Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 15065

IMPLEMENTATION COMPLETION REPORT

KENYA

EDUCATION SECTOR ADJUSTMENT CREDIT(CREDIT 2295-KE)

NOVEMBER 1, 1995

Population and Human Resources DivisionEastern Africa DepartmentAfrica Region

This document has a restricted distribution and may be used by recipients only in the performnance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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KENYAEDUCATION SECTOR ADJUSTMENT CREDIT

CURRENCY EOUIVALENTS

August 1991KSh 28.0 = US$ 1.00KSh 1 = US$ 0.0357

December 1994KSh 44.84 = US$ 1.00KSh 1 = US$ 0.0223

FISCAL YEAR OF BORROWER

July 1 - June 30

ABBREVIATIONS AND ACRONYMS

AfDB -African Development BankASAL -Arid and Semi-Arid LandsCHE - Commission for Higher EducationDCA - Development Credit AgreementEdSAC -Education Sector Adjustment CreditESAF -Enhanced Structural Adjustment Facility (IMF)ESW - Economic and Sector WorkGOK -Government of KenyaGDP -Gross Domestic ProductICR -Implementation Completion ReportIDA -International Development AssociationIMF -Internation Monetary FundKIE -Kenya Institute of EducationLSP -Letter of (Education) Sector PolicyMOE -Ministry of EducationODA -Overseas Development Administration (UK)PPTG -Policy and Planning Task GroupPFP -Policy Framework PaperPIP -Public Investment ProgramPR -President's ReportPTTC -Primary Teacher Training CollegePU -Planning Unit, MOESDR -Special Drawing RightsSIP -Sector Investment PlanSLS -Student Loan SchemeSOE -Statement of ExpenditureTSC -Teachers Service CommissionUIP -Universities Investment ProjectUNICEF -United Nations Children's FundUTs -Untrained Teachers

FOR OFFICIAL USE ONLY

TABLE OF CONTENTS

Page

Preface

Evaluation Summary ...................................................... (i)-(iv)

Part I: Program Implementation AssessmentA. Program Objectives ............................................................. 1B. Achievement of Program Objectives ............................................................. 2C. Major Factors Affecting the Program ............................................................. 8D. Bank Performance ............................................................. 9E. Borrower Performance ............................................................ 10F. Assessment of Outcome, Sustainability and Future Reform ................................................. 10G. Key Lessons Learned ............................................................. 11

Part Il: Statistical Annexes

Annex 1: ICR Date

Table 1: Summary of Assessment ..................................................... 12Table 2: Related Bank Loans/Credits ................................................... 13Table 3: Project Timetable ..................................................... 15Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual ................................ 16Table 5: Key Indicators for Project Implementation ........................................ 17Table 6: Studies Included in Project ..................................................... 20Table 7: Status of Legal Covenants .................................................... 21Table 8: Bank Resources: Staff Inputs ..................................................... 23Table 9: Bank Resources: Missions ..................................................... 24

Annex 2: Sector Specific Data

Table 1: Ministry of Education Recurrent Budget ........................................................... ..... 26Table 2: Subsectoral Allocation of the Ministry of Education's Recurrent Budget

(Percent Shares) .27Table 3: Primary Education Recurrent Budget .28Table 4: Primary Education: Enrollments and Teachers, 1986-94 .29Table 5: Secondary Education: Enrollments and Teachers, 1986-94 .30Table 6: Gross Enrollment Rates in Primary Schools, 1989-94 .31Table 7: Gross Enrollment Rates in Secondary Schools, 1989-94 .32

AppendicesAppendix A: Mission Aide Memoire .33Appendix B: Borrower Contribution to the ICR .37Appendix C: Tranche Release Memorandums .40Appendix D: Recent Government of Kenya Announcements on Cost Recovery .60Appendix E: Map .62

This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization.

IMPLEMENTATION COMPLETION REPORT

KENYA

EDUCATION SECTOR ADJUSTMENT CREDIT (CR. 2295-KE)

PREFACE

This is the Implementation Completion Report (ICR) for the Education Sector AdjustmentProgram in Kenya, for which a sector adjustment credit (Cr 2295-KE) in the amount of SDR 75.9million (US$100 million) was approved on September 13 1991 and made effective on September27, 1991.

The credit was closed on March 10, 1995. The original closing date was June 30, 1994.Due to the addition of IDA reflows to the second and third tranches, the size of the credit wasUS$203.4 million. Appreciation of the SDR accounted for about US$ 7 million of the increase.The first tranche, released upon effectiveness, was fully disbursed by February 19, 1992;subsequent tranches were released on December 7, 1993 and December 13, 1994 and the creditwas fully disbursed by March 4, 1995.

The ICR was prepared by Reema Nayar, Population and Human Resources Division,Eastern Africa Department of the Africa Region and reviewed by Messrs. Jacob van LutsenburgMaas (Division Chief) and Shahid Yusuf (Department Lead Economist). It is based on material inthe project file, additional data obtained from the field, and discussions with Bank Staff. Amission comprising Ms. Nayar and Mr. James Kamunge (Education Consultant, Resident Mission,Nairobi) discussed a draft ICR with the Borrower in August 1995. The aide-memoire of themission is included as Appendix A. The borrowver prepared its own evaluation, the summary ofwhich is included as Appendix B to the ICR

EVALUATION SUMMARYEducation Sector Adeustment Credit

(Credit 2295 - KE)

Introduction1. Prior Bank lending to Kenya for the education sector had consisted of six investment projects since1966. These projects supported construction of buildings, the provision of equipment, technical assistanceand training. The Bank had supported Kenya's adjustment efforts since 1986 through a series of sectoradjustment operations. EdSAC was the sixth sector adjustment operation in Kenya and the first in theeducation sector.

Program Objectives2. The principal objective of the credit was to support the Kenyan Government in the implementationof its education sector reform program which sought: (a) to reduce the rate of growth of the educationrecurrent budget; (b) to expand access to education and increase retention at the primary and secondarylevels, especially for children from disadvantaged areas; (c) to enhance and improve the quality andrelevance of education at all levels; and (d) to strengthen sector management, planning and informationsystems.

3. Specific actions supported by the credit included: limiting the growth of the primary and secondaryteaching forces, limiting new admissions to the public universities, introducing a direct charge on all publicuniversity students and reforming the loan scheme, re-introducing the public financing of textbooks toprimary schools, strengthening the Ministry of Education's Planning Unit, and strengthening theCommission for Higher Education to oversee the development and financing of public universities. Policymeasures supported in the credit were reflected in Kenya's fourth Policy Framework Paper (PFP) for1991/92-1993/94 (and subsequently updated in the PFP for 1994-1996). Some higher education conditionswere strengthened and extended through the parallel Universities Investment Project (UIP) which was tosupport improvements in education at the public universities.

4. Evaluation of program obiectives: The objectives of the program identified the key issuesconfronting the sector at the time, were important for the country and consistent with the Bank's CountryAssistance Strategy. However, some of them (example: access, quality) were stated very broadly andmeasurable targets were not set up.

Implementation Experience and Results5. Due to an addition of IDA reflows to the second and third tranches, the size of the credit doubledand final disbursements totaled $203.4 million. As part of an amendment signed in March 1994 addingKenya's FY94 IDA reflow to the third tranche, the closing date was extended from June 30, 1994 to March10, 1995. Release of the second tranche was delayed by over a year, initially due to delay in sectoralreform (in particular, the student loan scheme), and subsequently because an adequate macroeconomicframework was not in place. The third tranche was also delayed primarily because of delay inimplementing higher education reform; it was released in December 1994 instead of September 1993.

6. Overall, the objectives of the credit were partially achieved. Objective (a) above was most directlyaddressed by the credit. Achievement of stabilization of education's recurrent budget was substantial andthe slowver growth of teachers and university enrollments undoubtedly contributed to this result. A processof expenditure control was started. It is important to note, however, that, (i) budgetary achievements weremodest relative to targets in the Letter of Sector Policy (LSP), particularly if the accumulation of arrearsbeginning in 1992/93 by public educational institutions (paragraph 25) are taken into account; (ii)sustaining an appropriate budget share will depend on the Government's ability to introduce deeper reformsin the areas of teacher recruitment and training (paragraph 17) and to successfully implement newfinancing mechanisms to ensure appropriate cost-sharing in university education (paragraphs 25,26).

iiAchievement of the strengthening of sector management, planning and information systems has beenpartial; institutional strengthening at the higher education level through the restructuring of CHE was mostdirectly addressed by this credit (paragraph 22). Contrary to objective (b) primary gross enrollment ratesdeclined substantially, from 89.7% in 1991 to 82.4% in 1994. Falling participation in primary educationwas inadequately addressed during the EdSAC period and is now a pressing issue. Towards the objectiveof improved quality, some central government financing and provision of textbooks to was reintroduced andthe share of untrained teachers in the primary teaching force was reduced substantially. Quality was notdefined in terms of output indicators and therefore achievement of this objective cannot be assessed.

7. Most specific objectives in the policy matrix, other than in the area of higher education reform,were substantially met. In the case of higher education reform, there were significant delays in achievingspecific objectives (paragraphs 22-27) and an effective loan scheme is yet to be established. In the case ofprimary education, targets for the size of the teaching force and on the size and composition of entrants intoPrimary Teacher Training Colleges (PTTCs) were substantially met. An attempt is being made to move toa need-based policy for teacher training. However, sustainability will require deeper reforn in the area ofteacher recruitment and training (paragraphs 17,18). Some central government financing and provision oftextbooks was reintroduced under the credit. Although there were some delays in distribution and shortfallsin achieving targets, several schools in disadvantaged areas received textbooks. This is likely to haveimproved quality somewhat and relieved poor parents. The cost-effectiveness of this intervention was notadequately evaluated. While Government financing of textbooks and other effective inputs should becontinued in the future, alternative methods of textbook provision should be explored better.

8. Ceilings for admissions to public universities were met and in fact admissions in the last two yearshave been substantially below EdSAC ceilings. The streamnlining of policy formulation and universityplanning, budgeting and financing, and investment and development planning began under the Policy andPlanning Task Group (PPTG) and is continuing under a restructured CHE which took over these functionsone and a half years late on July 1, 1994. PPTG performance in the interim was weakened by the slowresponsiveness from the public universities. The public universities fell into arrears during this period(paragraph 25) and the preparation of their financial plans was also delayed significantly. A restructuredCHE, has now begun to function as an effective intermediary with respect to public universities and inparticular performed effectively in the coordination of the university financing and development plans in1994.

9. Finally, the most difficult reforms have been in the area of higher education financing, specificallyincreased cost recovery including the establishment of an effective loan scheme. Prior to the credit, therewvere no direct charges to students at public universities. Although there was a Student's Loan Scheme(SLS), it functioned primarily as a grant scheme available to all students. All students attending publicuniversities received the maximum amount of the loan. Recovery rates had been about 4% and the nominalreal rate of interest had been 2% since the inception of the scheme in 1974. In a significant step, a directcharge of KSh. 6000 was introduced for the first time under the credit (this was a condition for Boardpresentation) and a bursary scheme was also introduced to assist poor students in meeting it. As a result ofhigh inflation, however, the direct charge represented about 5% of unit costs by the end of the credit period.Direct cost recovery thus actually declined during the credit period and in the absence of radically improvedperformance of the loan scheme (next paragraph), the same is true of cost-recovery more broadly defined.

10. Progress on loan scheme reformn was negligible during the credit period. Recovery rates remainedlow (approximately 4%/o) during the course of the credit, the nominal rate of interest remained 2% despitethe LSP objective of gradually increasing it. Reform of the loan scheme was not defined in termns ofspecific targets and clear steps were not built in to the design. Greater attention could also have been paidat an earlier stage to the fact that the existing institutions were too weak and lacked the incentives toachieve an instant turnaround in recovery. Alternatives to the existing loan scheme were not explored; thehuge public subsidies implicit in the scheme wvere not addressed so that the scheme was not restricted to

iiithose without means. Steps in reform of the scheme were to be determined following the completion of areview which was delayed. Agreement on a policy statement and an accompanying action plan on highereducation financing was finally achieved in May 1993 (more than a year and a half into the credit).Implementation of the action plan was behind schedule, however, particularly before the closing date of thecredit, although some significant announcements of policy change have very recently been made (next twoparagraphs).

11. The rigidity of charges to students in the face of rising prices partly contributed to theaccumulation of arrears by public universities beginning in 1992/93. The need to address these in thecontext of satisfactory financial plans (a condition of third tranche release) led to a commitment tointroduce new financing measures in the academic year beginning in 1995; it was on the basis of thiscommitment that the third tranche was released. In what has to be considered a very significant step inuniversity financing, the Government has reeently announced new cost-sharing policies. According tothese, "non-needy" students could pay upto 42% of the direct costs of university education which includesthe full cost of food and boarding as well as direct tuition charges (a total of KSh. 50,000). Other studentswill be eligible for means-tested loans of upto KSh. 42000. All students will be required to pay a minimumdirect charge of KSh. 8000 towards tuition with bursaries provided to those who cannot pay this sum. Theacross the board govermment grant is now KSh. 70000 or 58% of total costs. The new policies, althoughlate, are consistent with the Government's Sessional Paper No. 6 of 1988, its policy statement and actionplan of May 1993, its PFP (1994-96) and policies in the acceptable financing plans submitted in thecontext of third tranche release. These reforms represent a major improvement, depending on how they areimplemented. Kenya is probably the only African country where as a matter of policy, the Government'sshare of the cost of public university education is as low as 58%.

12. There has been some improvement in the collection rate of student loans in the past year althoughtotal amounts due have also been increasing. The Government has recently decided to charge a higherinterest rate of 4% for loans disbursed in the academic year beginning in 1995; a modest step in relation toits objective of eventually achieving positive real interest rates on student loans. With the enactment of theHigher Education Loans Board Act on July 21, 1995, the functions formerly carried out by the SLS unit inthe MOE are being transferred to the new Loans Board. The Act grants enhanced legal powers for loanrecovery and assigns the responsibility of determining the interest rate on student loans to the Board. TheLoans Board will handle means-tested bursaries as well as means-tested loans. To establish a credible loanscheme, the government will need to take decisive and immediate action on default. It should also exploreways of attracting commercial banks to assume some of the commercial risk.

13 Less than optimal Government commitment and ownership was an important factor affecting theprogram. In part, this was because of the politically challenging nature of some of the reforms and the lackof direct support from the credit to the education sector. However, the program was also underdefined insome key areas (access, quality indicators, higher education financing reform). While a somewhatunderdefined multiple tranche adjustment operation may be a good risk in a country with strong institutionsand strong commitment, in the Kenyan context of w eak institutions and commitment, it was a highly riskygamble. A substantial dialogue in the area of higher education financing began in the Spring of 1993.EdSAC was used to ensure implementation of macroeconomic reform in the context of second trancherelease. On the other hand, on the sectoral side, commitments to act (on higher education financing) wereaccepted in lieu of action on the ground in the release of the second and third tranches. EdSAC was thefirst attempt to key in on important sector policy issues and thus represented an important shift in theBank's approach to the sector. Bank performance in identification was thus highly satisfactory. Onbalance Bank and Borrower performance in preparation are judged as deficient, while Bank performance insupervision is assessed as satisfactory. On balance, and bearing in mind the program's challenges,Borrower performance in implementation is assessed as satisfactory. (Paragraphs 32-34).

iv14. Arriving at an overall assessment for this operation is difficult, because of the numerous objectives,the generality with which some of them were stated, and the question of weights one would assign to"process" as distinguired from product. For the purpose of reaching an overall assessment, the followingare taken as the most important objectives: (a) contributing to fiscal adjustment by containing the growth ofthe MoE recurrent budget; (b) increasing "access" (enrollment) and quality at the primary level; (c) moreequitable and sustainable financing arrangements for public university education, and improvedcoordination of public universities. While financing arrangements "on the ground" for higher educationimproved at the time of Board presentation, they deteriorated during the period of credit effectiveness anduniversity financial results and SLS collection on the ground during the credit period were disappointing. Ifimplemented successfully, however, the new higher education financing policies publicly announced by theGovernment in July 1995 could be the most significant contribution of the program. CHE has begun tofunction as an effective intermediary with respect to public universities. Giving equal weight to these threeareas, attributing substantial importance in the overall assessment to the policy announcements onuniversity cost recovery (as distinguished from results "on the ground"), considering the politicallychallenging nature of the reforms and recognizing EdSAC as the beginning of a broader and longer reformprogram, the overall assessment is, on balance, satisfactory. On the other hand, if a higher weight wasgiven to access and quality outcomes in primary education (in view of its importance for development) ormore importance is attributed to "results on the ground" the overall assessment wvould be, on balance,unsatisfactory. Sustainability of the program is uncertain and will require deeper reform in the area ofteacher employment and education, the development of a sound loan scheme, and the successfulunplementation of new higher education financing policies. Performance of CHIE and progress in highereducation financing reform will continue to be monitored under UIP.

Summary of Findings, Future Operations, and Key Lessons Learned15. Adequate up-front sector work, preparation and dialogue needed to ensure a well defined sectorreform program. Tranche release conditions in a sector adjustment operation such as EdSAC should bestrong and adequate targets specified. Particularly in the Kenyan context of weak commitment andinstitutions, a series of smaller well-specified single tranche operations may be preferable to anunderdefined multiple tranche operation. To be sustainable, reforms should pay greater attention tounderlying incentives (such as individuals' decisions to become teachers or to get a public universityeducation). Particularly when a turnaround in the performance of existing institutions is desired (e.g. loanscheme), attention to institutional deficiencies should be rigorous and altematives should be explored. Toimprove quality of educmion, future reforms should examine alternatives to centralized decision making onand public provision of school inputs; cost effective approaches more responsive to local school andcommunity needs should be examined. Appropriate indicators should be set up and interventionsadequately evaluated. Studies that are not formal requirements for tranche releases tend to be of varyingquality and actions emerging from them late or absent. If important, these should be done up-front. Futurereform should address access by the poor to primary and secondary education, reforms in teacherrecruitment and training, cost-effective use of school inputs by moving decision-making on these (includingstaffing) closer to beneficiaries, the introduction of a commercially-based loan scheme for higher education,and the establishme2t of more sustainable financing mechanisms at all levels of education. Future supportfor the Government's reforms should include more direct support to the education sector. An investmentoperation which should support some of these reforms is currently being prepared.

