Part II: Approaches to reform

A. Issues in planning and budget reform
B. Implementing improved systems
C. Conclusions: Affordability and sustainability

A. Issues in planning and budget reform

The approaches discussed in this part of the paper arise directly out of the analysis of issues in Part I. They are concerned primarily with the question of how to achieve sustainable reform of education systems through better use of domestic resources combined with focused applications of foreign aid. I argue that a key reason for the whole or partial failure of many initiatives, whether they be related to financing education, to the introduction of curriculum reforms, to the improvement of teacher quality, or to the introduction of greater participation of communities in schooling, to name four common reform targets, has been the neglect of budgeting processes. This neglect has now become critical because of the inability of most budget systems to cope adequately with contraction.

The problems addressed in this paper are not new, as I have noted. It has long been recognised that available resources have been spread more and more thinly over more students at the expense of quality and effectiveness. In spite of this, answers to how plans and resources should be related have rarely been addressed in technical detail. While, for example, the first IIEP Fundamentals of Education Planning monograph published in 1970⁴⁹ specifically proposed reforms to budgeting and related techniques, training courses and technical literature did not take these proposals forward. Part of the reason was that during the 1970s economic and political conditions were such that in many countries, supported by foreign aid, there was little perceived need to make the necessary changes. In anglophone ax-colonies the same budget systems as were implanted in colonial times are still in use.

The Educational Budget. The budget is the most significant influence on sectoral planning and management, and is the most comprehensive policy document issued by Government. That budgeting needs to be improved is generally recognised in the aid literature, although there appears to have been little academic interest expressed in the subject in professional journals, but less well understood are the difficulties in altering significantly the structure of planning and budgeting in one sector only. It is necessary to take into account the changes needed in the entire system of which the education sector is a part. Otherwise fundamental incompatibilities will exist between sectoral and Treasury formats. The result of the failure to change the structures of planning and budgeting has meant that exhortations to achieve greater efficiency cannot be effectively translated into practice.

Furthermore, discussions of planning and budgeting cannot concentrate solely on recurrent budgeting alone, as has so often been the case. Capital budgets, in some countries replaced by 'development'⁵⁰ budgets, is a crucial aspect of the planning process, as is the need to account effectively for the use of foreign aid. In some countries foreign aid represents a significant proportion of total government education expenditure in itself, while in others the volume may be low relative to total spending although its influence on policy may be significant. I outline below the different types of budgeting, followed by a consideration of the approaches to budgetary and planning reform which are, I suggest, necessary conditions for sectoral reform.

Types of Budgeting. Budget techniques and processes can be placed at different points on a continuum which ranges from incremental approaches at one end to programme and zero-based budgeting at the other. Incremental systems are used in public budgeting in most countries and take as their starting point the budget and sometimes the actual expenditure for the previous year. These systems tend to be departmental in their objectives. Rational⁵¹ systems relate budgets to objectives and take into account wider objectives which cut across departments and institutions. The problem is therefore to combine the ideal with the practical.

(a) Incremental Budgeting Systems

Most current systems are in an incremental bid format based on line items in the budget categories. Separate ministries, departments and institutions prepare the next year's estimates in isolation from each other, adopting as their base point the current year's volume of services and expenditure levels. These estimates take the form of bids, as in an auction, and when they are aggregated they inevitably exceed the amount available to finance them. In an efficient bid system departments then adopt a systematic approach to reducing their bids. In most African countries teacher salary budgets are largely inviolate, and last minute reductions in non-salary budgets are imposed by Ministries of Finance, often with no consultation with the bidders. Control of sorts is exerted over salaries merely by allowing them to decline in real terms, although if total budgets also decline in real terms the proportion of salaries in the budgets remains constant.⁵²

Disadvantages of Incremental Budgeting. This system suffers from many disadvantages:

(a) It cannot cope with reviews of the base budget, and consequently bidders are unlikely to propose reductions. The objective for each bidder is to maximise the bid, and the strongest available argument is the volume of the base year's expenditures, which consequently must be maintained even if they are unnecessary, in the case of underspent allocations.

(b) It encourages a fragmented, departmental approach, in which public departments which have common objectives bid against each other, even when their aims are related. This fragmentation in its extreme forms is manifested by different departments bidding against each other for exactly the same purpose.⁵³

(c) It takes no account of objectives, but emphasises financial control of inputs. The bureaucratic imperative is to keep within budget, but no attempt is made to evaluate the effectiveness of the expenditure in achieving agreed goals. A continuing and idealised relationship between inputs and outcomes is assumed: as long as the money is spent the desired outcome is assumed to be achieved.

(d) It encourages a short term view. Budgets are annual exercises. Where capital budgeting is concerned there is no room for estimating incremental recurrent budget implications, and the planning horizon is short.

Advantages of Incremental Systems. The principal advantage of the incremental systems, and the reason for their robustness in the face of their deficiencies, is that they are readily amenable to the political process of negotiation.⁵⁴ The base is not challenged, and disputes can therefore be focused on the incremental proposals, which in the education sector can be conveniently divided between salary and non-salary expenditures, the former being politically more sensitive than the latter. Incremental budgeting encourages compromise and the mitigation of conflict. Sometimes the political process creates pressure for the increase of a line item precisely because of the fixed nature of the base: a common example of this is boarding costs for secondary school pupils. The final decisions on the budget, whether from the Ministries of Finance or from political sources, are invariably removed from the budget managers, who may be among the last to be notified, and hence there is little room for conflict.

The political dimension cannot be ignored. The failure of many budget reforms had its roots in the resistance of political authorities to reviewing and cutting programmes which in some way would threaten their positions or even government stability.⁵⁵ The result has been, however, a progressive deterioration of education systems in times of financial stringency, as no means have been available to adapt services to available resources.

(b) 'Rational' Budgeting Systems

The combination of more or less fixed base budgets and concern with quantities of throughput rather than with quality and quantity of output must be characterised as an irrational combination for planning and budgeting purposes in the sense that the level and allocation of resources are not derived from a reasoned consideration of relative priorities. 'Rational' forms of budgeting require that the justification of each item of expenditure be related to a target output, itself related to an overall policy goal or set of goals for the education sector and for the economy as a whole.

Programme Budget Systems. At the other extreme from bid budgeting are Planning Programming Budgeting Systems (PPBS), referred to here generally as Programme Budgeting (PB).⁵⁶ Although budgets are, in principle, plans expressed in financial terms, in practice, particularly in government budgeting, their construction may become divorced from specific objectives and targets and become driven by other criteria. Programme Budgeting is basically an approach to the formulation of plans and budgets where attention is focused on objectives, and activities are grouped into 'programmes' each one of which is concerned with a single objective.⁵⁷ In a company this approach is an alternative to departmental budgeting where each department of the organisation makes a budget. Instead, planning and budgetary control may cut across departments where each department is concerned with a part of a programme. The application of the approach to government budgeting may or may not alter expenditure control mechanisms, but will affect how the budget is built up and how the activities on which the budget is based are monitored.

The mechanics of PB are broadly as follows:

(a) Establish sectoral policies with overall goals broken down into programmes with defined objectives, sub-objectives and activities;

(b) Analyse programmes in terms of

(i) identification and quantification of resources required to meet objectives

(ii) existing resource allocations

(iii) identification of alternative ways of achieving the objectives derived from needs analysis

(iv) comparative quantitative and qualitative evaluation of alternatives and their social and economic costs and benefits;

(c) Prepare budgets on the basis of the analysis, with narrative statements of output measures and justification;

(d) Feedback and review.

Zero-Based Budgeting. A form, which in some ways is less extreme and in others more, is Zero-Based Budgeting (ZBB), which requires that the total cost of every item included in a budget be justified and approved. No base or minimum expenditure for any activity or budget line is automatically acceptable. The approach forces an evaluation of all expenditures and their associated activities. ZBB seeks to expose functions and goals which may have exhausted their usefulness.

In its purest form PPBS is a limited technique because of its complexity. It was introduced into US and UK public budgeting⁵⁸ in the 1960s and 70s, but its attractions began to fade. There are practical problems in allocating activities to programmes and developing accounting systems that cut across departments. There is considerable potential for conflict as base budgets are regularly reviewed. Within government structures it is difficult to encourage multi-disciplinary approaches, particularly if it means a reduction in the volume of activity in a department in order to rationalise. Finally, there is a danger of policy instability and frequent major changes, often occurring because planners were wrong in their initial assumptions and forecasts. They became replaced by systems which retained elements of PB, with enhanced capability for regular value for money surveys of programmes and improved virement systems.

As with PPBS, ZBB is impractical as a standard system. It is not in general physically possible to subject programmes and activities to annual reviews of their base assumptions. It is, however, possible to establish ad hoc mechanisms for scrutinising the base, such as value for money studies. These, together with elements of PB, form the basis of a system of practical budgeting which is feasible in its aims and techniques, and flexible in its mechanisms. Education planners will readily recognise the features of the system: they are the basis of effective planning. It is possible to develop approaches to budgeting which take account of the strengths and limitations of each system and of political and bureaucratic realities. In brief, the overall objective of any reform to budgeting must be to combine the planning function with the budgeting function, and to subject financial allocations to proper scrutiny of the activities which they support. New budgeting and planning procedures must retain the virtues of the traditional systems while at the same time they must reduce its defects.

