Education for All, but achievement of the aims of universalization of primary education lag in the region. Achievement of the goal of UBE is in jeopardy. The single most important hinder is the imbalance between investment and recurrent expenditure. If investment is too high relative to recurrent expenditure, schools will be built which cannot operate for lack of funds. There is such a profound shortage of qualified primary school teachers that large numbers of children only have access to incomplete schools, that is, schools for which there are too few teachers to provide the full complement of five primary grades. This is wasteful investment. Both the quality and the quantity of teachers badly needs to be increased. The development patterns for education finance of the 1990s was disastrous. The balance between recurrent and investment expenditure must be changed if Laos is to have any hope of achieving its aims of UBE by 2015. Even achievement of that target date will leave Laos significantly behind its neighbors. 81. There are two ways to change the recurrent / investment ratio: either increase the recurrent expenditure or decrease the investment expenditure. There are today vocal advocates of reducing investment. The argument is that since teacher salaries are based on the civil servant salary scale, it is not possible to increase both the quantity of teachers and the salary level. This might be the easiest conclusion but it is not a necessary conclusion. To yield to this conclusion would be to reduce the likelihood of achieving UBE by 2015. MOE is now committed to raising public education expenditure to 4 percent of GDP, which should correspond to at least 14 percent of its budget to education. This target would help rectify the balance between recurrent and investment expenditure and should be approached with great urgency. 82. Ultimately the balance between recurrent and investment expenditure is a political matter. If it is indeed not possible to increase recurrent expenditure, then investment should be reduced. The bulk of investment takes the form of loans which in due time will have to be paid by the children of today. If balance is not achieved, education investment will be inefficient and wasteful, and taking loans for such investments would be to impose repayment costs on future generations who do not draw maximum benefit from the investment. 83. Schools versus Administration. Administration was the big winner during the decade of the 1990s, but incomplete schools are operating because of shortages of teachers. It is unclear why administration has grown and what positive effects its growth might have. In this context, administration includes both administrative and managerial staff of schools, DEBs, PESs, and MOE. This issue should be examined, partly because of the quantity of
35
resources administration absorbs but also because administrative and managerial personnel are often taken from the classroom. 84. Cost Accounting. MOE has current data about budgets, because MOE receives its allocation, and MOE allocates in turn to province level. Timely data on allocations down to the provincial level are available. Expenditure data, however, often lags many months, apparently in part because of delays in payments. It should be possible to report expenditure data in a timely manner, because by the end of the year (or shortly thereafter) all expenses should be known, even if payments have not yet been made. Indeed, a clear distinction between expenses and disbursements would promote timely reporting of actual expenses, which would promote timely disbursements. Collection of expenditure data from district to province to central level would be valuable for estimating the true costs of education. Data should be collected from districts in standard forms using standard definitions.11 While it may not be necessary or desirable to enforce completely identical standards at a detail level, agreement should be reached on a set of broad categories which all districts and provinces would report. Conceptual distinctions between allocations, costs, expenditures, and disbursements need to be firmly established.
11
One of the findings of the SRU survey is the different districts and provinces use somewhat different forms, standards, and definitions.
36
APPENDIX A: STRUCTURE OF THE EDUCATION SYSTEM
Structure of the Formal Education in Lao PDR 2001
Appendix A, page 1
APPENDIX B: OUTLINE OF MOE BUDGET PREPARATION PROCEDURES
Outline of MOE Budget Preparation Procedures12 1. Bouapao13 describes the budget procedures for education in general terms. He describes the annual budget preparation, review, and approval cycle from the central level down to the district level. This provides us with a useful baseline for comparison, so it is worth reviewing the main points of this eleven-step cycle. The standard nomenclature for accounting is given in Table 1. 1.1 The overall budget and the budget guidelines are established by the Ministry of Finance (MOF) and the State Planning Commission (SPC). The Ministry of Education (MOE) sends these guidelines to the Provincial Education Service (PES) in January each year. 1.2 The PES submits draft budget proposals to the MOE in May. These include both recurrent (salaries, operating expenditures, and subsidies) and investment proposals. 1.3 The PES consolidates the budget proposals of the District Education Bureaus (DEB) and submits these to the MOE in July through the Provincial Finance Service (PFS) for recurrent expenses and through the Provincial Planning Service (PPS) for investments. 1.4 MOE consolidates the PES budget proposals. 1.5 The MOE submits the education budget proposal to the MOF for recurrent expenses and to the SPC for investment in July. 1.6 1.7 1.8 1.9 1.10 1.11 A series of budget conferences are held in July with the MOF, MOE and SPC. The MOF and SPC prepare a final budget plan, which is reviewed in July. The National Assembly reviews and approves the budget in September. The Prime Minister decrees the execution of the budget plan. MOF and SPC distribute the approved budget plans to MOE and to the provinces. MOE distributes the approved budget for education to PES in October.