PART I: PROGRAM IMPLEMENTATION ASSESSMENT

A. PROGRAM OBJECTIVES

Introduction

1. Macroeconomic Developments Prior to EdSAC: Following a period of serious macroeconomicimbalances and low growth during the first half of the eighties, Kenya began implementing a majorstabilization and adjustment program in 1986. This program was supported by the IMF through an ESAF(covering the period 1989-91), and by the Bank through a series of sector adjustment operations inagriculture, industry and finance. Output and investment responded, with real GDP growth at marketprices averaging over 6 percent during the period 1985-88, and 4.4 and 4.5 percent in 1989 and 1990,respectively. However, Kenya relied excessively on foreign savings to finance current account andbudgetary deficits. To sustain the economic recovery and to reduce the fragility of the economy, Kenyaneeded to rationalize and control the growth in public expenditures and to encourage export diversification.These objectives formed the agenda of the last year of the IMF's ESAF program in 1991 and new IDA-supported adjustment efforts in agriculture and export development. In this regard and as themacroeconomic framework underpinning EdSAC, a fourth Policy Framework paper (PFP) outlined theGovernment's adjustment program for the period 1991/92-1993/94.

2. Education Sector Developments: The rapid expansion in Kenya's education system had beenaccompanied by the emergence of four broad sets of issues in recent years (a) The rapidly growing size ofthe school age population and the high priority accorded to education by the Kenyan government andhouseholds contributed to rising public and private expenditure on education. In 1990/91, publicexpenditure on education accounted for 35% of the government's recurrent expenditure and about 25% oftotal expenditure and had grown faster than other sectors in recent years. Major factors driving the recentincrease in expenditures had been a rapidly rising primary teaching force and a rapid expansion inuniversity education. (b) Primary and secondary school enrollment rates, although higher than othercountries in the region and with comparable income levels, showed considerably high variation across thecountry. There was preliminary evidence that poor families found it difficult to meet direct and opportunitycosts so that drop-out was high among children from poor families and that participation rates were befalling. (c) To ensure the quality of education, some serious shortcomings in the new 8:4:4 curriculum(introduced in 1985) needed to be addressed and its effective implementation ensured. There was also aserious shortage of textbooks in many primary schools in disadvantaged areas. (d) Finally, managementpractices and planning capacity had not kept pace with the expansion of the education sector. Universitydevelopment and expansion, in particular, was lacking a control mechanism for planning, programming,financing and coordination.

3. Sessional Paper No. 6 of 1988 (Education and Manpower Training for the Next Decade andBeyond) constituted the Government's policy statement for the education sector. It emphasized increasedaccess to education and provision of quality education for sustainable living couched in the reality ofKenya's macroeconomic and financial constraints. In its Letter of Education Sector Policy, dated July 29,1991, the Government outlined recent and proposed reforms in the education sector which included theimplementation of a number of recommendations of the Sessional Paper.

The Education Sector Adjustment Credit: Statement of Objectives and Brief Description

2

4. The principal objective of the education sector adjustment credit was to support the KenyanGovernment in the implementation of a time-slice of its longer term reform program which sought to: (a)reduce the rate of growth of the education recurrent budget to a sustainable level, and a level commensuratewith overall government expenditure targets; (b) expand access to education and increase retention at theprimary and secondary levels, especially for children from disadvantaged areas and, following a period ofconsolidation, a phased expansion of tertiary education; (c) enhance and improve the quality and relevanceof education at all levels; and (d) strengthen sector management, planning and information systems.Specific actions supported by the credit included: limiting the growth of the primary and secondaryteaching forces, limiting new admissions to the public universities, introducing a direct charge on all publicuniversity students and reforming the student loan scheme, re-introducing the public financing of textbooksto primary schools, strengthening of the Ministry of Education's Planning Unit, and strengthening theCommission for Higher Education (CHE) to oversee the development and financing of public universities.

5. Policy measures supported in the credit were reflected in Kenya's fourth PFP for 1991/92-1993/94(and subsequently updated in the PFP for 1994-96. A parallel Universities Investment Project (UIP),approved a few months later, was to support improvement of education at the public universities whilestrengthening and extending some of the higher education conditions in EdSAC.

6. The first education sector adjustment operation for Kenya, EdSAC was originally designed as aquick-disbursing credit of US $100 million. The unusual prominence of the education sector in Kenya'smacroeconomic scene and the critical need to reduce both public expenditures and the budget deficitprovided the rationale for the negative list/quick disbursing approach. The credit was to be spread overthree tranches: the first tranche was released in September 1991 following approval of the credit by theBoard while release of the second and third tranches were expected to follow supervision missions inSeptember 1992 and 1993 respectively. As a result of the addition of IDA reflows to the second and thirdtranches final disbursements under the program were approximately double, at $203.4 million' and theclosing date of the credit was extended from June 30 1994 to March 10, 1995.

Evaluation of EdSAC Objectives

7. The objectives of the program identified the key issues confronting the sector at the time, wereimportant for the country and consistent with the Bank's Country Assistance Strategy. However, some ofthem (example: access, quality) were stated very broadly and measurable targets were not set up.

B. ACHIEVEMENT OF PROGRAM OBJECTIVES

Macroeconomic Objectives

8. An important objective of the adjustment program was to introduce fiscal restraint and expenditurecontrol into the education sector budget. Achievement of this objective is assessed as substantial. Tosustain these achievements, however, much remains to be done (paragraph 11).

9. The credit provided Kenya with urgently needed balance-of-payments support. Since tranchereleases required, in addition to satisfactory progress in the carrying out of the reform program and thecompletion of a set of sector specific actions, "that the macro-economic framework of the borrower beconsistent with the objectives of the program," the credit helped to ensure government implementation ofimportant macroeconomic reforms. This was particularly evident in the context of second tranche releasein 1993 which was delayed for more than a year, and seven months after the satisfaction of sector specificconditions, until the government fulfilled certain macroeconomic policy measures (Appendix C, TrancheRelease Memorandum). Toward the end of 1993, the Government put in place a program, described in its

Appreciation of the SDR against the dollar also accounted for about $ 7 million of the increase

3PFP for 1994-96 and in a one year ESAF arrangement with the IMF, aimed at renewed growth throughmacroeconomic stabilization and accelerated structural reform. The end of the EdSAC period saw asubstantially improved macroeconomic climate.

Achievement of Broad Sectoral Objectives

Overall achievement of broad sectoral objectives has been partial.

10. (a) Containing the Growth of Education's Recurrent Bud2et. Real expenditures on educationgrew at a lower rate (approximately 5% per annum) over the credit period compared to the four years priorto EdSAC (almost 7% per annum) and education's share in the Government's recurrent budget wasmaintained at approximately 35%. The slower growth in teacher numbers and in university enrollmentssupported by EdSAC clearly prevented an escalation in the education recurrent budget. The rate of growthof public expenditures on university education was considerably slower during the EdSAC period relativeto the late eighties.

II. A process of expenditure control wvas thus started during the credit period. It is important to note,however, that (i) budgetary achievements were modest relative to objectives in the Letter of Sector Policy(LSP), particularly if the accumulation of arrears by public educational institutions beginning in 1992/93are taken into account. If these bills had been paid on time, the share of MoE in the recurrent budget couldhave been larger', (ii) sustaining an appropriate budget share will depend on the Government's ability tointroduce deeper reform in the areas of teacher recruitment and training (paragraphs 17, 18) and tosuccessfully implement new financing mechanisms to ensure increased cost-sharing in higher education(paragraphs 25, 26).

12. (b) The expansion of access to education. Contrary to the government's objectives pnrmary andsecondary enrollment rates decreased during the credit period (Annex 2, Tables 6 and 7). MoE statisticsshow a particularly severe decline in the gross enrollment rate in primary schools from 89.7% in 1991 to82.4% in 1994. While a primary reason for the decline in enrollments (the increasing difficulty faced bypoor parents in meeting the costs of educating their children) was exogenous, progress in implementingactions to address this objective was limited. A study on the extent and causes of non-enrollment anddropout in primary school' was to be completed by September 1992 and an action plan emerging from itwas to be implemented. It was anticipated that a number of new policy measures would be in place by theend of the credit period and a progress report documenting these would be prepared. However, the studywas only completed in March 1994 and an action plan is yet to emerge4. The study and implementation ofthe action plan were not formal tranche release conditions. Clearly, the problem of falling participationrates in primary education was inadequately addressed during the EdSAC period and is now becoming anincreasingly pressing problem. The government initiated a bursary programn for needy students insecondary schools and universities. The bursary scheme for university students has enabled needy studentsto attend despite the introduction of a direct charge.

13. (c) Improved quality. Towards this objective, some central governnent financing of textbookswas reintroduced. The share of untrained teachers in the teaching force has been reduced substantially,from about 30 % in 1990 to 12% in 1995. On the other hand, progress on the revision of teaching and

2 Annex 1, Table 5. The LSP objective of a 3% growth rate ceiling of real expenditures on education was not realized. Realexpenditures on education grew at about 5% per annum. Moreover, beginning in 1992/93, the public universities (aswell as other public educational institutions) accunulated arrears partly due to fixed charges to students and highinflation. When debts are accounted for, the share of public universities in the MOE budget was higher (Annex 1, Table5).

3 The study was financed by ODA through the Strengthening of Primary Education (SPRED) project.

4 An operational action plan was last expected in July 1995. However, it is not yet available.

4learning materials for the revised curriculum has been slow and the in-servicing of teachers has not yetbegun (Annex 1, Table 6); these were not formal conditions for tranche releases. Quality was not definedin terms of output indicators (e.g. student achievement) and therefore the achievement of this objectivecannot be assessed. The cost-effectiveness of interventions to improve quality has not been adequatelyevaluated, and there is inadequate country-specific sector work on the impact of these interventions.

14. (d) strenathenina sector management, planning, budgeting and information systems. Duringthe credit period, actions were to be taken to strengthen the Conmmission for Higher Education (CHE), andto improve information systems, policy analysis, and planning in the MoE. In July 1994 (one and a halfyears late), a restructured CHE took over the functions of policy formulation and sector planning,budgeting and financing from the Policy and Planning Task Group (PPTG). In the interim, however,public universities fell into arrears. The preparation of university financial plans was also delayedsignificantly although a restructured CHE performed effectively in the coordination of the universityfinancial and development plans in 1994 (paragraph 22). With regard to MOE strengthening, someprogress has been made (Annex 1, Table 6). However, much remains to be done as witnessed in thecontinuous slippage of the primary education study, the textbook evaluation, the delay in providingstatistics on teacher demand and supply under Education VI, etc. Achievement of this objective is assessedas partial.

Experience in Achieving Specific Objectives in the Policy Matrix

15. The preparation of sector investment plan and the use of both development and recurrentbudgets to implement policy changes. Budget allocations for the education sector for 1992/93 and1993/94 were monitored in the context of tranche releases and were found satisfactory to IDA. Provisionswere made for primnary school textbooks, CHE, institutional strengthening of the MOE and UIP at levelsacceptable to IDA and satisfactory Public Investment Programs were prepared. This objective hastherefore been substantially achieved.

16. The reduction of the rate of growth of the primary teaching force, primarily controlling thesize and composition of admissions into the Primary Teacher Training Colleges (PTTCs) and byceasing to employ new untrained teachers. Although the number of teachers on the primary payrollexceeded the ceiling throughout the credit period' (Annex 1, Table 5), the primary teacher payroll grew at amuch lower rate (approximately 1% per annum) during the credit period compared with the preceding fiveyears (almost 5% per annum). The government ceased to employ untrained teachers into the teaching forceafter January 1991. Targets for the size and composition of admissions into PTTCs were generally met,the major exception being a breach in the first year of the program which was corrected in subsequent years(Annex 1, Table 5). The reduction in the proportion of untrained teachers (UT's) on the primary payrollwas beyond appraisal expectations (Annex 2, Table 4). This objective was thus substantially achieved.Because the increase in trained teachers was larger than planned and also due to larger salary increases, theprimary wage bill increased substantially both in real terms and as a fraction of total expenditure inprimary education. As a result of the unanticipated stagnation in primary enrollments, however, theobjective of higher student-teacher ratios was not achieved.

17. During the credit period, the size of the primary payroll was contained primarily by limiting newintakes into the PTTCs and by ensuring that a minimum of 3000 of the new PITC intakes were practicingUT's so that the number of new entrants into the payroll in each year was maintained at about 5000.Delinking of PTTC graduation from public sector employment and increased cost-sharing in PTTCs have

5 This was due to (a) an incorrect attrition rate used at appraisal, (b) an early breach in teacher numbers and PTTC admissions,which was subsequently corrected. For 1994/95 higher payroll numbers were accepted because the closing date forEdSAC was extended by a year because of the addition of IDA reflows to the third tranche and it was never intended thatthe ceilings would continue

5not yet been addressed6. The Government is still committed to hiring all graduates of PTTCs and continuesto construct new PTTCs: In its August 1994 progress report and in its recent project list, the MOE hasindicated that a new externally funded project (AfDB) includes the Construction of a PTTC at Kibabii:however, the recently completed Education VI ICR argues that "there is no reason to build new PTTCs forsome time to come." Some cost-sharing in PTTCs was initiated in 1993: however annual cost to studentswere smaller than the annual cost of secondary school education and the charges were inadequate for theinstitutions to achieve balanced budgets. In a recent letter (Appendix D), the Government has informed theWorld Bank that the MOE has recently recommended the charging of full cost of boarding and food atteacher training institutes.

18. The policy of admitting practicing UT's into PTTCs has reached its limit: only 5 UT's wereadmitted into PTTCs in 1995. The PTTC intake in 1995 (6000) was lower than in preceding years and anew policy whereby a significant fraction of PTTC intakes have consisted of applicants from understaffedareas has been introduced. In short, while an attempt is being made to move to a need-based policy forteacher training, the primary payroll could continue to grow faster than primary enrollments according tothe current teacher staffing and recruitment policies. The cost-effectiveness of the existing approach toteacher training and recruitment should be evaluated.

19. Increasing the availability of textbooks in primary schools by some public provision of booksto complement parental/student effort. To ensure that adequate textbooks are available in schools, thecredit supported the reintroduction of public sector provision of core textbooks to primary schools indisadvantaged areas. Conditions for tranche releases included adequate budgetary provisions for thetextbook scheme as well as an evaluation of the scheme. Budgetary allocations for the scheme weresatisfactory to IDA. However, the LSP objective of devoting at least 3% of the primary educationrecurrent budget to school equipment (including books) was not achieved (Annex 1, Table 5) and the shareof the primary education recurrent budget devoted to non-wage inputs fell during the credit period (Annex2, Table 3). About 6423 schools in ASAL and other disadvantaged districts were reported to havebenefited from the scheme between 1991/92 and 1993/94. Some delays in book distribution were reportedand the desired textbook/student ratio was not achieved. Where textbooks were received and used, theyappear to have had a positive impact on teaching/learning and to have provided some relief to poor parents.The evaluation of the textbook scheme was late and limited in methodology. It did not evaluate the cost-effectiveness of the scheme nor recommend the most cost-effective form of future assistance from GOK.Achievement of this objective is assessed as partial. Government financing of textbooks and other effectiveinputs should be continued in the future; however alternatives to centralized determination and provisionshould be examined.

20. Containing the growth of publicly funded secondary school teachers. Secondary payrollceilings and ceilings on non-teaching staff were observed throughout the credit period7. The rate of growthof the secondary teacher numbers was considerably slower than in the years preceding the credit. Thisobjective was thus fully achieved However secondary school enrollments did not increase and the studentteacher ratio fell.

21. Limiting future admissions into public universities Ceilings on first year admissions to publicuniversities were conditions for the release of the tranches. The ceilings were observed (Annex 1, Table 5);in fact admissions into public universities in last two academic years have been lower than in the previoustwo years even though a 3% annual growth was originally planned. Lower than projected student numbers

These policies were in Sessional Paper No. 6 and the LSP. They may have been difficult to introduce in a program in which asignificant fraction of new intakes into PTTCs were UT's who were already employed in the teaching force.

7As in the case of the primary payroll, there is considerable fluctuation in payroll numbers throughout the year. Numbersreported in semi-annual progress reports were generally below the ceilings. Numbers for March 31 of each year (Annex2, Table 5) were higher than the ceilings.

6were a primary factor behind restrained university expenditure as cost sharing during the period actuallydeclined in real terms.

