Financing education in developing countries : an exploration of policy options

With the current constrained financial conditions in many developing countries, it is essential to develop and utilize new methods of financing education to ensure efficiency and greater social equity. The current financing arrangements in many cases result in an underinvestment in education, an untapped willingness to pay for education and a misallocation of public spending in this sector. This report examines three broad policy options that could remedy the above problems. It is argued that they would result in an increase of resources flowing to education, improve their use, and ensure more equitable access to schooling. Although the suggested reforms need to be phased in gradually, and their specific content will differ among countries, the package includes three elements. They comprise: (1) recovering the public cost of higher education and reallocating government spending on education toward the level with the highest social returns; (2) developing a credit market for education, together with selective scholarships, especially in higher education; and (3) decentralizing the management of public education and encouraging the expansion of private and community-supported schools.