Will formula based funding and decentralized management improve school level resources in Sri Lanka?

Transcription

1 6th PEP Research Network General Meeting Sheraton Lima Hotel, Paseo de la Republica 170 Lima, Peru June 14-16, 2007 Will formula based funding and decentralized management improve school level resources in Sri Lanka? Nisha Arunatilake Ministerio de Economía y Finanzas For more information about the 6th PEP Research Network General Meeting, Please visit:

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3 Will formula based funding and decentralized management improve school level resources in Sri Lanka? Conference version May, 2007 Keywords: education finance, Sri Lanka, formula based funding, decentralized management of schools JEL codes: I20, I21, I22, I28, I38 Lead Researcher: Last name: Arunatilake First Name: Nisha Institution: The Institute of Policy Studies of Sri Lanka Other researchers: Priyanka Jayawardena Roshani De Silva Full mailing address: 99, St. Michael s Road, Colombo 3. address: nisha@ips.lk Phone number: Fax number: URL:

4 Abstract This paper analyzes the effectiveness of the Educational Quality Inputs (EQI) Scheme in Sri Lanka which seeks to improve educational inputs at the schools through formula based funding and decentralized decision-making at the schools. The study explores the distribution and the benefit incidence of EQI expenditure and examines the factors that affect the utilization rate of funds allocated to schools. The study finds that EQI expenditure, especially at lower levels of schooling -- is pro-poor, albeit with provincial level variations. Rural, small schools and schools with fewer facilities indeed get higher amounts of per student funding under the scheme and on average they spend more on EQI under the scheme. However, schools are not able to make full use of the funds made available to them. Confirming the results for other developing countries, the study finds that local, school and location related factors affect utilization rate. The study also provides empirical evidence to show that state administration factors affect utilization rate of funds

5 1.0 Introduction Achievements in Sri Lanka s Education sector are praiseworthy, in many respects. Formal education in the country is accessible both geographically and financially -- to most. However, problems of equity and quality of education are increasingly plaguing the education system in the country. Enrolment rates and achievement rates, especially for post primary grades, are worse for children from poorer households and less developed provinces. Also, high unemployment rates among the more educated youth points to the problems with relevance of education (World Bank, 2005; ADB, 2005). Recent attempts at reforming education sector have given priority to improving quality of education, extending education opportunities to all, improving relevance of education, teacher education and improving management of education and resource provision (Wijesundara, 1998). One implementation strategy of these objectives is the Educational Quality Inputs (EQI) Scheme that envisages improving educational inputs at the schools through decentralized decision-making. Under this scheme schools are given financial grants for the purchase of educational quality inputs, and autonomy to identify input needs, albeit within certain guidelines. The amount of the financial grant is decided taking into account the type of school (i.e., primary, secondary, etc.), student numbers, and school needs with adjustments for economies and diseconomies of scale based on a norm-based-resource allocation scheme. The above scheme is a bold attempt at improving much needed educational resources at schools. However, in 2004, only around 80% of the funds that were allocated to schools under the EQI scheme were spent in Sri Lanka. International experience suggests that the positive effects of decentralized decision making can be undermined in a developing country context where schools lack basic resources, where governments are weak and unable to develop information and accountability systems to monitor and support schools to pursue national goals (Grauwe, 2005). This study has the following main objectives. First, using benefit-cost analysis methodology it examines distribution of EQI expenditure across the population by provinces and education levels. Second, it examines the factors affecting utilization rate of EQI funds with a view to better understanding why large amounts of funds are left unspent. Third, it provides recommendations for improving the implementation of the EQI scheme, based on findings. Lastly, using the case of EQI scheme as a case study, it tests whether concernes raised on introducing decentralized management in a developing country setting are true for Sri Lanka. The results of the study are summarized in section 8. Section 2 provides the backdrop to the study by describing the education system in Sri Lanka. Section 3 describes the functioning of the EQI scheme. Section 4, examines the benefit incidence of EQI expenditure. Section 5 describes the data sources used in the present study, the variable selection for the study and the empirical model. Sections 6 and 7 details the results of the regression analysis for 2003 and 2004 data. Section 8 summarizes and concludes. Section 9 points to the limitations of the study. Section 10 provides an agenda for action and identifies future research needs. 2.0 Background This section provides a background to the education system in Sri Lanka. Section 2.1 discusses the structure and management of education in Sri Lanka. The next two sections sections 2.2 and discuss the issues concerning access to education and quality of education. Section 2.4 discusses distribution of resources and education finance in Sri Lanka, and the last section discusses the recent policy reforms aiming to decentralize education management and administration in the country. 2.1 Structure and management of education in Sri Lanka Education in the country is provided through an extensive network of schools, -- numbering 9,790 in spread throughout the country. More than 99% of these schools are public schools. Since the free education - 1 -