22. The streamlining of policy formulation and sector planning, budgeting and financing, andinvestment and development planning to ensure that future expansion and financing of publicuniversities occurs in a more coordinated and planned fashion. Tranche release conditions included (a)implementation of an acceptable plan to restructure CHE to effectively handle the planning, programming,budgeting and financing of public universities (second tranche), (b) effective performance of CHE inoverseeing the planning, programming, budgeting and financing of public universities, including thehandling of grants from the public sector as well as donors; and the preparation of satisfactory financingand investment plans for the public universities (third tranche). A restructured CHE took over thefunctions of policy formulation and university planning, budgeting and financing from PPTG one and a halfyears late on July 1, 1994. PPTG performance in the interim was weakened by the slow responsivenessfrom the public universities. The public universities fell into arrears during this period (paragraph 25) andthe preparation of their financial plans was also delayed by a year and a half. CH-E has now begun tofunction as an effective intermediary with respect to public universities and in particular performedeffectively in the coordination of the university financing and development plans in 1994. The financialplans submitted in September 1994 identified measures (including substantially increased cost-sharing) toensure balanced operating budgets beginning in the 1995/96 fiscal year and the retirement of indebtednessby the end of the three year period. With effect from July 1, 1994, the Government appointed the Secretaryof CHE as Officer Accounting for grants allocated to the public universities. At the same time, startingwith the 1994/95 Recurrent Estimates, the Government has shifted from the previous arrangement of anitemized Government budget allocation for each of the public universities, to a lump-sum grant for each ofthe public universities. Budget implementation under the new arrangements have worked smoothly.Performance of CHE and the public universities and the implementation of the financial plans will continueto be monitored under UIP. Effective performance of CHE over the medium to long term will depend onthe amendment of the Universities' Act to regularize its additional functions and to harmonize the actsrelating to CHE and the public universities (which has not yet been tabled in Parliament).

23. Establishment of an effective student loan scheme, as well as much more direct cost recovery,to reduce the financial burden of higher education on the exchequer. Prior to the credit, there were nodirect charges to students at public universities. Although there was a Student's Loan Scheme (SLS), itfunctioned primarily as a grant scheme available to all students. All students attending public universitiesreceived the maximum amount of the loan. The nominal rate of interest had been 2% since the inception ofthe scheme and in 1974 recovery rates were low (about 4%). A direct charge of KSh. 6000 payable by allstudents attending public universities (and a bursary scheme to assist poor students in meeting it) wasintroduced under the credit in the 1991/92 academic year (this was a condition for board presentation);charging all public university students a minimum of KSh. 6000 in the two subsequent academic yearswere conditions for releasing the second and third tranches. The introduction of a direct charge was asignificant step. However, as a result of high inflation, this direct charge which amounted to roughly 11%of the cost of a student's university education in 199 s, represented about 5% of unit costs by the end of thecredit period. The direct charge has also been lower than the cost borne by secondary school students(currently about Ksh 30,000) a year and is significantly lower than the Ksh 110,000 paid by studentsattending private universities in 1994. Direct cost recovery thus actually declined during the credit periodand in the absence of radically improved performance of the loan scheme (next paragraph), the same is trueof cost-recovery more broadly defined.

24. Progress on loan scheme reform was also negligible during the credit period. Caps on loanamounts (conditions for release of second and third tranches) were complied with. However, recovery ratesremained low (approximately 4%) and the nominal rate of interest remained 2% despite the LSP objective

s Based on numbers in the model used by the Appraisal Mission.

- - - - - - - - - -~ ~

7of gradually increasing it. Reform of the loan scheme was not defined in terms of specific targets and clearsteps were not built in to the design. Greater attention could also have been paid at an earlier stage to thefact that the existing institutions were too weak and lacked the incentives to achieve an instant turnaroundin recovery. Alternatives to the existing loan scheme were not explored; the huge public subsidies imnplicitin the scheme were not addressed so that the scheme was not restricted to those without means. Steps inreform of the scheme were to be determined following the completion of a review which was initially due indraft form before negotiations9 but eventually only shared with IDA over a year later. Agreement on apolicy statement and an accompanying action plan'0 on higher education financing was finally achieved inMay 1993 (more than a year and a half into the credit). These were based on four principles: the carefultargeting of both loans and bursaries, on the basis of means testing; the progressive elimination of interestsubsidies on student loans, to make interest rates positive in real terms; a system of university charges thatclearly separates the cost of tuition from those of accommodation and food, and moves toward full costrecovery for the latter; and the establishment of a small body, independent of the Ministry of Education,with responsibility for the oversight of loan disbursement and recovery which will be contracted out tocommercial banks. Implementation of the action plan was behind schedule, however, particularly beforethe closing date of the credit, although some significant announcements of policy change have very recentlybeen made (next two paragraphs).

25. The rigidity of charges to students in the face of rising prices partly contributed to theaccumulation of arrears by public universities beginning in 1992/93. The need to address these in thecontext of satisfactory financial plans for public universities (a condition of third tranche release) led to acommitment to introduce new student financing measures in the academic year beginning in 1995; it was onthe basis of this commitment that the third tranche was released. In what has to be considered a verysignificant step in university financing, the Government has recently announced new cost-sharing policies(Appendix D) for the academic year beginning in 1995. According to these, "non-needy" students couldpay up to 42% of the direct costs of university education which includes the full cost of food and boardingas well as direct tuition charges (a total charge of KSh. 50,000). Other students will be eligible for means-tested loans of up to KSh. 42000. All students will be required to pay a minimum direct charge of KSh.8000 towards tuition with bursaries provided to those who cannot pay this sum. The across the boardgovernment grant is now KSh. 70000 or 58% of total costs. The new policies, although late, are broadlyconsistent with the Government's Sessional Paper No. 6 of 1988, its policy statement and action plan ofMay 1993, its PFP (1994-96) and policies in the acceptable financing plans submitted to IDA in thecontext of third tranche release. It should be noted that the amount of direct cost-sharing actually impliedwill depend crucially on the determination of "those who have the means". Preparations for implementingthe new student financing package are only just beginning and are being monitored in the context of UIP.Improvement in overall cost recovery will also depend on improved performance of the loan scheme asmany students will now receive larger loans.

26. There has been some improvement in the collection rate of student loans in the last year (partly aresult of near completion of computerization of debtors' accounts by November 1994 again, substantiallybehind schedule) although total amounts due have also been increasing. With the enactment of the HigherEducation Loans Board Act on July 21, 1995, the functions formerly carried out by the SLS unit in theMOE are being transferred to the new Loans Board. The Act grants enhanced legal powers for loan

9 This review was expected to presented to IDA before negotiations and an action plan to improve effectiveness and therecovery rate of student loans was to be finalized before Board presentation. However, at the time of negotiations theslippage in the timetable was recognized and the action plan based on the review became the subject of a dated covenantunder UIP and its implementation became a condition for second tranche release under EdSAC.

10 Some actions included in the plan dated as far back as Sessional Paper 6 such as means-testing of student loans, chargingfull cost for food and accommodation, and looking into commercial bank involvement in the management of the loanscheme. The plan also included the annual review of interest rates with a view to increase them, and specific loanrecoverytargets. Some oftheseactionswerereflected in the PFP (1994-96)laterthatyear.

8recovery and assigns the responsibility of determining the interest rate on student loans to the Board. TheGovermment has recently decided to charge a higher interest rate of 4% for disbursements in the academicyear beginning in 1995; this is a modest step in relation to its objective of eventually achieving positive realinterest rates on student loans. However, this will be reviewed further by the Loans Board which couldannounce a higher interest rate. The Loans Board will handle means-tested bursaries as well as means-tested loans. Although recent months have seen more action in the area of loan scheme reform, at this timeKenya has yet to establish a viable loan scheme, in which loans are treated as loans and not grants. TheGovernment will need to take decisive and immediate acticn on default and should also explore ways ofattracting commercial banks to assume some of the commercial risk. Future progress in loan scheme refornwill be monitored in the context of UIP

27. Thus, while achievement of this objective in terms of financial results was limited during the creditperiod, the new higher education financing policies publicly announced by the Government after the closingdate (but announcing essentially the same policies as in the acceptable university financing plans whichwere a third tranche condition), if implemented successfully, could be the most significant contribution ofthe program.

Other Objectives

28. Overall achievement of Financial Objectives has been partial (paragraphs 10, 23-27).Achievement of Institutional Development Objectives has been partial (paragraphs 14, 22).Achievement of Poverty Reduction objectives has been partial. Textbooks were provided to schools indisadvantaged areas and the Government has introduced bursaries at the secondary and higher levels ofeducation. The objective of improving enrollment rates and reducing drop-out, particularly indisadvantaged areas, was not achieved. Achievement of Public Sector Management Objectives andPublic Policy Reform is assessed as partial.

C. MAJOR FACTORS AFFECTING THE PROGRAM

29. Factors not generally subject to government control.

1. Due to an addition of IDA reflows the size of the credit almost doubled (Annex 2, Table 4). The closingdate of the credit was extended from June 30 1994 to March 10 1995 as a result of the addition of IDAreflows to the third tranche, allowing additional time for sector policy reform.

2. The beginnig of the university academic year was delayed as a result of two major interruptions ininstruction since the beginning of the credit. As a result of student demonstrations in 1991, following theintroduction of the direct charge, "academic year 1991/92" started only in January 1992. Reflectingdiscontent over falling real wages and deteriorating wvorking conditions, and the Government's refusal toregister the University Academic Staff Union, many university lecturers went on strike in Novernber 1993,resulting in closure for some time of most of the public universities. "Academic year 1993/94", asreflected in the EdSAC agreement got underway in most universities in June or July 1994 and at theUniversity of Nairobi in September 1994. These disruptions may also have contributed slightly to thedelays in implemneting higher education reforms.

30. Factors subject to government control

1. The second .nDche was delayed by over a year initially due to delay in sectoral reform (in particular,review of and action on the student loan scheme) and subsequently because an adequate macroeconomicframework was not in place. The third tranche was also delayed primarily due to slow progress,particularly in implementing higher education reform. The delay in the release of the second tranche formacroeconomic reasons, although justified, appeared to have led to resentment on the part of the MOE as

9all sector specific conditions had been satisfied 7 months earlier. This may have contributed slightly to theslippage on higher education cost recovery actions agreed to in Spring 1993.

2. Government commitment and ownership was less than optimal, as witnessed in delayed action oncommitted reform (especially higher education financing with a continuous falling back on action plans,delays in addressing university arrears, poorly staffed and weak loan scheme unit in the MOE) and failureto introduce new policy reforms (e.g. in teacher recruitment and training: the continued construction ofPTTCs and continued commitment to hire all PTTC graduates, addressing primary school non-enrollmentand drop-out). In part this was due to the politically challenging nature of some of the reforms and the lackof direct support from the credit to the education sector. Support to higher education through UIP hasprovided an additional vehicle to ensure reform; however direct support to the other sub-sectors was absent

3. The program could have been much stronger if there had been much more up-front sector work anddialogue. The program was underdefined in some key areas (examples: primary school access, highereducation financing). Conditions for higher education financing reform were further weakened duringnegotiations.

D. BANK PERFORMANCE

32. EdSAC was the first attempt to key in on important sector policy issues and to address the issue ofefficiency and equity of public education expenditures and thus represented an important shift in the Bank'sapproach to the sector. Bank performance in identification was highly satisfactory. On the other handparticularly the area of higher education financing reform could have benefited from greater preparationand dialogue. The program was underdesigned in some key areas such as access and quality indicators.Greater specificity in loan scheme reform and/or stronger targets for direct cost recovery would have helpedimprove outcomes. More attention could also have been paid to the sustainability of reforms in teacheremployment. While a slightly underdefined multiple tranche adjustment operation may be a good risk in acountry with strong institutions and strong commitment, in the Kenyan context of weak commitment andweak institutions, it was a highly risky gamble. On balance, Bank performance in preparation andappraisal is assessed as deficient.

33. Monitoring implementation of the policy measures proposed in the adjustment program wassatisfactory. As a result of substantial dialogue on higher education that started from the Spring of 1993,the Government committed to many important revised policy measures in an action plan and in its PFP,some of which it has recently acted upon. Monitoring of university deficits and the provision of input intothe preparation of satisfactory university financing plans (in the context of UIP and EdSAC) were aspectsof supervision that remained highly satisfactory after the release of the second tranche. Actual time spenton supervision was double that set out in the President's report and supervision missions were regular".On the other hand, the ability of Bank supervision to enforce timely Government action on committedreform was limited by weak tranche release conditions and the large sums of money involved (doubled dueto IDA reflow) wvith their importance for the macroeconomy. Thus, in the case of second tranche release,while the credit was used to ensure government implementation of macroeconomic reform, on the sectoralside (in particular in the case of the loan scheme), the Bank settled for promises of action in lieu ofsubstantial action on the ground. In the context of the third tranche release it was difficult, for example, toinsist that specific actions that had been agreed upon, such as satisfaction of recovery targets, decisivepublic action on loan recovery, early announcement of revised higher education charges etc., be taken prior

In the circumstances of the education sector second tranche conditions having been fulfilled, but not yet the macroeconomicconditions, it was decided not to carry out the planned September 1993 supervision mission. However the Bank stillremained in close touch with the education sector conditions through the Public Expenditure Review, attendance at aweek long Education Workshop in Mombasa, and periodic reporting from the Education Consultant at the ResidentMission. During this period the Bank staff's contact with the Borrower's progress was substantial, but probably less thanoptimal

10

to the releasc of the tranche; once again the tranche was released on the basis of commitments rather thansubstantial action."2 On balance, Bank performance in supervision is assessed as satisfactory.

E. BORROWER PERFORMANCE

34. Borrower commitment to the adjustment program was less than optimal. Its performance inpreparation is assessed as deficient (paragraphs 30.2, 30.3, 32). Actions to address fiscal restraint ineducation were satisfactory. In the area of primary education, actions to address access were deficient.While the reduction of UT's exceeded expectations, and although there were deficiencies in textbookfinancing and provision, its reintroduction is an important step. In the area of higher education financing,actions to address the deteriorating financial condition of the universities and loan scheme reform weredeficient during the credit period. However, the introduction of a direct charge and the recent policyannouncements by the Government in the area of higher education financing are major steps. Compliancewith covenants in monitoring, review and reporting, accounts and auditing, utilization of funds was highlysatisfactory. Sector specific tranche release conditions were substantially met although with significantdelays. From the point of view of the MoE, EdSAC was a "belt-tightening" exercise, lacking in directsupport to the sector. On balance, therefore, and bearing in mind the program's challenges, borrowerperformance in implementation is assessed as satisfactory.

F. ASSESSMENT OF OUTCOME. SUSTAINABILITY AND FUTURE REFORM

35. Arriving at an overall assessment for this operation is difficult, because of the numerousobjectives, the generality with which some of them wvere stated, and the question of weights one wouldassign to "process" as distinguished from "product". For the purpose of reaching an overall assessment,the following are taken as the most important objectives: (a) contributing to fiscal adjustment by containingthe growth of the MoE recurrent budget; (b) increasing "access" (enrollment) and quality at the primarylevel; (c) more equitable and sustainable financing arrangements for public university education, andimproved coordination of public universities.

36. As set out in paragraph 10 above, the objective with respect to the MoE recurrent budget wassubstantially achieved. In the area of primary education the decline in participation rates must beconsidered a serious setback. The provision of textbooks to disadvantaged areas the decline in thepercentage of untrained teachers presumably has had some quality benefits, but this has not been verified.

37. The financing arrangements "on the ground" for higher education improved at the time of Boardpresentation with the introduction of the direct charge, but then deteriorated during the period of crediteffectiveness (in part due to exogenous factors). In terms of university financial results and Student LoanScheme Collection, financial results "on the ground" during the EdSAC period were disappointing. Thestudent financing policy reforms included in the 3-year university plans submitted to the Bank for the thirdtranche, and announced to the Kenyan public in July 1995, represent, however, a potential for majorimprovement, depending on how they are implemented. Kenya is probably the only African country where,as a matter of policy, the Govenunent's share of the cost of public university education is as low as 58%.The Commission for Higher Education has begun to function as an effective intermediary with respect tothe public universities.

38. Giving equal weight to the three areas mentioned in paragraph 35, attributing substantialimportance in the overall assessment to the policy announcements on university cost recovery (as

12 In view of the definition of the Schedule 3(B) tranche release conditions, the Bank could have insisted on such action priorto tranche release only by relying on dissatisfaction with implementation of the overall adjustment program described inthe LSP (DCA, Schedule 1, paragraph 4 (b) (i) rather than the specific Schedule 3(B) conditions). The question ofwhether to do so was explicitly discussed within the Eastern Africa Department and it was decided not to do so.

11distinguished from financial results "on the ground"), considering the politically challenging nature ofuniversity cost recovery and teacher employment reforms, and recognizing that EdSAC is the beginning ofa broader and longer reform program, the overall assessment is, on balance, satisfactory. On the otherhand, if a higher weight is given to access and quality outcomes in primary education (in view of theimportance of primary education for development), or more importance attributed to "'results on theground" the overall assessment would be, on balance, unsatisfactory.

39. Sustainability of the program is uncertain. Although it looks slightly better now than it did sixmonths ago, sustainability of budgetary achievements will require deeper reform in the area of teacheremployment and education, the development of a sound loan scheme, and successful implementation ofhigher education financing measures. Implementation of the new higher education financing measures willcontinue to be monitored through UIP. An OED evaluation should be conducted in two years.

40. Future reform should continue the process of expenditure control, while emphasizing access(particularly by the poor) to primary and secondary education, teacher supply, the introduction of acommercially based loan scheme for higher education and more sustainable financing mechanisms at alllevels of education, improving the quality of education, for example, by moving decision-making on schoolinputs (including staffing) closer to beneficiaries. Some of these reforms are included in the Government'srecent policy paper "Macroeconomic and Structural Policy Framework Paper for 1995-97 " and are beingdiscussed in the context of a new lending operation.

