# . **INTRODUCnION**

# A.

# Background

1.01 Since the early 1980s, the Bank has been<sup>shifting from traditional public</sup> investment reviews (PIRs), designed to identify<sup>sector investment priorities within a</sup> coherent macro framework, to comprehensive<sup>public expenditure reviews (PERs) that</sup> include recurrent expenditures. The traditic.-<sup>al PIR was often related to a national</sup> economic plan. The policy dimension of<sup>such a review was essentially limited to assessing</sup> the financial viability of the overall investment<sup>program and, at the sector level, to</sup> identifying "white elephants." The role of education,<sup>if treated at all, was relatively minor.</sup>

1.02 The shift from PIR to PER coincided with the financial<sup>crisis facing the</sup> developing world. Many Bank borrowers increased<sup>their focus on recurrent budgets, as</sup> PIRs and sector work uncovered sectoral evidence<sup>that operation and maintenance costs</sup> of public assets were underfunded. More and<sup>more, the notion of recurrent spcnding as</sup> "unproductive" consumption lost ground to<sup>the realization that a substantial part of the</sup> recurrent budget is a complement to, or substitute<sup>for, capital spending. The assessment</sup> of the effect of planned investments on public<sup>recurrent budgets has thus become a</sup> standard requirement in Bank work.

1.03 The Bank's increasing focus on policy-based iending,<sup>particularly in low-income</sup> countries, has contributed to the growing reliance<sup>on comprehensive PERs, which have</sup> become an instrument for the design and monitoring<sup>of public finance reforms and</sup> stabilization programs. Adequate focus on<sup>the interdependence of capital and recarrent</sup> expenditures is required for effective forward budgeting<sup>and cost recovery, both of which</sup> are strategic elements in thP sustainable reduction<sup>of budget deficits.</sup>

1.04 Since education is largely financed from public sources,<sup>and overwhelmingly from</sup> the recurrent budget, the shift from PIR<sup>to PER naturally has increased attention to</sup> education cost and financing issues. These<sup>issues have also been addressed in a growing</sup> number of self-standing education PERs (sector<sup>cost and financing studies). In the Africa</sup> region, for example, there were fo.r education<sup>sector cost and financing studies and one</sup> PER containing a substantial sexl.ion on education<sup>in the years 1980 to 1984. Over the</sup> 1985-89 period, however, there were 10 education cost<sup>and financing studies-and 32 PERs</sup> with significant education sections.<sup>1</sup> /

1.05 Education is one of the most labor-intensive<sup>public service sectors, by far the</sup> largest employer within the civil service (excluding<sup>the military), and it is a heavy burden</sup> on the recurrent budget. The sector investment<sup>program is small, but its implementation</sup> generates comparatively large incremental recurrent financing<sup>needs. in addition, the sector</sup>

1/AFTED (1989), "Impact of the World Bank's Recent Policy Paper on Education in SubSaharan Africa on Its Sector Studies and Lending<sup>Operations," p. 19, Table 8.</sup>