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3. Sector Financial Performance
3.1 Trends in Budget Allocations and Shares 2000-2004
3.1.1 Education Financing and Budget Trends 1999-2003
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As reported in previous sector performance reports (2002, 2003) and the recent Integrated Fiduciary Assessment and Public Expenditure Review (IFAPER), the share of education as a percentage of current government expenditure has significantly increased over recent years. This reflects a government commitment to decrease spending on defense and security and increase expenditure on priority social sectors. Table 1 shows that government education spending as a percentage of GDP has doubled during the period 1997 to 2002 and the education share of total government expenditure has risen from 7% in 1997 to 12% in 2002. As a percentage of the government's recurrent budget in 2002, education was around 18.5%, which represents almost twice the share in 1997.
Table 1: Total Government Expenditure on Education: 1997-2003 Riels, Billions
| |
1997 |
1999 |
2000 |
2001 |
2002 |
| Total Education Expenditure, Capital & Recurrent |
86.25 |
155.73 |
169.86 |
229.65 |
290.20 |
| Education Expenditure, Percentage of GDP |
0.9% |
1.2% |
1.3% |
1.7% |
2.0% |
| Education Share of Total Govt Expenditure |
7% |
8% |
8% |
9% |
12% |
| Education Share of Total Recurrent Expenditure |
10% |
14% |
14% |
15% |
18.5% |
Source: World Bank/ADB 'Cambodia Integrated Fiduciary Assessment Public Expenditure Review, 2003
The MoEYS recognizes that the sector continues to be financed by a combination of Government, private and donor sources. The contribution of Government has increased significantly from only 21% in 1997 to an estimated 50% in 2002/03. The share of donor project financing has decreased significantly from 41% in 1997 to 31% in 2000 with further decline to an estimated 16% in 2002/03. The latter has been offset by a growing trend of donor budget support. Parental and private contributions are difficult to estimate accurately, but IFAPER analysis suggests that this share is around 35%-38% of total education spending. A strategic priority for the next phase of education reform will be to both mobilize additional resources for education and sustain the current Government spending for basic education.
3.1.2 Trends in Education Recurrent Budget Allocations
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MoEYS has continued to take advantage of rising budget allocations to further focus on ESP/ ESSP policy priorities, including through steadily increasing PAP budgets (Table 2).
Table 2: Education recurrent budget allocations: 2000-2004 Riels, Billions
| |
2000 |
2001 |
2002 |
2003 |
2004 |
| Education recurrent budget |
183.17 |
223.51 |
286.20 |
323.00 |
355.10 |
| Salaries (Chapter 10) |
126.16 |
136.10 |
150.04 |
180.93 |
200.32 |
| PAP (Chapter 13) |
10.00 |
28.38 |
75.06 |
85.53 |
102.87 |
| Ch11 + Ch31 + Ch32 budgets |
47.01 |
59.03 |
61.11 |
56.54 |
51.92 |
| Education share of recurrent budget |
13.9% |
15.7% |
18.2% |
18.3% |
19.1% |
| Personnel cost share in education recurrent |
68.9% |
60.9% |
56.1% |
58.6% |
60.5% |
| Non personnel PAP share in education recurrent |
5.5% |
12.7% |
22.5% |
23.9% |
24.9% |
| Total PAP share in education recurrent |
5.5% |
12.7% |
26.2% |
26.5% |
29.0% |
Note: Budget in 2004 = 355.10 is before adjustment. The budget after adjustment is 368.7
Since 2000, the share of recurrent budget allocations to priority programs (through PAP) has increased from around 5.5% to 29% in 2004. This demonstrates that the Ministry's recurrent spending priorities increasingly reflect overall policy priorities in ESP/ESSP 2001/05. Similarly, the increased spending volumes on PAP have enabled the Ministry to increasingly implement and manage these priority programs. Many tasks have been effectively solved through PAP.
The Ministry has adopted a rolling program approach to implementing strategic priorities, reflected in the gradual phasing in of additional priority programs as required. Key features of this process include:
» Increasing budget for quality and efficiency in primary and secondary schools. Over period 2001/04.
» Launching government program of scholarships for the poor. From 2003.
» Continuing personnel reforms, taking into account financing needs for additional deployment of staff in remote and rural areas. From 2002.
» Maintaining adequate financing for quality improvement measures. From 2001 onwards.
» Expanding pro-poor NFE literacy and re-entry programmes opportunities. From 2002.
» Financing impact monitoring and internal audit activities. From 2003.
