Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 33481 - LK

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED GRANT IN THE AMOUNT OF SDR 41.5 MILLION

(US $60 MILLION EQUIVALENT)

TO THE

DEMOCRATIC SOCIALIST REPUBLIC OF S R I LANKA

FOR AN

EDUCATION SECTOR DEVELOPMENT PROJECT

NOVEMBER 15,2005

Human Development Sector South Asia Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS (Exchange Rate Effective November 3,2005)

ADB BESP

C E M

CFAA

CIGAS

CPAR

EIAs

ELC

EMP

E M I S

ESDFP

ESPA

ESPCAR

ESSAF

FMRs FRs GCE A/L

GCE O/L

GDP GNI GOSL

Currency Unit = Sri Lankan Rupees (LKR) LKRl = US$0.0098 US$1 = LKR101.88

FISCAL YEAR January 1 December 3 1

ABBREVIATIONS AND ACRONYMS

Asian Development Bank Basic Education Sector Program Country Economic Memorandum Country Financial Accountability Assessment Computerized Integrated Government Accounting System Country Procurement Assessment Review Environmental Impact Assessments Essential Learning Competencies Environmental Management Plan Education Management Information System Education Sector Development Framework and Program Education Sector Procurement Assessment Education Sector Procurement Capacity Assessment Review Environment and Social Screening Assessment Framework Financial Management Reports Financial Regulations General Certificate o f Education (Advanced Level) General Certificate o f Education (Ordinary Level) Gross Domestic Product Gross National Income Government o f Sri Lanka

HIES

I C B

ICT

I C T A D

IDA

IFC

IMF INGAF

IRBD

IRQUE

ISDS

LOAG2 MDGs MFP

MTBF

NCB NEA NEC

NEP NEREC

N-FE NGOs

Household Income and Expenditure Survey International Competitive Bidding Information and Communications Technology Institute o f Construction, Training and Development International Development Association International Finance Corporation International Monetary Fund Institute o f Government Accounts and Finance International Bank for Reconstruction and Development Improving the Relevance and Quality o f Undergraduate Education Integrated Safeguards Data Sheet Loan Department Mi l lennium Development Goals Ministry o f Finance and Planning Medium-Term Budget Framework National Competitive Bidding National Environmental Ac t National Education Commission North-Eastern Province National Education Research and Evaluation Center Non-Formal Education N o n Governmental Organizations

NIE NIRP

NPA OED

PCS PCN PEQETS

PID Rs . SBCQ

SDAs SEMP

S I D A

WP

National Institute o f Education National Involuntary Resettlement Policy National Procurement Agency Operations Evaluation Department

Provincial Councils Project Concept Note Public Expenditure and Quality Education Tracking System Project Information Document Sr i Lankan Rupees Selection Based on Consultants Qualification Special Dollar Accounts Secondary Education Modernization Project Swedish International Development Co-operation

Western Province

SIRUP

S L I D A

SWAP TETD

TCs UGC

UNP UPFA

US$ WB AAA

Agency (check the text which says Swedish International Development Agency) Small Scale Infrastructure Rehabilitation and Upgrading Project Sri Lanka Institute o f Development Administration Sector Wide Approach Teacher Education and Teacher Deployment Credit Teacher Centers University Grants Commission

United National Party United Peoples Freedom Alliance US. Dollars Wor ld Bank Analytical and Advisory Activit ies

Vice President: Praful C. Pate1

Sector Director Julian F. Schweitzer Country Director: Peter Harrold

Sector Manager: Michel le Riboud Task Team Leader: Harsha Aturupane

Co-Task Team Leader: Helen Craig

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.

CONTENTS

A. STRATEGIC CONTEXT AND RATIONALE .. ........................................................ 1

1. Country and Sector Issues 2. Rationale for IDA Involvement 3. Higher Leve l Objectives to which the Project Contributes

1 2 3

B. PROJECT DESCRIPTION ................................ , ........................................................ 3

1. Lending Instrument 2. Project Development Objectives and Key Indicators 3. Project Components 4. Lessons Learned and Reflected in the Project Design 5. Alternatives Considered and Reasons for Rejection

C. IMPLEMENTATION ........................................... . ...................................................... 7

1. IDA Support and the Role o f Other Donors 2. Institutional and Implementation Arrangements 3. Monitoring and Evaluation o f Results and Outcomes 4. Sustainability 5. Review Arrangements 6. Critical Risks and Possible Controversial Aspects 7. Project Conditions and Covenants

7 8 8 9 10 10 11

D. APPRAISAL SUMMARY .......................................................................................... 13

1, Economic and Financial Analysis 2. Technical 3. Fiduciary 4. Safeguard Policies 5. Policy Exceptions and Readiness

13 14 14 16 16

Annex 1 Country and Sector o r Program Background ............................................... 17

Annex 2 Major Related Projects Financed by IDA and/or Other Agencies ............. 28

Annex 3a Results Framework and Monitoring ................................................................ 31

Annex 3b Arrangements for Results Monitoring ........................................................... 35

Annex 4 Detailed Project Description ........................................................................... 47

Annex 5 Project Costs ..................................................................................................... 60

Annex 6 Implementation Arrangements ....................................................................... 62

Annex 7 Financial Management and Disbursement .................................................... 66

Annex 8 Procurement ..................................................................................................... 76

Annex 9 Economic and Financial Analysis ................................................................... 83

Annex 10 ESDP Funding and the Performance o f the ESDFP ........................... 94

Annex 11 Safeguard Policy Issues ................................................................................... 98

Annex 12 Project Preparation and Supervision ............................................................ 100

Annex 13 Documents in the Project Fi le ........................................................................ 102

Annex 14 Statement o f Loans and Credits .................................................................... 104

Annex 15 Country at a Glance ........................................................................................ 106

Tables

Main Text

1 2 3 4

Critical Risks and Mitigating Measures and Risk Rating After Mit igation ............. 11 Private and Social Rates o f Return to Education. 2002 ........................................... 13

Annual ESDP Allocations and Projected Education Budget. 2006-201 0 (Rupees million) ..................................................................................................................... 14

Net Present Value and Internal Rate of Project Investments ................................... 13

Annexes

1.1

1.2 1.3 1.4

1.5 5.1

5.2 9.1 9.2

9.3

9.4

9.5 9.6 9.7

Provincial Income. Poverty and Education Enrolment and Completion by Province ................................................................................................................... 17

Primary Education Learning Outcomes by Province. 2003 ..................................... 20 Education Expenditure as a Share o f National Income and Government Expenditures. S r i Lanka and Selected Countries ..................................................... 22

Indicative Program Budget. Central and Provincial. by Funding Source 2006- 2010 .......................................................................................................................... 60

Private and Social Rates o f Return to Education. 2002 ........................................... 83 The Impact o f Maternal Education on Chi ld Nutrition. 2000 . Regression

Quantified Economic Benefits o f the ESDP under Alternative Scenarios. N e t Present Values in U S $ M i l l i o n ................................................................................ 88 Quantified Economic Benefits o f the ESDP under Alternative Scenarios. Internal Rates o f Return ........................................................................................................ 88 Recurrent and Capital Budget Projections. 2006-20 14 ........................................... 90

ESDP’s Annual Allocations and the Education Budget. 2006-201 0 ....................... 93

Government Schools. Student Enrolment and Teachers. by Province. 2002 .......... 19

Public Education Expenditure per Student in Real Terms. 1998-2002 ................... 24

Indicative Education Program Budget for 2006. Central and Provincial ................ 61

Coefficients from Probit Models. Maximum-Likelihood Estimates ....................... 86

Revised Central Budget. 2004-2008 ....................................................................... 91

Figures

Annexes

1.1 1.2 1.3 9.1

9.2 9.3 9.4

Percentage o f Education Expenditure to National Income ...................................... 23

Shares o f Education Financing by Source. 2002 ..................................................... 26 Lorenz Curves o f Shares o f Public Education Expenditure among Economic Groups ...................................................................................................................... 84 N e t Compulsory Education Completion Rates. Grade 1-9 . 2001 ............................ 85

Education Budget Projections in different Scenarios, 2006-2014 ........................... 92

Shares o f Capital and Recurrent Education Budget. 1998-2002 ............................. 25

Ratio o f expenditure per student to the P C I o f the provinces .................................. 89

MAP: IBRD NO . 33485

SRI LANKA

BORROWER IDA Grant Total:

EDUCATION SECTOR DEVELOPMENT PROJECT

2,720.00 0.00 2,720.00 20.00 60.00

2.760.00 20.00 2.780.00 40.00

PROJECT APPRAISAL DOCUMENT

SOUTH ASIA

SASHD

Date: November 15,2005

Country Director: Peter C. Harrold Sector Director: Julian F. Schweitzer Sector Manager: Michelle Riboud Project ID: PO84580 Lending Instrument: Specific Investment Loan

[ 3 Loan [ ] Credit [XI Grant [ 3 Guarantee [ ] Other:

Team Leader: Harsha Aturupane Co-Team Leader: He len Craig Sectors: General education sector (1 00%) Themes: Education for al l (P); Education for the knowledge economy (P) Environmental screening category: B Safeguard screening category: Limited impact

For Loandcreditdothers: Total Bank financing (US$m.): 60 equivalent Proposed terms:

Borrower: Democratic Socialist Republic o f S r i Lanka

Responsible Agencies: The Ministry o f Education, Isurupaya, Battaramulla, S r i Lanka. Tel: (94-1 1) 2785 141. Fax: (94-1 1) 2784846. Provincial Ministr ies o f Education, c/o the Finance Commission, Kitulwatte Road, Colombo 8. Tel: (94-1 1) 2672780. Fax: (94-1 1) 4512758

Expected effectiveness date: Within 90 days after signing o f Development Grant Agreement Expected closing date: April 30,201 1

[ ]Yes [XINO Does the project depart from the Country Assistance Strategy (CAS) in content or other significant respects? Re$ PAD A.3

[ ]Yes [XINO

[ ]Yes [XINO

Does the project require any exceptions from Bank policies? Re$ PAD D.5 Have these been approved by Bank management? I s approval for any pol icy exception sought from the Board? Does the project include any critical r isks rated “substantial” or “high”? Re$ PAD C.6 Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D.5 Project development objective Re$ PAD B.2, Technical Annex 3 The proposed Sri Lanka Education Sector Development Project (ESDP) will support Sri Lanka’s Education Sector Development Framework and Program (ESDFP) 2006-201 0 to: (a) promote equitable access to basic education (grades 1-9) and secondary education (grades 10- 13);(b) improve the quality o f education, (c) enhance the economic efficiency and equity o f resource allocation and distribution within the education system, and (d) strengthen education governance and service delivery.

[ ]Yes [XINO [XIYes [ ] N o

[XIYes [ ] N o

Project description [one-sentence summary of each component] Re$ PAD B.3. Technical Annex 4

The Education Sector Development Project (ESDP) i s organized according to four themes, reflecting the cardinal policy initiatives o f the Government’s Education Sector Development Framework and Program (ESDFP).

Theme 1. Promoting Equitable Access to Basic and Secondarv Education. The strategies to achieve the objectives o f this theme include: (a) implementing demand side initiatives to promote school attendance and completion o f the basic education (grades 1-9) cycle; (b) upgrading the network o f public schools to relax geographical constraints to equitable access to high quality basic and secondary education; (c) strengthening special education programs for children with special learning needs; and (d) strengthening non-formal education programs for adolescents who either never attended school or dropped out when they were younger, and require sk i l ls to enter the labor market.

Theme 2. Improving the Oualitv o f Education. This theme i s designed to promote cognitive achievement levels, associative competencies and attitudinal skills, and includes: (a) curriculum restructuring and upgrading to reflect modem trends in curriculum practice; (b) development o f the teacher framework and system to enhance the motivation, competencies and performance o f teachers; and (c) modernization o f the examination and testing system to promote higher-order cognitive sk i l ls and associative competencies and better orient the education system to the world o f work.

Theme 3. Enhancing the Economic Efficiency and Equity o f Resource Allocation. The key components o f this theme are: (a) establishing a medium-term expenditure framework for education; (b) developing a long-term indicative rolling plan for the education sector; and (c) establishing a public expenditure and quality education tracking system (PEQETS) for public investment in education.

Theme 4. Strengthening Education Governance and Service Deliverv. The key components o f this theme are: (a) introducing a balanced control model o f school based management to improve the speed and relevance o f school level decision making and administration; (b) an organizational capacity analysis of the education system and the implementation o f capacity building programs at central and provincial levels; and (c) developing a human resource strategy to strengthen the skills o f education managers and administrators, education policy, leadership, management and strategy development, and link ski l ls building activities with the current and anticipated future needs o f the education system.

Which safeguard policies are triggered, if any? Safeguard Policy OP 4.01 Environmental Assessment i s triggered and the Project has been assigned an Environment Screening Category o f "B"

Significant, non-standard conditions: N o All conditions are standard for this type o f operation. Board presentation: N o conditions for Board Presentation. Loadcredit effectiveness: N o conditions for effectiveness.

General implementation. The ESD Project wil l be implemented at the Central level by the national Ministry o f Education supported by national level institutions including N E C and NIE. At the Provincial level the Project wil l be implemented by the Ministr ies o f Education in the Provincial Councils supported by the central government agencies including the MOE, NEC, NIE and Finance Commission. The Ministry o f Finance and Planning (in respect o f the overall education budget) and the Finance Commission (in respect o f the provincial education budgets) wil l exercise oversight functions with regard to public expenditures and service delivery in the education system.

The government wil l maintain a Steering Committee, chaired by the Secretary, Ministry o f Education, with representation from the Ministries o f Education in the Provincial Councils, the Ministry o f Finance and Planning, the Finance Commission and the National Education Commission. The IDA will be invited to provide a representative to attend al l meetings o f the Steering Committee.

Basic and secondaw education budaet covenant. The Ministry o f Finance and Planning and the Finance Commission, on behalf o f the Government, wil l maintain public expenditure on basic and secondary education to at least the baseline level o f expenditure in 2004 in real terms. The Government will maintain key demand side incentives in public schools, in particular tuition free education and the free textbook program, to promote school attendance and quality. The Ministry o f Finance and Planning and the Finance Commission wil l introduce by no later than January 1 , 2008 a component o f performance based funding for Provincial Education Ministries and Central Education Agencies, to act as an incentive and reward mechanism for provinces and agencies that show good progress over time on implementation, results, policies and outcomes.

Annual updating of the ESDFP rol l ing plan. The Ministry o f Education, the Finance Commission and each Provincial Education Ministry will submit their respective draft Annual ESDFP rol l ing plans annually to IDA for comments by M a y 15 o f each year. The Ministrv o f Education in consultation with the Ministrv o f Finance and Planning. the

Finance Commission and the Provincial Education Ministr ies wil l also submit the draft o f the overall ESDFP rol l ing plan annually to IDA for comments by September 15 o f each year.

Monitoring and evaluation, and the mid-term review. The Ministry o f Education, the Provincial Education Ministr ies through the Finance Commission, the Ministry o f Finance and Planning, and the National Education Commission, wil l carry out an annual review o f the ESDFP and the ESD Project providing evidence o f progress in accordance with the Annual Implementation Plan or on performance and monitoring indicators agreed with IDA. In addition, these agencies wil l undertake monitoring, evaluation, research and studies, on relevant education topics and themes, in accordance with their obligations under the relevant Annual Roll ing Plan and at other times as agreed with IDA. A mid-term review o f the ESD Project wil l be conducted prior to December 3 1 , 2008 or such later date to be agreed with IDA.

Financial covenant. The Ministry o f Education, and the Provincial Education Ministries under the oversight o f the Finance Commission, wil l ensure that: (a) satisfactory financial management arrangements including financial records are maintained; (b) six monthly financial management reports are submitted to the IDA no later than 45 days fol lowing the end o f the reporting period; and (c) audit reports are made available within 6 months after the end o f the government fiscal year.

The Finance Commission wil l appoint within thirty days from effectiveness o f the Project and retain throughout project implementation a financial management specialist as part o f the overall strengthening o f the Finance Commission to monitor the performance o f the provinces.

Environmental and social covenant. The Ministry o f Education and the Provincial Education Min is t r ies wil l implement, in a manner satisfactory to IDA, the environmental and social assessment framework prepared for the Project.

A. STRATEGIC CONTEXT AND RATIONALE

1. Country and Sector Issues

1. Sri Lanka i s a developing country with a per capita income o f US$1,030 per person. The economy has been expanding at a trend growth rate o f about 4.5 percent per annum over the past ten years. The economic progress o f the country has been the result o f market oriented development policies that have enabled private sector led growth of, especially, the industrial and service sectors. The national pol icy to promote future economic growth i s to strategically integrate the economy with the global market, expand and improve human capital, and reduce infrastructure bottlenecks. Sr i Lanka has also identified priority areas to drive future economic growth. These include financial services, communications, information technology, port services, and leisure services. Swift expansion o f such key activities wil l sharply increase the demand for educated human resources in the future.

2. regional variations in poverty. The Nor th Eastern Province (NEP), due to twenty years o f secessionist conflict, i s one o f the poorest regions. Other poor provinces, such as U v a and Sabaragamuwa, suffer poverty rates o f 37 percent and 33 percent respectively. The poverty rate in the wealthy Western Province (WP), in contrast, i s only 11 percent. The national strategy to reduce poverty i s to bring broad based economic growth to lagging regions, improve human development in poor areas and provide a safety net for disadvantaged groups.

About 23 percent o f the population lives below the poverty l ine. There are also high

3. During 1983-2001 a separatist conflict in the North Eastern Province constrained the progress o f the country, but a ceasefire between the government and the separatist forces has held, for the most part, since 2001. As a result, the integration o f the Nor th Eastern Province with the rest o f the country has improved. Around 30,000 school dropouts in the Nor th Eastern Province have returned to school. The country has also introduced measures within the education system to promote inter-cultural understanding and social cohesion. These measures include opening Amity Schools, where children from different ethnic groups study together; the second national language program, through which Sinhalese and Tamil children l e a m each other’s language; textbook review panels which seek to eliminate ethnic and cultural biases from textbooks; and promoting English to act as a link language between different ethnic groups.

4. Sri Lanka has about 4 mi l l ion school children enrolled in approximately 9,800 public schools and 300 private and international schools, a net primary enrolment rate o f 96 percent among both boys and girls, and a net primary completion rate o f 95 percent for both sexes. Investment in education i s at the heart o f the development strategy o f the country, and a prominent focus o f public pol icy [NEC, 2003; World Bank, 20051. The first objective o f the 2006 government budget circular i s “investing in people to build a productive and efficient human resource base with knowledge and s k i l l s in their respective fields o f employment”.

5. schooling and establishing a high quality education system. The country has made schooling compulsory for all children aged 6-14 years in the basic education cycle (grades 1-9). Participation in basic education is only at 81 percent, and needs to be raised substantially to achieve the target o f universal completion. Poor regions o f the country lack sufficient school facilities to provide access to secondary education in subjects such as science, technology and English, which offer superior future economic outcomes for students. Hence, secondary school

1

Sr i Lanka now faces the challenges o f expanding equitable access to post-primary

facilities also need to be equitably expanded to deliver the full range o f the curriculum and enhance the external efficiency o f the education system.

6. show substantial shortfalls in language and numeracy skil ls. In f i rst language (Sinhalese and Tamil), at the end o f Grade 4 average mastery i s 37 percent. In mathematics achievement, too, overall mastery i s 38 percent. Learning achievements in education also show high regional variations. The proportion o f primary students attaining mastery o f their first language, Sinhalese or Tamil, varies f rom 23 percent in the NEP to 5 1 percent in the WP. Similarly, mastery o f primary mathematics ranges from 25 percent in the NEP to 52 percent in the WP. Improving cognitive achievement levels i s a pol icy objective o f central importance in Sri Lanka.

The quality o f education also needs to be strengthened. Cognitive achievement tests

7. economic and social goals. The economic goals include promoting competencies and skills in demand in the labor market, such as good communication, leadership, creativity, flexibility, team work, decision making and problem solving. Social goals include promoting ideals o f good citizenship, civic consciousness and democratic values among school children and improving social cohesion between different ethnic and religious communities.

Policy makers also aim to strengthen the education system to achieve a variety o f

2. Rationale for IDA Involvement

8. There are several reasons for assisting the basic (grades 1-9) and secondary (grades 10- 13) education system in S r i Lanka. First, the country has developed an over-arching Education Sector Development Framework and Program (ESDFP), for grades 1-13, for the period 2006- 2010. This ESDFP was developed through a process o f bottom up school based planning, supporting plans from central and provincial education authorities, and public consultation, to ensure high technical quality and broad social support in the country. The International Development Association (IDA) has been the largest education donor in Sri Lanka, accounting for a high share o f foreign assistance to the sector during the last fifteen years. Two large IDA education credits, the Teacher Education and Teacher Deployment credit (TETD) and the Second General Education credit (GEP2) closed in October and November, 2005 respectively. Hence, the Education Sector Development Project (ESDP) will be the only source o f IDA financial assistance to the Sri Lankan primary and secondary school system from 2006 onwards. Second, the design o f the ESDP i s based on: (a) close dialogue and support for the pol icy development process, culminating in Proposals for a National Policy Framework on General Education in Sri Lanka [NEC (2003)], from which policies have been prioritized, strategies selected and the ESDFP developed; (b) the findings and recommendations o f a recent and comprehensive study, the World Bank Education Sector Report Treasures of the Education System in Sri Lanka (2005); and (c) the lessons learned from past IDA education credits, especially TETD and GEP2. Third, IDA i s already assisting the tertiary education sector through another credit, Improving the Relevance and Quality o f Undergraduate Education (IRQUE). The ESDP, by covering the school system, wil l enable IDA to support the development o f the entire S r i Lankan education system. Fourth, IDA assistance wil l enrich the technical quality o f ESDFP implementation by making available knowledge o f good practices f rom other countries and current ideas in education pol icy formulation and strategy development. Fifth, the project i s included in the Country Assistance Strategy and i s one o f the flagship operations to promote i t s objectives o f equity, growth andpeace in the country.

2

3. Higher Level Objectives to which the Project Contributes

9. The Education Sector Development Project (ESDP) wil l contribute strongly to Sri Lanka’s objective o f promoting human development, equitable economic growth and poverty reduction. The economic growth and poverty reduction strategy o f the country awards an important role to the development of the education sector, especially: (a) widening access to education to promote equity between regions and social groups; (b) pursuing excellence in education quality; (c) building the human resources needed to drive economic development in an increasingly knowledge-intensive global economy; and (d) decentralizing education management to empower frontline service providers and strengthen service delivery. The ESDP will support the full range o f innovative initiatives contained in the ESDFP to develop the basic and secondary education system. The ESDFP has a strong focus on equity, with particular emphasis on increasing access to education among the poorest regions and most disadvantaged groups in the country. The ESDP wil l also support national initiatives to pursue excellence in the quality o f education, enhance the economic efficiency and equity o f resource allocation, and strengthen service delivery. A high performing education system will improve human capital accumulation, with beneficial effects on growth, human development and poverty reduction.

B. PROJECT DESCRIPTION

1. Lending Instrument

10. approach (SWAP) and financed by IDA. A SWAP i s well suited to supporting an over-arching education sector development plan, promoting internally consistent pol icy approaches and providing an umbrella under which al l donors can operate. The grant funds under the ESDP wil l supplement the budgets o f the national and provincial Ministries o f Education and use the public sector format for reporting expenditures. Grant proceeds upon disbursement wil l be indistinguishable f rom public sector funds and, as such, wil l not be tracked by specific expenditure category. The focus, instead, wil l be on monitoring the education results and outcomes, economic and social benefits, and financial performance.

The lending instrument i s a Specific Investment Grant, using a sector wide programmatic

2. Project Development Objectives and Key Indicators

1 1. to basic education (grades 1-9) and secondary education (grades 10- 13); (b) improve the quality of education; (c) enhance the economic efficiency and equity o f resource allocation and distribution within the education system; and (d) strengthen education governance and service delivery. The development objectives o f the ESDP are aligned with these ESDFP objectives.

The long-term development objectives o f the ESDFP are to: (a) promote equitable access

12. results will be reported by province and gender, where relevant.

The key indicators to be measured are listed below. All information o n outcomes and

Long-term outcome indicators Education participation and survival rates in the age range 6-14 years. Learning achievements in basic and secondary education. The proportion o f the education budget allocated for higher order spaces and processes and assets to promote competencies and sk i l ls that enjoy high economic returns. Favorable stakeholder assessments o f education management arrangements.

3

Policy, results and monitoring indicators a a

a

a

a

a

a

a

a a

a

a

Number and percentage o f children aged 6-14 completing the basic education cycle. Curriculum learning competencies clearly specified effectively communicated and understood by school communities and stakeholders. Schools staffed with trained and certified teachers, and supported by a high quality teacher development system. Quantity, quality and timely delivery o f textbooks to schools. An examination item bank developed. Examination guidelines outlining expected achievement levels clearly specified, and effectively communicated and understood by school communities and stakeholders. The capital education budget prioritized to support higher order spaces and assets. The recurrent education budget prioritized to support higher order processes and inputs. Resources allocated for maintenance, repair and replacement o f the capital stock. A balanced control model o f school based management pilot tested, and if successful, f ine tuned and established country-wide. Planned organizational capacity building o f education institutions completed. Planned human resource development o f national and provinces education officials completed.

3. Project Components

13. The ESDP i s organized according to four themes, reflecting the cardinal development initiatives o f the ESDFP that the Project i s designed to assist. The innovative elements o f the ESDFP that the ESDP wil l support are elaborated below. As a sector wide program, the ESDP wil l also support the country to sustain earlier pol icy initiatives o f economic and social importance, such as improving English language skil ls, expanding I T based education and promoting social cohesion through the school system.

Theme 1. Promoting Equitable Access to Basic and Secondary Education.

14. Under this theme, there are four key development initiatives:

I. the government to promote school attendance are providing tuition free education in public schools, free school textbooks and uniforms, subsidized public transport, targeted scholarship schemes, school meal programs, and appointing local leve l non-formal education officers to attract out-of-school children back into the education system.

Demand side incentives for school attendance. The principal demand side initiatives o f

11. to good quality basic and secondary education. Under the ESDFP the network o f good quality schools will expand further in rural regions to increase equity o f access to the full school curriculum, especially science, English and technology subjects. The schools for development have been selected according to a school mapping framework, to ensure that the expansion o f schools i s internally efficient and cost-effective.

Upgradinq the network o f schools to relax constraints on geographically equitable access

111. Special education programs wil l be developed and expanded to cater for children with special

Strengthening special education programs for children with special learning needs.

