Document o f The World Bank FOR OFFICIAL USE ONLY Report No: 29914-HR PROJECT APPRAISAL DOCUMENT ON A PROPOSED L O A N IN THE AMOUNT OF EURO 67.8 MILLION (US$85.0 MILLION EQUIVALENT) TO THE REPUBLIC OF CROATIA FOR AN EDUCATION SECTOR DEVELOPMENT PROJECT AUGUST 17,2005 Human Development Sector Unit Europe and Central Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of The World Bank
FOR OFFICIAL USE ONLY
Report No: 29914-HR
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT OF
EURO 67.8 MILLION
(US$85.0 MILLION EQUIVALENT)
TO THE
REPUBLIC OF CROATIA
FOR AN
EDUCATION SECTOR DEVELOPMENT PROJECT
AUGUST 17,2005
Human Development Sector Unit Europe and Central Asia Region
This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS (Exchange Rate Effective M a y 3 1,2005)
ADP CARDS CAS C F A A CPAR EC E M I S ESDP ESFA EU EU-8 EU-15 EU-25 I C B IMF MEPPPC M I C M o F MOSES M S T D MTEF N C B NGO OECD PHARE PPL
S A 0 SBD s IL SWAP
QER
Currency Unit = Croatian Kuna (HRK) EUR 1 = US$1.25 US$1 = H R K 5 . 7 9
F I S C A L YEAR January 1 - December 31
ABBREVIATIONS AND A C R O N Y M S
Annual Development Plan Community Assistance for Reconstruction, Development and Stability Country Assistance Strategy Country Financial Accountability Assessment Country Procurement Assessment Report European Commission Education Management Information System Education Sector Development Project Education Sector Fiduciary Assessment European Un ion European Un ion member states that acceded to the EU in 2004 (less CyprudMalta) European Un ion member states pr ior to accession o f new countries in 2004 European Un ion member states after accession o f new countries in 2004 International Competitive Bidding International Monetary Fund Ministry o f Environmental Protection, Physical Planning and Construction Middle Income Country Ministry o f Finance Ministry o f Science, Education and Sports Ministry o f Sea, Tourism, and Development Medium-Term Expenditure Framework National Competitive Bidding Non-Governmental Organization Organization for Economic Cooperation and Development Poland and Hungary Act ion for Restructuring o f the Economy Public Procurement L a w Quality Enhancement Review State Audit Off ice Standard Bidding Documents Specific Investment Loan Sector-Wide Approach
Vice President: Shigeo Katsu
Sector Director: Charles C. Griffin Sector Manager: Maureen McLaughl in
Country ManagedDirector: Anand K. Seth
Task Team Leader: Rosita V a n Mee l
FOR OFFICIAL USE ONLY
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CROATIA EDUCATION SECTOR DEVELOPMENT PROJECT
CONTENTS
Page
STRATEGIC CONTEXT AND RATIONALE ................................................................................. 1
1 . 2 .
Country and Sector Issues ......................................................................................................... 1 Rationale for Bank Involvement ............................................................................................... 3
Lending Instrument ................................................................................................................... 3 Project Objectives ...................................................................................................................... 3 Project Priorities ........................................................................................................................ 3 Lessons Leamed and Reflected in the Project Design .............................................................. 4 Alternatives Considered and Reasons for Rejection ................................................................. 5
This document has a rest r ic ted distr ibution and may be used by recipients only in the performance of their official duties . I t s contents may not be otherwise disclosed without Wor ld Bank authorization .
Country and Sector Background ............................................................................................. 12 Ma jo r Related Projects Financed by the Bank and Other Agencies ........................................ 15 Results Framework and Monitor ing ........................................................................................ 16 Detailed Project Description ................................................................................................... 20 Implementation Arrangements ................................................................................................ 22 Financial Management and Disbursement Arrangements ....................................................... 24 Procurement ............................................................................................................................. 31 Economic and Financial Analysis ........................................................................................... 35 Safeguard Policy Issues ........................................................................................................... 38 Project Preparation and Supervision ....................................................................................... 40 Documents in the Project F i le ................................................................................................. 41 Statement o f Loans and Credits ............................................................................................... 42 Country at a Glance ................................................................................................................. 43
MAP IBRD33394
CROATIA EDUCATION SECTOR DEVELOPMENT PROJECT
STRUCTION AND DEVELOPMENT Total:
Date: August 17,2005 Country Director: h a n d Seth Sector Manager: Maureen McLaughl in Themes: Education for All Project ID: PO86671 Lending Instrument: Specific Investment Loan
Team Leader: Rosita Van M e e l Sectors: General Education Sector
For Loans/Credits/Others: Total Bank financing (USsm.): 85.0 equivalent, or EUR 67.8 m i l l i on Proposed terms: FSL, euro, level semesterly payments
Responsible Agency: Ministry o f Science, Education and Sports
Have these been approved by Bank management? I s approval for any pol icy exception sought f rom the Board? Does the project include any critical r i s k s rated “substantial” or “high”? Does the project meet the Regional criteria for readiness for implementation? Ref: PAD D. 7
[ ] y e s [ x j ~ o [ ]Yes [XINO [XIYes [ ] N o
[XIYes [ ] N o
Project development objective Ref: PAD B.2
The development objective o f the ESDP i s improved student leaming and system performance. The me- dium-term goal i s that teachers and students will use a wider range o f appropriate methods in teaching and leaming, and that system management (including pol icy development, implementation, monitoring and fiduciary oversight) i s strengthened.
Project description Re$ PAD B.3, Annex 4
The ESDP i s arranged around four priority themes:
Priority One - Enriching the Classroom. The Govemment’s ESDP has an ambitious a im to re- new curriculum in al l schools and to shift the focus o f teaching towards active learning, problem- solving and understanding. The ESDP supports this transformation by implementing the Na- tional Education Standards now under preparation by MoSES in school curricula, developing teachers’ professional knowledge and skills, and promoting school-level improvement by creating professional learning communities for teachers in schools.
Priority Two - Improving Monitoring and Evaluation. One objective o f the ESDP i s to establish an externally administrated school leaving examination, Matura. The ESDP supports the design and establishment o f this examination and related logistics, and also supports developing policies, activities and structures that aim at improving the capacities o f the education system to collect, analyze, assess and disseminate information related to the system’s performance.
Priority Three - Strengthening Management and Leadership. The ESDP supports efforts to im- prove management, e.g. pol icy development, planning and fiduciary capacities at the central level, administration and coordination capacities at the regional level and educational leadership at school level. The ESDP will also support the establishment o f a system including facilities for leadership training for school principals, regional and local education authorities and MoSES staff.
Priority Four - Supporting Regional Development and Innovations. The ESDP will support re- gional plans and programs to reduce the number o f schools that operate in multiple shif ts by sup- porting regional initiatives and infrastructure investments and by promoting opportunities for schools to provide more optional and non-formal activities.
Which safeguard policies are triggered, i f any? Re$ PAD D.5, Annex 10
The project was rated Category B (environment).
I Significant, nonstandard conditions, if any, for: Re$ PAD C.6
Conditions of effectiveness
a. The Borrower, through MoSES, shall have adopted the Operational Manual, satisfactory to the Bank.
Covenants applicable to project implementation:
a. The Borrower shall carry out the Project in accordance with the provisions o f the Operational Manual, including provisions o f the Environmental Management Plan, and shall not amend, suspend, abrogate, repeal or waive any provision o f the Operational Manual without pr ior approval o f the Bank.
b. On behalf o f the Borrower, MoSES shall have overall leadership and coordination role for the execution o f the Project, with staffing and resources adequate to enable it to effectively oversee the Project implementation. MoSES shall designate i t s Finance Department to: (a) prepare applications for withdrawal o f the Loan proceeds; (b) maintain records and accounts related to the Project and to arrange the audit thereof; and (c) incorporate procurement activities reports into i t s annual ESDP reports.
c. The Borrower, through MoSES, shall: (a) not later than October 1 o f each year during the implementation o f the Project or such later date as may be agreed by the Bank, submit to the Bank an Annual Development Plan (ADP), satisfactory to the Bank and the Borrower, prepared in accordance with the format included in the Operational Manual and which shall include agreed amounts o f Transfers for ADPs for the respective Fiscal Year; (b) not later than June 30 o f each year during the implementation o f the Project, or such later date as may be agreed by the Bank, provide to the Bank for i t s review, a report o n the progress achieved in the carrying out o f the Project during the period preceding the date o f said report, as monitored pursuant to indicators and monitoring arrangements, set forth in the Operational Manual; and (c) jo in t ly undertake with the Bank review o f the Project activities based o n the report referred to in sub-paragraph (b) above.
CROATIA EDUCATION SECTOR DEVELOPMENT PROJECT
A. STRATEGIC CONTEXT AND RATIONALE
1. Country and sector issues
Croatia i s moving w e l l past the challenges presented by national independence and economic transition, and i s n o w focusing i t s efforts on European Union (EU) accession and the accompanying structural reform agenda. In June 2004, the European Council (EC) granted Croatia candidate status for EU membership, not ing that Croatia (i) i s a functioning democracy; (ii) can be regarded as a functioning market economy; and (iii) can be expected to assume the other obligations o f membership over the medium term. Wh i le EU accession and the related requirements around the acquis communautaire will be the focus o f much national attention over the next several years, Croatia i s also facing major structural challenges to improve i t s competitiveness and investment climate, t o strengthen govemance, and to ensure broader participation in growth.
The development o f education in Croatia wil l occur against the backdrop o f fiscal consolidation over the medium term. Public expenditures s t i l l account for a l i t t le less than 50 percent o f GDP, which i s very high compared to EU accession and candidate country averages. The Government gradually reduced the fiscal deficit f rom 8.1 percent o f GDP in 1999 to 4.5 percent o f GDP in 2002, but these gains were partly reversed as a new round o f spending increases led to an increase in the fiscal deficit to an estimated 5.8 percent o f GDP in 2003. The fiscal deficit in 2004 fe l l t o 4.5 percent o f GDP, and the 2005 program i s seelung an additional one percent cut in the deficit through additional consolidation. Real GDP growth has been positive, but has declined f rom 5.2 percent in 2002 to 3.8 percent in 2004. The external debt rose from 60 percent o f GDP in 2000 to 82.4 percent o f GDP in 2003, and despite monetary and fiscal tightening it grew further to 88.1 percent o f GDP (in U S Dollars; or 80.5 percent o f GDP in EUR). The current account balance improved over the last two years f rom 8.4 percent o f GDP in 2002 to 4.9 percent of GDP (if measured in USD; or 4.6 percent o f GDP) in 2004. The Government i s working closely with the IMF and the Wor ld Bank Programmatic Adjustment Loan (PAL) team to support further fiscal adjustment and to reduce external vulnerability.
As Croatia’s opening to the EU continues to advance, there i s a stronger consensus than ever between the education authorities and key stakeholders that the system requires significant changes in order to be able to respond to current and future needs o f individuals and the society alike. The primary purpose o f the Education Sector Development Project (ESDP) i s to help the Ministry o f Science, Education and Sports (MOSES) to reflect this demand for change by developing and implementing a comprehensive education strategy that wil l lead to results on the ground, while helping the management and administration o f the education system to monitor and implement the necessary changes. The Education Sector Development Plan 2005-2010 (the Plan) was accordingly approved by the Government in June 2005, and the fol lowing are the key challenges that the Plan addresses:
I t i s necessary to revisit what i s being taught in schools. Despite the best efforts o f teachers and students, Croatian schools are operating with curricula that remained to a large extent as i t was in the beginning o f 1990s. The Croatian National Competitiveness Council (which consists of representatives o f private sector companies, confederations o f trade unions, academia and the Government) has frequently articulated the significant gap between what young employees k n o w and are able to do, and what i s expected by increasingly competitive knowledge economies. What i s needed i s a new national curriculum that stresses knowledge and sk i l l s as dynamic transferable processes to be learned in schools, in order to develop the attitude o f l i felong learning
1
among young people. I t i s also necessary to renew teaching and leaming materials, to upgrade the educational facilities in schools, and to introduce a national system for in-service training and professional development o f teachers.
