public expenditure on education in lao pdr: a turbulent decade of transition (1990 – 2000)

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Sida / World Bank

Education Financing in Lao PDR

Patterns of Expenditure

A TURBULENT DECADE OF TRANSITION (1990 – 2000)

R. Noonan

June 15, 2001

Sida / World Bank



Education Financing in Lao PDR 1990-2000, Part IR. Noonan (Sida / World Bank), 2011-07-16

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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. Introduction .............................................................................................................................................. 1 B. Economic Development Drama .............................................................. .................................................. 2 C. Social Effects of the Asian Economic Crisis ............................................................................................ 4 D. Education Sector Development................................................................................................................. 5

CHAPTER 2: PATTERNS OF EDUCATION SPENDING ............................................................................. 9

A. Sources of Education Financing ............................................................................................................... 9 B. The Recurrent and Investment Budgets .............................................................. .....................................12 C. Composition of Recurrent Expenditure ...................................................................................................23 D. Expenditure by Level of Education .........................................................................................................24

CHAPTER 3: BUDGETS AND EXPENDITURES ............................................................... ..........................29

A. The Budget Process .................................................................................................................................29 B. Expenditure versus Budget ......................................................................................................................29 C. Reliability of the Data .................................................................. ............................................................32

CHAPTER 4: CONCLUSIONS AND RECOMMENDATIONS ................................................................ ...34

A. Conclusions .............................................................................................................................................34 B. 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




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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 asDPC).

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 People’s 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 People’s Revolutionary Party.

LWU. Lao Women’s 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 studyfinanced 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 Children’s Fund.

USD. United States Dollars.

WB. World Bank.




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EXECUTIVE SUMMARY

As in all countries, the development of the education system is based on its history. Alarge 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 (fromthe mid-1980s through the mid-1990s) Laos achieved impressive growth and development.Beginning in the mid-1990s, however, education sector expenditure began to slide. Thedecline was worsened by the Asian economic crisis. The Asian economic crisis began in July1997. Inflation rose sharply in 1998, the value of the Kip fell, the fiscal deficit grew, andforeign investment inflows fell.

During the Asian economic crisis, high inflation reduced real incomes and purchasingpower, forcing changes in consumption and saving patterns. With falling real incomes,school supplies were beyond the reach of many poor rural families. Despite Government’s

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, thesocial sectors were not protected from the vagaries of the economic developments of the latterhalf of the decade.

The education sector in Laos made substantial progress in the early 1990s. Govern-ment 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 andlower secondary level. Beginning in the mid-1990s, however, education sector spendingbegan to fall. The Asian economic crisis brought about a worsening of the situation in theeducation sector. The education budget as a proportion of total government budget and as aproportion of GDP fell sharply.

Education is financed mainly through public expenditure, with the financingresponsibility shared between central and regional levels. Contributions are also made bylocal communities and foreign donor agencies. The standard summary categories forcollection and reporting of financial data include central, regional (provincial), andconsolidated. Many communities provide support to education, especially primary schooling.Such contributions are limited by the economic capacity of the community and are promotedby community interest in education. Such contributions are not usually reported to higheradministrative level and are therefore not knowable from administrative statistics. One sourceof support for education is fees and charges collected by the PES and the education andtraining institutions under its responsibility.

At the beginning of the decade, there was virtually no foreign support for thedevelopment of the education sector in Laos. By the middle of the decade, foreign fundingaccounted for over a third of all education sector spending in Laos and three-fourths of allinvestment spending.

The growth of foreign investment funds, combined with low domestic recurrentspending, caused a severe imbalance between investment and recurrent expenditure. Moreschools and classrooms were built than could be staffed, operated, and maintained. Byinternational 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 overthe 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 issignificant 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 thantwice 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 vocationaleducation and training was also a big “loser”. Other “losers” included upper secondary, lowersecondary, pre-school, technical and vocational, and teacher training.

The budget process is described. As is common to many systems, budget directivesflow downward, budget requests flow upward, and budget decisions flow back down.

There is some evidence to suggest lack of clarity among concepts related to financingeducation, namely between the concepts of budget allocation, cost, expenditure, and disburse-ment. 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 formaking decisions about educational investments in support of basic education, especially

primary education, during the decade 2001 - 2010. Such investment decisions are based on awide 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 revenueside. 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 focusingon these four criteria.1 This report considers the macroeconomic context of education financ-ing in Laos over the past decade and the associated overall patterns of expenditure in theeducation 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 someproblems related to the quality of the data. The budget process is described and someconceptual and measurement problems are discussed. Chapter 4 presents conclusions andrecommendations.

3. The Lao Education System in Brief . The education system in Laos consists of fiveyears at the primary level, three years in lower secondary and three years at the uppersecondary 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 publicfunds, 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 hasoccurred to education spending over the decade and what are the repercussions for wideningaccess 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 andestablishing 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 Laoeducation system and the nature of future investment programs that need to be developed toconserve the gains made in the last few years.

1 The evidence and findings presented here are based on work carried out by A. Mingat beginning in the mid- tolate 1990s. The work was continued by J. Baptist in the late 1990s and into 2000. It was then carried further byR. Noonan beginning in late 2000. The report has also benefited from the study in progress by G. Brown and hisstudents. The study could not have been carried out without the cooperation of the Department of Finance at theMinistry 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 theDepartment of Government and Public Affairs ,Slippery Rock University, for the World Bank (cited in text and

tables as “SRU”).




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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 millionpeople, Laos is one of the smallest nations in South East Asia. A large part of the Laoeconomy is based on traditional agriculture and forestry.

7. In common with other countries in the region, Laos embarked on the road to marketeconomy reforms in 1986 with the New Economic Mechanism (NEM). A major reformprogram began in 1989. During the first ten years of economic reform – from the mid 1980sthrough the mid 1990s – Lao PDR achieved impressive growth, privatization of some state-owned enterprises, and macro-economic stability. Increased public and private investmentand 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 wascharacterized by centralization and growth, the latter half of the decade was characterized bydecline and de-centralization. Growth and stability reached their zenith in the middle of thedecade. Economic growth during the decade was uneven, as can be seen in Table 1. Annualgrowth in real GDP varied substantially over the decade, but the low for the period was -1.4percent 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-capturedduring the decade. It is important to understand that the decline in education sectorexpenditure began already in the middle of the decade. It was worsened by the Asianeconomic 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 ThaiBaht. It had repercussions throughout most of Asia, but Laos was not recognized initially asone 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 loosemonetary policy on the part of the Lao Government. Inflation rose sharply in 1998, reachinga peak month-on-month inflation of 24 percent in June 1998 and a peak year-on-year inflationof 167 percent in March 1999, as shown in Figure 1. At the same time, the value of the Kipfell perilously, as seen in Figure 2. The fiscal deficit (including grants) widened to 10 percentof 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 approxi-mately USD 330 in 2000, as can be seen in Figure 3. A more relevant statistic from a humandevelopment 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 marketexchange rate December 2000 was US$ 1 = Kip 8,237. Selected economic indicators for theperiod 1990/91 - 1999/2000 are given in Table 1.

2 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.

3 UNDP. “Human Development Report 1999”. New York: UNDP, 1999. Web site: http://www.undp.org-

/hdro/report.html, December 20, 1999.