4

learning needs, especially those with visual impairment, hearing impairment, behavioral problems, mult iple disabilities, learning disabilities and epilepsy.

IV. activities planned under this program include: (a) activating community attendance committees, and identifying and providing facilities for non-school going children; (b) expanding functional activity learning centers for children lacking basic literacy skills; and (c) capacity building o f non- formal education project officers.

Strengthening non-formal education programs for non school-going adolescents. K e y

Theme 2. Improving the Quality o f Education

15. The main pol icy objectives, under this theme, are to improve learning outcomes by developing generic sk i l ls such as creativity, communication and problem solving, as well as non- cognitive achievements such as team work, adaptability, responsibility and leadership. The ESDFP contains three innovative and new development initiatives under this theme.

V. Curriculum re-structuring and upgrading. This initiative wil l introduce a curriculum approach that better reflects modem international trends, effectively disseminate curriculum goals to stakeholders and orient the education system more strongly to the wor ld o f work. Curriculum upgrading activities wil l include formulating a vision and guidelines to assist future curriculum development, revising the content and organization o f existing subjects and introducing new subjects.

VI, Teacher development. The objective o f this initiative i s to enhance teacher motivation, sk i l ls and performance. A key feature o f teacher development wil l be a system o f regular and continuing on-site school based support to teachers. This system wil l be administered and managed chiefly by the provinces, with technical support f rom the Ministry o f Education.

VII. system to reflect modem concepts and ideas in assessment and testing. In particular, the ESDFP will use the examination system as the steering wheel to promote the acquisition o f higher-order transferable skills among school children. To achieve this objective the Department o f Examinations will: (a) develop a high quality bank o f test items; (b) publish and disseminate examinations guidelines, specifying the expected learning competencies and attainment levels for the GCE O/L and GCE NL examinations, to school communities and stakeholders; and (c) strengthen the capacity o f the Department o f Examinations for research and strategic data generation.

Modernizing examinations and testing. This initiative will develop the examination

Theme 3. Enhancing the Economic Efficiency and Equity of Resource Allocation

16. efficiency and equity o f resource allocation in the education sector.

The ESDFP contains three innovative pol icy initiatives to improve the economic

VIII. Establishing a medium-term budget framework for education (MTBF). The MTBF will facilitate multi-year planning, implementation and monitoring at the national and provincial levels o f the education system. The M T B F wil l also contain a component o f performance based funding o f provinces, with provinces that show good progress on agreed performance indicators rewarded with increased allocations in future years. The MTBF will enhance the external efficiency o f the education system by prioritizing the allocation o f resources in favor o f higher- order learning spaces and assets, and quality processes.

5

IX. te rm five-year education sector development plan, for the period 2006-2010, to provide an over- arching framework to expand and improve the education system in the country. This multi-year rol l ing plan will increase planning and monitoring efficiency by enabling education institutions to prioritize and time sequence their development activities within a broader resource envelope and longer time horizon.

An overarching education sector development plan. The country has developed a long-

X. A public expenditure and quality education tracking system (PEOETS). The public expenditure and quality education tracking system wil l promote equity and transparency in resource distribution by tracing the f low o f expenditures to, and through, the various levels o f the central and provincial education system, down to schools. The PEQETS wil l enable pol icy makers to monitor the procedural efficiency and the equity o f resource flows through the education system and refine resource distribution accordingly.

Theme 4. Strengthening Education Governance and Service Delivery

17. The ESDFP, under this theme, wil l implement three key, innovative initiatives.

XI. School Improvement. The Program for School Improvement (PSI) seeks to: (a) empower principals and teachers to strengthen their professional motivation and enhance their sense o f ownership o f the school; (b) enable schools to forge l i n k s with local communities to give stakeholders, including parents and past pupils, greater voice in school affairs and the ability to raise resources to help the school; and (c) improve the speed and relevance o f school level decision making.

Establishing a balanced control model o f school based management, the Program for

XII. the education system wil l identify capacity gaps and design a capacity building program. The assessment wil l focus on: (a) the roles and functions o f the various education agencies, capacity gaps and overlaps; (b) the division o f labor between the Ministry o f Education and Provincial Education Ministr ies; and (c) leadership and management in the sector. Based on this assessment an organizational capacity building program wil l be implemented.

Oryanizational analysis and capacity building. The organizational capacity assessment o f

XIII. strategy seeks to provide high quality sk i l ls for the education system. This human resource development strategy will be based on an analysis o f current and projected future work requirements, the present stock o f skil ls, the anticipated outflow o f human resources through natural attrition, and the type and range o f sk i l ls available in the younger age cohorts.

Implementing a human resource development strategy. The human resource development

4. Lessons Learned and Reflected in the Project Design

18. sector, such as GEP, TETD and GEP2. Key lessons have been learned from these projects and incorporated within the ESDP.

The ESDP builds on the experience o f several previous IDA investments in the education

I. education, rather than concentrate o n selected areas, as this enables the establishment o f a coherent, internally consistent set o f policies to develop the school system. The ESDP, by

IDA should support the overall country framework to strengthen basic and secondary

6

adopting a sector wide approach, wil l assist S r i Lanka to develop the entire basic and secondary education system.

11. Sequence the introduction o f complex reforms carefully over time, with appropriate pi lot testing and evaluation at the outset, as the education system develops more effectively through gradual, evolutionary improvements rather than revolutionary upheavals. The complex education development initiatives supported through the ESDP wil l be carefully pi lot tested during the early years o f the program, and scaled up nation wide generally after the pi lot programs have been evaluated and their lessons incorporated into the pol icy design.

111. Invest in capacity building o f provincial education agencies to plan, administer and monitor fresh pol icy initiatives, as new development activities can overload the capacity o f these institutions. The ESDP has a component to build the organizational capacity o f Provincial Education Ministries during the f i rst two years o f operation. In addition, the ESDP supports the preparation and implementation o f a human resource development strategy to strengthen the stock of technical and administrative sk i l ls in the education system.

IV. implementation. The ESDP allocates budget resources for monitoring, evaluation, research and studies. IDA will also provide direct policy and analytical support to the public sector through research and studies on important education topics and themes.

Provide close pol icy and analytical support to the country during program

5. Alternatives Considered and Reasons for Rejection

19. education specific Development Policy Loan, were considered and rejected. There were several reasons for selecting a SWAp. First, the country has a comprehensive sector framework to develop the basic and secondary education system. A SWAP wil l enable IDA to support the full range o f education development initiatives. An alternative approach, such as a traditional, ring- fenced Specific Investment Loan o f limited scope, would have restricted the development potential o f IDA assistance. Second, the national education framework contains a range o f complex initiatives in curriculum reform, teacher development, modernization o f examinations, and the development of education planning, budgeting administration and monitoring capacity. These require long-term, incremental development measures to strengthen institutions, build technical expertise and improve organizational capacity. Such complex, long-term initiatives are more appropriately addressed through an investment operation, such as a SWAp, than through an adjustment operation such as an education Development Pol icy Loan. Third, the lessons learned from previous IDA investments in education in Sri Lanka demonstrate that close and continuous analytical and technical support from IDA staff plays an important role in strengthening the quality and effectiveness of program implementation. A SWAP would enable such close and continuing medium and long te rm partnership between the Government and IDA better than a Development Policy Loan.

Two alternatives to the proposed SWAp, a traditional Specific Investment Loan and an

C. IMPLEMENTATION

1. IDA Support and the Role of Other Donors

20. IDA will provide overall assistance for the ESDFP through the ESDP. Other development partners wil l provide parallel financing to support specific areas within the over- arching framework o f the ESDFP. The Japan Bank for International Cooperation (JBIC) i s

7

helping Sri Lanka to rehabilitate and upgrade essential school facilities through a Small Infrastructure Rehabilitation and Upgrading Project . These project funds f low to the provinces according to the government budgetary mechanism for provincial funding, which i s also the mechanism that i s to be used for the ESDP. The Asian Development Bank (ADB) i s assisting education through a Secondary Education Modernization Project . W h i l e this project operates through a Project Implementation Unit that i s not fully integrated into the SWAP, the ADB has indicated that their next education project, planned for 2007, will be integrated within the SWAP mechanism. UNICEF i s supporting the restoration o f Tsunami affected schools and the improvement o f education quality. UNICEF i s also seeking to integrate i t s funds within the public sector funding mechanisms. Four bilateral donors, Bundersminnisterium Suer Wirtschaft Liche Zusammenarbeit (BMZ), U K ’ s Department for International Development (DFID), Japan International Co-operation Agency (JICA) and Swedish International Development Agency (SIDA) also support the ESDFP, chiefly through technical assistance. BMZ i s helping in social cohesion, disaster risk management and psychosocial care. DFID, through trust funds managed by IDA, helped to prepare the ESDFP. JICA i s assisting education decentralization and the teaching o f science and mathematics in five zones. SIDA i s supporting schools in the plantation sector and the promotion o f social cohesion through education.

2. Institutional and Implementation Arrangements

21. The ESDFP that i s supported by the ESDP wil l be managed and implemented, at the national level, by the Ministry o f Education and at the regional level by the Provincial Education Min is t r ies (PEMs). The Ministry o f Finance and Planning and the Finance Commission wil l also be involved in the management and monitoring o f the ESDFP through their role in allocating public funds to the education sector.

National level. The Ministry o f Education wil l be responsible for the fol lowing functions: establishing national policies, norms and standards; formulating the school and pre-service teacher education curricula; publishing and distributing free textbooks; providing free school uniforms; public examinations; establishing national norms and standards for essential and higher-order spaces, teaching-learning assets and teaching-learning material; management o f National Schools; employment and deployment o f teachers in national schools; and monitoring, evaluation, research and studies.

Provincial level. The Provincial Education Ministries will be responsible for the fol lowing functions: establishing provincial policies, norms and standards, within and consistent with national policies, norms and standards; managing the provincial school system; managing the teacher system in provincial schools; implementing continuing teacher development programs; implementing special and non-formal education programs; and provincial leve l monitoring and evaluation.

3. Monitoring and Evaluation o f Results and Outcomes

22. From 2006 onwards the budget wil l allocate resources for monitoring, evaluation, pol icy research and analysis. The monitoring and evaluation activities wil l focus on program inputs, processes, outputs, results and outcomes. A detailed framework for monitoring and evaluation has been worked out, and i s summarized in Annex 3, the Results Framework, o f this Project Appraisal Document. The monitoring activities will be undertaken mainly by public sector agencies, such as the MOE, FC, NEC, PEMs and the National Institute o f Education (NIE).

8

The ESDFP has a strong focus on the monitoring and evaluation o f results and outcomes.

Evaluation activities wil l generally be contracted out to independent research agencies, such as the National Education Research and Evaluation Center (NEREC) and private f i rms . Pol icy research will be undertaken mainly with the assistance o f specialized research agencies, such as universities, research institutes, NEREC and NIE.

23. The monitoring and evaluation system will focus on both monitoring and performance indicators. Performance indicators will follow progress in terms o f education outcomes such as school attendance, learning outcomes, budgetary allocations to promote sk i l ls that enjoy high economic returns, and stakeholder satisfaction levels. Monitoring indicators will be used to fo l low the implementation o f critical actions to achieve overall outcomes. These wil l be linked to actions that introduce new initiatives or have significant long-term development impacts, such as the Program for School Improvement and the modernization of the examination system. The results framework of the ESDFP, summarized in Annex 3 o f this Project Appraisal Document, outlines both sets of indicators, with the monitoring indicators emphasized in the early years o f the program and the performance indicators highlighted in the later years o f the program.

The ESDP Fund Flow Arrangements and Relationship to ESDFP Performance

24. year, 2006, the WB proposes to provide US$ 12 mi l l ion equivalent, which i s an advance for the first year based on the average o f U S $ 6 0 mi l l ion equivalent for the five year project period. Approximately 75% o f these funds are allocated for the Provincial Education Ministries and the Finance Commission, and the balance 25% for the central Ministry o f Education, the Ministry of Finance and Planning and the National Education Commission. From 2008 onwards the funds provided by IDA will be linked to the performance o f the ESDFP. Performance wil l be assessed according to two types of criteria: (a) overall performance o f the ESDFP, and (b) the individual performance o f the different education agencies at the national level and the Provincial Education Ministries. During the early years o f the ESDFP the emphasis o n performance will concentrate on implementation progress, especially in relation to policies, inputs and processes, while during the later years o f the program the assessment o f performance will focus o n outputs, results and outcomes. The review o f performance and the allocation o f ESDP funds based on performance wil l be carried out jo int ly by the Government and IDA, especially at the Annual Review. The performance based budgeting framework i s described in detail in Annex 10 o f this Project Appraisal Document.

The ESDP is a US$60 mi l l ion equivalent grant over the period 2006-2010. In the f i rs t

4. Sustainability

25. Several elements o f the ESDP support sustainability.

I. country. Hence, the education pol icy initiatives and development strategies supported by the ESDP enjoy high priori ty in the overall education development framework o f S r i Lanka.

High priori ty awarded by pol icy makers. The ESDP supports the overall ESDFP o f the

11. The ESDFP has been prepared through nation wide public consultation, school based planning and supporting plans from the central and provincial education agencies. Hence, there i s now strong support for the education development initiatives to be promoted.

Strong national consensus o n pol icy measures to improve basic and secondary education,

111. based on a five year rolling plan. The ESDFP enables pilot testing and evaluation o f complex

9

Flexible promam design. The ESDP supports an ESDFP with a flexible program design

reforms in the in i t ia l years, and provides scope for fine-tuning and on-course updating o f policies in the light o f fresh information and new circumstances. The rol l ing plan o f the ESDFP also provides flexibility to individual education institutions to update and improve development plans and actions annually to respond to new circumstances.

5. Review Arrangements

26. The performance o f the ESDFP wil l be reviewed regularly and IDA wil l provide continuous support to implement the program effectively. The government will organize an annual presentation on the progress o f the ESDFP. A wide range o f stakeholders, including al l education donors, will be invited to this review meeting at which the progress and overall status of the program will be presented. IDA will report on the performance o f the ESDP. Other donors will report on the progress o f their projects and programs. IDA will also maintain continuous dialogue and provide technical advice and implementation support to the ESDFP from the Colombo Office, as wel l as draw on i t s global expertise in other offices to share knowledge on international education trends and good practice from other countries. Also, IDA will assist the country by regularly undertaking education research, in collaboration with the government, on themes and topics considered important for future policy formulation and strategy development in the education sector. These studies wil l be undertaken collaboratively with the government, and the ESDP makes provision to support research and pol icy analysis by key government agencies such as the MOE, MFP, NEC, NIE, the Finance Commission (FC) and PEMs. The studies will cover themes within basic and secondary education, such as analyses o f learning outcomes, public investment in basic and secondary education at central and provincial levels, and incentives and accountability in the education system, as wel l as topics at other levels and types of education, such as tertiary education, technical education, vocational training and sk i l ls development, and early childhood development.

6. Critical Risks and Possible Controversial Aspects

27. support. The f i rst three themes have no controversial aspects. Under the fourth theme the PSI i s strongly supported by education pol icy makers, but aroused controversy among a social group which voiced concern that the powers given to school communities to raise resources would result in the state ceasing to fund public schools. This fear was based o n an incorrect understanding o f the PSI, as funds raised from local communities are to supplement, and not substitute, for public resources. This fact was clarified and accepted at the highest level o f Government, the Cabinet o f Ministers. A second element o f the fourth theme that may be controversial i s the organizational analysis. In other countries where such an analysis has suggested a management re-organization, groups that anticipate a loss o f power have sought to obstruct key changes. The ESDFP seeks to mitigate this risk by aligning the organizational analysis to the overall public sector reform program.

The ESDFP was developed through extensive public consultation, and enjoys wide public

28. The ESDFP i s based o n a flexible rol l ing plan that allows the country to adapt and fine- tune the program in the light o f new circumstances and fresh information. Hence, i t has built-in flexibility to adapt and evolve to address the key r isks identified above.