6 act of 1949, the government, at its various levels, has been the principal source of funding for the provision of education in Sri Lanka. Tuition is provided free of charge in all public schools. In addition, the government also provides free textbooks and uniforms, and subsidized transport for school children. The education system in Sri Lanka consists of four cycles: primary cycle (grades 1 to 5), junior secondary cycle (grades 6 to 9), senior secondary cycle (grades (10-11) and the collegiate cycle (grades 12 and 13). Education is compulsory up to grade 9 in the country. The present management structure of education in the country has prevailed, since the enactment of the 13 th amendment to the constitution in 1987, which established the provincial council system that devolved more powers to the provinces in the administration and management. Under this system, the present administrative structure consists of five tiers: The central ministry of education, provincial ministries and departments of education, zonal education offices, divisional educational offices and the schools. In this system, most schools usually referred to as provincial schools come under the purview of the provincial authorities. However, a handful of schools denoted as national schools are directly managed by the Ministry of Education (MOE). In 2002, there were 9,829 government schools; of these 9,509 were Provincial schools, while 320 were National Schools (NCE, 2003; MOE, 2004) Access to education in Sri Lanka Sri Lanka has achieved commendable results in school enrolment rates due to the education policies pursued by successive governments that ensured the accessibility of education both geographically and financially. Grade 1 net enrolment of about 97%, that is comparable between males and females, and a corresponding primary school completion rate are better than those in comparable South Asian and Developing countries. Despite these encouraging national level statistics, especially for primary grades, there are variations in the enrolment rates across geographic and socio economic sections of the population at higher levels of schooling. For example, net junior secondary enrolment, grades 6-9, varies from 61% for the poorest income quintile to 76% for the highest income quintile. At province level, it varies from 73% for the conflict affected Northern/Eastern provinces to 87% for the most developed Western province (World Bank2005). 2.3 Quality of education Despite favorable enrolment rates, problems with the quality and relevance of the education have plagued the education system in the recent past. Low achievement rates are indicative of poor quality education available across the country. According to a study by the National Education Research and Evaluation Center at the University of Colombo, at the end of grade four, only 37% of children have achieved mastery of first language and only 38% have achieved mastery of mathematics. Although most children complete primary level, 18% of children do not complete lower secondary level. At the higher secondary level only 42% of children who sit for it pass the ordinary level national exam, while only 40% of children pass the advanced level national exam at the collegiate level. Again at the province level these statistics are better for children in the more developed provinces, while they are worse for those in more disadvantaged provinces (World Bank, 2005; ADB, 2005). High unemployment rates, among the more educated also point to the failure of the education system to cater to the demands of the market. The low achievement results stem from a variety of factors relating to, education finance, limitations in human and physical capital development, teacher deployment, teacher training, resource availability, administrative and management short comings, problems with monitoring and evaluations. 2.4 Education Financing and distribution of resources 1 In addition to these there are 561 Pirivenas and 66 Private Schools (Registered before 1960), 33 non-fee-levying Assisted Private schools and 33 fee levying autonomous Private schools. Since of late there has been an emergence of yet another type of private school the English medium International Schools approved and registered by the Board of Investment in Sri Lanka. This study mainly describes financing of government schools (MOE, 2004)

7 Compared to developing country standards, the expenditures on education in Sri Lanka are low. At present, Sri Lanka spends about 33,000 million rupees (343 million US dollars) on primary and secondary education. In recent years, government expenditure on education (including tertiary education) has amounted to 2-3 per cent of Gross Domestic Product, or 7-9 per cent of total government expenditure. 2 High commitments to social expenditure, high defense expenditure and large budget deficits are largely responsible for the low investments in education. Despite this low level of expenditure on education in the country, recurrent expenditure on primary and secondary education is distributed more or less equitably, for those who are in school. Since 2000, funds have been distributed to schools according to a norm-based unit cost resource allocation mechanism that takes into account the following: a) educational input norms developed by curriculum developers, b) the size of student population, c) economies and diseconomies of scale, d) variations across grade cycles, and e) funding for capital investments according to a stock adjustment system (World Bank, 2005). As a result of this, the discrepancies in funding between schools with similar characteristics have reduced considerably over the years. Despite overall equity in financial allocation, there are wide variations in availability of resources across schools. As can be seen in Figure 1, smaller schools and rural schools are less likely to have libraries, science labs, and special subject rooms. Although they have less students per teacher, they are also, more likely to have teacher shortages particularly especial subject teachers. Further, anecdotal evidence suggests, that the smaller student-teacher ratios in rural schools are due to overcrowding of urban schools by students seeking good quality education (see Figure 2 although larger schools and urban schools are more congested). Majority of small schools are situated in rural areas. Figure 1. Availability of resources, by size and location of school 100% 80% 60% 40% 20% 0% Less than More than Size of school Rural Urban Sector Library Science lab Computer f ac ilities Number Figure 2. Students per available resource, by size and location of school Less t han M ore than Size of school Students per O/L science teacher Students per usable computer Students per usable toilet Rural Sector Urban Source: Own calculations, using school census data. Source: Own calculations, using school census data 2.5 Education sector reforms and the decentralized decision making The New Educational Reforms proposed in 1997 and implemented since 1998, 3 planned several amendments to the education policy in the country to improve access to better quality education for all, to improve relevance of education, teacher training and management of education and resource provision (Wijesundera, 1998, NEC, 2003). These reforms are currently being implemented through various donorfunded projects. Of these, the World Bank funded Second General Education Project (GEP) among other initiatives strives to decentralize education decision making to the school level, as a means of improving quality and making management of educational resources more efficient. The initial attempt at decentralizing decision-making regarding schools started with the Education Quality Inputs scheme (EQI). 2 In 2002, about 80 per cent of government expenditure was on primary and secondary level education. 3 Some revisions to the original proposals were made in the latter part of the 1990s