2. The budget procedures for the nine provinces in our study are presented in two-part flow charts below. Part One of the charts describes the process of determining the annual budget, and Part Two of the charts describes the allocation of the budget. In most cases the emphasis is on the provincial and district level, with very limited reference to the central budget review and approval process. 3. The budget procedures described in our interviews in nine provinces reveal significant variations from one province to another, and some variation from the general procedures outlined by Mr. Bouapao above. Mr. Bouapaos description focuses primarily on the central level and most of our respondents described the budget process at their local level. Therefore it is not surprising that provincial and district officials descriptions of the central level budget review and approval process are inconsistent with Mr. Bouapaos description. What explains the variance in the budget procedures reported from province to province?
12
This appendix was originally prepared by SRU under the title "Budget Procedures" and stored in the file "Budget Procedures Text.wpd" 2000-12-28.
13
Lytou Bouapao IIEP Research Project on Comparative Analysis of Budgetary Procedures for Education in Lao PDR. Paris: IIEP, 1998.
Appendix B, page 1
3.1 Some of the variation in budget processes described by our respondents is due to the ways that the questions in our questionnaire were answered and translated. Some respondents were very thorough, and others were far more brief and cursory. Our reliance on translators made it difficult for us to ask appropriate follow-up questions, especially when the translator would tell us that the procedures were basically the same as before. Despite these problems, it is possible to make some useful observations. 3.2 One key variation in the reported budget procedures among the nine provinces we investigated has to do with the degree of budgetary autonomy that different provinces have with the central government (see the table on Central and Local Financing for Education in Nine Provinces in Laos). For example, wealthier provinces in central-south Laos including Bolikhamxay, Khammuan and Savannakhet, are self-supporting and in fact export budget surpluses to the central government. Other provinces receive either full or supplemental budget support from the central government. Even among the three self-supporting provinces there are some important differences.
Appendix B, page 2
Budgetary nomenclature of MOE in Lao PDR Chapter Title Subtitle Account # Category Name Totals 1 41 20 20 20 40 1 2 50 42 20 20 1 2 30 1 2 3 4 6 44 45 10 20 30 46 10 20 2 14 10 1 2 20 1 2 3 30 40 1 2 3 614 Office requisites and petrol 6141 Petrol 61411 Petrol, diesel fuel 61412 Motor oil 6142 Office requisites 61421 Equipment 61422 Printed paper 61423 Book and paper 6143 Uniform 6144 Other materials 61441 School equipment 61442 Medical equipment 61443 Medicines 641 Salaries and indemnities 6412 Base salary 64121 Salary of new teacher 64123 Salary for promotions 6414 Civil servants' base salary during work time 64141 Civil servants' base salary during training 64142 Civil servants' base salary during training outside country 6415 Supplementary hours 642 Indemnities and bonus 6422 Indemnities 6422 Bonus 64221 Service indemnity 64222 Technical indemnity 6423 Special indemnity 64231 Indemnities for heavy/ dangerous work 64232 Teaching indemnity 64233 Health care indemnity 64234 Special bonus 64236 Adjustment of the purchasing power 644 Contracts 645 Lodging indemnity of Ministers and Vice-Ministers 6451 Electricity and water 6452 Telephone 6454 Petrol 646 Leave indemnity 6461 Voluntary leave indemnity 6462 Retirement leave indemnity
Appendix B, page 3
Budgetary nomenclature of MOE in Lao PDR Chapter Title Subtitle Account # Category Name 17 1 2 21 10 20 30 22 10 1 2 3 50 1 2 3 4 5 23 24 10 20 25 10 50 1 2 3 4 5 26 50 60 70 80 28 10 20 30 4 617 Electricity and water 6171 Water 6172 Electricity 621 Other services 6211 Use of building 6212 Car Storage 6213 Material Storage 622 Maintenance and repairs 6221 Maintenance 62211 Maintenance of building 62212 Car Maintenance 62213 Maintenance and repairs of machines/material 6225 Small construction and repairs 62251 Small construction 62252 Installation of machines and material 622521 Building repairing 622522 Car repairs 622523 Machines and material repairs 623 Insurance 624 Mail and telecommunication 6241 Mail 6242 Telecommunication 625 Transport 6251 Transport material 6255 Travel 62551 Bus/air ticket 62552 Hotel and meal 62553 Visa/ Taxi/ Airport Tax 62554 Cash money for the groups 62555 Individual money 626 Seminar, conference, reception 6265 Seminar 6266 Conference 6267 Reception 6268 National day 628 Other Charges 6281 Research and analysis 6282 Information and statistics 6283 Other amortization material Subsidy
Appendix B, page 4
Budgetary nomenclature of MOE in Lao PDR Chapter Title Subtitle Account # Category Name 51 2 1 2 3 4 52 10 20 30 1 2 53 10 20 30 40 1 2 50 60 70 80 6 3 2 1 2 12 1 2 1 2 13 1 2 14 1 2 651 Technical and scientific study 6512 Education 65121 Reorganization and development of all sectors of education 65122 Development of school textbooks 65123 Non formal development for education 65124 Development of human resources 652 Family allowance 6521 Allowance for children 6522 Allowance for women 6523 Adjustment of the purchasing power 65231 Adjustment of the purchasing for children 65232 Adjustment of the purchasing power for women 653 Student Grants 6531 Boarding student 6532 Non boarding student 6533 Student Grant during training 6534 Student transportation 65341 Travel 65342 Hotel and meal 6535 Grant for student coming from minorities 6536 Grant for the monk 6537 Adjustment for the purchasing power 6538 Grant for the teachers of non formal education Investment 2032 Charges for the project 20321 Per diem 20322 Other administrative services 212 Building 2121 Purchase of building 2122 Construction of building 21221 New construction 21222 Repairs 213 Purchase of machines and material 2131 Purchase of new things 2132 Repairs 214 Purchase of cars 2141 Purchase of new material 2142 Repairs
Appendix B, page 5
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Abbreviations Used for Unpublished Sources