Vocational education and training i s ill-equipped to prepare young people for the challenges of today and tomorrow. Vocational education and training ‘suffers f rom many years o f underinvestment and, as a consequence, ill-adjusted programs, materials and equipment, as we l l as a negative selection o f teachers. It may be considered largely out of tune with the needs o f the labor market and society at large. Enrol l ing into a vocational and technical program i s n o w only a second-best choice. M a n y young people who make the transition f rom primary to secondary education end up in programs which they have not chosen deliberately. There i s an issue o f early streaming o f students, as wel l as the high risk o f ill-motivated students dropping out o f education in an early phase. Most vocational and technical education programs train for very narrow specializations.
The capacity of the public administration i s not in resonance wi th sector needs. The rapidly moving societal context in Croatia would challenge even we l l developed education systems. MOSES needs to strengthen substantially i t s capacity to develop and implement sector policies. The education information management system i s very weak, and i s thus no t able to support po l icy development or the monitoring o f the system’s performance. The sector utilizes several parallel information systems that do not take advantage o f modem information technologies. Evaluations o f the education system are very rare: for example there i s n o reliable information about school performance or student achievement. The country’s education evaluation policies have not been clearly articulated.
Regions and schools need to be more involved in education sector development. Education pol icy i s usually developed by the central administration, but this pol icy i s largely implemented at the local levels, especially in schools. Regional education authorities have some facilities supported by the central Ministry to plan and implement improvements financed f rom annual budgets. However, the education system needs more dynamic mechanisms that would encourage and support regional and local innovations in education or significant development initiatives o f education infrastructure.
The structure of public expenditures in education slows down the pace o f reforms. Public expenditures for education are just over five percent o f GDP, roughly o n balance with the average o f the EU-25, but below the OECD’s 6.2 percent (including private). M u c h o f that expenditure focuses o n recurrent costs such as salaries, and under-financing o f education in the 1990s and poor expenditure management lef t a deficit in the system in terms o f greater need for investments in infrastructure and quality improvement. The capacity to adapt to changing needs i s weak due to the lack o f robust efficiency control measures, the need for more equity and transparency in budgetary allocation, and the unbalanced structure o f the education budget in terms o f categories o f expenditure and sources o f funding. Investments in education will be costly, but will require a hard look at the current structure o f expenditures in order to identify potential efficiency gains.
There wi l l be fewer Croatian pupils and students in schools in the future. Demographic developments have fol lowed those experienced in many other Eastern European countries. Fall ing birth rates and migration have caused decline in total population that i s n o w showing dropping school enrolments. According to these forecasts, by 2020 there wil l be about one quarter fewer students in pre-tertiary schools than in 2000.
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2. Rationale for Bank Involvement
As in many other countries, successful and sustainable education change in Croatia will need to twin local expertise with external partnerships and support. In collaboration with the European Un ion and the OECD, the W o r l d Bank will bring to Croatia international and regional knowledge and best practices that wil l eventually lead the launch o f system-wide renewal. The key success factors o f the Wor ld Bank involvement in the Croatian education sector include the Bank’s institutional knowledge and know-how o f education reforms, as wel l as i t s capacity to help Croatia education authorities, policy-makers, researchers and teachers to learn f rom the global education community. The W o r l d Bank has the potential in Croatia to bring together stakeholders and the international community to provide a needed critical mass that will keep the reform process in the move.
Higher level objectives to which theproject contributes. The ESDP supports the overall objectives o f the draft Country Assistance Strategy (2005-2008, approved by the Government o f Croatia o n November 1 1, 2004 and endorsed by the Wor ld Bank Board on December 21, 2004). In particular, the ESDP wil l contribute to wider participation in the economic growth by improving the targeting, sustainability, quality, and efficiency o f education services.
B. PROJECT DESCRIPTION
1. Lending Instrument
The loan amount i s EUR 67.8 m i l l i on (US$85.0 m i l l i on equivalent). The ESDP wil l support the implementation o f the priority areas in the Government’s June 2005 Education Sector Development Plan, and i s a sector-wide approach (SWAP) financed through a Specific Investment Loan (SIL). Accordingly, the ESDP wil l finance a share o f the MoSES’ annual education development expenditures as articulated in Annual Development Plans (ADPs). Each ADP will be completed by October 1, or such later date as may be agreed with the Bank. The ADPs will, inter alia, specify the activity plan, required investment needs, agreed schedule, budget and procurement plan for the fol lowing year, and will in form the education sector’s budget submission to Government and Parliament. The Bank’s ESDP financing i s restricted to the expenditures specified in the ADPs and included in the approved budget l ine items for education, and i s expected to be less than 50 percent o f the ADPs. Annual disbursement leve ls may be modif ied in a flexible way based on overall progress in the sector, as we l l as o n changes that may occur in estimated project needs. Disbursements wil l be made in two advances as specified in each year’s ADP beginning in 2006. Financial Monitor ing Reports (FMRs) wil l be issued semi-annually in a format agreed in the ESDP Operational Manual.
2. Project Objectives
The development objective o f the ESDP i s improved student learning and system performance. The medium-term goal i s that teachers and students will use a wider range o f appropriate methods in teaching and learning, and that system management (including pol icy development, implementation, monitoring and fiduciary oversight) i s strengthened. The project will be monitored through an established set of indicators (see Annexes 3, 6 and 7). Progress against those indicators will be reviewed annually by a l l key stakeholders by June 30 o f each year through an independent evaluation report, thus informing the dialogue on each annual ADP.
3. Project Priorities
The actions to be supported through ESDP and included in the ADPs o f the MoSES are arranged around four priority themes:
3
Priority One - Enriching Classroom Practices. The Government’s ESDP has an ambitious a im to renew curriculum in al l schools and to shift the focus o f teaching towards active learning, problem-solving and understanding. The ESDP supports this transformation by implementing the National Education Standards n o w under preparation by MoSES in school curricula, developing teachers’ professional knowledge and ski l ls, and promoting school-level improvement by creating professional learning communities for teachers in schools. Related activities wil l include training of school curriculum specialists, in-service training for teachers, new teaching and learning facilities including computers and software, upgrading regional teacher training centers, new curriculum materials for teachers and grants to the schools.
Priority Two - Improving Monitoring and Evaluation. One objective o f the ESDP i s t o establish an externally administrated school leaving examination, Matura. Beginning in 2009, this examination will become compulsory for a l l (four-year) secondary school students. The ESDP supports the design and establishment o f this examination and related logistics, including incremental recurrent costs required for start up o f this new institution, as we l l as the development o f educational evaluation practices within the education system. Moreover, the ESDP supports developing policies, activities and structures, e.g. E M I S and national student assessment system, that a im at improving the capacities o f the education system to collect, analyze, assess and disseminate information related to the system’s inputs, processes and performance, including students’ achievement.
Priority Three - Strengthening Management and Leadership. The MoSES recognizes the need for overall improvement o f educational management at various levels o f the education system. The ESDP supports efforts to improve management, e.g. po l icy development, planning and fiduciary capacities at the central level, administration and coordination capacities at the regional level and educational leadership at school level. The development and refinement o f the national steering system o f education wil l be connected to the implementation o f the project. The ESDP will also support the establishment o f a system including facilities for leadership training for school principals, regional and local education authorities and MoSES staff.
Priority Four - Supporting Local Development and Innovations. The ESDP will a im to reduce the number o f schools that operate in mult ip le shif ts by supporting local initiatives and infrastructure investments and by promoting opportunities for schools to provide more optional and non-formal activities.
4. Lessons Learned and Reflected in the Project Design
The implementation framework o f this operation i s based on growing Bank experiences with SWAP design and implementation (e.g., Poland Roads, Morocco Basic Education Reform Support Program, India Education, Ghana Health, and a number o f others). The content draws f rom the Bank’s direct engagement with the education authorities and counterparts in Croatia, o n the education practices and priorities in EU countries, and o n international experience in education. In particular, the EU i s investing significant resources to assist Croatia to adjust i t s procedures, structures and policies to those required in the acquis communautaire. The experiences o f other states that have successfully completed the EU accession process clearly show the importance o f structural reforms in education to strengthen competitiveness and labor force effectiveness. T o achieve sustainable leadership and change, the Croatian education system will benefit f r om sector-wide development rather than reforms through stand-alone projects. Sustainable educational leadership and changes in the ways the system works can be achieved by supporting Government’s efforts to improve the entire education system, as described in the Education
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Sector Development Plan. This, among other things, will help the Government to strengthen planning, management and monitoring o f education that are essential requirements in the changing European Community and i t s knowledge economies.
5. Alternatives Considered and Reasons for Rejection
A SWAP approach was selected after discussing the relative merits o f a traditional investment loan approach with the Government, and reflecting the lessons leamed from the Bank’s evolving experience with middle income countries in ECA. The design was also recommended during the ESDP Quality Enhancement Review (QER). A SWAP seemed best suited to address Croatia’s needs in a flexible way because: (1) the proposed operation i s promoting systemic change to better address the expectations o f a changing society, rather than project level change; (2) a SWAP i s better suited to address systemic inefficiencies, and Croatia already functions fa i r ly w e l l in terms o f access and equity; and (3) sector-wide programmatic approaches provide a superior opportunity for the Bank and other sector partners to engage in continuous education policy dialogue with the Government.
C. IMPLEMENTATION
1. Partnership Arrangements
The ESDP i s available to co-finance the efforts o f other aid partners, should the Government so decide as structural funds become increasingly available to the country. The ESDP will be useful in orienting consultations with the Ministry’s external partners. The EU, through successive Community Assistance for Reconstruction, Development and Stability (CARDS) projects being implemented between 2003 and 2007, i s investing a total o f EUR 7.6 m i l l i on to continue development o f secondary vocational education and training and adult learning. Investments in the social sector, including education, will increase considerably thereafter. I t has been agreed that, apart f rom the exchange o f information o n a regular basis and ad hoc meetings, EU representatives will be invi ted to the ESDP review meetings and the Bank ESDP team to the EU coordination meetings.
2. Institutional and Implementation Arrangements
The MOSES will lead and coordinate implementation o f the Project under the overall guidance o f the Min is t ry ’s management team and the Assistant Minister for Primary Education, and with overall project, financing and reporting support provided by the Assistant Minister for Finance (see Figure 1). An ESDP Project Manager was appointed in early 2005, and will provide project logistical support on implementation, monitoring and ADP preparation. The Ministry has appointed an of f ic ia l t o manage each o f the four project priorities. Building on substantial work to date during the preparation o f the ESDP, the Bank team wil l work in partnership with the Ministry to continue to identify and implement areas where the sector’s management and administration can be strengthened. The overall areas will include (i) pol icy development, implementation, monitoring and evaluation; (ii) fiduciary structures and procedures; and (iii) regional and local management capacity.