Advantages of Programme Budgeting. There are two key advantages of the programme approach to the budgeting of public resources. First, it demands by its very nature participatory planning and policy making from the bottom up, and it hence makes the allocation of public resources more democratic. This is important when resources are inadequate: public dissatisfaction can be minimised if there is a broad consensus on their disposition, and enhanced transparency creates a better atmosphere for the introduction of cost-sharing. Secondly, plans can be monitored, and budget control ceases to be limited to ensuring that financial ceilings are not breached. It provides a means of short term monitoring of targets which can only be achieved if the resources allocated to them are realistic in the first place. In other words, plans are directly related to available resources.

Effective budgeting depends on good estimates of what resources are available. Under incremental budgeting, even if budget ceilings are given in advance, institutions within the system still benefit from trying to bargain higher shares, with the main arguments revolving around their previous allocations. The reduction of the volume of activities to be supported by the budget is rarely an option. Institutional planners may build up their budget bids on, for example, numbers of pupil places, books required, etc. but these bids are rarely derived from a conscious prioritisation of activities, but rather from maintaining or improving the status quo.

It is unlikely that a system which is based only on incremental budgeting can effectively incorporate a process of ranking activities in order of priority and costing them. This is made more difficult by the need to effect changes over periods of more than one year. For example, teachers' salaries have over the years in many countries become treated as fixed costs, and all other charges to the budgets are residual, yet everyone recognises the absurdity of employing people who cannot do their work because of inadequate facilities and equipment and who are inadequately paid. Education systems are major employers, and this makes restructuring difficult because of the human implications of reductions in the total system: it is difficult to plan a way out of the problem in the absence of immediately available and substantial additional resources.

Financial Planning Systems. In order to overcome this problem, systems which may be described as 'financial planning' or 'volume planning' systems are increasingly employed. These are concerned with longer planning horizons, usually of three years, and are characterised by the advance provision of expenditure guidelines, joint capital and recurrent budgets and a more relevant budget specification and classification than the line item budgets described above. However, their focus is still primarily incremental and they do not involve a priori justification of the base budget. The emphasis is still a departmental one, and the same criticisms relating to the measurement of outcomes may apply. However, when considered on a rolling basis with programme budgets, they become powerful tools for medium term planning.

B. Implementing improved systems

The main problem which in many cases seems almost insuperable without major political commitment is that rational budgeting techniques in education sectors cannot be introduced effectively without reforming total budget systems, across all sectors. The approach to realising reform is described below, and, as I argue, the approach must be at a reasonable pace. Its basic elements are:

(a) the introduction of linked rolling plans and budgets, which involves:

(i) strengthening macroeconomic forecasting for the purposes of overall government revenue estimation

(ii) better estimation of domestic revenues for education

(iii) identification of near-term education sector objectives

(b) strengthened decentralised processes in planning and budgeting, involving:

(i) a more 'pyramidal' planning structure
(ii) identification of 'planning/cost centres' for planning and budgeting purposes

(c) the introduction of programme elements into budgets, which involves:

(i) revisions of budget formats and classifications
(ii) identification of programmes

(d) reform in capital budgeting

(e) better procedures for planning and reporting foreign aid grants and loans

(f) improved expenditure estimation

(g) more accountable budget implementation and improved expenditure control

(a) Rolling Plans and Budgets

Rolling expenditure planning enables governments to have a medium-term perspective of the future financial obligations created by existing policies. A three year perspective is usually considered reasonable and feasible. Revenue and expenditure budgets are made for the current year and for the next two years, and as each year draws to a close, a new third year is added. Rolling plans should be distinguished from development plans, which are mainly concerned with new policies and interventions. They are not substitutes for annual budgeting, but are part of the process of preparing for annual budgets by setting indicative planning targets for the ministerial sectors. They allow sector planners to prepare forward estimates of their financial requirements which are then considered in relation to the predicted available resource ceiling. The technique allows time for sector planners to adjust their plans and expectations to resource constraints, and gives a certain degree of security about the future. In many ways, the adoption of medium term forward budgeting by its very nature pushes the system towards programme budgeting. Most of the policy reforms discussed in the first part of this paper need to be tested in the countries where they are introduced: experience in other countries may not necessarily be relevant, though some have more evidence of success than others. By establishing mechanisms whereby they can be tested without major disruptions governments will have greater flexibility to innovate and also insure against effects of failure. Data deficiencies can be remedied and policy makers alerted in good time to problems which may arise. Rolling planning and programme budgeting are essentially 'bottom-tip' in character, and the effects of policy changes can be evaluated within the normal planning process as managers respond to changes. Improved classification of revenue and expenditure can ensure that there is greater transparency in government budgeting, allowing inter alia the assumptions behind fee and local taxation systems to be tested adequately.

Economic Forecasting. The common and conventional reaction of civil servants accustomed to the old British budget procedures is that government cannot safely predict what it will be able to spend next year, and therefore cannot make advance budgetary commitments. In many countries education sectoral allocations have sometimes not been approved until after the start of the fiscal year. While in some instances this is understandable, there is a certain absurdity to this view when considering education systems and the predictability of their base financing requirements: the main issue is by how much expenditure can be increased. It is possible to make reasonable predictions of government revenues over a three year period, and to make sufficient allocation to education to cover 'core' expenditure, and then to allow for under or over estimation which would mainly effect the rate of increase of education expenditure, perhaps through contingency budgeting. The revenue forecasts can be adjusted every year, and, of course, during the year. The assumptions on which they are based should also be made known so that sector planners can evaluate them and be prepared for changes.

Estimation of Education Sector Revenues. Most education planners would prefer to have some indication of the likely future allocations to education to no indication at all. A weakness of line item budgeting is that it encourages planners to defend existing budget allocations rather than to seek better ways of allocating their revenues: if it becomes apparent that a particular line is no longer important it is difficult for planners to argue that they should keep the sums allocated for transfer to another line, which would then receive a proportionally greater increase than the 'normal' rate of increase.

The base for education planning is enrolments in educational institutions: it is from these that all physical requirements derive. Enrolments can reasonably be predicted, although there is a surprising number of countries which do not have up to date and acceptably accurate enrolment data.⁵⁹ The more certainty about the level of finance in the near future, the easier it is to plan realistically for institutional maintenance and growth, and also to programme significant changes in systems. Planning on an annual basis can be a barrier to change.

If it is estimated pessimistically, any additional revenue expenditure can be contingently planned, on a percentage basis (for example, 20 per cent of any additional to forecast total revenue will be allocated to education), and/or against contingent budgets (if further resources become available, supplementary budgets which have already been drawn up are ready for implementation). At the end of each fiscal year plans and budgets are prepared for the 'new' third year, on the basis of the sectoral expenditure forecasts given for that year. Without the parallel introduction of rolling multi-annual budgeting it is likely that all budget processes will be pulled back to annual incrementalism. It may also be the case that some of the objections to incremental planning can be overcome by multiyear planning, thereby reducing the scope of necessary changes to the system.⁶⁰

Consolidated expenditure forecasts should distinguish sources of revenue. Thus government budgets alone may not reflect the full costs of the system, but obligations to finance the system fully must be defined in plans. If this is not done, policy decisions about relative allocations within the sector become meaningless. For example, if the university sector receives one half of its total revenues from domestic resources, and, say, the other half from foreign aid; and if the planned structure of total education expenditure indicates a desired proportion of university expenditure as being no more than 15 per cent of total expenditure; the government budget may reflect such a proportion, but in terms of total expenditure the proportion might reach, say, 25 per cent because of relative favouring of universities by foreign agencies. Once revenue forecasts for education are available, they need to be broken down to the sub-sectoral levels (primary, secondary, tertiary, etc); and then to the different planning/cost centres (see below).

Medium-Term Sectoral Planning. Multi-year budgeting encourages medium-term sectoral planning. It should also discourage an excessive concern with long term vaguely quantified strategic plans (such as ten year plans), which are necessary, but which should be relatively short statements of policy and intent. The failure of most African countries to sustain progress in achieving plans is sufficient warning of the inadequacy of the long term planning approach. The three year plans will be the expression of the detailed direction of the system. If revenues are on a falling trend, then planners are in a position to plan for retraction (or lack of expansion) rather than wait for a suddenly imposed regime of expenditure cutbacks.

(b) Improving the Planning System

A necessary condition for the introduction of better planning and budgeting is improvement of the processes of plan formulation. Under the current systems in most countries, Ministries of Finance in the end are the real policy makers, particularly in times of contraction. There is little point in improving the processes because in most cases the work which goes into developing budgets is wasted when the final budget hearings take place. In other words, planners and the people on whose behalf they are supposed to plan are disenfranchised and subject to last minute arbitrary decisions. This has become a way of life and is accepted with resigned fatalism.

Planning and budgeting should not be passive tasks. Plans and budgets need to be implemented, and accountability for implementation should rest on those who have formulated them. Many, if not most, systems tend to divorce the planner from implementation, and in top-down systems such as those in most African countries, planners (and politicians) make decisions for others to implement without extended and real consultation. Strengthening educational planning and budgeting would include the introduction of a pyramidal structure of planning and budgeting which would involve all relevant players in the process.

