International Financing

While domestic resources will need to cover the large majority of the costs of education, international financing must continue to play a critical role.

Specifically, the international community must stand ready to offer the increased finance and leadership to those countries that have committed themselves to transforming education. It will need to support low-income and fragile countries with the largest financing gaps, boost access to official loans in countries transitioning to middle-income status, and catalyze domestic investment and reforms in middle-income countries. International assistance is also urgently needed to fund development-critical global public goods for education, such as better data, assessment tools, and research and development.

Recommendation 10: Increase the international financing of education and improve its effectiveness

To achieve the Learning Generation, the international community – governments, financial institutions, investors and philanthropists – must commit to increasing investment in global education. The Commission projects that with greater efficiencies and considerable expansion of domestic financing only 3 percent of total financing will be needed from international sources, but this still means international financing for education will need to increase from today’s estimated $16 billion per year to $89 billion per year by 2030. These funds will remain critical for low-income countries, covering on average half of their education costs.

This will require overcoming key challenges in the mobilization and deployment of international financing. Since 2002, education’s share of sector-allocable official development assistance (ODA) has fallen from 13 to 10 percent; among multilateral donors, education’s share of aid has declined from 10 to 7 percent over the past decade (see Figure 8). Education ODA has been insufficiently targeted to countries that need it most, or those committed to invest and reform. Only 24 percent of all education ODA was disbursed to low-income countries in 2014, while less than 70 percent actually reached developing countries because a large share of ODA is spent on scholarships in donor countries. There is also a lack of financing for specific priority issues in education. For example, while the need for funding for education in emergencies has increased 21 percent since 2010, international financing for it has declined by 41 percent over the same period. Finally, efforts to use international finances to incentivize domestic spending, drive a focus on results, or leverage new sources of finance have been limited.

To achieve international financing goals, the Commission calls on the international community to significantly scale up financing from all sources and sets ambitious but achievable targets for each.  Donors should also improve the effectiveness and impact of international finance by reexamining the frameworks within which they make allocations, to ensure that allocation better reflects need and domestic commitment to education, and to ensure extra support for fragile states. An education equivalent of the Equitable Access Initiative in health to bring partners together to develop a shared and coordinated approach to allocation would be a valuable tool.

A much higher share of ODA should go through multilateral institutions to improve coordination and support long-term system strengthening. These include the multilateral banks, the Global Partnership for Education (GPE), UNICEF, Education Cannot Wait, and UNESCO’s Institute of Statistics (UIS) and International Institute for Education Planning. The GPE is carrying out a major set of reforms and if they are successful, their financing should increase to $2 billion per year by 2020 and $4 billion per year by 2030. Finally, donors, investors and institutions should support innovative financial mechanisms (such as education bonds, innovative post-secondary student financing, disaster insurance, impact investing, and solidarity levies) for mobilizing new sources of education finance and strengthening the links between investment and results.

 

Figure 8: Trends in sectoral ODA, US$ billions

Trends in ODA spending

Source: Education Commission analysis based on OECD-DAC (2016)

 

Recommendation 11: Establish a Multilateral Development Bank investment mechanism for education

The Commission recommends the establishment of a Multilateral Development Bank (MDB) investment mechanism for education. This mechanism would ensure that education benefits from the unprecedented opportunity to increase MDB financing through much greater leveraging of their capital bases. This could increase MDBs’ lending capacity by more than 70 percent per year. The Commission estimates that establishing such a mechanism could potentially mobilize $20 billion or more annually from MDBs for education by 2030 (up from $3.5 billion today).

The mechanism would encourage MDBs to prioritize and innovate in education, with an objective of allocating a 15-percent share of MDB financing to education. It would improve coordination of financing and enhance sharing of data and knowledge among MDBs and with others. The mechanism would also include a financing platform that would raise funding from bilateral donors, philanthropists, and charitable organizations (in addition to the $20 billion from the MDBs directly). This grant funding would be used to encourage combinations of different types of financing to better tailor financing instruments to the needs of different countries. Financing packages would be linked to increased domestic financing and focus strongly on innovative and results-based approaches. The platform would also engage with the private-sector arms of MDBs and commercial and impact investors to further scale finance and enhance impacts. The approach would pioneer a new form of collaboration among MDBs and scale financing in line with proposals laid out in the “Billions to Trillions” vision prepared by the MDBs for financing the Sustainable Development Goals. It combines the unique opportunity to leverage MDB resources with key strengths of earlier proposals for a global fund for education.

Figure 9: Investment mechanism for education — MDBs and donor partners working as a global system for improved education financing1. Coordinate and harmonize financing instruments and practices, 2. Increase Multilateral Development Bank financing for education up to 15% of total, 3. Leverage and incentivize multlateral financing for education

 

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