An Operational Manual wi l l provide the overall framework for carrying out the project, and will include the ESDP itself, the activity plan and overall project budget, the monitoring and evaluation arrangements, financial management and disbursement arrangements, detailed description o f applicable procurement procedures and format o f the procurement plan, and other materials as necessary. The Manual will be regularly revised, in agreement with the Bank, as institutional capacity improves and project implementation progresses. The project wil l strengthen the Govemment’s administrative and fiduciary structures to reduce transaction costs for the Client and the Bank where possible.
and minorities [Priority 11 [Priority 21 I 1 [priority 41 [Priority 31
I I
Treasury (FMRs on sub-
account)
.....,............. ~
Education (works on al l priorities +
PISA)
3. Monitoring and Evaluation of Outcomes and Results
Project performance will be monitored annually each June through an independent report on ESDP progress using a set o f sector-wide indicators partially based o n the indicator system under development in the European Union, as wel l as on project specific activities. These indicators are described in Annex 3. Successful monitoring o f the ESDP requires strengthening o f the statistical and information management procedures in the MOSES, as wel l as in the level o f overall publ ic administration, so that Croatia can increasingly benchmark i t s performance against the EU, O E C D and global trends. EU CARDS i s undertaking a feasibility study on the introduction o f the Education Management Information System in Croatia (vocational education section only) and the ESDP will be available to support extending and implementing that plan by 2007. Fiduciary indicators are indicated in Annexes 6 and 7.
4. Sustain ability
Sustainability wil l in part depend on visible progress in the sector, so that the current enthusiasm for change can be maintained. The flexible annual financing approach embedded in the ADPs further supports sustainability, as Project activities wil l be financed within each year’s budget framework. Overall fiscal pressures wi l l particularly require that attention be paid to avoiding inefficient investments in allocating funds for building schools and school premises. In addition to the decreasing numbers o f school-aged children and youth, there wi l l be a major change o f enrolments and student numbers in different secondary forms and fields o f secondary education. Sustainability in building institutional capacity needs careful analysis and planning. The Ministry wil l develop clearer organizational l ines for
6
(i) education, (ii) science and technology, and (iii) sports. Sustainability o f the ESDP and the early impact o f i t s implementation will be supported by targeted advice and support t o the MoSES.
Risk Lack of sustainability o f change agenda
5. Critical Risks and Possible Controversial Aspects
Risk Mitigation Measure Rating Project supervision wil l focus o n the technical substance o f the ESDP, ut i l iz ing
June reviews wil l identify if the change agenda in the ESDP i s being main- the SWAP approach to reduce time spent o n administrative processes M
tained
The ESDP r isks are identified in the following matrix. These risks were identif ied in consultation with the Client. The overall risk rating i s moderate as this operation i s not attempting to create or modi fy existing structures or to ‘ring-fence’ Bank financing. The Client will engage in capacity building within ESDP in order to strengthen sector management and administration.
Weak capacities to implement the Annual Development Plans
Education sector de- velopment priorit ies inadequately funded Slower than expected performance o n out- puts and goals Teaching quality in schools i s not improv-
pected
Weak fiduciary sys- tems at both country- level and sector-level Risk rating
ing as quickly as ex-
Institutional assessment and identif ication o f capacity building areas wil l lead
Technical assistance to strengthen sector management
Sector expenditure reviews to i n fo rm budget dialogue each year
to organizational development at central and local levels and in schools
Technical assistance to the local levels to carry out ESDP activities
Annual Development Plans based o n the ESDP Priorities, including financing
S
S in the fol lowing year budget consistent with overal l f iscal agenda Indicators with annual targets wil l improve identif ication o f shortfalls in im- plementation M
Improve central and local capacities to target support directly to schools Identi fy and implement ways to strengthen community involvement in educa-
Ut i l ize new ly established external student assessment system to i n f o r m pol i -
Country level risks wil l be addressed through the PAL program. Sector-level risks wil l be mitigated through capacity building measures at the
t i on M
cymakers, teachers and students o n education outcomes
central and local levels S M
6. Loan conditions and covenants.
Bv effectiveness:
a. The Borrower, through MoSES, shall have adopted the Operational Manual, satisfactory to the Bank.
Covenants:
a. The Borrower shall carry out the Project in accordance with the provisions o f the Operational Manual, including provisions o f the Environmental Management Plan, and shall not amend, suspend, abrogate, repeal or waive any provision o f the Operational Manual without prior approval o f the Bank.
b. On behalf o f the Borrower, MoSES shall have overall leadership and coordination role for the execution o f the Project, with staffing and resources adequate to enable it to effectively oversee the Project implementation. MoSES shall designate i t s Finance Department to: (a) prepare
7
applications for withdrawal o f the Loan proceeds; (b) maintain records and accounts related to the Project and t o arrange the audit thereof; and (c) incorporate procurement activities reports into i t s annual ESDP reports.
c. The Borrower, through MoSES, shall: (a) not later than October 1 o f each year during the implementation o f the Project or such later date as may be agreed by the Bank, submit to the Bank an Annual Development Plan (ADP), satisfactory to the Bank and the Borrower, prepared in accordance with the format included in the Operational Manual and which shall include agreed amounts o f Transfers for ADPs for the respective Fiscal Year; (b) not later than June 30 o f each year during the implementation o f the Project, or such later date as may be agreed by the Bank, provide to the Bank for i t s review, a report o n the progress achieved in the carrying out o f the Project during the period preceding the date o f said report, as monitored pursuant to indicators and monitor ing arrangements, set forth in the Operational Manual; and (c) jo in t ly undertake with the Bank review o f the Project activities based o n the report referred to in sub-paragraph (b) above.
D. APPRAISAL SUMMARY
1. Economic and Financial Analysis
The social benefits o f education, specifically the synergies between education and the promot ion o f a good investment climate, constitute a primary rationale for the public funding o f education in Croatia. A good investment climate provides opportunities and incentives for f i r m s - f rom micro-enterprises to multinationals - to invest productively, create jobs, and expand. I t thus plays a central ro le in growth and poverty reduction (World Development Report 2005). Improving the investment climate goes hand in hand with enhancing human capital. A skilled workforce i s essential for f i r m s to adopt new and more productive technologies, and sk i l l constraints are a common problem for f irms, especially those planning to innovate and expand. Conversely, f i r m s that do no t experience much competitive pressure may not seek to innovate and expand and may deem skill constraints to be less o f a problem.
When estimating public expenditures in the education sector in Croatia, i t i s important t o bear in mind that MoSES i s the main but not sole actor -- other central govemment ministries also spend o n education, and expenditures are incurred at the level o f local govemment as well. MoSES’ expenditures amount to 72 percent o f total public education expenditures, whi le local government expenditures are 26 percent o f total education expenditures (over 40 percent o f which are for pre-school), and the Ministry o f Sea Transport and Development accounts for 2 percent (exclusively for school construction and reconstruction). MoSES itself spans science and sports in addition to education, so that no t a l l i t s expenditures should count as public expenditures in education. Focusing o n MoSES planned 2005 expenditures by economic classification; i t i s clear that recurrent expenditures constitute the l ion’s share of total expenditures (92.9 percent). This finding underlies the ESDP’s focus o n boosting the capital investment budget share within MoSES, particularly given that i t i s not anomalous for 2005 but represents the recent historical trend. Croatia’s Medium-term Expenditure Framework (MTEF) projects incremental increases in the education sector budget share o f total Government expenditure over the next three years. I t wil l be increasingly necessary to focus o n sector efficiency o f expenditure, particularly given the high share o f recurrent expenditures within the system.
2. T e c h ical
The technical design o f the ESDP i s based o n contemporary research and knowledge o f large-scale education reforms that a im at qualitative and quantitative changes in education. The weaknesses in the
8
education system are functional, i.e. management, administration, organization and monitoring of the system. A project approach that by definition would have focused o n the selected elements o f the education system rather than o n their inter-relatedness would not have a sustainable an impact on intended areas o f education. The selected approach that addresses entire education sector i s o n par with educational good practices in reforming education systems. The ESDP will a i m at a performance-based financing modality that would promote efficiency, reform, innovation, and accountability in the education sector. Each year’s ADP should set expenditures in accordance with an assessment o f progress against output targets, development milestones, and institutional performance benchmarks, as we l l as o n projected sector needs.
3. Fiduciary
Croatia’s fiduciary systems are malung progress as EU accession approaches. T h i s project will continue to strengthen those systems, whi le working in partnership with the authorities. A Bank team prepared a draft Education Sector Fiduciary Assessment (ESFA) that examined the main institutions and expenditure systems likely to p lay a role in the ESDP (see project files). Fiduciary issues will be addressed through an agreed assistance program. Findings are detailed in annexes 6 and 8.
As o f the date o f this report, the Borrower i s in compliance with i t s audit covenants o f existing Bank- financed projects. Annual audited project financial statements will be provided to the Bank within six months o f the end o f each fiscal year and also at the closing o f the project. D ra f t formats o f the FMRs have been developed and are attached to the minutes o f negotiations.
The latest drafts o f the Croatia CFAA and CPAR reports (November 2004) conclude that the overall fiduciary risk attaching to Croatia’s public financial management framework (budgeting, treasury and cash management, accounting and financial reporting, internal control and internal audit, external audit and legislative oversight, and sub-national government) i s significant and (moderately) high for public procurement. However, at a disaggregated level there are areas o f the Croatian public financial management framework that operate at fairly l o w levels o f r i s k and which wi l l b e rel ied upon by the ESDP. Most notably, the Treasury systems as used by first-level Budget Holders and ministries in particular appear to be fairly robust. The procedures and controls pertaining to this segment o f the Treasury systems appear capable o f producing reliable and timely information o n Budget execution.
Since late 2004, Croatia’s public procurement system has entered a phase o f changes in preparation for EU accession. The public procurement l a w (Public Procurement Act, 2001) has gone through an in i t ia l round o f amendments, which the Cabinet approved in June 2005. An amended Public Procurement Ac t will provide an intermediate legal basis o f acceptable standards until a new l a w i s adopted in 2006. The ESFA finds that procurement systems at a l l levels (country, sector and institutional) need to be substantially strengthened to operate in a structured and reliable control environment. MOSES will allocate part o f the ADP budget funds for provision o f technical assistance to the institutions participating in the implementation o f the ESDP. This will a l low the Client t o start the process o f procurement strengthening and improving procurement practices o f the participating institutions acting as procuring entities in the education sector. Further details are presented in Annex 7.
4. Social
A rapid stakeholder analysishocial assessment has been completed and i s summarized in Annex 10 (it i s also in the Operations Manual). A desk review o f national surveys was conducted, and stakeholder focus groups and interviews were held. The report found broad consensus among stakeholders that reform needs to occur and identified the specific interests and concerns o f several stakeholder groups. In
9
addition, ongoing consultations with stakeholders have occurred in the course o f preparation, and conferences and workshops are planned to continue this consultative process.
The 2001 Economic Vulnerability and Welfare study indicates that poverty in Croatia i s relatively l o w and shallow. At the end o f 199Os, only four percent o f the population l ived on less than US$4.30 a day (at the purchasing power parity), and about 10 percent l ived o n less than US$8.60 a day, which the study suggested i s an appropriate poverty l ine for Croatia. The poverty gap was about 1.8 percent, and o n average the consumption o f a poor household was 20.7 percent be low the poverty line. The report estimated that to lift al l poor out o f poverty with perfect targeting would cost only about one percent o f GDP. The results also showed that there are n o significant differences in the prevalence o f poverty by gender. Income inequality measured by the Gini coefficient was 0.29 in 2002, which i s a bit higher than the average in advanced transition countries. Certain regions (Slavonia) have higher poverty rates. An Update i s programmed for completion in FY06.
5. Environment
The project has been classified as category B due to anticipated construction o f schools and educational facilities through loan financing as part o f the government’s education sector expenditures. An environmental review has been conducted to assess the application o f Croatian environmental laws, permits, and practice to schools construction in Croatia in l ine with this loan’s reliance o n national systems. This has been compared with the typical requirements o f W o r l d B a n k environmental safeguards to assess similarities and gaps in practice.