The obvious basic unit of planning activity is the education institution. At the primary level the school might in principle be considered as a centre of activity, although primary schools would probably not be feasibly translated into planning/cost centres (a cluster system would be more effective). In many countries this is not dissimilar to earlier education systems which emphasised local control. At the secondary level it is more feasible to introduce an element of school based budgeting and planning.

Pyramidal Planning Structures. In a system which contains a number of layers in the planning and budgeting pyramid, a longer budget time horizon allows planners to devolve many planning functions. Over time more and more disaggregated budget centres could be informed of the resources available to them on a three year rolling basis. The experience of voluntary agencies working in basic education, for example, demonstrates the feasibility of allowing village committees how to decide to allocate given sums of money. The shape of the system is illustrated in Figure 1.

Figure 1: Pyramidal Structure of Education Planning and Budgeting

Overall sector strategy, planning and budgeting	Joint function of central ministries, including finance and education ministries
Sub-sectoral planning budgeting, and expenditure control.	Sectoral ministries.
Regional planning, budgeting and expenditure control.	Regional
Institutional budgeting, planning and expenditure control.	Universities and colleges; secondary schools
District budgeting, planning and expenditure control	Districts
Sub-district budgeting, planning and expenditures control.	Sub-district agencies, schools, communities.

A strength of this approach lies in the legitimation of the allocation of reduced and insufficient finance for given activities: if communities and institutions can decide how to spend their limited resources rather than have it decided for them they are arguably more likely to 'own' their schools and institutions and contribute to their development. There are some important implications of the approach at the school level, most particularly relating to the training, recruitment and payment of teachers.

The heterogeneity of education systems must also be recognised. Approaches to budgeting at primary, secondary and post-secondary levels should differ, and be related to accountability for budget implementation. While in rural areas primary schools are community institutions, secondary schools and urban primary schools are often less community based: in these cases school governance becomes an issue. Universities are in many ways the easiest institutions in which to initiate budget reform, and they lend themselves well to programme linked budgeting, although experience suggests political rather than practical difficulties work against such reform.

Thus, a key feature of the eventual system would be the final realisation of participation of school communities in decisions about the allocation of subsidies: this has been a paper policy in many countries for a long time. For example, primary teachers may fail to arrive at their postings because of the absence of accommodation, remoteness, and other factors. Many school buildings are in a state of collapse. Over time the teaching profession becomes demoralised by a persistent lack of resources, low pay and difficult conditions, and no amount of training and exhortation will be effective. The mistake is to believe that planners and educationists can always decide what diverse communities want to do about the problem. At the moment, for example, when the teacher does not arrive at post, the salary is clawed back by the Treasury. The school has effectively lost a significant part of its budget. This is because of the bureaucratic division between salaries and non salary costs, which could be modified under a reformed budget system. There is no a priori reason why funds budgeted for salaries cannot be vired to provide a better environment, or buy materials, or in any other way enhance the quality of school life.

Planning/Cost Centres. At present most countries have a structure of district education offices and local government, and it is usually possible to allocate revenues between them. These are in effect 'cost centres' for primary education and sometimes secondary education. At the post secondary levels budgeting is usually done at the institutional level. Under a rolling plan system cost centres can be given a reasonably firm allocation for the next year as well as indicative allocations for the subsequent two years. As planning capacity is extended and strengthened at district and local authority levels, the districts themselves can create further cost centres, as shown in figure 1.

(c) Programming the Budget

I have noted that the main reasons for the failure of programme budgeting to be widely adopted lie in the difficulties that political and institutional authorities have in reexamining the base budget, and in the complex ways in which the technique has tended to be introduced.⁶¹ An examination of the programme budget formats which have been tried confirms that they have required a great amount of skill and time. It should be noted that many of the recorded attempts to introduce programme budgeting did not take place in the framework of forward expenditure planning on a rolling basis.

However, programme budgeting should not be regarded as a fixed system: there is no 'right' approach (see the box for an outline description of the main elements). Indeed, the paucity of experience in the application of its techniques ensures that every approach to its introduction will be original, which may have the advantage of ensuring that it is locally relevant. One major difference between the experiences of many countries in the recent past and now is the rapid diffusion of micro-computers over the last decade, particularly the last five years. Its introduction should be gradual and be accompanied by intensive training within the contexts of the institutional changes described above.⁶² I do not propose major upheavals in budgeting and planning. Experience suggests that the success of past attempts to introduce programme budgeting is more to be found in improved practices after the 'pure' technique is abandoned, rather than in major permanent change to the financial system as a whole.⁶³ It is for this reason that I emphasise in this paper the need for improved planning as it relates to financial requirements to support plans, rather than propose a set technocratic solution. Elements of the budget can be programmed, and education budgets lend themselves to this approach, for a number of reasons, including the following:

(a) a large component can be centrally managed, such as teachers' salaries (although ways of introducing flexibility into teacher recruitment and posting should be sought);

(b) the relation of teachers and the associated 'capital' (books, materials, classrooms, etc) they require is relatively easy to determine;

(c) some components of the budget, such as universities, colleges and large schools, can themselves programme their institutional budgets, which can still be presented in the sectoral budget estimates as lump sum line items;

(d) similarly, decentralisation of budget formulation (eg to districts) can involve programme budgeting at the decentralised level, with a simplified presentation to the Ministry of Education, thence to Finance.

Budget classification is at the heart of programme budgeting (see box). The main problems arise when expenditure classifications become too complex, but it is possible to avoid this problem by not being too ambitious in the design of the system, as I have noted. It should always be borne in mind that the basic purpose of programme budgeting is to relate plans to resources and then enable planners to evaluate outcomes by stating objectives, goals and targets, and relating outcomes to the resources used to achieve them.

The easy availability of micro-computers and accessible software allows a great deal of flexibility in budget construction. It is possible to build up programme budgets without affecting expenditure control and accounting systems, one of the main problems experienced in past attempts to programme budgets. Budget codes enable budget items to be 'cross-walked' from programme budgets into line item formats. The computer programming required is not complex. The development of the system can thus take place over time, and it is not necessary to overturn the line item format in order to introduce programme budgeting. The extent to which the easy availability of computers takes risk out of budget reform is not fully appreciated.

An Outline Description of Programme Budgeting The education system as a whole is broken down into 'programmes'. These might simply be 'primary education', 'secondary education, 'technical education', 'higher education', 'special education', and so on. One programme might be the maintenance of the existing system. Each programme is broken down into objectives and sub-objectives. Objectives might be 'curriculum development', or 'reduction of early leaving', or 'instructional programmes' or 'support programmes' They can be very close to existing classifications in many instances. A sub-objective of 'curriculum development' might be 'new maths materials'. Objectives are in turn made up of activities. It should be noted that one of the most common problems is to avoid double counting: for example, an activity in the sub-objective 'new maths materials' might be the training of teachers, which could itself be another objective. To achieve a specified objective a number of activities may be undertaken which cut across departmental boundaries, such as would occur with a sub-programme 'increase girls' participation' in the programme 'primary education'. The budget should relate to Government policies and goals, and therefore the justification for spending must be tied to these policies and goals, contained in the narrative statement for each activity. Goals cannot normally be achieved in one year, so that annual targets (or attainable goals) are necessary. The target must be a quantitative expression of policy, and any programme may have more than one target. Activities would tend to have one target. It must be possible to monitor targets. Expected outputs would be specified. Plans would therefore need to be broken down into a series of annual work programmes which can be accomplished with available resources. There are likely to be significant variations in approach to budget reform at the different education levels. Universities and large secondary schools, for example, can prepare institutional programme budgets64, while at the primary level budgets are likely to cover the whole sub-sector.

The introduction of programme budgeting to education should be governed by a number of broad principles. First, it should be slow and be piloted in selected regions/districts. Second, programmes should be broad at first, thus changing the minimum amount of the current formats. Third, the principle of relating plans to budgets and vice versa should apply to all main expenditure heads: in other words, programme budgeting should at least cover a part of all main spending. At the same time the type of budget process which is being aimed at should be defined, even if it takes many years to get there. Above all, experience suggests that reform of budgeting systems in one sector alone will create tensions with the Ministry of Finance systems, and that this will erode the effectiveness of the reform: financial systems must change overall.

Budget Formats and Classifications. As I have noted, budget classifications must be able to reflect the rolling forward expenditure plans. The purpose of classification is to make government operations transparent and to render them amenable to economic analysis. Under incremental budget systems the most that can be said about education sector budgets relates to issues such as the balance between salary and non-salary budgeted expenditures, or the 'low' expenditure on supplies. Sector 'overheads', such as planning and administration, cannot easily be analysed. The budget gives very little idea of what is actually happening in the system.

Revenue classifications should distinguish different sources of revenue, such as revenue from fees (both direct and through loan recovery), foreign aid (analysed between grants and loans), local taxes, and so on. Both revenue and expenditure classifications should distinguish between capital and recurrent finance. At the same time capital and recurrent classifications should be standardised: capital expenditure should be included in programmes alongside recurrent expenditure, and the budget codes should be the same. This goes a long way towards avoiding the problems that arise from double-budgeting. For example, if sub-programme 230 is 'curriculum development', resource centres to be constructed under the capital programme would have the same sub-programme code as recurrent expenditures for, say, salaries of curriculum developers. In this way all expenditures associated with curriculum development would be transparent, and the relation between capital spending and associated future recurrent finance requirements would be clear.

