Education Finance Watch 2023

Abstract

The Education Finance Watch (EFW) is a collaborative effort between the World Bank (WB), the Global Education Monitoring (GEM) Report, and the UNESCO Institute for Statistics (UIS). The EFW aims to provide an analysis of trends, patterns, and issues in education financing around the world. The EFW uses various sources of education, economic, and financial data from the World Bank, UIS, the International Monetary Fund (IMF), and the Organisation for Economic Co-operation and Development (OECD). The first volume of the EFW report (EFW2021) documented continuously increased global education spending in absolute terms over the decade but indicated that the COVID-19 pandemic would interrupt this trend. EFW2022 shed light on the impact of COVID-19 on global education spending in 2020, the first year of the pandemic, and revealed that half the analyzed sample of countries reduced their annual education spending, in real terms. This year, the EFW2023 updates analyses on trends and patterns of education spending for the past 10 years, up to 2021, the second fiscal year after COVID-19. As a special theme of this year’s volume, the EFW2023 sheds light on changes inthe school-age population and projects its fiscal implications for the upcoming ten years for selected countries. In 2021, low-income countries (LIC) increased year-on-year total education spending (a total of government, households, and development aid) in real terms. This increase was driven by an increase in government spending, which reached 50 percent of total education spending, while official development assistance (ODA) to LIC decreased both in absolute and relative terms. Although the increase was notable, it was insufficient to close the learning gap sustained during the pandemic. Indeed, around the world countries of all income levels are grappling with pandemic-induced learning loss. The pandemic caused significant learning losses that will harm the future of people and economies alike if the right investments in education – in terms of amount, efficiency, and equity – are not implemented right now. School closures are expected to reduce the learning-adjusted years of education across developing regions by roughly a third to a full year (Azevedo et al. 2021). This, combined with deskilling due to prolonged unemployment, will likely lower future earnings and dent human capital (Fasih et al. 2020; Fuchs-Schündeln et al. 2022). Overall, the COVID-19 pandemic could reduce developing regions’ potential growth by a further 0.6 percentage points, to 3.4 percent over the next decade, absent reforms to boost underlying drivers of long-term growth (World Bank 2021). Increasing investment in human capital can help reverse the losses caused by overlapping adverse shocks of recent years (Schady et al. 2023; World Bank 2023). Less learning translates into lower earnings over the course of an individual’s lifetime. While more years of education are associated with higher earnings, every standard deviation (SD) increase (decrease) in cognitive skills is associated with a substantial increase (decrease) in earnings. The global learning loss is equivalent to 0.7 years of lost learning (0.2 SD), which could translate into an annual reduction of 6.5 percent in the future earnings of current students once engaged in a job, as a result of lower productivity due to fewer cognitive skills. This reduction in earnings prospects could contract national income growth by 2.2 percent each year of working life (45 years on average) of the generation hit by the pandemic (Psacharopoulos et al. 2021). Learning loss is significantly higher in middle-income countries (MIC) and LIC, which already come from a low learning base. This situation positions around 86 percent of the world’s current student population at risk of encountering lower future earnings within countries with tighter economic restrictions. Education was hit the hardest in MIC. These countries account for 76 percent of the world’s student population and face a full year of lost learning, which will likely contract future annual earnings by 9 percent and annual economic growth by 0.1 percent. Future economic growth in LIC is likely to suffer the most because of pandemic-induced learning loss. LIC learning loss is equivalent to 0.7 years of education, which is likely to lead to a reduction of 7.4 percent in annual earnings which will translate into a 7.5 percent decrease in their annual economic growth. Larger learning losses and tighter economic restrictions put LIC and MIC countries at high risk of falling into a vicious cycle where low education spending produces less learning in the aftermath of the pandemic leading to lower economic growth, and lower economic growth produces even lower investment in education, and so on.High-income countries (HIC) investing heavily in education every year managed to minimize their learning loss. HIC encountered a learning loss equivalent to 0.4 years of schooling,which could result in a decrease of 4.2 percent in future annual earnings and a contraction of 0.7 percent in national economic growth.