10

Table 1. Critical Risks and Mitig Risks

~~~ ~

Strengthen education governance and service delivery. The Program for School Improvement may encounter opposition from groups that mistakenly believe that the program wil l eventually lead to a loss o f state support for schools. The recommendations o f the organizational capacity analysis may be resisted by groups fearing a loss o f status or power.

To component results All provinces m a y not be equally effective in implementation, and weaker provinces may lag behind stronger provinces.

Weaknesses in the public sector internal audit system.

Public sector funds f low through many layers and this can result in delays in funds reaching the implementing agencies at the lowest level.

Ling Measures and Risk Rating After Mitiga Risk Mitigation Measures

The government has increased its funds for schools in recent years. The Program for School Improvement circular clearly shows that resources raised by local school communities wil l supplement and not substitute for public sector funds.

The organizational capacity analysis wil l be connected with the overall public sector administrative reform program to ensure that the recommendations o f the analysis are consistent with the national reform Droaam.

The ESDFP explicitly addresses this issue o f weak capacity among some Provincial Education Min is t r ies by incorporating capacity building and human resource development activities into the program. A special value for money audit wil l be carried out periodically by the Auditor General’s Department. The Ministry o f Finance and Planning wil l transfer IDA funds directly to the Ministry o f Education and Provincial Councils from two Special Accounts. Also, close monitoring o f cash flows wil l be undertaken by the Ministry o f Finance and Planning, the Finance Commission and the auditors. The budget structure and accounting and reporting mechanisms facilitate the tracking o f cash inflows and wil l enable the government to take prompt action to resolve any fund f low delavs.

Overall risk rating H - High, S - Substantial, M - Modest, N - Negligible.

7. Project Conditions and Covenants

29. There are no conditions for effectiveness. The covenants are as follows.

Dn Risks after Mitigation M

S

S

M

S

S

0 General implementation. The ESDP wil l be implemented at the Central level by the national Ministry o f Education supported by national level institutions including N E C and NIE. At the Provincial level the Project wil l be implemented by the Ministr ies o f Education in the Provincial Councils supported by the central government agencies including the MOE, NEC, NIE and Finance Commission. The Ministry o f Finance and

11

Planning (in respect o f the overall education budget) and the Finance Commission (in respect o f the provincial education budgets) wil l exercise oversight functions with regard to public expenditures and service delivery in the education system.

The government wi l l maintain a Steering Committee, chaired by the Secretary, Ministry o f Education, with representation from the Ministr ies o f Education in the Provincial Councils, the Ministry o f Finance and Planning, the Finance Commission and the National Education Commission. The IDA will be invited to provide a representative to attend a l l meetings o f the Steering Committee.

0

0 Basic and secondaw education budget covenant. The Ministry o f Finance and Planning and the Finance Commission, on behalf o f the Government, wil l maintain public expenditure on basic and secondary education to at least the baseline level o f expenditure in 2004 in real terms. The Government wil l maintain key demand side incentives in public schools, in particular tuition free education and the free textbook program, to promote school attendance and quality. The Ministry o f Finance and Planning and the Finance Commission wil l introduce by no later than January 1 , 2008 a component o f performance based funding for Provincial Education Min is t r ies and Central Education Agencies, to act as an incentive and reward mechanism for provinces and agencies that show good progress over time on implementation, results, policies and outcomes.

0 Annual updating of the ESDFP rol l ing plan. The Ministry o f Education, the Finance Commission and each Provincial Education Ministry will submit their respective draft Annual ESDFP rol l ing plans annually to IDA for comments by M a y 15 o f each year. The Ministry o f Education in consultation with the Ministry o f Finance and Planning, the Finance Commission and the Provincial Education Ministries wil l also submit the draft o f the overall ESDFP rol l ing plan annually to IDA for comments by September 15 o f each year.

0 Monitoring and evaluation, and the mid-term review. The Ministry o f Education, the Provincial Education Ministr ies through the Finance Commission, the Ministry o f Finance and Planning, and the National Education Commission, wil l carry out an annual review o f the ESDFP and the ESDP providing evidence o f progress in accordance with the Annual Implementation Plan or o n performance and monitoring indicators agreed with IDA. In addition, these agencies will undertake monitoring, evaluation, research and studies, on relevant education topics and themes, in accordance with their obligations under the relevant Annual Roll ing Plan and at other times as agreed with IDA. A mid- term review o f the ESD Project wil l be conducted prior to December 31,2008 or such later date to be agreed with IDA.

0 Financial covenant. The Ministry o f Education, and the Provincial Education Ministries under the oversight o f the Finance Commission, will ensure that: (a) satisfactory financial management arrangements including financial records are maintained; (b) six monthly financial management reports are submitted to the IDA no later than 45 days following the end o f the reporting period; and (c) audit reports are made available within six months after the end o f the government fiscal year.

0 The Finance Commission wil l appoint within thirty days from effectiveness o f the Project and retain throughout project implementation a financial management specialist

12

as part o f the overall strengthening o f the Finance Commission to monitor the performance o f the provinces.

Male Workers

Education Social Rates o f Private Rates o f Level Return (%) Return (%)

0 Environmental and social covenant. The Ministry o f Education and the Provincial Education Ministr ies will implement, in a manner satisfactory to IDA, the environmental and social assessment framework prepared for the Project.

Female Workers

Social Rates o f Return (%) Return (%)

Private Rates o f

D. APPRAISAL SUMMARY

Secondary

1. Economic and Financial Analysis

20 25 18 22

30. The ESDP has the potential to make a powerful contribution to economic and human development o f the country. About 4 mi l l ion children (1 00 percent o f enrolment in basic and secondary education), both boys and girls, and children from all ethnic groups and religious communities, wi l l benefit from the ESDP investments. The ESDP i s strongly equity orientated, assisting country initiatives to attract poor out-of-school children in the compulsory basic education age range (6-14) years to participate in the education system.

Tertiary 11 26 10 24

Low Case Scenario

Net Present Value, US$mil l ion 315 Internal Rate o f Return (%) 14

Middle Case High Case Scenario Scenario

527 79 1 24 34

Source: Wor ld Bank, Education Sector Report (2005).

3 1. Sr i Lanka. These education levels yield the highest rates o f return to education investment [see Table 21. Among men, social returns to education are largest in secondary education (20 percent), followed by basic education (15 percent). Among women, social returns to education are largest in basic education (20 percent), followed by secondary education (1 8 percent). These findings show that the ESDP i s investing resources in the education grade cycles that yield the highest economic and social benefits to the country.

The ESDP supports initiatives to develop the basic and secondary education system in

~

Note: the net present value has been calculated assuming a discount rate o f 15 percent. All other assumptions underlying the calculations in Table 2 above are reported in Annex 9.

32. the different scenarios given in Table 3, the net present value o f the ESDP varies between US$3 15 mi l l ion and US$791 mil l ion. Similarly, the internal rate o f return ranges between 14 percent and 34 percent. Under the middle case scenario, the ESDP yields an net present value o f

13

A cost-benefit analysis shows that the ESDP yields substantial economic benefits. Under

US$527 mi l l ion and an internal rate o f return o f 24 percent. These represent high economic returns. Overall, under al l scenarios, the ESDP yields substantial economic benefits.

Education budget net o f the ESDP Education budget gross o f the ESDP Share o f ESDP in the education budget (%) Share o f the ESDP in the capital education budget (o / )

Fiscal sustainability

2006 2007 2008 2009 2010 62,032 66,549 70,057 76,009 82,089 63,152 67,769 71,257 77,029 83,289 ~

1.9 1.8 1.7 1.6 1.4 12 11 10 9 8

33. The ESDP will add US$60 mi l l ion equivalent over the project period at an average o f US$12 mi l l ion equivalent per year. These allocations are only about 2 percent o f total annual education expenditure in the f i rst year. The Project funds have a stronger fiscal impact on the capital education budget, as they represent about 8-12 percent o f capital education expenditure. Overall, the contribution o f the ESDP to the education budget i s small, declining to 1.4 percent in 2010, so that fiscal sustainability wi l l be relatively easy for Sri Lanka.

2. Technical

34. The foundation o f the ESDP i s the comprehensive analysis o f the S r i Lankan education sector contained in the World Bank Education Sector Report, 2005. The design o f the ESDP i s also based on lessons learned from IDA sector wide education credits in other countries, such as Bangladesh, India, Nepal, Ghana and Morocco, and the experience o f past IDA education interventions in Sri Lanka. The various ESDP themes are based on the modem international education literature. The f i rst theme adopts a combination o f demand and supply side measures to attract and retain children within the education system, as seen in the Education for All and Millenium Development Goal plans o f several countries in South Asia, East Asia and Sub- Saharan Africa. Theme two draws on the lessons o f a wide range o f education programs around the world and seeks to forge synergy between the development initiatives o f the curriculum system, the teacher system and the examination system. Theme three draws on the experience o f countries in South Asia and Afr ica that have already developed medium-term budget frameworks and public expenditure tracking systems. The fourth theme follows the framework o f the World Development Report 2004. The four themes are also inter-linked and mutually supportive, so that the impact o f the overall ESDFP promises to be greater than the sum o f i t s individual components.

3. Fiduciary

Financial Management

35. The ESDP will rely on the public sector’s own financial management systems. A financial management assessment was carried out in the Ministry o f Education and four provinces. The review focused o n the existing public sector financial management systems, and covered aspects such as budgeting, budget allocation and virement procedures, accounting policies and procedures, find f low arrangements, staffing, financial reporting, internal controls

14

and audit arrangements. The assessment showed that reliance can be placed on the public sector ‘s arrangements for accounting and reporting on the program expenditure and for assurance that funds are used for intended purposes, with certain mitigation measures to reduce the r i sks identified in funds flow, financial reporting and audit assurance.

36. The ESDP will have two Special Dollar Accounts, one for the Minsitry o f Education and the other for the Provincial Councils. Both Special Dollar Accounts wil l be administered by the Department o f Treasury Operations in the Ministry o f Finance and Planning . The ESDP wil l be eligible for financing al l budgeted expenditures except: (a) salaries o f public sector officials; (b) school uniforms; (c) land acquisition; (d) higher education; and (d) counterpart funds for other donor programs.

37. sector reporting formats. All Provincial Education Min is t r ies and the Ministry o f Education wil l submit monthly financial reports (summary o f expenditure, sources o f income etc.) to the Department o f Treasury Operations. The Department o f Treasury Operations (for the national agencies) and the Finance Commission (for the Provincial Councils) wil l consolidate the individual reports and submit two financial reports to IDA once in six months. The Finance Commission i s being strengthened with technical assistance in financial management to implement i t s function o f monitoring the Provincial Councils effectively.

Financial reporting for the proposed program will fol low the normal existing public

38. Councils. The Auditor General has consented to provide an audit opinion on the financial statements o f the program (statement o f sources and uses o f funds) for a l l Provincial Councils and the Central level institutions within 6 months o f the close o f the financial year. A consolidated report with key observations and summary o f disallowances would be prepared by the Finance Commission for Provincial Councils and forwarded to IDA. The Auditor General will also conduct a performance audit prior to the mid-term review o f the ESDP.

The Auditor General conducts an annual external audit at the center and in al l Provincial

Procurement

39. textbooks, equipment and consultant services, wi l l be conducted fol lowing public sector procurement rules and procedures, except for I C B contracts where applicable.

All procurement activities related to the project, including procurement o f c iv i l works,

40. An Education Sector Procurement Capacity Assessment Review (ESPCAR) was undertaken as part o f project preparation. The main conclusions o f the review were: (a) the current public sector framework i s satisfactory and can be adopted for procurement under the ESDP ; (b) the nationally adopted c iv i l works procurement procedures using nationally registered contractors, and standard bidding documents and conditions o f contract, a l l developed by the Institute for Construction, Training and Development, are being effectively adopted across the education sector, by both central and provincial entities; and (c) the public sector procurement framework i s adequate for the S WAp.

4 1. implementation capacity o f the public sector i s generally acceptable for procurement under the ESDP. The government would continue to take necessary actions, during implementation, to strengthen the procurement capacity o f central and provincial education institutions to handle procurement under the ESDP.

Based on the findings o f the ESPCAR, IDA concurs that the procurement

15

42. procedures. Also, an independent procurement audit o f a sample o f contracts f rom al l implementing agencies, selected on a random basis, wi l l be conducted annually. The procurement procedures adopted for c iv i l works, goods and consultancy services will be reviewed by the consultant to ensure that al l arrangements, works, purchase orders, invoices, receipts, stock registers etc., are properly maintained, duly linked and retained. Discrepancies noted wil l be reported and remedial measures taken.

Contract post-reviews wil l be conducted in accordance with public sector systems and

4. Safeguard Policies

Environment and Social Environment Category: B

43. environmental and social impacts are not anticipated. The only activities that may result in some environmental impacts are the possibility o f construction o f new school buildings and renovation o f existing school buildings and associated facilities. W h i l e most construction wi l l be on present school lands, the Tsunami has created a need for new school construction to replace schools destroyed within the “no development” coastal buffer zone. Land acquisition will not be financed under the Project. The need for involuntary resettlement or land acquisition in specific subproject areas will only be known during implementation, when site-specific plans are available. There i s agreement that no new construction wil l be allowed in environmentally sensitive areas such as wetlands, marshes or forests.

Considering the scope o f the ESDP, activities with the potential for significant

44. Management Plan wil l be prepared for each school where construction or renovation activities wil l occur, according to the project’s Environmental and Social Screening Assessment Framework (ESSAF). The ESSAF, which has been publicly disclosed, will guide site selection, relevant sub-proj ect design and mitigation measures during program implementation. The ESSAF i s consistent with the relevant World Bank Safeguard Policies as we l l as the National Environmental Act and associated regulations and the requirements o f the National Involuntary Resettlement Policy. Compliance with environmental safeguards is monitored by the Central Environmental Authority, which has staff located in every Divisional Secretariat in the country. Project design and sub-proj ect selection wil l maintain regional balance and equity among ethnic and religious groups. Employment in projects wil l be based only o n professional competence.

Exact locations o f new school buildings are unknown at this stage, so an Environmental

5. Policy Exceptions and Readiness N o pol icy exceptions are sought. This project complies with al l applicable IDA policies.

16

Annex 1: Country and Sector or Program Background

Uva S abaragamuw a S r i Lanka

Introduction

2,570 37 91 86 2,894 3 3 94 89 3,969 23 95 91

Sri Lanka i s a developing country with a per capita income o f $1,030 per person. The economy has been expanding at a trend growth rate o f about 4.5 percent per annum over the past ten years. The economic progress o f the country has been the result o f liberal, market oriented development policies which have enabled private sector led growth of, especially, the industrial and service sectors. The country’s pol icy i s to increase economic growth through further integration o f the economy with the global market, investment in human capital, sound management o f publ ic enterprises, and the reduction o f infrastructure bottlenecks, particularly in roads and power. Sri Lanka has also identified key areas to drive future economic growth. These include financial services such as banking and insurance, communications, information technology, port services, and tourism and leisure services. Rapid expansion o f these key economic activities wil l sharply increase the demand for educated and skilled human resources in the future.

About 23 percent o f the Sr i Lankan population l ives below the poverty line. The time trend o f poverty has been uneven, with the incidence o f poverty at 26 percent in 1990/9 1, rising to 29 percent in 1995196 and falling to 23 percent in 2002. There are also high regional variations in poverty. In urban areas, the incidence o f poverty is only 8 percent. However, in rural and estate areas the poverty incidence i s 25 percent and 30 percent respectively. Inter- province variations in poverty are large. The conflict affected Nor th Eastern Province i s generally considered one o f the poorest regions o f the country. Other poor provinces are U v a with a poverty incidence o f 37 percent, and Sabaragamuwa where 33 percent o f the population lives below the poverty line. The incidence o f poverty in the wealthy Western Province, in contrast, i s only 11 percent. Generally, regions that have grown fast, such as the Western Province, have experienced sharp decreases in poverty, while regions that have grown slowly have experienced l i t t le or no decline in poverty. The national strategy to reduce poverty i s to broad base growth to lagging regions, especially by decreasing infrastructure bottlenecks to investment and market integration; ensure minimum living standards for the poor through a safety net program; and improve human development levels in rural, estate and poor urban areas.

During the 1980s and 1990s a conflict in the North Eastern Province constrained the development o f the country, but a ceasefire between the government and the secessionist forces has largely held since 2001. As a result o f the ceasefire, the integration o f the North-Eastern Province with the rest of the country has improved. The main road to Jaffna in the far North has been re-opened. Damaged schools and health centers have been repaired or are being repaired, and the housing stock i s being reconstructed, with the assistance o f development partners including IDA. Around 20,000 school drop-outs in the North Eastern Province have returned to school. Economic activities in the region have also increased substantially. National pol icy to strengthen the ceasefire and eventually establish a settled peace include poli t ical negotiations, devolution o f political power to the region, rehabilitation and reconstruction o f damaged infrastructure, and the promotion o f human development in the conflict affected areas. The country has also introduced measures within the education system to improve inter-cultural understanding, respect for diversity and social cohesion. These measures include opening Amity Schools, in which children from different ethnic and religious groups study together; the second national language program, through which Sinhalese medium children learn Tami l and Tamil medium children learn Sinhalese as a second language; textbook review panels which scrutinize and seek to eliminate ethnic and religious bias from textbooks; and the promotion o f English language to act as a common medium o f communication between al l ethnic groups.

The Tsunami ocean waves that swept over the coastal areas o f the country in late December 2004 damaged about 168 schools, and disrupted the education o f around 80,000 students. Generous pledges of support for education reconstruction were received from a large number o f private and community based organizations, as well as bilateral donors. All damaged schools are being reconstructed with these funds. In addition IDA, through the Tsunami Emergency Recovery Program, has made provision to assist the reconstruction o f Tsunami affected schools if any funding shortfalls arise.

Sri Lanka has about 4 mi l l ion school children enrolled in approximately 9,800 public schools and 300 private and international schools, a net primary enrolment rate o f 96 percent among both boys and girls, and a net primary completion rate o f 95 percent for both sexes. Investment in education i s at the heart o f the development strategy o f the country, and an intense focus o f public pol icy [NEC, 2003; World Bunk, 20051. The f i rst key objective o f the budget circular o f the Ministry of Finance and Planning i s “investing in people to build a productive and efficient human resource base with knowledge and sk i l ls in their respective fields o f employment”.

18

Province Number o f Number o f Number o f Schools Students Teachers

Source: Wor ld Bank, Treasures o f the Education System in Sri Lanka, 2005.

Average Student Teacher School Size Ratio

Access to Education

S r i Lanka has successfully overcome the first-generation challenge o f providing universal access to primary (grades 1-5) education. The country now needs to rise to the second- generation challenges o f expanding equitable access to post-primary schooling and establishing a high quality education system. The country has adopted a pol icy to make schooling compulsory for a l l children aged 6-14 years in the basic education cycle (grades 1-9). N e t enrolment and survival rates in the basic education cycle, grades 6-9, are only at 8 1 percent and 78 percent, respectively. These rates need to be raised substantially to achieve the target o f universal enrolment and completion o f basic education. Many geographical regions o f the country, especially in rural and estate areas, also lack adequate school facilities to provide access to GCE A/L (grades 12-13) science and technology education. School completers in GCE A/L science and technology enjoy superior labor market opportunities and better higher education prospects than students with arts and commerce qualifications. Hence, expanding the network o f schools with facilities for GCE A/L science and technology education i s important to increase equitable access to secondary education among geographical regions and to improve the external efficiency o f the education system.

Education Quality

The quality o f the education system needs to be strengthened. Learning outcomes are considered to be unsatisfactory by pol icy makers. Cognitive achievement tests among primary school children show substantial shortfalls in mastery o f fundamental language and numeracy skil ls. In f i rst language (Sinhalese and Tamil), at the end o f Grade 4, average mastery i s only 37%. In mathematics achievement too, overall mastery is only 38%. English language sk i l ls are extremely low, with just 10% o f primary children achieving the targeted level o f mastery. In addition to these l ow overall achievement levels, there are also significant disparities in achievement between urban and rural areas. First language (Sinhalese or Tamil) mastery in urban areas i s 5 1%, but falls to 34% in rural areas. In mathematics, 52% o f urban children attain mastery, while just 35% o f rural children achieve the required level o f competence. In English language ski l ls, 23% of urban children achieve mastery, but in rural areas only 7% o f children reach mastery.

19

Province

Western

Proportion o f Proportion o f students Proportion o f students students achieving achieving mastery o f achieving mastery o f mastery o f their f i rst mathematics the English language language (Sinhalese or Tamil)

(%I (%I (%I 51 52 20

Central Southern Nor th Eastern North Western

Average learning achievements in the primary education cycle also show high regional variations. The proportion o f primary students attaining mastery o f their f i rst language, Sinhalese or Tamil, varies f rom 23% in the North Eastern Province to 51% in the Western Province. Similarly, mastery o f primary mathematics ranges from 25% in the North Eastern Province to 52% in the Western Province, and mastery of English language competencies varies from 5% in the North Eastern Province to 20% in the Western Province. The Central, U v a and Nor th Central Provinces, too, tend to perform poorly on language and mathematics scores. Improving cognitive achievement levels i s an important pol icy objective for the country.

34 33 8 43 44 13 23 25 5 42 43 9

The unsatisfactory state o f education quality is also evident at the level o f secondary education. The proportion of students passing the GCE O/L i s low, only about 37%, implying that about two out o f every three students taking the examination fails. Further, this l o w pass rate has been fair ly constant over the period 1998-2002. A substantial majority o f students appear to struggle with subjects such as mathematics, English language, science and social studies. At the GCE A/L examination, too, pass rates have been around the 50-55 percent level since 1998 over the 1998-2002 period.. This implies that only about one out o f every two students actually passes the GCE A/L examination. These are l ow pass rates at the GCE O/L and GCE A/L examinations, especially since successful completion o f these examinations is necessary for a variety o f sk i l ls training courses or access to tertiary education programs, or for entrance into a range o f labor market occupations.

Nor th Central U v a S abaragamuva S r i Lanka

In addition to the problem o f poor education quality as measured by l o w learning achievements and high examination failure rates, pol icy makers and employers have argued that other, non-cognitive dimensions o f education quality are also unsatisfactory and need urgent improvement [NEC, 20031. Education pol icy makers have stressed the importance o f producing characteristics such as a disciplined work ethic, good team work, creativity and initiative, a problem solving approach, effective communication, good leadership, flexibility, adaptability, initiative, drive and civic consciousness through the education system [NEC, 2003; Wodd Bank, 200.51.

36 41 8 34 35 8 40 43 10 37 38 10

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The country has produced a comprehensive Education Sector Development Framework and Program (ESDFP), containing a wide array o f pol icy initiatives, to improve the quality o f the school system.

I. Restructuring and Upmading the School Curriculum. The objective o f this pol icy initiative i s to introduce a curriculum approach that better reflects modern international trends in curriculum practice, effectively disseminate curriculum goals, values and aims to stakeholders, and provide strong implementation support for curriculum reforms to schools. The curriculum reform program wil l pay attention to subject content as concepts, rules, and principles, meta-cognitive and self-regulating sk i l ls involving planning and monitoring, and non-cognitive factors such as motivation and perceived self-effi cienc y.

11. Developing the Teacher System. The objective o f the teacher development initiative i s to enhance teacher motivation, sk i l l s and performance. Teacher development i s a broader and higher level concept than just teacher education and training, which are sub-sets o f teacher development, and include such factors as professional career paths, performance standards, and remuneration, rewards and incentives for teachers. A key feature o f teacher development wil l be a system o f regular and continuing on-site school based support to teachers. A wide range o f human resources, including in-service advisors, teacher educators, university academics, principals and teachers wil l be available within the school based teacher development system. This system will be managed and administered chiefly by provinces, under pol icy guidelines, norms and standards set by the Ministry o f Education. School based on-site teacher development wil l be the main and normal mode through which the sk i l ls and motivation o f teachers will be enhanced, on a recurring and regular basis, to attain and maintain a high standard o f teacher performance.

111. Modernizing the Examination and Testing System. The ESDFP seeks to use the examination system as the steering wheel to promote the acquisition o f higher-order transferable skills, defined in terms o f complex processes such as analysis, understanding, creativity, association, synthesis, application, conceptualization and problem solving, in the school system. Several key strategies have been selected to achieve this objective. These include: (a) combining the national examinations at grade 11 (the GCE OIL) and grade 13 (the GCE NL) with school based assessment (SBA) from grades 6-13, to exploit the advantages o f both types o f examinations; (b) designing examination test items to assess higher-order transferable skil ls; (c) preparing, publishing and disseminating examination guidelines, init ial ly for the GCE O/L examination and later for the GCE A/L examination, which wil l clearly specify the expected learning competencies and attainment levels at each grade cycle; and (d) strengthening the research, evaluation and strategically purposeful data generation capacity o f the Department o f Examinations.

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Public Investment in Education

Table 1.4 Education Expenditure as a Share o f National Income and Government Expenditures,

Recurrent Expend per Student as a Proportion o f National Income

Sr i L a n k a and Selected Countries, circa 2002.

National Government Income Expenditure

Average Teacher Salaries as a Proportion o f National Income per capita

Sri Lanka India 12.7

per capita ( %I (%I

9.7 16.3

1.5 3 .O

Pakistan Nepal

1 LOW Income I

1.8 7.8 3.7 14.1

3.2 I

Maldives Bhutan Thailand South Korea

Countries Lower Middle Income Countries Upper Middle

3.9 11.2 5.2 12.9 5.4 31.0 3.8 17.4

I I r i iome Countries I Sources: Wor ld Development Indicators (Wor ld Bank), UNESCO s

25.3 3.1 4.1

Singapore Phillipines Costa Rica South Asia

3.7 23.6 4.2 20.6 4.4 22.8 3.2 11.2

I 3.3 I

14.5

14.5 20.7

2.8

16.3 I 18.5

23.0

tistics (various years) and Sri Lanka, Budget Documents and Central Bank o f Ceylon Annual Reports, various years.

Public expenditure on education in 2005 amounts to about US$ 570 mil l ion. In recent years, the education budget has accounted for approximately 3% o f national income and 7%-9% of public sector spending. This represents a comparatively modest level o f publ ic education investment by developing country standards [Table 1.41. Sri Lanka devotes one o f the lowest shares o f the public budget to education among East Asian and South Asian countries [Figure 1.11. The lower middle-income countries, to which S r i Lanka i s expected to belong in the near future, allocate about 4% o f their national income to public education.

Countries such as South Korea, Malaysia, Thailand and Singapore allocate 18%-3 1 % o f government expenditures to education. South Asian countries and low income nations allocate, on average, about 3.2% o f national income and 1 1 % o f government expenditures to education. Further, only Pakistan and Bangladesh spend a lower proportion o f national income o n public education [Figure 1.11.

22

Malaysia Thailand Bhutan Costa Rica Phillip India Maldives s K~~~~ ~~~~l Sinoa Sri Lanka Bang1 Pakistan

The reasons for the relatively modest level o f public education investment in Sri Lanka in recent years were: (a) the broad range o f public services, such as universal free health care and wide-ranging access to poverty oriented safety nets, such as the Samurdhi program, which are generally not available in most other developing countries, and compete for public sector resources; (b) high defense expenditure, which absorbed over 5% o f GDP and crowded out other investments until the recent ceasefire; (c) l ow public sector revenue, which contributed to large budget deficits and constrained government expenditures; (d) comparatively l o w teacher salaries, with Sri Lankan teachers receiving salaries about ha l f or less, as a proportion o f national income per capita, than teachers in countries such as India, Bangladesh, Malaysia, Thailand and South Korea; and (e) the large school construction programs o f the 1950s and I960s, which means that the basic class room stock i s now largely in place.

Time trend o f public education expenditure

The recent trend o f education expenditure shows considerable fluctuai on in real terms [Table 1 SI. Overall, public education spending per student declined in 2002 by about 4 percent in comparison to the level in 2001. Further, both recurrent and capital spending per student decreased between 2001 and 2002. However, expenditure per student increased sharply in 2000 and 2001 in relation to the levels in 1998 and 1999. As such, the level o f expenditure in 2002 was above the spending levels in 1998-99, despite the decline relative to 200 1. The decline in expenditure per student in 2002 can partly be attributed to the fiscal difficulties o f the period, which forced a tight budgetary policy. Such major fluctuations within a short span o f time make it difficult for education policy makers, managers and administrators to develop long-term investment decisions and plans.