The environmental assessment concluded that the construction proposed under this project would not trigger a full Environmental Impact Assessment under either the Croatia laws or Wor ld Bank Policies. The type o f environmental impacts o f concern are localized in nature and more adequately addressed through environment permits and good construction practice, or in the case o f Wor ld Bank policies through an environmental management p lan (EMP). Issues to be addressed through these instruments include proper waste management and disposal o f construction debris (inc. asbestos), proper waste water treatment; heating and fuel system assembly, lab operation safety plans where applicable, dust and noise control, sensitivity o f designs to cultural settings; and cultural heritage/chance finds procedures. An environmental management plan (EMP) for the project has been prepared as an example o f the issues that will be addressed through the permitting, construction, contracting, and operations o f the facilities. T h i s E M P i s included in the Operations Manual.
In practice, these issues will be addressed through a series o f local permits detailed in the report, through contractor site supervisor oversight, through the local municipality requirements, and in some cases through a small construction unit in the MoSES. Responsibilities for school construction in Croatia has been decentralized to the municipal level, however school construction with national funding remains with some central oversight. MoSES plays a role in establishing guidance to a l l municipalities through the establishment o f a “Code o f Good Practice.” The report recommends that finalization o f the Ministry o f Education’s “Code o f Good Practice” be supported to ensure that i t incorporates international and EU standards for the environment as a more systemic way to capture the environmental management plan issues. Training, dissemination and awareness-raising by the Ministry o n best practices should also be supported, and a study tour to other EU school systems to review their construction practices would be advisable.
Croatia has candidate status for membership in the European U n i o n which includes the need to harmonize national legislation with the acquis communautaire. The environment acquis i s one o f the most extensive Chapters and updates/revisions are expected to occur over the course o f this project’s implementation to align fully with EU practice. Generally this wil l involve a further expansion o f existing public
10
participation mechanisms, a greater reliance on up-front screening o f investments, and a stronger reliance o n environmental permitting systems (fewer triggered EIAs). EU CARDS funds during this period will be spent o n Environmental Impact Assessment Guidelines and Training at the national level.
The supervision strategy for the project would include a special mid-term review o f construction contracts financed by the Ministry in this period to post-review the application o f environmental safeguards and attention to environmental issues.
6. Safeguard Policies
OP BP 4.1: The environmental safeguard pol icy o f the Bank i s applicable to this project because o f the potential construction o f school facilities. The project has been assigned a category B rating and has conducted an environmental review with a resulting environmental management p lan addressing key issues. This Code will be developed to be fully in l ine with the EU-acquis communautaire Environment requirements as w e l l as the Croatian systems. The project team will also conduct a post-review o f school construction at the mid-term to identify any follow-up actions required to meet safeguard requirements. OP/BP 4.12: W o r l d Bank funding will not be used to fund any activities that require land acquisition; therefore, OP 4.12 o n Involuntary Resettlement i s not triggered. A full Environmental Management Plan and related assessment are included in the Operational Manual.
Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP/GP 4.01) [XI [ I Natural Habitats (OP/BP 4.04) [ I [XI Pest Management (OP 4.09) [ I [XI Cultural Property (OPN 11.03, being revised as OP 4.1 1) [ I [XI Involuntary Resettlement (OP/BP 4.12) [ I [XI Indigenous Peoples (OD 4.20, being revised as OP 4.10) [ I [XI Forests (OP/BP 4.36) [ I [XI Safety o f Dams (OP/BP 4.37) [ I [XI Projects in Disputed Areas (OP/BP/GP 7.60)* [ I [XI Projects o n International Waterways (OP/BP/GP 7.50) [I [XI
7. Policy Exceptions and Readiness
There are n o exceptions required f rom Bank policies, and none are anticipated. All disclosure requirements continue to be met. Counterpart funds requirements have been identif ied and represent part of the 2005 MOSES budget, which was approved by Parliament in November 2004. As noted in Annex 3, a comprehensive and results-oriented monitoring p lan has been developed and agreed under the project. N o co-financing agreements or land acquisition plans have been identif ied as required at this stage o f the project, The executing and implementing agencies have been identified.
* By supporting the proposedproject, the Bank does not intend to prejudice the f ina l determination of the parties' claims on the disputed areas
11
CROATIA EDUCATION SECTOR DEVELOPMENT PROJECT
Annex 1 : Country and Sector Background
Croatia i s moving we l l past the daunting challenges o f independence and high economic uncertainty, and i s n o w focusing i ts efforts on European Un ion (EU) accession and the accompanying structural reform agenda. In June 2004, the European Council (EC) granted Croatia candidate status fo r EU membership, not ing that Croatia (1) i s a functioning democracy; (ii) can be regarded as a functioning market economy; and (iii) can be expected to assume the other obligations o f membership over the medium term. Whi le EU accession and the related requirements around the acquis communautaire wil l be the focus o f much national attention over the next several years, Croatia i s also facing major structural challenges to improve i t s competitiveness and investment climate, t o strengthen governance, and to ensure broader participation in growth. Education will be one o f the main determinants o f the potential success and prosperity o f Croatia as i t moves to integrate with the highly competitive and socially diverse European Community. The Education Sector Development Plan 2005-201 0 was accordingly approved by the Government in June 2005 to address a range o f system features and issues, as described below.
Curriculum development i s needed. Despite the best efforts of teachers and students, Croatian schools are operating with curricula that remained to a large extent as it was in the beginning o f 1990s. The Croatian National Competitiveness Council (which consists of representatives o f private sector companies, confederations o f trade unions, academia and the Government) has articulated the gap between what young employees know and are able to do, and what i s expected by increasingly competitive knowledge economies. I t i s necessary to renew teaching and leaming materials, t o upgrade the educational facilities in schools, and to introduce a national system for in-service training and professional development o f teachers. The desired shift f rom an industrial to knowledge-based school organization has a direct impact o n the professional development and deployment of teachers. A pressing issue for Croatian education decision-makers today i s how to attract able graduates into the teaching profession, h o w to educate them so they became agents o f change and innovation, h o w to motivate them to continuously improve their knowledge and ski l ls.
Participation in compulsory education i s high, but the duration i s less than in other European systems. The current education system provides widely accessible publicly financed education services f rom pre- school t o tertiary and adult education. Pre-tertiary education i s provided through eight-year pr imary school (ages 6 to 14), four-year academic or vocational secondary schools, two-year basic vocational school and secondary level art schools. Participation in primary and secondary education i s high with an estimated gross enrollment rates o f 96 percent and 82 percent respectively. Approximately 78 percent o f pupils who successfully complete primary education continue further studies at the secondary level. Pre- school i s provided in municipally administrated pre-school institutions to close h a l f (44%) o f pre-school children ages three to six, leaving Croatia behind most EU countries with an average participation rate o f almost 60 percent. In Croatia, the current eight-year compulsory primary education cycle consists o f a 34 week school year with relatively short school days. This, together with an already l o w school l i fe expectancy (about 25 percent lower in Croatia than in the OECD countries), puts Croatian youth at a disadvantage compared to their peers in Europe (Table 1).
12
Country
OECD Croatia
Multi-shift schools. Although Croatian students benefit f rom quite generous student teacher ratios at a l l levels o f education, the prevalence o f multi-shift schools presents a real challenge. MoSES estimates that 68.3 percent o f pr imary and 76.6 percent o f secondary schools operate in t w o shi f ts and 6 percent o f primary schools in three shifts, so the school network i s ill-prepared to provide high quality learning opportunities to a l l students. Teachers are also negatively affected by multiple shifts, as they do not have space for continuous school based professional development activities.
Age at the end o f Length o f school Intended instruc- School expectancy compulsory education year (days) t ion time (h) (OECD 2002)
16 190 923 17.2 14 175 875 13
There will be fewer Croatian pupils and students in schools in the future. Fal l ing birth rates and migration will lead to lower school enrolments. Projections show that by 2020, there will be about one quarter less students in pre-tertiary schools than in 2000. However, the demographic decline wil l not release pressure o n multi-shift schools because o f regional differentiations in h o w populations will change.
43.000 -8.5 39.000 -17.0 7-10 11-18 Total students
Vocational education and training i s il l-equipped to prepare young people for the challenges o f today and tomorrow. Enrol l ing into a vocational and technical program i s n o w only a ‘second-best’ choice. M a n y young people who make the transition f rom primary to secondary education end up in programs which they have not chosen deliberately. There i s early streaming o f students, as w e l l as the high risk o f ill- motivated students dropping out o f education in an early phase. Mos t o f these programs train for very narrow specializations.
Tertiary education needs substantial improvement. There are a total o f 102 tertiary education institutions, offering a wide variety o f tertiary education programs. Of these, there are only 5 universities and 7 polytechnics. Tertiary education institutions are autonomous, but they are subject t o rigid financing and staffing mechanisms at the center, and litt le quality control. Faculties in the universities are more independent that their host institutions as a consequence o f separate budgeting procedures. This makes i t extremely diff icult for rectors and university managers to introduce improvements in teaching and research. MoSES estimates that up to 70 percent o f students who enrolled in universities never graduate and those who do spent more than seven years to complete study programs o f four or f ive year duration, The introduction o f a Council for Quality Assurance in Higher Education wil l help, over time, to improve the situation at the institutional and program levels.
Regions and schools need to be more involved in education sector development. Education pol icy i s usually developed by the central administration, but this pol icy i s largely implemented at the local levels, especially in schools. Regional education authorities have some facilities supported by the central Ministry to plan and implement improvements financed f rom annual budgets. However, the education
13
system needs more dynamic mechanisms that would encourage and support regional and local innovations in education or significant development initiatives o f education infrastructure.
National minorities. National minorities include Serbian, Italian, Roma, Czech, Hungarian, Slovak, Ukrainian and Jewish populations, and constitute approximately 17,000 students, representing 3 percent o f the total number o f students attending schools. A significant obstacle for the design o f targeted education intervention to address the needs o f national minorities i s the lack o f data regarding their education status and situation. For example, very l itt le i s known about the participation o f Roma children in education. Despite the effort by the national Government to offer education in the national language o f different minorit ies through three different educational models targeted to the l inguistic needs o f different ethnic groups, the ma in issues affecting the provision o f education for some minorit ies i s the l o w quality education received by children in schools and early tracking.
Sector management needs strengthening to address the above issues. Croatia’s rapidly changing socio- economic situation would challenge even wel l developed education systems. MoSES needs to strengthen substantially i t s capacity to develop and implement sector policies. The education information management system i s very weak, and i s thus not able to support pol icy development or the monitoring o f the system’s performance. MoSES does not have an information base to make va l id comparisons o f student learning between schools or localities, thus limiting i t s capacity to design and implement targeted interventions. External evaluations within the education system are rare. The recently approved l a w on secondary education school leaving examination i s one step in that direction. Public expenditures for education are just over five percent o f GDP, roughly o n balance with Croatia’s Western European neighbors. However, much o f that expenditure focuses o n recurrent costs such as salaries. Moreover, under-financing o f education in the 1990s and poor expenditure management lef t a deficit in the system in terms of greater needs for investments in infrastructure and quality improvement. The capacity to adapt to changing needs i s weak due to the lack o f robust efficiency control measures, and the need for more equity and transparency in budgetary allocation.
The Education Sector Development Plan highlights the above issues, and presents a national vision for the type o f education system that best meets Croatia’s needs. Because change in education i s complex, the ESDP will, in many respects, best serve the education authorities by helping them to priorit ize sequence and finance ESDP actions in the sector in a flexible and sustainable way.
14
C R 0 AT I A EDUCATION SECTOR DEVELOPMENT PROJECT
Annex 2: Major Related Projects Financed by the Bank and/or other Agencies
World Bank portfolio
The Science and Technology Project (FY05, US$40.0 mi l l ion programmed) contributes to the reorientation o f Croatia's science and technology (S&T) infrastructure, in particular to (i) strengthen and restructure research and development institutions (RDIs) and promote commercialization o f research outputs; and (ii) upgrade technological capabilities o f enterprises. The operation will be implemented by MOSES.