G. KEY LESSONS LEARNED

* Much more up-front sector work, preparation and dialogue is needed to ensure a well defined sectorreform program. Specific tranche release conditions should be strong and adequate targets specified.This is particularly important in the Kenyan context of weak commitment and institutions. A series ofsmaller, well-specified single tranche operations may be preferable to an underdefined multiple trancheoperation. Once realistic commitments have been agreed upon, they should be enforced

* Particularly when a turnaround in the performance of existing institutions is desired (e.g. the loanscheme), attention to institutional deficiencies should be rigorous and alternatives should be explored.To be sustainable, reforms should pay greater attention to underlying incentives (e.g. teacheremployment).

* To improve the quality of education, future reforms should examine alternatives to centralizeddetermination and provision of school inputs. Cost-effective approaches more responsive to localschool and community needs should be examined. Appropriate indicators, that focus on output ratherthan inputs, should be set up and interventions should be carefully evaluated.

* Studies that are not formal requirements for tranche releases tend to be of varying quality and actionsemerging from them late or absent. They receive low priority when supervision resources are absorbedinto resolving numerous difficulties in meeting tranche release conditions. If they are important, theyshould be done up-front.

* Future support for the Government's reforms (improved access, quality, establishment of sustainablefinancing mechanisms, for e.g.) should include more direct support to the education sector.

12Part 11, Annex I

Table 1

KenyaEducation Sector Adjustment Credit

Table 1: Summary of Assessments

Substantial Partial Negligible Not applicable

Achievement of objectives i________macro-economic policies Xsectoral policies Xfinancial objectives Xinstitutional development Xphysical objectives _ Xpoverty reduction Xgender issues xother social objectives xenvironmental objectives _ __ __ _ Xpublic sector management X _____________ _

private sector development X

Ukely Unlikely Uncertain

B Project sustainability X

Highlyma satisfotory Satisfactory Deficient

C Bank performance identification X ________preparation assis e Xappraisal Xsupervision X

D. Borrower performancepreparation Ximplementation Xcovenant compliance Xoperation

Highly Highlyry Uasofetr...saitiolcStory Sisfactry Unaefctatoy un tlt

Assessment of outcome X*

See paragraphs 35-38 on pages 10, 11

13Part 11, Annex I

Table 2Kenya

Education Sector Adjustument Credit

Table 2: Related Bank Credits

Loan/credit title Purpose Year of Statusapproval

Preceding operations

1. Sixth Education The project sought to improve equity and quality of 1986 Closed 3Project the education system and to promote institutional years late,

development through strengthening the June 30,(Cr 1673-KE) Government's capability to effectively plan for the 1995US $ 37.5 million education sector and to manage its expansion at all

levels.

To achieve these objectives, the project was to (a)construct seven new primary teacher trainingcolleges (PTTS's); (b) construct three new aridzone primary schools in remote locations; (c)provide the Kenya Institute of Education (KIE)with equipment, specialist services and training tosupport the development of educational materialsdelivered by the Education Media Services (EMS);(d) assist KIE in preparing and testing newcurricular materials for secondary and technicaleducation; (e) strengthen the capacity of thePlanning Unit (PU) of MOE and the TeachersService Commission.

Table 2: Page I of 2

14Part II, Annex I

Table 2Table 2: Related Bank Credits (continued)

Loan/credit title Purpose Year of Statusapproval

Following operations

1. Universities The project is intended to support the government's 1991 To close,Investnent Project program to consolidate and develop the universities by December

(Cr2309 (a) rationalizing and strengthening the institutional 31, 1996(Cr 2309 framework for higher education, in both the public andUS$55.0 million private sectors; (b) limiting the growth of government

budgetary resources devoted to the public universitiesby promoting cost sharing and improved investmentplanning; and (c) improving the quality of teaching andresearch delivered at the public universities.

The project directly complements the EDSAC, buildingon the higher education adjustment policies supportedby EDSAC.

Central Components: strengthening CHE, reforming theSLS, carrying out relevant studies, supporting appliedresearch, and implementing the project. UniversityComponents (at the six public university institutions):strengthening institutional development (especiallyadministration and finance), staff development in keyareas, and the supply of teaching related equipment.

Table 2: Page 2 of 2

15Part 11, Annex I

Table 3Kenya

Education Sector Adjustment Credit

Table 3 Project Timetable

'-I~~~lv

Steps in Project ,Cycl& : Date Planned Date Actual

Identification October 30, 1989Preparation October 1989 to

March 1991 (missionJuly/August 1990)

Pre-Appraisal Mission November 1990Appraisal Mission Departure Feburary/March March 11, 1991

1991Negotiations July 11, 1991 July 11-12, 1991Letter of Education Sector Policy July 29, 1991Board Presentation September 17, 1991 September 5, 1991Signing September 13, 1991Effectiveness (First Tranche Release) November 1991 September 27, 1991Second Tranche Release (including IDA reflow) September 1992 December 7, 1993Third Tranche Release (including IDA reflow) September 1993 December 13, 1994Project CompletionClosing June 30, 1994 March 10, 1995

Extended from June 30, 1994 by Second Amending Agreement signed March 10, 1994, addingKenya's FY94 IDA reflow to the third tranche.Source: Project Files, Presidents Report.

16Part II, Annex I

Table 4Kenya

Education Sector Adjustment Credit

Table 4: Credit Disbursements: Cumulative Estimated and Actual(US $ million)

* . | TY '2 Yv C1 : IX 4

President's Report Estimate 34.12 32.94 32.94Actual 35.42 0.0 86.41 81.60

Original 35.42 0.0 34.45 36.94Additional Financing* 0.0 51.96 44.66

Cumulative disbursementsas % of total (excluding IDA reflows) 34.1 34.1 67.1 100.0Date of Final Disbursement March 4, 1995

Source: LOAAF, President's Report.

Additional financing of SDR 37.62 million (in IDA reflows) was added to the second trancheamount (First amending agreement, March 1 1993) and SDR 30.33 million to the third trancheamouni (second amending agreement, March 10, 1994).

17Part II, Annex I

Table 5Kenya

Education Sector Adjutment Credit

Table 5: Key Indicators for Project Implementation

Kr~~~~~~~~~~~~IKiy lmlpl..mcnIull I .: * | * ;*-9- *-v-* 5- ;;*:s c . ;. >

14.lmul * .I ***-... i;f

1. Investment Plan and Budgets(i) Rate of growth fdutins To be restricted to about 3% p.a. 1991/92-1994/95: 5.2% p.a.

real recurrent budget over credit period (estimate)(Computed from Part II,Annex 2,Table I)

(ii) Education's share of GOK's To be maintained at current level share maintained between 34-35%voted recurrent budget except 1992/93 (36%).

(Part II, Annex 2, Table 1)

(iii) Universities'share of the To remain under 20% 1991/92: 16.1%; 1992/93: 17.4%recurrent education budget (accounting for deficits: 21.4%);(including student loan scheme). 1993/94: 15.90/o (including

outstanding arrears: 19.4%);1994/95: 16.3% (includingoutstanding arrears: 18.9%)

(Part 11, Annex 2, Table 2)

(iv) Education Recurrent and To be "satisfactory to IDA" Satisfactory (Appendix C)Development BudgetEstimates/Outcomes for 1991/92,1992/93 and 1993/94 includingcertain specific allocations. UpdatedEducation Sector Investment PlanZ3

2. Primary Educationi. Numbry ofcte on Ceiling of 175000, no more than PayrQL numbers: 1991: 173090;

(i) Number of teachers on Primary 45,000, 36,000, and 33500 UT's in 1992:176360; 1993: 175048; 1994:Payroll'2 3 1991, 1992, 1993 respectively. 178097; UT's: 1991: 43861; 1992:

40,954; 1993: 32531; 1994: 22506.(Numbers as of March 31 of eachyear as in Part II, Annex 2, Table 2,except 1993 are TSC numbers inApril).

(ii) PTTC admissions" Z3 Less than 8000 of which at least Sept 1991: 10,874; <2000 UT's3000 experienced UT's in Sept Sept 1992: 8000; 7413 UT's1991, 1992, 1993 Sept 1993: 8000; 7000 UT's

Sept 1994: 8000; 2632 UT's

Sept 1995: 6000; 5 UT's

(iii) Pupil-Teacher Ratios To increase from 31:1 in 1991 to Remained constant at approximately34:1 in 1993 31:1

Tablc 5: page I of 3

18Part 11, Annex I

Table 5Kenya

Education Sector Adjutment Credit

Table 5: Key Indicators for Project Implementation (continued)

(iv) Share of Primary Education No less than 3% by end of credit 1991/92: 0.3%; 1992/93: 1.7%Recurrent Budget for school period 1993/94: 0.9%; 1994/95: 1%equipment (including books) andother learning supplies

(v) Evaluation of Primary Textbook Due Sept 1993. To evaluate scheme Received November 1994.financing scheme3 and recommend cost effective Deficiencies in methodology. Cost-

interventions for future. effectiveness not evaluated. Desiredtextbook/student ratios not achieved.Improved performance reportedwhere textbooks received and somerelief to poor parents.

3. Secondary Educationi a3 1991: 32,000; 1992: 33,000; 1993: 1991: 35,097; 1992: 36,340; 1993:(i) Secondary Payroll 34,000; no more than 4600 non- 32815; 1994: 38307* (Numbers as

teaching staff in 1991,1992, 1993. of March 31 as reported in Part II,Annex 2, Table 5 except for 1993number is for May); Sept 1991:31,849; August 1992: 31,620; May1993: 32,815; Nov. 1994: 34105.Non-teaching staff: 4486 in 1993and 1994 (From semi-annualProgress Reports).

(ii) Pupil: Teacher ratio to increase from 21: I to about 22:1 Decreased to about 16:1 in 1994.in 1993

4. Universitv EducationPublic not to exceed 10,000 in 1991/92; 1991/92: 9404; 1992/93: 10,189;

(i) First Yaar intake into Publc 10,300 in 1992/93, 10,600 in 1993/94: 8459; 1994/95: belowUniversities 1993/94. 8400 expected.

(ii) CHE restructuring and CHE restructuring to have begunz CHE took over in July 1994 (1.5functioning; preparation of CHE to perform effectively and years late); performed effectively inuniversity financing and investment university financial and investment coordinating 3 year financing plansplans plans prepared3 by November 1994; Satisfactory 3

year financing plans received inNovember 1994. (See Appendix C)

Table 5: page 2 of 3

19Part II, Annex 1

Table 5

KenyaEducation Sector Adjutment Credit

Table 5: Key Indicators for Project Implementation (continued)

KgY lmplementsu. induicioni I1 Pteuident'a Estimated . Actual

(iii) Minimum direct charge at public Ksh. 6000 in 1991/92; 1992/93; Ksh 6000 charged. A little over 20%universities 1993/94 academic years. Upto of students received financial assistance

maximum of 20% of students to of upto 6000 Ksh upto maximumreceive some financial support to meet scholarship for all students=20% ofthis charge. (total no. students times 6000). Real

value of direct charge droppedsignificantly and the charge represented5% of unit costs in 1994.Recent announcement for higher directcharges beginning in 1995/96 academicyear (third academic year after1991/92) could mean substantialincrease in direct charge to "non-needy". (See Appendix D)

No more than Ksh. 21,500 for each Satisfied (see Appendix C)student (all students eligible) in

(iv) student loan allocation 1991/92, 1992/93, 1993/94 academicyears' 23, Personal Allowancecomponents: no more than Ksh 5,000in 1991/92, Ksh 2,500 in 1992/9312,Ksh 3,500 for books in 1992/932.

Review of mechanisms and Action plan and principles forimplementation of action plan based university education financing agreed

2(v) improved student loan scheme on review , evaluation of new upon in May 1993; Loan recoverymeasures to improve rate of student rates have remained low and mostrecovery and proposals for actions on plan lacking until July 1995.improvement of recovery submitted3 . Evaluation and proposals received

November 1994. Some improvementin collection rates and actions in recentmonths, e.g.: enactment of HigherEducation Loans Board Act (July 1995)announcement of means testing of newloans.

Source: Semi-Annual Progress Reports (MOE); Part II, Annex 2 Tables; Tranche Release Memoranda.Note: Academic Years correspond with those in EDSAC DCA: i.e. 1992/93, 1993/94 and 1994/95 refer to first,second and third academic years after 1991192. In actual event, due to the delays in the start of the academic year, thethird academic year after 1991/92 will start in many universities in Fall 1995.* Provisional.

Condition for Board Presentation; 2 Condition for Second Tranche Release; 3Condition for Third TrancheRelease.

Table S: page 3 of 3

20Part 11, Annex 1

Table 6

KenyaEducation Sector Adjustment Credit

Table 6: Studies Included in Project

Study : and. .pa. .

1. Plan of action to implement To address serious shortcomings This is, strictly speaking, not a study.revisions in primary and in the current 8:4:4 curriculum Primary and secondary school syllabi weresecondary curriculum, (based on with the objective of streamlining revised in 1992. Progress on an action planrecently completed review) with it so that it can be effectively for revising and preparing teaching andtargets on in-service teacher implemented. learning materials and in-servicing oftraining and revision of teachers has been slow: The process ofclassroom materials to be revision of teaching and learning materials isprepared', implementedb and on-going although behind schedule, and theprogress review on in-servicing of trained teachers is yet to beimplementation to be submitted'. implemented.

2. Implementation of plan of To address the problems of This is not, strictly speaking, a study. MOEaction for enhancing the capacity ineffective functional linkages with assistance from ODA has procured 9of the MOE in the areas of between various MOE sections computers at the MOE, Nairobi, to facilitateeducational management, resulting from educational management of data from primary andplanning, policy analysis and growth an expansion which secondary schools. Data entry is still on-data collection (recently outpaced existing management going. A computerization study to makeprepared) to be started including and planning capacities, with the recommendations on installing an MIS wasinservice training of appropriate objective of strengthening carried out by Computer Consultantspersonnel,b and first annual institutional capacity and Limited, under the sixth education project;report prepared reviewing linkages for efficient educational the study was too late for itsimplementation progressc to be management/supervision, recommendations to be feasibly financedprepared. planning and data/information under that project. Some staff have been

management. trained in data entry and analysis oncomputers. Longer term training of severalofficers, including in the area of EducationalPlanning and Management, was fundedmainly by the sixth education project.

3. A study on the extent and To address the problem of poor Phase I report completed in March 1994 (Atcauses of non-enrollment and access to primary school in some least 1.5 years behind schedule); Phase II: todrop-out, together with an action areas, falling participation in identify and document operational initiativesplan (with targets) for tackling others, and high rates of drop out and innovations of increasing access andproblems to be completedb and with the objective of increasing reducing wastage still not completed. Planprogress report on participation rates oin primary of action yet to be prepared. Theimplementation of action plan to school and reducing drop-out. Government plans to review the findings ofbe prepared'. the study, when completed, in conjunction

with the findings of a recently completedstudy by UNICEF as well as of studies beingundertaken for the preparation of a new IDAcredit to identify future actions.

'Expected to be completed before Board Presentation (Sept 1 9 9 1 );b Expected to be completed at the time of secondtranche release;' Expected to be completed at the time of third tranche release.

21Part It, Annex I

TJble 7Kenya

Education Sector Adjustment Credit

Table 7: Status of Legal Covenants

DCA Description of Covenant Covenant Present Original Actual CommentsReference class(es) status date date

Article 3, The Borrower and Association to, from time to time, at the Monitoring, Complied N/A N/Asection 3.01 request of either party, exchange views on the progress revie% and with

achieved in carrying out the Program and the actions specified reporting/Coin Schedule 3 to this agreement. Prior to each such exchange of nsultationviews, Borrower to furnish to the Association report on theprogress achieved in carrying out the Program, in such detail asthe Association shall reasonably request.

Article 3, Borrower to, with effcct from March 1, 1992, until Monitoring, Substantia N/A N/A August 93, Feb 94, Aug 94 and Jan 95 progress reports received.section 3.02 completion of the project, submit semi-annual progress reports review and Ily

not later thn March I and September I of each year. Progress reporting compliedreports to cover, inter alia: (a) recurrent and development withbudget adfocations and actua expenditures for the educationsector, (b) number of teachers on the primary and secondarypayroll, including number of untrained teachers (primary andsecondary) and non-teaching staffon the secondary payroll,teacher deployment patterns and student-teacher ratios; (c)public university admissions by major subject area, by genderand, wherever possible, by socioeconomic background; (d)progress with CHE assuming effective responsibility for thepublic universities; (e) reformed cost-sharing arrangementsincluding experience with the scholarship fund and with thestudent loan recovery; and (f) progress with the three studiesdetailed in the policy matrix, being undertaken by theborrower, including progress on the implementation of theaction plans recommended by these studies.

Article 3, Procurement of the goods to be financed out of the proceeds of Flow and complied N/A N/Asection 3.03 the credit to be governed by the provisions of Schedule 2 to utilization of with

DCA project funds

Table 7: page I of 2

22Part 11, Annex I

Table 7

Table 7: Status of Legal Covenants (continued)

DCA Description of Covenant Covenant Present Original Actual CommentsReference class(es) status date date

Article 3, Borrower shall have those records and accounts including those Accounts and Complied Compliance fullfilled.section 3.04 for the Special Account for each fiscal year audited, fumish as audit with(b) soon as available, but not later than 6 months after the end of

each such year, a certified copy of the audit report and fumishother information conceming records and accounts asreasonably requested.

Article 3, For all expenditures with respect to which with drawals from Accounts and Compliedsection 3.04 Credit Account were made on the basis of SOEs, Borrower) audit with(') maintain or cause to be maintained records and awcounts

reflecting such expenditures; retain them for at least one yearafter the audit report for the fiscal year was received by IDA,enable examination of such records by IDA representatives;and ensure the annual audits includes such records andaccounts along with an opinion by the auditors as to whetherthe SOEs together with the procedure and intemal controlsinvolved in their preparation, can be relied upon to support therelated withdrawals

Tranche Release Conditions: See Appendix C

Table 7: page 2 of 2

23

Part 11, Annex ITable 8

KenyaEducation Sector Adjustment Credit

Table 8: Bank Resources: Staff Inputs

t f." . ......... ...........ag ,

Appraisal-Board n.a. n.a. 10.8(Negotiations, BoardPresentation)

Board-Effectiveness

Supervision 45* n.a. 88.2

Completion n.a. n.a. . ..

