1. COSTING OF BUDGET NORMS FOR THE EDUCATION SECTOR BASED ON THE
EDUCATION SECTOR DEVELOPMENT FRAMEWORK AND MOF’s NEW
SECTORAL MACRO-FISCAL MODEL
Jean-Marc Lepain, Intergovernmental Fiscal Advisor
September 30th 2009
This survey is based on the official ESDF (Education Sector Development Framework) Model
approved by the Prime Minister. Recently MoE has produced a new version but the changes are
unlikely to affect the costing in a significantly manner as most changes occurs in year 2013 and after.
Based on the ESDF Model, the consultant has developed a macro-fiscal model of 2008/09 budget for
testing various sector financing scenarios and the possible impact of the introduction of new budget
norms.
A. Impact on 2008/09 budget model
This model is based on the following assumption taken from the ESDF model for the year 2010/11:
 Allocation for pre-schools: 310,000 kips per student
 Allocation for secondary schools: 49,000 kips per student
 Allocation for lower and upper secondary schools: 122,000 kips per student
 We have added an administration allocation for financing non-wage recurring expenditures
of the provincial education administration (10% of other non-wage expenditures). This could
be recalculated latter based on staff numbers.
 The model does not take into consideration Non Formal Education, Technical and Vocational
Schools, and Teacher Training. More research and discussion with MoE are necessary to
decided how should integrate those programmes into budget norms, if necessary. The
children feeding programme being financed by donors is considered part of the investment
budget.
(Note that the ESDF model gives different rates for lower secondary [122.000 kips per student] and
upper secondary [24.400 kips per student] but we did not have the enrolment numbers by province.
For that reason we applied the same rate to lower and upper secondary. We have considered that
the impact would be limited, except for Vientiane Capital and Vientiane Province)
Based on this assumption the model shows the following results:

2.  The proportion of non-wage expenditures in the recurrent budget will rise from 13.3% to
23%, still a low ratio by international standards for low and medium revenue countries.
However the figure of 13.3% for Non-Wage/Recurrent covers important disparities across
provinces with non-wage expenditures ranging from 45% in Saravanh to 2% in Vientiane
Province.
 The total additional cost will be 70,153 millions kips, or 8.3 millions dollars, representing an
increase of 6.5% of the education budget with non-wage expenditure reaching 144,742
millions kips.
 Under this system, three provinces (Vientiane Capital, Bolikamsay, and Saravanh) receive
less than their previous allocations. They could be compensated by an ad hoc grants or
another mechanism that needs to be discussed with MoE.
B. Impact on subsequent budgets
To calculate the cost of budget norms in 2010/11, we need to calculate the increase in the number
of students. Unfortunately the ESDF Model does not give data by province. At this stage the can give
only an approximate cost based on simple assumptions:
 The model does not take into consideration inflation.
 Population is supposed to grow uniformly at the rate of 2.4% a year in each province.
 The national growth rate of each education programme is applied uniformly to each
province.
 The growth rate in pre-school enrolment is 30% in 2009/10 and 25% in 2010/11
 Growth rate for primary education is 2.8% in 2009/10 and 1% the following year. This is a
growth rate that is lower than the population rate and that seems really low compare to the
number of children without access to school.
The new model shows that in FY2009/10, non-wage expenditures will grow from 144,742 M kips to
152,874 M kips, or 18 M USD, representing an increase of 5.6%, without affecting significantly the
ratio wage/non-wage.
In FY2010/11, non-wage expenditure rise to 169,950 M kips or 20 M USD, representing an increase
of 11%
However it should be noted that considering the lack of financial resources in FY2008/09 and
FY2010/11, the ESDF implementation is lagging behind and such high figures are unlikely to
materialize quickly. The present model is also based on a number of oversimplifications that might
increase the cost assessment.

3. C. Conclusion and Recommendations
1) Conclusion
 The level of expenditure per student appears reasonable except for pre-school.
 The impact of budget norms on 2008/09 budget appears also reasonable with non-wage
expenditures representing 23%
 The growth rate in enrolment seems to have been overestimated for pre-school but appear
very low for secondary schools. It will require some clarification from MoE.
 At this stage we cannot conclude on the feasibility of the introduction of budget norms on
the base of ESDF Model. Better and more realistic numbers are necessary as well as a
realistic assessment of the fiscal envelop that could be made available of the year of
implementation. MoF can also consider different implementation strategies that will dilute
the impact other two or three years.
 The model does not take into account poverty and other cost factors.
2) Recommendations
 MoE should define the scope of budget norms by giving the list of programmes to be
included.
 MoF should ask MoE to present a more realistic three year implementation plan
starting in FY2010/11 based on a revision of the ESDF Model that will include:
 Reconsideration of the priority given to pre-school
 A more realistic scenario for enrolment growth in all programmes
 Enrolment projections disaggregated by province
 The Fiscal Policy Department should prepare a matching three year fiscal envelope
expressed either in percentage of GDP or in percentage of the General Budget.
 The Fiscal Policy Department should decide how Nam Theun 2 revenue earmarked
for the education sector will apportioned to wages, non-wage and investment.
 As user fees play an important role in the ESDF model, a policy paper should be
prepare to set rules for budgeting, accounting and reporting of user fees.