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Methodology for the introduction of budget norms and equalization norms in the education sector
1. Methodology for the
Introduction of Budget Norms
and Equalization Norms
in the Education Sector
Jean-Marc Lepain
Intergovernmental Fiscal Advisor
Manilay Thiphalansy
Research Consultant
3. Definition
“A budget norm system is methodology for allocating
budgetary funds based on expenditure needs in a fair
and transparent manner with the objective of
avoiding political bargaining and correcting
horizontal imbalance. Budget norms are usually
integrated in the design of grant transfer formulae.”
4. Objectives
• correcting horizontal budgetary imbalance;
• Ensuring that all provincial basic needs are covered;
• Balancing operational cost and investment;
• Ensuring maintenance of all infrastructures;
• Ensuring a linkage between national and provincial
budgeting and the national development strategy;
• Ensuring budget predictability
• Multi-year budget programming
5. PRESENT BUDGETING SYSTEM NEW BUDGETING SYSTEM
Principles: Principles:
• System based on revenue • System based on expenditure
assignment needs
• Allocations based on historical • Allocations based on objective
trends criteria
• One year budgeting • Multi-year budgeting
Consequence:
Consequence:
• Horizontal imbalance
• Equalization of expenditures
• Lack of equity and transparency
• Equity and transparency
• Lack of predictability
• Predictability
• Insufficient funding for
• Better funding for maintenance and
maintenance and operation
operation
• Poor linkage with planning and
• Better linkage with planning and national
national strategy
strategy
• Lack of control of the Ministry
• Better control of the Ministry over
over provincial spending
provincial spending
8. Two Types of Norms
• Grant transfer norms
• Budget formulation norms
Maintenance
Other goods and services
Small investments
9. Sectors to be covered
• Education
• Health
• Transport
• Agriculture
• General Administration (5 ministries)
• Provincial Administration
10. Grant System
+ Shared Revenue
+ Equalization Grant
+ Investment Grant
+ Other conditional grants
+ Ad hoc Grants to other organizations
=--------------------------------------------------
=Total transfer to provinces
11. Equalization Grant
+ Provincial Fiscal Envelope
- Targeted Local Revenue
- Shared revenue
-----------------------------------------
= Equalization Grant
12. Fiscal Strategy
• Fiscal envelope for Budget Norm: 5% of
FY2007/08 (Fiscal Envelope for Education: 1,02% )
• Implementation in three phases (Education and
Health: Phase 1starting in FY2010/11)
• Implementation Plan 6 years (Education
Implementation Plan 4 years for recurrent expenditures and 3
years for investments)
14. General Methodology
• Policy framework and strategy
• Calculation of the fiscal envelope available for
budget norms
• Budget Norm planning
• Macro-fiscal modeling and consolidation
• Budget norm implementation strategy
• Transfer system design
15. Sectoral Budget Norm Calculation
• Sector Profile and Policy Review
• Expenditure Need Assessment
• Macro-fiscal modeling
• Consolidation and reporting
• Validation
16. Sector Profile
• Sector long term objectives in relation to
MDG, NGPES and NSEDP
• Program structure and objectives
• Collection of relevant statistical data
• Analysis of budget data
• Indicators
17. Sector Policy Review
• Review of performance
• Analysis of budgetary and non budgetary
issues
• Analysis of budget alignment with objectives
• Preparation of budget projection for the next
three years
• Recommendations
18. Expenditure Need Assessment
• Analysis of cost drivers
• Need assessment by economic categories
• Balance between recurrent expenditures and
Investment
• Sizing of investments in relation to objectives
• Identification of budget norm indicators
19. Macro-Fiscal Modeling
• Analysis of budgetary trends
• Development of sectoral fiscal model for the
next three years
• Testing of budget norm formula
• Consolidation of all sectoral model in one
macro-fiscal model
20. Implementation Strategy
• Selection of indicative budget norms and
budget norms for the intergovernmental
transfer system.
• Assessment of the number of years required
to correct horizontal imbalance
• Recommendation for multi-year
implementation
22. Education Budget Norms
The transfer should be based on:
• number of children in age to go to school
• Number of children registered
• Literacy rate
• Programmes
• Cost factor (salaries including bonuses, training
needs, etc.)
• Maintenance needs and other non-wage
expenditures
23. Equalization Norm
• FY2007/08 Recurrent Budget = 85,000 kips per capita
• FY2008/09 Recurrent Budget = 102,000 kips per
capita
• Minimum Investment Budget = 7% of Recurrent
Budget
The equalization norm based on minimum spending
per capita must be replaced by a budget norm based
on spending per children of different school
programmes.
24. Structure of the Transfer Formula
A possible formula could be:
• T = Transfer
• Sp.I. = Spending Norm
• N = Need Indicator
• C = Cost Indicator
T = (Sp.I. x N) + (Sp.I. x C)
25. Selection of a spending indicator
Possible spending indicator:
• Spending per capital
• Spending per child under age of 15
• Spending per age class (1 to 5, 6 to 9, 9 to 15,
etc.)
• Spending per child by programme
• Other indicators ?
26. Selection of Need Indicators
• Literacy rate
• Children Registered / Total Children Population
• Girls registered/ Total number of children
• Territory covered by school network
• Number of teacher required (number of
teachers/number of students)
27. Selection of Cost Indicators
Cost indicators should record variations in cost
for similar services by province and by district.
• Salary Indicators
• Maintenance Cost
• Management Cost