23

Source: Ministry o f Finance, Central Bank, and School Census Statistics various issues.

Recurrent education budget

In 2003, the recurrent expenditure accounted for about 86% o f the total central and provincial education budget. The main component o f recurrent expenditure (86%) i s salaries and wages. The major share o f the salary bil l i s on teacher salaries, followed by the salaries o f principals, education administrators and other grades. After salaries, the next highest shares of recurrent spending are on textbooks (6%) and school uniforms (3%). The balance i s mainly used for administrative and operating costs. The main challenge faced by the recurrent budget i s to allocate sufficient funds, once salaries and administrative costs have been met, to support quality processes, such as professional development o f teachers and principals and delivery o f on-site academic and administrative support to schools, and meet the operating costs o f capital education investment.

Capital education budget

The tight budget constraint in recent years has fallen especially heavily on the capital budget. The education capital budget declined steeply from 5% o f public sector capital spending in 1999 to 2.5% in 2002. In terms o f shares o f the education budget, the capital budget decreased from about 20% in 1998-2000 to 16% in 2001-02 [Figure 1.21. This fa l l in capital investment constrained expansion and development o f the education system. In particular, i t restricted investment, in physical facilities to expand and increase urban schools; to supply basic services to rural schools; and in quality inputs. As a result, a high proportion o f investment expenditure has been financed through donor hnded projects. In 2003, donor programs reached 86% o f the capital budget.

24

Figure 1.2: Shares of Capital and Recurrent Education Budget, 1998-2002

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Capital Recurrent

The main share o f capital expenditure in the school system i s o n construction and maintenance activities (75%). A very small proportion o f resources, about 6%, are invested in quality inputs, such as equipment, technology, furniture and tools. The classroom construction activities in the school system also appear ad hoc, without sound planning based o n enrolment needs. In consequence, many rural schools carry excess capacity with empty classrooms, while urban schools are heavily congested and over-crowded. The main challenges facing the capital budget are to rationalize construction activities in the school system, allocate greater resources expanding and increasing urban schools, and devote more funds to high level quality inputs, such as IT centers, science laboratories, libraries, activity rooms, equipment and technology.

D

Sources o f public education financing

The central government finances the major share o f education expenditure in the country, accounting for about 65% o f total public and private education investment [Figure 1.31. Slightly more than hal f o f these resources, about 53%, are spent directly by central government education institutions. The balance, about 47%, i s awarded as grants to the Provincial Councils. After the central government, households finance the second highest share o f education investment, about 21%. This i s followed by Provincial Councils through own revenues, 8%, and donor funds, 6%. Assistance from IDA, JBIC and the Asian Development Bank constitute the main sources o f donor funds. JICA and United Nations (UN) institutions such as UNICEF, and countries such as the U.K., Germany and Sweden are also important sources o f grant aid. Among donors, IDA dominates the education sector, accounting for over 70 percent o f a l l foreign assistance to education over the past 15 years. Within Sr i Lanka, the general understanding among donors is that ADB and Japan will take the lead in physical infrastructure, such as highways and power, and that the World Bank will act as the lead donor in human development.

Increasing; the education budget over time

The wide-ranging education development program o f the country will clearly need strong public investment in basic and secondary education. The government recognizes this fact, and has increased the education budget in recent years, raising it from U S D 4 15 m i l l i on in 2002 to USD 570 mi l l ion in 2005. However, the government also currently experiences an overall budget deficit o f about 10 percent o f national income, and the ability o f the government to invest

25

in education, especially for non- salary resources, i s severely constrained by the poor macroeconomic fiscal situation. The proposed IDA funded ESDP will play an important role in enabling the government to fund the quality elements o f the national Education Sector Development Framework and Program.

Figure 1.3: Shares of Education Financing by Source, 2002

Provincial 8% Councils

Central Government

65%

Strengthening Governance and Service Delivery

Development initiatives and strategies to widen education access to the poorest and most disadvantaged economic groups and improve education quality and learning outcomes requires strengthening the efficiency and quality o f service delivery within the education system. National strategy to improve service delivery contains several promising elements.

Empowering frontline service delivery institutions, such as schools

A key pol icy initiative i s to devolve managerial power to frontline service delivery institutions, such as schools. In the school system, the aim o f devolving managerial authority i s to empower principals, headmasters and headmistresses, and teachers; enable schools to forge l i n k s with local communities to improve resource mobilization and public accountability; and improve the speed and sensitivity o f decision making by decreasing administrative layers. In devolving managerial autonomy to schools, different models o f school based management will first be pi lot tested, as the governance capacity o f schools varies significantly, depending on such factors as location, size and history. For instance, the main public schools in cities and towns are l ikely to possess vastly greater managerial capabilities and sophisticated community support than small rural schools in remote villages.

Streamlining roles, responsibilities and accountability within the education svstem

The decentralization measures suggested to improve education service delivery require government officials in the central ministry, Provincial Councils and zonal offices to assume new and additional roles and responsibilities, while devolving some o f their current powers to frontline service delivery institutions, such as schools, national colleges o f education and teacher centers. During this process o f decentralization and empowerment o f local institutions, the current pattern o f responsibility and accountability and the future models required need to be analyzed carefully.

26

Human resource development o f central, provincial and zonal education authorities

The complex system o f education governance, with multiple tiers o f administration at the central, provincial and zonal levels, requires a wide range o f administrative, technical and operational skills and competencies from staff working at each tier. An overall human resource strategy needs to be developed and implemented, across the different tiers o f the education system, to equip central, provincial and zonal education staff with the necessary administrative, technical and operational sk i l ls and competencies. In addition, this strategy needs to provide for regular and continuous updating o f ski l ls and competencies as technical and operational sk i l ls advance and develop.

Organizational strengthening o f central, provincial and zonal education authorities

Strengthening the operational procedures, capabilities and performance o f central, provincial and zonal education authorities can contribute significantly to the quality and efficiency o f education planning, administration and service delivery in the future. In particular, the administrative processes in central, provincial and zonal offices tend to be long and cumbersome, resulting in considerable delays in operational activities. One major reason for these delays are the use o f outdated manual systems for important administrative tasks, including correspondence, filing, record keeping and inventory control. Developing computerized operating systems for normal and routine administrative tasks would substantially increase the efficiency o f government operations. Overall, the government proposes to undertake an organizational assessment o f the entire basic and secondary education system over the f i rst two years o f the ESDFP. Based on the findings o f the organizational assessment, the government wil l undertake organizational capacity building at the various tiers o f the education system.

27

Annex 2: Major Related Projects Financed by IDA and/or Other Agencies

Effectiveness - Closing Date Amount Partners 19/04/1990

31/12/1996 US$49 mi l l ion 29/03/1998 18/11/2005 US$70.3

2.1 ADB, BMZ, DFID, JBIC, JICA, SIDA and UNICEF have also financed basic education projects. These efforts have resulted in a partnership in the international community in support o f the government’s effort to expand access, improve retention and education quality, and enhance management capacity at al l levels.

The f i rst IDA-financed primary education project was approved in December 1989.

Project Name

Second General Education Project

Sector Latest Supervision And Completion Ratings

Primary Education

OED Ratings

Primary Education

Secondary Education

million. 27/08/1996

Tertiary Education

Teacher

Sector Secondary Education

Secondary Education

Secondary Education

10/3 1/2005 US$64.1 mil l ion. 25/08/2003 12/3 1/2009 US$40.3

Education and Teacher Deployment Improving Relevance and Quality o f

million. Undergraduate Education

Agencies Japan Bank for International Cooperation (JBIC) Asian Development Bank (ADB)

Project Name Description Small Scale Infra-structure Rehabilitation and Upgrading Project (SIRUP) Yen 4,224 million 2003 - 2007 development sectors. Secondary Education Modernization Project (SEMP 1)

US$50 million

The project wi l l provide access to the less privileged segment o f the population to basic infrastructure in education, healthcare and rural

The project aims to improve the quality o f secondary school education to raise the national examination results for about 1

(Bank Financed Implementation Progress S

Asian

S

MS

2001 - 2006 Secondary Education

mi l l ion grades 10- 13 students The project aims to modernize the

S

Development Bank (ADB)

I

M S

Modernization Project (SEMP 11) U S 3 5 million

secondary school system to prepare the young to compete in the modem global economy.

2005 - 2010

Other Development Agencies

Sector HR and Vocational Training

Secondary School Enrolment

Education and Vocational Training

Primary and Secondary Education

Agencies Asian Development Bank (ADB)

Asian Development Bank (ADB)

Swedish International Development Agency (SIDA)

UNICEF

Project Name Skills Development US$18.8 million 2000 - 2006

Distance Education Modernization US$45 million

Rehabilitation and Implementation of Education Reforms in Plantation Schools SEK 45 million

Rehabilitation and reconstruction o f schools damaged by the Tsunami.

2003 - 2009

2004-2008

Improvement o f Education quality through establishment o f Child Friendly Concepts.

Improvement o f Education Access through continuation o f Catch Up Ed (CUE) and N o n Formal Ed (WE) initiatives.

Coordination and support o f key efforts o f M O E towards EFN MDG.

Total Program Cost US$35 million 2005 - 2006

~

Description The project aims to improve the quality and relevance o f sk i l ls training programs to build a high quality workforce through the restructuring and reorienting o f the vocational training systems by introducing competency-based training. The project aims to increase opportunities for A-level completers to gain admission to higher education training. The project aims to uplifl educational standards o f the plantation community to national levels.

Restoration o f targeted Tsunami affected schools.

50% o f primary school going children attain mastery level in Essential Learning Competencies (ELC) in program focus communi ties.

50% o f non-school going 5-14 year old children regularly attend schools in focus communities.

Provide technical support focusing o n priori ty areas for education as identified by the National Plan o f Act ion (MA)/ SWAP initiatives.

29

Sector Primary and

Agencies Project Name Description GTZ Education for To promote social cohesion and

30

Secondary Education

Social Cohesion Euro 7 million, through education.

strengthen disaster r isk management

2006 - 2010

Annex 3a: Results Framework and Monitoring

The ESDFP has a strong focus on the monitoring and evaluation o f resul ts and outcomes. From 2006 onwards the government budget wil l allocate resources for monitoring, evaluation, pol icy research and analysis. The monitoring and evaluation activities wil l focus o n program inputs, processes, outputs, results and outcomes. The monitoring activities will be undertaken mainly by government education agencies, such as the Ministry o f Education, the Finance Commission, Provincial Councils and the National Institute o f Education (NIE). Evaluation activities will generally be contracted out to independent research agencies, such as the National Education Research and Evaluation Center (NEREC) and private consulting firms. Pol icy research wil l be undertaken mainly with the assistance o f specialized research agencies, such as universities, research centers (including NEREC) and research institutes (including the NIE).

Baseline information on several key outcome indicators, including school enrolment rates, grade cycle completion rates and learning achievements, already exist. The Education Management Information System (EMIS) o f the Ministry o f Education and Provincial Education Authorities provide a wealth o f information that can be used to monitor and evaluate outputs, results and outcomes at national and provincial levels. Regular national assessments o f learning outcomes at the basic education and secondary education cycles wil l be conducted as part o f the ESDFP. Activities that are to be pi lot tested in selected zones or provinces pr ior to scaling up, such as the balanced control model o f school based management, wil l be evaluated using scientific techniques such as randomized trials. Key policy actions to improve education quality, such as the initiatives in teacher development, wil l also be studied regularly. Participatory methods, such as citizen report cards and community score cards, wil l be used to assess measures designed to evaluate initiatives intended to improve the quality o f service delivery such as organizational strengthening o f provincial and zonal education offices.

The monitoring and evaluation system wil l focus on both performance indicators and monitoring indicators. Performance indicators will be used to fol low the progress o f the education system in terms o f outcomes such as school enrolment and completion, cognitive achievements, budgetary allocations to promote competencies and skills that enjoy high economic returns, and stakeholder satisfaction levels. Monitoring indicators will be used to follow the implementation o f critical development measures and steps to achieve overall ESDFP outcomes. These wil l be linked to actions and activities that introduce new initiatives or can have significant long-term impact on the development o f the education system, such as the introduction o f the balanced control model o f school based management and the modernization of the examination system. The detailed results framework o f the ESDFP, summarized below, outlines both the monitoring and performance indicators, with the monitoring indicators emphasized in the early years o f the program and the performance indicators highlighted in the later years o f the program.

31

Project Development Objectives Enhance equitable access, quality, economic efficiency and service delivery in basic and secondary education to benefit al l children in the country.

Intermediate Results Theme One: Increase Equitable Access to Basic and Secondary Education. The education system i s able to attract and retain al l children aged 6- 14 years and widen opportunities for secondary education. Intermediate Results Theme Two: Improve the Quality of Basic and Secondary Education. Schools become increasingly more conducive to the achievement o f education goals, especially learning competencies.

Results Framework and Monitoring Use of Outcome Information Outcome Indicators

Net and gross enrolment rates in primary and basic education. Ne t and gross completion rates in primary and basic education. Learning achievements in basic and secondary education. The proportion o f the education budget allocated for higher order processes, spaces and assets, to promote competencies and skills that enjoy high economic returns. Favorable assessment o f education management arrangements by stakeholders.

All outcome and results indicators wil l be reported by: (a) province and (b) gender, wherever relevant. Results Indicators

Number and percentage o f children aged 6-14 years enrolled in formal schooling, and special education and non-formal education programs.

Results Indicators Learning competencies over the basic and secondary education cycles clearly specified and communicated to schools.

0 Schools staffed with trained and certified teachers, and supported by a high quality teacher development system. Quantity, timeliness o f delivery and quality o f

Outcome information, along with results monitoring, research and pol icy analysis, wil l be used to: (a) regularly determine whether the program strategy requires any modification; (b) adjust funding to strengthen performance; and (c) provide a foundation for continuous pol icy development in the education sector.

Use of Results Monitoring Inadequate progress on achieving targets will signal potentially serious delays and shortcomings in program implementation which, in turn, will point to the need for diagnostic analyses and corrective action.

~~ ~~

Use of Results Monitoring Inadequate progress on achieving targets will signal potentially serious delays and shortcomings in program implementation which, in turn, wil l point to the need for diagnostic analyses and corrective action.

32

Theme Three: Enhance the Efficiency and Equity of Resource Allocation and Distribution in the Education Sector. A medium- term education sector development rol l ing plan and budget framework provide the foundation for efficient and equitable public investment in education.

textbooks available to children. An examination item bank developed and examination guidelines specified and communicated to schools and stakeholders. The recurrent education budget prioritized to support high-order processes such as teacher development and capacity building o f school principals and education officials, and higher-order inputs such as consumable teaching-learning material. The capital education budget prioritized to support the development of: (a) higher order spaces, such as activity rooms, computer centers, libraries, science laboratories, workshops, multi-purpose rooms and language resource centers, and (b) higher order assets such as equipment, technology, books and reading material, and machinery and tools. Resources allocated for maintenance, repair and replacement o f the education capital stock, o n the basis o f funding; formulae.

Inadequate progress o n achieving targets wi l l signal potentially serious delays and shortcomings in program implementation which, in turn, wil l point to the need for diagnostic analyses and corrective action.

33

Intermediate Results

Theme Four: Strengthen Education Governance and Service Delivery. Schools become increasingly self- managing, with strong community involvement; and the capacity o f central and provincial education institutions to deliver services within a decentralized framework i s strengthened.

Results Indicators 0 Resources allocated for

monitoring, evaluation, research and pol icy analysis to sumort the ESDFP. The program for school improvement pi lot tested and evaluated, and if successful established country-wide after incorporating lessons from the pi lot program. Organizational capacity review o f the Ministry o f Education, provincial, zonal and divisional education authorities conducted and organizational capacity building activities completed satisfactorily. A long-term human resource development plan produced and forms the basis for staff development in the Ministry o f Education and among the provincial, zonal and divisional education authorities.

Use o f Results Monitoring

Inadequate progress o n achieving targets wil l signal potentially serious delays and shortcomings in program implementation which, in turn, wil l point to the need for diagnostic analyses and corrective action.

34

cc L L 0

IA m

3 M al

$ 3 * z

I d

I d

h Y

* N

00 m

;3

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Annex 4: Detailed Project Description

Introduction

Sri Lanka’s education sector development framework and program (ESDFP) i s organized according to four broad themes: (a) promoting equitable access to basic education (grades 1-9) and secondary education (grades 10- 13), (b) improving the quality o f education, (c) enhancing the efficiency and equity o f resource allocation and distribution in the education system, and (d) strengthening education governance and service delivery. The overall education sector development framework i s based on nationally defined policies, norms and standards. The rol l ing plan to implement this national framework i s based on a combination o f bottom up school level planning, the development o f complementary action plans from central, provincial and zonal education authorities, and public consultation. The time frame o f the education sector development framework and program i s 2006-20 10.

The country’s education sector development framework and program contains two sets o f education pol icy reforms. First, innovative pol icy reforms and new development initiatives will be established, with appropriate pi lot testing and time sequencing, over the period o f program implementation. Second, important and successful pol icy initiatives introduced in the 1998-99 reform program that wi l l be sustained and, where relevant, further developed and expanded.

The IDA Education Sector Development Project (ESDP) wil l assist a l l four key themes of the government education sector development framework and program over the period 2006- 2010. The ESDP wil l support the full set o f government education reforms, covering both new and innovative pol icy reforms and the continuation and expansion o f important and successful pol icy initiatives introduced in the recent past. In addition, the ESDP will support monitoring, evaluation, pol icy research and studies. ESDP assistance wil l be available to both central and provincial education institutions.

Project Description

The key development policies o f the education sector development framework and program are outlined in detail below.

Theme 1. Promoting Equitable Access to Basic and Secondary Education

The objectives o f this theme are to ensure that al l students complete the compulsory basic education cycle (grades 1 -9), and that al l students have access to secondary education (grades 10-13). S r i Lanka has performed well, in the past, in attracting and retaining nearly al l students in the primary cycle, grades 1-5, with a net enrolment rate o f 96 percent and a net completion rate o f 95 percent.

However, the country now faces several further challenges in providing universal access to basic and secondary education. First, net enrolment and survival rates at the upper section o f the basic education cycle, grades 6-9, are only at 8 1 percent and 78 percent, respectively. These rates need to be raised substantially for the government to achieve i ts target o f universal enrolment and completion of basic education. Second, many geographical regions o f the country, especially in rural and estate areas, lack adequate school facilities to provide access to good quality secondary education, especially GCE O/L and GCE A/L science and technology education, and English language learning opportunities. School completers who are fluent in

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English, or have followed GCE A/L science and technology courses, enjoy superior labor market opportunities and better higher education prospects than students with arts and commerce qualifications. Hence, expanding the network o f schools with adequate secondary education facilities, especially for GCE OIL and GCE A/L science and technology education and English language learning, i s important to increase equitable access to secondary education among geographical regions and to improve the external efficiency o f the education system. Third, education opportunities for students with special learning needs, especially for those with learning disabilities, are scarce. Hence, special education programs need to be developed to provide access to education for children with special learning needs. Fourth, education opportunities for adolescents who either never enrolled in school or dropped out before completing basic education are limited. This i s an important social group for whom the system o f non-formal education needs to be strengthened.

The principal government strategies to meet these challenges are:

I. Providing demand side incentives for school attendance. The country has established an array o f demand side initiatives, based on incentives, to attract children to attend school. The chief demand side incentives are the provision o f tuition free basic and secondary education in public schools, free school textbooks for a l l children f rom grades 1-1 1 , free school uniforms and subsidized public transport. In addition, there are scholarship schemes to support school going children from poor households. Also, free school meal programs for children in some very poor areas have been introduced. School attendance committees have also been organized, at local level, to fol low up children aged 6-14 years who are not attending school and discuss with their parents measures to draw the children into the education system.

11. Upgrading the network o f schools to relax constraints on geowaphically equitable access to good quality basic and secondary education. The network o f primary schools i s largely complete. However, there are constraints on access to good quality secondary education, especially in the GCE O/L and GCE A/L cycles. The high quality schools in the current secondary school network are clustered in cities and large towns in wealthier regions. Under the ESDFP the network o f high quality secondary schools will be expanded to less affluent regions to increase equitable access to the full range o f secondary school subjects, especially science, mathematics, ICT and English education in the GCE O/L and GCE A/L cycles. Secondary schools are being improved and upgraded, in accordance with the norms o f the Ministry o f Education for essential learning spaces and facilities and higher-order learning spaces and assets, in geographical regions where access to the full secondary education cycle i s inadequate. This initiative wi l l ensure that al l children in the country wil l have access to the full range o f the secondary school curriculum, including the GCE O/L and A/L ICT, science and technology and mathematics streams. The improved secondary schools wil l also seek to act as centers o f excellence for English language teaching and learning, including English medium education, and for I C T education. School completers fluent in subjects such as English, I C T and science and mathematics enjoy superior labor market opportunities and higher education prospects. Hence, the secondary school development program will improve the future economic prospects o f bright children living in less wealthy regions o f the country.

The schools for development o f the secondary education system have been selected according to the MOE, school mapping framework, so that the expansion o f secondary education i s internally efficient and cost-effective. The 10,000 schools in the country have

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111.

been organized into “school families”, with between 5-10 schools in each family. Each school fami ly contains both primary and secondary schools, and al l children who enter a primary school within a school family are entitled to a place in a secondary school within the same family when they reach the age for secondary education. The school family i s not only a school cluster arrangement, but i s also designed to promote education quality. Teachers and principals from different schools within a school family meet and exchange ideas and share solutions to education problems they have encountered. Similarly, students from different schools within a family engage in various co-curricular and extra-curricular activities. And in multi-ethnic areas, school families contain both Sinhalese and Tami l medium schools, so that interaction between students and staff from the two communities i s promoted.

strengthening the deliverv o f special education programs for children with special learninp needs. The ESDFP wil l prioritize special education programs to cater for children with special learning needs, especially for those with visual impairment, hearing impairment, behavioral problems, multiple disabilities, learning disabilities and epilepsy. Further o n in the ESDFP, i t will also seek to include other non-disabled individuals in special education needs categories. These would include gifted and talented children, street and working children, and chi ld combatants. The wide variance in identification and classification o f school-aged children and youth with special education needs makes the development o f this area particularly challenging.

At present, the education system provides special education services through approximately 850 special education units in public schools (about 930 teachers, and 9,260 students) and 25 assisted special schools (around 425 teachers and 2,790 students). The provision o f education programs along with regular students in standard classrooms is being explored as part o f an inclusive education approach. Key activities which will be included in the ESDFP are: (a) establishing a National Center for Special Education; (b) developing new instruments to identify children with special education needs; (c) conducting regular surveys to identify children with special education needs; (d) conducting periodic education camps for children with special education needs and their parents; (e) updating the syllabus/modules for special education programs and producing new syllabi/modules where needed; (f) undertaking continuing professional development programs in special education for teachers; and (g) training 10,000 regular teachers in inclusive education.

N. Strengthening non-formal education programs for adolescents who either never attended school or dropped out when they were younger, and require skills to enter the labor market. This i s an important area. There are several key activities planned under the ESDFP. (a) Implementing the compulsory education requirements through awareness and media programs, activating 8,000 community attendance committees, surveying and identifying non-school going children, providing facilities for these children, and training staff. (b) Expanding functional activity learning centers for children lacking basic literacy skil ls. At present only 100 centers are fhc t i on ing in two districts, Nuwara Eliya and Badulla. About 4,000 children currently attend both literacy and skill development programs in these centers. (c) Strengthening community learning centers. These provide programs for persons above the age o f 16 years. There are currently 95 such centers, but the target i s to develop 324 centers around the country. An assessment i s required to see where the needs are, and to support the communities to organize their own programs. (d) Strengthening programs for street children. Currently six centers have been established

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which cater for the needs o f 200 children. Two o f the centers are residential. However, i t i s believed that there are about 6,000 children living on the streets, so the need to expand the number o f centers i s urgent. (e) Capacity building o f non-formal education project officers. Currently there are 200 project officers who are attached to 324 Divis ion Education Offices. In the North-Eastern Province, there are only 10 project officers. However there i s no career path for these officers and so this hinders adequate recruitment and retention o f competent and committed staff. (0 Finally, this component wil l seek to provide opportunities for further learning and certification through distance mode education, through an Open School.

Theme 2. Improving the Quality of Education

The main pol icy objectives under this theme are to improve learning outcomes by promoting the development o f generic sk i l ls such as creativity, communication, problem solving and decision making, as well as non-cognitive achievements such as team work, adaptability, initiative, responsibility and leadership. Three innovative and new education pol icy development initiatives, covering the school curriculum, teacher development and the examination and testing system, will be supported through the ESDP.

I. Curriculum Re-structuring and Umradinq. The objective o f this pol icy initiative i s to introduce a curriculum approach that better reflects modem international trends in curriculum practice, effectively disseminate curriculum goals, values and aims to stakeholders, orient the education system more strongly to the world o f work, and provide strong implementation support for curriculum upgrading to schools. Curriculum re-structuring will orient the senior secondary education system, the GCE O/L and GCE NL cycles, more closely with the counterpart education cycles in countries such as England. This wil l include emphasizing science subjects, such as physics, chemistry and biology, as well as providing a range o f options, in the social sciences and humanities, for students from the GCE O/L cycle onwards. At the GCE NL stage, the current narrow specialization into arts, management and science subjects will be eliminated and students allowed a wider choice o f subjects. Initiatives to orient the curriculum to the wor ld o f work emphasize the development o f competencies in information and communications technology and English language, with al l students at the end o f the secondary cycle expected to achieve competency in General Information Technology and General English. In addition, there wil l be a focus on modem languages that are expected to be o f economic importance for S r i Lanka in the future, such as Japanese, Chinese, French and German.