8 3.0 The Functioning of the Education Quality Inputs Scheme in Sri Lanka 4 This section describes the EQI scheme in Sri Lanka. Section 3.1 provides the rationale and the objectives of the EQI scheme, section 3.2 describes the allocation of funds under the EQI scheme and how it is financed. Section 3.3 describes the implementation of the EQI scheme, section 3.4 describes the level of autonomy given to the schools under the EQI scheme, and lastly section 3.4 summarizes the experience of the EQI scheme, based on a literature review and interviews with different stakeholders. 3.1 Background to the EQI scheme Studies conducted in mid nineties on education expenditure revealed that, majority of funding available for education were spent on teacher salaries, welfare items such as school uniforms, textbooks and building construction. The available funds for the supply of quality inputs --for improving the teaching and learning processors-- were limited to 1-2 percent of the total education budget. In recognition of this deficiency in funding, at the request of the MOE the IDA (World Bank) has agreed to provide funds to the Sri Lankan government for the provision of educational quality inputs to schools under its General Education Project II (GEP II) (Karunaratne, 2002). Since 2000, all Sri Lankan government schools were given authority to decide and procure educational quality inputs needed for learning and teaching processes of the schools. The main objective behind this initiative was to improve the availability of resources at the school level by empowering the principal and the teaching staff of the school to make all decisions regarding identification and procurement of EQI. A greater understanding of the functioning of the EQI scheme is necessary to evaluate the pros and cons of the EQI scheme. This section provides details how the EQI scheme is implemented in Sri Lanka. Education quality inputs are defined to be all materials, equipment, instruments and services used to add the quality of education to the students in the learning process and by the teachers in the process of imparting knowledge (FC, 2002). The different types of educational quality inputs being funded under this scheme include: 5 a) consumable goods such as chalk, chemicals, stationary, gas, daily news papers, etc., b) capital quality inputs such as computers, printers, musical instruments, etc., c) funds for repair and maintenance of capital goods, and d) funds for external consultancy services (e.g., guest lectures for students). Under the EQI scheme, schools were given primary responsibility for purchasing EQI, except for a few special items such as special chemicals, science equipment and capital goods for children with special education needs. 3.2 Allocation of funds and financing Every school was compelled to open a separate current account for the purpose of purchasing quality inputs, to be operated by the principal and another senior teacher. At the beginning of the year, the education administration decides the amount of money to be allocated for each school according to a Norm Based Unit Cost Resource Allocation Mechanism (NBUCRAM). 6 Money for different types of EQI i.e., consumable, 4 Most of the information in this section is from FC (2002) 5 School furniture, construction of new buildings, additions, repairs and maintenance of buildings, utility bills, expenditure relating to purchase, repair and maintenance of vehicles, establishments of certain services such as security services and salary payments are not considered as quality inputs. 6 The allocation of resources to schools up to mid 1990s were based on historical budgeting, which resulted in large budgeting disparities. The Norm Based Unit Cost Resource Allocation Mechanism (NBUCRAM) was adopted to overcome this problem. Under this, resources are allocated to schools based on a formula that takes into account: a) quality input norms produced by educationists, b) student populations, c) corrections for possible economies and dis

9 capital, repair and maintenance, and external consultancy services, and funds for primary grades and secondary grades are specified separately. These stipulated amounts of money are then credited to the current accounts of all the schools. Of the total education sector budget for primary and secondary level education, 2 per cent of recurrent expenditure is reserved for purchasing of consumables and repair and maintenance of capital goods. Of this amount, 60 per cent is allocated for purchase of consumables and 40 per cent for the repair and maintenance of capital goods. Of the total capital budget for primary and secondary level education, 20 per cent is allocated for the purchase of capital goods under the EQI scheme (FC, 2005). In 2004, according to School census data schools received Rs mn on EQI allocations, of which Rs. 457 mn were spent by schools. 3.3 Identification and Purchasing of EQI Every school is compelled to appoint two committees for the purposes of identifying and purchasing EQI. The first is the School Purchasing Committee (SPC) consisting of the principal, deputy principal/ section head and a senior teacher appropriate to the subject for which EQI is purchased. For example, a dancing teacher would be the third member of the SPC when purchasing dancing related EQI. The second is the School Evaluation Committee (SEC). The SEC consists of deputy/ assistant principal/ head of Section, senior teacher, appropriate subject teacher and a senior prefect (i.e., student leader). No one person is allowed to serve in both the SPC and the SEC. Small schools with not enough teachers for the two committees are required to appoint only a SPC. For these schools, divisional level educational authority carries out the functions of a SEC. The identification and purchase of EQI is done according to guidelines provided by the central ministry of education. According to these guidelines the SEC is required to prepare an EQI priority list for consumable goods and capital goods at the beginning of each year. These lists are prepared based on EQI requirement lists prepared by the subject teachers for consumable goods and capital requirements of the school. The priority list is then sent to the SPC, which has to approve the list for a particular school year during the month of January of that year. Identification of suppliers for educational resources is also done according to guidelines given by the central ministry of education. According to these, schools are recommended to publicize the needs of the schools widely, so that they can get the best prices through creating competition among the suppliers. In the event that the schools do not have the time and money to advertise widely, schools are recommended to purchase, EQI from registered suppliers. 7 The schools are advised to make purchases after calling for quotations from all qualified suppliers for different types of goods and choosing the supplier who provides the best value for money. When it is not economically feasible to do this, schools have to at least obtain quotations from three suppliers. When even that is not possible, due to market conditions in a particular area, schools are allowed to make purchases not adhering to the three quotations policy, but such purchases should not exceed a specified ceiling by the education administration authority. When making purchases of EQI, the schools also have to take into consideration whether to purchase all goods at once, or to purchase them in stages depending on the requirements and the availability of storage. In addition, schools are advised to make purchases of EQI for consumable and capital goods taking into account the specifications prepared by the National Institute of Education on the needs of EQI for teaching and learning. economies of scale, d) availability of different grade-cycles in schools, and e) allocation of funds for capital improvements gradually according to a needs basis (World Bank, 2005, Page 28). 7 Zonal and provincial directors of education prepare a list of registered suppliers for an area by advertising for potential candidates and selecting. This list is updated each year