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

Figure 2: Market Exchange Rate 1990 - 2000




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

11. In order to regain and maintain a solid macroeconomic platform for growth, the IMFadvocated that fiscal reform focus on enhancing revenues (so that key government servicescould be provided without inflationary financing) and financial reform focus on the now-insolvent 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 macroeconomicsituation had improved significantly, thanks to Government’s tight monetary policy in place

since August 1999 and the gradual improvement of the economic situation in the regiongenerally. Between February and December 2000, monthly inflation (CPI) averaged around1.5 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 whichannual 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 purchasingpower, forcing changes in consumption and saving patterns. Diets were adjusted, spending onclothing 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 increasedsignificantly. 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 higheragricultural prices in Thai markets as the Kip fell in value. Those farmers became moreaffluent. Farmers with inadequate access to external markets, however, suffered significantreal income erosion and declining living conditions.

14. Traditional patterns of labor migration shifted. The number of Chinese laborers whohad migrated to work in the construction industry decreased with the weakening of the Kip




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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, ascompetition from Thai laborers increased, even for unskilled jobs.4

15. The Unprotected Social Sectors. Despite Government’s 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 1997noted that mobilizing resources to finance substantial public expenditures, especially towardthe fulfillment of basic needs, would still be critical in improving the future living conditionsof the poor and thereby reaping the full benefits of economic reforms.

16. The Sixth Party Congress (1996) adopted the Human Resource Development Programas one of eight priority programs in the Public Investment Program up to 2000. Governmenthas now prepared an Educational Development Plan 2001 - 2005 and a National EducationalStrategy 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. Govern-ment devoted an increasing share of its GDP and public expenditure budget to education, ascan 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 budgetand 3.6 percent of GDP 1994/95. This was approaching a regional standard of approximately14-15 percent and 4 percent, respectively.

19. This led to massive quantitative expansion of the education system, particularly at theprimary and lower secondary level. Enrollments at the primary level increased more than 40percent between 1991 and 1997/98 (from 580,000 to 822,000 students). At the secondarylevel 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 enrollmentsrose from 32,000 in 1991 to 57,000 in 1997/98.

20. This expansion came before the Asian economic crisis. Even before the Asianeconomic crisis, however, there were dramatic declines in educational spending, as can beseen in Table 1 and Figure 4. Since the 1995/96, government spending on education felldramatically, and by 1999/2000, spending had fallen to a low of 7.2 percent of governmentbudget 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 thedecade 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 thedecade of 5.8% of the total government budget and 1.2 percent of the GDP, as seen in Table 1above and Diagram 4 below. During discussions between GOL and the World Bank in

4 Source: Ngozi Okonjo-Iweala, Victoria Kwakwa, Andrea Beckwith, and Zafar Ahmed. “Impact of Asia'sFinancial Crisis on Cambodia and the Lao PDR”. Finance and Development . A quarterly magazine of the IMFSeptember 1999, Volume 36, Number 3. Web site: (http://www.imf.org/external/pubs/ft/fandd/1999/09/-

OKONJO.HTM, 1999-12-16)




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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 thelatter half of the decade, in the face of slow growth, stagnation, and decline in the realeconomy, 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 90/91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00

Nominal (Billion Kip)

1 GDP 726 848 940 1,116 1,350 1,655 2,086 3,730 8,839 13,780

2 Government Budget 188 148 202 252 352 340 494 715 1,759 2,774

3 Education Budget 13.5 14.9 18.9 24.4 49.0 46.6 64.4 72.1 101.7 198.5

4 Education Recurrent 11.7 11.2 14.0 15.4 26.2 27.7 35.5 40.2 53.9 103.75 Primary Ed. Recurrent 5.0 4.9 6.0 6.8 12.1 13.6 18.6 18.0 26.3 50.5

Real(Billion Kip)

6 Inflation Index (1995) 0.67 0.71 0.77 0.82 0.94 1.11 1.34 2.24 5.38 7.45

7 GDP 1,082 1,197 1,220 1,356 1,431 1,488 1,560 1,665 1,642 1,849

8 Growth Rate GDP - 10.6 1.9 11.2 5.5 4.0 4.8 6.7 -1.4 12.6

9 Government Budget 280.31 208.27 262.13 306.21 373.20 305.74 369.25 319.04 326.74 372.16

10 Education Budget 20.1 21.0 24.5 29.6 52.0 41.9 48.1 32.2 18.9 26.6

11 Education Recurrent 17.4 15.8 18.2 18.8 27.8 24.9 26.5 18.0 10.0 13.9

12 Primary Ed. Recurrent 7.5 6.9 7.8 8.2 12.8 12.2 13.9 8.0 4.9 6.813 Population (million) 3.9 4.0 4.1 4.2 4.4 4.6 4.7 4.9 5.0 5.1

14 GDP/capita (Kip 1000) 277.4 299.2 297.5 322.9 329.0 321.3 329.1 341.9 329.1 360.4

15 Growth Rate GDP/c - 7.9 -0.6 8.5 1.9 -2.3 2.4 3.9 -3.7 9.516 Gov. Budget/c (Kip) 71,873 52,069 63,933 72,907 85,793 66,035 77,900 65,512 65,478 72,54517 Educ. Budget/c (Kip) 5,146 5,246 5,980 7,049 11,948 9,042 10,152 6,612 3,788 5,19118 Educ. Rec./c (Kip) 4,469 3,959 4,437 4,470 6,391 5,388 5,601 3,686 2,005 2,71319 Prim. Ed. Rec./c (Kip) 1,926 1,734 1,903 1,953 2,940 2,646 2,941 1,651 978 1,321

20 Gov. as % of GDP 25.9 17.4 21.5 22.6 26.1 20.6 23.7 19.2 19.9 20.1

21 Educ. as % of GDP 1.9 1.8 2.0 2.2 3.6 2.8 3.1 1.9 1.2 1.4

22 Educ. Rec. % of GDP 1.6 1.3 1.5 1.4 1.9 1.7 1.7 1.1 0.6 0.8

23 Prim. Ed. Rec. % GDP 0.7 0.6 0.6 0.6 0.9 0.8 0.9 0.5 0.3 0.4

24 Educ. as % Gov. 7.2 10.1 9.4 9.7 13.9 13.7 13.0 10.1 5.8 7.2

25 Educ. Rec. % of Gov. 6.2 7.6 6.9 6.1 7.4 8.2 7.2 5.6 3.1 3.726 Prim. Ed. Rec. % Gov. 2.7 3.3 3.0 2.7 3.4 4.0 3.8 2.5 1.5 1.8

US$ (Nominal)

27 Exchange Rate (Kip/$) 759 769 776 776 785 967 1040 2180 5194 8558

28 GDP/Capita 245 276 295 342 395 370 423 351 341 314

29 Gov. Budget/Capita 63.5 48.0 63.5 77.3 103.1 75.9 100.1 67.3 67.9 63.2

30 Ed. Budget/Capita 4.5 4.8 5.9 7.5 14.4 10.4 13.1 6.8 3.9 4.5

Sources: Macroeconomic data: World Bank estimates




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

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




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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). Totalgovernment expenditure on education reached a high of Kip 52 billion in 1994/95 but fell toslightly 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 alldownward 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 isillustrated in Figure 6. In real terms, GDP has risen; total government budget (including bothcentral and provincial budgets) has remained largely constant; education expenditure roseuntil the middle of the decade and then fell.