(d) Capital Budgeting

In general, capital expenditure is an outlay which is of value in the provision of benefits beyond the end of the year of account. This does not imply that capital expenditure is by definition 'developmental' while recurrent expenditure is not. Capital expenditure can either be made out borrowed funds or out of internal, or 'own', funds. It has been long recognised that capital expenditures in education systems in developing countries have resulted in an expansion of assets which cannot always be maintained or replaced, and which have had considerable finance costs. Foreign aid has contributed significantly to capital expenditure, as I have noted. Most existing approaches to accounting for capital expenditure are based on the analysis of loan principal and interest. Where capital expenditure is financed by 'own' funds or by grants it appears in the accounts only in the year in which it was made, as there are no interest costs attached to it. More usually, perhaps, foreign aid grant expenditure does not appear at all in capital accounts.

The costs of public sector services are therefore linked to financing decisions and not the actual use of assets in providing those services. As loan repayments and interest costs are not included in the education sector budgets, the costs of asset use are not included in calculations of educational costs, as I discussed in the first part of this paper. Even were loan repayments to be included in the sector budget, where the main source of capital finance is grants there would be no entries for finance costs. Fixed assets are, to the education sector managers, debt free, and this explains much of the poor accountability for asset stocks.

In general, the acquisition of a fixed asset brings with it three elements of direct expenditure: the initial outlay; the maintenance of the asset through its lifetime; and the interest expense where the asset is financed through borrowing: where it is financed through grant aid or 'own' funds, a common practice in public authorities in developed countries is to apply notional finance costs. Of course, the indirect cost of grant aid is the alternative use of the finance, which, in reality, may not be an option, as in the case of tied aid.

The main differences between capital budgeting in the private and public sectors is that in the private sector provision is made for depreciation of fixed assets, ensuring that the profit and loss account bears a charge for the use of the asset, and that distributable profit takes this charge into account. Depreciation is the measure of the reduction of the economic life of the asset as it wears out or is consumed. It should be allocated so as to charge a fair proportion of the cost or valuation of the asset to each accounting period expected to benefit from its use. Depreciation allowances reflect both the charges for the use of the asset and for maintaining the capital in the business intact. Public sector assets are not normally depreciated. The consequence of this is that the costs of services are not separated from decisions about how they are financed and that there is no provision for asset replacement.

Although the public sector has traditionally not depreciated assets, there is considerable interest in a number of countries in this issue. In the UK, for example, local authorities are being recommended to change the way they account for assets, including the introduction of depreciation charges.⁶⁵ This will involve the standardisation of asset lives: for example, schools are given a 50 year life, furniture 15 years and vehicles 3-8 years. All assets are to be valued at replacement cost (unless they are to be discontinued, such as a school closing down).

There are compelling reasons why the introduction of better capital accounting might not be feasible in African countries, including its potential complexity, the difficulty of valuing many assets, and the lack of working accounting procedures. However, there has been in many countries an undoubted tendency to create assets which cannot be replaced or maintained, particularly when they are financed through external grant funds. The introduction of depreciation accounting in public budgets would create a register of assets and asset values; and ensure through the budget the proper provision for asset replacement.⁶⁶

There are two categories of conclusion from the foregoing discussion. The first is that education authorities in most African countries have little incentive to protect the value of assets and make provision for their replacement. The second is that they are not involved in the management of finance costs, and therefore have little interest in them. Ways of tackling these problems should be sought which suit the systems of individual countries. Where, for example, management is devolved upon local governments, local accounting systems could be strengthened over time to the point where they can produce balance sheets showing asset values. In most countries such a time is probably far off, though education sector institutions, such as universities and autonomous colleges, should keep proper capital accounts.

The budgeting and accounting conventions to be applied to private schools could include the requirement that revenue accounts bear a charge for depreciation. This should certainly apply to those instances where private secondary schools receive grants of public money to finance capital assets. A condition should be that they present their yearly audited accounts to show that proper provision is made for asset replacement. This would impose discipline on expenditures and help to create reserves.

Programme budgeting requires that the purchase, maintenance and replacement of assets acquired through domestic or foreign finance be included in the budget for each programme. Most capital expenditure programmes such as school building and equipment, or even textbook 'programmes' take place over several years. Under a rolling system future capital replacement requirements can be foreseen and built into the future budget. At the institutional level it may be possible to introduce procedures so that reserves can be built up over time for asset purchase.⁶⁷

The concepts of capital maintenance and replacement are central to the achievement of sustainable systems. While in many countries they are almost irrelevant because of the acute underfunding in recurrent budgets, it is important that discipline be imposed. Depreciation accounting is the standard and effective way of encouraging good use of assets, and, although it may not be a viable alternative for many years in most African countries, the concepts which underlie it should be carefully considered when building new budget systems. There is a good case for aid 'donors' to take more interest in how the assets they have helped to finance are protected.

(e) Budgeting Accounting Foreign Aid

I have noted that foreign aid has played and is playing a major part in the development of the education systems in many countries, and that a good deal of aid is not included in normal government budgeting and accounting systems. There are several reasons for this, including the lack of confidence of many 'donors' in government financial procedures and the significant amount of foreign aid which is purchased outside the recipient country, such as technical assistance and certain goods. Advantages to recipients of keeping aid out of normal budget processes include access to flexible funds which bypass government budget controls. In many countries aid in the form of balance of payments support is increasingly important, and has brought with it its own problems, including those associated with the use of, and accounting for, counterpart funds.⁶⁸ However, sound budgeting must be comprehensive, and all government revenues should be paid into, and all expenditures paid out of, a single Consolidated Fund. While this state of affairs may, in the case of foreign aid budgeting and expenditure, be difficult to achieve, it should, as in the case of better capital budgeting and accounting, be a target.

External assistance to education brings with it three inherent dangers. The first is that it encourages expansion beyond the capability of domestic resources to service the expansion. The second danger is the encouragement of inappropriate technology and structures, and the third is the resulting rise in expectations accompanied by a dependence on 'donors'. All of these can create an excessive dependence on foreign resources to maintain the system unless foreign aid is planned for in a rational manner to fit into existing priorities.

Foreign Aid and Education Expansion. General literature on foreign aid⁶⁹ tends to concentrate on agriculture, water supply, industry, and sectors where outputs can be relatively easily measured. Where education is discussed it is in terms of physical achievement which is invariably expansionary. Rising enrolment rates are assumed to be a positive achievement, and a well-educated population is assumed to be a necessary condition for economic growth. Whether these assumptions are fair or not, an important characteristic of the education sector is usually ignored: it is in most countries the single greatest item of public expenditure after defence. Expansion of education provision almost always means an increase in public spending.

The seemingly easy availability of development finance encouraged countries to experiment and accept foreign initiatives with little thought to their sustainability or appropriateness. Foreign finance promoted the expansion of education systems to the point where they sought to reach all sections of the populations, which became accustomed to the idea of universal provision. At the same time the expectations of education managers were raised while, in many cases, they concurrently became to greater or lesser degrees de-skilled because of the tendency for 'donors' to design programmes themselves and for hierarchical and authoritarian civil service structures to ignore local managerial staff.

In some countries external assistance comprises nearly all the 'development' expenditure in education sectors, although there may be little apparent relationship between 'development' expenditure and recurrent budgets, a relationship which is to be expected because each new investment should carry with it additional recurrent obligations. Development programmes have tended to be adjusted to a level permitted by available foreign exchange, and additional resources for meeting local costs have often had to come from inflationary sources.⁷⁰ Expansion of education sectors appears to have been frequently determined solely by the availability of foreign exchange from foreign aid, with little reference to what each country can afford to maintain from its own fiscal resources. The alternative is to deploy external assistance at a reasonable level to support domestic deficits, and of course, in the case of foreign loan finance, to support debt repayment.

In many countries the proportion of foreign aid accounted for by the costs of technical assistance is around one quarter of the total, and in some the total expenditures on technical assistance exceed the civil service salary bill.⁷¹ Technical assistance is rarely passed through or reported in budgets. While some countries insisted that technical assistance be integrated into the public service, over the years agencies required that their projects operated autonomously, outside 'normal' structures. Failure to account for the expenditures on technical assistance distorts many cost analyses in the education sector: examples include curriculum development and higher education.

