Presentation on Global Economic Crisis by xpn11313

VIEWS: 14 PAGES: 5

More Info
									               The Global Economic Crisis, Education, and Development Partnerships

                                                 Elizabeth M. King 1
                        Director, Education, Human Development Network, The World Bank

               Keynote Presentation at the HDN-WBI Course on Innovations in Partnerships,
                                  September 21, 2009, Washington DC


Good morning and welcome.

In the second half of 2008, the world economy ground to a halt. Global GDP growth slowed to
two percent after averaging five percent during the period 2003-07. Countries whose growth
had been dependent on exports have suffered more. In emerging market economies, those
countries that had been enjoying spectacular growth in the recent past, growth slowed down to
1.6 percent in 2009, compared with an average of 6.1 percent growth in 2008.2 This downturn
has been accompanied by a large number of workers who have suddenly lost their jobs due to
shrinking exports and sharp drops in commodity prices.

It would hardly surprise that such a large economic shock could undo recent educational gains
achieved by developing countries. This undoing could happen in a number of ways. Basic
education worldwide relies heavily on government funding, so what happens to public
revenues is likely to affect school allocations and teacher pay, unless education budgets are
protected somehow. Post-basic education relies relatively more on private spending, so
substantial job losses and lower remittances due to the crisis can constrain households’ ability
to invest in post-basic education. Where credit markets are not developed or where they have
been greatly weakened by the crisis, these impacts are likely to be worse.

Lessons from past crises

The full impact of the current global crisis on enrollments and other education outcomes is yet
to be revealed, but there are lessons to be learned from past crises. During past economic
crises, school enrollments did not systematically decline, demonstrating heterogeneity in
household and individual responses to crisis. Evidence from Indonesia following the crisis in the
late 1990s, for example, indicates that per-capita education expenditures declined more in
urban households than in rural households, in poorer households than in less poor households,
and in households with more young children than in households with older children which
tended to protect their previous education investments.3


1
  I am grateful to Bank colleagues for up-to-date country information—Harsha Aturupane, Mae Chu Chang, Helen
Craig, Ernesto Cuadra, Halil Dundar, Emanuela di Gropelo, Ines Kudo, Michael Mills, Suhas Parandekar, Alberto
Rodriguez, and Shobhana Sosale.
2
  The World Bank. Global Monitoring Report 2009. A Development Emergency.
3
  Thomas, D., Beegle, K.; Frankenberg, E., Sikoki, B.; Strauss, J.; and Turuel, G.. Education in a crisis, Journal of


Keynote address, Innovations in Partnerships                                                                   Page 1
Development Economics 74(2004): 53-85.
Indeed, enrollment numbers can be sticky, at least for a short period, partly because parents
are reluctant to pull out their children from school in the middle of the academic year, partly
because parents want to protect past education investments in older children—and because
governments want to do the same.

There are other offsetting or mitigating factors at work. Greater unemployment means fewer
work opportunities for children and youth which in turn lower the opportunity cost of attending
school. For example, in Peru the crisis of the 1980s was expected to reduce enrollment, given
the declines of almost 50 percent in household and public incomes. Instead, the probability of
being enrolled increased as a result of a reduction in the opportunity cost of schooling.4

Effects of the current crisis: an incomplete picture

As of yet, we don’t know the full effect of the crisis in developing countries—and not on
education. An important question is whether public expenditures are available to keep the
lights on in schools. Data on changes in public spending levels for education are still mostly
conjectural, but the changes can be predicted based on the fact that the economic slowdown is
putting a brake on total public spending. These cuts are quite substantial in some countries,
but still hardly noticeable in others.

In many developing countries, teachers comprise the single largest part of the civil service,
accounting for 70-90 percent of total education spending, so deep public expenditure cuts
could result in teacher layoffs at worst and salary freezes and delays at best. Cuts in education
spending could also delay or stop the construction of new schools, as well as repairs and
maintenance activities.

The countries whose economies are most exposed to the global economy are experiencing the
costs of financial contagion. To cope, countries in Eastern Europe and Central Asia are making
or considering significant budget cuts. For example, in early 2009, Poland declared a 10-
percent budget-freeze across the board; the government has decreased its spending for higher
education by 6 percent and has cut funding for the expansion of pre-primary education. In
Hungary, a 7-percent reduction in public funding will force staffing cuts in tertiary education
institutions.

Lower-income countries also expect decreases in public spending for education. Evidence from
some African countries suggests cuts in education grants that facilitate access to tertiary
education institutions in-country and abroad. For instance, in Botswana there will be no new
government funding for tertiary enrollments in private institutions, and there will be a freeze
on new students sent overseas, except for medical studies. Egypt seems to be delaying the
process to increase teacher salaries which was initiated in 2008.

Why invest in education during the crisis?




Keynote address, Innovations in Partnerships                                              Page 2
4
    Ferreira, F. and N. Schady (2008) and N. Schady (2004)
Higher levels of education and a more productive and agile workforce are a country’s best hope
for economic recovery and long-term growth. This is why rich countries are investing in
education as part of their economic stimulus plans—and why developing countries should
follow suit.

The U.S. Economic Recovery and Reinvestment Act of 2009 proposes US$91 billion for
education, including aid for local school districts to prevent layoffs of teachers, public education
for low-income children, Head Start, and Pell Grants. “The single best way to stimulate the
economy—short-term and long-term—is to keep teachers teaching and keep kids learning,"
said Secretary of Education Arne Duncan.

Despite a tight fiscal capacity, Prime Minister Gordon Brown pledged the U.K. government's
commitment to make science education more accessible to students nationwide, partly by
increasing the number of schools offering science courses. He said, “Some say that now is not
the time to invest, but the bottom line is that the downturn is no time to slow down our
investment in science.”