10 Schools are required to document all proceedings regarding the identification purchase of EQI for schools. 8 In addition, schools are required to prepare three four-monthly accounts a year detailing the receipts and expenditure under the EQI scheme. 3.4 Level of education decentralization in Sri Lanka under the EQI scheme There is a growing literature on experiences in education decentralization around the world. What is clear in this literature is that, education decentralization differs from country to country. There are three main axes along which levels of decentralization take form. The first axis relates to the degree of devolution of education decision-making, ranging from central government across different levels of governments down to the school level. The second axis relates to the different functions of education decision-making that have been decentralized. These functions include decisions regarding: curricular and pedagogical matters, management of personnel for example, hiring, firing and promoting of teachers --, training of personnel, planning, and resource allocation. The third axis relates to the level of financial autonomy. The same school systems may have different levels of financial autonomy for different functions of education decision-making. (Burki, Perry and Dillinger (1999), Eskeland and Filmer (2002)). In this topology, the degree of education decentralization in Sri Lanka under the EQI scheme goes down to the school level along the function of decision-making on resource allocation on education quality inputs. 9 However, the decision-making at the school level takes place under guidance from the center and monitoring by the local level educational authorities, as such the schools do not have complete autonomy over resource allocation under EQI. The scheme is fully financed by the center. 3.5 The Experience of the EQI scheme in Sri Lanka Although, according to anecdotal evidence, since the commencement of this program, there was an improvement in the availability of educational inputs at the school level, due to various reasons the intended equitable and efficiency outcomes were not obtained. The utilization of funds made available to the schools under the EQI scheme was not satisfactory in all schools. First, there are deficiencies in identifying EQI needs. This is done at two levels. The National Institute of Education (NIE) prepares a needs-assessment taking into account curriculum changes, with inputs from teachers. In addition, at the school level, teachers too, identify EQI needs. The ability and effort of teachers play a large role in the identification of EQI needs at the school level. According to one Education Department official, although principals and teachers were trained in following EQI related procedure; sufficient effort has not been made in training teachers in the effective use of EQI in the classroom. This has limited the success of effective use of EQI in the classroom (Karunaratne, 2002). Second, some schools were unable to use the funds due to various procedural and procurement related problems. For example, guidelines require that quotations from three suppliers should be obtained before making purchases. Schools with limited access to markets find this difficult and expensive to comply with. Third, efficiency of fund utilization was not equitable due to delays in fund allocation and differences in the ability of school authorities to procure identified EQI, through the somewhat complex process. Some schools -- especially small ones -- lack proper storage facilities in which to store quality inputs. This also makes use of EQI more cumbersome, as then EQI cannot be bought in bulk, or EQI has to be stored in rooms used for other purposes. Fourth, principals, with a poor grasp of how to use EQI funds -- not utilize EQI funding fearing that they will not abide by proper procedure. In this respect, older school principals nearing retirement were especially mentioned, as they feared their pensions would be affected by improper management of funds. 8 There are 11 different types of books and records relating to the procurement and identification of EQI for the schools. 9 As mentioned earlier, in 1987, education administration also was devolved from the center to the provinces under the 13 th amendment to the constitution. This study limits its analysis to the changes made under the EQI scheme

11 These problems are further aggravated due to the existing teacher shortage problem in rural areas especially for science mathematics and English subjects--, and limitations in access to infrastructure in these areas. For example, anecdotal evidence suggests that underprivileged schools with teacher shortages have reduced capability to identify and obtain education quality inputs Benefit incidence of EQI expenditure This section examines how benefits of the EQI program are distributed among individuals in different income groups using two sources of information. First, it uses 2004 School Census data to calculate per student EQI expenditures for different schooling levels in each province. Second it uses Income and Expenditure Survey 2002 (IES 2002) data by the department of Census and Statistics to rank individuals according to per capita income levels. 11 The per-students EQI expenditure estimates are imputed in the IES proportionately to the number of children in each education level. This information is then used to draw Lorenz Curves to examine the equity of EQI expenditures at the national and provincial levels across different schooling levels. Four different schooling levels are considered for the analysis corresponding to the four cycles of education in the country (see section 2.1 for details). These include primary (grades 1 to 5), junior secondary (grades 6 to 9), senior secondary (grades 10-11) and collegiate (grades 12 and 13) levels of education. Unfortunately, IES 2002 provides school participation only for 10 plus children. As such the subsidy received by children below ten are not reflected in the analysis. This limitation will only affect children in the primary grade cycle. 12 Since Sri Lanka has 96% net enrolment rate at primary level with little variation between poor and rich households (World Bank, 2005), this should not affect the conclusion of this analysis significantly. 10 The Guidelines on Procurement and Delivery of Education Quality Inputs instructs schools lacking in technical know how to get the assistance of other more able schools in the vicinity, when making procurement decisions. The transaction costs involved in doing this for these schools will be larger. 11 Household expenditure was used as a proxy for income. Per capita expenditure was calculated by dividing the total household expenditure by the size of the household. Expenditure on durables were ignored for the purpose of this calculation. 12 Children start schooling at age 5. As such children are usually in their last year of primary grade cycle at age