A key issue is therefore for countries to regain, where they have lost it wholly or in part, control over education systems and their future development. One of the necessary conditions of doing so is to improve budgeting and accounting for foreign aid. The first step is to ensure that aid to the education sector reflects sector priorities. The best way to identify priorities is to consider what they would be in the absence of foreign aid, in other words, how the sector would be planned for on the basis of domestic resources only. Domestic resource planning and budgeting does not necessarily imply that countries should try to dispense entirely with external assistance. It is a way of encouraging planners and managers to identify core funding requirements of the sector.⁷²

Underfunding. 'Underfunding' has tended to express the finance gap between a reasonable level of funding for the education services that actually exist and the available resources to support them. The concept excludes by implication any reduction in the scope of services, and is used as a justification for external assistance to support existing systems in order to avoid restructuring. A better way of looking at the finance gap would be in terms of the desired expansion of the system to provide a better and more comprehensive service. I have already noted the example of Universal Primary Education, where, instead of planning for a sustainable increase in enrolments, governments (and aid 'donors') encouraged through positive measures a rapid increase which could not be supported, forcing themselves to seek yet more external funding. The same applies to the expansion of higher education in many countries. Thus, core funding should relate to the fiscal capacity of the country to support its education system, rather than to what is required to finance an extensive system modeled, for example, on the best characteristics of those which exist now in developed countries.

External assistance can then be applied with circumspection to develop the system. Each programme's foreign aid component should be identified separately where possible, and the rolling three year budget should show how the component will be sustained, One approach to the introduction of programme budgeting would be to programme all components of the education sector which benefit from foreign aid. In many countries the introduction of such a system would show in a very short time the extent to which externally financed initiatives cannot be sustained. It may be possible for education planners to indicate a ceiling for foreign aid in any period: this could be, for example, a rule of thumb ratio of aid to the domestic resource ceiling.⁷³ It is clear that these changes cut across all sectors, and cannot be limited to education ministries. They rely on leadership and cooperation by Ministries of Finance, including, for example, the development of manuals of instruction to sector planners on how to treat foreign aid. They also rely on cooperation by donors, both to pass the funds through the budget as policy and budget practices improve, and in the analysis and evaluation of current projects.⁷⁴

(f) Improving Expenditure Estimation

Irrespective of the changes to the budget format, techniques of budget estimation will in most countries need to be strengthened. Estimation should be simpler under rolling programme formats because activities are more clearly set out and because the iterative process of relating estimates to available resources enables budgeters to adapt their estimates. A commonly recommended approach is the use of 'norms' and formulae. This involves establishing quantities required to achieve given objectives, such as average ratios of books to pupils across subjects, the number of pupils per teacher, the number of teachers per various types of allowance, and so on. While in many respects these are desirable, they can also promote overestimation and a loss of flexibility, and the approach has many disadvantages in annual incremental budgeting systems. Many countries in which norms are given to education ministries by finance ministries find that their norm-based budgets are disregarded at the last minute-by the finance ministries in the process of budget reduction. The requirement to budget to norms has little point if they are not respected. Another problem with norm-based budgeting is that norms become fixed and inflexible. For example, as book procurement and distribution capacity develops, textbook-student ratios can increase. The current tendency is to fix 'ideal' norms and then aim at them, rather than to set realistic ones and achieve them. A related problem is the existence of conditions which make the achievement of norms almost impossible, for example, where universities try to achieve efficient staffing levels starting from a position of over-staffing.

Where the estimation process is more effectively iterative a more flexible approach is possible. Norms can be adapted and changed as required. Managers are in a better position to define their requirements in terms of what they want to achieve rather than in terms of fixed quantities prescribed for them. Furthermore, variations in what can be provided outside the government budget can be taken into account: if desks, or chalk, are easily available locally then they can be provided by schools and the savings be applied elsewhere in the system.

Thus the estimation process cannot be separated from the allocation process. While the use of norms is useful as part of the process of identifying total resources required, under programme budgeting with identified cost-centres schools or clusters of schools can eventually become the lowest unit of allocation. However this is done, whether by capitation grants or by other means, the integrity of the cost-centre budget and the right of its managers to allocate from it should be respected within reasonable guidelines. For example, while norm budgeting would specify fixed quantities of particular items for delivery to a school, parents and teachers in a primary school may wish to reallocate some of the money for chalk or desks to books, and should be allowed to do so. Such a process implies a degree of zero-based budgeting, which is a useful way of evaluating the effectiveness of norms. Ministries could run annual ZBB exercises on selected norms.

(g) Expenditure Management and Accountability

In many countries education ministry and some institutional accounts fail to receive auditors' approval. The reasons may be numerous. Rules and regulations of expenditure management may not be respected by concerned officials: payments are made against pro-forma invoices, without supporting vouchers, or without authorization; cash books are not maintained; bank reconciliations are not produced; stores are not recorded; the payroll includes ghost employees; and so on. The combination of lax expenditure controls, off-budget foreign aid and cash-starved finance ministries creates serious difficulties for education expenditure management to the extent that there may be up to three parallel budgets: that approved by the legislature; departmental and institutional budgets which include foreign aid as well as the legal budget; and a cash operated budget by the finance ministry concentrating on timely releases of the approved budget to education, sometimes failing to release the required amounts.

Many expenditure management problems originate in poor budgeting, and the proposals outlined in previous paragraphs are designed to address these problems. Programme budgeting specifies more clearly who is responsible for budget implementation, and sector structures need to be adapted to reinforce accountability. Forward budgeting allows overspending to be adjusted against next year's budget, so that education ministry managers see clearly the effects of their actions on future releases. Initiatives to improve accounting, cash management and expenditure reporting must go hand in hand with improvements to budgeting, both in education ministries and in finance ministries, and aid 'donors' should take a keen interest in ensuring that these initiatives take place. Otherwise it will be unlikely that foreign aid will be passed through the budget.

C. Conclusions: Affordability and sustainability

Phased Implementation. While revenue classification can be improved in a fairly short time, the reclassification of expenditures is more complex, as is the strengthening of capital and foreign aid budgeting. In the first part of this paper I emphasised that a necessary condition for the implementation of the reforms which have been proposed for education systems in Africa was the setting in place of appropriate management and planning mechanisms, and that this alone could take many years. Expansion policies such as Schooling For All and Universal Primary Education not only depend on resource availability but also on management capacity. I have also noted the constraints on domestic resources and the possible decrease in the levels of foreign aid available to Africa.

'The Receding Managerial Limit'. 'Planning implies on the one hand a purpose, and on the other, the organization of resources to accomplish this purpose in some desired manner.'⁷⁵ A key resource of any organisation is its management, and at any given time the capacities of the existing management staff set a limit to the expansion of the organisation. This paper has set out approaches to overcoming the problem of the 'receding managerial limit',⁷⁶ through improving the tools available for managers and the structures in which they work, but also by suggesting a different approach to marshalling the resources they have to hand. The constraints which apply to all other reform initiatives also apply to those suggested here. They must be phased in slowly.

Sustainable Development. The concern with sustainable development has been brought to the fore by environmental concerns, where they relate to the impact of projects on, for example, national income, human welfare, depletion of physical resources and technological change. The criteria in these cases relate to irreversible effects of projects, how to foresee them, measure them, and accommodate or avoid theme In many respects the economics of the environment is similar to the economics of human resources, most particularly in their long term horizons, and the associated problems of valuing externalities. The essence of environmental economics has been the elaboration of techniques to value what was previously thought to be unevaluable. This may well be mirrored in educational analysis, as many of the current approaches encourage short-term viewpoints, as I have noted in Part I. While poor decisions in educational policy may well lead to irreversible damage, in the sense of opportunities lost, sustainability in a practical sense must mean the ability of countries to maintain education provision of reasonable quality with domestically generated resources: the ability to borrow and repay loans, and to maintain asset stocks is part of domestic capacity.

Affordability. The title of this paper suggests that education is an unaffordable commodity. In relation to the total educational wants of a population this is probably by definition true. However, by concentrating on reforms and improvements which will result in a better fit between available resources, local management and professional capacity, and the scope and size of educational systems, African countries can afford better quality. These reforms and improvements cannot be restricted to the education sector alone, but must be undertaken parallel to improvements and reforms in Ministries of Finance and in civil services in general. Such an approach contrasts with expansionary approaches such as those of the Jomtien Conference which commit countries to build their education systems up further on weak foundations, and to follow this more cautious approach would be to heed the lessons of the last two decades,

Policy Implications for Donors

In this paper I have argued that most countries are likely to experience considerable difficulty in implementing simultaneously the triple initiatives of expenditure reallocation, improved budget management and system expansion. The main implication for donors of the types of policy I have proposed is the need to recognise that the pace of change is almost certain to be slow, in contrast with the aspirations of many donor initiatives, particularly those within the context of the social dimensions of structural adjustment.

In particular, it is important that the availability of foreign aid does not encourage the unsustainable expansion of education systems, resulting in a serious deterioration of quality. The growing importance of programme aid and counterpart funding via balance of payments support has heightened awareness of the need for governments to improve policy as well as policy implementation processes, but donors should take care to avoid unrealistic prescriptions. At the same time, donors should reflect the introduction of rolling plan budgeting in aid policies, with longer term commitments of aid to be passed through budgets in order to give governments a better idea of what resources are likely to be available, of course within an acceptable and feasible planning framework. This would require a much better match of projects and educational policy than has hitherto been observable.

At the level of programme design for the strengthening of planning and budgeting in the education sector a key lesson of the past is the need for coordination between sectoral ministries and ministries of finance. I have suggested that in most countries there is a need to improve overall public sector budgeting and that failing to do so will dilute the effect of improvements at the sectoral levels. Sectoral donors should take a wider view of their interventions. Many may consider this to be a daunting task, but I argue that a gradual process of reclassification of budget heads is possible and that there need be no conflict between the budget formats used by ministries of finance and education. When the mechanisms by which change may be effected are in place countries will be able to take effective steps to initiate affordable and sustainable improvements in their education services.