Curriculum upgrading activities will include the formulation o f a vision, contextual scenario and guidelines to assist future curriculum development, revising the number, content, organization and time allocation o f existing subjects, introducing new subjects, enabling cross-curricula themes, and facilitating the transformation role o f the teacher. The curriculum reform program will pay attention to subject content as concepts, rules, and principles, meta-cognitive and self-regulating sk i l ls involving planning and monitoring, and non-cognitive factors such as motivation and perceived self-efficiency. The desired learning outcomes in each grade will be outlined according to the curriculum framework above, and communicated to teachers and principals, so that schools can plan and deliver their teaching and learning activities to achieve the curriculum goals.

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11.

Support to schools to implement modernized curricula wil l include guiding teachers to engage in multi-level teaching, adopt constructivist and cooperative learning practices in class rooms, plan instruction with awareness o f horizontal and vertical subject l inks , facilitate computer assisted learning, and developing the instructional leadership role o f the school principal. In addition, new curriculum material wil l be disseminated through print and electronic media, and in-service advisors at provincial and zonal levels wil l be trained to assist school teachers and principals to introduce and establish the new curriculum initiatives in the school system.

Teacher Development. The objective o f the teacher development initiative i s to enhance teacher motivation, sk i l ls and performance. The government has established a country- wide network o f eighteen National Colleges o f Education (NCOEs) to provide pre- service teacher education to al l entrants into the teaching profession. In addition, the government has introduced a network o f ninety-four Teacher Centers (TCs) and seven Teacher Training Institutes (TTIs) to provide institution-based teacher training to all teachers o n a periodic cycle. These provide a solid foundation for continuing teacher education and in-service teacher training with groups o f teacher educators delivering training programs within the NCOEs, TCs and TTIs. This model o f continuing teacher education wil l be used, chiefly, to enable teachers to acquire new subject content knowledge and upgrade subject knowledge.

Under the new wave o f education reforms the focus o f pol icy attention will advance to teacher development. This i s a broader and higher level concept than just teacher education and training, which are sub-sets o f teacher development, and include such factors as professional career paths, performance standards, and remuneration, rewards and incentives for teachers. A key feature o f teacher development will be a system o f regular and continuing on-site school based support to teachers. A wide range o f human resources, including in-service advisors, teacher educators, university academics, principals and teachers wil l be available within the school based teacher development system. This system will be managed and administered chiefly by provinces, under pol icy guidelines, norms and standards set by the Ministry o f Education. School based on-site teacher development wil l be the main and normal mode through which the sk i l ls and motivation of teachers wil l be enhanced, on a recurring and regular basis, to attain and maintain a high standard o f teacher performance.

The Ministry o f Education has also introduced an incentive allowance, equal to about 40 percent o f the value o f a teacher’s salary, to teachers serving in schools located in remote and unpopular regions. This allowance i s expected to improve teacher attendance in difficult and disadvantaged schools. In addition, the Ministry o f Education has revised the Teacher Service Minute, Principals Service Minute and Teacher Educators Service Minute, to establish clear service entry conditions, remuneration guidelines, professional development needs and promotion criteria for teachers, principals and teacher educators. These minutes wil l be periodically reviewed, during the ESDFP, to ensure their continuing relevance and applicability, and updated or revised where necessary.

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111. Modernizing the Examination and Testing Svstem. The objective o f this initiative i s to modernize the examination and assessment system. In particular, the ESDFP seeks to use the examination system as the lever to promote the acquisition o f higher-order transferable skills, defined in terms o f complex processes such as analysis, understanding, creativity, association, synthesis, application, conceptualization and problem solving, in the school system. Four key activities wil l be implemented under the ESDFP to achieve this objective.

First, examination test items wil l be designed to assess higher-order transferable skills. This initiative i s expected to support the efforts o f schools to foster higher-order transferable skil ls. I t i s planned to develop a complete bank o f high quality test items. The items in the bank wil l be compared regularly with the content o f examinations in developed and advanced developing countries with similar public examination systems to facilitate the attainment and maintenance o f international standards.

Second, the Department o f Examinations - National Evaluation and Testing Service (DOE-NETS) wil l prepare, publish and disseminate examination guidelines for the GCE O/L and GCE NL examinations. These guidelines, which will contain specifications o f the expected learning competencies at the relevant examinations, will promote awareness and understanding among schools o f the expected standards and facilitate the academic work o f the schools.

Third, the DOE-NETS will strengthen i t s research and evaluation capacity. This wil l enable DOE-NETS to improve the quality o f examinations and assessments, by undertaking studies o f examination performance and the contents o f examinations, and feeding the results o f these studies into development o f the examination system.

Fourth, the public examination system will be reformed to combine centralized, national examinations at grade 11 (the GCE O/L) and grade 13 (the GCE NL) with school based assessment (SBA) from grades 6-9. The purpose o f this reform i s to enable the advantages o f the certification function o f the national GCE O/L and GCE NL examinations, which enjoy strong public confidence, to be combined with the potential benefits o f the school based assessment system, which facilitates continuous monitoring of student performance, enables schools to receive regular feedback and promotes an activity based approach to education, with its emphasis on project work and practical assignment.

In addition to the three new and innovative pol icy initiatives in the areas o f curriculum, teacher development and examinations, the government also plans to sustain and expand an important pol icy measure from the previous reform program initiated in the late 1990s in the area o f textbooks.

IV. Textbook Development. Up to the late 1990s, textbook publication in Sri Lanka was a public sector monopoly. However, the quality o f textbooks, in terms o f key features such as content, presentation, durability and readability, was poor. In addition, the cost o f textbooks was considerably higher than the cost o f comparable books published by the private sector. Hence, the government adopted a pol icy to dismantle the public monopoly and introduce competitive private sector publication o f textbooks. This pol icy was tried out in grades 6-9 and resulted in an improvement in the quality o f textbooks available in these grades. The government, during the course o f the ESDFP, will expand this policy to

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cover grades 1-1 1, the entire cycle over which free textbooks are provided to students. Two types o f textbook publication wil l take place: (a) contract publishing, where the Education Publications Department wi l l tender textbook publication, o n a competitive basis, to the private sector; and (b) in-house publishing by the EPD o f sensitive textbooks, such as religion books.

V. Activities to promote social cohesion and values through the education system will be continued and expanded.

Theme 3. Enhancing the Economic Efficiency and Equity of Resource Allocation

The pol icy initiatives under this theme seek to improve the efficiency and equity o f education resource allocation by addressing key issues. First, investment in education in the past has been based chiefly on a single year budgeting framework, with resources allocated to various expenditure heads on a historical basis. Second, public expenditure in education in the past has been based on ad hoc short-term plans and crisis management measures, rather than a long-term, flexible, rol l ing development plan. Third, the flows o f expenditure through the various tiers o f the education system have not been transparent, so that information concerning the procedural efficiency and equity o f resource flows in the education system has been scarce. This has led to an inefficient pattern o f resource allocation over time. For instance, the annual historical budgeting process and absence o f a long-term development plan has resulted in o ld priorities, such as classrooms, staff rooms and administration buildings, receiving a surplus o f resources and important new priorities, such as higher order learning spaces l i ke computer centers, science laboratories and library resource centers, and capital assets such as equipment, technology, machinery and tools, receiving inadequate resources. Also, funds for maintenance, repair and replacement activity have been scarce, resulting in unduly heavy depreciation o f the education capital stock and assets. Historical budgeting and the absence o f a public expenditure tracking system have also led to inequities in the allocation o f resources, as education institutions that received generous resources in the past have continued to be well funded, while other institutions which were under-resourced in the past have continued to be disadvantaged. In addition, the absence of clear information on the volume o f resources reaching the various levels o f the education system has meant that inequities have often persisted over unduly long periods o f time, as pol icy makers have lacked timely information to address the issue.

The ESDFP contains several new and innovative pol icy initiatives to improve the efficiency and equity o f resource allocation in the education sector.

I. Establishing a medium-term budget framework for education. The main objective o f the medium-term budget expenditure framework (MTBF) i s to facilitate multi-year planning and monitoring, at the national, provincial and lower tiers o f the education system. The MTBF will outline, in advance, the budgetary allocations for capital, recurrent and maintenance expenditure over a three year period. These medium-term budget estimates wil l be updated annually, and wil l provide the resource base for the rolling education development plan. The budgeting system o f the MTBF will also contain a component o f performance based funding o f provinces, with provinces that show good progress against agreed outcome indicators, such as grade cycle enrolment and completion rates, and learning achievements, rewarded with increased allocations in future years. The MTBF will enhance the external efficiency o f the education system by priori t izing the allocation of resources to promote human capital accumulation among school children, including the acquisition o f general competencies such as team work and a positive work ethic, and

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specific cognitive outcomes such as I C T literacy, fluency in modem languages, especially English, and mathematical competence. The MTBF will strengthen the internal efficiency o f the education system by better enabling pol icy makers to tailor resource flows to education development needs and reducing mid-stream procedural bottlenecks such as financial illiquidity and cash rationing. And the MTBF will promote equity by favoring poor and needy schools in the distribution o f resources.

Within the MTBF, the funding formula o f the education capital budget wi l l prioritize investment in higher order spaces such as computer centers, libraries, science laboratories, activity rooms, multi-purpose rooms, language resource centers and workshops, and higher-order capital assets such as equipment, technology, machinery and tools. The funding formula o f the recurrent education budget will prioritize investment in higher order processes, especially to improve the competencies and performance o f teachers, the management and leadership capabilities o f principals and the efficiency and output o f education administrators. The MTBF will also explicitly incorporate a generous program for maintenance, repair and replacement activity.

11. An overarchina education sector development plan. The Ministry o f Education and the Provincial Councils, through public consultations, the consolidation o f bottom up school based plans, and the production o f complementary action plans from central, provincial and zonal education authorities, have developed a long-term five year education sector development plan for the period 2006-2010. This plan provides the overarching framework for the expansion and improvement o f the education system in the country. The plan i s an indicative, rol l ing plan that wil l be updated annually, especially in the light of new information from monitoring and evaluation activities, and pol icy research and analysis. The multi-year plan will enable education institutions to prioritize and time sequence their development activities and work within a broader resource envelope and longer time horizon. I t wil l also ease and facilitate the work o f education pol icy makers as they seek to forge synergy between different sets o f education development initiatives.

111. A public expenditure and quality education tracking system (PEOETS). The main objective o f the public expenditure and quality education tracking system i s to promote equity and transparency in resource distribution by tracing the f low o f expenditures to, and through, the various levels o f the education system, such as central education agencies, Provincial Councils, zones and schools. The PEQETS will enable pol icy makers to monitor the extent to which resources intended for various activities, at the different levels o f the education system, actually fulfill their intended purpose, and ref ine resource distribution accordingly. Also, by improving transparency, the PEQETS wil l facilitate more equitable resource distribution among education agencies, and enable stakeholders to exert pressure on decision makers to ensure that resources allocated actually reach them. The introduction o f the PEQETS will be t ime sequenced. The PEQETS wil l be init ial ly pi lot tested in selected zones and among national schools, be expanded to two full provinces after that, and f inal ly established country wide.

Theme 4. Strengthening Education Governance and Service Delivery

The objective o f this theme i s to improve the quality o f governance and service delivery in the system by addressing several key problems. First, influential education pol icy makers in Sri Lanka argue that decision making and administration are excessively centralized, and that front l ine providers o f education services, especially schools, are inadequately empowered.

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Second, the organizational structure o f the education system i s highly complex, and has evolved in an ad hoc manner over time. As such, the education system contains organizational weaknesses, including duplication o f functions among agencies, and lack o f clarity between the responsibilities o f top level tiers and intermediate tiers o f government. Third, human resource development activities in the recent past have been unsystematic and unplanned. As a result, there i s a shortage o f staff in the education administration and planning levels, and an excess of staff in the teaching service and in services below the professional level. Also, the Ministry o f Education and Provincial Education Authorities experience skills shortages. And there i s a lack of consistency and coherence between the various education services, such as the Education Administrators Service, Principals Service, Teachers Service and Teacher Educators Service, in terms o f entry criteria, training opportunities, career prospects, mobil i ty across and between services, salaries and benefits, and performance standards.

The ESDFP, under this theme, wil l implement three key, innovative pol icy development initiatives to address these issues. These pol icy initiatives will be carefully t ime sequenced, pi lot tested where relevant and scaled up to country level generally after the lessons o f the pi lot phase have been studied and the original pol icy design appropriately refined.

I. Introducing a balanced control model o f school based management. Devolving power and responsibility to the school level, through the adoption o f a balanced control model o f school based management called the Program for School Improvement (PSI), is a key pol icy reform under the ESDFP. The objective o f introducing school based management improvement programs i s to: (a) empower principals and teachers, strengthen their professional motivation and enhance their sense o f ownership o f the school; (b) enable schools to forge l i n k s with local communities to give stakeholders, including parents and past pupils, greater voice in school affairs and the ability to raise resources to help the school; and (c) improve the speed and relevance o f school level decision making. The balanced control model spreads administrative power evenly between principals, teachers and members o f local communities. The model wil l be pi lot tested in selected zones and provinces in the early years o f the ESDFP, and if successful scaled up to the national level later, after the lessons o f the pi lot program have been absorbed and the model suitably refined.

11. Organizational analysis and capacity building. An organizational assessment o f the education system will be implemented. This organizational assessment will: (a) review the institutional framework and organizational capacity o f the various educational agencies under the Ministry o f Education and Provincial Councils; (b) assess the vision, mission, strategies and operational plans o f the key education agencies; (c) clarify roles and responsibilities across and within agencies; (d) identify gaps in roles and responsibilities; (e) identify duplication o f roles and responsibilities; and (9 identify organizational capacity constraints and weaknesses. Based o n this organizational assessment, the Ministry o f Education and Provincial Councils wil l develop and implement an organizational capacity building program.

The structure o f the capacity building (CB) component in the ESDFP i s presented in the diagram below. I t includes two sub-components, one o f which i s devoted to immediate C B action, while the other i s devoted to further in-depth assessment and the design o f longer te rm C B action.

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C B Component

A I Management Development Across the Board

Sub-Component A: Immediate C B Action

NI E Examinations Dept. -

- - Ed. Publications Dept. - NEC - Provincial Dir. Ed. I Zonal Dir. Ed.

B1 Horizontal division of labor among agencies at national level

A " , " s " , ~ ~ e ~ , n ~ ~ ~ i ~ " C B Action

B 2 Vertical division of labor among central, provincial, zonal levels

B3 Internal division of labor in the MOF

B4 Mat. of human resources

8 5 Mgt. of physical resources

The immediate action sub-component wil l focus on management development across the board and on the capacity o f a number o f specific organizations or units. Management development activities wil l be designed for the Ministry, the Departments o f Examinations and Education Publications, the PEAS and the zonal offices, the NEC and the NIE. Specific, organization-based C B activities wil l be designed for the NEC, the Examinations Department and the QA Branch. Additional units may be added. The assessment and design sub-component wil l consist o f five operations, each focusing o n one key area. Three o f these areas have to do with the division o f labor in the education sector - firstly, among al l agencies at the central level; secondly, among agencies at the central, provincial and zonal levels, down to the school level; and, thirdly within the MOE itsel f . The two other areas have to do with the management o f human resources and the management o f physical resources in the sector.

This initiative wil l be carefully time-sequenced. The organizational assessment o f central and provincial education agencies wil l be conducted during 2005-06 and the organizational assessment at zonal levels wil l be implemented during 2006-07. Accordingly, the organizational capacity building program will commence in 2006 for the central and provincial levels and in 2007 for the zonal levels.

111. Developing a human resource strategy. The objective o f the human resource strategy i s to provide high quality human resources for the education system, at central, provincial and zonal levels, over the long-term. This strategy wil l be based o n an analysis o f current and projected future work requirements, the present stock o f skil ls, the anticipated outflow o f human resources through natural attrition, and the type and range o f skills available in the younger age cohorts. Particular attention wil l be paid to: (a) strengthening the sk i l ls o f education officials to use technology and automated systems to deliver routine services, especially in logistics and o f the education system.

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A core element o f the human resource strategy wil l also include strengthening the leadership and management capabilities o f principals, headmasters and headmistresses. Strengthening the leadership sk i l ls and managerial competencies o f school principals, headmasters and headmistresses i s a key initiative under the ESDFP. The Principal’s Training Center at Meepe wil l act as the hub o f this initiative. Important leadership and management skills that principals wil l be expected to acquire, under this program, are the abilities to: (a) clearly articulate the vision and educational goals o f schools; (b) organize schools to implement the curriculum effectively; (c) match the pedagogical competencies of teachers to the classroom and co-curricular needs o f schools; (d) appraise staff, especially teachers, and progressively improve their competencies and skills; (e) motivate staff and students towards high performance; ( f ) deploy and utilize physical resources to promote school goals; (g) develop close ties with community organizations, including parent-teacher associations and past pupils associations; and (h) maintain high visibility and accessibility to pupils, teachers, parents and other community members.

Time Sequencing o f Activities

The ESDFP i s clearly a highly ambitious, broad and wide-ranging education reform program. The government i s aware that such an ambitious program can be implemented effectively only if the various activities are carefully time sequenced and complex initiatives are pi lot tested and evaluated before they become fully operational. The time sequencing o f some o f the key activities o f the ESDFP, over the f i rst two years o f the program, are given below.

2006. Commencement o f the school based teacher development program in selected zones in three provinces. Introduction o f a medium-term education budget framework for the provinces, in l ine with the medium-term education budget framework introduced for the central Ministry o f Education in 2005. Pilot phase o f the Public Expenditure and Quality Education Tracking System in selected zones. Pilot testing o f the school based management improvement program in one zone per province. Organizational capacity assessment o f the Provincial Councils.

2007. Introduction o f the re-organized and upgraded curriculum in the grade 6 (junior), grade 10 (GCE OIL) and grade 12 (GCE NL) cycles. Expansion o f the school based teacher development program to selected zones in al l provinces. Introduction o f a performance incentive fund in the budget to reward provinces that perform wel l on education outcomes. Expansion o f the pi lot phase o f the Public Expenditure and Quality Education Tracking System to selected provinces. Extension o f the school based management Program for School Improvement to two zones per province. Organizational capacity assessment o f the zonal education offices.

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The time sequencing o f activities over the remainder o f the program wil l be finalized based on the performance o f the activities and the lessons o f the pi lot programs over the f i rs t two years.

Review Arrangements

The performance o f the ESDFP wil l be reviewed regularly and IDA will provide continuous support to implement the program effectively. The government will organize an annual presentation on the progress o f the ESDFP. A wide range o f stakeholders, including al l education donors, will be invited to this review meeting at which the progress and overall status o f the program will be presented. IDA wil l report on the performance o f the ESDP. Other donors will report on the progress o f their projects and programs.

IDA will also maintain continuous dialogue and provide technical advice and implementation support to the ESDFP from the Colombo Office, as wel l as draw o n its international expertise in the Washington Office and elsewhere to share knowledge o n global trends in education pol icy and good practice from other countries. In addition, IDA will assist the country by regularly undertaking education research and studies on themes and topics that are considered high priorities for future pol icy formulation and strategy development in the education sector. These studies wil l be undertaken collaboratively with the government, and the ESDP makes provision to support research and pol icy analysis by key public sector agencies such as the MOE, MFP, NEC, the F C and PEMs. The studies wil l cover themes within basic and secondary education, such as analyses o f learning outcomes, public investment in basic and secondary education at central and provincial levels, and incentives and accountability in the education system, as well as topics at other levels and types o f education, such as tertiary education, technical education, vocational training and sk i l ls development, and early childhood development.

IDA Support and the Role of Other Donors

IDA will provide overall support for the ESDFP through the ESDP. Other education development partners wil l provide parallel financing to support specific areas within the over- arching framework o f the ESDFP. The two main donors to education after the WB are JBIC and ADB. JBIC i s assisting provincial education authorities to rehabilitate and upgrade essential school facilities, such as classrooms, water and sanitation, through a Small Infrastructure Rehabilitation and Upgrading Project (SIRUP). The SIRUP hnds f low to the provinces according to the government budgetary mechanism for provincial funding, which i s also the mechanism that wil l be used for the ESDP. Hence, the ESDP and JBIC flows o f funds are consistent with and integrated into the government’s budgetary processes. ADB will assist the development o f secondary schools through a Secondary Education Modernization Project (SEMP2). W h i l e this project operates in traditional fashion, with implementation undertaken by a Project Implementation Unit that i s not fully integrated into the government system, the ADB has signaled that the next ADB education project planned for 2007 will be integrated fully within the SWAP mechanism. UNICEF wil l support the restoration o f schools affected by the Tsunami and the improvement of education quality, especially in conflict affected areas. UNICEF i s also seeking to integrate i t s funds within the central and provincial budgetary mechanisms. Four bilateral donors, BMZ, DFID, JICA and S IDA also support the ESDFP through, chiefly, grant funded technical assistance. BMZ, working through GTZ, i s helping in the areas o f social cohesion, disaster risk management and psychosocial care. DFID, through trust funds managed by IDA, helped the government to prepare the ESDFP. J ICA i s assisting five zones to promote

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education decentralization activities and the teaching o f science and mathematics. SIDA i s supporting the development of selected schools in the plantation sector and activities to promote social cohesion through the education system.

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Annex 5: Project Costs

Table 5.1: Indicative Program Budget, Central and Provincial, by Funding Source 2006-2010

Total Education

Source: Wor ld Bank projections calculated f rom Ministry o f Finance and Planning, Revenue Expenditure Statements, and Finance Commission, statistical information.

Note: The indicative program budget for 2006-2010 was based on the 2005 budget. An assumption o f 5% contingency (to cover the price contingency and physical contingency) has been applied annually. The above figures do not include Higher Education as the funding i s focused on basic and secondary education.

[ 11 The recurrent budget comprises personal emoluments, traveling expenses, supplies, maintenance expenditure, contractual services transfers, grants, subsidies, and other recurrent expenditures.

[2] The capital budget includes rehabilitation and improvement o f capital assets; acquisition o f capital assets, capital grants, other capital expenditure and operational costs o f donor funded projects.

[3] Includes al l foreign funded aid programs.

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Secondary Education 1,006,373 796,727 209,646 10.06 7.97 2.10

capital budget o f the total program

Assistance to Education

I I

Note: IDA financing excludes salaries, school uniforms, land acquisition and counterpart hnding for other donor projects. The above figures do not include Higher Education as the funding i s focused on basic and secondary education only.

3,436,974 2,422,63 1 1,014,343 34.37 24.23 10.14

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Annex 6: Implementation Arrangements

The implementation arrangements contain three mutually reinforcing structures at the central and provincial levels: (a) pol icy direction, establishment o f norms and standards, and monitoring and oversight; (b) management and implementation; and (c) technical support.

Policy Direction and Oversight

The National Education Commission (NEC) has the responsibility to advise the President on national education policy. Within the over-arching pol icy framework recommended by the N E C and agreed by the President, the formulation o f operational pol icy and the establishment o f national norms and standards i s the responsibility o f the central Ministry o f Education. Provincial Councils have the authority, at the regional level, to develop and adopt education policies, standards and norms to suit their provincial needs, subject to the condition that these are within and consistent with national policies, norms and standards.

To establish consistency and coherence between national and provincial policy, the pol icy direction and oversight functions o f the ESDFP will be performed at two levels, through a steering committee and a consultative group. These two committees incorporate officials from the Central Government and Provincial Councils, as well as education academics, researchers, stakeholders such as parents, principals and teachers, and development partners.

Steering Committee. The steering committee o f the ESDFP i s chaired by the Secretary, Ministry of Education. The other members o f the steering committee are the Chairman, National Education Commission; Chairman, Finance Commission; the eight Provincial Education Secretaries; Additional Secretaries, Ministry o f Education; Commissioner-General Examinations; Commissioner-General Education Publications; Director-General National Institute o f Education; Director-General National Planning; Director-General National Budget; the Director-General External Resources. IDA has been invited by the government to represent the donors to the steering committee. The steering committee will discuss and decide o n important pol icy aspects, as wel l as review the overall performance o f the program, paying special attention to the anticipated outcomes and results framework. The steering committee wil l also decide which high level pol icy issues need to be brought to the notice o f the President and the Minister o f Education for a decision.

Consultative Group. The consultative group wil l be chaired by the Additional Secretary, Planning and Performance Review Division, Ministry o f Education. The other members o f the consultative group would include All Additional Secretaries, Ministry o f Education; Vice- Chairman and Secretary, NEC; Secretary, Finance Commission; Director General, Department of Census and Statistics; Director, NEREC; al l Provincial Directors o f Education, education academics, researchers, representatives o f schools, representatives o f c iv i l society, a representative from the Auditor General’s Department, a representative f rom the Procurement Support Bureau and education donors, including WB, ADB, DFID, JBIC, JICA, SIDA, UNICEF and other donors supporting the ESDFP. The consultative group wil l periodically discuss the implementation o f the program to identify areas for support, observe important emerging issues and assist the central and provincial education agencies to resolve problems and strengthen program performance.

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Management a n d Implementation

The ESDFP wil l be managed and implemented, at the central level, by the Ministry o f Education. At the regional level, the ESDFP wil l be managed and implemented by the Provincial Councils. The Ministry o f Finance and Planning and the Finance Commission will also engage in the management and implementation o f the ESDFP through their role in allocating public funds to the education sector.

Central level. The central Ministry o f Education will be responsible for the fol lowing functions. . . Formulating the school curriculum. . . . . Public examinations and assessment. .

Establishing national policies, norms and standards.

Formulating the curricula for pre-service teacher education programs. Ensuring the publication and distribution o f free textbooks to al l children. Implementation o f the pol icy to provide a free school uniform for a l l children.

Establishing norms and standards for essential spaces such as school buildings, water supply, sanitation, electricity and communications, higher-order spaces such as libraries, computer centers, science laboratories, activity rooms, language resource centers, workshops, and home science units; high-order teaching learning material such as equipment, technology, machinery, tools and consumable material.

Employing, deploying and performance monitoring o f teachers and principals in national schools. National level monitoring, evaluation, research and studies.

. Management o f National Schools. .

. Provincial level. The Provincial Councils wil l be responsible for the following functions.

.

. .

. .