12 Figure 3.1 Figure 3.2 Share of EQI expenditure Distribution of EQI expenditure - National Share of EQI expenditure Distribution of EQI Western province Cum. Prop. Individual Cum. Prop. Individual Primary-age10 Senior Secondary Junior Secondary Collegiate Primary-age10 Senior Secondary Junior Secondary Collegiate Figure 3.3 Figure 3.4 Distribution of EQI Sothern province Distribution of EQI Central province Share of EQI expenditure Share of EQI expenditure Cum. Prop. Individual Cum. Prop. Individual Primary-age10 Senior Secondary Junior Secondary Collegiate Primary-age10 Senior Secondary Junior Secondary Collegiate - 8 -

13 Figure 3.5 Figure 3.6 Distribution of EQI N - Central province Distribution of EQI Uva province Share of EQI expenditure Share of EQI expenditure Cum. Prop. Individual Cum. Prop. Individual Primary-age10 Senior Secondary Junior Secondary Collegiate Primary-age10 Senior Secondary Junior Secondary Collegiate Figure 3.7 Figure 3.8 Distribution of EQI Sabaragamuwa province Distribution of EQI N - Western province Share of EQI expenditure Share of EQI expenditure Cum. Prop. Individual Cum. Prop. Individual Primary-age10 Senior Secondary Junior Secondary Collegiate Primary-age10 Senior Secondary Junior Secondary Collegiate - 9 -

14 At the national level, the Lorenz curve shows that cumulative distribution of EQI expenditure lies above the 45 degree line for primary and junior secondary school cycles, indicating that EQI expenditure for the first two cycles of education are progressive (see figure 3.1). The Lorenz on the senior secondary school cycle lies along the 45 degree line, indicating that EQI expenditure on this school cycle is equitable. The EQI expenditure on the collegiate school cycle is regressive. A similar graph drawn (not shown) to examine the equity in EQI allocations, showed only a slight variation. The equity in distribution of the EQI expenditure varies across provinces. In the most developed Western Province EQI expenditure at all levels of schooling are progressive (see Figure 3.2). However, in the two least developed provinces Uva, and Sabaragamuwa -- the EQI expenditures are regressive even at the senior secondary levels (i.e. non-poor individuals receive a higher share of these expenditures), while they are near equity at the primary and junior secondary levels (see graphs 3.5, 3.6 and 3.7). Similar graphs drawn to examine the distribution of EQI allocations across the population resulted in a similar set of graphs (not shown). This indicates that these differences in distributions mainly reflect the poor enrolment of children at higher levels of education in less developed provinces. As explained in section 3, the formula used to allocate EQI grants, corrects for economies and diseconomies of scale (i.e., a higher per student amounts are given to smaller schools and smaller per students amounts are given to bigger schools). Also, at the collegiate level, schools with science classes receive a higher per student allocation of EQI grants relative to schools with arts classes. The IES 2002 data does not provide information on the size and type of school attended by children. As such, the per student EQI expenditure levels calculated are averages for different sizes and types of schools. Since children from non-poor families are more likely to go to bigger schools in urban areas, the distribution of EQI expenditure may actually be more progressive than shown in figure 3. However, since children from non-poor families are more likely to study in the science stream at the collegiate level, the actual Lorenz curve for collegiate level is likely to be more regressive. 5.0 Factors affecting utilization rate of EQI funds The earlier section examined the distribution of EQI allocation and expenditures across the population. As mentioned earlier, only 20% of EQI allocations in 2004 were utilized by schools. This section examines the reasons for the non-utilization of EQI funds by schools, it particularly examines whether the conventional wisdom on decentralization of education management in developing countries are true for the case of Sri Lanka. The section 5.1 first provides a brief literature review of international experiences in decentralized education management. It then describes the data and empirical methods used in this study to examine the correlates of EQI utilization rates. Lastly it details the findings of the study. 5.1 International experiences in decentralized management of schools The economic rationale for decentralizing education is that bringing decision-making closer to the people improves social welfare and technical efficiency. Decentralization has the potential to improve technical efficiency in several ways. Localized decision-making reduces problems of information asymmetries and improves relevance, it is more democratic, it reduces administrative costs associated with centralized decision making, it alleviates problems associated with collective decision-making and it improves transparency and greater mobilization of funds at the local level. (Burki, Perry, and Dillinger, 1999; Galiani Gertler, and Schargrodsky, 2005; Behrman, Deolalikar, and Soon (2002), Grauwe, (2005), Caldwell, (1998). However, literature does not find conclusive evidence that decentralized-decision making results in improving pedagogical outcomes (Grauwe, 2005). First, positive effects of decentralization are reduced in the presence of weak technical and managerial capacity at the local level and weak ability of local communities to voice preferences (Gunnarsson et. al. (2004), Galiani Gertler, and Schargrodsky, (2005), Galiani and Schargrodsky (2001))