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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 bylocal communities and foreign donor agencies. In total, revenue for education comes from thefollowing 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. Consolidatedfigures summarize Central plus Regional figures. Table 2 reports education expenditure bytype 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 inFigure 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 90 91 92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00Constant Kip (1994/95)

Central 4,048 4,352 7,039 8,495 12,163 26,543 19,199 24,584 17,106 6,304 9,768

Regional 16,028 14,528 13,598 16,022 17,441 25,430 22,667 23,536 15,093 12,598 16,862

Consolidated 20,076 18,880 20,637 24,517 29,604 51,972 41,866 48,120 32,199 18,902 26,630

Percent

Central 20.2 23.1 34.1 34.7 41.1 51.1 45.9 51.1 53.1 33.4 36.7

Regional 79.8 76.9 65.9 65.3 58.9 48.9 54.1 48.9 46.9 66.6 63.3

Consolidated 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: MOE January 2001.

27. From Table 2 and Figure 7 it can be seen that the total (central and regional fundsconsolidated) volume of public financing for education rose dramatically during the period1991 – 1994/95, only to fall equally dramatically during the period 1997/98 – 1998/99. Thisdevelopment in the consolidated funds was a reflection of the virtually the same trend for bothcentral 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 rapidgrowth in central financing was followed by a sharp decline between 1997/98 and 1998/99.




10

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

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




11

28. Community Expenditure. Many communities contribute resources to education,especially primary schooling. Such contributions are inevitably limited by the economiccapacity of the community and are driven by community interest in education. Suchcontributions are usually not reported to higher administrative level and are therefore notknowable from administrative statistics.

29. One significant source of community support is sometimes reported to provinciallevel, namely fees and charges collected by the PES and the education and traininginstitutions under its responsibility. Evidence from the Luang Prabang PES is reported inTable 3. By far the largest category of local revenue is feed for middle school certificates andlower middle school training certificates. The second largest category is charges for waterand electricity in dormitories. All remaining categories represent only 3 percent of the totallocal revenue. The local revenue represents approximately 0.2 percent of the total educationbudget 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 (Kip1000/certificate), school book rental (Kip 300 per book per year) 4,710,000 87

Fees for training programs in mechanics and woodworking 60,000 1

Charges for water and electricity in dormitories, staff dormitories 521,500 10

Rental of coconut trees (Kip 2500 – 3000 per tree per year), equipment 39,500 1

Production (agricultural, handicraft) 70,000 1

Total local revenue 5,401,000 100

Local as % of total provincial revenue (approximate) 0.2

Note: The data represent revenue collected during 8 month in 1997/98 and 6 months in 1998/99Source: SRU. Analysis by author.

30. Foreign Expenditure. At the beginning of the decade of the 1990s, Laos receivedalmost no foreign support to the education sector. Beginning in 1992, foreign investmentgrew rapidly to a peak in 1994/95, and then fell as Government’s own investment and

recurrent expenditure fell, as shown in Table 4 and Figure 9. In absolute terms, changes inforeign 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 thedecade, 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 the1990s include IDA, the ADB, AusAid, JICA, NORAD, the Swiss government, GTZ, theFrench 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

Total Budget 20,076 18,880 20,637 24,517 29,604 51,972 41,866 48,120 32,199 18,902 26,630

Foreign 0 0 3,855 4,245 7,440 19,273 12,679 16,767 11,214 6,423 9,469

% Foreign 0.0 0.0 18.7 17.3 25.1 37.1 30.3 34.8 34.8 34.0 35.6

Source: MOE January 2001.




12

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 intosalaries, operation, maintenance, and fellowships. Investment expenditure is divided betweenGOL and foreign.

32. Expenditure development over the decade, broken down by these main categories andreported 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, reflectingchanges in overall government organization, namely the degree of centralization of financingand control. During the period 1990 – 1992, financing was decentralized. Between 1992/93and 1997/98, financing was centralized. From 1997/98 onward, financing was decentralizedagain.

33. Total Expenditure. During the opening period (decentralized), the central govern-ment financing of education was substantially lower than the combined financing of theprovinces. In 1990, the total central government financing was approximately one-fourth asmuch as the combined regional financing. During this period, central government financingrose and regional financing fell. By 1992, central financing was just over half as much as thecombined regional financing. This trend continued into the next period (centralization), andin 1994/95, 1996/97, and 1997/98, central financing exceeded regional financing. Then from1998/99 (decentralized), centralized financing fell substantially below regional financing.




13

Table 5: Education Expenditure by Type of Expenditure, 1990 - 2000 (Million Kip, Current)

Decentralized Centralization of Financial Responsibility Decentralized

Year 1990 1991 1992 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00

Central 2,390 2,919 4,988 6,550 10,010 25,035 21,350 32,877 38,326 33,934 72,809

Recurrent 1,945 2,121 1,708 2,561 2,727 4,457 4,869 6,654 9,406 12,181 15,390

Salaries 785 801 749 1,038 1,007 1,762 1,671 2,856 3,662 3,019 6,791

Operation 230 286 178 264 326 417 490 678 579 867 972

Maintenance 346 429 268 419 420 537 605 366 579 867 972

Fellowships 584 605 513 840 974 1,741 2,103 2,754 4,587 7,429 6,655

Investment 445 798 3,280 3,989 7,283 20,578 16,481 26,223 28,920 21,753 57,419

GOL 445 798 548 716 1,160 2,400 2,381 3,800 3,795 4,500 10,707

Foreign 0 0 2,732 3,273 6,123 18,178 14,100 22,423 25,125 17,253 46,712

Regional 9,463 9,744 9,636 12,353 14,353 23,985 25,207 31,475 33,814 67,811 125,684

Recurrent 9,365 9,568 9,515 11,464 12,722 21,764 22,875 28,850 30,814 41,671 88,346

Salaries 8,563 8,747 8,589 10,388 11,520 20,234 21,136 26,394 24,247 31,647 63,116

Operation 367 375 369 472 472 699 746 804 662 2,052 4,060

Maintenance 198 202 199 249 249 163 175 296 221 684 1,353

Fellowships 237 244 358 355 481 668 818 1,356 5,684 7,288 19,817

Investment 98 176 121 889 1,631 2,221 2,332 2,625 3,000 26,140 37,338

GOL 0 0 0 889 1,631 2,221 2,332 2,625 3,000 8,822 13,470

Foreign 0 0 0 0 0 0 0 0 0 17,318 23,868

Consolidated 11,853 12,663 14,624 18,903 24 ,363 49 ,020 46,557 64,352 72,140 101,745 198,493

Recurrent 11,310 11,689 11,223 14,025 15,449 26,221 27,744 35,504 40,220 53,852 103,736

Salaries 9,348 9,548 9,338 11,426 12,527 21,996 22,807 29,250 27,909 34,666 69,907

Operation 598 661 548 736 798 1,116 1,236 1,482 1,241 2,919 5,032

Maintenance 543 631 466 668 669 700 780 662 799 1,551 2,325

Fellowships 821 849 871 1,195 1,455 2,409 2,921 4,110 10,271 14,717 26,472

Investment 543 974 3,401 4,878 8,914 22,799 18,813 28,848 31,920 47,893 94,757

GOL 543 974 669 1,605 2,791 4,621 4,713 6,425 6,795 13,322 24,177

Foreign 0 0 2,732 3,273 6,123 18,178 14,100 22,423 25,125 34,571 70,580

Source: MOE, Dept. of Accounting and Finance Control. January 2001. See Appendix B, Notes to Table 12.




