Innovative Financing for Education UNESCO Future Seminar Paris 14 September 2010 Nicholas Burnett and Desmond Bermingham R4D
An idea whose time has come? • Success of health sector • Focus of financial transaction tax possibility • OSI interest and paper • Efforts around World Cup • Leading Group on Innovative Financing for Development Task Force on Education – to present next week at MDG Summit • UNESCO Experts Committee on Debt Swaps for Education and Innovative Finance – underway • This Seminar • Much talk in many fora 2
Outline • Overview of Education finance • What is Innovative Financing? • Why Innovative Financing for Education? • Major current proposals • Next steps and questions
Education Financing – Current Situation Average annual resources needed to finance EFA (2009 ‐ 2015) US$ 36 billion 40 Aid 35 shortfall EFA $ 11 billion 30 financing gap Additional aid to 25 basic education $ 16 billion if Gleneagles 20 commitments are met Additional $ 2 billion In 2010 resources from $ 4 billion 15 prioritization $ 3 billion Current aid to basic Additional $ 3 billion education resources from 10 Estimated growth current 5 resources $ 12 billion 0 Source: UNESCO EFA GMR 2010. 4
Sources of Education Finance Domestic (bulk) International (minor but key) � � Education share of ODA Tax and other government constant at about 12% (health revenues up from 11 to 17% since 2007) � Sometimes earmarked taxes � Education ODA around $11 (training levies for billion per year of which only vocational education) $4 billion for Basic Education � Households � Emerging donors – Gulf, China, Russia, Korea, Brazil, etc. � Emerging private – Dubai Cares, CIFF, MasterCard Foundation, Hewlett Foundation etc. � Fast Track Initiative only global financing mechanism and at a crossroads
Where does the education spending go? PUBLIC PRIVATE � � About 4% of GDP in developing About 1% of GDP in developing countries. countries. � • Teacher salaries are a large share Mostly (80% ) for tutoring, though (80 – 90% ) of recurrent costs. not everywhere. � • Books, materials, school Also on school transport, uniforms, construction, equipment and meals, fees sometimes, PTA dues repair, teacher training, school etc. transport, school meals, etc. • Reasonably progressive at primary � Significant non-financial costs level and increasingly less so at particularly for the poor: secondary and higher levels � child labor � household labor � sibling childcare
Innovative Financing – What are We Talking About? The Leading Group (www.leadinggroup.org) identifies three key features of innovative financing for development: 1. Linked to global public goods. 2. Complementary and additional to traditional ODA 3. More stable and predictable. • Reflects view that ODA from traditional sources will not be sufficient to meet concessional finance needs of low income countries. • We follow this but go further to include: • domestic finance, complementary to tax revenue etc • idea that the way the finance is both raised and spent is important.
Why Innovative Financing for Education? 1. Resource mobilization – fill the financing gaps 2. Raise profile and visibility of education 3. Spend more effectively, efficiently and equitably 4. Meet the needs of conflict ‐ affected countries 5. Promote innovation in education Note: We are talking about both : Innovative financing for education. • and Promoting innovation in education through the use of • innovative financing and promotion of efficiency. 8
Resource Mobilization • EFA Funding Gap • Traditional ODA Prospects Gloomy • Timing critical – bulge in low income countries over next 15 years • Importance of whole sector approach 9
Raise Profile of Education • Education too low on global agenda – compare security, climate change, public health, etc • Education sector has not done a good job of marketing : – Education MDGs perceived as relative success despite learning crisis – Broad MDG approach not drawn: MDG2+MDG3=8MDGs – Perceived by potential funders as a conservative sector, lacking a culture of innovation and risk ‐ taking (ODI paper) – Signs of donor fatigue and endless unproductive wrangling over FTI, possible global fund etc. does not increase confidence outside the sector 10
More Effective Spending • LACK OF RESULTS ORIENTATION – Compare other sectors • EXTERNAL INEFFICIENCY IN ALLOCATIONS – Too much for higher, not enough for basic , especially ECCE and literacy • INTERNAL INEFFICIENCY IN SPENDING – Learning crisis, dropout, repetition, etc. • INEQUITY IN SPENDING – Primary education spending usually reasonably progressive not so for secondary and especially higher education – Lack of spending on key promoters of equity such as literacy and ECCE • PRIVATE SPENDING – Fees etc., tutoring difficult for the poor – Scope at higher level NEED FOR PREDICTABILITY AS EDUCATION TAKES A LONG TIME • 11
Support Conflict-Affected Countries • Half of out-of-school children are in conflict- affected countries. • Particular difficulties in these countries to increase or indeed maintain government spending. • Refugee children pose a special issue with host countries often being reluctant to bear the cost of their education • All points towards a need for international financing • For several years, INEE has been calling for this (and specifically for innovative financing) but nothing has happened. • An urgent need.
Promote innovation in education • “Not business as usual” • Extremely conservative sector – Most senior administrators were teachers – Teachers usually teach the way they were taught • Very little innovation – Some, of course, e.g. mega ‐ schools • Little rigorous research and even less policy ‐ relevant research – Contrast health and climate changes where there is a strong underlying scientific paradigm of research and experimentation • Opportunity in current crisis? 13
Innovative Financing for Education: The Virtuous Circle of Change
Promising Proposals Broad Financing Proposals Profile Raising Proposals � � International financial S ports levy transaction tax � Local currency education � Multi-stakeholder bonds partnerships � Education Venture Fund � Diaspora Bonds � Micro donations from bank � Voluntary Contributions from transactions Remittances � Debt for Education S waps 15
International Financial Transaction Tax – Leading Group Task Force on International Financial Transactions will consider proposal on currency transaction tax. – A small levy (0.005%) on currency transactions of four major currencies could raise up to $30 billion per annum. – Several countries are advocating that a proportion of the FTT should be allocated to finance global public goods and development. – Climate change and global health sectors have already made proposals for share of the FTT. – Education should bid for a share of FTT at least equivalent to share of ODA. – Same arguments apply to any other proposals for broad development finance e.g. lotteries, global development bonds etc. 16
Local currency education bonds ‐ There are over $1 trillion of assets in public and private pension funds in developing countries. ‐ $180 billion in Africa alone. ‐ Funds usually limited to low return investments – typically government bonds. ‐ The Local Currency Education Bond proposal would allow pension funds and other investors to invest in bonds that finance projects in the education sector by providing guarantees. ‐ Most applicable in higher education or vocational sector which can generate revenue to pay interest and principal on bonds. ‐ This could be used to release government funds to be used in the basic education sector. 17
The Education Venture Fund – Several countries are now using ‘social venture funds’ to support education programmes. – The Ed Venture Fund applies a venture capital approach to stimulate innovation. � Invest. � Take risk. � Evaluate. � Go to scale – or exit. � Measure returns to investment in ‘social capital’. – Raises finance through a variety of innovative financing mechanisms. – Uses funds to invest in innovation within the education sector. – Takes higher risk than traditional donors. – Uses independent evaluations to learn from successes and failures. 18
Diaspora bonds for education ‐ Estimated 200 million people live outside their country of birth. ‐ Total annual remittances exceed official development assistance in many countries. ‐ Several developing countries also generate significant income from members of their diaspora by selling local currency and international bonds. ‐ E.g. India has raised over $35 billion through diaspora bonds. ‐ Diaspora members have a higher risk tolerance for investments in their home countries. ‐ Education programmes would need an income stream to pay bond interest. 19
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