TOTAL =====_ ... -. =... ....

*President's Report

* * stimated

24 Part 11, Annex ITable 9

KenyaEducation Sector Adjustment Credit

Table 9: Bank Resources: Missions

E ...: .. ... . d e -...- 0 1 00

Throughappraisal

Identification Oct-89 4 18 not available N/A N/A not availableHigher Education Apex Institution Issues; MOE to work on (a)

Preparation* Jul-90 7 10 not available N/A N/A clear PIP for Education (b) Timings and specific targets ofl_____ ____________ identified policy matrix

MOE to (a) further refine policy matrix(b) spell out precisesteps for restraining growth of primary and secondary teaching

Pre-Appraisal Nov-90 4 6 not available N/A N/A forcelc)work more on drafting policies for higher education

l _____________ ________ _______________ _____________ sector before appraisalMOE to provide before negotiations: (a) decisions on PPTG

functioning (b)costsharing features as monitorableAppraisal Mar-91 6 18 not available N/A N/A indicators(c)proposal of cost-sharing impact on disadvantaged

and decisions on loans/scholarships(d) draft loan recoveryreview

Appraisal to N/A N/A n.a.Board __ _ _ __ _ ___ _ _ _ _ _ _

Board to N/A N/AEffectiveness

Supervision

Primary Payroll Breach; MOE to (a)prioritize ongoing universityprojects, revise SiP(b)Bring primary payroll under

Mar-92 2 11 Task Manager*', 2 1 1 75000(c)contain secondment of secondary schoolEducator teachers(d)share loan recovery review(e)provide assurance on

key PPTG appointments

MOE to provide (a)Written assurance that additional fundingSep-92 2 8 Task Manager" *, N/A N/A for primary textbooks will be made for FY93 (b) Finalization

Educator and agreement with IDA on plan of action for strengtheningloan scheme and improving recovery

Table 9: page 1 of 2

25 Pat II, Anex ITable 9

Table 9: Bank Resources: Missions (continued)

=tk of.. p_=a In F. . . kW W ... ........ ............

Supervision (continued)

Task Manager", For Tranche 2 Govt to prepare satisfactory policy statementTask Manager-, and action plan for SLS. For Tranche 3 (a) SLS; monitoring for

Mar-93 3 1 5 Educatorn Higher N/A N/A tranche release restricted to recovery efforts (b) Progress on

Consultant CHE taking over from PPTG is slow

Task Manager *, no remaining issues for second tranche; macroeconomic issuesMay-93 3 0.5 Educator, Resident NIA N/A outstanding

Mission Chief

Universities:financial deterioration,delayed financial plans,CHETask Manager**, strengthening; proposed CHE large;SLS:no interest

Mar-94 2 4.5 Educator, Division N/A N/A rise,shortfall in recovery;Require satisfactory plans,CHE andChief harmonization legislation;new SLS action plan.

Outstanding sector conditions for third tranche: (a) EffectiveTask Manager*', performance by CHE (b) acceptable university financial plans

Jun-94 3 6* Educator, Intern N/A N/A (c) satisfactory SLS loan recovery (d) satisfactory investment(Economist) plan (e) primary school textbook evaluatin

Task Manager" , Outstanding sector conditions for third tranche: (a) revisedEducator, Intern university financial plans (b) brief SLS evaluation report (c)

(Economist) e evaluation report on primary school textbooksOct-94 3 12 (Eonmit

Disbursement

Discussion forprepation of

ICR and Feb-95 1 0.5- Task Manager" N/A N/ABorrower

evaluationDiscussion ofdraft ICR and Aug-95 1 2- Task Manager" N/A N/A

Borrowerevaluation

* Estimated as mission was combined with others* Task Manager has always been an Economist

Table 9: page 2 of 2

26Part II, Annex 2

Table IKenya

Education Sector Adjutment Credit

Table 1: Ministry of Education Recurrent Budget

''*1*Iio 199i 1SB i l s.Q1992i19$i'*41%.: ,i .iIN CURRENT PRICES (millions of Kenya pounds)

Iotl Net RecurrentExpenditures 479 571 608.3 719.4 897.3 1225.4 1361.1

Primary Education 274 316.3 363.3 413.5 529.8 675.3 745.3Secondary Education 78.6 87.8 98.3 122.1 159.7 254.9 280.4University Education 84.4 123.5 97.9 125 142.3 200.2 226.3

Other (inci Teachers Ed) 42 43.4 48.8 58.8 65.5 94.9 109.1

otal central govt recurrentxpenditures (exci CFS) 1458 1647 1738 1997 2618.2 3600.2 3895

Ratio of MOE recurrentxpenditure to total central govtxpenditure 32.85 34.67 35.00 36.02 34.27 34.04 34.94

IN CONSTANT PRICES (millions of 1982 Kenya pounds)

Iotal Net RecurrentExpenditures 251.64 272.10 256.18 254.79 267.25 327.08

Primary Education 143.95 150.73 153.00 146.45 157.80 180.25Secondary Education 41.29 41.84 41.40 43.24 47.57 68.04University Education 44.34 58.85 41.23 44.27 42.38 53.44Other (incl Teachers Ed) 22.06 20.68 20.55 20.83 19.51 25.33

Total central govt recurrentexpenditures (excluding CFS) 765.96 784.85 731.94 707.28 779.81 960.95

GDP Deflator (1982=100) 190.35 209.85 237.45 282.35 335.75 374.65**

Source: Printed Appropriation Accounts (For 1989/90-1992/93); Expenditure retums as at June 30, 1994and 1995 (For 1993/94 and 1994/95); Printed Estimates (For 1995/96).

*Provisional.*"EstimatesNgte: Beginning in 1994/95, grants to TSC for primary and secondary schools been included under subvote 310(General Administration and Planning), Head 841 for the TSC. This table includes grants to TSC for primaryand secondary schools under the subvotes "primary" and "secondary" as used to be done previously.

27Part II, Annex 2

Kenya Table 2Education Sector Adjutment Credit

Table 2: Subsectoral Allocation of the Ministry of Education's Recurrent Budget (Percentage Shares)

1989190 1990/01 1991192 1992/93 1993/94* 19941

Total Net Recurrent Expenditures 100 100 100 100 100 100 100

Primary 57.20 55.39 59.72 57.48 59.04 55.11 54.76Secondary 16.41 15.38 16.16 16.97 17.80 20.80 20.60

University 17.62 21.63 16.09 17.38 15.86 16.34 16.63

Other (including teacher educ) 8.77 7.60 8.02 8.17 7.30 7.74 8.02

Source: Constructed from Table 1, Part II, Annex 2.

* Provisional, ** Estimates, *** Based on estimated arrears of 36.5 million Kenya pounds.