Perran Penrose
Cambridge, UK
March 1993

^1. See Sahn, D.E. Public Expenditures in Sub-Saharan Africa During a Period of Economic Reform. World Development, Vol 20, nr 5, 1992, pp 673-693.

^2. 'Inflation des effectifs et des coûts, stagnation des débouchés et stabilisation des perspectives d'emploi, telles vent les caractéristiques de la stagflation scolaire' ('The inflation of enrolments and costs, the stagnation of job opportunities and the levelling off of employment prospects, are the characteristics of educational stagflation'). Hallak, J. A Qui Profite L'Ecole? Presses Universitaires de France, 1974, p 149.

^3. Eg Coombs, P.H. What is Educational Planning. IIEP, 1971.

^4. Eicher, J.C. Educational Costing and Financing in Developing Countries, World Bank Staff Working Papers Nr 655, 1984, is one of the best analyses of finance issues. Also see World Bank, Financing Education in Developing Countries: An Exploration of Policy Options, 1986; Haddad, W.D. et al, Education and Development: Evidence for New Priorities, World Bank Discussion Papers Nr 95, 1990; Stromquist, N. A Review of Educational Innovations to Reduce Costs in Financing Educational Development: Proceedings of an International Seminar held in Mont Saint Marie, Canada, 19-21 May 1982, IDRC and CIDA, pp 69-94; Colclough C. with K. Lewin, Educating All the Children, Oxford, 1993. Other references are given throughout this paper.

^5. Markets, it has been said, work incrementally. All required changes - in price signals, in people's response to incentives, in shifts of resources - take time... The likelihood of market failure is a function of the degree of urgency - or impatience - attached to a particular change. The prima facie case for government action to promote development in underdeveloped countries rests largely on the belief that what is needed is rapid economic development, the compression into a few decades of a process that in the West took centuries' (Arndt, H.W. 'Market Failure' and Underdevelopment. World Development, Vol 16 Nr 2, Feb 1988, quoted in Killick, T. A Reaction too Far: Economic Theory and the Role of the State in Developing Countries, ODI London, 1989, pp 62-63). A key condition for improvement, which Killick analyses, is the improvement of government and civil service administration: 'What matters more than its absolute size is how the state goes about its tasks and what relationship it establishes with the private sector'.

^6. See Dougherty, C. Education and Skill Development Asian Development Bank/World Bank Seminar on Vocational and Technical Education and Training, Manila, January 1990, p 22 et passim.

^7. This paper does not elaborate on the relationship between education and economic growth. It is more likely that determinants of South East Asian growth are more to be found in industrialisation strategies and their relation to education strategies than in education alone. The World Bank World Development Report of 1991 (mainly Chapter 3) proposes that education is a sufficient condition for economic growth. However, the assumption behind growth models underpinned by human capital theories that output is determined solely by supply factors, all resources being fully employed, cannot be easily defended in the case of Africa. For an excellent summary analysis of this issue see Fanelli, J.M., R. Frenkel & L. Taylor, The World Development Report 1991: A Critical Assessment. Feb 1992, available from the economics department of the Massachusetts Institute of Technology. For an interesting account of the education strategy in one South East Asian country, see Woo, J.H. Education and Economic Growth in Taiwan: A Case of Successful Planning. World Development, Vol 19, Nr 8, 1991, pp 1029-1044. There is much to recommend the study of East Asian education development experience to provide fresh perspectives on education in Africa.

^8. See Blaug, M. Education and the Employment Problem in Developing Countries, ILO, 1973, pp 79 ff. This classic paper, written twenty years ago, is as applicable today as it was then, and its prescience is sobering. For a fascinating, and instructive, historical discussion of the same issue, see West, E.G. Education and the Industrial Revolution Batsford, 1975, pp 245 ff.

^9. See Tilak, J.B.G. Education and Its Relation to Economic Growth, Poverty, and Income Distribution: Past Evidence and Further Analysis, World Bank Discussion Paper Nr 46, 1989, for a summary of these influences.

^10. See footnote 32.

^11. See also Lall, S. Human Resources Development and Industrialization with Special Reference to Sub-Saharan Africa in Griffin K. and J. Knight (ed), Human Development and the International Development Strategy for the 1990s, Macmillan, 1989, Chap 6.

^12. All the same, many countries have managed to increase levels of total public spending although there were declines in the period around 1982-84. See Sahn, op cit. for evidence for this and other statements in these paragraphs. Although his data are mainly from secondary sources, and may include budget data rather than verified actual expenditure, they do seem to support the claim that public expenditures have been robust. He does not, however, make distinctions between unilateral external assistance and loans, and it is therefore not always easy to decide how far growth is a function of large inflows of foreign grant aid. For the 1970s, see Zymelman, M. The Burden of Education Expenditures and its Forecast, World Bank, Washington, 1978.

^13. A contemporary case is Tanzania, with a ratio of Official Development Assistance (ODA) to GNP of nearly 50 per cent - a high figure when considering the likely understatement of aid flows. It should be noted that the denominator of the ratio is in many ways most important: Tanzania does not by any means have the highest per capita level of external aid. For example, neighbouring Malawi has a higher per capita ODA, but the ratio to GNP is about half that of Tanzania. Considerable care is needed, as always, in interpreting this type of data because of the potentially serious inaccuracies of national income accounting and different economic structures. See also footnote 26.

^14. For example, World Bank, Sub-Saharan Africa: From Crisis to Sustainable Growth, 1989: 'Total expenditure on human resource development should be steadily expanded until it reaches 8 to 10 percent of GDP annually, about double present spending (with donors meeting about half the total). Infrastructure spending should rise to around 6 percent of GDP. This would cover capital and recurrent expenditure and ensure adequate resources for maintenance and running costs' (p 12). This last was to be financed through higher taxation and lower public wage bills. Aid was to provide recurrent as well as investment finance. How all this is to be financed is not addressed at all: see, for example, the weak discussion of 'sustained financial support for human resource development' on pp 87-88.

^15. US$ 30 billion for the world by the year 2005. Minimum aid flows to Africa are given as US$ 15 billions, (Colclough and Lewin op cit. p 239). Another UNICEF report, The State of the World's Children, OUP, 1993, gives a figure of US$ 25 billion per year to provide basic health and education services.

^16. For a dissident voice, see Hallak, J. Education for All: High Expectations or False Hopes?. presented to the Oxford Conference, September 1991. Hallak also writes that financial factors 'become vital issues only if the economy is in bad condition'.

^17. Sahn, op cit. calculated elastiaties of social sector spending with respect to GDP (greater than unity) and to total government expenditure (less than unity). The variations from unity are slight, and the time series is short. It is reasonable to conclude that they are both around unity and that therefore economic growth and decline (at least as measured by total GDP, which may be misleading) are not associated with significantly more than proportionate growth or decline in social sector spending. Sahn emphasises the need for detailed country studies, however.

^18. Reducing the current external cash flow obligations and payments on debt account will thus probably be the most cost effective form of official external resource transfer to Africa in the 1990s.' Helleiner, G.K. Africa's Adjustment and External Debt. World Development, Vol 20, Nr 6, 1992, pp 779-792. An issue which is often overlooked is the rising domestic debt costs resulting from financial liberalisation policies.

^19. See Beeby, C.E. The Quality of Education in Developing Countries, Harvard University Press, 1966, for an analysis of 'stages' of educational development.

^20. Berg E, Rethinking Technical Cooperation: Reforms for Capacity Building in Africa, UNDP, 1993. A feature of foreign consultants and aid agency staff has been a certain lack of accountability. Whereas engineers require professional indemnity insurance against design negligence and error, I know of no case of an agency or individual being sued by a country for bad advice. Timothy Curtin (Curtin, T. The Economics of Public Investment in Education in Papua New Guinea, University of Papua New Guinea Press, 1991, p 4) makes the somewhat extreme point that those who make up what he calls the 'consensus school' of educational cost-benefit analysis could be locked up under regulations governing the provision of financial services for misleading analysis!

^21. Dore, R. The Diploma Disease, Allen and Unwin, 1976, pp 72 ff. 'In the Third World today the importance of qualifications is greater than in the advanced industrial countries. Education systems are more likely to be geared to qualification-getting, and the consequences for society and its patterns of development are likely to be even more deplorable than in our society.' (p 83)

^22. eg Devon, R.F. Foster's Paradigm Surrogate and the Wealth of Underdeveloped Nations. Comparative Education Review, October 1975, p 403, in relation to Papua New Guinea. This piece is a rejoinder to Foster, P. Dilemmas of Educational Development: What We Might Learn from the Past. in the same issue, p 375, and is not altogether fair to Foster who, inter alia, suggests shorter education cycles (p 384)

^23. This is not confined to developing countries: in the UK there is now a lag of about one year before local government education expenditures are consolidated and reported.

^24. But see page 24.

^25. 'Society' should not be confused with 'government' (see, for example, Psacharopoulos, G. and M Woodhall, Education for Development: An Analysis of Investment Choices, OUP, 1985, pp 35-37).

