(ii) Financial capacity
A nations specific economic conditions will either
facilitate or constrain its financial ability to support social investment.
Among these specific conditions are the role of government in the economy, the
relative status of the agriculture sector, the structure of international trade,
the balance of international payments, the debt burden, and the receipt of
development assistance. With the exception of the last condition, the low- and
lower-middle-income economies again present a pattern of disadvantage.
The expansion of public sector involvement is not inherently a
constraint on development. In fact, average levels of reported government
expenditure as a percentage of gross domestic product are higher in the
industrial market economies than in the developing economies (approximately 17
percent to 13 percent - see Chart 2A), and there does not appear to be a
systematic relationship between government involvement in the economy and
national growth (see Chart 2B).
The least developed nations are expected to continue to depend
on agriculture as a major source of aggregate employment and growth in the near
future. They also will continue to depend on commodity exports and imports of
manufactured goods. Supply and demand conditions in these two categories of
trade often leave the developing nations in a less favourable market position
than the more developed nations. Without improvement in their terms of trade,
developing countries will operate under an ongoing disadvantage in attempting to
promote aggregate growth by increasing foreign trade.
In part, the current account balances (the net amount of exports
minus imports and of private and governmental unrequited transfers) for 1987
reflect these different trade structures. All but three of the low-income
economies reported a negative balance for 1987; only nine of thirty-four
lower-middle-income economies had a positive balance, whereas five of sixteen
upper-middle-income and ten of twenty-five industrial economies had positive
balances (see Chart 3).
Because of the debt incurred by developing nations in the 1970s,
their access to foreign financing became so limited that current account
balances were reduced dramatically after 1982. This reduction forced the
seventeen most highly indebted nations to increase their trade surplus from $2
billion in 1982 to an annual average of $32 billion during 1983-87. This surplus
resulted from lower relative imports, reduced investment, and constrained per
capita consumption. These adjustments were doubly damaging because reduced
consumption lowered economic welfare immediately while reduced investment
threatened the long-term potential for growth. The debt burden problem
(indicated by debt service as a percentage of exports) is a general constraint
on development in all three categories of developing nations. Twenty-four of
thirty-four low-income economies reported debt service levels for 1987 above 10
percent of exports, and nine of these had ratios above 25 percent. For the
lower-middle-income economies, only two of thirty reported debt service ratios
of less than 10 percent, and thirteen exceeded 25 percent. For
upper-middle-income nations, only two countries (Panama and Gabon) had a debt
service ratio below 10 percent, and nine of the twelve reporting nations had
ratios above 25 percent. For the poorest nations these debt burdens aggravate
the existing patterns of stagnation and decline. For the middle-income nations
the debt burden is slowing - in some cases reversing - the progress that once
was being made in national development.
Chart 2: Government Expenditure and growth in GDP
A. Central government spending as
a share of GDP by region, 1975 to 1985.
Note: Figures represent group averages weighted by
GDP. Because of the back of comparable data, China, Japan, Nigeria and several
relatively small countries are excluded from the sample in this
B. Relation between central
government expenditure as a share of GDP and growth of GDP in developing
Source: The World Bank
Chart 3: External Balances of
Source: The World Bank
The long-term debt of developing countries has continued to
increase since 1982; for the highly indebted countries, it rose from $390
billion in 1982 to $485 billion at the end of 1987. This increase in debt
paralleled deterioration of creditworthiness through 1986, but since then
conditions have been more stable and in some cases have improved. The
compression of imports (for example, from 1980 to 1986, Latin America shifted
from a $2 billion deficit to a $13 billion surplus in trade with the United
States) brought on by the debt burden reduces exports from the developed nations
and further jeopardizes global economic growth.
Box 2.01. Ghana: Improvement under Austerity
Until the mid-1970s, Ghana had one of the most developed and
affective educational systems in Western Africa: the system consisted of six
years of primary, four years of middle, and seven years of secondary education.
However, the economic decline that began the 1970s caused educational
expenditures to fall from 6.4 percent of GDP in 1976 to 1.7 percent in 1985.
During this period the urban bias of the formal system was reinforced, school
enrollment stagnated or declined, adult illiteracy rates increased, teacher
attrition became scarce, and planing degenerated into solely a form of crisis
The Provisional National Recovery Council introduced an Economic
Recovery Program (ERP) that began in 1983. The goals of the ERP were to support
exports and domestic production, to restore fiscal and monetary discipline, to
rehabilitate the economic and social infrastructure and the country's productive
base, and to encourage private investment. The second phase to the ERP (1986-88)
placed greater emphasis on the social sectors, including education, and
attempted to improve allocation of operational and maintenance expenditures and
increase the effectiveness of public investment planning.