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Table 6: Education Expenditure by Type of Expenditure, 1990 - 2000 (Million Kip, Constant 1995)


Year 1990 1991 1992 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00

Central 4,048 4,352 7,039 8,495 12,163 26,543 19,199 24,584 17,106 6,304 9,768

Recurrent 3,294 3,162 2,410 3,322 3,314 4,725 4,378 4,976 4,198 2,263 2,065

Salaries 1,330 1,194 1,057 1,346 1,224 1,868 1,503 2,136 1,634 561 911

Operation 390 426 252 342 396 442 441 507 258 161 130Maintenance 585 640 378 543 510 569 544 274 258 161 130

Fellowships 989 902 724 1,089 1,184 1,846 1,891 2,059 2,047 1,380 893

Investment 754 1,190 4,629 5,174 8,850 21,817 14,820 19,609 12,908 4,041 7,703GOL 754 1,190 773 929 1,410 2,545 2,141 2,841 1,694 836 1,436

Foreign 0 0 3,855 4,245 7,440 19,273 12,679 16,767 11,214 3,205 6,267

Regional 16,028 14,528 13,598 16,022 17,441 25,430 22,667 23,536 15,093 12,598 16,862

Recurrent 15,862 14,266 13,427 14,869 15,459 23,075 20,570 21,573 13,754 7,742 11,852

Salaries 14,503 13,042 12,121 13,473 13,998 21,453 19,006 19,736 10,822 5,879 8,468

Operation 622 559 521 612 574 741 671 601 296 381 545Maintenance 335 301 281 323 303 173 157 221 99 127 182

Fellowships 401 364 505 460 584 708 736 1,014 2,537 1,354 2,659

Investment 166 262 171 1,153 1,982 2,355 2,097 1,963 1,339 4,856 5,009

GOL 0 0 0 1,153 1,982 2,355 2,097 1,963 1,339 1,639 1,807

Foreign 0 0 0 0 0 0 0 0 0 3,217 3,202

Consolidated 20,076 18,880 20,637 24,517 29,604 51,972 41,866 48,120 32,199 18,902 26,630

Recurrent 19,156 17,428 15,838 18,191 18,772 27,800 24,948 26,549 17,952 10,005 13,917

Salaries 15,833 14,236 13,177 14,820 15,222 23,321 20,509 21,872 12,457 6,440 9,379

Operation 1,012 986 773 955 970 1,183 1,111 1,108 554 542 675

Maintenance 920 941 658 866 813 742 701 495 357 288 312Fellowships 1,391 1,266 1,229 1,550 1,768 2,554 2,627 3,073 4,584 2,734 3,551

Investment 920 1,452 4,799 6,327 10,832 24,172 16,917 21,571 14,247 8,898 12,712

GOL 920 1,452 944 2,082 3,391 4,899 4,238 4,804 3,033 2,475 3,244

Foreign 0 0 3,855 4,245 7,440 19,273 12,679 16,767 11,214 6,423 9,469

Source: MOE, Dept. of Accounting and Finance Control. January 2001. See Appendix B, Notes to Table 13.




15

Figure 10: Real Recurrent and Investment Expenditure, 1990 – 2000, by Level

34. Recurrent Expenditure. Throughout the decade, the locus of recurrent expenditurehas been at regional level. Regional recurrent expenditure remained at approximately four tofive times as high as central recurrent expenditure. As seen in Table 6, recurrent expenditureremained remarkably stable throughout the decade at the central level, as measured inconstant 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 40percent going to salaries, around 30 percent going to fellowships, and the remainder going tooperation 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 toover 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 percentwent to operation and maintenance. From mid-decade, however, the proportion spent onsalaries fell dramatically, and the proportion spent on fellowships rose equally dramatically.The small proportion spent on operation and maintenance fell.




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


Year 1990 1991 1992 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00

Central

Salaries 40.4 37.8 43.9 40.5 36.9 39.5 34.3 42.9 38.9 24.8 44.1

Operation 11.8 13.5 10.4 10.3 12.0 9.4 10.1 10.2 6.2 7.1 6.3

Maintenance 17.8 20.2 15.7 16.4 15.4 12.0 12.4 5.5 6.2 7.1 6.3

Fellowships 30.0 28.5 30.0 32.8 35.7 39.1 43.2 41.4 48.8 61.0 43.2

Total Recurrent 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Regional

Salaries 91.4 91.4 90.3 90.6 90.6 93.0 92.4 91.5 78.7 75.9 71.4

Operation 3.9 3.9 3.9 4.1 3.7 3.2 3.3 2.8 2.1 4.9 4.6

Maintenance 2.1 2.1 2.1 2.2 2.0 0.7 0.8 1.0 0.7 1.6 1.5

Fellowships 2.5 2.6 3.8 3.1 3.8 3.1 3.6 4.7 18.4 17.5 22.4

Total Recurrent 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Consolidated

Salaries 82.7 81.7 83.2 81.5 81.1 83.9 82.2 82.4 69.4 64.4 67.4

Operation 5.3 5.7 4.9 5.2 5.2 4.3 4.5 4.2 3.1 5.4 4.9

Maintenance 4.8 5.4 4.2 4.8 4.3 2.7 2.8 1.9 2.0 2.9 2.2

Fellowships 7.3 7.3 7.8 8.5 9.4 9.2 10.5 11.6 25.5 27.3 25.5

Total Recurrent 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: MOE, Dept. of Accounting and Finance Control. January 2001.




17

37. Investment Expenditure. Investment is financed by either GOL or foreign sources.In constant Kip, GOL’s 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 onlyslightly higher than at the beginning. At the regional level, GOL’s 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 betweenapproximately 70 and 80 percent for most of the remainder of the decade. At the regionallevel, investment was a very small percent of total expenditure during the first decentralizedperiod, rising to around 10 percent during the centralized period, and then rising again tosome 30 percent in the second decentralized period. As a proportion of consolidated expend-iture, investment rose from 5 percent at the beginning of the decade to nearly 50 percent at theend 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 lowvalues. In constant value, consolidated recurrent expenditure ranged from a low of Kip 10.0billion to a high of Kip 27.8 billion, which corresponds to a high/low ratio of 2.8. Con-solidated investment expenditure ranged from a low of Kip 0.9 billion to a high Kip 24.2billion, which corresponds to a high/low ratio of 26.3. Over the decade, change in investmentwas 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 publiceducation expenditure in 1990 to nearly 48 percent in 1999/00. At the same time, as the totaland relative volume of investment rose, the total and relative volume of foreign financing alsorose, 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 therapid development of the education system, it has also caused a serious imbalance, namelybetween recurrent expenditure and investment. The imbalance is illustrated in Figure 11. Theconsolidated budget shows an almost continuous decline in recurrent expenditure as aproportion of total expenditure.

41. Comparative Perspectives on Investment. Some comparative evidence concerningthe balance between recurrent and investment expenditure can be seen in Figure 12. Of the119 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 inLaos accounted for only 55 percent of its total expenditure on education. By the end of thedecade it had fallen to just over 52 percent.

43. The ratio of recurrent to investment expenditure provides another way of looking atthe balance and is illustrated Figure 13. A low recurrent/investment ratio indicates relativelystrong emphasis on investment, and a high recurrent/investment ratio indicates relativelyweak emphasis on investment.