28Part II, Annex 2

Table 3Kenya

Education Sector Adjustment Credit

Table 3: Composition of Recurrent Expenditure on Primary Education

~~~~~1992V |i,YwrS I Si, U994 mi ,. .tP .1IN CURRENT PRICES (millions of Kenya pounds)

otal Net RecurrentExpenditure on PrimaryEducation 274 316.2 363.3 413.5 529.8 675.3 745.3

eachers Remuneration 243.8 289.3 345.6 390.7 511.8 657.1 725.7Other-Boarding School Grants 3.1 3.2 2.7 3.3 3.1 1.8 1.8chool Equipment Scheme 1.1 1.1 1 7.1 5 6.5 6.8Of Which Textbooks 1 7 4.2 5.8chool Milk and Feeding

Program 25.9 22.7 13.9 12.5 10.1 9.9 11

IN CONSTANT PRICES (millions of 1982 Kenya pounds)

otal Net RecurrentExpenditure on PrimaryEducation 143.95 150.68 153.00 146.45 157.80 180.25

eachers Remuneration 128.08 137.86 145.55 138.37 152.43 175.39Other-Boarding School Grants 1.63 1.52 1.14 1.17 0.92 0.48School Equipment Scheme 0.58 0.52 0.42 2.51 1.49 1.73

Of Which Textbooks 0.00 0.00 0.42 2.48 1.25 1.55School Milk and Feeding 2.64Program 13.61 10.82 5.85 4.43 3.01

DGP Deflator (1982=100) 190.35 209.85 237.45 282.35 335.75 374.65**

PERCENT DISTRIBUTIONotal Net Recurrent

Expenditure on PrmaryEducation 100 100 100 100 100 100 100

eachers Remuneration 88.98 91.49 95.13 94.49 96.60 97.30 97.37Other-Boarding School Grants 1.13 1.01 0.74 0.80 0.59 0.27 0.24School Equipment Scheme 0.40 0.35 0.28 1.72 0.94 0.96 0.91

Of Which Textbooks 0.00 0.00 0.28 1.69 0.79 0.86School Milk and FeedingProgram 9.45 7.18 3.83 3.02 1.91 1.47 1.48

Source: Printed Appropriation Accounts (For 1989/90-1992/93); Expenditure returns as at June 30, 1994and 1995 (For 1993/94 and 1994/95); Printed Estimates (For 1995/96)

*Provisional."Estimates

29Part II, Annex 2

Table 4Kenya

Education Sector Adustment Credit

Table 4: Primary Education: Enrollment and Teachers, 1986-1994

*~~ Rat i L. .. __ Rat % 7 Not- i .^f (%)!|

1986 4843.40 142807 97537 (68.3) 45270 (31.7) 33.921987 5031.40 3.88 149151 4.44 104406 (70) 44745 (30) 33.731988 5123.60 1.83 155694 4.39 108363 (69.6) 47331 (30.4) 32.911989 5244.00 2.35 166175 6.73 116323 (70) 49852 (30) 31.561990 5392.30 2.83 172550 3.84 116972 (67.8) 55578 (32.2) 31.251991 5456.10 1.18 173090 0.31 129229 (74.7) 43861 (25.3) 31.521992 5530.20 1.36 176360 1.89 135406 (76.8) 40954 (23.2) 31.361993** 5428.60 -1.84 173177 -1.80 142047 (82) 31130 (18) 31.351994* 5556.80 2.36 178097 2.84 155591 (87.4) 22506 (12.6) 31.201995 _ 180989 1.62 158755 (87.7) 22234 (12.3)

Source: Ministry of Education- Provisional-- Low (96%) Response Rate from School CensusTeacher Numbers are as of March 31 of each year; For 1995, as of February 1995.

30Part II, Annex 2

Table 5Kenya

Education Sector Adjustment Credit

Table 5: Secondary Education: Enrollment and Teachers, 1986-1994

7j X i~Ri t% Ntimb WN% .- - .t-,i,'ineE T.

1986 458712 22296 13263 (59.5) 9033 (40.5) 20.571987 522261 13.85 24237 8.71 14935 (61.6) 9302 (38.4) 21.551988 540192 3.43 25891 6.82 16591 (64.1) 9300 (35.9) 20.861989 609150 12.77 28056 8.36 17139 (61.1) 10917 (38.9) 21.711990 618461 1.53 30481 8.64 19431 (63.7) 11050 (36.3) 20.291991 614161 -0.70 35097 15.14 24471 (69.7) 10626 (30.3) 17.501992 629062 2.43 36340 3.54 27219 (74.9) 9121 (25.1) 17.311993** 531342 -15.53 32540 -10.46 23776 (73.1) 8764 (26.9) 16.331994* 619839 16.66 38307 17.72 31593 (82.5) 6714 (17.5) 16.18

Source: Ministry of Education* Provisional

* Low (87%) Response Rate from School Census

31Part 11, Annex 2

Table 6Kenya

Education Sector Adjustment Credit

Table 6: Gross Enrollment Rates in Primary Schools, 1989 - 1994

Y Ir Fop,iEnllment n'00(.) 'apuhhtw sged 6-14 Yean -. GrCa. wllMr I vta

Boys Girl% Tol , Tou J Gir. Totault_______.... .-..... . ... . . ...... .........

1989 2,766.0 2,628.1 5,394.1 2,852.4 2,825.9 5,678.3 97.0% 93.0% 95.0%

1990 2,766.4 2,625.9 5,392.3 2,951.7 2,925.4 5,877.1 93.7% 89.8% 91.8%

1991 2,797.1 2,659.0 5,456.1 3.054.3 3,028.4 6,082.8 91.6% 87.8% 89.7%

1992 2,806.8 2,723.4 5,530.2 3,160.6 3,135.0 6,295.6 88.8% 86.90/% 87.8%

1993 2,761.1 2,667.5 5,428.6 3,270.6 3,245.4 6,516.0 84.4% 82.2% 83.3%

1994* 2,814.8 1,742.2 5,557.0 3,384.4 3,359.7 6,744.0 83.2% 81.6% 82.4%

Source: CBS; Economic Survey, Various Issues.Population Estimates are based on the 1989 census where the growth rate of boys is 3.42% and 3.46% for girls.

t Provisional

32Part II, Annex 2

Table 7Kenya

Education Sector Adjustment Credit

Table 7: Gross Enrollment Rates in Secondary Schools, 1989 - 1994

.............. ...,__. ---.-..... .. ......... .. .. . _ _...._..,--. ...... ..T.---' ' ~~-~ ~-~~~

Ymr Enrollmeut ('000) Popuntiun aged 15-IS Vesn '(100) | Gn Forollmuwt Rate

male Female Tnotl Male .FL-mal Tota i ale|

1989 361.7 247.4 609.2 985.7 996.2 1,982.0 36.7% 24.8% 30.7%

1990 353.7 264.8 618.5 1,019.0 1,028.3 2,047.3 34.7% 25.8% 30.2%

1991 345.8 268.4 614.2 1,053.4 1,061.5 2,114.8 32.8% 25.3% 29.0%

1992 353.4 275.7 629.1 1,088.9 1,095.6 2,184.6 32.5% 25.2% 28.8%

1993 295.2 236.1 531.3 1,125.7 1,130.9 2,256.6 26.2% 20.9% 23.5%

1994* 336.4 283.4 619.8 1,163.7 1,167.4 2,331.1 J 28.9% 24.3% 26.6%

Source: Ministry of Education, Statistics Section.Note: Enrolment data is from economic survey, Various issues.

Projected population is based on the 1989 census using annual growth rate of 3.32% for males and 3.17% for females.Only Form 1 - 4 are considered in the calculation of enrolment rates.

* Provisional

33

APPENDIX A

EDUCATION SECTOR ADJUSTMENT CREDIT (Credit 2295 - KE)IMPLEMENTATION COMPLETION REPORT (ICR) MISSION

AUGUST 1995DRAFT AIDE-MEMOIRE

1. A mission consisting of Ms. Reema Nayar and Mr. James Kamunge reviewed theprogress under the closed Education Sector Adjustment Credit (EdSAC) for the ImplementationCompletion Report (ICR). The Government provided the mission with its draft Borrower'sEvaluation report while the mission in turn provided the Government with its own draft ICR.The mission wishes to express its thanks to the Ministry of Education (MOE) for the excellentcooperation received.

2. The mission provided written comments on the draft Borrower's Evaluation Reportbased on the requirements of the Development Credit Agreement and the request by the Bank(in a letter from Mr. Maas, dated January 1995, and in meetings with Mr. Jones in February1995. The mission requests the Government to provide the Bank with a revised report and a 2-3page summary of its revised report no later than August 31 1995 (but preferably earlier) in orderto be included in the final ICR.

3. Program Objectives. The principal objective of this first adjustment operation in theeducation sector was to support the Kenyan Government in the implementation of its educationsector reform program which sought (a) to reduce the rate of growth of the education recurrentbudget ; (b) to expand access to education and increase retention at the primary and secondarylevels, especially for children from disadvantaged areas; (c) to enhance and improve the qualityand relevance of education at all levels; and (d) to strengthen sector management, planning andinformation systems. Specific actions supported by the credit included: limiting the growth ofthe primary and secondary teaching forces, limiting new admissions to the public universities,introducing a direct charge on all public university students and reforming the loan scheme, re-introducing the public financing of textbooks to primary schools, strengthening the Ministry ofEducation's Planning Unit, and strengthening the Commission for Higher Education to overseethe development and financing of public universities. Policy measures supported in the creditwere reflected in Kenya's fourth Policy Framework Paper (PFP) for 1991/92-1993/94 (andsubsequently updated in the PFP for 1994-1996) and certain policy measures also formed part ofthe IMF's ESAF program. Some higher education conditions were strengthened and extendedthrough the parallel UIP which was to support improvements in education at the publicuniversities.

4. Evaluation of program obiectives: While the objectives were clear and identified the keyissues facing the education sector at the time; specific policy measures for sustainableachievement of these objectives were inadequate.

5. Implementation Experience and Results. Due to an addition of IDA reflows to thesecond and third tranches, the size of the credit doubled and final disbursements totaled $203.4million. As part of an amendment signed in March 1994 adding Kenya's FY94 IDA reflow tothe third tranche, the closing date was extended from June 30, 1994 to March 10, 1995. Releaseof the second tranche was delayed by over a year, initially due to delay in sectoral reform (inparticular, the student loan scheme), and subsequently because an adequate macroeconomic

34

framework was not in place. The third tranche was also delayed primarily because of delay inimplementing higher education reform; it was released in December 1994 instead of September1993.

6. Overall, the objectives of the credit were partially achieved. Objective (a) above wasmost directly addressed by the credit. Achievement of stabilization of education's recurrentbudget was partial. This is because, although the relative "explosion" in the education recurrentbudget predicted in the President's Report did not occur, and the slower growth of teachers anduniversity enrollments undoubtedly contributed to this result, (i) actual budgetary achievementswere more modest relative to targets in the Letter of Sector Policy (LSP), particularly if theaccumulation of arrears beginning in 1992/93 by public educational institutions (paragraph 9) aretaken into account. If these bills had been paid in time, the share of MOE in the budget wouldhave been larger. (ii) increased cost-sharing at the university level, was not realized during thecredit period (paragraph 9), and (iii) sustaining an appropriate budget share will depend on theGovenment's ability to introduce deeper reforms in the areas of teacher recruitment and training(paragraph 7) and to successfully implement new financing mechanisms to ensure appropriatecost-sharing in university education (paragraph 10). Achievement of the strengthening of sectormanagement, planning and information systems has been partial; institutional strengthening atthe higher education level through the restructuring of CHE was most directly addressed by thiscredit (paragraph 8). Achievement of objective (b) was negligible; indeed primary andsecondary enrollment rates dropped during the credit period. Achievement of objective (c)cannot be determined as "quality" was never appropriately defined as an oultput nor was theimpact of interventions to improve it adequately evaluated (paragraph 7).

7. Most specific objectives, other than in the area of higher education reform, were met butseveral of these policy measures are inadequate for sustainable achievement of overallobjectives. In the case of higher education, additionally, there were significant delays inachieving specific objectives: some important measures in higher education financing reformwere announced as recently as a few weeks ago and implementation of these is only justbeginning. In the case of primary education, the credit did not support specific policies toaddress teacher supply decisions (such as the delinking of primary teacher training from publicsector employment and cost sharing in teacher education) nor a revisiting of staffing policies toexplore more cost-effective alternatives, but instead relied on ceilings on teacher numbers.Clearly sustainability will require the introduction of deeper reform. In the case of primarytextbooks, several schools in disadvantaged areas received textbooks; budgetary allocations tothe scheme were monitored. While this is likely to have improved quality and relieved poorparents, the cost-effectiveness of this intervention was not adequately evaluated and alternativemethods of textbook provision were not explored.

8. The streamlining of policy formulation and university planning, budgeting andfinancing, and investment and development planning began under the Policy and Planning TaskGroup (PPTG) and is continuing under a restructured CHE which took over these functions oneand a half years late on July 1, 1994. PPTG performance in the interim was weakened by theslow responsiveness from the public universities. The public universities fell into arrears duringthis period (paragraph 9) and the preparation of public universities' financial plans was alsodelayed significantly. A restructured CHE, has now begun to function as an effectiveintennediary with respect to public universities and in particular performed effectively in thecoordination of the university financing and development plans in 1994. Performance of CHEand the public universities will continued to be monitored under UIP. Effective performance of

35

CHE over the medium to long term will depend on the amendment of the Universities' Act toregularize its additional functions and to harmonize the acts relating to CHE and the publicuniversities (which has not yet been tabled in Parliament).

9. Finally, the most difficult reforms have been in the area of higher education financing,specifically increased cost recovery including the establishment of an effective loan scheme.Prior to the credit, there were no direct charges to students at public universities. Although therewas a Student's Loan Scheme (SLS), it functioned primarily as a grant scheme available to allstudents. All students attending public universities received the maximum amount of the loan.Recovery rates had been about 4% and the nominal real rate of interest had been 2% since theinception of the scheme in 1974. A direct charge of Ksh. 6000 was introduced under the credit.However, as a result of high inflation, the direct charge represented about 5% of the cost ofuniversity education by the end of the credit period. The objective of increasing the directcharge in line with inflation was dropped at the time of negotiations. The rigidity of charges tostudents in the face of rising prices partly contributed to the accumulation of arrears by publicuniversities beginning in 1992/93. Direct cost recovery thus actually declined during the creditperiod and in the absence of radically improved performance of the loan scheme (paragraph 11),the same is true of cost-recovery more broadly defined

10. According to the recently announced cost-sharing policies, "non-needy" students couldpay upto 42% of the direct costs of university education which includes the full cost of food andboarding as well as direct tuition charges. Other students will be eligible for means-tested loansof upto Ksh. 42000. All students will be required to pay a minimum direct charge of Ksh. 8000towards tuition with bursaries provided to those who cannot pay this sum. The across the boardgovernment grant is now Ksh. 70000 or 58% of total costs. The new policies are consistent withthe Government's Sessional Paper No. 6 of 1988 as well as its commitments in its PFP (1994-96)and in the context of third tranche release. Preparations for implementing the new studentfinancing package, which depends on successful implementation of means-testing, are only justbeginning and are being monitored in the context of UIP. Improvement in overall cost recoverywill also depend on improved performance of the loan scheme.

11. Progress on loan scheme reform has been minimal during the credit period. Recoveryrates remained low (approximately 4%) during the course of the credit, the nominal rate ofinterest remained 2% despite the LSP objective of gradually increasing it. Again a proposal toinclude increase rate increases as tranche release conditions was removed during negotiations.Reform of the loan scheme was never defined in terms of specific targets and clear steps werenever built in to the design. A review was initially due in draft form before negotiations buteventually only shared with IDA over a year later. As a result, agreement on an action plan onhigher education financing was not achieved until more than a year and a half into the credit.The Government did not meet its action plan targets during the credit period. Adequate attentionwas not paid to the fact that the existing institutions were too weak and lacked the incentives toachieve an instant turnaround in recovery. Alternatives to the existing loan scheme were notexplored; the huge public subsidies implicit in the scheme were not addressed so that the schemewas not restricted to those without means. Kenya has yet to establish a viable loan scheme, andtreat loans as loans and not grants by decisive and immediate action on default. TheGovernment should also explore ways of attracting commercial banks to assume some of thecommercial risk.

36

12. There have been some improvement in the collection rate in the last year although totalamounts due have been increasing. The Government has recently decided that, fordisbursements in academic year 1995/96 the interest rate will be increased to 4%, a modest stepin relation to the Government's objective of eventually achieving positive real interest rates onstudent loans. With the enactment of the Higher Education Loans Board Act on July 21, 1995,the functions formerly carried out by the SLS unit in the MOE are being transferred to the newLoans Board. The Act grants enhanced legal powers for loan recovery and assigns theresponsibility of determining the interest rate on student loans to the Board. The Loans Boardwill handle means-tested bursaries as well as means-tested loans and financial assistance will beextended to students in private tertiary institutions. Future progress in loan scheme reform willalso be monitored in the context of UIP.

13. Summary of Findings, Future Operations, and Key Lessons Learned Adequatepreparation and clear dialogue based on economic and sector work is crucial for successfuldesign and implementation, particulaly in the case of difficult reform measures. The policiessupported by the credit, in general, did not adequately address underlying incentives (such asindividuals'decisions to become teachers, or to get a public university education), nor explorecost-effective alternatives to centralized decision making and public provision, but concentratedmore on inputs than on outputs ( for example, trained teachers and textbooks instead of studentlearning). Adequate evaluations of the impact of interventions should be included. Aninvestment project which addresses future reform in the context of more direct support to theeducation sector and addresses some of the weaknesses above is more appropriate instrument forfuture lending. A future project should include more direct measures to increase participation inquality primary and secondary education, and could support the establishment of moresustainable financing mechanisms at all levels of education, including support for means testingmechanisms and the establishment of commercially based loan scheme in higher education.

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SEN7 BY:WORLD B.AŽ.X 4- 3-95; WORLD BAINX 38379-' 202 473 8299;X 5/25Appendix B

BORROWER CONTRIBUTION

THE EDUCATION SECTOR ADJUSTMENT CREDIT (CR.2295-KE)SUMMRY OF THEIMPLEMENTATION COMPLETION REPORT.

Preamble

The Education Sector Adjustment Credit (EdSAC) came at a time whcn the Government wasmalking great efforts to improve its microeconomic environment and was implementing a majorstabilization and adjustment program since 1986. The Education reform program was containedin Sessional Paper No.6 of 1988, and EdSAC ha supported Govcrnmcnt's efforts as stated inthe Sessional Paper to (a) reduce the rate of growth of the educational recurrent budget to asustainable level, (b) expand access to education and increase retention at the primary andsecondary level; (c) enhance and improve the quality and relevance of education; and (d)strengthen sector management, planning, budgeting and information systems.

Program Objectives

While the program objectives identified the key issues facing the education sector, someobjectives were quitc broad and are not easily measurable, e.g. improving the quality andrelevance of education. For purposes of assessment and evaluation, it would have beenappropriate to identify key indicators that would be useful to gauge the extent to which theseobjectives have been met.

Implementation Experience and Results

Containing the growth of the Education's Recurrent Budget

Efforts were made to contain the sector's recurrent budget, mainly by controlling teachernumbers at primary and secondary levels, and enrolments at university level. Implementationon the reform program on the Student Loin Scheme continued unabated. The Ministry continucsto take precautionary measures to contain the sector's budget, as is evident from the continuedlow intakes at teacher training colleges (e.g. only 6000 students were admitted for 1995/96primary teacher training, down from 8,000). Great rationality is being exercised in makdngdecisions, whereby the teachers are now trained according to the needs of specific districts.Institutions are being encouraged to look into ways of generating income, so that they do nothave to rely wholly on meagre allocations fom the Exchequer. The cost-sharing spirit has takleneffect and, though it has been difficult for poor households to share the costs, the important thingis that the concept has been accepted and this is evident from the efforts parents andcommunities are making towards meeting the cost of education at all levels.

While the real recurrent expenditure grrw during the credit period, this was at a lower rate thanwould have been the case if these measures were not taken. It should also be noted here that theimpact of any measures taken may not be seen or felt immediately, but as the Governmentcontinues to reinforce these measures such impacts will become more apparent.

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SENT BY:WORLD BA.NX 4- 9-95 WORLD BMNK 38379- 202 473 8299:# 6/25

:/6Expanding Access to Education

The move to contain the Education's budget while trying to expand accss to education has notreconciled well. While there has bccn a high social demand for education, other factors havehindered access. The cost of education has become a heavy burden on the households, majorityof whom have low income. There has been a notable decrease in participation rates at primaryand secondary levels during the credit period. Statistics show that these went down from 89.7%.in 1991 to 82.4% in 1994 at the pn mary level. At university level, delibceate meatures weretaken to limit intakes, n order to match these with the available facilities. Apart fromuruversities, the existing post-secondary institutions are not adequate to absorb those who cannotget access to university education. This leaves private institutions and overseas education forthose who can afford, while those who cannot afford have to look for altemative ways such asgetting into the world of work, especially in the informal sector.

The Government has intervened in the area of access, by way of introducing loans and bursariesto the needy students at secondary and tertiary levels of education. Before the credit period, theloans only existed at university level. This move, once properly established, will have greatimpact on access. Several studies are being undertaken to look further into this issue, includingthe ODA sponsored project on Strengthening of Primary Education, which is looking into causesof primary school wastage (drop-out and repetition) among others. These studies will providea good basis for operational plans of action tobe made in order to intervene in this area ofaccess.

Enhancing and Improving the Quality of Education

This is one objective which was 4uitc broad and noL casily measurable. For purposes of thereform program, quality and relevance issues werc mainly being tackled from the point of viewof revision of curriculum, in-servicing of teachers and provision of text books to primaryschools. One of the functions of the Kenya Institute of Fducation has been to review curriculumfor primary and secondary levels, and this has condnued during the credit period. A plan ofaction was worked out at the beginning of the credit period for revision of curriculum and in-servicing of teachers. However, the Institute was not able to go by the work plan and could notundertake some of the activities as planned, such as a crash-programme to in-service teacherson the revised curriculum, which was part of the reform program, due to financial constraints.The provision of text books was another positive move towards improving quality. An evaluationon the text-book project found that in terms of coverage, over 90 % of the target beneficiarieshad been reached, while in terms of impact, "the books have proved very useful td thebeneficiaries". The most apparent impact would be portraycd through cxamination performance,especially at national level.