The Social and Economic Recovery Project (FY05, US$30.0 mill ion) addresses the post confl ict reconstruction and sustainable development o f Croatia's war-affected and disadvantaged areas. The main development objective i s to increase social cohesion and sustainable economic opportunities among different war-affected and marginalized groups within the different ethnic communities living in the project areas. T o achieve this, the project will adopt a social fund type o f approach to fund community- selected subproject activities. I t will include two major components: an investment program, and a local level institutional development program.
European Commission
The European Commission's Community Assistance for Reconstruction, Development and Stabilisation (CARDS) Programme allocated € 8.85 mi l l i on in 2003 to (i) upgrade vocational education and training by establishing centers o f excellence; (ii) decentralize and reorganize the Croatian employment service in order to achieve a better match between labor market needs and supply; and (iii) upgrade labor market statistics to improve, broaden and enhance data collection and processing in l ine with the EU standards. N o w that Croatia has achieved EU candidate status, there may be some funds available for vocational education and lifelong leaming under the Poland and Hungary Act ion for Restructuring o f the Economy (PHARE) program, but these allocations have not been established.
Council o f Europe Development Bank
The Council o f Europe Development Bank (CEB) has financed three loans to support the reconstruction of schools that were devastated during the war. The f i rst loan (now closed) supported Eastern Slavonia, and included 34 schools for a total cost o f HRK 135 mill ion, o f which HRK 67.4 m i l l i o n was financed by CEB. The second loan supported reconstruction o f 41 schools in eight war-affected areas through CEB financing o f HRK 98.6 mill ion, and i s almost 90 percent disbursed. The third loan supports construction or reconstruction o f 143 primary and secondary schools in Zagreb and 18 counties that were either directly damaged during the war, or that experienced an increase in the number o f students due to refugees or displaced persons, thus incurring indirect war damages to the schools. CEB financing for this last loan i s HRK 402.5 mill ion, and the Framework Agreement was signed o n December 15,2004.
OECD
Croatia will j o i n some twenty-five countries in the ongoing OECD Tertiary Education Review. The ESDP wil l provide resources to assist Croatia to participate in this review.
Croatia will participate in PISA I11 in 2006 that will be included in the ESDP priorities.
15
CROATIA EDUCATION SECTOR DEVELOPMENT PROJECT
Annex 3: Results Framework and Monitoring
The Ministry o f Science, Education and Sports (MoSES) wil l be responsible for overall monitoring o f the ESDP. The ESDP Project Coordinator will be responsible for consolidating information provided by MoSES directorates and subsidiary agencies, as well as other Government agencies, in order to track progress against the monitoring plan. Specific reporting formats are described in the Operational Manual.
There will be an independent evaluation o f progress against the ESDP indicators completed by end-June o f each calendar year o f the project, or at a later date as may be agreed with the Bank. Terms o f Reference for that evaluation have been prepared and are included in the Operational Manual. This evaluation wil l assess and present the progress against the indicators in the fol lowing tables.
Each Annual Development Plan (ADP), which will be completed by October, wil l include (i) a summary o f progress to date, drawing f rom the June report; (ii) an activity plan; (iii) the budget to finance that plan; and (iii) the updated monitoring, financial, and procurement plans.
Education system performance wil l be monitored internally by MoSES using a set o f sector-wide indicators based o n the indicator system under development in the European Union. T h i s will a l low Croatia to benchmark the development o f the education system with the current situation in EU. Successful monitoring o f the ESDP requires strengthening o f the statistical and information management procedures in the MoSES, as we l l as in the leve l o f overall publ ic administration. EU CARDS i s undertahng a feasibility study on the introduction o f the Education Management Information System in Croatia (vocational education section only) and the ESDP will be available to support extending and implementing that plan by 2007. Financial Monitor ing Reports (FMRs) will be prepared semi-annually, as described elsewhere in this PAD. An annual external audit wil l also be conducted.
16
Results Framework
PDO [mproved student learning and sys- tem performance
Intermediate Results Priority One: Shift f r o m fact t o knowledge based teaching in schools
Priority Two: Information regarding education system performance and outcomes systemically used for planning and pol icy development
Priority Three: Improved management and eff i- ciency at a l l levels
Priority Four: Regions capacities to p lan and im- plement changes improved
Outcome Indicators - Performance o f students o n P I S A
benchmarked, with Croatian per- formance stable o r just improv ing relative to EU averages
- Completion rates at a l l levels o f education increase as a result o f quality and access improvements
Results Indicators % o f primary and secondary schools with 80 % o f staff attending con- tinuous upgraded professional de- velopment
% o f faculties are engaging in inter- na l pedagogical development activi- ties
% o f primary schools using n e w curriculum Education Management In format ion System operational
Education system increasingly benchmarking i tself against EU and global performance
Number o f students included in matura Education sector’s f iduciary systems upgraded to address issues identi f ied in ESFA (see Annexes 6 and 7)
% o f primary and secondary school principals completed n e w school leadership training
Percentage o f primary pupi ls in sin- gle shift
% o f secondary pupils in single shift
Use o f Outcome Information ‘Jational po l i cy development and nterventions to regional and local :ducation authorities to ident i fy the ireas where the most urgent im- Jrovements need to b e made 3etermine if the ESDP needs revi- iions, and feed in t o each ADP
Use of Results Monitoring YR1-YR4: L o w levels m a y indicate ack o f relevant provision or incon- rrenient training arrangements for nu l t ip le shift schools. L o w levels in Faculties m a y f lag lack o f adequate incentives. This information can b e i sed to mod i f y the existing profes- sional development programs as well as the curr iculum development Effort itself.
YR3-YR4: M a y f lag insufficient targeting o f capacity building and other TA efforts YR4: Will i n f o r m administrators and practitioners o f improvement gaps
CY05: Flags the execution o f C Y 0 6 disbursement to the MoSES budget CYO6-08: Determine the level o f f inancing o f education sector devel- opment YR2-YR4: L o w levels may f lag the inconvenient o r irrelevant provision o f professional development for school principals CYO5-CYO8: Determine the overall regional education development ap- proach regarding b o t h quality and capital investments YR4 : Integrate into MoSES regular education management procedures Ut i l ize information to rationalize the school network in light o f demo- graphic trends and school demand
17
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CROATIA EDUCATION SECTOR DEVELOPMENT PROJECT
Annex 4: Project Description
1. priority areas o f the Government’s Education Sector Development Plan (the Plan) 2005-2010. ESDP will be implemented by the MoSES through Annual Development Plans.
The Education Sector Development Project (ESDP) wil l support the implementation o f the The
Project development objective
2. See PAD Section B.2.
ESDP priorities
3. (ADPs) o f MoSES are arranged around four priority themes.
The actions to be supported through ESDP and included in the Annual Development Plans
Priority 1. Enriching the Classroom. The Government’s ESDP has an ambitious a i m to re form curriculum in al l schools and to shift the focus o f teaching towards active learning, problem- solving and understanding. The ESDP supports this transformation by converting education standards to school curricula, developing teachers’ professional knowledge and slulls, and promoting school-level improvement and creation o f professional learning communities for teachers in schools. The ESDP ADPs wil l include training o f school curriculum specialists, in- service training for teachers, new teaching and learning facilities, upgrading regional teacher training centers and new curriculum materials for teachers.
Priority 2. Improving Monitoring and Evaluation. One objective o f the ESDP i s to establish an externally administrated school leaving examination, Muturu. Beginning in 2009, this examination will become compulsory for a l l (general) secondary school students at the end o f their studies. The ESDP would support the design and establishment o f this examination and related logistics as we l l as the development o f educational evaluation practices within the education system. Moreover, the ESDP would support developing policies, activities and structures (such as E M I S and national student assessment system) that a im at improving the capacities o f the education system to collect, analyze and disseminate information related to the system’s inputs, processes, outputs and other performance, including students’ achievement.
Priority 3. Strengthening Management and Leadership. The ESDP envisions that the success of the decentralization and strengthened regional and local management as key conditions for sustainable education development. The ESDP would support these initiatives by addressing the efforts to improve management (including policy, planning and fiduciary capacities) at the central level, administration and coordination capacities at the regional level and educational leadership at school level. The development and refinement o f the national steering system o f education will be connected to the implementation o f the project. The ESDP would also support the establishment o f a system (including facilities) for leadership training for school principals, regional and local education authorities and MoSES staff.
Priority 4. - Supporting Regional Development and Innovations The ESDP wil l support the reduction in the number o f schools that operate in mult ip le shi f ts by supporting regional initiatives and infrastructure investments and by promot ing opportunities for schools to provide more optional and non-formal activities.
20
4. The following table describes the project dynamics in more detail.
2006 Focus o f ESDP: ?roject will focus i n developing iational education standards and instructional approaches, Establishing monitoring :apacity, strategic work on school principals’ training, evaluation of Education outcomes and teacher pre- service education, construction on single shift schools
Inputs: Matura pol icy and preparation of facilities and I C T Preparing for PISA 2006 Financing regional development initiatives (both infrastructure and quality improvements) Teacher training
outputs: see Annex 3
USS25.0m USS25.0m
2007 Focus of ESDP: Project w i l l focus on supporting schools in shifting to a new curriculum and instructional approaches, improving the management and monitoring capacities, strengthening education management, school principals’ training, evaluation o f education outcomes and teacher pre- service education.
Inputs: Intensified in- service training to primary school teachers (especially ICT) Technical assistance to capacity building (fiduciary, management, monitoring and evaluation) PISA 2006 Financing regional development initiatives P D project for MOSES staff
Outputs: see Annex 3
US$25.0m USS25.0m
2008 Focus o f ESDP: Project will focus on school-based professional development o f teachers, helping the capacity building in education management, supporting regions in moving to single- shift schooling in primary level, introducing o f EMIS, improving school leadership and introducing new curriculum framework for secondary schools.
Inputs: Training o f trainers for school-based school improvement Training o f county and local education authorities Technical assistance to regional and local level fiduciary, management and planning development Technical support to Examination Centre Financing regional initiatives
Outputs: see Annex 3
US$25m US$25m
2009 Focus o f ESDP: ?roject w i l l focus i n strengthening local level nanagement, pol icy naking and :oordination :apacities, creating s f networks o f municipalities and :ities for education improvement, launching o f Matura Examination to be held in spring 2009, and establishing the professional development systemicentre for education managers/principals
Inputs: Technical assistance to bui ld local education management capacities In-service training o f primary and secondary school teachers Training o f school principals Financial support to educational research related to the ongoing reform Technical support to Examination Centre Financing regional initiatives
Outputs: see Annex 3
USS 1 Om USS40m
2010 Focus of ESDP: Project wi l l focus on strengthening the sus- tainability o f change, further supporting schools and teachers in maintaining the con- tinuous curriculum development and build- ing o f professional leaming communities in schools. I t w i l l also have an increased focus on higher education development, espe- cially in supporting pedagogical innova- tions and broadening the quality assurance practices.
Inputs: Technical assistance to strengthen leaming communities In-service training o f primary and secondary school teachers Training o f school principals Financial support to educational evaluation and research related to the ongoing reform Technical support to Examination Centre Financing regional initiatives
Outputs: see Annex 3
USSOm USS55m
21
CROATIA
EDUCATION SECTOR DEVELOPMENT PROJECT
Annex 5: Implementation Arrangements
Primary
[Priority 11 .
Project Coordination and Implementation Arrangements
Assistant Ministers and Technical Departments Secondary , Ter t ia i Finance
[Priority 21 [+Priority 41 [Priority 31
Joint Programs and minorities .