18

Table 8: Investment and Recurrent Budget 1990 – 2000, by Level (Million Kip, Constant 1995)


Year 1990 1991 1992 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00

Central 4,048 4,352 7,039 8,495 12,163 26,543 19,199 24,584 17,106 6,304 9,768

Recurrent 3,294 3,162 2,410 3,322 3,314 4,725 4,378 4,976 4,198 2,263 2,065

Investment 754 1,190 4,629 5,174 8,850 21,817 14,820 19,609 12,908 4,041 7,703

Rec. as % Total 81 73 34 39 27 18 23 20 25 36 21

Invest. as % Total 19 27 66 61 73 82 77 80 75 64 79

Regional 16,028 14,528 13,598 16,022 17,441 25,430 22,667 23,536 15,093 12,598 16,862

Recurrent 15,862 14,266 13,427 14,869 15,459 23,075 20,570 21,573 13,754 7,742 11,852

Investment 166 262 171 1,153 1,982 2,355 2,097 1,963 1,339 4,856 5,009

Rec. as % Total 99 98 99 93 89 91 91 92 91 61 70

Invest. as % Total 1 2 1 7 11 9 9 8 9 39 30

Consolidated 20,076 18,880 20,637 24,517 29,604 51,972 41,866 48,120 32,199 18,902 26,630

Recurrent 19,156 17,428 15,838 18,191 18,772 27,800 24,948 26,549 17,952 10,005 13,917

Investment 920 1,452 4,799 6,327 10,832 24,172 16,917 21,571 14,247 8,898 12,712

Rec. as % Total 95 92 77 74 63 53 60 55 56 53 52

Invest. as % Total 5 8 23 26 37 47 40 45 44 47 48

Source: MOE, Dept. of Accounting and Finance Control. January 2001.




19

Table 9: Investment and Recurrent Budget 1990 – 2000, by Source (Million Kip, Constant 1995)


Year 1990 1991 1992 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00

Total Budget 20,076 18,880 20,637 24,517 29,604 51,972 41,866 48,120 32,199 18,902 26,630

Recurrent 19,156 17,428 15,838 18,191 18,772 27,800 24,948 26,549 17,952 10,005 13,917

Investment 920 1,452 4,799 6,327 10,832 24,172 16,917 21,571 14,247 8,898 12,712

GOL 920 1,452 944 2,082 3,391 4,899 4,238 4,804 3,033 2,475 3,244

Foreign 0 0 3,855 4,245 7,440 19,273 12,679 16,767 11,214 6,423 9,469

Recurrent as % Total 95.4 92.3 76.7 74.2 63.4 53.5 59.6 55.2 55.8 52.9 52.3Investment as % Total 4.6 7.7 23.3 25.8 36.6 46.5 40.4 44.8 44.2 47.1 47.7

Rec./Invest. Ratio 20.8 12.0 3.3 2.9 1.7 1.2 1.5 1.2 1.3 1.1 1.1

GOL as % Total 4.6 7.7 4.6 8.5 11.5 9.4 10.1 10.0 9.4 13.1 12.2

Foreign as % Total 0.0 0.0 18.7 17.3 25.1 37.1 30.3 34.8 34.8 34.0 35.6

GOL as % Invest. 100.0 100.0 19.7 32.9 31.3 20.3 25.1 22.3 21.3 27.8 25.5

Foreign as % Invest. 0.0 0.0 80.3 67.1 68.7 79.7 74.9 77.7 78.7 72.2 74.5

Source: MOE, Dept. of Accounting and Finance Control. January 2001




20

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 theneed for expansion of school systems, and by economic growth rates, which condition theresources available for expansion.




21

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

Public Expenditure on Education Current Exp. as % Total

% GNP % Gov. Expenditure 1990 1996

Region / Country 1990 1996 1990 1996 % Ratio % Ratio

Regional Average

Africa 4.4 4.8 17.6 19.1 86.8 6.6 88.3 7.6

North America 4.3 5.1 14.9 16.0 91.4 10.6 91.4 10.7

South America 3.5 4.1 13.4 15.6 92.9 13.1 88.3 7.5

Europe 5.2 5.6 13.3 14.0 90.8 9.9 92.7 12.7

Oceania 4.9 7.3 14.6 13.5 96.2 25.2 94.7 17.7

Asia 4.4 4.0 15.1 14.3 87.5 7.0 85.1 5.7

East Asia 4.1 3.6 14.5 14.1 85.7 6.0 82.2 4.6

Average 4.5 5.1 14.8 15.4 90.9 12.1 90.1 10.3

Southeast Asia & Selected Other Asia

Cambodia ... 2.9 ... ... ... ... 63.5 ...

China excluding HK SAR 2.3 2.3 12.8 ... 93.2 13.7 87.5 7.0

Hong Kong SAR 2.8 2.9 17.4 ... ... ... 95.1 ...

Lao People’s Dem. Rep. 1.9 3.1 7.2 13.0 95.0 19.0 55.0 1.2

Malaysia 5.5 5.2 18.3 15.4 77.3 3.4 81.2 4.3

Philippines 2.9 3.2 10.1 17.6 92.4 12.2 86.4 6.4

Republic of Korea 3.5 3.7 ... 17.5 89.2 8.3 ... ...

Singapore 3.0 3.0 18.2 23.4 87.3 6.9 76.0 3.2

Thailand 3.6 4.8 20.0 ... 83.6 5.1 75.2 3.0

Viet Nam 2.1 2.9 7.5 ... 90.3 9.3 93.4 14.2

Average excl. Laos 3.2 3.4 14.9 18.5 87.6 8.4 82.3 6.3

Note: These figures are reported by MOE January 2001, analyzed by author. They differ from the UNESCO data collected in1997. 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




22

Figure 13: International Comparisons of Recurrent / Investment Ratio for 1996

45. In general, developed countries in Europe and North America take a median positionin terms of the recurrent/investment ratio. These societies tend to have relatively lowpopulation growth rates, and their school systems have grown gradually as the population andthe economy have developed. The Asian regional average, by contrast, shows a relativelystrong 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 highgrowth rates in population and the economy. Africa shows lower emphasis on investmentthan Asia, especially East Asia. Africa, like Asia, tends to show relatively high populationgrowth 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 othercountries shown tended more toward the regional mean.6 By any comparison, Laos’

recurrent/investment ratio was extremely low. In fact, according to the MOE revisedestimated 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 isquite out of alignment with other countries around the world.

5 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 sectorinvestment projects were in the pipeline by then. By the end of the decade, investment had increasedsubstantially, bringing Vietnam into line with the Asian regional average. Meanwhile the recurrent/investment

ratio in Laos had fallen to 1.1.




23

48. The rapid expansion of education sector investment beginning in the early 1990s wasanticipated to generate significant demands on the recurrent budget7. As more and moreschools have been established nation wide, the financial requirements for salaries, operatingcosts and maintenance have grown substantially, but the recurrent budget has not kept up, asshown above.

C. Composition of Recurrent Expenditure

49. Changes in the overall real recurrent expenditure over the decade were accompaniedby systematic changes in the allocation among expenditure categories, as can be seen in Table6 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 salariesrose 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 fellmore than others. Over the decade, real expenditure on operations and maintenance fell by 49percent. 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 seenin Table 7 and Figure 15. While expenditure on salaries fell from 83 percent of the budget to67 percent. Operations and maintenance fell from 10 percent to 7 percent. Fellowships rosefrom 7 percent to over 25 percent.

7 World Bank. “Lao PDR. Financing and Management of Education: Strategic Considerations for Strengtheningthe Education Sector”. White Cover. Washington, D. C.: World Bank, 1997.




24

Figure 15: Change in Distribution of Expenditure by Categories

51. Fellowships support students in technical and vocational institutions, the five teachertraining colleges and the university. On average, students receive about Kip 45,000 permonth to cover living costs. There are no tuition fees for regular students. The current policyof the government is to reduce these fellowships, as they are unsustainable but the timetable isnot decided.

