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New Ways to Finance Education

LONDON – Norway, under the leadership of Prime Minister Erna Solberg and Foreign Minister Børge Brende, will soon host a summit on education for development with one simple aim: to bolster global cooperation on education. The hope is that the summit, which United Nations Secretary-General Ban Ki-moon will attend, will improve the world’s chances of meeting the goal, featured in the upcoming post-2015 development agenda, that every child have access to pre-primary, primary, and secondary education by 2030.

We have a long way to go. While over 40 million more children are in school today than in 2000, 58 million primary-age and 63 million secondary-age children remain out of school, with about half of the world’s out-of-school primary-age children in conflict- and crisis-affected countries. Indeed, there are more child refugees than at any time since World War II. Girls face a particularly difficult challenge, because they must struggle to gain the right to an education, even as the fight against child marriage, child labor, and the trafficking of women and girls is yet to be won.

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Progress will not be easy – not least because there is an intensifying funding crisis within the aid community. Although overseas development aid increased by 9% from 2010 to 2013, aid for basic education fell by 22%, from an already-low $4.5 billion to $3.5 billion.

In non-fragile, low-income countries, aid for primary education now stands at just $23 per child annually – barely enough to buy two textbooks – down 8% from a decade ago. Annual aid for primary education amounts to just $11 per child in the Democratic Republic of the Congo (DRC), Togo, and Guinea; $10 per child in the Central African Republic and Madagascar; $5 per child in Chad; and a miniscule $4 per child in Nigeria, the country with the largest out-of-school population.

These figures are low because domestic spending or other funding sources are not high enough to make up the difference. Across the poorest countries, total spending on education averages just $80 per child per year – compared to more than $8,000 per child in the advanced economies – and can be as low as $24 annually (in the DRC).

The simple fact is that providing all children with an education costs money. Indeed, ensuring universal access to pre-primary, primary, and secondary school in low-income and lower-middle-income countries will cost roughly $210 billion by 2020 – a figure that does not fall by much, even according to the most optimistic estimates. If poor countries spent their entire estimated tax capacity on education, they would need at least $25 billion in additional funds.

The hope is that world donors increase aid for education at a rate similar to that of overall development aid over the last decade. For their part, the poorest countries could experience a 1-2% increase in their economic-growth rates, while raising their education budgets from about 2% to 5% of GDP. But, even in that case, the annual spending gap would still amount to at least $15 billion.

To close the gap, we need a new approach, one that takes advantage of new sources of funding – such as the private sector, philanthropic organizations, and emerging economies – while ensuring that the money received is used as efficiently as possible. Several promising proposals are under consideration.

One important proposal is a global humanitarian platform that would fund the provision of education – alongside food, protection, shelter, and health care – during emergencies. A pool of designated funds that leaders could access quickly would have helped the millions of children trapped in conflicts in Iraq, Libya, and Syria, or the million left without schools by the recent earthquake in Nepal. Instead, they were faced with a $4.8 billion funding gap. With enduring crises affecting children worldwide – from South Sudan to Myanmar – there is no time to waste in creating such a platform.

A second proposal calls on national governments to cut back expensive, wasteful, and poorly targeted domestic energy subsidies, and channel the money they save toward education. Such subsidies cost some $300 billion annually (by conservative estimates) and tend to benefit the wealthy, as they encourage excessive consumption.

Indonesia, for example, trimmed fuel subsidies considerably, when its government realized that, in 2009-2013, more money was spent on them than on infrastructure and social-welfare programs combined. Given low world oil prices, now is the ideal time for more countries to follow suit, using the extra revenues to build schools, hire and train more teachers, and improve learning for all.

A third proposal entails the use of innovative funding mechanisms, like social-impact bonds, to frontload new education spending. Such a results-oriented approach would help to encourage business philanthropy in education, which currently amounts to only one-tenth of that in health. Similarly creative efforts could deepen the engagement of charitable foundations; as it stands, US-based foundations spend just 1% of their development resources on basic education in poor countries.

A final proposal, which the World Bank is assessing, is the issuance of debt against the projected reflows of international development assistance loans. With repayments of IDA loans to the World Bank set to exceed $150 billion over the next 15 years, this could generate significant new social investment from the Bank.

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Bertrand Badre, the World Bank’s chief financial officer, has a plan to leverage future reflows that would match them with other funding streams. If Badre’s plan is implemented, an additional $10 billion – or even as much as $20 billion – could be raised for international development annually. Some of this funding would undoubtedly be channeled to the area that the World Bank client surveys indicate is the greatest priority: education.

Over the last 15 years, we have proved that global action works. But, if we are to give all children the opportunities that they deserve, we are going to need a lot more of it.