In 1987 an education sector reform program was announced to:
· expand access to
primary education, especially in low enrollments areas;
· improve educational quality, efficiency, and
· make financing of education more
efficient and equitable; and
system planning and administration.
The reforms was supported by a World Bank sector adjustment
credit as well as by grants from UNDP, Switzerland, Great Britain, Norway and
Canada, and concessional loans from the OPEC Fund.
While the ultimate success of the reform will not be certain for
several years, the immediate goals of increased access, maintaining education's
share of the budget, and decreasing unit costs have been realized. The reform
has emphasized improving pedagogical efficiency (especially in the Junior
Secondary Schools (JSS) curriculum which covers grades 7-9 in Ghana's new
12-year pre-tertiary system), promoting cost savings and cost recovery,
encouraging community involvement, and rationalizing university operations. One
result is that new enrollments in 1989 increased by 11.8 percent (compared to a
plan goal of only 5 percent), while education's share of the budget has been
kept at the pre-reform level of 3 percent of GDP.
The initial success of the Ghanian educational reforms appears
attributable to five key factors:
1. A core group of professionals (domestic and
international) are committed to the reform;
2. International aid efforts have been well coordinated;
3. The reform was implemented nation-wide in a short period of
4. The reform standardized the JSS as the national form of
middle school thus avoiding the stigmatization that occurred in the previous
two-track system; and
5. Managers of the reform have heeded the constraints imposed by
the present level of management capacity.
The Ghanian experience indicates how a properly structured
education sector adjustment policy can promote educational improvement within
the inherem constraints of an economic sector reform program.
The debt service problem is linked to the potential for social
investment spending, but only indirectly. As a greater share of national
resources must be used to service foreign debt, fewer funds are available for
all investment and consumption activities. It does appear, however, that under
heavy debt burdens, some governments tend to emphasize import substitution
activities and the immediately productive sectors (to generate more funds in the
short run) at the expense of social investments. Debt conditions also
precipitate structural adjustments and reforms that often have an impact on
expenditures within the social sectors.
Box 2.02. Private Primary Schools Enroll One out of Eight
A recent Unesco survey of 140 countries and territories
representing 77 percent of the world's primary school enrolment found that over
29 million children were enrolled in private primary schools in 1985, i.e.
nearly 12 percent of the combined total (public + private) enrolments in the 112
countries reporting some private education. This percent-age is nearly the same
for developing and industrialized countries.
By major region, private primary enrolment accounted for 12.8
percent of total enrolment in Africa, 9.1 percent in Asia, 17.6 percent in
Europe, 10.2 percent in North America, 14.1 percent in South America, and 24.1
percent in Oceania. Compared to the situation in 1975, the share of private
enrolments decreased from 12.4 percent to 11.7 percent of the aggregate world
total, but increased by two percentage points in Europe and Oceania, and
slightly in South America.
But what is a private school? According to the
international definition used in UNESCO questionnaires, a private school is a
school not operated by a public authority, whether or not the school receives
financial support from such authority. Thus, management is the decisive
criterion for international statistical purposes. In other cases, however, other
criteria may be used: for example, the ownership of a school, or its source of
income. The stated purpose of a school and the clientele it serves may also
indicate its nonpublic character, as in the case of religious and ethnic schools
which generally aim to maintain a particular subculture. Each of these criteria
is useful, but difficult to apply universally to distinguish private from public
schools, because of local variations. Relatively few private schools operate
without some financial support and administrative oversight by the public
authorities; public schools in many countries receive partial support from less
and other nonpublic sources, and some also cater to certain subcultures.
Another categorization of primary schools may be helpful:
· community schools
that take all children in a given locality;
schools that maintain a subculture (religious or ethnic);
· reform or free schools that apply a particular
pedagogical or social philosophy;
(academic or social) schools;
venture schools offering education or training that is in short
Most public schools would fit into the first category, whereas
most private schools would fit into one or more of the of the other four.
Where strong subcultures are embedded in society, private
schools are defended as expressions of religious, cultural and ethnic diversity.
Such private schools are intended to socialize children into the beliefs, values
and traditions of the sponsoring group. This view contrasts with the widespread
expectation that the public school, common to all children in a locality,
promotes social cohesion, understanding and tolerance among diverse groups and