^26. The literature on national income accounting is immense. See also the technical notes on the quality of data in Accelerated Development in Sub-Saharan Africa, pp 187-188, and in the World Bank's Development Reports. More recent IMF, of purchasing power parity (PPP) national incomes show startling new international rankings. Similarly, the custom of expressing national financial data in US dollars at current exchange rates has resulted in re-workings of national income series in some countries to make them appear consistent over time.

^27. There are usually also other items of non-discretionary expenditures such as those relating to pensions and upkeep of key state institutions, and, in some countries significant 'special' items relating, for example, to costs of restructuring: these are often labelled 'discretionary' but in reality should probably be considered as nondiscretionary.

^28. For example, in Tanzania the Ministry of Education budget only accounts for about 25 per cent of the total public education budget, with local government budgets taking the largest share: there is a separate ministry for higher education. Other ministries' expenditures on education add about 3 per cent to total government expenditure on education. In Nigeria the Federal allocation to the states' accounts for the largest share of budgeted expenditure at state level, but separate reference must be made to state budgets for the full picture. For sources see Penrose, P. Review of Public Expenditures in the Education Sector in Tanzania, July 1992, available from the European Commission in Brussels; World Bank, Nigerian Secondary Education Sector Report: A Study in Contrasts, West Africa Department, August 1991; Penrose, P. Issues in Education Finance and Planning in Nigerian Secondary Education World Bank West Africa Department, April 1992; Hinchliffe, K. Federation and Education Finance: Primary Schooling in Nigeria.

International Journal of Education Development, Vol 9, Nr 3, 1990, pp 157-162. Many African governments have significant local government involvement in primary education, with concomitant fragmented budgetary reporting.

^29. Education cost-benefit analytical techniques are concerned with years at school rather than what is learnt within school. The confusion of schooling with education results in a misspecification of the earnings function which will lead to overestimation of the returns to expansion of low quality schooling, which has indeed occurred in many countries, and neglect of alternative quality improving investments which will have relatively higher rates of return. See also P. Glewwe, Schooling Skills and the Returns to Investment in Education. LSMS Working Paper N176, World Bank, 1991.

^30. For example, the failure to take into account benefits to society from indirect taxation (see Curtin, op cit) and costs to society of public services financed from inequitable tax systems.

^31. Externalities occur when all the benefits and costs of transactions are not fully incorporated in their market prices. They can be positive or negative. Evidence on externalities is difficult to collect, particularly in manipulated labour markets. See, for example, Knight, J.B. and R.H. Sabot, Education, Productivity, and Equality: The East African Natural Experiment. OUP, 1990, pp 23 ff. The extent to which social benefits accrue from increased labour productivity may also be exaggerated. However, the importance of externalities to the various levels of education should not be underestimated. For example, externalities to higher education may be significant, but, of course, are hard to measure. It may well be that externalities to primary education, being easier to measure, are more seductive in their policy implications. Consider, for example, Psacharopoulos, G. Priorities in the Financing of Education. International Journal of Educational Development Vol 10 Nrs 2/3 1990, pp 157-162: 'Why should the limited educational budget of a country × finance the production of a microchip specialist who will be employed in the local branch of a multinational firm?'. The author subsequently asserts that because externalities to higher education are hard to measure, and because the existence of greater externalities to primary education is 'intuitively' more likely, fiscal resources should not be used to pay for higher education. One man's intuition... There may well be a much better case for public investment in post-secondary education than is commonly admitted at present, particularly in terms of 'dynamic externalities' (how they relate to innovation and growth) (see Stewart F. E. Ghani, How Significant are Externalities for Development?. World Development, Vol 19, Nr 6, 1992, pp 569-594 for an overview of this issue, but not on education). Leslie, I.L. Rates of Return as Informer of Public Policy. Higher Education Vol 20, 1990, gives a comprehensive description of externalities to higher education. Also, for example, Knight Sabot show how educational expansion can reduce inequalities in pay, a very important externality not normally taken into account in cost-benefit analyses. The presence of 'negative externalities' should not be neglected: for example, unemployed school leavers can be a source of political instability. Another negative externality not unknown in some developed countries is to private schooling, where the private schools prove to produce rulers, politicians and civil servants rather than entrepreneurs and industrialists...

^32. See Knight Sabot, op cit. pp 41-42, for evidence of this in Kenya. Where the returns to schooling are measured by wage differences associated with differences in length of schooling (assumed to be the marginal product of education), they usually assume that the average wage of standardized labour measures the wage received by the marginal (ie new entrant) worker. Because school leavers with more schooling take jobs previously taken by those with less schooling, the average wage for any given cohort may fall over time. Average and marginal wages would therefore not be equal, leading to overestimation of returns, particularly to primary schooling. Indeed, compression of wages is another externality to take into account. In reference to their own estimates of returns to schooling, which are among the most sophisticated yet published, the authors write: 'We do not wish to perpetuate the illusion of precision created by oversimplification' (p51).

^33. Snower, D.J., The Future of the Welfare State. Economic Journal, vol 103, nr 418, May 1993, pp 700-717.

^34. See, for example, Colclough, C Who Should Learn to Pay? An Assessment of Neo-liberal Approaches to Education Policy. in Colclough C. and J Manor, States or Markets?, Clarendon Press, 1991. Also Watson, K. Alternative Funding of Education Systems. Oxford Studies in Comparative Education Vol 1, 1991, pp 113-146.

^35. For a cogent description and analysis of this view, see Camoy M. and C Torres, Educational Change and Structural Adjustment: A Case Study of Costa Rica, Operational Policy and Sector Analysis Division Working Document, UNESCO, Paris, September 1992, passim and p 60.

^36. World Bank, Financing Education in Developing Countries. See Lockheed, M.E., A.M. Verspoor and Associates, Improving Primary Education in Developing Countries, Oxford, 1991, pp 173 ff for the case against fees for primary schooling, as well as a review of issues of local finance. Curtin op cit presents a case for higher education subsidies. Also, V. Lavy, Investment in Human Capital: Schooling Supply Constraints in Rural Ghana. LSMS Working Paper Nr 93, World Bank, 1992.

^37. See Jimenez, E, Pricing Policies in the Social Sectors: Cost Recovery for Education and Health in Developing Countries, Johns Hopkins, 1987, Chap 5.

^38. There is considerable hostility to the idea of publicly funded higher education in the donor literature, while in reality it is likely that bilateral donors provide considerable support to African universities. Without making judgements on the scope and nature of externalities to higher education, the ability of 'better off' university students to pay fees, or the distribution of underfunding between levels of education, it is not in general realistic to expect many African governments to be seen to attack the university sector. A more selective approach would be to encourage more efficient institutional management and to give less support to social science faculties and poor quality 'research'. Stronger efforts to develop university-enterprise links are also much needed. Neglecting these issues on the grounds that universities are 'elitist' only raises the opportunity cost of public subsidies to higher education. See Penrose, P. Evaluation of Linkages in the Field of Higher Education and Training: Botswana, Lesotho and Swaziland report by DHV Consulting for the Dutch Ministry of Foreign Affairs, June 1992, Chap 5, for a summary of some of the issues. Also Coombe, T. A Consultation on Higher Education in Africa, Ford Foundation, Jan 1991, for a voice sympathetic to higher education but accepting the low performance in research as well as poor management. Evidence for strong bias towards social sciences and arts can be found in Association of African Universities, Study on Cost Effectiveness and Efficiency in African Universities, A Synthesis Report, AAU, May 1991, pp 74-81. For the failure of African universities to develop linkages with enterprises (public or private), which is related to the relatively low importance attached to physical sciences, itself related to lack of finance, see AAU, University Productive Sector Linkages: Review of the State of the Art in Africa, November, 1990. For a review of the issues see Saint, W. S. Universities in Africa: Strategies for Stabilization and Revitalization World Bank Technical Paper 194, 1992: the orientation and conclusions of this paper raise interesting questions.

^39. Thobani, M. 'Charging User Fees for Social Services: 'The Case of Education in Malawi', World Bank Staff Working Paper Nr 572, 1983. For the argument that fees should substitute for public resources, see Bertrand, T.J. and R. Griffin, The Economics of Financing Education: A Case Study of Kenya, World Bank, 1984.

^40. Earmarked taxation is in the demonology of Treasuries, which invariably disapprove of it, though its time may come. See Lockheed et al, op. cit. pp 189 ff for some case studies of earmarking, though some of the examples given may not be all they seem. There is a growing literature on the subject.

^41. Regressive taxation occurs when the less well off pay a greater proportion of their marginal income than the better off. The opposite is progressive taxation. Indirect taxes can be regressive: they are considered progressive when levied on 'luxury' goods. The extent to which education should be considered a luxury will vary according to type and level, and would determine the scale of regression. Many countries have moved towards regressive taxation in the last decade or so.

^42. Colclough, C. Resources for Education in Developing Countries. International Journal of Education Vol 10, Nrs 2/3,1990, pp 115-119.

^43. See also Jimenez, op cit, pp 82 ff and Table 7.5.