15 Second important aspect that influences the success of decentralized education management is the level of authority given to local level decision-makers by the center and those that allow greater participation of the community in the decision -making process. (Gunnarsson et. al. (2004), Gropello (2004), Sawada (2000)). In addition the capacity of the communities to exercise pressure on schools also plays a key role in the effective management of schools under decentralization (Grauwe, 2005) Third, inadequate attention given to reorienting the functions of the central government for the role of guidance and support, from that of decision making on resource allocation has also reduced the efficiency outcomes of decentralized decision making (Hirosato, 2001, Caldwell, 1998, Grauwe, 2005). Lastly, the quality of the leadership provided by the head-teacher plays a key role in improving educational outcomes under decentralized management of schools. (Grauwe, 2005). In the remainder of this section we try to empirically test whether the above concerns regarding decentralized management of education funds are relevant for the case of EQI scheme in Sri Lanka. Specifically we examine how a) weak capacity at the local level measured by teacher and school characteristics, and school level management capacity b) principal characteristics c) community characteristics d) state level administrative support affect the utilization rate of EQI funds. The next section describes the data and variable selection and the empirical model used for this analysis. 5.2 Methodology As discussed previously, the objective of this study is to examine the factors affecting the rate of utilization of funds 13 allocated under the EQI scheme in Sri Lanka. The following section describes the data used for the study, variable selection and the empirical model. The model developed below was analyzed using two data sets. The first data set, as described below, was compiled by supplementing school census data for 2003 with primary and secondary data collected by the authors. However, one short-coming in this data set is that it is restricted to schools in the Western Province (WP). This data set is henceforth referred to as the 2003-WP data. The school census data for 2004 include information on EQI allocations and expenditure at the school level. In order to assess the reliability of the model analyzed for the Western Province in other provinces, the model was run on 2004 census data -- henceforth referred to as 2004 census data -- for all the schools in Sri Lanka. However this data is limited to information available on school census data for 2004, as it was not possible to collect additional information for all the schools in the country. This section describes the model and variable selection for 2003 data. Results for 2003 data, is described in section 6, while section 7 describes the data and results for 2004 data. 5.3 Data Data for the study comes from three sources: utilization levels of funds allocated under the EQI scheme obtained from zonal education offices, information on community and school characteristics specific to the EQI scheme obtained from a principal s survey conducted for schools in the sample, and measures of school characteristics using school census data Education Quality Inputs data Information on funds allocated under the EQI scheme to various schools and the expenditure by schools on purchasing EQI are available through zonal education departments, who are responsible for the monitoring of this scheme. School wise data on fund allocations for EQI were collected since 2000, from the zonal education offices. This information was readily available, in most cases in computerized formats. Expenditures on EQI by schools were extracted from the four-monthly accounts reports submitted by schools to the zonal education offices. These reports provide details regarding the expenditure items made 13 The rate of utilization is calculated by dividing the expenditure on EQI by its allocation

16 during each four months under consideration. Information from these reports was not available on computerized formats. Information was also not available for all years since For the present study, allocation and expenditure information for 2003 is considered, as expenditure data was most complete for this year School Census Data The Ministry of Education and Higher Education collects detailed yearly information on student populations, teachers, and available resources at the school level. The information on teachers includes information on the qualifications, experience, number of days of leave taken in a year, teacher salaries, etc. The available school level characteristics include the size of the student population of the school, number of teachers, availability of various facilities such as science labs etc. This information will be used to obtain school characteristics. In the more recent school census data (for the year 2004), information on allocation and expenditure of EQI funds are also available for all the schools in the country Principals Survey Data As discussed in section 4.0, other than for school characteristics, community participation in decision-making at the school level, and the capacity of the school education offices to administer and manage funds, also has the potential to influence the success of decentralized decision-making. Hence, in addition to the information obtained through the above two sources, we collected information from the schools to better understand the ability of the schools to use the funds allocated under the EQI scheme. For this purpose, a questionnaire was designed based on findings of a literature review on the implementation of EQI scheme and qualitative information obtained from school principals and education administrators at various levels. 5.4 Sample Selection For the purpose of this study, school wise data for 2003 WP was collected from three zonal education offices within the Western province. 14 These include Sri Jayawardhanapura, Homagama and Horana zonal education offices. There were a total of 326 functioning schools in these three zones in 2003, according to the school census. Of the 326 schools in the sample, we have data for both allocation and expenditure of EQI funds for 266 schools. Of these 266 schools, our final sample is limited to 156 schools, which also have information from principal s survey. For 2004 data all the schools in the country are considered. 5.5 Dependent variable Dependent variable for the data The objective of this study is to explore the factors affecting fund utilization by schools under the EQI scheme. As described earlier, the EQI fund allocation levels are calculated for each school based on a unit cost formula. As a result the allocated levels of funds and, therefore the absolute expenditure levels differ from school to school In order to normalize the expenditure of funds across schools, the total expenditure on EQI for a year in a school is divided by the allocation of EQI funds for the school in the same year. Then the utilization rate for school i, UR i, is calculated as follows: [eq1] UR i = Total Expenditure on EQI for school i/ allocation for EQI funds for school i If expenditure of funds made within a year for a school is only out of the funds allocated for that year, the utilization rate of funds under EQI should be a continuous variable between zero and hundred. Figure 4 14 Due to time limitations, it was only possible collect data from three zonal offices. The three zones were randomly selected