D. Expenditure by Level of Education

52. The decade which saw major changes in the overall level of financing, in the propor-tion of the total budget going to recurrent or investment expenditure, the level of foreigninvestment, and allocation by expenditure categories, also saw major changes in the distribu-tion of expenditure by level of education. Table 11 and Figure 16 shows the real expendituretrend by level of education for the decade. Table 12 and Figure 17 show the proportionaldistribution, 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 seenin 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 totalbudget between levels or sub-sectors of education. It can be seen that the changes have beensubstantial. The clearest picture of the changing allocation of resources by level of theeducation system, however, can be seen in Table 13 and Figure 18. The picture shown byFigure 18 is one of turbulence.




25

Table 11: Public Recurrent Expenditure on Education, by Subsector (Million Kip, Constant 1995)

Sub-sector 1990 1991 1992 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00

Pre-school 785 611 570 600 639 916 924 975 628 363 501

Primary 8,371 7,519 6,937 7,796 8,212 12,763 12,262 13,827 8,034 4,869 6,751

Lower Secondary 3,544 3,227 2,962 3,307 3,382 4,689 3,971 4,583 2,887 1,643 2,309

Upper Secondary 1,743 1,622 1,394 1,490 1,560 1,970 1,723 1,923 1,722 792 1,148

Technical and Vocational 843 872 1,251 1,363 1,428 1,803 1,473 632 359 343 362

Teacher Training 1,360 1,239 855 1,109 977 1,332 924 553 538 293 371

Higher Education 1,111 1,029 792 1,163 1,184 2,331 1,349 1,712 1,327 642 940

Administration 1,398 1,308 1,077 1,363 1,391 1,998 2,323 2,344 2,457 1,061 1,536

Total 19,156 17,428 15,838 18,191 18,772 27,800 24,948 26,549 17,952 10,005 13,917

Source: MOE, March 2001

Table 12: Percent of Public Recurrent Expenditure on Education, by Subsector

Sub-sector 1990 1991 1992 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00

Pre-school 4.1 3.5 3.6 3.3 3.4 3.3 3.7 3.7 3.5 3.6 3.6

Primary 43.7 43.1 43.8 42.9 43.7 45.9 49.1 52.1 44.8 48.7 48.5

Lower Secondary 18.5 18.5 18.7 18.2 18.0 16.9 15.9 17.3 16.1 16.4 16.6

Upper Secondary 9.1 9.3 8.8 8.2 8.3 7.1 6.9 7.2 9.6 7.9 8.2

Technical and Vocational 4.4 5.0 7.9 7.5 7.6 6.5 5.9 2.4 2.0 3.4 2.6

Teacher Training 7.1 7.1 5.4 6.1 5.2 4.8 3.7 2.1 3.0 2.9 2.7

Higher Education 5.8 5.9 5.0 6.4 6.3 8.4 5.4 6.4 7.4 6.4 6.8

Administration 7.3 7.5 6.8 7.5 7.4 7.2 9.3 8.8 13.7 10.6 11.0

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.1 100.0 100.0





26

Table 13: Public Recurrent Expenditure on Education, Indexed on 1990 (Constant Kip)

Sub-sector 90 91 92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00

Pre-school 100 78 73 76 81 117 118 124 80 46 64

Primary 100 90 83 93 98 152 146 165 96 58 81

Lower Secondary 100 91 84 93 95 132 112 129 81 46 65

Upper Secondary 100 93 80 85 89 113 99 110 99 45 66

Technical and Vocational 100 103 148 162 169 214 175 75 43 41 43

Teacher Training 100 91 63 82 72 98 68 41 40 22 27

Higher Education 100 93 71 105 107 210 121 154 119 58 85

Administration 100 94 77 97 99 143 166 168 176 76 110

Total 100 91 83 95 98 145 130 139 94 52 73


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. Allother categories are “losers”. Bold italics represent the biggest “loser”.




27

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 hadfallen to 73 percent of the beginning-of-decade value. The index values show a level of tur-bulence exceeding that of the previous tables describing education sector recurrent expendi-ture.




28

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 consequenceof the transition itself. This can be seen in the expenditure pattern for technical andvocational education and training. In the early years of the decade, expenditure on technicaland 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. Therise would appear to reflect the hope to utilize the technical and vocational education andtraining system as a tool for economic growth in a global market economy. The fall wouldappear 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, wouldneed serious reform before it could serve its new purpose. This is normal for technical andvocational education and training system in transitional economies.8

56. The sub-sectoral categories can be divided into “winners” and “losers”. The “win-ners” are those categories for which the end-of-decade index value is higher than the end-of-decade index value for total expenditure. The “losers” are all the others – those for which theend-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, andadministration. 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 asystematic “loser” – amid all the turbulence, in only three years did teacher training not experience a reduction in expenditure.

8 Richard Noonan. Training Strategies for Transitional Economies: Some Brief Observations. Occasional

Papers, No. 1. Stockholm: Swedec International Management Institute. Revised November 12, 1996.




29

CHAPTER 3: BUDGETS AND EXPENDITURES

A. The Budget Process

57. The fiscal year in Laos begins on October the 1 st and ends on September 30th the fol-lowing year. This fiscal calendar was introduced in 1992 to replace the January - Decembercalendar year.

58. In general terms, directives flow downward from the central level toward the districtlevel, budget requests flow upward to the central level again, budget allocation is conducted atthe top, final budgets flow downward again, and with final allocations made at eachsubsequent level. The annual budget for the education sector is prepared in eleven mainstages, as outlined in Table 14 and illustrated in Figure 19. The budget process is described infurther detail in Appendix B: Outline of MOE Budget Preparation Procedures.

Table 14: Outline of Education Sector Budget Process

Step Locus and Process1 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.

2 MOE produces guidelines outlining national priority and targets for the education and training sector, which aresent to all Provincial Education Services (PES) and higher education institutions (HEIs – NUOL, TTC, andothers) in January, and the PESs send the MOE guidelines to District Education Bureaus (DEBs).

3 The DEBs prepare their draft budgets, which are returned to the PESs.

4 The PESs summarize and consolidate the DEB draft budgets and their own budgets, which are submitted to theProvincial 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.

5 DOPC and DOF review the draft budget plans submitted and consolidate them into a single MOE draft budget.

6 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 outcomeof this meeting is the consolidated first draft of MOE’s budget, which is submitted to SPC and MOF in July.

7 When all ministries have submitted their draft budgets, SPC and MOF chair several seminars to discuss thefinancial report, anticipated revenue, and the anticipated loan-grants activities for the forthcoming year. Based onthe 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 government’s meeting.

8 The National Assembly then reviews and approves the plan in late September.

9 When the plan is approved, the Prime Minister decrees the execution of the budget plans and SPC and MOFdistribute them to the various ministries and provinces.

10 MOE upon receiving the approved plan for education distributes it to PESs and the HEIs for execution in lateOctober.

11 The PESs allocate the provincial education budget among the DEBs.

B. Expenditure versus Budget

59. Budget is one thing; expenditure is another. In principle there should be a high degreeof correspondence between budget and expenditure. That is the aim of MOE’s Department of

Finance (DOF). In practice, sometimes there are differences. Interpretation of surpluses anddeficits is fraught with risk, however. In order to assure a clear understanding of financial




30

flows, clear distinction is needed between four related concepts according to acceptedauditing 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 aspecific period of time. Expenditure is the cost implied at the time a financial commitment ismade. Disbursement is the amount of money actually paid out.