The Ministry intends to further rationalize these priority action program budget allocations as part of the revised ESP/ESSP 2004-2008, reflecting any changes in overall sector priorities.
Another trend has been the significant decline in personnel budget share, which ahs decreased from 69% to an estimated 60% over the past four years. This is due to an overall increase in education budget allocations, rather than any decrease in salary spending. In 2002, education staff received a significant increase in base salary, complemented by additional targeted allowances under PAP 1. A strategic priority for the Ministry will be to continually review the balance between personnel and non-personnel spending in order to effectively implement any revisions to ESP/ESSP 2004-2008 priorities.
As part of this budget allocation review process, the Ministry produced an ESP 2004-2008 framework document in November 2003, which was broadly endorsed by donor partners. The document highlighted the importance of maintaining an effective balance between personnel and non-personnel spending in order to enable abolition of informal/illegal payments by parents, which are a major barrier to achieving equitable access to primary and secondary education. The impact of providing allowances through PAP1 is low due to the beneficiaries being deployed teachers in disadvantaged and remote areas. In the under-staffed areas, which have low enrolment, there is not the problem that there is in urban areas about the informal parental payment. Another strategic priority in the next phase of reform will be to formulate and implement an effective performance based remuneration system, as part of broader access and quality improvements.
3.2 Budget and PAP Disbursement Performance 2001-2004
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Recent figures in overall education sector budget execution are problematic due to the carry over of PAP spending mandates into the subsequent year. As shown in Chart 1, in the past few years budget execution has been variable. The overall pattern is higher levels of budget execution at the provincial level, where spending levels are greatest. For example, the 92% budget execution at provincial level in 2002 should be viewed in the context of much larger overall budget allocations (see Table 2). As a result, the overall volume of spending at both central and provincial levels has grown significantly in recent years.
Chart 4: Education Budget Expediture Execution, 2000-2002
Source: World Bank/ADB 'Cambodia Integrated Fiduciary Assessment Public Expenditure Review, 2003
Table 3: PAP Allocation and Budget Execution, 2003 (Riels Billions), as of June 2004
| PAP |
Allocation |
Execution |
Percentage |
| 01 Education service efficiency |
6.3 |
4.9 |
78.6% |
| 02 Primary educ quality & efficiency |
26.0 |
24.6 |
94.6% |
| 03 Secondary educ quality & efficiency |
7.7 |
7.6 |
98.7% |
| 04 TVET quality & efficiency |
2.4 |
2.1 |
87.9% |
| 05 Higher educ quality % efficiency |
1.7 |
1.6 |
94.1% |
| 06 Continuous teacher education |
5.2 |
4.1 |
78.8% |
| 07 Core instruction materials |
7.8 |
4.9 |
62.8% |
| 08 Non-formal education expansion |
2.3 |
1.9 |
82.6% |
| 09 HIV/ AIDS awareness |
1.0 |
0.9 |
89.5% |
| 10 Sport Development |
0.4 |
0.3 |
69.8% |
| 11 Strengthened monitoring system |
14.6 |
12.0 |
82.2% |
| 12 Equitable access/scholarship |
1.5 |
1.4 |
96.7% |
| Total |
76.98 |
66.45 |
86.3% |
Overall budget execution data for 2003 has yet to be finalized due to the carry over of some spending mandates into 2004. For PAP 2003, overall budget execution was 86.3% by June, 2004 (see Table 3). Further cash releases are ongoing and it is anticipated that the overall PAP budget execution is about to reach the agreed target of 90% for 2003/04. Another encouraging feature is the high level of disbursement on PAPs 2, 3 and 8 which impact most on the primary and secondary schools. Particularly for PAP 2 and 3 this helps optimize the benefits of direct support to schools for the poorest families.
Over the past few years, a key lesson learned is that effective budget execution needs to be underpinned by clear financial regulations and operational guidelines, which enable greater delegated authority to provinces. For example, PAP 2002 implementation could not start until completion of an agreed regulatory framework for the proposed spending. This took the form of an inter-ministerial Prakas and Sub-decree issued by MoEF, MoEYS and Council of Minister, which establishes the regulations for use of PAPs such as the rate per school and per student allocation and the guidelines for the use of school operating budgets, allowances for management performance, re-deployment of staff and performance-based incentive payments for school staff in difficult/ remote areas.
In late 2003/early 2004, the Ministry also provided additional guidelines and authority to provinces to make their own decisions about spending priorities within overall PAP cash releases from provincial treasuries. The outcome was accelerated disbursement of primary and secondary school operating budgets and NFE program allocations. In other words, these measures to enable greater delegated authority have improved responsiveness to overall program priorities.