17 depict the distribution of utilization rates in the sample for 2004 data. This shows, that although many schools have utilized the funds allocated for the year fully, a fair proportion of schools also have very high utilization rates. According to information given by education officials, expenditures on EQI can sometimes be more than the allocation for a given year as schools are allowed to carry forward unused funds. However, utilization of accumulated funds can cause the utilization rate to exceed by 100, only to a limited extend. However, for some schools the utilization rates exceed even 200. According to one official this is probably due to recording errors at the school level. As explained earlier, the expenditure data for each school, for 2003, was extracted using four-monthly reports sent by schools to the zonal departments of education. Due to lack of accounting knowledge, persons responsible for preparing four-monthly reports sometimes repeat expenditures accounted in one four-monthly report in the next four-monthly report. As these reports are not always checked for accuracy, some expenditure items are double counted, resulting in expenditures that exceed allocations. Also, rarely, funds intend for other projects are sometimes credited to the EQI account, thereby increasing the expenditure of EQI as a percent of allocation. Given lack of detailed information on expenditures, we are unable to correct for these possible errors in the data. To at least partly overcome the problem, we analyze an ordered probit model where the dependent variable takes four levels --rather than a continuous variable -- as shown in [eq3]. 5.6 Independent variables Based on information available through international experiences of decentralized management of education, anecdotal evidence on the EQI programme and through discussions with divisional and zonal level education offices, several explanatory variables were identified as important in explaining the utilization of funds coming under the EQI scheme. The choice of these variables is discussed below. Variable descriptions and their descriptive statistics are given in tables 1 and 2 for 2003 and 2004 data respectively. < table 1 here > < table 2 here > School level capacity - teacher characteristics The school census data provides a range of information on the quality of the teaching staff available at the school level. These include information on teachers formal education, professional training, salary, experience, age, and amount of leave taken for the year, etc. However, as these variables are highly correlated with each other, it is not possible to include all these variables in the regression analysis. For the regression analysis, three variables that were thought to best capture the quality of available teaching staff were included in the analysis. These include: a) the amount of salary a teacher is receiving -- which incorporates information on teacher training and experience; b) information on whether a teacher has taken excessive leave; and, c) gender. Since the analysis was carried out at the school level, the teacher level information was aggregated to the school level by taking percentages over the total teaching staff. For example, the variable on leave indicates the percentage of teachers in the school who have taken more than 25 days of holiday leave in the year. Detailed description of the variables used is given in tables 1 and 2. Expected results teacher characteristics The teacher salary variable could affect EQI utilization rate in two ways. High percent of low salaried indicates that the school is endowed with inexperienced new teachers, who are also less qualified. They are possibly less capable in identifying EQI needs and therefore utilizing EQI funds. At present newly recruited teachers are deployed from the center according to deficits and excesses in teacher supply in schools. Many schools, especially in rural areas have difficulty in retaining teachers. A Recently introduced new policy attempts to overcome this problem by requiring new teachers to serve in schools in difficult areas for 3 to

18 years. 15 Although this has alleviated the teacher shortages somewhat, it has created a set of new problems including high turnover of teachers in difficult areas and lack of commitment from teachers. Also, as experienced teachers transfer out, teachers in difficult areas tend to be new and inexperienced. Further, teachers who qualify for transfers waste time at various educational offices competing for limited vacancies in popular schools creating productivity losses. These combined effects of lack of experience and motivation of teachers compelled to teach in difficult areas, could reduce effort levels of teachers. This could have a negative effect also on EQU utilization. However, many education officials noted that some newly qualified teachers are highly motivated, and are better at making use of EQI in the classrooms than older teachers. This, on the other hand, can have a positive effect on EQI utilization rates. Schools that have high percent of teachers taking excessive amounts of leave would have a negative effect on the EQI utilization rate. As long duration absence of teachers would reduce the ability of teachers to take time to identify and use EQI. The effect of gender on EQI utilization rate is again indecisive. Consultations with education authorities revealed, that, especially in rural areas, although female teachers are better at using EQI in the class, they are less proactive compared to male teachers in identifying EQI goods in the market School level capacity school characteristics The school census data provides detail information on school types. Including, whether the school is a popular school, the size of the student population of the school, different administrative classification of schools and whether the school has primary and secondary level classes. It also provides information on availability of school facilities. As described earlier, the school education structure in Sri Lanka can be divided into three main levels. These include primary grades 1 to 5 --, junior secondary grades 6 to 8 -- and senior secondary 9 11 and collegiate -- grades 12 and As schools offer a mix of these schooling cycles, dichotomous variables were included to control for these differences. School census data provides detailed information on the availability of school facilities at the school level. For 2003 data, this information was summarized into five variables: a) those indicate the availability of a permanent library and library teacher, b) availability of a science lab for students in grades 6 to 11 and at least one teacher qualified to teach science in the relevant grade levels, c) availability of specialized rooms for aesthetic subjects, d) availability of a specialized technical work shop; and, e) the availability of a computer lab. A bias may be introduced in this characterization of schools facilities as some schools in the sample do not have these facilities, such as science labs, as they are schools offering only primary level grades. However, this will be controlled for by the inclusion of the indicator variable showing schools with only primary level students. In the 2004 data school characteristics were categorized using Education Ministry categorization of schools according to their facilities. Namely, well facilitated schools, facilitated schools, and less facilitated schools The actual number of years a new teacher must serve in a difficult area depends on the level difficultness of the area. For example, a teacher serving in a highly deprived location has to serve only for three years before being eligible for transfers, while a teacher in a not so deprived location will have to serve for five years before qualifying for transfers. 16 Of the 266 schools for which EQI fund utilization data is available, 37 were schools with only primary grades, 12 schools have only secondary grades, while 217 schools have both primary and secondary grades. Of the 229 (= ) schools with secondary level grades, 146 schools have only lower secondary level grades, while 83 schools have both lower secondary and upper secondary level classes. 17 Education Ministry categorization also include deficient and very deficient school categories, there schools were also included under less facilitated schools in the analysis