^44. See Brown, B.W. Why Governments Run Schools. Economics of Education Review, Vol 11, Nr 4, 1992, pp 287-300, for a discussion of this issue in the United States. The author suggests that regulation costs are very high and that private for-profit school owners engage in 'opportunistic behaviour' which leads to a low quality of service.

^45. There is relatively little contemporary work on this subject. One study in Latin America shows that while average expenditure by households for each child on primary education have increased, total expenditures on education have not increased because the profits are retained by school owners and not reinvested in education. See Schiefelbein, E. Restructuring Education through Economic Competition: The Case of Chile. Journal of Educational Administration Vol 29, Nr 4, 1991, pp 17-29. E G West, op cit, in writing about the 'public/private displacement mechanism' suggests the reverse process took place in Britain from 1833 to 1945, as public schools took over from private schools and average expenditures on education declined (chap 15). Schiefelbein previously recorded some evidence of better examination performance in private schools in Chile (Schiefelbein, E. Education Costs and Financing Policies in Latin America. Education and Training Department Discussion Paper, World Bank, 1985).

^46. See Knight, J. Education Policy Issues in a Period of Stabilization and Structural Adjustment in Griffin & Knight, op cit. chap 3, especially p 66 ff. 'The hope that meritocratic selection criteria would prove sufficient to ensure that the various income groups were represented in secondary schools in proportion to their numbers was disappointed in the United Republic of Tanzania... '; and '... those with the greatest ability to bear the cost of their children's education are the most likely to receive large subsidies. These results for Kenya probably have general application'.

^47. Also in many countries private or semi-private schools have been directly supported from foreign aid, which is in many cases being withdrawn.

^48. See, for example, Haddad et al, for a review of some evidence. For an earlier study, see Husen, T et al, Teacher Training and Student Achievement in Less Developed Countries, World Bank Staff Working Paper Nr 310, Dec 1978, p 42 et passim.

^49. Coombs, op cit.

^50. The concept of 'development' budgeting in principal incorporates, the investment nature of much 'recurrent' expenditure. Unfortunately 'development' budgeting, as with capital budgeting, has too often become exclusively concerned with capturing more foreign aid.

^51. 'Rational' in the sense that reasoned justification for proposed expenditures is required. In another sense, the rationality of politicians would tend to resist reasoned technical justifications. Budgets always express tensions between different type of rationality. See, for example, Wildavsky, A. The Politics of the Budgetary Process. Little, Brown Co, 1984 (4th edition), pp 198 ff.

^52. This phenomenon is not new. It has long been recognised that the elasticity of primary school teachers' salaries to national income is less than unity (although there have been short-run exceptions). See, for an early study, Blott, D. and M Debeauvais, Education Expenditure in Developing Countries: Some Statistical Aspects. in Financing Education for Economic Growth, OECD, Paris, 1960, pp 73-88. The authors used a form of purchasing power parity in place of official; exchange rates, which made their findings particularly valid.

^53. Such as adult education, which in many countries is provided in different ministerial sectors.

^54. Wildavsky, op cit. pp 135-138, and p 216: 'The tension between analysis, which seeks out error and promotes change, and organisation, which seeks stability and promotes its existing activities, is inevitable'.

^55. Wildavsky, op cit; Dean, P.N. Government Budgeting in Developing Countries, Routledge, 1989; Babunakis, M. Budget Reform for Government: A Comprehensive Allocation and Management System (CAMS), Quorum Books, 1892, p 5 et passim. Nozick, D. (ed, Current Practice in Programme Budgeting, London 1973). The reasons for the failure of the US budget reforms in the 70s were complex, but related to the political resistance to rational budgeting combined with the development of excessively complex techniques. Observers such as Wildavsky who in the end argued for the retention of incremental budgeting recognised that their criticisms were less relevant to developing countries (Caiden, N. and A. Wildavsky, Planning and Budgeting in Poor Countries, Wiley, 1974)

^56. Sometimes referred to as performance budgeting, or programme and performance budgeting, as in the UN Manual for Programme and Performance Budgeting, Department of Economic and Social Affairs, UN, 1968. See Dean, op cit, for a review of the UN manual.

^57. Or, as Wildavsky wittily puts it, 'the affair with resources has been replaced by the romance with objectives', op cit, 1984, p 181.

^58. See Babunakis and Nozick op cit respectively for summaries of US and UK experiences.

^59. It should, of course, always be emphasised that enrolment does not equal attendance, and in countries with poorly resourced systems attendance rates will predictably fall, often seasonally. Indeed, attendance rates may be viewed as 'real enrolment rates'. Where the ratio of attendance to enrolment is significantly less than unity many base planning data become meaningless, and considerable waste ensues.

^60. See Hirsch, W.Z., M J Marcus R M Gray, Program Budgeting for Primary and Secondary Public Education: Current Status and Prospects in Los Angeles, Praeger, 1972, for some approaches to fiscal modeling, as well as a somewhat complex example of PB from Los Angeles.

^61. This paper does not set out to review past and current PB experiences. Some countries, such as Malaysia, Sri Lanka, India, Philippines, Singapore, attempted to introduce full-scale programme budgets, with indifferent success, reviewed in Dean, op cit. Also the small island of Grenada in the Caribbean has programmed its budget within slightly modified budget categories: this simply allows objectives to be specified within the budget document, which would probably not be useful for a restructuring exercise in a bigger country. Some countries, such as Uganda, have converted budget votes to 'programmes'. Ghana also began to introduce elements of programming to the education sector, but it did not persist. Benin and The Gambia are currently embarking on budgeting reforms in the education sectors. Relatively few have attempted an overall reform involving three year rolling budgets linked with plans, in which the Ministry of Finance is involved in supporting sectoral reforms. Kenya introduced a three year rolling system, but its credibility may have been somewhat tarnished by inaccurate revenue forecasting and therefore a failure to allow institutions and managers to prepare for substantial contraction. Tanzania is introducing interesting reforms in social sector budgeting. Other countries which have introduced forward budgeting include Botswana.

^62. Examples of the types of suitable training materials are found in IIEP, Educational Cost Analysis and Budgeting Report of a Training Programme, Saltpond, Ghana, UNESCO, 1989; and UNESCO, Report on Trainers' Training Programme in Educational Cost Analysis and Budgeting at the District Level, Ghana Ministry of Education/UNESCO/UNDP, August 1991, available from UNDP.

^63. Dean, op. cit., pp 138-139.

^64. UNESCO Manual on the Application of URC Norms to Programme Linked Budgeting, Republic of Ghana Ministry of Education, UNESCO/UNDP Document Nr 20, October 1989.

^65. See CIPFA, Capital Accounting in Local Authorities: The Way Forward, Chartered Institute of Public Finance and Accounting, Feb 1989.

^66. Capital expenditure in the education sector is sometimes difficult to define. In some cases, such as textbooks, expenditure on depreciating assets is treated as recurrent expenditure. In fact, textbooks may be also considered as capital expenditure with a two or three year straight line depreciation, though of course in reality books deteriorate most rapidly at the end of their lives. See MacGregor, C., K. Mortimer T. Lisher, Study on Book Provision in Kenyan Education ODA/World Bank, November 1990, East Africa Dept of the World Bank.

^67. Penrose, P., T.C. Gardrler B. Shone, Budgeting for Higher Education in Ethiopia, Commission for Higher Education, Ethiopia, 1987.

^68. Such as earmarking by donors for specific purposes and the problem of aid fungibility. See Maxwell, S. (editor), Counterpart Funds and Development. IDS Bulletin, Vol 23, Nr 2, April 1992.

^69. General reviews include Riddell, R.C. Foreign Aid Reconsidered, Currey, 1987, and Cassen, R. and Associates, Does Aid Work?, Clarendon Press, 1986.

^70. See Doriye, J. M. Wuyts, Aid. Adjustment and Sustainable Recovery - The Case of Tanzania. Working Paper for the Department of Economics, School of Oriental and African Studies, London University, March 1992.

^71. Berg, op cit. p 14.

^72. Having said all this, there is a disturbing tendency for aid donors and lenders to be fixated on the issue of reporting external assistance at the expense of supporting recurrent budget reform and improvement. Terms of Reference for some World Bank Public Expenditure Reviews, for example, arguably lay excessive emphasis on aid budgeting and expenditures and result in insufficient analysis of recurrent budgeting issues.

^73. Such techniques would not, of course, overcome problems of aid fungibility, but all of the proposals in this paper presuppose the improvement of the public sector planning and administration culture so that deliberate subversions of the system are reduced.

^74. To achieve total success in passing aid funds through consolidated revenue accounts is probably not possible. Donors will always have grounds to suspect that government policies are not in harmony with aid policies. For example, the European Commission is currently in dispute with the UK government over regional funds: normal UK leasury practice is that all funds go through the Treasury, while the EC does not accept that the Treasury will pass them in full to the regions (Financial Times, Feb 25, 1993).

^75. Penrose, E. The Theory of the Growth of the Firm, Basil Blackwell, 1959, p 44.

^76. Ibid, chapter 4.

^77. Pearce, D., E Barbier A Markyanda, Sustainable Development, Economics and Environment in the Third World, Earthscan, 1990, ch 1; Redclift, M. Sustainable Development, Exploring the Contradictions, Routledge, 1987, chs 2 & 3.

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