Establishing provincial policies, norms and standards, within and consistent with national policies, norms and standards. Implementing the national curriculum in provincial schools. Administering the system o f provincial schools. Managing the teacher system in provincial schools. Implementing continuing teacher development activities and programs in provinces. Assisting the central Ministry o f Education to conduct examinations and assessments, and distribute textbooks and school uniforms. Implementing special education and non-formal education programs in the provinces. Provincial level monitoring, evaluation, research and studies.

The Technical Support System

Program management, implementation, monitoring, evaluation and research wil l be assisted by a technical support system at the central, provincial and zonal levels.

Central level. The Ministry o f Education wil l be supported by national level education institutions such as the National Education Commission (NEC), National Institute o f Education (NIE), the National Education Research and Evaluation Center (NEREC), the Faculty o f Education University of Colombo, and the Departments o f Education in the Open University, Peradeniya University and Jaffna University, as well as other universities, to undertake pol icy development, strengthen conceptual knowledge, technical sk i l ls and capabilities o f education administrators and officials, and undertake monitoring, evaluation and research activities, including national assessments o f learning outcomes. In addition, MOE has access to a variety o f

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national research organizations and f i r m s that can evaluate and provide independent feedback on the implementation and results o f the ESDFP. Resources for regular monitoring, evaluation, research and studies have been built into the budget. Also, a technical assistance fund wil l be available to obtain national and international expertise to guide and assist MOE, during program implementation, if and when needed.

Province level. Central government agencies such as the MOE, DOE-NETS, NIE and Finance Commission (FC) wil l provide support to the Provincial Education Authorities to design, implement and evaluate provincial education plans. Assessing and building the organizational capacity o f provincial education institutions i s an important part o f the ESDFP. In addition, national level education institutions will provide technical support to the provinces in areas such as education planning and management, and the continuing professional development o f principals and teachers. Provinces wil l also be able to draw o n public universities and private institutions for skills building and for monitoring and evaluation activities.

Zonal level. The Provincial Councils wil l provide support to the zonal education authorities to design, implement and monitor zonal education plans. This will include training and guiding zonal education planners and administrators, making budgetary provision to strengthen and build capacity in zonal offices, and providing management and technical support to improve service delivery at the zonal level. The zonal offices wil l make provision for professional development o f teachers, through both on-site school based support and institution based training in Teacher Centers. In-service advisors based in zones wil l provide guidance and support to schools, especially teachers, o n areas such as instructional methods, lesson preparation, classroom practice, curriculum competencies and school based assessment o f student performance.

Institutions at a l l levels o f the education system can also draw o n expertise, both national and international, and from either the government sector, the private sector or c iv i l society, to strengthen the quality and efficiency o f the ESDFP.

Organizational assessment and capacity building

An organizational capacity assessment i s being conducted and covers the fol lowing areas: (a) the division o f labor among key education agencies; (b) the organizational structure o f each key agency; (c) the staffing and sk i l ls available in the key agencies; and (d) the management o f each key agency. Early findings from the assessment suggest that, overall, the education system i s adequately staffed and organized to deliver the normal services o f the system and to commence implementation o f the education reform program. However, the ESDFP i s an ambitious and wide-ranging program, and as the reforms unfold, further capacity building, especially organizational and technical capacity, wil l be critical for successful implementation of the reform program. In particular, M O E and the Provinces require capacity building in the use o f modern equipment and technology for administrative tasks, information retrieval and processing, efficient forward planning of routine services, logistics handling and administration, and English language fluency and competence. Capacity building will take place in three stages during ESDFP implementation:

a systematic organizational capacity review o f provincial and zonal education institutions during the f i rs t two years o f the ESDFP; organizational capacity building activities, commencing from the f i rs t year o f the ESDFP at the central level and moving onto the provincial and zonal levels from the second year

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onwards, and drawing on resources available in the government and other institutions within the country; and exposure o f key central and provincial education officials, both at the pol icy level and the technical level, to international good practice.

Funds for capacity building wil l be available in the education budget at both central and provincial levels.

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Annex 7: Financial Management and Disbursement

The program has acceptable financial management arrangements to account for and report on the Education Sector’s expenditure. IDA proposes to support and partially finance the country’s Education Sector Development Framework and Program (ESDFP) over a five-year period, as a Sector Investment Project by adopting a Sector Wide Approach (SWAp). As part o f the SWAp, greater reliance wil l be placed on the Central Government’s and Provincial Council’s own financial management arrangements with appropriate mitigating measures to address the r isks identified.

Overall Program approach

The Education Sector Development Project (ESDP) wil l directly supplement the budgets of the central Ministry o f Education and the eight Provincial Ministries o f Education. The standard public sector chart o f accounts and formats wi l l be used for reporting expenditures. Upon disbursement, project proceeds wil l be indistinguishable from government funds and, as such, will not be tracked by specific expenditure categories or components. The focus instead wil l be on monitoring the basic and secondary education sector in terms o f education results and outcomes, economic benefits, and financial performance. The project does not have separate components as in a traditional, ring-fenced SIL. Instead, i t i s organized according to four themes, as specified in Section B 3 in the main PAD.

Financial Management Capacity Assessment & conclusions from CFAA

Because reliance on the public sector’s existing financial management arrangements at the Central and Provincial levels i s a key element o f this program, the FM assessment focused on the ability o f the existing public sector systems to: a) properly manage and account for al l program proceeds, expenditure, and transactions; b) produce timely, accurate, and reliable program financial reports and financial statements and, c) provide audited financial statements in a timely manner, This financial management assessment builds upon the overall Sri Lanka Country Financial Accountability Assessment (CFAA) which was conducted in 2003. The conclusions o f the C F A A which have a bearing on this program’s financial management arrangements are:

a) The public sector budgeting process i s characterized by inadequate transparency in formulation, poor linkages with macro-economic policies, unrealistic estimates o f revenue and expenditure, and inf lexibi l i ty in re-allocation o f funds between budget lines. The impact of such weaknesses on the program i s the potential lack o f adequate budgetary allocations to meet overall developmental objectives and subsequent delays in the f l ow o f funds. The public sector has since initiated measures to implement a multi-annual and performance- focused budgetary framework for FY05 to strengthen public expenditure management and has also introduced new budget procedures and formats.

b) Public sector financial statements have not been available o n a timely basis especially at the provincial level thereby delaying the audit o f such financial statements. However a recent development has been the preparation and audit o f state accounts (central level) for the year 2002 within five months o f the end o f the financial year. For the program however it has been agreed that the Auditor General wil l issue two audit opinions on: (1) The consolidated financial statements at the central level; (2) The consolidated financial statements o f the education programs at the provincial level. In addition there i s an IDF grant to fund the

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modernization o f the office o f the Auditor General including Human Resources, Information Technology and Audit Methodology.

A detailed review o f the FM systems were carried out in four (Western, Nor th Central, Central and N o r t h Eastern) out of the eight provinces and in the Ministry o f Education at the central level. The review focused on: budgeting process, accounting policies and procedures, fund f low arrangements, finance staffing, internal controls, and audit arrangements. The strengths and weaknesses o f the program are:

Strengths:

1. The program will use the existing public sector accounting system (CIGAS) which i s a uniform computerized accounting system across the central and provincial levels. The implementing units and staff are familiar with this system thus reducing the risk o f delays in reporting.

2. Public sector implementing entities in the education sector have prior experience in managing IDA-funded projects.

3. The public sector budget, as well as the chart o f accounts, has object codes to facilitate tracking o f fund inflows to implementing units and can separate out ineligible expenditure including : personal emoluments o f government officials, purchase o f school uniforms, land acquisitions, expenditures o f non-pooling development partners, and higher education.

Significant Weaknesses Lack o f a central unit within the public sector which could take ownership o f the overall financial management responsibility o f the program as the provincial Departments o f Education are independent o f the central Ministry o f Education. Lack o f assurance that operating costs o f capital assets will be allocated and applied, lack o f a coherent fixed asset management strategy, and weak internal audit follow-up.

Resolution I I t has been agreed that while the Department o f Treasury Operations (DTO) will have the overall responsibility o f consolidating the financial reports o f the central ministry, the Finance Commission wil l be strengthened with a finance specialist to consolidate the financial reports o f the Provincial Councils and liaise with the Provincial Councils on FM issues such as budget, funds flow and audit issues. The FY ‘06 budget will have adequate provisions for the maintenance o f fixed assets. PEQETS wil l track operating cost allocations and associated expenditures by budget l ine item. In addition the external audit as we l l as the F M S at the F C wil l ensure that inventory registers with adequate details such as serial numbers, location etc., are maintained at every level and annual physical verifications are carried out by independent boards o f survey.

Implementing Entities

The project wil l be implemented both at the national and provincial level.

0 At the national level, the implementing entities are the Ministry o f Education, Department o f Education Publications, and the Department o f Examinations. National

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schools, National Colleges o f Education, Teacher Centers, and other statutory boards such as National Institute o f Education, come under the purview o f the MOE.

0 The eight Provincial Councils wi l l be responsible for implementing the program at the provincial level, including in the zonal offices and schools.

Because the Provincial Councils are independent constitutional entities the central Ministry o f Educat iod Department o f Treasury has no fiduciary oversight over the Provincial Councils. Therefore i t has been agreed that the office o f the Finance Commission (FC), which i s responsible for resource allocation to the Provincial Councils, would be strengthened with a financial management specialist to enable i t to regularly monitor the adequacy o f the financial management arrangements and program reporting in the provinces, including the fol low up on audit observations.

Budgetary Control

The public sector budgetary process is reasonably well established. There i s a defined cycle for preparation and approval o f plans and budgets. The budgets are approved in November of the previous financial year, Le., before the start o f the financial year in January. The provincial budget i s split into recurrent and capital budget. The F C reviews the annual plans and the capital budgets o f provinces and makes recommendations to the Treasury, MFP. The authorization process for virements i s controlled by the treasury. Reallocations from capital to recurrent heads are not allowed, but transfers from recurrent to capital budget and from one recurrent or capital budget head to another requires the approval o f the treasury which can add to delays in expenditure .

in particular. The MTBF will outline, in advance, the budgetary allocations for capital, recurrent, and maintenance expenditure over a three-year period. These medium-term budget estimates wil l be updated annually and reviewed and approved by the Finance Commission. The estimates wil l provide the resource base for the rol l ing education development plan. This i s expected to reduce the need for virements between budget heads. The MTBF will also explicitly incorporate a generous program for maintenance, repair, and replacement activity, which has been somewhat problematic in the past.

One o f the key themes o f the EDSFP i s to strengthen the MTBF for the education sector

Funds Flow

The project wil l provide supplementary funds to the overall education budget o f the Government o f S r i Lanka. The project wil l have two Special Dollar Accounts (SDAs), one for the activities managed by the center and the other for the activities managed by the provincial councils. Both SDAs will be administered by the Department o f Treasury Operations (DTO) in the MFP.

0 The Central Special Dollar Account - The funds in central SDA will be directly advanced to the three main implementing agencies (Le., the MOE, Department o f Publications, and Department o f Examinations). Once transferred, these funds wil l become indistinguishable from government funds. In addition, funds wil l also be allocated to the Ministry o f Finance and Planning and the National Education Commission to defray costs of administering the program. An annual IDA financing allocation wi l l be pre-agreed with each implementing agency and 50% o f the annual allocation will be initially

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advanced for the first six months. This allocation will be reviewed annually and revised if necessary.

0 Provincial Special Dollar Account. The funds in the provincial SDA will be directly advanced to the provincial treasuries o f al l the provinces. IDA funds will be fungible thereafter. An annual IDA financing allocation will be pre-agreed with each Provincial Council and 50% o f the annual allocation will be initially advanced for the f i r s t six months. This allocation will be reviewed annually and revised if necessary.

The fund f l ow arrangements presently followed by the government and to be used in this program are depicted in the diagrams below.

(A) Central Special Dollar Account

General Treasury

I M a i n Ministry Budget Education Publications Dept. Dept. o f Examinations N E C - Statutory boards,

- National Colleges o f Education - National Schools - Teacher Centers

(e.g., NIE)

Via the Provincial Departments of Education

Funds transferred to certain institutions such as the NIE and National Colleges o f Education are treated as grants and accounted for as expenditure at the time o f transfer. Mainly, recurrent cost i s met by the MOE. Because the frequency o f transfer i s monthly, the issue o f a lag between recording o f expenditure and the actual time o f expenditure i s not l ikely to be significant.

Text books and school uniforms comprise a significant percentage o f the ministry's budget. The M O E procures these v ia the Publications Department and distributes them to children at the national schools and the provincial schools. The distribution i s done through the Provincial Departments o f Education.

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(B) Provincial Special Dollar Account

General Treasury

I 1 Note 1 Note 2

Provincial Department o f Education Provincial Ministry o f Education.

1 1 Zonal Offices

1 Schools

Note 1: Provincial Treasury channels a l l recurrent expenditure to the zonal offices and to the schools via the Provincial Ministry of Education. I n some provinces such as the Southern Province, capital expenditure too is channeled via this route.

Note 2: Provincial Treasu ry channels capital expenditure to the zonal offices and the schools v ia the provincial Ministry of Education in most provinces.

Funds are transferred on an imprest basis at al l levels except at the last t ier o f the fund flow structure (i.e., Zonal offices to schools). At this level, funds are mostly transferred against actual expenditure and directly recorded as expenditure. Funds for activities including purchasing of quality inputs are transferred to the schools once a year for the entire year. These are recorded as expenditure at the time o f the transfer. Funds transferred and recorded as imprest are accounted for o n a monthly basis by providing statements o f expenditure. All supporting documents are maintained with the respective spending units and are made available to the auditors.

Staffing

All public sector accountants are members o f the S L Government Accounting Service and undergo a 6-month training (includes both classroom and practical training) before assuming duties. On-going training courses conducted by the S L Institute o f Development Administration (SLIDA), Institute o f Government Accounts and Finance (INGAF), and National Institute o f Business Management are available to all public sector finance staff, and paid for by the government. Most accountants at the center and the Provincial Councils have the additional qualification o f having prior experience in handling IDA-funded projects.

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Each zonal office i s allocated one accountant. However about 30% o f the zones in our sample did not have accountants although the approved cadre included the post o f accountant. This was due to the shortage o f government accountants in the country. Mos t zones have a senior accounts clerk and Accountants are shared between zones.

In September 2005, out o f about 200 accountants belonging to the S L Government Accounting Service who underwent training, some were posted to the education departments/zonal offices in the provinces to fill up these vacancies.

The Finance Commission wil l appoint a financial management specialist for the program, as a part o f the overall strengthening o f the Finance Commission to closely monitor the activities o f the provinces.

Accounting Policies and Procedures

The accounting policies and procedures are spelt out in the Financial Regulations (FRs) for the Central Government and Financial Rules for each Provincial Council. The Financial Rules are adaptations o f the FRs. These are considered to be adequate for this operation. The government accounting practices are characterized by single-entry recording and cash basis o f accounting. The grant in aid to schools for quality inputs i s recognized as expenditure in the government books o f accounts.

Internal Controls

The FRs and the Financial Rules address al l aspects o f accounting procedures and internal controls necessary for authorizing, approving, and recording public sector expenditure. Although the FRs and Financial Rules comprehensively cover internal control procedures, they are excessively r u l e based and do not focus sufficiently o n controls to promote accountability for performance. To overcome this weakness IDA has built in measures under the Project to closely monitoring performance indicators. Some o f these measures are mentioned in the internal audit section o f this annex. In addition, the government i s showing their commitment towards outcome monitoring by providing sufficient budget provisions for monitoring, evaluation, pol icy research and analysis, in the 2006 government budget.

Our diagnostic studies revealed that the FRs and Financial Rules are closely fol lowed by the implementing agencies at both the national and provincial levels. There i s adequate segregation of duties and bank reconciliations have been prepared and are up-to-date. Whilst an inventory of fixed assets i s maintained, a comprehensive fixed register with values i s not maintained. However i t i s mandatory for a l l spending units o f the government to carry out an annual physical verification o f assets by an independent board o f surveyors. Better f ixed asset management wil l be brought in v ia the IDA program with the close monitoring o f the Provincial Councils by the FC, and through PEQETS.

As an additional control measure to help ensure that funds are used for the purposes intended, a communications strategy directly involving school development committees will be implemented by the MOE. The committees are set up as part o f the school based management initiative which wil l ini t ial ly be piloted in one zone per province. By keeping beneficiaries at the school level informed o f the program goals, activities, and fund allocations, they will be in a position to help guide the appropriate disposition o f funds.

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Internal Audit

Internal audit at the center i s carried out by the internal audit department attached to the MOE. In addition, each Provincial Council has i t s own internal audit department to carry out audits o f al l sectors. The internal audit o f the public sector, at a l l levels, i s very weak and focuses on compliance with FRs. Our review o f the internal audit arrangements revealed that internal audits are not carried out regularly at the zonal level. I t has been decided that strengthening the government internal audit arrangements go beyond the scope o f this Project. Therefore as an alternative to address the weakness in internal audits and the input focused public sector regulations, the program has incorporated the following into i t s design:

(a) Implement a Public Expenditure and Quality Education Tracking System (PEQETS) wherein aspects o f financial management by budget code have been incorporated in the TOR for PEQETS.

(b) Conduct a performance audit o f the program by the Auditor General’s office or an auditor acceptable to the Association, close to mid term review has been stipulated.

(c) Strengthen the Finance Commission to closely monitor the flow o f funds and the implementation o f the approved programs at the provincial level.

External Audit

The Auditor General o f S i Lanka carries out an annual external audit at the center as we l l as at al l Provincial Councils (with schools being covered o n a sample basis). Whi le the regular audit reports o f the AG incorporate audit findings for al l implementing agencies down to the zonal offices, they do not provide an overall opinion on the financial statements. In case o f the Provincial Councils: (a) there i s a delay in the issuance o f the overall audit report beyond six months; (b) A sector audit report i s not issued, instead one consolidated audit report for each Provincial Council i s issued.

I t has therefore been agreed with the Auditor General that they would carry out an audit o f the Financial Monitoring Reports (FMRs) and provide two opinions for: (a) The education ministryhector in the Central Government; (b) Education programs o f the eight Provincial Councils. The consolidated annual financial statements wil l mirror the consolidated 6-monthly FMRs. Therefore the opinions o n the FMRs in essence wil l be approximately equivalent to consolidated audit reports for the center and the provinces. The auditor will be guided by the audit findings from the audits carried out in the education sector in giving h is opinion.

Terms o f Reference for the external audit have been agreed with the Bank. A full-time Financial Management Specialist attached to the F C wil l fol low up o n the audit observations with al l the provinces to ensure that corrective measures are taken and report to IDA on the progress made. The three departments in the MOE are responsible for taking corrective measures in their respective departments. The fol lowing audit reports would be tracked in ARCS. I t was agreed with the L O A department o f the Bank that a separate audit opinion o n the Special Accounts i s not required for a SWAP operation.

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Implementing Agency

Consolidated Financial statements o f the Central Education Ministry (MOE, EPD and DOE)

Audit Auditors Implementing Audit Date

Program Auditor General Government o f December 3 1 each Entity

Implementing Agency Audit Auditors Implementing

Program Auditor General Government o f Audit o f Sri Lanka; S r i Lanka

Entity

consolidated by the Finance Commission

Consolidated Financial Statements o f the education program of 8 provinces

year. Audit report to be submitted by June 30 o f the fol lowing financial year Audit Date

December 3 1 each year. Audit report to be submitted by June 30 o f the fol lowing financial year

Audit

Information System

The Computerised Integrated Government Accounting System (CIGAS) and the Government Chart o f Accounts wil l be used by the M O E as well as the Provincial Councils al l the way down to the zonal offices. A manual system i s used in parallel by a l l implementing agencies because the government auditors are not familiar with computer-based auditing. The vote ledger balances maintained manually and electronically are reconciled on a monthly basis and certif ied by the accountant. The government accounting systems generate expenditure information along the l ines of expenditure classification in the government budget. The budget codes and account codes are uniform at al l levels in the Provincial Councils making it possible to consolidate required information and to exclude amounts spent on ineligible expenditure.

Reporting and Monitoring

IDA reporting requirements for the program wil l be in l ine with the existing government reporting formats and along the broad budget categories. Presently al l eight PCs and the departments in the MOE submit monthly financial reports (summary o f expenditure, sources o f income etc.) to the Treasury.

The Department o f Treasury Operations (DTO) and the Finance Commission wil l take the responsibility of submitting six-monthly Financial Monitoring Reports to IDA. DTO will prepare and submit the FMRs for the Central S D A by consolidating six-monthly financial reports from the eight provinces, Central Ministry o f Education, Departments o f Publications and Examinations, and reports on the special allocations given to the Ministry o f Finance and Planning, and National Education Commission to administer the program. The F C wil l prepare and submit FMR for Provincial S D A by consolidating the six monthly financial reports f rom the 8 Provincial Councils and the expenditure incurred by the FC to administer the program.

Output monitoring reports and procurement progress reports will not be received as part o f the FMRs. These areas will be addressed under the Monitoring and Evaluation o f the program and by the Procurement Specialist.

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The following diagram illustrates the information flow for IDA reporting purposes. a) Central Level

I I

I DTO I

Statutory Boards

T Zonal

Offices

b) Provincial Level

8 Provincial

Provincial Ministr ies o f

Education

t Provincial

Departments o f Education

Disbursement Arrangements/ Eligible Expenditures

The program follows the report-based disbursement method. Two sets o f FMRs will be prepared by the D T O for the two special dollar accounts mentioned in the funds f low section. FMRs will be submitted to IDA within 45 days after the end o f every 6 months. The program wil l finance a f ixed amount o f US$12 mi l l ion during the lSt year, Le., 2006 towards the program. From 2007 onwards the funds provided by IDA will be linked to the performance o f the ESDFP. The annual allocation wil l be released in two tranches, linked to the submission o f the FMRs and cash forecasts.

The project wil l be available to support al l activities in the education sector at both the central and provincial levels except: a) salaries and wages o f government officials, b) school uniforms, c) land acquisition, d) higher education, and e) expenditures financed by other development partners. The Chart o f Accounts in CIGAS captures such ineligible expenditure under separate account heads and wil l be reflected in the central and consolidated financial reports.

Supervision Strategy

The program will need intensive supervision during the init ial years f rom a financial management perspective. This will be through desk reviews and field vis i ts to the zonal offices, schools, and other implementing entities. Specific areas wil l include a test o f expenditures reported against the planned amounts, review o f transaction documentation for fund flows to the zones and schools, analysis o f fixed assets, and a review o f internal controls, processes and any issues raised by School Development Committees on the use o f funds.

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Annex 8: Procurement

General Description

The proposed IDA Education Sector Development Project proceeds will finance U S $ 6 0 mi l l ion towards an Education Sector Development Project in Sri Lanka under a Sector Wide Approach (SWAP) over a five year period 2006 - 2010. The grant wil l be used for the procurement o f goods, works and services under the Education Sector Development Framework and Program (ESDFP) o f the Government o f S r i Lanka.

Implementation Arrangements

Partnership Arrangements:

IDA will provide overall support for the ESDFP through the ESDP. Other education development partners wil l provide specific support to identified areas within the over-arching framework o f the ESDFP. The two main donors to education after IDA are the ADB and JBIC. ADB i s assisting the development o f secondary schools through a Secondary Education Modernization Project. JBIC i s helping provincial education authorities to rehabilitate and upgrade essential school facilities, such as classrooms, water and sanitation, through a Small Infrastructure Rehabilitation and Upgrading Project (SIRUP). UNICEF i s a long-standing donor to the education sector. Four bilateral donors, BMZ, DFID, JICA and S IDA also support the ESDFP through, chiefly, grant funded technical assistance. The assistance o f the bilateral donors i s small, with the combined contribution amounting to about 0.1 percent o f education expenditure in the country.

However, there i s no pooling o f funds with the proposed Project (ESDP).

The procurement will be carried out at al l the fol lowing levels:

0

0

0 School Level.

Central Level (Ministry o f Education - including various departments, boards, colleges etc.). Provincial Leve l (Eight Provincial Councils).

Procurement Arrangements

Items to be procured:

The implementation o f the ESDP broadly entails the procurement o f text books, library books, teaching and learning material, furniture, education equipment, materials required for teacher training, office equipment, computers and accessories, improvement o f school facilities, construction o f primary and upper primary buildings, additional classrooms, toilets, drinking water facilities, maintenance and repair o f school buildings, and hiring o f experts for specific tasks. IDA will not finance salaries, school uniforms, land acquisition and counterpart funds for other non-pooling donors under this Project. N o I C B Contracts are envisaged for this Project and hence a General Procurement Notice wil l not be published.

76

Procurement Plan

The financing o f the ESDP i s based on the annual consolidated central and provincial plans, and it i s not possible to determine the total value o f works, goods and services procured during the f i rst three years o f the project which i s otherwise required as per interim Guidelines on Fiduciary Arrangements for SWAPS (November 22,2002). I t is possible to prepare only the f i rs t year plan. However, the government i s considering a proposal to have a three year rolling budget, including an implementation plan. In the event this proposal materializes, i t would be possible to have a procurement plan for three years as well.

During the f i rs t year, US$12 million wil l be allocated from the ESDP for the 8 provinces and the center. The eight provinces wil l receive approximately U S $ l . 1 mi l l ion (SLR 1 10 million) each, which wil l then be distributed to the sub-provincial levels and f rom there to the schools. There are about 10,000 schools. On an average each school wil l benefit by about US$l,OOO (SLR 100,000). The actual amount each school i s entitled to wi l l depend on their sizes, with the allocation done according to a unit cost formula. The grants will enable school to buy books and reading material, purchase consumable teaching-learning material, pay for equipment and tools, refurbish or undertake repairs o f buildings and facilities, pay for teacher training, send children on excursions and visits, pay for the training o f principals, give school meals in poor areas etc. Schools are entitled to use the money for both capital and recurrent expenditures. Where major capital works are needed, such as establishing a computer center or a l ibrary or a science laboratory, the Province or national MOE may do the contracting o n behalf o f the school.

Review of Borrower’s Capacity to Implement Procurement

The assessment o f Borrower’s capacity to implement procurement i s based mainly on two studies:

[i] [ii]

Country Procurement Assessment Report [CPAR, 20021; and Education Sector Procurement Assessment [ESPA, 20051.

In addition, the Designated Procurement Specialist had detailed discussions with the government officials for the same purpose.

Country Procurement Assessment Report [CPARl r20021