Clearly, the area of quality requires further refinement in terms of understanding what factorsshould be taken into account, and what policy measures should be put in place for sustainableaclhievement. The first objective of containing the education budget has quality implications, andthcse should be looked into. Govemnment intervention in the provision of textbooks is very

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SENT BY: WORLD B.NX1( ; 4- 9-9;5 WORLD BANK 38379- 202 473 8299;x 7/25

useful, and greater support is required for greater coverage in terms of student population andsubject area.

Strengthening Sector Management, Planning, budgetlng and Infozmatlon systems

This was to be undertakcn by strengthening the Commission for Higher Education (CEE), andimproving infonnanon systems, policy analysis and planning in the Ministry of Education. Asfar as CUE is concemed, though the pace did not go as planned, thfer has been tremendousachievements over the credit period. The most important thing is that CHE is now recognizedand accepted as an intermediary with respect to public universiies. As evidence of itseffectiveness, CHE coordinated the preparation of universities' financial and development plansin 1994. The amendment of the Universities Act to regularze its additional functions and toharmonize the acts relating to CHLI and the public universities, will enhance CHE'seffectiveness.

Concerning the Ministry of Eduction information system, policy analysis and planning, thenotable progress during the credit period was the establishment of a data base in the Ministry'sPlanning and Development Division, through support from ODA. The database has so far onlytaken care of primary school statistics, and is currently extending to secondary school statistics.The initial task of having records of all schools is enormous, and it is hoped that once all recordsare entered with proper codes there will be some stability. However, the recent establishmentof new districts, and therefore new zones, has brought about new chalenges and there is needfor further support in terms of provision of more equipment and training of personned, in orderto achieve greater coverage, i.e. to capture data on pre-school and tertiary levels.

Borrower's Perfornance

Thc foregoing information would show that the Borrower made efforts, with great difficultiesin some cases, in attempting to meet the objectives of the program. The credit was not of directbenefit to the Ministry since the funds went to the Exchequer, and the Ministry played its rolein trying to meet the Bank's conditionalities so that the tranches could be released to theTreasury. Tlhe fact that the three traches have been released, though with delays, show that theBorrower fulfilled what was required to acceptable levels.

The Bank's Performance

In as far as supervision of the credit was concerned, the Bank's performance was satisfactbry.The Supervision Missions were regular and fruitful, and the Aide-Memoires were quite usefulin guiding progress. The Bank was clear and precise as to the requirements of the CreditCovcnants and where MOE/GOK could not comply for various reasons the Bank showedunderstanding and some flcxibility. Concerning the credit itself, and comparing it to previouscredits which came directly to the Ministry and were administered through the ProjectsImplementation Unit, EdSAC was of greater benefit to the Government of Kenya in general thanto the Ministry.

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APPENDIX C

Intem;ational Development AssociationFO R O FFICLAL. LSE ONLY

IDA/Sec.Y93-378

FROM: The President Dpce-ber 7, 1993

KEN'A - Education Sector Adiustment Credit (CR 2295-KE)sRelease of the Second Tranche including MDA Reflows

1. This memorandum summarizes the progress that Kenya has made underthe Education Sector Adjustment Credit (EDSAC) and evaluates compliance withthe agreed conditions for the release of the second tranche of the Credit (SDR62.62 million), as set out in paragraph 4(a) of Schedule I to the DevelopmentCredit Agreement (DCA). The Credit was approved by the Board on September5, 1991 and the Agreement became effective on September 27, 1991. The totalcredit amount was SDR 75.90 million, which was subsequently increased to SDR113.52 million, to take account of IDA Reflows (SDR 37.62 million) in FY93.

-.- _

L. BACKGROUND

2. EDSAC supports the Government of Kenya as it implements itsEducation Sector Adjustment Program, the first phase of reforms in the educationsector adopted as govemrnent policy in Sessional Paper No. 6 of 1988. TheSessional Paper seeks to achieve the following: (a) reduce the rate of growth ofthe education recurrent budget to a sustainable level, and a level commnensuratewith overall government expenditure targets; (b) expand access to education andincrease retention at the primary and secondary levels, especially for childrenfrom disadvantaged areas and, following a period of consolidation, a phased

*Questions relating to the education sector mnay be referred to Mr. Bruce Jones(ext. 32940). Questions relating to the macroecononic framework mnay bereferred to Mr. Colin Bruce (ext. 34160).

Distribution

Executive Directors and AlternatesOffice of the PresidentExecutive Vice Presidents, Bank, IFC and MIGAVice Presider.s. Bank. IFC and MIGADirectors ar.i Department Heads, Bank, IFC and MtIGA

41

expansion of tertiary education; (c) enhance and improve the quality andrelevance of education at all levels; and (d) strengthen sector management,planning, budgeting and information systems.

3. As set out in Schedule 1, paragraph 4 (a) to the DCA, second trancherelease shall occur once IDA is satisfied: (i) with the progress achieved incarrying out the Education Sector Adjustment Program; (ii) that themacroeconomic framework is consistent with the objectives of the Program; and(iii) that the specific actions described in Schedule 3 (A) to the DCA have beentaken. Tranche release had originally been scheduled for September 1992 but hasbeen held up until now, because of both the macroeconomic situation and delaysin meeting the sectoral conditions of release. Section I reviews themacroeconomic framework, describes the economic deterioration in the last twoyears which has contributed to the delay in tranche -lease, and outlines themeasures taken recqntly to restore macroeconomnic st.. lity. Section II brieflyreviews progress with the overall implementation or policy reforms in theeducation sector. Section III evaluates compliance with the agreed conditions forsecond tranche release of EDSAC.

H. MACROECONOMIC POLICY FRAMEWORK

4. Macroeconomic Concers Which Delayed Second Tranche Release.Kenya's macroeconomic policy performance was evaluated in September 1992for second tranche release of EDSAC, and found to be unsatisfactolry. The areasof primary concern were the monetary, financial and external sectors (and notfiscal policy, which had been the problem earlier). These concerns intensifiedlater. By the end of 1992, annual broad money growth reached 34 percent,compared to a target of 9 percent; money supply growth during the second halfof the year was almost 60 percent on an annualized basis. This expansion wasdriven largely by the access of a number of increasingly distressed banks tooverdraft and rediscount facilities of the Central Bank of Kenya (CBK) andreflected CBK's failure to enforce prudential regulations. As a result, inflation_rose from 19.6 p-rcent during 1991 and 27.3 percent during 1992, to anannualized rate of 42 percent in February 1993. Concurrently, real interest rates,which were already negative, deteriorated further. These developmentsconfirmed the Bank's earlier concerns about the deterioration of macroeconomicmanagemeDt which predated the September review. I/

The major concerns predating the tranche release review were deficiencies in fiscal policy.tnstead of failing close to the revised target of2.5 percentofGDP (including grants) in FY91(i.e.. end-June 1991), the budget deficit had risen sharply to 7.1 percent in FY91. Becauseof the deteriorauing macroeconomic policy performance (and. in the case of bilaterl donors,growing concerns ui-r governance issues), participants decided at the Consultative Group(CG) meeting in No% ember 1991 to postpone commitment of new quick-disbursing balanceof payments support and agreed that there should be periodic consultations to assess thesituation. A subscquent review mission by the OMF (in December 1991) found th3t keybenchmarks. particul4rly relating to fiscal policy, had been missed. As a result. the lMFESAF was suspended .nd replaced in April 1992 by a Fund-monitored program covering thelast eight months ov 1992. In September 1992 a review of macroeconomic performance bythe Bank. which coincided with a Fund mission to assess progress under the Fund-monitored

42

5. In September 1992, external sector policies were deficient in three majorrespects. First, the official exchange rate, which governed about 80 percent offoreign exchange transactions, was appreciating (e.g., in real effective terms by3 percent in July 1992 compared to July 1991). Second, the introduction inAugust 1992 of 100 percent retention of foreign exchange for exporters of non-traditional goods helped to improve the incentives in this segment of the exportmarket, but it discriminated against exports of services and traditional goods.Third, the spread between the official and the nascent inter-bank exchange ratesfrequently ranged between 35 and 50 percent, indicating fundamentaldisequilibrium in the foreign exchange market.

6. As a result of these deficiencies in the macroeconomic framework as wellas the Government's failure to meet the sector-specific conditions, IDA held backthe second tranches for the on-going EDSAC, Export Development Project (EDP- Cr. 2197-KE), and the Second Agricultural Sector Adjustment Operation(ASAO II - Cr. 2204-KE). Later, in October/November 1992, there was alsoa reversal on liberalization of maize movement, prompting IDA to cancel thesecond tranche of ASAO II'in December 1992.

7. Kenya's macroeconomic policy performance was reviewed again by ajoint IMFIIDA mission in February/March 1993 and was again found to beunsatisfactory. Following the September 1992 review, the Governnent hadimplemented a number of additional external sector policies as a step towardsmeeting the macroeconomic conditions for tranche release. The measuresincluded: (a) introduction of foreign exchange retention accountrcovering 50percent of traditional merchandise exports (October 1992), and 50 percent ofservices (February 1993); (b) expansion of the inter-bank foreign exchangemarket (February 1993); and (c) abolition of the parastatal monopoly in thecoffee auction and broadening of private sector participation in the export of tea(O:ctober 1992). However, expansionary monetary policies exacerbated inflationand created a widening spread between the market-determined inter-bankexchange rate and the official exchange rate. Furthermore, because of negativereal interest rates, excess liquidity in the banking system and the continuingimpasse between the Government and multilateral financial institutions,speculation against the Kenya shilling increased. Instead of taking measures totighten substantially its monetary stance, bring inflation under control, andachieve meaningful fiscal compression. the Government announced, on March22. 1993,-iEs intention to reverse previously adopted measures. Retentionaccounts were no longer allowed and all export earnings were to be remitted toCBK at the official rate. The Government also indicated that it would reimposeprice controls, although this did not occur. The Government soon recognized

program. 'ound thJ r6iscaI discipline had increased and that this had helped to reduce the fiscaldeficit for FY92 to .bouc 3.7 percent of GDP (including grants. commirinent basis). This wasclose to the urget of 3.5 percent of GDP (including grants) which months earlier had beenrevised upward from 2 percent of GDP (includine grants) due to a sizable SupplementaryBuder. e.xpenditure overruns in a number of the large ministries. the assumption ofsignificant amounts of parastaEl external debt service obligations. and continuing weaknessesin utx administrarion.

43

that while these actions might temporarily relieve the shortage of foreignexchange at the CBK. they would not redress the fundamental macroeconomicimbalances which were aggravating inflation, weakening the Kenya shilling andundermining confidence in Kenya's economic management.

8. Measures Taken During A2ril-May 1993 to Restore A SoundMacroeconomic Framework. When a small mission comprising Fund and Bankstaff visited Kenya during the first week of April at the invitation of theGovernment, the Kenyan authorities indicated that they wished to undertake allthe monetary and external policy measures proposed by the February/MarchIMF/IDA mission and reiterated in IDA's letters of March 1993. IDA's lettersalso included some of the critical steps to alleviate bank distress and enhanceprudential supervision as identified by an IDA financial sector review missionwhich visited Kenya in March 1993.. During April-May 1993, CBK adoptedmeasures aimed at tightening monetary and financial sector policies and therebycontrolling aggregate demand:

EFtit, open market operations were used aggressively to raise noninalinterest rates on treasury bills to a weighted average rate of 48.5 percentby April 20, 1993 comrpared to around 17 percent in February 1993 (theyear-over-year inflation rate in March 1993 was around 35 percent).Some of the treasury bills sold were derived from the conversion of asignificant portion of the Government's overdraft with the Central Bankto tradeable securities.

Second, overdrafts of commercial banks with the Central Bank, whichstood at K Sh 7.5 billion on March 31, 1993, were reduced to K Sh 1.3billion (April 20, 1993) in line with the interirn target for the netdomestic assets set by the IMF.

Third, the cash ratio for banks was raised from 6 to 8 percent, while thepenalties for noncompliance with this ratio were stiffened substantially.

Fourth, access to the rediscount window of the Central Bank becamelinited to the discount of Treasury Bills with less than 45 days tomaturity. No new commitments were made under the export pre-shipment rediscount facility (one of the causes of excess liquidity) whichwas closed at end-April 1993 when its remaining obligations matured.

Fifth, two banks with seriously impaired portfolios were placed understatutory management. Eight non-bank financial institutions (NBFls)wi:h similar problems were placed in the hands of liquidators. Thehareholders of two other delinquent banks were required to makelbs;antial equity ccntributions to meet the cash ratio, and statutorypital adequacy and liquidity requirements by an agreed deadline or lose!ir licenses.

44

9. The Government also took initial steps to strengthen and enforceprudential regulations in order to prevent a recurrence of the strucrural problenswhich led to monetary mismanagement.

Special audits were commissioned for selected financial institutions todetermine their financial condition and soundness, with particularemphasis on portfolio quality. The audits were scheduled for completionby end-June 1993. They were to forrn the basis for further remedialactions, following discussions with IDA.

In addition, most exemptions granted by the previous Minister ofFinance, under Section 53 of the Banking Act, from prudentialregulations were revoked. The institutions in receipt of these exemptionswere given approximately one month to comply with all regulations fromwhich they, were exempted. The Government also initiated theamnendment of Section 53 of the Act with a view to eliminating mostdiscretionary exemptions from prudential regulations, and agreed thatthese powers will not be exercised.

Licenses will not be issued for new banks or NBFIs until June 1994 atthe earliest, and then only after time-bound actions are adopted, inconsultation with IDA, for re-inforcing prudential and regulatoryrequirements.

10. On May 14, 1993, the Government devalued the Kenya shifllng by about7 percent to K Sh 64 per USS, bringing it within 10 percent of the market-deternined interbank rate which stood at about K Sh 70 per USS. Thisadjustment followed two earlier devaluations which had each brought the officialrate of the Kenya shilling closer to the interbank rate: a 25 percent devaluationon March 9, 1993 which moved the official rate to K Sh 45 per USS, andanother 23 percent devaluation on April 20, 1993 which had moved it to K Sh60 per USS. The May 14 devaluation was accompanied by the adoption ofsupporting monetary policies, the abolition of import licenses for all but a smallnegative list of conmnodities, and the reintroduction of 50 percent retention of allexport earnings (which must be used, however, or sold within 90 days). Theseactions were important steps in the renewed effort by the Government toliberalize the foreign exchange regime, strengthen external sector policies andenhance macroeconomic stability.

11. Separatelv, the Government stepped up its efforts in March 1993 toenhance fiscal performance, partly by freezing all unnecessary non-wageexpenditures until the end of the FY93. This approach, of course, did notachieve sustained fiscal compression in the medium-term. However. theGovernment in'ficaced its commitment to tackle the underlying structuralproblemns which drive its wage bill and reopened the dialogue with the Bank andthe Fund on the mdali6ies of implementation. Greater attention was also beingpaid to recovering uncollected taxes and debt service payments from parastatals.

45

12. On the basis of the actions set out in paras. 7-10 above, IDA releascd thesecond tranche of EDP on May 7. 1993.

13. At the time, the Governnent also indicated its willingness to takeadditional actions, in close consultation with IDA and the Fund, as the evolvingeconomic situation required. In May, the Government agreed on a formal IMF-monitored macroeconomic program for the remainder of 1993. The programsought to quickly stabilize the economy, achieve fiscal and monetarycompression, improve the financial performance of key strategic parastatals,eluniinate most of the remaining price controls, increase the role of markets indetermining maize prices and movement, and liberalize further the currentaccount of the balance of payments.

14. Policy Reversals in May/June 1993. and Subsequent Corrective Actions.Following release pf the second tranche of EDP, the subsequent abolition of

import licenses and the reintroduction of 50 percent foreign exchange retention,IDA was about to release the second tranche of EDSAC in early June 1993.However, it came to light that major irregularities in foreign exchange andinterbank transactions were undermining the macroeconomic program andweakening discipline in the financial sector. After these irregularities were-discussed with the Government in early August 1993, IDA communicated to theGovermment a list of corrective actions necessary for tranche release. These havenow been implemented as discussed in paras. 14-17.

15. Consistent with its cornmitment to take addidonal actions as the evolvingeconormic situation required and the recommendations of IDA, the Governnentimplemented additional measures intended to further tighten monetary andfinancial sector policies:

EsW, the cash ratio for banks was raised in two further steps to 12percent;

Second, the Clearing House arrangements, which allowed commercialbanks to run overdrafts with the Central Bank, were abolished. Aninstitution which is unable to cover its obligations at settlement now hasto borrow from other commercial banks (up to a maximum of K Sh 100million), and will be allowed back into the Clearing House only after theadvance has been cleared in full.

Third. a series of illegal transactions between the Central Bank and fourcommercial banks, which were confirmed by special investigations, werereversed. Appropriate interest costs and penalties were levied on thebanks involved. The licenses of three of the four banks implicated in thetransactions were revoked. Separately, the license of another bank,which failed to meet prudential regulations, was also revoked.

Fourth, the foreign assets position of CBK was audited and measureswere put in place to ensure more accurate accounting for foreign

46

exchange. CBK's senior management, including the Governor, werereplaced.

16. The Government has continued its attempts to strengthen and enforceprudential regulations in order to prevent a recurrence of the structural problemswhich led to monetary mismanagement.

At the insistence of the Central Bank, the shareholders of onecommercial bank made substantial equity contributions to meet the cashratio and statutory capital adequacy and liquidity requirements. TlheGovernment has announced its intention to float its shares in the bank inquestion by June 1994, after appropriate restructuring.

Another delinquent bank, which was under threat of losing its license,improved loan recoveries, received substantial equity injections from itsshareholders and took actions to improve loan securitization, thusbringing it into com. iance with the Banking Act and prudentialregulations. In addition, several directors of this institution wereremoved.

Special audits of selected financial institutions to determine their financialcondition and soundness, with particular emphasis on portfolio quality,were completed and made available to IDA. These audits are now underdiscussion with IDA and will form the basis for further remedial actions.

Section 53 of the Banking Act was amended to eliminate most of thediscretionary exemptions from prudential regulations and all exemptionsnot consistent with the amendment were revoked.

17. The tightening of monetary and financial sector policies helped to reversethe rapid depreciation of the Kenya shilling: the market-determined interbankexchange rate appreciated from around K Sh 82 per USS at end-June 1993 toabout K Sh 70 per USS in late Se.ptember 1993. This paved the way for theunification of the official and market exchange rates on October 17, 1993; theofficial rate is now set at the previous day's average market rate. Arrears onprivate trade credit were cleared while arrears on public and public guaranteeddebt began to decline. The tighter monetary stance also contributed to thereduction iF in'lation from around 100 percent (annualized rate) in the secondquarter of 1993 to 55 percent in the third quarter. With this reduction ininflation, nominal short-term interest rates on Treasury bills have begun todecline but thev remain positive in real terms.

18. On the fiscal front, the crucial actions for tranche release were thesubstantial upward adjustment of the consumer price of maize to reduce thebudgetary subsidy. and the issuance of circulars indicating that sanctions wouldbe imposed on accounfing officers who are responsible for questionableprocurement practices and unauthorized or extrabudgetary expenditures. Bothconditions were met in September 1993, Earlier, the Budget announced in June1993 featured significant expenditure compression. rationalization of the tariff

47

and VAT'structures, and funding for downsizing the civil service, initiallythrough voluntary early retirement. Budgetary projections that anticipatedcurbing the fiscal deficit to 4 percent of GDP (commitment basis, excludinggrants) have, however, been undermined by: (a) additional domestic interestpayments (equal to 2.7 percent of GDP) resulting from interest rates that havebeen kept at higher than projected levels for monetary policy purposes; (b) ahigher than budgeted maize subsidy; and (c) the fiscal costs of CBK's earlierfailure to enforce financial sector discipline. In September 1993, the Goverrunentreached agreement with the IMF on additional revenue and expenditure measuresto contain the deficit (excluding grants) to no more than 6.1 percent of GDP in1993/94, compared to 10.4 percent in 1992/93.

19. Other measures were taken inter alia to reduce the pressure on the fiscaldeficit immediately and in Mhe longer run. All restrictions were removed on theimportation of maize and on the domestic movement of imported maize, therebyreducing the subsidy required by the National Cereals and Produce Board. All

. _ , restrictions on the movement of domestically produced maize in loads of up to_ ,,*. >Ieighty-eight 90 kilograrn bags were also removed. A comprehensive civil service

reform program, involving the retrenchment of civil servants in lower grades andprovision of a safety net for these retrenched workers, was launched officially.The Government also replaced the top management of the Kenya Posts andTelecommunications Corporation (KPITC) which is perfor ing poorly and

' contributing to the 'iscal deficit, and announced its endorsement of the decision- - ito separate the KPTC's postal and telecommunications activities Ath a view to