In Germany’s second stimulus package, education has a bigger share: For 2009 and 2010 more
than €2 billion are available for further training and upgrading workers as well as for training
young workers with no professional qualifications, and additional investments are supposed to
focus on the education sector. "We are well on the way to becoming a Federal Republic of
Education,” declared Chancellor Angela Merkel.

Smart policies for uncertain times

Developing countries are choosing several policy options to safeguard advances in education
during the economic slowdown.

Some are protecting public expenditures for basic education. In Ethiopia, school construction
which is the responsibility of the regional and district governments will be maintained—but
community contributions to these investments which have been significant in the past are
expected to be smaller. In Peru, as part of the government’s anti-crisis plan, additional
resources have been allocated to the education sector, a plan made possible by large fiscal
surpluses in the three previous years. Transfers to schools related to an infrastructure
maintenance program are part also of the government’s response to the crisis. In the
Democratic Republic of Congo (DRC), the Emergency Project to Mitigate the Impact of the
Financial Crisis is addressing some of the near-term impacts of the current financial crisis; it will
finance the short-term costs associated with, among other things, the salaries of teachers in the
primary and secondary education sector, and the water and electricity bills.

Maintaining educational gains depends not only on sustaining expenditure levels but also on
directing national resources and aid to the most effective interventions. Smarter policies and
more efficient implementation mean getting better results for each unit of spending. For
example, Lithuania’s fiscal policy prior to the crisis increased public spending to unsustainable
levels—by 50 percent between end-2006 and 2008, following generous public wage and social


Keynote address, Innovations in Partnerships                                                  Page 3
benefit increases. 5 After the crisis hit, the new government quickly introduced a large upfront
fiscal adjustment in order to regain short term fiscal sustainability. A more efficient utilization
of teachers that reflect declining student populations and a gradual increase in class size to
regional norms are projected to yield major budget savings by 2020. In Lao PDR, the
government has been encouraging employees (not only in education) to reduce expenditures
for celebrations and events to commemorate important days, and to save on utility bills by
leaving their office buildings at closing time.

Programs are needed to focus on the most vulnerable groups. Governments have used
programs such as Conditional Cash Transfers (CCTs) and school grants to promote demand for
education and prevent increases in inequality. In Peru, student attendance has not dropped
but increased due to the Juntos program, a CCT program that requires students to attend
school in order to receive a transfer. In Indonesia, a new project is increasing the government's
scholarship program, in response to potential fallout from the economic crisis. The amount of
the school grants, initiated prior to the crisis, increased significantly between 2008 and 2009.
Such grants can prevent a worsening of the quality of service.

Lastly, while developing countries are not at the epicenter of the economic storm and while the
education sector seems to have been spared devastation, we should not be complacent.
Growth prospects worldwide continue to be dim and transmission mechanisms are at work. It
is important to monitor the crisis’ impact at the household, school, and government levels.
Reliable, up-to-date information is a fundamental tool for formulating an effective policy
response. Moreover, enrollment, which has been the focus of assessments, may not be the
appropriate barometer of the impact of the crisis on education. A worsening of the quality of
education is much harder to measure than the number of students and teachers in school, but
in low-income countries it is just as lethal to educational progress as declines in enrollments
because initial levels of quality are already quite low.

Partnerships for education

Returning to the topic of this course, what is the role of partnerships for education in the
context of the current economic downturn? The sharp slowdown of the global economic in
2008 coincides with the midpoint between the year 2000 which marked the launch of the
MDGs and 2015, the target year for achieving those goals. In the best of times, the challenges
of meeting the MDG education goals and of building a work force equipped to compete in a
global marketplace are daunting—and the corresponding needs are vast. Long-term,
sustainable growth and poverty reduction cannot be achieved on the cheap. In this worst of
times, the challenges have become more difficult.

Partnerships around shared goals make these development challenges more attainable. This is
the case in low-income countries as they are in emerging market economies and even in rich
countries.

5
 World Bank. Eastern Europe and Central Asia Region Human Development Department. Lithuania: Social


Keynote address, Innovations in Partnerships                                                      Page 4
Sectors Public Expenditure Review. Report No. 48604 – LT. June 2009.
In this training course, you will discuss various forms of partnerships. As you will discuss today,
many education partnerships already exist, some more familiar to us than others. National (or
central) governments partner with local governments in order to provide services more widely,
more equitably and with better quality. The public sector also partners with the private sector
and with communities—and with good results. The for-profit private sector partners with the
not-for-profit private sector, as well as with communities. Examples of these different types of
partnerships abound.

By promoting an enabling institutional environment, both for partnerships as well as for
innovations, the public sector can make it easier for partnerships to form and for them to be
more effective. What do I mean by “an enabling institutional environment for partnerships”? In
a phrase, governments should eliminate or reduce the barriers to entry for all potential
providers, and instead put in place clear standards of provision against which the performance
of non-governmental partners will be assessed, buttressed by a robust system of performance
monitoring. Many governments do not have a full grasp of private provision in their education
sector, in large part because this set of providers can be tremendously diverse. In all the
countries I have worked in, governments were not quite sure about the full range of private
entities that provide education and training, what programs they offer, much less how well
those providers do their job.

During these times of severely constrained resources, there are benefits from bringing all
partners under one education tent, but governments have to be bolder and clearer about its
policy towards these partners. What this means is a question that I put to you as participants of
the course.

Thank you and I wish you fruitful discussions this week.




Keynote address, Innovations in Partnerships                                                Page 5

								
To top