MOSES will lead and coordinate implementation of the ESDP under the overall guidance of the Ministry management team and the Assistant Minister for Primary Education, and with overall project, financing and reporting support provided by the Assistant Minister for Finance (see Figure 1). An ESDP Project Manager was appointed in early 2005, and will provide project logistical support on implementation, monitoring and ADP preparation. The Ministry has appointed an official to manage each of the four project priorities. Building on substantial work to date during the preparation of the ESDP, the Bank team will work in partnership with the Ministry to continue to identify and implement areas where the sector’s management and administration can be strengthened. The overall areas will include (i) policy development, implementation, monitoring and evaluation; (ii) central fiduciary structures and procedures; and (iii) regional and local management capacity.
An Operational Manua l will provide the overall framework for carrying out the project, and will include the ESDP itself, the activity plan and overall project budget, the monitoring and evaluation arrangements, financial management and disbursement arrangements, format o f the procurement plan, and details o f the procurement procedures and standard documents and other materials as necessary. The Operational Man- ua l will be regularly revised, in agreement with the Bank, as institutional capacity improves and project implementation progresses to reduce transaction costs for the Borrower and the Bank were possible. An- nex 3 includes a monitor ing plan for assessing performance in fiduciary strengthening.
23
C R 0 AT I A EDUCATION SECTOR DEVELOPMENT PROJECT
Annex 6: Financial Management and Disbursement Arrangements
Country Issues
The latest draft o f the Croatia C F A A report (November 2004) concludes that the overall f iduciary risk attaching to the Croatian public financial management framework (including the fol lowing systems: budgeting, treasury and cash management, accounting and financial reporting, internal control and internal audit, external audit and legislative oversight, and sub-national government) i s significant. However, whi lst the overall fiduciary risk i s assessed as significant, at a disaggregated level there are areas of the Croatian public financial management framework that operate at fa i r ly l o w levels o f r i s k and which wil l be rel ied upon by the ESDP. Mos t notably, the Treasury systems as used by first-level Budget Holders and ministries in particular appear to be fairly robust. The procedures and controls pertaining to this segment o f the Treasury systems appear capable o f producing reliable and t imely information o n Budget execution.
Strengths and Weaknesses
This project will be implemented strengthening the fiduciary arrangements o f the education sector in l ine with the Education Sector Fiduciary Assessment (ESFA). The significant strength o f the project’s fiduciary financial management arrangements i s the robustness o f the core Treasury systems used by f i rst- level Budget Users and ministries, including those o f the MoSES. The Treasury system will be used to capture, control, monitor and report o n ESDP project expenditures.
The weaknesses o f the education sector that directly impact the implementation o f the ESDP include the following: (i) the internal audit department in MoSES i s fairly new and needs capacity-building before i t may be relied upon; (ii) it i s currently not possible to produce comprehensive education sector financial statements that include the results o f the operations o f the various institutions participating in the education sector both at central and decentralized levels o f government. Currently, the Treasury system i s only able reliably to report on the expenditures o f any single first-level Budget Users by economic classification rather than both across many Budget Users, including decentralized Budget Users such as local government, and also by functional classification. These issues will be addressed during the course of project implementation in conjunction with the third thematic priority, that o f strengthening management and leadership, prior to the commencement o f ESDP activities that cut across education sector institutions. MoSES i s in the process o f establishing an inter-departmental team to devise a strategic action plan to address these fiduciary issues.
Implementing Entities
The implementation o f the project will be embedded into the MoSES structure. At present, the MoSES has weak capacity to manage education sector as an entity, but rather i s managing separate sections o f the system, In order to be able to properly plan, implement, and monitor overall sector activities, the MoSES needs to enhance i t s internal functions, especially those o f planning, coordination and monitoring. A table summarizing the education sector’s fiduciary financial management and procurement r i sks by reference to the key institutions having a role in the education sector as we l l as the main expenditure systems i s presented in Annex 6.
24
Funds Flow
Bank loan funds will f low to the Croatian Budget and be combined with other resources o f the Budget. Where ESDP will finance activities that are the responsibility o f implementing institutions other than the MoSES (e.g. those activities falling within the remit o f the Institute for Education Development, the proposed National Examination Center, or the various decentralized institutions o f local government), it i s likely that these activities wil l be financed through and be the responsibility o f those other implementing institutions. N o Special Accounts wil l be opened for the purposes o f tracking Bank funds. Given the “pooling” modality, Government counterpart contributions wil l not be separately identifiable and therefore there will not be any separate accounts maintained by Treasury specifically to track counterpart contributions. A summary flow o f funds diagram i s presented below:
The World Bank
I
I €uro I
National Bank
o f Croatia
I
account
I
; HRKuna I I
I
Budget
Croatia o f Kuna denominated Budget
The . 1863000160 account no. 1001005-
I
I HRKuna
ESDP Program expenditureslsuppliers
Staffing
The Department for Finance (MoSES) will include someone responsible for coordinating ESDP financial management issues across all participating implementing institutions. All participating implementing institutions will nominate counterparts for the Finance Department to provide a l l necessary financial management and procurement information required for preparation o f progress reports for the ESDP. The primary counterpart in MoSES i s the Assistant Minister o f Finance and will help also to coordinate all financial management and procurement capacity-building initiatives across the education sector as a whole as identified by the ESFA. Within each implementing institution, the cadre of staff engaged in the institution’s routine accounting and procurement activities will perform their normal roles with respect to Budget execution and therefore indirectly play a role in the implementation o f the ESDP.
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Accounting Policies and Procedures
The ESDP’s transactions will be accounted for in accordance with Croatian Budget accounting regulations and denominated in Croatian Kuna (HRK). Although a l l transactions will be recorded o n the participating institutions’ regular financial management systems, the ma in system that will be used for the purposes o f accounting and reporting on ESDP expenditures will be the Croatian Treasury system that i s used Government-wide and i s the responsibility o f the Ministry o f Finance. The main reasons for this approach to re ly on the Treasury system rather than the systems o f the participating education sector institutions include: (1) the Treasury system i s the primary tool o f Government to monitor Budget execution; (ii) transactions in respect o f the activities fall ing under the ESDP in the in i t ia l phase o f project implementation wil l in any event be captured, controlled, monitored and reported o n in the Treasury system; and (iii) the financial management systems o f the participating institutions, including MOSES, are currently not as robust as the core Treasury system.
The legal fi-amework for the Treasury system includes the 2003 Budget A c t (BA); the Treasury General Ledger System and Methods o f Managing the Single Treasury Account located in the Central Bank of Croatia (Official Gazette No.97/1995); Internal Organization o f the Min is t ry o f Finance (26 Jul 2001); Instructions o n the Execution o f the State Budget f rom the Single Treasury Account; and other supporting regulations relating to budget execution, control and reporting. An important component in the Treasury system i s performed by FINA, a state-owned financial agency that has evolved f r o m i t s ZAP roots to become a major player in the banking system o f Croatia (it operates the payment and settlement system for the banking sector) and a critical partner for the Government across a wide range o f functions i t performs on a contractual basis. Of particular importance with respect t o the implementation o f the ESDP i s the role played by FINA in settling al l payment and revenue transactions that involve the Government of Croatia and processing supplier payments approved by the Treasury S A P system by depositing funds in the accounts of suppliers or individuals throughout the country.
The B o x below i s reproduced f rom the draft C F A A and describes the process fol lowed in the execution of a transaction through the Croatian Treasury system. This process will be fo l lowed for the financial management o f ESDP project expenditures.
26
lox 7-1. Transaction System Process
1. Provided a Budget User (BU) first records a fully coded commitment into i t s own financial system, based o n a purchase order approved by an appropriate authority within the entity.
2. Provided that the commitment i s for expenditure within the next month, i t i s reviewed by the budget execution division for compliance with the appropriation purpose and amount and then recorded in the S A P system.' N e x t the purchase order i s approved by an authorizing authority within the BU in question and sent to the supplier.
3. When the goods are delivered and confirmed, a request for payment i s entered into the entity's financial system and separately into the S A P system.
4. The budget execution section checks the request in the S A P system against the available cash in the entity's monthly cash plan. If sufficient resources are in the account, S A P issues a payment request to FINA, which works as the transaction processing agency fo r government payments.
5. FINA records the transaction and provides copies o f the transaction records to the MOF and the BU's Budget & Finance Unit; data i s then keyed into their own financial system to reflect the transaction. FINA also captures a l l domestic revenues and provide records to MOF and S A P .
6. Monthly, the BUS send the MOF a statement o f outstanding commitments that are expected to be settled in the following month. Commitments extending beyond this period are not disclosed. S A P does not accommodate commitments beyond the next month.
Internal Audit
MOSES established an internal audit department in early 2004 which currently comprises three staff who are receiving or have just received training under the EU C A R D S project, "Development o f PKFC and Internal Audit". Accordingly, the internal audit unit i s in i ts infancy and has not yet formulated any p lan o f work for CY2005. It i s understood that the internal audit unit will, in due course, receive technical as- sistance under the above-mentioned EU CARDS project t o help them formulate a strategic plan, r i s k as- sessment and internal audit plan.
External Audit
As o f the date o f this report, the Borrower i s in compliance with i t s audit covenants o f existing Bank- financed projects. The project financial statements will be audited by an independent auditor acceptable to the Bank, in accordance with standards on auditing that are acceptable to the Bank. Terms o f reference for the audit o f the project have been agreed with the Bank and are included in the draft Project Opera- tional Manual.
The Croatia CFAA (June 2004) draws attention to a number o f weaknesses in the operations o f the State Audit Office (SAO). However, the SA0 is, through a twinning arrangement with the UK NAO and other measures, seeking to improve i t s capacity. An assessment o f the capacity o f the S A 0 was undertaken in connection with the preparation o f the Croatia Education Sector Support Project and it was determined that, subject to the use o f audit terms o f reference acceptable to the Bank, the S A 0 was eligible to per- form the audits o f Bank financed projects. The audit scope will include the transactions relating to the
' BUS at lower level (e.g. social centers o r schools) who do not have access to SAP terminals submit payment re- quests to the BUS at the central level (typically a ministry).
27
execution o f the ESDP project as reflected in the Treasury system for each participating implementing institution. The audited ESDP project financial statements together with the auditor’s opinion thereon will be provided to the Bank within six months o f the end o f the reporting period, being the fiscal year.
Reporting and Monitoring
A s described previously, the financial transactions with respect t o the in i t ia l phase o f the ESDP project will be captured, controlled, monitored and reported through the Treasury system. MoSES wou ld pro- duce budget execution reports on the specific l ine items in the Budget deemed to comprise the ESDP pro- ject in a manner consistent with that in which the Budget was formulated and passed by Parliament (the Sabor). The format of this report will be attached to the minutes o f Negotiations. These reports will be produced every calendar quarter by the D S D M and submitted to the Bank within 30 days o f the end o f the each semester.
F rom 2006, it i s anticipated that the ESDP project will be implemented by a wider number o f institutions including other first-line Budget Users such as the Institute for Education but also by decentralized levels of government including primarily municipalities and cities that are currently he ld responsible for various education sector expenditures such as rehabilitation and construction o f school facilities. I t i s currently not possible to produce comprehensive education sector financial statements that include the results o f the operations o f the various institutions participating in the education sector both at central and decentralized levels o f government. The Treasury system i s able reliably to report o n the expenditures o f any single first-level budget users such as MoSES by economic classification but i s neither able to do so across many budget users, including decentralized budget users such as local government, no r by functional classification and MoSES has n o function currently in place to collate such information. This issue will be addressed early during the course o f project implementation in conjunction with the third thematic pri- ority that o f strengthening management and leadership, and in any event pr ior to the commencement o f ESDP activities that cut across these education sector institutions. MoSES i s currently in the process o f establishing an inter-departmental team to devise a strategic action p lan to address this and other fiduciary issues.