61. Consider school teacher salaries, for example. School teachers are usually employedto provide a specified number of hours of instructional service per year. Specific costs areassociated 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 (assumingmonthly salary payments), salary and associated expenses are incurred (for example whenmonthly time-sheets are turned in). Money is disbursed when the salary and associated costs




31

expenses are paid . If salary and associated costs are not paid by the end of the month (nomoney is disbursed ), then a spending deficit is incurred.

62. MOE has current data about budgets, because MOE receives its allocation, and MOEallocates in turn to province level. Timely data on allocations are available, but expendituredata 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 befound in a study of 11 provinces, which revealed very substantial differences between budgetand 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)

Year

Province 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00Bokeo - - -32 -21 -33 152 -561

Borikhamsay 206 3 -59 -8 78 814 -1,254

Champasak 0 0 0 0 0 0 -10,768

Huaphan 248 94 -47 -111 174 1,222 1,360

Khammuan - - 0 17 - -290 -

Luang Nam Tha - 1 113 -50 -36 693 282

Luang Prabang 503 -7 192 165 386 2,418 635

Oudomxay 130 4 54 -94 0 344 -

Savanakhet -1 -1,034 49 -430 289 -235 -2,297

Sayabuli - 44 88 -174 260 1,779 -3,631

Sekong 0 0 0 0 -9 -659 -427

Xieng Kuang 0 92 120 89 49 653 -

Source: SRU. Analysis by author.

Table 16: Percent Deviations between Allocation and Expenditure (Total)

Year

Province 1993/94 1994/95 1995/96 1996/97 1997/98 1998/99 1999/00Bokeo - - 5 5 4 -29 55

Borikhamsay -41 0 6 1 -7 -52 42

Champasak 0 0 0 0 0 0 88

Huaphan -39 -8 4 7 -10 -61 -35

Khammuan - - 0 -1 - 12 -

Luang Nam Tha - 0 -14 6 3 -47 -10

Luang Prabang -48 0 -11 -8 -15 -99 -11

Oudomxay -42 -1 -10 11 0 -17 -

Savanakhet 0 27 -1 9 -6 2 70Sayabuli - -2 -5 8 -11 -62 66

Sekong 0 0 0 0 1 37 41

Xieng Kuang 0 -9 -11 -6 -3 -26 -

Average -21 1 -3 3 -4 -29 34


63. Table 15 shows great variation between years and between provinces. Budget year1998/99 was the decade’s 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).




32

provinces reported significant deficit spending (more than 5 percent deficit, compared withbudget), 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 shownin Tables 1 and 6 above.

C. Reliability of the Data64. 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 preliminaryestimates 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 regularmechanism for obtaining a national overview of the distribution of the revenue, that is, thefinancing 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 bythe Provincial Education Services, are given in Table 17. This table shows substantialvariation between provinces. In Huaphan and Sayabuli provinces, the bulk of revenue comesfrom provincial sources. By contrast, in Oudomxay province most revenue come from centralgovernment. Given the apparent variation seen in Table 17, it would not be appropriate tobase 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 Central Provincial Other Domestic Foreign Total %Huaphan 3.7 93.2 0.1 3.1 100.0

Oudomxay 82.0 0.0 0.0 18.0 100.0

Sayabuli 1.7 97.8 0.0 0.5 100.0


66. The data in Table 17 probably underestimates “Other Domestic” sources. Commun-ities 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 con-tributions 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 oneprovince, the SRU study found substantial differences between budget and expenditurefigures as reported by MOE and the corresponding figures reported by Provincial EducationServices, as shown in Table 18. Differences in reported estimates were greater thandifferences in reported budgets.

68. More significant than the reported differences are the reported similarities, namely theequivalence 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.




33

can only come about because the PES is not making a distinction between budget andexpenditure.

Table 18: Differences in Reporting for Expenditure in Huaphan Province (Million Kip)

Budget Expen

Year PFS / MOE PES Difference % Diff. PFS / MOE PES Difference % Diff.

1994-95 1,128 1,195 66 5.9 1,222 1,195 -28 -2.3

1995-96 1,241 1,293 52 4.2 1,194 1,293 100 8.3

1996-97 1,628 1,766 139 8.5 1,517 1,766 249 16.4

1997-98 1,753 1,906 152 8.7 1,927 1,906 -21 -1.1

1998-99 2,006 2,330 324 16.1 3,228 2,330 -898 -27.8

1999-2000 3,899 4,023 124 3.2 5,254 4,023 -1,231 -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 mostreliable. This evidence (week indeed) would suggest errors of estimates of budgets on theorder 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 theevidence shown in Table 18 is representative of the reporting in the country as a whole.




34

CHAPTER 4: CONCLUSIONS AND RECOMMENDATIONS

A. Conclusions

71. 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 fall. The decline was worsened (but notcaused by) the Asian economic crisis. The Asian economic crisis began in July 1997, sometwo years after education sector expenditure had begun to fall.

72. The Asian economic crisis forced changes in consumption and saving patterns. Withfalling real incomes, school supplies were beyond the reach of many poor rural families.Despite Government’s expressed objective of alleviating poverty while maintainingmacroeconomic stability, poverty remained pervasive over the decade. The social sectorswere 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 toeducation. This led to quantitative expansion of the education system, particularly at theprimary and lower secondary level. Beginning in the mid-1990s, however, education sectorspending began to fall. The Asian economic crisis brought about a worsening of the situationin the education sector. The education budget as a proportion of total government budget andas a proportion of GDP fell sharply.

74. Education is financed mainly through public expenditure, with the financingresponsibility shared between central and regional levels. Contributions are also made by

local communities and foreign donor agencies. The standard summary categories forcollection and reporting of financial data include central, regional (provincial), andconsolidated. Many communities support education, especially primary schooling. Suchcontributions are not usually reported to higher administrative level and are therefore notknowable from administrative statistics. One source of support for education is fees andcharges collected by the PES and the education and training institutions under itsresponsibility.

75. At the beginning of the decade, there was virtually no foreign support for thedevelopment of the education sector in Laos. By the middle of the decade, foreign fundingaccounted for over a third of all education sector spending in Laos and three-fourths of allinvestment spending.

76. The growth of foreign investment funds, combined with low domestic recurrentspending, caused a severe imbalance between investment and recurrent expenditure. Moreschools and classrooms were built than could be staffed, operated, and maintained. Byinternational comparison, Laos displays an extreme pattern.

77. Over the decade, the total volume of resources first rose and then fell, but somecategories of expenditure fared better than others. Real expenditure on operations and main-tenance fell by 49 percent, but real expenditure on fellowships rose by 155 percent over thedecade.

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




35

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 thantwice 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 vocationaleducation 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 financingeducation, namely between the concepts of budget allocation, cost, expenditure, and disburse-ment. 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 thedeclaration 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. Thesingle 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 cannotoperate for lack of funds. There is such a profound shortage of qualified primary schoolteachers 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 primarygrades. This is wasteful investment. Both the quality and the quantity of teachers badlyneeds to be increased. The development patterns for education finance of the 1990s wasdisastrous. 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 thattarget date will leave Laos significantly behind its neighbors.

81. There are two ways to change the recurrent / investment ratio: either increase therecurrent expenditure or decrease the investment expenditure. There are today vocaladvocates of reducing investment. The argument is that since teacher salaries are based onthe civil servant salary scale, it is not possible to increase both the quantity of teachers and thesalary level. This might be the easiest conclusion but it is not a necessary conclusion. Toyield to this conclusion would be to reduce the likelihood of achieving UBE by 2015. MOEis now committed to raising public education expenditure to 4 percent of GDP, which shouldcorrespond to at least 14 percent of its budget to education. This target would help rectify thebalance between recurrent and investment expenditure and should be approached with greaturgency.