3.3 Overview of Donor and NGO External Assistance 2000-2004
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The Ministry recognizes the importance of effective planning, management and monitoring of external assistance in order to implement the ESSP reform program effectively. In order to plan external assistance resources effectively, the Ministry continues to upgrade its own aid management information system within the Planning Department. The broad features of ongoing and projected external assistance can be summarized as follows:
» Annual assistance is estimated to range between roughly Riels 150 billion (US$ 40 million) and 210 billion (US$55 million) per year.
» The volume of donor-financed recurrent budget support remains roughly constant at around 20% of overall external assistance, based on current programming.
» External assistance for secondary education facilities development is projected to constitute a growing share of overall education assistance in the next 4/5 years.
» Assistance in recent years is to comply with in many tranche conditionalities (in percentage) so that implementation is more effective.
The Ministry recognizes the need for a rolling program of review of external assistance modalities in response to changing priorities set out in ESP 2004-2008. In particular the Ministry and its partners will need to appraise the transitional costs of any adjustment to strategic priorities in order to ensure long-term sustainability. A second strategic priority will be to ensure string policy linkage between any recurrent budget and capital budget assistance to maximize impact.
Chart 2: External project support to education sub-sectors/ priority areas (2001-06)
The Ministry is also aware of the need to review sub-sectoral shares of education as new priorities evolve. For example, the growth of primary education enrolment is creating increased demand for secondary education and beyond. As Chart 2 illustrates, a substantial volume of assistance is currently directed at post-secondary and technical education, and on institutional development. This balance will need to be reviewed in light of MoEYS policy directions for financing post-basic education and based on a careful analysis of the effectiveness of resources focused on institutional development. Resource allocations may have to be reviewed in order to reflect changing priorities, especially medium term secondary education expansion. The ESSP review 2004 and subsequent appraisal and review processes will represent a key opportunity to assess any programming changes.
3.4 Key Financial Planning and Management Issues: Lessons Learned
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The ESP/ESSP 2001-2005 represented a significant shift towards pro-poor financing through both systemic (e.g. abolition of start of year payments) and targeted reforms (e.g. school facilities in poor communes, scholarships for the poor). In reviewing the next phase of education reform 2004-2008, the Ministry intends to sustain and expand pro-poor interventions. A key objective of the ESP financing plan 2004-2008 is to not only reduce the cost barriers for poor families but also to target an increased share and volume of recurrent and capital expenditure on the poorest communes and for areas where there is under-enrolment of girls. Similarly, a very high proportion of capital expenditure mainly for school construction will also be targeted on the poorest communes, which are currently under-served for secondary education, skills training and post-secondary education opportunities. The Ministry's initial assessment shows a significant redistribution towards the poorest 40% of communes (see ).
Chart 3: Eduction Financing Plan Budget Shares, By Commune Poverty Quintile, Plan 2004-2008
The Ministry of Education, Youth and Sport has strengthened consultative processes over the last four years with MoEF in response to broader financial management reforms. Key outcomes of this process have been: a) using EFMC as the basis for MoEYS/MoEF cooperation, coordination and understanding and in 2003 CMC was established b) greater impetus for MoEYS/MoEF partnership in joint monitoring of sector performance and c) greater results focus through ESP target setting and PAP budget allocations. Other important financial planning outcomes have been the MoEYS involvement in the MTEF process, negotiated changes to financial regulations and agreement to pilot performance based staff incentives as part of PAP 1 implementation. Another important development has been a greater results orientation to external assistance, especially through the donor budget support mechanism.
As the new phase of public financial management (PFM) reforms are implemented, MoEYS will draw on a number of key lessons learned, including:
» Un-predictable budget execution can potentially undermine sector level confidence in PFM reform.
» There is a need for continued and strengthened MoEYS/MoEF consultation mechanisms to consider sector level implications of ongoing PFM reforms.
» Parallel provincial budget planning processes can potentially undermine MoEYS/MoEF financial planning and target setting.
» Need for systematic public accounting and internal audit systems for ensuring accountability, underpinned by a clear regulatory framework.
Key strategic priorities for strengthening these systems will include: a) enabling greater delegated authority to sector in use of overall sector budget allocation, b) an increased shift towards more results oriented program budgeting, c) enabling a transitional phase to integrate PAP into broader program budgeting and d) enabling better alignment between resource management and accountability mechanisms, including for procurement and accounting.
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