The f i rst comprehensive assessment o f the public procurement environment in Sri Lanka - the Country Procurement Assessment Report (CPAR) was completed in April 2003 with IDA Technical Assistance. The CPAR investigated and assessed a l l relevant aspects o f procurement operations including the legislative framework, effectiveness o f the regulatory institutions, strength o f the enforcement regime, institutional capacity and human resources, and potential for introducing electronic procurement. The CPAR noted that the guidelines o n government tender procedures issued by the Ministry o f Finance and Planning (1 997) cover al l the relevant areas under U N C I T R A L and have been ruled to have the force o f L a w (CPAR pp vii and viii). The CPAR suggested certain improvements and reforms in the procurement sector. The measures are meant to strengthen the system. The changes suggested in guidelines are only minor changes (pp 23 o f CPAR). The provisions regarding negotiations before selection o f successful bidder are suggested to be in line with the Bank’s procurement guidelines. The other recommendation i s to redraft the procedures for hiring the consultants by comprehensively redrafting clear and precise

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procedures and preparation o f documents for various methods o f selection and various types o f contracts.

The government has established a National Procurement Agency (NPA) which i s working on procurement reforms and capacity building. Procurement Guidelines already exist for goods and works, and are being prepared for services. The NPA i s also preparing a Procurement Manual which wil l help the implementing agencies in fol lowing the Guidelines. The Guidelines for procurement o f services and the Manual are expected to be ready by the end o f December 2005 I

Education Sector Procurement AssessmentrESPAl r20051:

A special review was conducted through a consultant for the procurement assessment o f the Education Sector. As al l provinces in the country are participating in the ESDP operation, the review o f existing procurement policies and procedures was carried out on a sample basis to:

1. seek feedback regarding the impact that current systems have on procurement o f sector goods, works and services.

2. find out whether the procurement regime i s underpinned by sound management support. 3. provide solutions and assist in deciding action plans for improving the current

framework, where gaps exist or may occur, enabling introduction o f necessary remedies during the stages o f preparation, appraisal, and negotiation o f the project.

The consultants have completed their review. In addition to reviewing various procedures and documents, the consultants also held discussions with officials o f the Central Government and five out of the eight provincial councils. The consultants also visited schools in the information gathering and review process.

The conclusions reached by this study are as follows:

0

0

The current public sector procurement framework i s satisfactory and can be adopted effectively for procurement under the ESDP. The nationally adopted c iv i l works procurement procedures using nationally registered contractors and standard bidding documents and conditions o f contract, a l l developed by the Institute for Construction, Training and Development (ICTAD) are being effectively adopted across the education sector, by both central and provincial entities. The experience o f managing consultancy services, goods and works procurement acquired during the implementation o f several donor funded projects has assisted in establishing capacities within the education sector and sensitized the ministry officials at Central and Provincial levels to the operating principles, covenants and agreements related to donor funded projects. Except for a minor number o f cases identified by Government Auditors as non-conforming to the good practice and specified regulatory frame work, the general picture i s that transparency, accountability and fair play are observed as a pattern in general in procurement contracts. The consultants therefore consider that the government’s regulatory framework in procurement i s adequate to be adopted for the proposed SWAP.

0

78

In view of:

[i]

[ii]

[iii]

the fact that recommendations o f CPAR are being implemented at the National Level, which would also include the Education Sector, and the fact that Guidelines cover al l the relevant areas under United Nations Commission o n International Trade Law (UNCITRAL) and have been ruled to have the force o f L a w and further fact that the ESPA found the current government framework to be satisfactory, i t i s proposed to rely on the government system for implementation o f procurement arrangements.

This will enable the ESDP to be seamlessly embedded within the normal development activities o f the Ministry o f Education and the Provincial Education Ministries. The integration of the ESDP within the government’s own systems wil l ensure that the long term development activities supported by the Project wi l l continue to be supported beyond the l i f e o f the project.

Major Issues identified under ESPA and agreed remedial measures

Issues:

Nonstandard procurement procedures followed by the Central Ministry o f Education (e.g. text books and clothing for uniforms) and Provincial Ministries (e.g. furniture) Insufficient dedicated and professionally managed procurement organizations in the Central or Provincial Ministr ies Insufficient procurement sk i l ls at al l levels, from Ministry to Schools

Agreed Actions for capacity building, planning and monitoring and methods o f procurement for goods and equipment and hiring o f consultancy services

0 The Guidelines issued by the Ministry o f Finance and Planning o n Government Tender Procedures as amended from time to time will be strictly followed. However, before implementing amendment to the Guidelines, prior clearance from the IDA will be obtained. Til l such time as the National Procurement Agency prepares the Guidelines for hiring o f consultancy services and i s approved by IDA for adoption in this project, Guidelines for Selection and Employment o f Consultants by Wor ld Bank Borrowers, M a y 2004 shall be followed. Ministry o f Education has established a procurement cell. The cel l will be responsible for: (a) consolidation o f the Annual Procurement Plan, setting o f standards and monitoring outcomes; (b) providing support for the procurement o f Goods, Works and Services; (c) assisting the heads o f division in appointing Technical Evaluation Committees and Tender Boards; (d) monitoring the progress o f tenders; (e) monitoring and fol low up actions regarding the status o f procurement; (f) arranging procurement audits; (8) the assessment o f needs and budget requirements for procurement activities; (h) developing strategies to improve performance; (i) standardization o f generic specifications o f items o f common interest; and (i) acting as a liaison between the NPA and implementing agencies. The cell will be responsible for capacity building amongst various stake holders through dissemination o f information (such as Guidelines, Manual etc.) arranging workshops, training etc. A training plan for the first year wil l be prepared

0

0

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by March 3 1 , 2006. The f i rst o f the training programs wil l be conducted before June 2006. This wil l be in addition to the capacity building exercise which i s undertaken by NPA. The cell should take advantage o f the procurement capacity created by NPA and the activities planned by the cell shall be complimentary as well as supplementary to the activities of NPA. The cell will also be responsible for the preparation o f the annual procurement plan, standardization o f generic specifications o f items o f common interests etc. The procurement plan for the f i rst year activities was prepared and forwarded to IDA for review in September 2005, and was found to be acceptable. The cell would also monitor the status o f procurement, arrange procurement audits and coordinate the needs assessment and budget requirements for procurement activities. Similarly, a procurement anchor has been appointed in the office o f the Finance Commission for monitoring and guidance on procurement activities being carried out at provincial level and below. Modal i ty shall be worked out to ensure harmonious and seamless functioning between the procurement cell in the Education Ministry and the procurement anchor in the office o f the Finance Commission during the f i rst six months o f implementation. Till such t ime as the NPA prepares N C B documents for goods (and equipment) and these are approved by the IDA for adoption in the project, the N C B documents being used for procurement o f goods under the existing S L Second General Education Project (GEP2) shall be used.

Procurement Planning

The annual procurement plan shall establish various methods o f procurement for works, goods and hiring o f consultancy services. The agreed procurement procedures are as under:

Works and Goods:

ICB: N o I C B i s envisaged under the project. However, in an unlikely event if goods and equipment estimated to cost above U S $ l mi l l ion per contract are to be procured, Bank’s Guidelines for M a y 2004 wil l be applicable.

NCB: Guidelines on Government Tender Procedures [Revised Edit ion August 1997, Reprinted May 2004, includes circulars issued up to end o f 20031 issued by Ministry o f Finance and Planning, Government o f Sr i Lanka [Guidelines o f S r i Lanka], Chapters I to IV and VI1 to X I wil l be followed. The amendments to the Guidelines wil l be followed after prior clearance f rom IDA. The agreed procedures are as under:

Invitation for bids should be advertised at least in one widely circulated national newspaper and in relevant websites where possible;

Any supplier, service provider or contractor who desires to obtain the bidding document should be allowed to purchase same, without restriction, provided the bidder i s prepared to pay any specified fees;

The contractors/suppliers/service providers should be allowed to purchase the bidding document up to a day prior to the last date for submission o f bids;

For construction works, to be eligible for contract award, the domestic contractors shall have a valid and appropriate registration at the time o f submitting the bid,

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under the National Registration System o f ICTAD. However, I C T A D registration should not be an eligibility criterion for purchasing the bidding document.

Shopping: followed.

Guidelines o f S r i Lanka Chapter V and as amended from t ime to time shall be

Direct Contracting: Guidelines o f S r i Lanka Chapter XI1 and as amended f rom time to t ime shall be followed.

Consultancy : Til l such time as the National Procurement Agency prepares the Guidelines for hiring o f consultancy services and i s approved by IDA for adoption in this project, Guidelines for Selection and Employment o f Consultants by World Bank Borrowers, May 2004 shall be followed.

Works, Goods and Equipment

NCB Works N o threshold

Goods and Equipment Up to US$l,OOO,OOO per contract

Shopping Up to US$50,000 per contract

Direct Contracting Proprietary items, spare parts up to US$20,000 per contract. Items above US$20,000 will require prior approval of IDA.

Note: I t i s expected that no contract for goods would exceed US$1 million per contract and hence, no I C B i s expected under the project. However, in an unlikely event, if for any contract, estimated cost exceeds U S $ l million, I C B procedures shall be followed and the Bank's Guidelines for M a y 2004 wil l be applicable. Such contracts would be subject to prior review by the Bank.

Procurement Audit

The Ministry o f Education and the Finance Commission, on behalf o f the government, wil l hire an external consultant to carry out ex-post reviews and asset verification for not less than one hundred schools, three provinces besides the Central Ministry. The frequency o f ex- post audit (including sample size) shall be reviewed by IDA and an agreement will be reached on frequency and sample size from time to time. Init ial ly there will be an ex-post audit once in six months. IDA will also conduct a sample ex-post audit o f contracts including the consultant's outputs. IDA will also review procurement, as necessary, either by site v is i ts or by desk reviews o f documentation.

Additionally, the Auditor General (AG) 's staff wil l be trained by NPA to conduct Procurement Audits. Their TOR would also include Procurement Audit: compliance with procedures and Value for money/Technical Auditing. Once the AG's staff i s fully familiar with procurement audits, IDA may agree to drop the requirement o f audit by an independent consultant.

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The MOE/Finance Commission wil l make available reports o f the consultants and the AG o n procurement audits including compliance to the observations made in the reports.

Records o f al l procurement arrangements, works, purchase orders, invoices, receipts, stock registers etc., shall be properly maintained, duly linked and retained by the concerned authorities.

Misprocurement

The goods, works and services that have not been procured in accordance with the prescribed procedures shall be treated as misprocurements. The expenditure incurred on such procurement shall not be eligible for financing from ESDP funds.

Overall Procurement Risk Assessment

Average.

Frequency of procurement supervision missions proposed:

One every six months for the f i r s t year (includes special procurement supervision for post- review/audits) and once a year thereafter.

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Annex 9: Economic and Financial Analysis

Male Workers

Education Social Rates Private Rates Level o f Return o f Return

Background and Introduction

Female Workers

Social Rates Private Rates o f Return o f Return

S r i Lanka i s strongly committed to promoting human development and economic growth through efficient and equitable investment in human capital, strategic competition in global markets and effective delivery o f public services. Education i s at the heart o f this development strategy, and an intense focus o f public pol icy [NEC, 2003; Wovld Bunk, 2005~1. The importance awarded to education i s illustrated by the fact that the President o f the country i s also the Minister o f Education. In addition, in several provinces, the Chief Minister o f the province also functions as the Provincial Minister o f Education.

Basic

Secondary

Tertiary

Returns to Investment in Education

15 19 20 25

20 25 18 22

11 26 10 24

Investment in education yields substantial social and private rates o f return in Sri Lanka, ranging from 10-20 percent at the social level and 18-26 percent at the private level [Table 9.11. Among men, social returns to education are highest in secondary education, 20 percent, followed by basic education, 15 percent. Among women, social returns to education are highest in basic education, 20 percent, followed by secondary education, 18 percent. These findings show that the strongest social benefits to public investment in education are enjoyed at the basic and secondary levels. This provides powerful support to the focus o f the ESDP o n the school system covering the basic education cycle (grades 1-9) and the secondary education cycle (grades 10- 13).

Equity and distributive justice. Basic and secondary education provide the main avenues for social mobil i ty in the country. For instance, recent empirical evidence from the Wor ld Bank, Sri Lanka Education Sector Report, 2005, shows that educated individuals are able to attain higher level occupations than their parents. In addition, education has a significant effect on female

83

labor force participation [World Bank, Education Sector Report 20051. Also, education has a strong impact o n poverty reduction and economic welfare in Sr i Lanka.

Investment in basic and secondary education also shows a higher degree o f equity than investment in tertiary education, when measured in terms o f participation rates across economic groups [Figure 9.11. Enrolment rates in the primary cycle, grades 1-5, are virtual ly equal among al l consumption groups. Enrolment rates in the upper level o f the basic education cycle, grades 6-9,

Figure 9.1: Lorenz Curves of Shares of Public Education Expenditure Among Economic Groups

100 90 80 70 60 50 40 30 20 10 0

1 2 3 4 5

Cumulative percentage of consumption groups ordered by per capita consumption

,

are also highly even across economic groups. Enrolment in secondary education (grades 10- 13) i s also fairly equal among consumption quintiles. Enrolment in tertiary education, in contrast, is uneven across consumption quintiles, and benefits f low mainly to the higher consumption quintiles.

Gender parity and equity o f social outcomes between men and women i s an important economic objective in the modern developing world. Sr i Lanka is well-known as a low-income country that has achieved a high level o f gender development, measured in t e r m s o f indicators such as girl's education, female literacy, and maternal health [ UNDP, 1998; World Bank, 2005al. Public investment in basic and secondary education has also made a key contribution to these well-known gender achievements o f Sri Lanka [World Bank, 20O5bI. Currently, female enrolment i s on par with male enrolment at the primary level, and exceeds male enrolment at the secondary level [Figure 9.21. As such, investment in basic and secondary education is likely to be of considerable future importance and benefit to girls.

84

Figure 9.2: Net Compulsory Education Completion Rates, Grade 1-9. 2001.

105

100

- s - 95 3 E m

C 0

P

0

.- - % 90

E 85

80

1 2 3 4 5 6 7 8 9 1 Grade

1 1

Economic efficiencv and growth potential. The high social rates o f return to education [Table 9.11 show that investment in education, especially at the basic and secondary levels, has the potential to contribute strongly to economic development. An excellent school education provides the foundation for high quality labor market performance, as wel l as good technical training, sk i l ls development and university education, in later life. The human capital accumulated through a high performing education system i s vi tal ly important for the lead areas identified by the Government o f Sr i Lanka to promote future economic growth, such as ICT, electronics, engineering and metallurgy, banking, insurance and financial services. More generally, educated individuals are required to provide creative and competent managers and workers for commerce, industry and finance.

Market failure. Human capital, the main economic output o f the education system, i s inherently unobservable and embodied in individuals, making it nearly impossible for individuals to offer i t as collateral to banks and finance institutions. Further, human capital yields financial returns only over a long, uncertain future period, increasing lending risks for credit institutions. As such, banks and credit institutions are willing to advance credit to individuals to finance education only if there i s a sufficiently complete set o f futures and insurance markets to enable them to hedge their risks adequately. However, such an economic institutional framework does not exist, even in highly advanced market economies, for basic and secondary education. In consequence, students are unable to use human capital and their future earnings potential as collateral to borrow from the banking and financial sector to finance the cost o f basic and secondary education, and market forces alone are insufficient to enable individuals to invest optimally in schooling.

85

Externalities and social benefits. Investment in basic and secondary education generates a wide range o f externality benefits. In particular, maternal and chi ld health and nutrition outcomes and child, infant and maternal mortality outcomes are strongly associated with female education attainment. An example from the recent development literature in S r i Lanka i s shown in Table 9.2 below. Table 9.2 shows that chi ld nutrition levels rise, in a statistically significant way, as the education level o f the mother increases. Public investment in education, especially basic and secondary education, has the potential to generate strong social benefits.

Education level o f mother

Primary educated mother (grade 5 completed) Middle secondary educated mother (grades 6-10) GCE O/L completed

GCE A/L completed or higher

Marginal impact o f being severely or moderately underweight

Marginal impact o f being severely or moderately stunted

-0.082 -0.470 (-0.49) (-2.55) -0.3 11 -0.757 (-1 -93) (-3.92) -0.397 -0.920 (-2.29) (-4.3 6) -0.920 -1,101 (-4.69) (-4.5 8)

Cost-Benefit Analysis

Quantified benefit streams

The future economic impact o f the ESDP is estimated o n the basis o f three streams o f anticipated benefits: (a) increased wage incomes resulting from larger numbers o f children completing basic and secondary schooling; (b) enhanced labor earnings f lowing f rom the higher quality o f basic and secondary education; and (c) reductions in job search duration and unemployment among school completers due to the r ise in education quality. These three sets o f benefits are simulated using earnings functions estimated from the Labor Force Survey data o f the Department o f Census and Statistics, under a series o f alternative scenarios, for school

86

completers at the basic (grades 1-9), GCE O I L (grades 10-11) and GCE A/L (grades 12-13) cycles.

Quantified cost streams

The costs o f the overall education sector framework and program constitute: (a) total public expenditure on basic and secondary education (including fknds from donors) during 2006- 201 0, o f approximately $3.3 bi l l ion in present value terms; (b) private education expenditure, over the period 2006-2010, o f about $60 mi l l ion present value, according to forecasts from the Household Income and Expenditure Survey o f 2002; and (c) the opportunity cost o f earnings foregone resulting from the higher enrolment rates and grade cycle completion rates o f the school aged population (6-18 years). These opportunity costs are derived from the earnings functions estimated from labor force survey data.

Key assumptions

The economic analysis is based on the fol lowing key assumptions: (a) that net survival rates in the basic education cycle (grades 1-9) wil l r ise from the current 78 percent to 88 percent by 2010; (b) that net survival rates in the secondary education cycle (grades 10-13) wil l improve from the current 29 percent to 35 percent by 2010; (c) that learning outcomes will increase from the present mean scores for mathematics of 61 percent, for First Language (Sinhalese or Tamil) o f 62 percent, and for English language of 42 percent, to 70 percent for mathematics and First Language, and 50 percent for English language, by 2010; (d) that economic growth, which averaged 5-6 percent per year over the period 1990-2004, wil l continue at least at the same rate o f growth, and that the demand for educated labor wil l r ise proportionately; and (e) that school completers wi l l have an active work cycle o f 40 years. In addition, the exchange rate o f Sri Lankan rupees to US dollars i s assumed to be 100: 1 , which i s the average for 2005; and the discount rate used to calculate the present values o f the benefit and cost streams i s assumed to be 15 percent.

Net economic benefits of the ESDP

The ESDP, based on the assumptions above, yields a net present value o f $527 mi l l ion according to the middle scenario in Table 9.3, and an internal rate o f return o f 24 percent according to the middle scenario in Table 9.4. This shows that, even under the fair ly modest assumptions o f the middle case scenario, the Project generates substantial economic benefits. Under the different scenarios given in Table 9.3, based on alternative assumptions, the net present value o f the ESDP varies between $3 15 mi l l ion and $791 mil l ion. Similarly, under the different scenarios given in Table 9.4, based o n alternative assumptions, the internal rate o f return varies between 14 percent and 34 percent. Hence, the sensitive analysis shows that the Project yields considerable economic benefits, with an NPV o f $ 3 15 m i l l i on and an IRR of 14 percent even under the minimal scenarios shown in Table 9.3 and Table 9.4 respectively. Under the best scenario in Table 9.3 the NPV o f the Project is $791 million, and under the best scenario in Table 9.4 the IRR of the Project is 34 percent. These represent high economic benefits. Overall, under al l scenarios, the Project yields generous economic returns.

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Scenarios

Job search duration decreases by 5 months Job search duration decreases by 4 months Job search duration decreases by 3 months Job search duration

Job search duration decreases by 1 month

decreases by 2 months

Earnings Earnings Earnings Earnings Earnings increase by increase by increase by increase by 6% increase by 3% per 4% per year 5% per year per year 7% per year year

472 552 632 71 1 79 1

433 506 579 652 725

394 460 527 593 659

354 414 473 534 593

3 15 368 42 1 474 528

Scenarios

Job search duration

Job search duration decreases by 5 months

Earnings Earnings Earnings Earnings Earnings increase by increase by increase by increase by increase by 3% per year 4% per year 5% per year 6% per year 7% per

year

22 25 28 32 34

Non-quantified benefits

decreases by 4 months Job search duration

The ESDP will also yield substantial economic benefits through i t s long-term impact on poverty reduction, social mobility, and externality effects o n health, nutrition and family welfare, These benefits have not been quantified above, but wil l add to the economic impact o f the Project.

20 23 26 29 3 1

Fiscal impact and sustainability

decreases by 3 months Job search duration decreases by 2 months Job search duration decreases by 1 month

As a result of the constrained government budget during the last decade, the allocations to the education sector were cut down and expenditure in real terms declined. The tight fiscal conditions affected quality programs as salaries and administrative costs were given first priori ty in the education budget. The ESDP wil l help address the education sector’s immediate needs by supporting the central and provincial development plans for 2006-201 0 to increase access, enhance quality, increase efficiency and equity o f resource distribution and strengthen governance and service delivery.

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19 21 24 26 29

17 18 21 24 26

14 16 19 21 23

The ESDP’s impact on the budget

Percent

0 Within the recurrent budget the ESDP will support quality enhancing programs such as professional development o f teachers and principals and delivery o f on-site academic and administrative support to schools, and meet the operating costs o f capital education investment.

0 Within the capital budget, the ESDP will give support to higher order spaces and assets such as information technology centers, science laboratories, libraries, activity rooms, multi-purpose rooms, equipment, technology and tools.

0 The ESDP will support measures to institutionalize the f low o f funds to quality enhancement programs and the sustainability o f these programs. The central and provincial budgets will include codes and budget l ines for the quality enhancing programs that are identified in the provincial development plans.

Equity o f education expenditure

The ESDP will support a government education expenditure equitable across the regions. The pattern o f education expenditure among the provinces i s strongly in favor o f the poor provinces. The ratio of expenditure per student to the per capita income o f the provinces show that these ratios are high in poor provinces such as the North-Eastern, North-Central, U v a and Sabaragamuwa provinces, while the l o w ratios are found in the affluent provinces l i ke the Western and North-Western Provinces [Figure 9.31. The highest and lowest ratios are found in the Nor th Eastern and Western provinces respectively.

Figure 9.3: Ratio of expenditure per student to the per capita income of the provinces

0.30

0.25

0.20

0.15

0.10

0.05

0 1 2 3 4 5 6 7 8 9

I Province I

89

Budget projections and sustainability

Growth projections: The tight fiscal conditions affected the education budget growth, especially quality programs, as salaries and administrative costs were given top priority. To assess the sustainability o f the current budget growth, a detailed budget, enrollment, and teachers projections were prepared using the World Bank Education Simulation Model. The budget projections are carried out for the period 2005-2014 using 2005 as a base year and included the budget allocations increase for 2006. Budget l ines o f recurrent and capital expenditure by program and object for the central and provincial budgets were the basis o f these projections. Expenditure items such as textbook, materials, uniforms, were related to a thorough enrollment projection (by grade, level, and year) and salaries were based on growth o f teaching and non- teaching staff supply and demand. Other budget items such as supplies, maintenance, and transfers were based on average growth for the past three to four years. Key assumptions included a constant average salary o f teachers and non-teachers, stable teacher to non-teacher ratios, and no change in the current student to teacher ratio.

The projections show that the number o f teachers and their salaries have revealed a steady decline o f about 1.6 percent reflecting the on-going and projected demographic decrease in the number o f primary and secondary students. However, this decline i s offset by the increase in the non-salary expenditure that i s expected to increase at 3.5 percent. Recurrent expenditure in the central budget i s projected to increase by 3.3 percent and in the provincial budget by 1.6 percent [Table 9.51. The slower growth rate o f the provincial budget i s mainly due to the relatively high proportion o f teachers’ salaries to the recurrent expenditure (97%) o f the provinces, whereas, the proportion o f teachers’ salaries to the recurrent budget o f the center i s 58%. Capital expenditure within both the central and provincial budgets i s estimated to increase by about 3 percent per annum reflecting mainly the investment trend in the past few years.

Overall, the central budget i s projected to increase from about rupees 59 billion to 73 bi l l ion between 2006 and 2014, at a compounded annual growth rate o f 3 percent and the provincial budget i s projected to r ise from rupees 16 bi l l ion to 19 bi l l ion at a growth rate o f about 2 percent during the same period, and the total sector budget wil l increase f rom rupees 75 billion to 91 billion, at a growth rate o f 2.7 percent per year. In this simulation, the sector growth rate falls below the estimated growth rates o f GDP. The C E M mid-term projections show that GDP i s likely to continue i t s growth at about 5 percent per year and recent government macroeconomic projections show that GDP i s expected to increase by 7 percent per year. This means that if the

90

education budget will continue the trend o f slow growth, i t s ratio to GDP wil l fa l l from o f about 3 to 2.3 percent during 2005-2014 and expenditure wil l continue i t s decline in real terms.

The revised budget and sector’s needprojections: The recently released education budget for 2006 included a significant increase in allocations for both recurrent and capital expenditure reflecting the government’s commitment to meet the accumulated sector needs o f infrastructure, operation and maintenance, and quality inputs. The central budget that consists o f MOE, Department o f Examination, Department o f Publications, has shown a substantial increase o f over one third in both recurrent and capital allocations between 2005 and 2006 and the total budget i s expected to increase from rupees 26 bi l l ion to rupees 35 billion between these two years. Within the total central budget, the Department o f Examinations will have the largest increase (43%) followed by MOE (35%). When the provincial budget i s added to the central budget, the sector budget rises from rupees 53 bi l l ion to Rs 75 billion, and i ts proportion to the government budget increases from 9% to 12% in 2006 [Table 9.61.

Ministry of Education Department of Examinations Department of Publications UGC & Universities Total Recurrent Capital Ministry of Education Department of Examinations Department of Publications UGC & Universities Total Capital Recurrent & Capital Ministry of Education Department of Examinations Department of Publications UGC & Universities

Government projections included in the recent budget show that the growth rate o f the education budget be about 12% in 2007 and 2008 and the budget i s expected to reach approximately rupees 44 bi l l ion by 2008 and the total sector budget i s expected to rise f rom rupees 75 bi l l ion in 2006 to rupees 93 bi l l ion in 2008. Budget projections, revised by the team, show that if the growth o f the recent budget, that reflects sector needs, i s extrapolated, the budget would reach rupees 185 bi l l ion by 2014 and i t s share to the public budget become quite high (20%). This would result in a substantial financing gap o f rupees 97 billion between the resources available as shown by the past trend growth simulation o f the budget, and the sector needs growth simulation. However, if the sector budget follows the government estimated growth o f GDP, 7% per year, the budget would reach rupees 127 b i l l ion by 2014 and i t s share to the public budget would be 14%. This would result in a smaller financing gap (rupees 58 billion.) between what i s expected to be available and what i s needed [Figure 9.41.

91

Rupees Billion Figure 9.4: Education Budget Projections in different Scenarios, 2006-201 4, Rs bn

160.0

140.0 -

e 1 - - I revised budget growth s 0 + -1 trend growth

s -

60.0 -

40.0 ~

20.0 -

0.0

These projections show that if the GDP will continue at i t s robust growth and government continues i t s high commitment to education, a substantial proportion o f sector needs will be met especially in capital expenditure and the ratio o f the education budget to the public budget will increase from 9 to 14 percent. On the other hand, if economic growth slows down and the tight fiscal condition o f the public budget continues, the pressure will be passed o n to the ministries and the education budget will continue i ts past years’ slow growth and it would be dif f icult to finance this gap between what i s needed and the resource envelope available to education.

Fiscal impact o f the ESDP

The ESDP is expected to add rupees 6 billion (US$60 million) over the five-year period (2006-2010) o f the project with an average o f rupees 1.2 bi l l ion per year. The share o f MOE from these allocations in the f i rst year i s about 25% and the rest will be distributed among the eight provinces. The distribution o f funds in the fol lowing years will be based on performance and program implementation. The entire allocations o f the program have marginal fiscal impact on the overall education sector budget and represent about 2% o f the total sector expenditure. However, the program’s funds have a significant impact on the recurrent expenditure (without the ineligible budget categories such as salaries and uniforms) and also o n the total capital expenditure. The project’s allocations represent approximately 1 1 % o f the recurrent budget without ineligible expenditure and 12% o f the total capital budget. Furthermore, the program investments have a significant impact on the provincial capital budgets. Whi le annual allocations from the ESDP make about 3.5% o f the capital budget o f MOE, they represent approximately one third o f the capital budget o f the provinces [Table 9.71.