Information Systems
As described previously, the financial transactions with respect t o the in i t ia l phase o f the ESDP project wil l be captured, controlled, monitored and reported through the Treasury system. The Treasury system i s based o n S A P , a management information system software package, and although m u c h remains to be done in terms o f improving i t s overall functionality and utility o f the system, the core element of the Treasury system applicable to first-level budget users such as MoSES i s sufficiently robust t o capture, control, monitor and report o n ESDP project expenditures during the f i rs t phase o f ESDP project implementation. Also as described above, although the Treasury system i s able rel iably to report o n the expenditures o f any single first-level budget users such as MoSES by economic classification, i t i s neither able to do so across many budget users, including decentralized budget users such as local government, nor by functional classification. This issue will be addressed early during the course o f project implementation in conjunction with the third thematic priority, strengthening management and leadership, and in any event prior to the commencement o f ESDP activities that cut across these education sector institutions. MoSES i s currently in the process o f establishing an inter-departmental team to devise a strategic action plan to address this and other fiduciary issues.
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Disbursement Arrangements
(1) Transfers for ADPs
MoSES will prepare annually an Annual Development Plan (ADP) and budget for ESDP implementation for the fo l lowing year and agree this with the Bank by October 1 o f the preceding year. This annual plan will be the basis fo r loan disbursements, one during the f i rs t semester and the other during the second semester. Thus there wil l be one disbursement category, “ESDP transfers” meaning the amount f rom the proceeds o f Loan transferred by the Bank, through the Borrower’s Ministry o f Finance, t o cover the costs of goods, works and services required for the implementation o f ESDP for a particular Project year, as follows:
Such amount o f El ig ib le Pro- gram Expenditures as shall b e 67,800,000
Category
TOTAL
Amount o f the Loan Allocated
(Exm-essed in Euro)
A D P
67,800.000
% of Expenditures to b e financed
agreed between the Borrower and the B a n k for the respective
Supervision Plan
During ESDP project implementation, the Bank wil l supervise the project’s financial management arrangements in two main ways: (i) review the semi-annual financial reports as w e l l as the annual audited financial statements and auditor’s management letter; and (ii) during the Bank’s supervision o f the ESDP, review the project’s ongoing financial management and disbursement arrangements.
Fin uncial management strengthening
The Education Sector Fiduciary Assessment (ESFA) identified the fol lowing areas in which the fiduciary financial management capacity o f the education sector could be improved: (i) there are many accounting systems within MoSES that could benefit f rom reorganization and rationalization; (ii) the rules, procedures and internal controls for new, revised and emerging systems at MoSES could benefit f rom greater clarity; (iii) the internal audit department in MoSES i s fairly new and needs capacity-building in terms o f devising a strategic plan for the department including r i sk assessments and annual work plans; (iv) the systems relating to the salaries o f school staff are fairly complex and could benefit f rom streamlining as well as the introduction o f certain key monitoring and reconciliation procedures; (v) the financial management systems o f the Institute for Education are in their formative state and could benefit from considerable strengthening; and (vi) the sector i s currently unable to produce comprehensive sector financial statements that include the results o f the operations o f the various institutions participating in the education sector both at central and decentralized levels o f government. These issues are described in further detail in the ESFA and wil l be addressed with the support o f the ESDP during the course o f project implementation in conjunction with the ESDP’s third thematic priority, strengthening management and leadership. MoSES i s currently in the process o f establishing an inter-departmental team to devise a strategic action plan to address these fiduciary issues.
29
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CROATIA EDUCATION SECTOR DEVELOPMENT PROJECT
Annex 7: Procurement Arrangements
A. General
An Education Sector Fiduciary Assessment (ESFA) was carried out to assess the fiduciary financial and procurement systems o f the institutions that are l ike ly to participate in the Education Sector Development Project (ESDP). The analysis o f the findings provided a basis for discussions with MoSES, the M o F and the Public Procurement Office (PPO) to formulate a fiduciary strengthening p lan for the education sector. The ESFA i s available in the project files.
Country Issues. At present, there are four areas at the national level that are directly affecting procurement in the education sector: (i) the legislative and regulatory framework; (ii) the institutional framework and capacity; (iii) the procurement operations and market practices; and (iv) the integrity o f the procurement systems. Procurement planning i s constrained by legislative requirements that contracts terminate at the end o f each budget year (providing an incentive for more single source contracts). Standard bidding documents are being developed at the national level for use by the sectors, and tendering and contract forms in the sector need improvement. The Public Procurement Off ice i s not always receiving annual procurement statements, and there have been n o performance audit arrangements in place. Procurement o f information technology i s often selective and competition needs strengthening to obtain the best package at the best price.
The fol lowing actions are being adopted to address national procurement capacity:
The Public Procurement A c t o f 2001 i s being amended to address many key weaknesses o n an interim basis in 2005. Implementing regulations and a users’ manual are also being completed for the Act, The Cabinet approved the f i rst round o f amendments in June 2005. . A new public procurement l aw in l ine with EU directives i s under preparation and planned for 2007-8. . Standard bidding documents will be completed by late 2005. . The State Audit Office (SAO) has init iated performance audits for major investment projects and for those institutions with a high volume o f procurement, and will publish the results o f those audits.
Sector Issues
MoSES i s addressing or preparing to address a number o f issues in order to prepare it to respond to the above national initiatives, as wel l as to implement the ESDP more efficiently. The Assistant Minister o f Finance has been appointed to take charge o f the Ministry’s fragmented procurement functions and to streamline and harmonize those arrangements. N e w procurement staff are being hired to report t o the Assistant Minister. One key task for this team will be to introduce the country’s new standard bidding documents and related manuals for a l l institutions in the sector (including at the municipal level), so that contractors and suppliers will have an easier t ime participating in bidding opportunities. There are related needs to reduce some barriers to entry, such as through streamlined performance security requirements and by making evaluation criteria more transparent, so that the private sector’s participation i s facilitated. Another task will be to improve procurement planning and to pursue multi-year contracts and fewer direct
31
contracts, as w e l l as to publish contract awards to improve accountability. Staf f ing and knowledge o f training institutions and local education authorities in procurement i s a concern, particularly as investment resources are channeled to larger projects such as those to address multi-shift schools. The weak capacity of some localities to absorb and uti l ize decentralized funds for education for effective procurement requires addressing.
Assessment of the lead implementing agency (MoSES)
The ESFA highlights the issues with procurement by MoSES, and also presents detailed recommendations. T o improve the efficiency and transparency o f procurement at the sector level, and to avoid delays in implementation, MoSES will undertake the fol lowing actions in parallel with the strengthening o f the national procurement legislative and regulatory framework:
. Establish operational Procurement Unit under the authority o f the Assistant Minister o f Finance, and train staff in the new national and sector requirements;
. Finalize Procurement Plan for the ESDP;
Advertise a l l upcoming tenders included in the ESDP and results o f the contracts awards o n the MoSES website; . Undertake procurement capacity assessment and training o f decentralized budget holders.
B. Procurement Arrangements
The ESDP Operational Manual detailing procurement procedures for a l l type o f expenditures included in the project will be finalized by effectiveness. Annual procurement plans will b e agreed between the Borrower and the Bank as part o f each October’s ADP preparation exercise.
National Competitive Bidding (Open Tendering)
For a l l goods for which contracts are below EUR 3 mill ion, contracts will be awarded o n the basis o f the open tendering procedure as defined in Croatia’s Public Procurement A c t o f January 1 , 2002. The Bank, upon notice to the Borrower, may increase the above threshold for goods to be procured under the Public Procurement Law. The Borrower shall promptly not i fy the Bank o f any amendments to the Public Procurement A c t and shall discuss and agree with the Bank, i f necessary, on modifications to procurement provisions. Services for logistical organization o f workshops, study tours, conferences and seminars, but excluding consultants’ service for preparation o f training events or materials, may be procured in accordance with the Borrower’s applicable procedures and/or regulations provided said services are included in the Annual Development Plan. Goods and works estimated to cost less than EUR 80,000 equivalent per contract may be procured under contracts awarded on the basis o f shopping procedures including, as a form o f such shopping, the electronic bidding carried out by the Borrower’s Central State Administrative Office for E-Croatia (Sredisnji drzavni ured za e-Hvatsku) for procurement of computer and standard IT equipment. Goods and works which the Bank agrees meet the requirements for Direct Contracting under the Guidelines may be procured in accordance with said method, and such contracts will be included in the Procurement Plan or i t s updates agreed with the Bank. Operating costs will be procured using the administrative procedures o f the participating institutions and fol lowing the Croatian Public Procurement Law. The ADP may finance small grants to the schools for programs and activities, which would be transferred from the MoSES budget to the schools’ bank accounts, and procured in accordance with the Public Procurement Law.
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Intern ation al Competitive Bidding
All goods contracts in the ADPs above the level o f EUR 3 m i l l i on will be procured under I C B fol lowing the Wor ld Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated M a y 2004, and the provisions stipulated in the Operational Manual. Consultants services wil l be procured in accordance with the Wor ld Bank's Guidelines for Selection o f Consultants (May 2004) and as described in the Operational Manual.
Advertisem enl
A General Procurement Notice for ESDP wil l be published in the on-line edition o f Development Business. Special Procurement Notices for a l l ICB goods contracts and Requests for Expression o f Interest for consulting assignments shall be published in the local newspaper (Narodne Novine), and posted o n the MOSES website with a minimum o f 30 days for the preparation and submission o f bids.
Bidding Documents
Procuring entities shall use the appropriate bidding documents, including draft contract form, acceptable to the Bank for the procurement o f goods, works or services. These documents would require publ ic bid opening and reading aloud o f bid prices immediately after the deadline for bids submission, explicit monetary quantifiable bid evaluation criteria without use o f a point system o f evaluation, and an award made to the qualif ied bidder offering the lowest evaluated bid price without application o f any preference.
C. Procurement Plan
Annual procurement plans for the ADP will cover 12 months o f the budget year. The detailed p lan for 2005 will be included in the Operational Manual. Fol lowing loan effectiveness i t will be available in the project's database and in the Bank's external website.
D. Frequency of Procurement Supervision
The focus o f an on-going procurement dialogue would be o n systems in place and progress in improving these systems, and would occur as part o f the regular ADP and supervision review cycles. The Procurement Plan shall set forth those contracts which shall be subject to the Bank's Prior Review. All other contracts (except ICBs) shall be subject t o Post Review by the Bank.
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J 4 4
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CROATIA EDUCATION SECTOR DEVELOPMENT PROJECT
Annex 8: Economic and Financial Analysis
In the transition economies o f Central and Eastern Europe the quality o f education system i s the key to achieving the goals for the social and economic development o f the countries in the region. The need for an educated, skilled population who can operate in open polit ical systems and meet rapidly changing de- mands o f the labor markets goals will be one o f the main determinants o f Croatia’s success in broader Europe.
The main challenge for the education system in Croatia i s t o change the education system f rom one where students were better trained in simple reproduction o f knowledge to a system that focuses on quality o f education and that produces graduates that can critically process information, are ready to engage in con- tinuous learning and have greater initiative.
The social benefits o f education, specifically the synergies between education and the promotion o f a good investment climate, constitute a primary rationale for the public funding of education in Croatia. A good investment climate provides opportunities and incentives for f i r m s - from micro-enterprises to mul- tinationals - to invest productively, create jobs, and expand. It thus plays a central role in growth and poverty reduction (World Development Report 2005). Improving the investment climate goes hand in hand with enhancing human capital. A skilled workforce i s essential for f i r m s to adopt new and more productive technologies, and a better investment climate raises the returns to investing in education. Sk i l l constraints are a common problem for f i rms , especially those planning to innovate and expand. Con- versely, f i r m s that do not experience much competitive pressure may not seek t o innovate and expand and may deem skill constraints to be less o f a problem.