82. Ultimately the balance between recurrent and investment expenditure is a politicalmatter. If it is indeed not possible to increase recurrent expenditure, then investment shouldbe reduced. The bulk of investment takes the form of loans which in due time will have to bepaid by the children of today. If balance is not achieved, education investment will beinefficient and wasteful, and taking loans for such investments would be to impose repaymentcosts on future generations who do not draw maximum benefit from the investment.

83. Schools versus Administration. Administration was the big winner during the decadeof 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. Inthis 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




36

resources administration absorbs but also because administrative and managerial personnelare often taken from the classroom.

84. Cost Accounting. MOE has current data about budgets, because MOE receives itsallocation, and MOE allocates in turn to province level. Timely data on allocations down tothe 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 distinctionbetween expenses and disbursements would promote timely reporting of actual expenses,which would promote timely disbursements. Collection of expenditure data from district toprovince to central level would be valuable for estimating the true costs of education. Datashould be collected from districts in standard forms using standard definitions. 11 While itmay 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 provinceswould 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.




APPENDIX A: STRUCTURE OF THE EDUCATION SYSTEM




Appendix A, page 1

Structure of the Formal Education in Lao PDR 2001




APPENDIX B: OUTLINE OF MOE BUDGET PREPARATION PROCEDURES




Appendix B, page 1

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 leveldown to the district level. This provides us with a useful baseline for comparison, so it isworth reviewing the main points of this eleven-step cycle. The standard nomenclature foraccounting 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 bothrecurrent (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) forrecurrent 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 expensesand to the SPC for investment in July.

1.6 A series of budget conferences are held in July with the MOF, MOE and SPC.

1.7 The MOF and SPC prepare a final budget plan, which is reviewed in July.

1.8 The National Assembly reviews and approves the budget in September.

1.9 The Prime Minister decrees the execution of the budget plan.

1.10 MOF and SPC distribute the approved budget plans to MOE and to the provinces.

1.11 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-partflow charts below. Part One of the charts describes the process of determining the annualbudget, and Part Two of the charts describes the allocation of the budget. In most cases theemphasis is on the provincial and district level, with very limited reference to the centralbudget review and approval process.

3. The budget procedures described in our interviews in nine provinces reveal significantvariations from one province to another, and some variation from the general proceduresoutlined by Mr. Bouapao above. Mr. Bouapao’s description focuses primarily on the central

level and most of our respondents described the budget process at their local level. Thereforeit is not surprising that provincial and district official’s descriptions of the central level budget

review and approval process are inconsistent with Mr. Bouapao’s 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 2

3.1 Some of the variation in budget processes described by our respondents is due to theways that the questions in our questionnaire were answered and translated. Some respondentswere very thorough, and others were far more brief and cursory. Our reliance on translatorsmade it difficult for us to ask appropriate follow-up questions, especially when the translatorwould 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 weinvestigated has to do with the degree of budgetary autonomy that different provinces havewith the central government (see the table on Central and Local Financing for Education inNine Provinces in Laos). For example, wealthier provinces in central-south Laos includingBolikhamxay, Khammuan and Savannakhet, are self-supporting and in fact export budgetsurpluses to the central government. Other provinces receive either full or supplementalbudget support from the central government. Even among the three self-supporting provincesthere are some important differences.




Appendix B, page 3

Budgetary nomenclature of MOE in Lao PDR

Chapter Title Subtitle Account # Category Name

Totals1 41 641 Salaries and indemnities

20 6412 Base salary

20 64121 Salary of new teacher

20 64123 Salary for promotions

40 6414 Civil servants' base salary during work time

1 64141 Civil servants' base salary during training

2 64142 Civil servants' base salary during training outside country

50 6415 Supplementary hours

42 642 Indemnities and bonus

20 6422 Indemnities

20 6422 Bonus

1 64221 Service indemnity

2 64222 Technical indemnity

30 6423 Special indemnity

1 64231 Indemnities for heavy/ dangerous work

2 64232 Teaching indemnity

3 64233 Health care indemnity

4 64234 Special bonus

6 64236 Adjustment of the purchasing power

44 644 Contracts

45 645 Lodging indemnity of Ministers and Vice-Ministers10 6451 Electricity and water

20 6452 Telephone

30 6454 Petrol

46 646 Leave indemnity

10 6461 Voluntary leave indemnity

20 6462 Retirement leave indemnity

2

14 614 Office requisites and petrol

10 6141 Petrol

1 61411 Petrol, diesel fuel

2 61412 Motor oil

20 6142 Office requisites

1 61421 Equipment

2 61422 Printed paper

3 61423 Book and paper

30 6143 Uniform

40 6144 Other materials

1 61441 School equipment

2 61442 Medical equipment

3 61443 Medicines




Appendix B, page 4



17 617 Electricity and water

1 6171 Water

2 6172 Electricity

21 621 Other services

10 6211 Use of building

20 6212 Car Storage

30 6213 Material Storage

22 622 Maintenance and repairs

10 6221 Maintenance

1 62211 Maintenance of building

2 62212 Car Maintenance

3 62213 Maintenance and repairs of machines/material

50 6225 Small construction and repairs1 62251 Small construction

2 62252 Installation of machines and material

3 622521 Building repairing

4 622522 Car repairs

5 622523 Machines and material repairs

23 623 Insurance

24 624 Mail and telecommunication

10 6241 Mail

20 6242 Telecommunication

25 625 Transport

10 6251 Transport material

50 6255 Travel

1 62551 Bus/air ticket

2 62552 Hotel and meal

3 62553 Visa/ Taxi/ Airport Tax

4 62554 Cash money for the groups

5 62555 Individual money

26 626 Seminar, conference, reception

50 6265 Seminar

60 6266 Conference

70 6267 Reception80 6268 National day

28 628 Other Charges

10 6281 Research and analysis

20 6282 Information and statistics

30 6283 Other amortization material

4 Subsidy




Appendix B, page 5



51 651 Technical and scientific study

2 6512 Education

1 65121 Reorganization and development of all sectors of education

2 65122 Development of school textbooks

3 65123 Non formal development for education

4 65124 Development of human resources

52 652 Family allowance

10 6521 Allowance for children

20 6522 Allowance for women

30 6523 Adjustment of the purchasing power

1 65231 Adjustment of the purchasing for children

2 65232 Adjustment of the purchasing power for women

53 653 Student Grants10 6531 Boarding student

20 6532 Non boarding student

30 6533 Student Grant during training

40 6534 Student transportation

1 65341 Travel

2 65342 Hotel and meal

50 6535 Grant for student coming from minorities

60 6536 Grant for the monk

70 6537 Adjustment for the purchasing power

80 6538 Grant for the teachers of non formal education

6 Investment

3 2 2032 Charges for the project

1 20321 Per diem

2 20322 Other administrative services

12 212 Building

1 2121 Purchase of building

2 2122 Construction of building

1 21221 New construction

2 21222 Repairs

13 213 Purchase of machines and material

1 2131 Purchase of new things2 2132 Repairs

14 214 Purchase of cars

1 2141 Purchase of new material

2 2142 Repairs




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Abbreviations Used for Unpublished Sources

SRU. Laos Education Expenditure Study. Department of Government and Public Affairs, SlipperyRock University, Slippery Rock, Pennsylvania. 2000. Financed by the World Bank.

Ongoing study of school financing in Laos, especially the relationship between central and provinciallevels and other sources. Financed by World Bank.