19 Since many rural schools lack science and mathematics teachers, and as this was pointed out as a one reason for inefficient utilization of EQI funds at meetings with education authorities, the student-teacher ratio for science and mathematics in the relevant grade levels were included to capture the workload given to teachers in these subjects. 18 Variables were also included to capture the student-teacher ratios in primary grades, and student teacher ratios for non-science and mathematics subjects in the lower secondary grades. Schools that did not have specialized teachers for these subjects were controlled for by an indicator variable, which is one if there is no trained teacher for those subjects. Inclusion of these student teacher ratio variables could create biases, as schools with only primary grades, for example, will have a value of zero for the variables measuring student teacher ratios at the lower secondary level. However, these are controlled for by the inclusion of indicator variables for schools with only primary level grades, and schools with only secondary level grades, and schools with only lower secondary level grades. Expected results school characteristics Smaller schools are expected have lower EQI utilization rates, for several reasons. The principal s and teachers at smaller rural schools are less qualified (See Annex 1). Despite their small size they are required to adhere to almost the same procedures adhered to by larger schools. Given this their administrative work load is quite high. Also, as a result of smaller staff size, the number of teachers available to share the work load is low. Also, although larger schools schools with more than 400 students -- are allowed to hire an assistance to help with the EQI procedures, principals of smaller schools have to manage without assistants. Second, the high administrative workload, associated with acquiring EQI could deter smaller schools from benefiting fully from the allocated EQI funds. Schools with better facilities are expected to have higher EQI utilization rates. This is because teachers in these schools will find it easier to use EQI. Schools with lower student teacher ratios are expected to influence EQI utilization rates positively. Discussions with school administrators revealed that, a high ratio of students per teacher can affect the use of educational quality inputs in two ways. First, when teachers are responsible for a higher number of students, they are less able to devote time for lesson planning and are thus more likely to use lecture-based teaching. Second, congested classrooms give less physical space for activity based learning, thus reducing the use of EQI. It is assumed that teachers in these schools would have more time to devote to identify EQI needs and they are better able to use EQI goods given more complementary resources School level capacity - EQI specific management problems In addition to the above-mentioned variables, several variables were included to capture the difficulty faced by schools in adhering to guidelines given by the Ministry of Education in identification and purchase of EQI. Since this information was obtained from the Principal s survey, it was only possible to include these in the analysis of 2003 data. These include, whether the principal is adequately trained to administer utilization of EQI funds, whether the school has severe problems identifying suppliers for goods, whether the school has a problem storing educational inputs, whether the school has problems operating a bank account due to either problems with accessing banks or due to problems with not having personnel knowledgeable in handling bank accounts, whether the school has problems with not having teachers trained to identify EQI, whether the school has problems in handling the documentation relating to the use of EQI funds. Schools indicating any kind of management problem is expected to influence EQI utilization rate negatively Principal s characteristics 18 Although, there also exists a shortage of English teachers, this was not identified as a major reason for inefficient utilization of EQI funds

20 The efficient functioning of the EQI scheme depends largely on the managerial capacity of the school principal. Hence, it is likely that the education qualifications, experience and other characteristics of the principal influences functioning of the EQI scheme. To capture the effect if these several variables are included to capture principal s characteristics. These include, whether the principal is a qualified principal, principal s years of experience, and the gender of the principal. Schools with better qualified principals are expected to have higher EQI utilization rates. Experienced principals are possibly better able to guide schools to make use of funds available under EQI. Grauwe (2006) explains that the gender of the principal may affect school level management in two ways. On one hand, female principals may be better able to summon the support of the teachers b being supportive and collegial and as such may be better at managing schools. On the other hand male principals may be better able to withstand the pressures of management, given less domestic responsibilities Community characteristics Several variables were used to capture the community level characteristics in 2003 data set. These include a dummy indicating whether the school is located in a pradeshiya saba (i.e., a rural council). A dichotomous variable indicating whether more than half of the student population came from poor households, and a dichotomous variable indicating whether the school was able to raise funds through private activities. Schools in rural areas are expected to have lower EQI utilization rates, as they have higher transaction costs in procuring EQI goods State-administration of funds The school divisional and zonal level education offices can play a big role in the utilization of funds coming under the EQI scheme. These offices are responsible for training school level individuals for using funds coming under the EQI scheme as well as monitoring the adherence to proper procedures regarding the use of EQI funds. To control for this, dummy variables were used to identify the school zones in the sample. In addition, to the variables used for the 2003 data, two variables on the state-administrative aspects of EQI funds were used in the regressions using 2004-census data. The first variable indicates whether the school was inspected by central administration and the second indicate in how many installments the schools were given EQI funds Descriptive statistics of the sample Since the 2004 census data is available for all the schools, it is possible to make an overall evaluation of the utilization rate of the funds made available for the EQI programme. The data shows that around Rs. 579 million were allocated for the EQI programme in However, of this only Rs. 457 million were actually used by schools, Rs. 121 million were unspent. On average schools are allocated around Rs. 60,000 as EQI funds (for 2003 Western provice data this average was Rs. 51,000). However, the actual amount of funds received by schools varies from Rs. 1,000 to more than Rs. 800,000 (See table 3). 20 The average utilization rate of EQI funds per school is 81%. However, there are wide variations in the utilization rates across schools. The data shows that per student allocation rates for smaller schools and rural schools are several times those given to bigger schools, and schools in urban areas, indicating that funding formula favors small schools and rural schools (see Annex 2). However, the absolute amounts of funds received by smaller schools and rural schools are less, possibly due to their fewer student numbers. Overall utilization rates were above 75%, however the utilization rate of funds is lower for smaller schools and for schools in rural areas, and there are wide variations in the utilization rates of schools (see table 4). 19 Many school principal s indicated that delayed disbursement of EQI funds is a constraint on EQI utilization. 20 Foe 2003 data this range was Rs.11,000 to Rs. 200,