A pi lot survey o f Croatian employers f rom 2,223 enterprises in four counties (Osijek, Rijeka, Zadar, and Zagreb) was conducted in the summer o f 2004 by the Croatian Employment Service and others. It shows that, of employers who tried to recruit workers in the previous twelve months, relatively few complained that candidates had insufficient education per se (ranging from 15 to 29 percent), but many more employ- ers complained o f lack of suitable ski l ls and experience in applicants. Indeed, almost 50 percent o f em- ployers found that j o b applicants did not have the sk i l ls necessary for the job. When asked which ski l ls employers were seeking, over 80 percent o f respondents thought that technical and professional sk i l ls were essential. However, 80 percent o f employers were also seeking personal sk i l l s in their employees, including willingness to learn new skills, teamwork, and the abil ity t o work independently.
When estimating public expenditures in the education sector in Croatia, it i s important t o bear in mind that MoSES i s the main but not sole actor -- other central government ministries also spend on education, and expenditures are incurred at the level o f local government as well. Furthermore, MoSES itself spans science and sports in addition
expenditures should count as public expenditures in educa- tion. Therefore, in order to gain as complete and accurate a pic- ture as possible o f planned pub- l i c education expenditures for 2005, this section first consid- ers total MoSES planned ex- penditures, then focuses on Student Housing
to education, so that not al l i t s Structure of Total Education Public Sector Expenditure
Administration 6% Preschool Higher Education
Secondary &
21%
43% 35
planned education expenditures under MoSES, then adds planned education expenditures under other central ministries and by local government to arrive at total planned education expenditures. Where pos- sible, projected expenditures for 2006 and 2007 will also be discussed as established under the recent me- dium-term expenditure framework (MTEF) for Croatia.
Thus, the total planned 2005 budget of MoSES, i.e. including science and sport, amounts to 8.7 b i l l i on HRK. The 2005 budget for MoSES contains expenditures under the fo l lowing departments: Science, Education, and Sports; Joint Programs in Science, Education, and Sports; Pre-school; Primary Education; Secondary Education and Student Housing; Sports; Higher Education; Research Institutes; National In- formation Infrastructure; Technological Research; and International Cooperation. By far the largest spending departments are Primary Education (39.3 percent o f total MoSES planned expenditures); Higher Education (23.4 percent); Secondary Education and Student Housing (20.9 percent); and Research Insti- tutes (8.4 percent). All other departments each spend less than 2 percent o f total MoSES expenditures.
Focusing o n MoSES planned expenditures by economic classification, i.e. whether they represent recur- rent, capital, or financial expenditures, recurrent expenditures constitute the l ion’s share o f total expendi- tures (93.9 percent). Furthermore, employee salaries and benefits alone amount to 75.6 percent o f total MoSES planned expenditures. Indeed, for the departments o f Primary Education and Sec- ,M)%
ondary Education and Student Housing, employee salaries and benefits constitute a strik- ing 92.3 and 91.4 percent o f ’O%
tures, respectively. The above 9%
findings underlie the ESDP’s 40%
focus o n boosting the capital 30%
investment budget o f MoSES, 20%
particularly given that these ,ooh
findings are not anomalous o%
for 2005 but represent the re-
findngs will be tempered only slightly by the inclusion of other entities that spend on capital investments in the education sector, as we shall see below.
Structure of Education Spending
90%
80%
total departmental expendi- 60%
Local Government Total education spending cent historical trend. The 1 Centra Government
Furthermore, the increment that ESDP i s providing to public education expenditures in Croatia (US$lO- 30 mi l l ion per year, or roughly 1-2 percent o f the total budget o f MoSES) i s in l ine with the trend appar- ent in Croatia’s MTEF. According to the MTEF, as Croatia strives to reduce i t s public expenditures and achieve i t s fiscal targets, the share o f the total budget o f MoSES in total consolidated central government expenditures nonetheless rises f rom 8.0 percent in 2004 to 8.4, 8.7, and 8.9 in 2005, 2006, and 2007, re- spectively. This demonstrates the Government commitment to the education sector and brings the share of MoSES expenditures in central government expenditures closer to the 2001 OECD average for the share o f public education expenditures in total public expenditures o f 12.7 percent (OECD 2004). However, it i s important to reiterate that MoSES expenditures do not correspond to total education expenditures. Be- ginning with the MoSES education departments (i.e. central administration, pre-school, primary educa- tion, secondary education and student housing, and higher education), there are expenditures at the local level for pre-school, primary, and secondary education, as wel l as expenditures by the Ministry o f Sea, Tourism, and Development (MSTD) for school reconstruction and construction. MoSES’ expenditures in 2004 amounted to 72 percent of total public education expenditures, whi le local government expenditures
36
were 26 percent o f total education expenditures (the bulk o f which are for pre-school), and the M S T D accounted for 2 percent.2
Recurrent expenditures continue to capture the lion's share at 84 percent o f total expenditures however this figure i s smaller than the corresponding figure for MOSES alone, reflecting the ro le played by M S T D as we l l as local government in capital investment for primary and secondary education. Thus, for 2005, the M S T D has planned expenditures in the amount o f 189 m i l l i on HRK (roughly US$34 million), and under the Equalization Funds disbursed by the Ministry o f Finance directly to the local government level, a further 266 million HRK (approximately U S 4 8 mi l l ion) are planned for primary and secondary school reconstruction and construction. This important role o f the Equalization Funds in channeling funds for capital investment in the education sector i s therefore recognized by the ESDP in i ts support t o the educa- t ion sector in Croatia.
TOTAL EDUCATION SECTOR PUBLIC EXPENDITURE I I Tntal i I I ~ i
Owratina exwnditures ' Empl&ee'salaries and benetits
Materials, seMces and utilities Finanang Subventions Aid - abroad and domestic Cwnpensatim to citizens Other recurrent expenditures
Capital expenditures Nowmanufactured assets Fixed long-ten assets Additional capital investments
These figures exclude private expenditures on education, which averaged 1.4 percent o f GDP in the OECD in 2001, leading to total education expenditures o f 6.2 percent for the OECD in 2001.
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CROATIA EDUCATION SECTOR DEVELOPMENT PROJECT
Annex 9: Safeguard Policy Issues
In December 2004, a rapid stakeholder analysidsocial assessment and an environmental assessment were completed for the ESDP. The full assessments are available in the Operational Manual.
A desk review was conducted which drew upon background information on Croatia’s polit ical, economical and educational characteristics, the findings o f qualitative and quantitative research studies that were conducted in the year 2003, and a rapid qualitative study o n the views o f the main educational reform stakeholders was conducted in December 2004. The main findings are summarized below.
Stakeholders: The primary stakeholders are students, parents, teachers and school principals. These stakeholders recognize the irrelevance and large amount o f information that students are supposed to leam, both o n the primary and high school level. Consensus exists among stakeholders o n the core relevant curricular areas: mathematics, mother tongue, foreign language and informat ion technology. M a n y report that i t i s necessary to establish a clearer grading system that i s l inked to the informat ion being taught in the classroom. Stakeholders often noted that the feasibility o f changes in teaching methods requires both changes in in-service teacher training and adjustments in curriculum.
Patterns that can be identified with respect t o stakeholders’ receptivity t o the educational reform program are as follows: (a) recognition o f need for students participation in elective courses; (b) teachers’ ab i l i ty to adjust the teaching plans and programs for the students with special needs; (c) teachers’ recognition that i t i s necessary to prepare students for the knowledge-based society, and not just focus o n factual information; (d) a common requirement f rom the side o f teachers to get credited for the completed training; (e) teachers do notice that education i s getting more attention f rom the wider publ ic; (0 uncertainty that educational reform will actually occur, due to the results o f previous educational reforms; and (g) the need for larger involvement o f parents in the work o f the school that i s emphasized both f rom parental and teachers’ side.
Specific stakeholder interests -Teachers’ interests include: concrete opportunities for continuous education; better recognition o f their abilities and knowledge. Students’ interests are: achievement o f the knowledge and competencies that will enable them to participate in the knowledge-based society; reducing a school stress by extracting the irrelevant and overly detailed informat ion f rom the school syllabuses; change in teaching methods that would make their school experience more appealing. Parental interests are: assurance that their children will receive knowledge that will he lp them to l i v e in knowledge-based society; reduction o f stress experienced by school children. School principals’ interests are: concrete opportunities for expert education; raised opportunities for use o f their abilities and knowledge.
Potential concerns. The stakeholders noted the fol lowing areas o f potential tension during the ESDP implementation: uncertainty that educational re form will happen, conflicts o f interest, religious education, inequality o f resources, unbalanced grading criteria and teachers’ concerns about mastering new approaches. The following activities were identif ied by stakeholders as potentially useful for further developing the education system: teacher workshops, experiential learning, practicums and revised forms o f evaluation.
The following plan for Stakeholder Consultation and Strategic Advice for the ESDP has been endorsed and i s being implemented:
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’able 10-1: Stakeholder Activity
a. Strengthen national consensus o n education development in Croatia
Dates Key Stakeholders
b. Build ownership o f the ongoing education reform and related ESDP
Primary education conference Round tables and public discussions Thematic workshops
National ESDP conference Printing and
dissemination o f ESDP to schools and communities MOSES ESDP web site Primary education conference Technical workshops for countyilocal level Regional ESDP conferences in f ive
locations
c. Inform the publ ic and receive feedback f r o m key stakeholders o n the ESDP
Implemented in - Board o f Education in Parlia- January 2005 ment February through - Economic and Social Counci l M a y 2005 - Teachers’ Unions March through M a y - Parliamentary pol i t ical parties 2005 - Competitiveness Counci l June 2005 - Universit ies and faculties
- Academy o f Science and Art April 2005 - Expert institutions
- NGOs in education - State, county and c i ty officials - County teachers’ councils
- Parents June 2005 - Teachers/principals
February 2005 - Pupils
March, April 2005
M a y 2005
d. Discuss h o w to miti- gate possible adverse im- pacts
Negotiations 02/07/2005 0611 512005 BoardRVP approval 09/15/2005 Planned date o f effectiveness 1013 112005 Planned date o f mid-term review 1013 112007
1013 1/20 10 K e y institutions responsible for preparation o f the project: Ministry o f Science, Education, and Sports (MOSES)
Planned closing date
Bank staff who worked o n the project included: Name Ti t le Unit Rosita V a n M e e l Team Leader (as o f July, 2005) SASHDIECSHD Phi l ip Goldman Team Leader (April 2005-June 2005) ECSHD Pasi Sahlberg Team Leader (until April 2005) ECSHD Inguna Dobraja Senior Social Protection Specialist ECSHD Ernest0 Cuadra Lead Education Specialist ECSHD Ivan Drabek Operations Analyst ECSHD Zorica Lesic Operations Analyst ECSHD Mar i lou Abiera Program Assistant ECSHD Ivanka Perkovic Team Assistant ECCHR Iv ica Zec Public Information Assistant ECCHR Kar in Shepardson Sr. Operations Officer ECSSD D ina Abu-Ghaida Sr. Economist HDNED Ir ina Kichigina Sr. Counsel LEGEC Ranjan Ganguli Consultant (Financial Management) ECSPS Michael Gascoyne Senior Financial Management Specialist ECSPS Andrina Ambrose Senior Finance Officer LOA Nicholay Chistyakov Senior Finance Officer LOA Bank funds expended to date on project preparation (May 2005):