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Capital

ESDP allocations % ESDP to MOE & Province recurrent % ESDP to MOE&Province capital % ESDP to MOE&Province recurrent

Recurrent &Capital

&capital

Sustainability o f the ESDP *

The sustainability of the consolidated central and provincial educational development plans wil l depend on the commitment and the ability o f the government to provide the budgetary allocations required by these plans and according to priority programs. The budgetary mechanism o f ESDP wil l institutionalize the f low of funds and wil l facilitate the sustainability o f these plans. O n the whole, the ESDP i s likely to be sustained as i t represents a small proportion o f the sector budget and most l ikely government funds wil l continue financing the amount o f support provided by the Project. The government need to pay special attention to the sustainability o f the project’s allocations to the provincial capital budgets as they represent a relatively large share (about one third). The substantial increase in the revised education budgets for 2006-2008 indicate the government’s commitment to meet the backlog o f sector needs in recurrent and capital expenditure and increases the chances o f sustainability o f the development plans. On the other hand, if the current tight fiscal condition o f the public budget goes on, the pressure will be passed on the education budget and priorities wil l to be given to recurrent expenditures o f salaries and administrative costs, books, uniforms, and other student programs.

9,965 10,714 9,840 10,694 11,633 63,152 67,769 71,257 77,029 83,289

1,200 1,200 1,200 1,200 1,200 2.24 2.09 1.94 I .ao 1.66

12.04 11.20 12.20 11.22 10.32

1.90 1.77 1.68 1.56 1.44

93

Annex 10: ESDP Funding and the Performance o f the ESDFP

The ESDP Fund F l o w Arrangements and Relationship to ESDFP Performance

The ESDP i s a US$60 million grant over the period 2006-2010. In the first year, 2006, the WE3 proposes to provide US$12 million. Approximately 75% o f these funds are allocated for the Provincial Education Authorities and the Finance Commission, and the balance 25% for the central Ministry o f Education, the Ministry o f Finance and Planning and the National Education Commission. F r o m 2007 onwards the funds provided by IDA will be linked to the performance of the ESDFP. Performance wil l be assessed according to two types o f criteria: (a) overall performance o f the ESDFP, and (b) the individual perfonnance o f the different education agencies at the national level and the Provincial Education Ministries. During the early years o f the ESDFP the emphasis on performance wil l concentrate o n implementation progress, especially in relation to policies, inputs and processes, while during the later years o f the program the assessment o f performance wil l focus on outputs, results and outcomes. The allocation o f ESDP funds based on perfonnance wil l be carried out jo int ly by the GO S L and the World Bank during the Annual Review o f the ESDFP.

Overal l ESDFP Performance and ESDP Funding

In relation to the overall perfonnance o f the ESDFP, the ESDP resources wi l l be allocated according to one o f three alternative scenarios.

Scenario One: Good performance o f the overall ESDFP. If overall ESDFP performance i s satisfactory in a given year, this will trigger an ESDP contribution o f US$12 million to the public sector education budget for the following year.

Scenario Two: Outstanding performance o f the overall ESDFP. If overall ESDFP performance i s outstanding in a given year, IDA will increase the allocation for the fol lowing year to a level higher than US$12 million, up to US$15 million.

Scenario Three: Unsatisfactory Derformance o f the overall ESDFP. If the overall ESDFP performance i s unsatisfactory in a given year, IDA will decrease the allocation for the fol lowing year to a leve l lower than US$12 million, down to about US$8 million. O f course, if the overall program per foms extremely poorly over time, the amount provided by IDA could be reduced even further.

Intra-agency Variations in ESDFP Performance and ESDP Funding.

In relation to intra-agency variations in overall performance o f the ESDFP, the ESDP resources wil l be allocated according to one o f two cases.

Case One. Equal performance by al l education agencies. In the case o f approximately even performance in a given year by al l education agencies, the various agencies will be equally eligible for funds for the next year, and the allocation will be based on the needs and priorities o f the different agencies identified by the rol l ing ESDFP plan.

Case Two. Variations in performance among education agencies. In the case where performance differs significantly across education agencies in a given year, greater resources wil l be made

94

available for high performing agencies and lower resources provided to poor performing agencies.

Measurement of Performance for Funding Triggers

The measurement o f performance wil l be against the monitoring and evaluation indicators o f the ESDFP. Good performance will be defined as fulfilling the implementation actions and achieving the performance targets for a given year. Outstanding performance wil l be defined as exceeding the implementation actions and performance targets for a given year, either in quantitative terms or in terms o f the time taken to produce outputs or achieve results and outcomes, Inadequate performance wil l be defined as failing to fulfill the implementation actions and achieve the performance targets for the relevant year.

Among the full set o f monitoring and performance indicators, the key implementation and output, pol icy or outcome indicators o f the ESDFP that wil l chiefly influence funding decisions would consist o f the indicators below. These funding trigger indicators are chosen to cover key economic and education criteria, such as:

a. b.

c. d.

equity and the potential impact on poverty alleviation, reduction o f informational imperfections that act as critical constraints to high quality performance, allocation o f resources to enhance the external efficiency o f education investment, and human resource development, especially to improve education management and strengthen procedural efficiency.

Key Implementation Indicators

There are three critical implementation indicators:

a) b)

c)

Compliance with the ESDP legal covenants. Full utilization o f ESDP funds allocated in the past year in accordance with the ESDFP rol l ing plan. Quality o f the updated rol l ing ESDFP plan proposed for the next year.

Key Results-Policy-Outcome Indicators

These wil l also be the following key performance indicators, under the various ESDFP themes.

Theme One: Increasing Equitable Access to Education.

Criterion for the choice of key funding trigger: Equity and potential impact on poverty alleviation.

Indicator 1: Reduction in the number o f out-of-school children in the compulsory education age group of 6-14 years. This wil l be reflected in increased net and gross enrolment and survival rates for the compulsory education (grades 1-9) cycle.

This outcome indicator has a key impact o n equity and poverty reduction, as out-of-school children normally come from the poorest homes and most disadvantaged communities. The indicator reflects the impact o f effective demand and supply side strategies to attract and retain

95

children in the education system, and also improvements in the quality o f education, better management o f schools and higher capacity in non-formal education programs. The indicator can be measured using survey data.

Theme Two: Improving the Quality of Education

Criterion for the choice of key funding trigger: Reduction of informational imperfections that act as critical constraints to high quality performance.

The final outcome sought through the improvement o f education quality is higher cognitive achievement. However, cognitive achievement scores are not suitable for monitoring performance on an annual basis, as they change slowly at the level o f a national education system. Further, cognitive achievement i s the result not only o f inputs and processes within the education system, but also o f inputs and processes outside the education system, such as the home learning environment and household education processes.

As such, the mission proposes two key education outcomes o f the curriculum and examinations components as performance indicators to which funding would be linked. These two indicators would reduce two key informational imperfections to high quality performance o f the education system.

Indicator 2: Specification, publication, dissemination and deepening o f awareness and understanding among school communities and education stakeholders, such as teachers, principals, parents and students, o f learning competencies in the primary and secondary school curricula. This wil l be assessed from NIE records and independent evaluations o f school communities and stakeholders.

Indicator 3: Specification, publication, dissemination deepening o f awareness and understanding among school communities and education stakeholders, such as teachers, principals, parents and students, o f required levels o f learning outcomes for the GCE O/L and GCE A/L examinations. This wil l be assessed from DOE-NETS records and independent evaluations o f school communities and stakeholders.

These two key indicators have been selected for the following reason. The t w o critical constraints to the improvement o f learning outcomes identified by the education literature in Sri Lanka are the lack o f knowledge and awareness, among school communities and stakeholders, o f curriculum competencies in the primary and secondary cycles, and o f levels o f cognitive outcomes required for the GCE O/L and GCE A/L examinations. Broadening and deepening awareness and knowledge o f curriculum competencies and o f required learning outcomes at the examinations grades wil l relax these two critical constraints. As a result school communities and education stakeholders wil l be able to organize their education activities to achieve the curriculum competencies and the required levels o f learning for the examinations. This, in turn, will have a positive impact on cognitive achievement.

Theme 3. Enhancing the Economic Efficiency and Equity of the Education Budget

Criterion for the choice of key funding trigger: Allocation of resources to enhance the external efficiency of education investment.

96

The mission proposes the following pol icy outcome, designed to improve the external efficiency o f education expenditures, as the key pol icy trigger to link funding to program performance:

Indicator 4. Resource allocation policv targets.

increase the share of resources invested in higher-order spaces and assets, and their maintenance and replacement.

The capital education budget would be allocated, according to the fol lowing formula, to

This pol icy trigger will shift the education investment budget increasingly in favor o f higher- order learning spaces and assets, such as computer centers, science laboratories, library resource centers, language laboratories, multi-purpose rooms and activity rooms, their associated equipment, and the maintenance, repair and replacement o f these assets, over time. This wil l enable the school system to promote the acquisition o f skil ls, such as information technology, science, mathematics and English, which are in demand in the labor market, and enhance the external efficiency o f education investment.

Theme 4. Strengthening Governance and Service Delivery

Criterion for the choice of key funding trigger: Human resource development, especially to improve education management and strengthen procedural eficiency.

The key output to strengthen service delivery in the education system i s the human resource development o f education planners, administrators and officials in the national and provincial education agencies, to enable develop their capacity for key education management activities such as planning, budgeting, administration and monitoring. As such, the mission proposes the following key performance trigger for funding:

Indicator 5: The production o f human resource development plans by al l key agencies at the national level by the end o f the f i rst year, and the implementation o f activities included in these plans as planned and on time, and the production o f provincial human resource development plans by al l provincial education ministries by the end o f the second year, and the implementation o f activities included in these plans as planned and on time.

The quantified targets annual targets for al l performance triggers are given in the tables Annex 3b, and highlighted in bold.

97

Annex 11 : Safeguard Policy Issues

Considering the scope o f the project, i t i s not anticipated that there wil l be significant and/or irreversible environmental impacts or negative social impacts as a result o f the proposed project interventions. I t i s possible that the Project may finance the construction o f new school buildings and renovation o f existing school buildings and associated facilities. Considering that construction activities wi l l not be permitted in environmentally sensitive areas such as wetlands, marshes or forested areas, i t i s anticipated that building construction wil l result in minor environmental impacts. W h i l e most o f the construction wil l be on existing school lands or areas immediately adjacent, the tsunami may have created a need for construction o f new schools to replace schools destroyed within the “no development” buffer zones along the coast l ine and i s l ikely to create a demand for construction material such as sand, clay for bricks and timber.

Considering the scattered nature o f construction anticipated under the project, i t i s not expected that there will be significant accumulated environmental damage due to project activities.

In order to mitigate any impact on the natural and social environment, an Environmental and Social Screening Assessment Framework (ESSAF) has been prepared by the Ministry o f Education which provides general policies, guidelines, codes o f practice and procedures that will be integrated into the implementation o f project activities. Since the exact locations o f new school and education buildings i s not known at this stage, the ESSAF provides guidance o n the approach to be taken during program implementation for the site selection and design o f relevant subprojects and the planning o f mitigation measures. This Framework i s consistent with the relevant Wor ld Bank Safeguard Policies as well as the National Environmental Ac t and associated regulations.

I t has been agreed that no land acquisition wil l be financed under the project and subprojects wil l be screened for applicability o f the resettlement policy. In the event that minor land acquisition i s unavoidable, i t should preferably be government land and compensation payments for assets acquired and involuntary resettlement should be in accordance with the National Involuntary Resettlement Policy o f S r i Lanka (NIRP) and the Bank’s OP/BP 4.12.

The Education Sector Development Project i s not expected to pose any r isk o f damaging cultural property, nor to negatively impact any Indigenous groups but subproject preparation will be screened for their potential impact and ESSAF provides the relevant guidelines to be fol lowed during program implementation.

I t has been agreed that Environmental Codes o f Practice developed by the Institute for Construction Training and Development (ICTAD) will be followed during construction activities that will be supported under the ESDP, which will be in l ieu o f a project Environmental Assessment. Environmental Management Plans will be prepared in accordance with the ESSAF for each relevant activity. For subprojects with potential adverse impacts, a l imited Environmental Analysis will be done during project implementation prior to disbursement o f funds for that particular activity. With regard to a l l construction activities, in order to avoid encouraging illegal extraction o f such resources, al l construction contracts under this project will include clauses in the contracts to ensure that sand, clay and timber are obtained from authorized locations and sources that are licensed by relevant government authorities. Contracts will specify that building construction and renovation will adhere to the existing building and other applicable codes o f practice in S r i Lanka. I f any land filling is required for site preparation such

98

as filling o f l ow lying lands a full Environmental Impact Assessment (not only an Environmental Management Plan) wil l be a condition for IDA financing.

The proposed operation wil l finance feasibility and detailed design studies for these subsequent investments, which wil l include environmental assessments (if necessary), environmental management plans and social studies as required by World Bank safeguard policies.

Public Consultation

The ESSAF has been shared by the Ministry o f Education with concerned non- governmental organizations, c iv i l society and potential affectees. I t was disclosed in Sinhala, Tami l and English by the Ministry o f Education on behalf o f the government in Sri Lanka. The ESSAF i s also available at the World Bank’s Infoshop. Relevant subproject specific safeguard documents/mitigation plans such as EMPs prepared subsequently wil l also be disclosed to the public. Community consultation i s an integral part o f the overall program. The local communities and institutions are involved in identification, planning, design, implementation, operation and maintenance o f the schools and al l other program activities. Consultations with school teachers, experts, NGOs and other stakeholders wi l l continue throughout the implementation period.

Institutional Arrangements

The composite government environmental clearance process, in principle, i s consistent with World Bank environmental and public disclosure requirements. Environmental Impact Assessments (EIAs) for development projects were made mandatory under the National Environmental Act (NEA) in 1993. A list o f prescribed projects, based o n the magnitude and potential for adverse environmental impacts, that require EIAs are listed in Gazette Extraordinary No. 772122 (1993). The Central Environmental Management (CEA) has been reviewing and approving EIAs for prescribed projects since 1993 and has developed solid technical expertise and capacity for this task with technical assistance projects f rom United States Aid for International Development (USAID), the Netherlands and IDA over the last decade. However, in view of the l o w potential for significant adverse environmental impacts, al l potential construction or renovation activities proposed under the project fa l l below the thresholds identified in the “prescribed list”. Whi le there are no direct environmental assessment regulations applicable to this project, the government has agreed to conform to the ESSAF developed specifically for this project. Site selection, design, contracting, monitoring, evaluation o f subprojects and the preparation o f the safeguard analysis in accordance with the ESSAF will be undertaken by the respective education agencies at the national and provincial levels. The Ministry o f Education and Provincial Education Ministries do not have environmental and social expertise at present, so wil l have access to Environmental and Social Specialists, financed under the project, which wil l be responsible for ensuring that the ESSAF i s adhered to prior to financing building construction or renovation. Social and Environmental safeguards wil l be monitored by the Divisional Environmental Officers o f the Central Environmental Authority (CEA), located in every Divisional Secretariat Off ice in the country. IDA will review the first three Environmental Management Plans to ensure compliance with the ESSAF and then undertake reviews during routine project monitoring to ensure EMPs meet the conditions o f the ESSAF.

99

Annex 12: Project Preparation and Supervision

Activi ty Planned Date Actual Date

P C N Review 03/3 1/2004 06/29/2004

Init ial PID to PIC 04/09/2004 11/01/2004

Init ial ISDS to PIC 04/09/2004 10/28/2004

Appr ai s a1 09/19/2005 09/19/2005

Negotiations 10/10/2005 10/20/2005

Board/RVP approval 12/06/2005 12/20/2005

Planned date o f effectiveness 01/01/2006

Planned date o f mid-tern review 10/15/2008

Planned closing date 12/3 1/2010

Key institution responsible for preparation o f the project: Ministry o f Education, Ministry o f Finance and Planning, Finance Commission and Provincial Councils.

Bank staff and consultants who worked on the project included:

Name

Harsha Aturupane Helen Craig

Qaiser Khan Dhimant Jayendran Baxi Sara Gonzalez Flavell Rajat Narula Asta Olesen Sumith Pilapitiya Laura Kiang Mohan Gopalakrishnan Tikiri Seneviratne Jiwanka Wickremasinghe Eashwary Ramachandran Elfreda Vincent Corinne Perera

Title

Senior Economist and Team Leader Senior Education Specialist and Co - Team Leader Lead Human Development Specialist Senior Procurement Specialist Senior Counsel Senior Finance Officer Senior Social Development Specialist Senior Environmental Specialist Operations Officer Financial Management Specialist Operations Officer Financial Management Specialist Operations Analyst Program Assistant Team Assistant

Unit

SASHD SASHD

SASHD SARPS LEGMS LOAG2 SASES SASES SASHD S A R F M SASHD S A R F M SASES SASHD SACSL

100

Name Title

Audrey Aarons George Bethel1 Paul Glewwe Hiran Herat Thomas Kellaghan Annemarie Mecca Eliezer Orbach Mohamed Al lak Asoka Perera Upul Sonnadara

Consultants Lead Education Specialist Lead Education Specialist Lead Economist Lead Implementation Specialist Lead Education Specialist Counsel Lead Organizational Capacity Specialist Senior Education Planner Senior Construction Management Specialist Education Statistics and Information Systems Specialist

Bank h n d s expended to date on project preparation:

Source Amount

1. Bank resources BB US$225,325.24 2. Trust Funds TFTFOS 3 003 US$241,990.04

Total US$467,3 15.28

Estimated Approval and Supervision Costs:

_________ _____-___

1. Remaining costs to approval: 2. Estimated annual supervision cost: US$175,000

101

Annex 13: Documents in the Project Fi le

Bank Staff Assessments

Project Background Documents

Aide Memoire o f May 17 - June 12,2004 Concept Mission Aide Memoire o f July 26 - Aug. 12,2004 Preparatory Mission Aide Memoire o f Nov.08 - Nov. 27,2004 Preparatory Mission Aide Memoire o f Mar.28 - Apr.08,2005 Preparatory Mission Aide Memoire o f June 06 - June 17, 2005 Pre-Appraisal Mission Aide Memoire o f September 19- September 30,2005 Appraisal Mission

Other

Government National Education Commission. Envisioning Education for Human Development - Proposals for a National Policy Framework on General Education in Sr i Lanka, 2003. Organizational Structure o f the Ministry o f Education - General Education Sector. Ministry o f Education, 2004. National Budget Circular No. 117 - Guidelines for preparation o f expenditure estimates for the year 2005 using the expenditure ceilings. Ministry o f Finance and Planning, 2004. National Budget Circular No. 123 - Guidelines and Direction for Preparation o f Budget 2006. Ministry o f Finance and Planning, 2005. Restructuring o f GCE A/L Examination - Executive Summary o f the actions committee report. Ministry o f Education, 2005. Guidelines on procurement and delivery o f Education Quality Inputs. Finance Commission, 2000. Collection o f Circulars: Ministry o f Human Resource Development, Education and Cultural Affairs - Vol. 1 - 1993 - 2003.

Project Preparation Documents

Country Documents 0

0

0

Central Bank o f Sri Lanka, Annual Reports, various years. Government o f S r i Lanka, Budget Statements, various years. Government o f S r i Lanka, Department o f Census and Statistics, Household Income and Expenditure Surveys, 1990/91 , 1995/96 and 2000/2001, and Labor Force Surveys, various years. UNDP. Sri Lanka Human Development Report, 1998. World Bank. Country Assistance Strategy, 2003. World Bank. Country Financial Accounting Capacity Review, 2003. World Bank. Country Procurement Assessment Review, 2003. World Bank. S r i Lanka Development Policy Review, 2004. World Bank. Attaining the Millennium Development Goals in S r i Lanka, 2005b. World Bank. Procurement Capacity Assessment for the Education Sector o f Government o f S r i Lanka, 2005.

0

0

0

0

0

0

0

102

Sector Background George Bethell, Educational Standards, Assessment and Examinations in Sr i Lanka - A survey o f practices and issues, 2004. JICA. The master plan study for the development o f science and mathematics in the primary and secondary levels in the Democratic Socialist Republic o f Sri Lanka, 2005. Ministry o f Education, School Census, various years. Ministry o f Education. Guidelines on School Based Planning, 2004. Ministry o f Education. Programme on School Improvement, 2005. Ministry o f Education. Inclusive Education Project (2005 - 2009) - Location, identification and medical and educational intervention o f pre-school and school-age children with special educational needs, 2005. National Education Research and Evaluation Center. National Assessment o f Achievement o f Grade Four Pupils in Sri Lanka, 2004. World Bank. Education Sector Report: Treasures o f the Education System in Sri Lanka, 2005.

103

Annex 14: Statement of Loans and Credits

Difference between expected and actual

disbursements Original Amount in US$ Millions

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Fm. Rev'd

PO94205 2005

PO83932 2005

PO81771 2005

PO86747 2004

PO74872 2004

PO50740 2004

PO77586 2003

PO74730 2003

PO58067 2003

PO50741 2003

PO76702 2002

PO77761 2002

PO71131 2001

PO50738 2001

PO44809 2000

PO34212 1998

PO10525 1998

PO10517 1996

PO42266 1996

Sri Lanka Tsunami ERL

North East Housing Reconstruction Progra

E-Sri Lanka Development

NEIAP I1 Community Development & Livelihood "Gemi H E A L T H SECTOR DEVELOPMENT

LK Economic Reform T A

National HIV/AIDS Prevention

Second Community Water Relevance and Quality o f Undergrad. Educ

Renewable Energy for Rural Economic Dev.

Renewable Energy for Rural Economic Dev.

LK Central Bank Strengthening

Land Tit & Re1 Sen, (LIL)

L E G A L AND JUDICIAL REFORMS

M A H A W E L I RESTRUCTURI

GENERAL EDUCATION I1 P V T SECT INFRAS D E V

TEACHER EDUCATION & TEACHER DEPLOYMENT

Total

0.00

0.00

0.00 0.00 0.00

0.00

0.00 0.00

0.00

0.00

0.00

0.00

0.00 0.00 0.00

0.00

0.00 0.00

0.00

45.00

75.00

53.00

64.70

0.00

0.00 15.00

0.00

0.00 40.30

75.00

0.00

30.30

5.00

18.20

57.00

70.30

77.00

64.10

0.00

0.00

0.00 0.00 0.00

0.00

0.00 0.00

0.00 0.00

0.00

0.00

0.00 0.00 0.00

0.00

0.00 0.00

0.00

0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00

0.00

0.00

0.00

8.00

0.00 0.00

0.00

0.00

0.00 0.00 0.00

0.00

0.00

0.00 0.00 0.00

0.00

0.00

0.00 0.00

0.00

0.00

0.00

0.00 0.00 0.00 0.00

0.86

15.02

0.00

39.98

67.75

41.48

62.80

47.72

54.72

5.02

10.69

30.83

29.43

35.81

2.60

1 .oo 1.39

7.96

0.16

7.06

4.18

1.49

-19.47

2.25

-2.89

3.85

2.10

5.74

-2.54

6.94

2.72

6.58

-6.98

4.93

-1.35

0.81

6.77

0.50

7.90

24.20

5.82

0.00

0.00

0.00 0.00

0.00

0.00 0.00 0.00

0.00 0.00

0.00

0.00

0.00 0.00

0.00

0.00

6.74

7.05

5.84

0.00 689.90 0.00 8.00 15.88 452.07 47.88 19.63

SRI LANKA STATEMENT OF IFC's

Held and Disbursed Portfolio In Mi l l ions o f U S Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

1998 Apollo Lanka 4.74 0.00 0.00 0.00 4.74 0.00 0.00 0.00 1996 Asia Power 3.94 2.27 0.00 2.73 3.94 2.27 0.00 2.73

1997 Asia Power 2.00 0.00 0.00 0.00 0.33 0.00 0.00 0.00

2003 CBC 0.00 9.96 0.00 0.00 0.00 9.96 0.00 0.00

2004 CBC 0.00 2.89 0.00 0.00 0.00 2.89 0.00 0.00

2003 Dialog 50.00 0.00 0.00 0.00 15.00 0.00 0.00 0.00 1999 Fitch Srilanka 0.00 0.07 0.00 0.00 0.00 0.07 0.00 0.00 2000 NDB Housing COT 0.00 1.06 0.00 0.00 0.00 1.06 0.00 0.00 1997 Packages Lanka 0.00 0.17 0.00 0.00 0.00 0.17 0.00 0.00

1999 SAGT 16.27 3.62 0.00 0.00 16.27 3.62 0.00 0.00 2000 Suntel 1.22 4.20 0.00 0.00 1.22 4.20 0.00 0.00

Total portfolio: 78.17 24.24 0.00 2.73 41.50 24.24 0.00 2.73

104

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

Total pending commitment: 0.00 0.00 0.00 0.00

105

Annex 15: Country at a Glance

(average annualgrowth)

P O V E R T Y a n d S O C I A L S ri Lanka

2 0 0 4 Population, mid-year (millions) 19.4 GNIpercapita(Atlasmethod, US$) 1,010 GNI (Atlas method, US$ billions) 19.5

A v e r a g e annua l g rowth , 1998-04

Population (%) 1.3 Laborforce 1%) 2.1

M o s t r e c e n t e s t i m a t e ( l a t e s t year avai lable, 1998-04 )

Poverty (% o f population belo wnationaipo vertyline) Urban population (%of totalpopolation) 24 Life expectancy at birth (years) 74 Infant mortality (per 1000 live births) a

Access to an improved water source (%ofpopulation) 78 Literacy(%ofpopuiation age 159 93 Gross primaryenrollment (%of school-age population) 112

Male 1 0 Female 112

Child malnutrition (%ofchildren under5)

KEY E C O N O M I C R A T I O S a n d L O N G - T E R M T R E N D S

Gross capital formation 1.6 4.6 8 . 0 11.6

1984

GDP (US$ billions) 6.0 Gross capital formation/GDP 25.8 Exports of goods and services/GDP 28.9 Gross domestic savings/GDP 19.9 Gross national savings/GDP 25.6

Current account balance/GDP -3.8 Interest payments/GDP 2.5 Total debt/GDP 49.5 Total debt service/exports 13.0 Present value of debt/GDP Present value of debt/exports

1984-94 1994-04 (average annualgrowth) GDP 4.1 4.2 GDP percapita 3.0 2.8 Exports of goods and services 7.3 5.5

-Exports -Imports

1994

11.7 27.0 33.8 15.2 19.6

-7.4 1.3

67.9 8.6

2003

6.0 4.8 5.4

Lower - S o u t h midd le -

A s i a i n c o m e

1,448 590 860

1.7 2.1

28 63 66 48 84 59 97

105 92

2003

18.2 22.1 35.9 15.9

22.3

-0.4 1.0

56.1 7.4

46.0 103.4

2,430 1.580

3,847

1.0 0.7

49 70 33

11 81 90 114 115 la

2 0 0 4

20.1 25.0 36.4 15.9 19.5

-3.2 1.1

54.3 8.5

2 0 0 4 2 0 0 4 - 0 8

5.4 5.9 4.2 4.8 7.8 5.3

D e v e l o p m e n t d i a m o n d "

I Life expectancy -

Gross + primary

GNI per 2 capita enrollment

1

Access to improved water source

- Sn' Lanka

Lower-middle-income group

E c o n o m i c r a t i o s *

Trade

Domestic ~ Capital savings formation

Indebtedness

-Sri Lanka

~ Lo wer-middle-inco me aro UD

S T R U C T U R E o f the E C O N O M Y

(%o f GDP) Agriculture Industry

Services

Ho useho Id final consumption expenditure General gov't final consumption expenditure Imports of goods and services

Manufacturing

1904

28.7 26.3 14.9

45.0

72.3 7.8

34.5

1994

23.8 26.2 15.4 50.1

75.1 9.7

45.6

2003

19.0 26.4 15.6

54.6

76.2 7.9

42.1

2 0 0 4

17.8 26.8 15.3

55.4

76.0 8.1

45.5

G r o w t h o f c a p i t a l a n d G D P ( O h ) i 20 - 10

0

.10

-20

-GCF -GDP I

Note: 2004 data are preliminary estimates. *Thediamonds showfourkeyindicators in thecountry(in bo1d)compared with its income-group average. If data are missing,the diamondwill

be incomdete.

106

Sri Lanka

PRICES and GOVERNMENT FINANCE

Domestic prices (% change) Consumer prices Implicit GDP deflator

Government finance PA of GDP, includes current grants) Current revenue Current budget balance Overall surplusldeficit

TRADE

(US$ millions) Total exports (fob)

Tea Other agricultural goods Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index (2000=100) Import price index (2000=100) Terms of trade (2000=100)

BALANCE of PAYMENTS

(US$ millions) Exports of goods and services Imports of goods and services Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

Memo: Reserves including goid (US$ millions) Conversion rate (DEC, locai/US$)

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

IBRD IDA

Total debt service IBRD IDA

Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment (net inflows) Portfoiio equity (net inflows)

World Bank program Commitments Disbursements Principal repayments Net flows interest payments Net transfers

1984

20.3

22.2 6.1

-6.8

1984

1,468 620 130 208

1,869

I984

1,739 2.31 2 -573

-1 34 479

-228

539 -31 1

25.4

1984

2,993 50

31 1

274 6 4

180 260

82 33

0

41 94

3 90 6

84

1994

8.4 9.8

20.4 -1.5 -9.1

1994

3,209 424 299

1,552 4,767

602 296

1,366

57 60 95

1994

3,955 5,333 .I ,378

-1 69 680

-867

1,107 -240

2,022 49.4

1994

7,960 54

1,339

416 13 16

160 272 -14 166

0

0 78 15 63 15 48

2003

6.3 5.0

15.7 -3.3 -8.3

2003

5,133 683 390

2,575 6,672

564 838

1,320

120 110 109

2003

6,544 7,684

-1,140

-1 71 1,241

-70

572 -502

2,196 96.5

2003

10,238 3

2,051

605 2

49

136 485

21 229 -1 4

180 202

38 164

14 151

2004

7.6 9.4

15.3 -3.9 -8.2

2004

5,757 740 392

2,809 8,000

596 1,209 1,670

131 127 103

2004

7,284 9,108

-1,824

-203 1,380

-647

442 205

2,211 101.2

2004

10,887 1

2,167

766 2

55

288 44

118 68 40 28 17 11

I I 99 00 01 02 03 04

-GDP deflator -CPl 1

Export and import levels (US$ mill.)

10.000 -

1 98 99 00 01 02 03 04

Exports Imports

Current account balance to GDP (oh)

i Composition of 2004 debt (US$ mill.)

~ A - IBRD l B - IDA i C - IMF

E - Bilateral F - Private G - Short-term

D - Other multilateral

~

Development Economics 11/1/05

107

MAP SECTION

Ferry

PidurutalagalaPidurutalagala(2,524 m) (2,524 m)

VVictoria Fallsictoria FallsReserReservoirvoir

Madura OyaMadura OyaReserReservoirvoir

SenanayakeSenanayakeSamudraSamudra

KKaallaa OOyyaa

DDeedduurruu

OOyyaa

KKaalluu GGaannggaa KKiirriinnddiiOOyyaa

MMaahh

aawweell

ii GGaann

ggaa

YYaann

OOyyaa

KKeellaannii

AArruuvvii AArruu

IranamaduIranamaduTTankank

KKaauudduullllaa OOyyaa

MMaahhaa OO yy aa

MMaadd

uurraa

OOyyaa

GGaall OOyyaa

GGaannggaa

WWaa llaawwee GG

aannggaa

N O RN O R T H E R NT H E R N

C E N T R A LC E N T R A L

N O RN O R T H C E N T R A LT H C E N T R A L

N O RN O R T H T H W E S T E R NW E S T E R N

U VU V AA

S O U T H E R NS O U T H E R N

WESTERNWESTERN

E A S T E R NE A S T E R N

SABARAGAMUWSABARAGAMUWAA

MataraMatara

KegallaKegalla

AmparaAmpara

KillinochchiKillinochchi

VVavuniyaavuniya

ManakulamManakulam

RambewaRambewa

GalkulamaGalkulama

MahoMaho

HabaraneHabarane

KataragamaKataragama

MonaragalaMonaragala

WWellawayaellawaya

GalleGalle

KandyKandy

BadullaBadulla

RatnapuraRatnapura

AnuradhapuraAnuradhapura

KurunegalaKurunegala

N O R T H E R N

C E N T R A L

N O R T H C E N T R A L

N O R T H W E S T E R N

U V A

S O U T H E R N

WESTERN

E A S T E R N

SABARAGAMUWA

Matara

Kegalla

Kalutara

Hambantota

Tangalla

Kumana

Ampara

Killinochchi

Mullaittivu

Pulmoddai

Mutur

Elephant Pass

Mannar

Vavuniya

Point Pedro

ManakulamTalaimannar

Rambewa

Galkulama

Maho

Kalpitiya

Habarane

Chilaw

Negombo

Moratuwa

Kataragama

MonaragalaPottuvil

Kalmunai

Kattankudi

Wellawaya

Trincomalee

Puttalan

Sri Jayewardenepura Kotte

Galle

Kandy

Badulla

Ratnapura

Anuradhapura

Jaffna

Batticaloa

Kurunegala

COLOMBO

INDIA

Victoria FallsReservoir

Madura OyaReservoir

SenanayakeSamudra

Kala Oya

Deduru

Oya

Kalu Ganga KirindiOya

Mah

awel

i Gan

ga

Yan

Oya

Kelani

Aruvi Aru

IranamaduTank

Kaudulla Oya

Maha O y a

Mad

ura

Oya

Gal Oya

Ganga

Walawe G

anga

G u l f o f

M a n n a r

P a l k B a y

L a c c a d i v e

S e a

B a y o f B e n g a l

I N D I A NO C E A N

Pa

l kS t r

a i t

Dondra Head

KaraitivuIsland

DelftIsland

MannarIsland

Adam's Bridge

Pidurutalagala(2,524 m)

10°N 10°N

9°N

8°N

7°N

6°N

8°N

7°N

6°N

80°E 81°E

80°E 81°E 82°E

SRI LANKA

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 20 40

0 10 20 30 40 Miles

60 Kilometers

IBRD 33485

SEPTEMBER 2004

SRI LANKASELECTED CITIES AND TOWNS

PROVINCE CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

PROVINCE BOUNDARIES

INTERNATIONAL BOUNDARIES