SRU. Laos Education Expenditure Study. Department of Government and Public Affairs, Slippery Rock University, Slippery Rock, Pennsylvania. 2000. Financed by the World Bank.
Ongoing study of school financing in Laos, especially the relationship between central and provincial levels and other sources. Financed by World Bank.

Public Expenditure On Education in Lao PDR: A Turbulent Decade of Transition (1990 - 2000)

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Public Expenditure On Education in Lao PDR: A Turbulent Decade of Transition (1990 - 2000)

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Education Financing in Lao PDR

R. Noonan June 15, 2001

Sida / World Bank

Sida / World Bank

CHAPTER 1: ECONOMY AND EDUCATION IN LAO PDR A. Introduction

Economic Development Drama

Figure 1: Consumer Price Index (CPI), 1990 - 2000

Figure 2: Market Exchange Rate 1990 - 2000

Figure 3: Growth in GDP per Capita, 1990 - 2000

Table 1: GDP, Government Budget, and Education Budget 1990 2000

24 Educ. as % Gov. 25 Educ. Rec. % of Gov. 26 Prim. Ed. Rec. % Gov.

Figure 4: Growth in Government and Education Budget as %GDP, 1990 - 2000

Figure 5: Per Capita GDP, Government Budget, and Education Budget

Figure 6: Growth of GDP, Government Budget, and Education Budget

CHAPTER 2: PATTERNS OF EDUCATION SPENDING A. Sources of Education Financing

23.1 76.9 100.0

34.1 65.9 100.0

34.7 65.3 100.0

41.1 58.9 100.0

51.1 48.9 100.0

45.9 54.1 100.0

51.1 48.9 100.0

53.1 46.9 100.0

33.4 66.6 100.0

36.7 63.3 100.0

Figure 7: Education Budget by Level of Government (Real Kip)

Figure 8: Education Budget by Level of Government (Percent)

5,401,000 100 0.2

Total Budget Foreign % Foreign Source: MOE January 2001.

Figure 9: Growth in Foreign Expenditure

The Recurrent and Investment Budgets

Table 7: Percent Distribution of Recurrent Expenditure by Category of Expenditure

1992 43.9 10.4 15.7 30.0 100.0

1992/93 40.5 10.3 16.4 32.8 100.0

1997/98 38.9 6.2 6.2 48.8 100.0

91.4 3.9 2.1 2.5 100.0

91.4 3.9 2.1 2.6 100.0

90.3 3.9 2.1 3.8 100.0

90.6 4.1 2.2 3.1 100.0

90.6 3.7 2.0 3.8 100.0

93.0 3.2 0.7 3.1 100.0

92.4 3.3 0.8 3.6 100.0

91.5 2.8 1.0 4.7 100.0

78.7 2.1 0.7 18.4 100.0

75.9 4.9 1.6 17.5 100.0

71.4 4.6 1.5 22.4 100.0

82.7 5.3 4.8 7.3

81.7 5.7 5.4 7.3

83.2 4.9 4.2 7.8

81.5 5.2 4.8 8.5 100.0

81.1 5.2 4.3 9.4 100.0

83.9 4.3 2.7 9.2 100.0

82.2 4.5 2.8 10.5 100.0

82.4 4.2 1.9 11.6 100.0

69.4 3.1 2.0 25.5 100.0

64.4 5.4 2.9 27.3 100.0

67.4 4.9 2.2 25.5 100.0

1990 4,048 3,294 754 81 19 16,028 15,862 166 99 1

1992 7,039 2,410 4,629 34 66 13,598 13,427 171 99 1

Figure 11: Recurrent Budget as Percent of Total, 1990 2000, by Level

Figure 12: International Comparison of Percent Recurrent Expenditure

Table 10: Public Expenditure on Education in Laos in International Comparison

Ratio 7.6 10.7 7.5 12.7 17.7 5.7 4.6 10.3