-s privatizing eventually the latter.

20. These improvements in the policy environment facilitated the successfulnegotiation of a one-year ESAF arrangement with the IMF, which is cast in athree-year Policy Framework Paper (PFP) for 1994-96 agreed in October 1993.The CG of donors on Kenya also met on November 22 and 23, 1993 andindicated new commitments for 1994 totalling S850 million, of which S170million is in the form of quick-disbursing balance of payments support. Theseamounts are sufficient to fund the residual external financing gap for 1994 as

* envisioned under the ESAF arrangement. However, donors emphasized that thetranslation of these commitments into disbursements depended on the timely anddecisive implementation by the Government of the economic reforrn agenda

J presented in the PFP.

InI. PROGRESS WVITH THE EDUCATION SECTOR ADJUSTMENTPROGRAM

21. Containing the Growth of Education's Recurrent Budget. Theuncontrolled expansion of Govermment spending on education during the 1980swas one of the principal causes of Kenya's fiscal deficit and was due principallyto rapid increases in teacher numbers, especially at the primary level, and to theexplosive growth of the public universities. Both teacher numbers and thegrowth of university admissions have been stabilized under the program. costsharing has been introduced at the universities, and the share of education in thebudget is no longer increasing. The stabilization of education spending is

48

sustainable because it is based on dealing with the root causes of the previousuncontrolled expansion.

22. ExDanding Access to Education. While Kenya has a high overall primaryparticipation rate and it is government policy to achieve universal primaryeducation as soon as possible, primary participation rates are low and there is ahigh dropout rate in two parts of the country: the arid and semi-arid lands andthe peri-urban areas. The Government has increased allocations for providingtextbooks for children attending school in disadvantaged areas, as the cost oftheir provision by parents had been a bar to enrollment. It is also carrying outa study to understand more fully the causes and extent of non-enrollment, to befollowed by the design of appropriate measures to address this problem. At thetertiary level, expansion is now occurring in a controlled manner, withadmissions to public universities limited to a maximum growth rate of 3 percentper annum and wjth active measures to encourage the establishment andexpansion of private universities.

23. Enhancinz and Improving the Ouality of Education. The Governmenthas initiated a revision of the curricula for both primary and secondary schools.following an Evaluation Report on the 844 (primary-secondary-tertiary) systemintroduced in the mid-1980s. - The syllabuses have been revised so that thesubject content can be covered within the allotted time, overlapping primary andsecondary- content has been removed, duplication of content across differentsubjects has been minimized, and the content has been readjusted to the-conceptual level of students. Textbooks and other materials are now beingrevised accordingly and a program of inservice training for teachers has beendrawn up. In addition, as noted in paragraph 13, primary school textbooks arenow being made available to students in disadvantaged areas. Finally, a part ofeach university student's loan is now earmarked for textbooks, and cannot beconverted into cash.

24. Strengthening Sector Manaeement. Planning. Budgeting and InformationSystems. The Ministry of Education is proceeding with a plan of action to traineducational managers, administrators, supervisors and planners, and to providecomplementary equipment such as computers. The Ministry's data needs havebeen assessed for primary and secondarv education and are being reviewed forother education levels. These activities are being financed both under the IDAEducation VI Project (Cr. 1673-KE) and by the British Overseas DevelopmentAdministration. At the university level, arrangements are in place for theprogressive assumption by the Commission for Higher Education (CHE) of theresponsibility for the planning, programrnming, budgeting and financing of thepublic universities.

IV. RELEASE OF THE SECOND TRANCHE

25. The status of each specific action to be taken prior to second trancherelease, as set out in Schedule 3 (A) of the Development Credit Aereement, isnow reviewed in curn.

49

26. Satisfactory provision for the education sector in the 1992/93 BudgetEstimates of actual recurrent and development budeets, including specificbudgetary allocations for Drimary school textbooks. CHE. institutionalstrengtheninz in the Ministry of Education and the Universities InvestmentProiect (Cr. 2309-KE). This condition has been met. The budget, as amendedby the revised estimates, contains for the first time in many years provision forschool textbooks, and the expenditure has already been incurred; funding for thePolicy and Planning Task Group which is preparing for the full takeover by CHEof responsibility for the public universities; funds for the strengthening ofSchools Inspection (especially field services), the Kenya National ExamiinationsCouncil, and research into primary school wastage; and adequate counterpartfunds for the IDA-financed Universities Investment Project.

27. Satisfactory provisional actual recurrent and development budgetoutcomes for 1991/92. This condition has been met. The recurrent budgetoutcome indicated a stabilization in education's share. Development expenditurefor education, as for other sectors, was well below that budgeted, but the

-s priorities were maintained.

28. Satisfactory updated education sector investment plan. This conditionhas been met. A first ever public investment program (PIP) for the sector hasbeen drawn up. While there is still major scope for improvement, this in itselfis a major step forward, toward the prioritization of projects. The PIP identifiescore, high priority, medium priority and other projects.

29. New admissions to Primary Teacher Colleges in 1992 have not exceeded8,000 and include at least 3.000 experienced untrained teachers and no more than5.000 school leavers. This condition has been met. 8,000 were admitted to thecolleges, of whom 7,413 were untrained teachers and 587 were school leavers.

30. The number of teachers on the Teachers Service Commission (TSC)primary pavroll has not exceeded 175.000. of which no more than 36.000-areuntrained teachers. This condition has been substantively met. The numberof primary teachers in January 1993 was 175,470 (including 32,587 untrained),

j or slightly over 175,000. The target of 175,000 was determined during EDSACappraisal on the basis of an estimated annual attrition rate for primary teachers(2.5%>, which was higher than the actual rate has turned out to be (1.25%).Hence the slight excess over 175,000 by January 1993 reflects a reasonablehiring level combined with an unexpectedly low attrition rate.

31. The number of teachers on the TSC secondary pavroll has not exceeded33.000 and the number of non-teachine staff on the payroll remains at no morethan 4.600. This condition has been met. The number of secondary teacherson the payroll in Jrtn ry 1993 was 32,098. Non-teaching staff on the payroll,but still employed ir educational institutions, amounted to 4,486. In addition,about 600 TSC employees who are not working at educational institutions arebeine transferred into the civil service establishment.

50

32. Admission to Dublic universities for academic year 1992/93 has notexceeded 10.300 undereraduates. This condition has been met. Adrnissionswere 10,189.

33. 1mgiementation has commenced of a satisfactorv plan for restructurineCHE to enable it to handle effectively the planning, proerammin2. budgeting andfinancing of public universities. This condition has been met. A Policy andPlanning Task Group was established in 1990 and continues to prepare for theassumption of these tasks by CHE. It is working very effectively, but thetimetable for its original work prograrn has proved to be overambitious,particularly in view of the need to build consensus for its activities and becauseof the need for legislation to effect the legal harmonization of the universities andfor CHE to take over the new functions. While the formal takeover of thesefunctions by CHE will be delayed, however, there is an adequate plan underimplementation for :CHE to progressively take them over, even in advance oflegislation.

34. For academic year 1992/93 each new and returning student of publicuniversities has paid a minimum direct charge of K Sh 6.000: no more than 20percent of students of public universities have received financial support to assistin meeting this charee: and the student loan has been ca2ped at K Sh 21.500 foreach student. of which K Sh 3.500 has been allocated for books and no morethan K Sh 2.500 has been made available for personal expenses. This conditionhas been met. While there were delays in starting the academic yar until April1993, all the public universities have now opened. All students have paid thedirect charge of K Sh 6,000, bursaries equivalent to 20 percent of the number ofstudents times the direct charge have been made available to needy students, andthe loan has been capped in accordance with the condition. A small exceptionhas been made to enable slightly larger loans for students on courses that lastlonger than the usual nine month academic year.

35. The Borrower has completed a review of mechanisms to im)rove thestudent loan scheme and is implementing a Olan of action to improve the recovervrate of student loans. This condition has been met. The Government submittedto IDA on Mlay 12, 1993 a policy statement on Financing University Educationand Students Loans which is based upon four principles: the careful targeting ofboth bursaries and loans, on the basis of means testing; the progressiveeliminationiTof interest subsidies on student loans, to make the interest ratespositive in real terms; a system of university charges that clearly separates thecosts of tuition from those of accommodation and food, and moves toward fullcost recovery for the latter; and the establishment of a small body, independentof the Ministry of Education, with responsibility for the oversight of loandisbursement a4n rei:very, which will be contracted out to commercial banks.The policy v :a:.nc is accompanied by a multivear action plan for itsimplementaiton. htih has already begun.

27. The Borro'.ier has submitted a report on the im2act of the direct chargeon the enrollmrTnt nmn the uriversities of economically disadvantaoed sroups andWome n. This condition has been met. -the Government submitted a report to

51

IDA on May 31, 1993, based on preliminary data. It shows that women arehaving proportionately less financial difficulty than men in meeting the charges.Analysis continues on the impact on the economically disadvantaged. Thedelayed opening of the universities until April 1993 means also that full data areonly just becoming available on why some students accepted places at universitiesbut did not in fact register. Reasons could include financial difficulty buthistorically have tended mainly to reflect a decision to attend university outsideKenya or not to attend university at all. A fuller report will be provided to IDAprior to third tranche release.

V. CONCLUSION

28. The Government has fulfilled the conditions for the release of the secondtranche of the Education Sector Adjustment Credit. The macroeconomicframework is consistent with the objectives and policies designed to achievestructural adjustment of the borrower's education sector and adequate progresshas been made on the sector adjustment program. In addition, the specific 4conditions for second tranche release relating to the education sector have beenmet as detailed above. Consequently, the Government of Kenya has beenadvised of the availability of the second tranche of SDR 62.62 million from theCredit.

Lewis T. Preston

52

International Development AssociationFOR OFFICIAL USE ONLY

IDA/SecM94-3 73

FROM: The President December 13, 1994

KENYA - Education Sector Adiustmrent Credit tCr. 2295-KE)Release of the Third Tranche Includine an IDA Reflow ̂

1. Background

1. The Education Sector Adjustment Credit (EdSAC), originally amounting to SDR 75.9million was approved by the Board in Septenber 1991, following which the first tranche of SDR25.9 million was released. As set out in the President's Report, it was originally expected that thesecond tranche would be released following a supervision mission in Septenber 1992, and that thethird tranche would be released following a supervision nission in Septernber 1993.

2. In the actual event, release of the second tranche was delayed, initially because of delays infulfilling of some of the conditions in the education sector, and subsequently because an adequatemacroeconomic program was not in place. The Government put an adequate macroecononicprogram in place toward the end of 1993, and the second tranche of SDR 62.6 million (includingan IDA Reflow of SDR 37.6 million) was therefore released in December 1993.

3. T-he original Closing Date was June 30, 1994. However, as part of an Amendmnent signedon March 10, 1994, adding Kenya's FY94 IDA Reflow to the third tranche, the Closing Date wasextended to March 10, 1995. The Government has recently met all remaining third trancheconditions, and this Memorandum therefore sets out the justification for release of the third andfinal tranche of SDR 55.3 million, including an IDA Reflow of SDR 30.3 million. According toSchedule 1, paragraph 4(b) of the Credit Agreement, the third tranche is available only after theBank is satisfied: (i) with the progress in carrying out the Programn of sector adjustment describedin the Letter of Education Sector Policy (LSP); (ii) with the rnacroeconomic franework; and (iii)that the specific actions described in Schedule 3(B) have been taken. These are taken up below,with the macroeconomic framework discussed first.

*Questions relating to the education sector mnay be referred to Mr. Bruce N. Jones (X 32940).Questions relating to the macroeconomic framework may be referred to Mr. Anand Rajaram(X 33754) or Mr. Robert Blake (X 34169).

Distribution:

Executive Directors and AlternatesOffice of the PresidentSenior Management, Bank, IFC and MICA

53

II. The Macroeconomic Framework

4. As Executive Directors were previously informed,I an adequate macroeconomicframework was not in place in Kenya during 1992 and the first part of 1993. In particular, thefiscal deficit was excessive at 10.4% of GDP in fiscal year 1992193; the growth of the moneysupply, partly reflecting Central Bank advances to distressed banks which had not observedprudential regulations, was excessive at 35% in the twelve months ending June 1993; inflationsurged, peaking at 54%, and yielding negative real interest rates; and real GDP was stagnant.

5. Toward the end of 1993, the Government put into place a program, described in the PolicyFramework Paper (PFP) for 1994-96 and in a one-year Enhanced Structural Adjustment Facility(ESAF) arrangement with the IMF, aimed at achieving renewed growth, through macroeconomicstablization and accelerated structural reforn. Progress in implementing this program has recentlybeen reviewed by the Bank and Fund staff. The Government budget deficit, treating grants as adeficit-financing item, was reduced to 7.4% of GDP in 1993/94 (from 10.4% in 1992193), throughrevenue-raising measures and restraint on non-wage expenditures, and is targetted at 2.1% of GDPfor 1994/95. Steps were taken to recover irregular Central Bank credits to certain conumercialbanks, with outstanding credits reduced by about half. The growth of the money supplydecelerated to 14% for the twelve months ending in June 1994. Inflation (measured year over year)declined to 12% by October 1994, resulting in restoration of positive real interest rates. Over thepast six months, the consumer price index has actually declined.

6. Economnic deregulation was achieved in several areas, with almost all exchange controlsremoved, export taxes and export licenses abolished, and all remaining domestic price controls(including on maize and petroleum products) removed. On the other hand, public enterprisereform - amending the State Corporations Act, preparing restructuring plans and performancecontracts for strategic parastatals, and divestiture of non-strategic parastatals - has beenproceeding more slowly than expected.

7. As part of the midterm review of the ESAF, the Government has submitted to the IMF amemorandum on the economic and financial policies for 1994/95. These policies constitute asound macroeconomic framework. On the basis of the midtermn review, the 1MF ExecutiveDirectors, while expressing disappointment with the slow progress on public enterprise reform,approved release of the second and final tranche of the ESAF arrangement on November 21, 1994.

Irn. Progress in Carrying Out the Overall Sector Adjustment Program

8. The objectives of the education sector adjustment program have been to: (a) reduce the rateof growth of the education recurrent budget to a sustainable level, commensurate with theGovernment's overall expenditure targets; (b) expand access to education and increase retention atthe primarv and sccondary levels; (c) enhance and improve the quality and relevance of educationat all levels; and (d) strengthen sector management. planning, budgeting, and information svstems.The most important measures in the program have been in the university education and primarveducation subsectors. %%iEh secondarv education and sector management receiving relatively lessemphasis. Progress in thesc areas is discussed below.

I Memorandum to thc Board on Release of the EdSAC Second Tranche (December 1993). also. PolicvFrame%%ork Paper for 1994-96 (November 1993).

54

9. University Education. During the 1980s, public universitv education expanded rapidly inKcnya, with the number of public university institutions increasing from one to six, and enrollmentincrcasing from 10,000 to 42,000. There were no significant direct charges to students at publicuniversities, and the share of the Ministry of Education budget devoted to the public universitiesincreased, reaching 20%. "Deferred cost recovery" took the form of disbursement of Student LoanScheme (SLS) funds, which in principle were expected eventually to be repaid, to studerts and touniversities on students' behalf for food and accommodation. However, the SLS interest rate wasonlv 2%, yielding substantially negative real interest rates, and loan recovery was so poor that theSchemne was grant-like in practice. It was recognized that, with the growth in the number of publicuniversities, there was a need to strengthen the Comnmission for Higher Education (CHE) to enableit to function as an effective interrnediary between the Governnent and the public universities.

10. In response to these issues, the agreed adjustment program has included the, followingconditions relating to higher education: (a) caps on undergraduate admissions; (b) introduction in1991 of a "direct charge" of KSh 6000; (c) a cap on the annual SLS disbursernent; (d) effectiveperformance by CHE; (e) preparation of a public university financing plan, acceptable to IDA; and(f) improvement of loan recover' under the SLS. Among these conditions, (a) through (c) haveapplied to all three tranches, while (d) through (f) are conditions for third tranche release. Inaddition to EdSAC, IDA has also supported improvement of education at the public universitiesthrough a parallel Universities Investment Project (UEP), which finances equipment and librarybooks, and institutional development.

1 1. Conditions (a) through (c) have been observed throughout the EdSAC period. However,as a result of the failure to adjust prices charged to students in the face Qf high inflation (theconsumer price index doubled during the EdSAC period), and reduction:im the real value of CentralGovernment recurrent allocations to the universities, university operating budgets wentsubstantially into deficit. Additionally, building projects were initiated with no assurance thatfunds would be available to complete them. (As described in the PFP and ESAF documents, lackof fiscal discipline has been a widespread problem in Kenya, found in other sectors as well.) ByMarch 1994, university arrears reached 68 million Kenya pounds, equivalent to about 7 months' ofthe universities' Annual Estimates.

12. During the past year, IDA has been emphasizing strengthening and reform of universityfinances in its dialogue with the Government, and the Ministry of Education has also becomeincreasingly insistent that the public universities address their financial problems. Responsivenessof the universities initially was uneven, but more recently all of the public universities have realizedthat they must become less dependent on the Central Government budget, and must operate in amore business-like manner. The Government has begun to explain to the public that a greatershare of the annual unit cost of educating a student at a public university (KSh I 10,000-120,000,including food and accommodation) will need to be met by students and parents. Taking effectNith the next academic year, which approximately coincides with the Government's July 1995-June1996 financial ycar. students * ill be charged full cost for food and accommodation. Additionally,tuition fees kill bc increased substantially from the current level of KSh 6000. It has beenrecog ized that thcrc xxll need to be an expansion of financial assistance to students. includingbursaries for poor srudcnts as well as loans. These decisions are reflected in the public universityfinancing plans submirtcd to IDA in November 1994. The Governnent has also decided thatfinancial assistuncc %%ill be extended to students at Kenya's private universities.

55

13 The Commission for Higher Education (CHrE) has begun to function as an effectiveintermediary with respect to the public universities (para. 20 below). Additionally, legislation torevise the acts relatingtio CHE and the public universities, with a view to eliminatinginconsistencies arnong them, will be presented to Parliament no later than June 1995. (Enactnentof such legislation is not required as part of the EdSAC agreement, but is important for ensuringthat CHE will be able to exercise its intended functions effectively over the long term.)

14. Significant efforts to strengthen SLS loan recovery got under way only in mid-1993, andresults thus far have been modest (paras. 22-25 below). If significant efforts had gotten under wayearlier, more might have been accomplished by this point in time. Although, in its Letter ofEducation Sector Policy (LSP), the Government had indicated that it would change the SLSinterest rate from time to time in order to make the scheme more self-sustaining, the SLS interestrate actually has remained fixed at only 2%, through 1994. The Government will increase the SLSinterest rate, and introduce means-testing, for the 1995/96 academic year.

15. Primary Education. The objectives have been to expand access and improve quality,within the Government's fiscal constraints. The agreed adjustment program includes measures tocontrol the size of the primary teaching force, and initiation of Government provision of textbooks 4in core subjects in poor districts. The LSP mentions a target of allocating at least 3% of theprimary education recurrent budget to non-wage instructional items (previously considered to besolely a parental responsibility) by the end of the Credit period, to be achieved by allowing thestudent/teacher ratio to increase from 31:1 to 34:1. The Government also committed itself toundertake a study on primary school dropouts, to be followed by preparation and implementationof an iction plan to reduce dropout.

16. The Government, by controlling entry into the Primary Teachers Training Colleges (aftersome slippages in 1991), has controlled the size of the primary teaching force broadly as intended,with the share of untrained teachers reduced from 30% in 1990 to 13% in 1994. The Governmentinitiated a primary textbook financing scheme for arid and semi-arid areas (para. 31 below), forwhich it allocated 4 million Kenya pounds in 1993/94 and 6 million Kenya pounds in 1994/95.However, in th: 1994/95 budget the share of the primary education recurrent budget devoted tonon-wage instructional items is only 0.9%, well below the 3;o target in the LSP. The pupiVteacherratio has remained approximately constant, instead of rising as intended. A study on the extent andcauses of non-enrollment and droput has been completed, although potential solutions are listed inthis research report, an action plan has not yet been prepared. Whereas the EdSAC objective wasto expand access to primary education, according to MoE data the Gross Earollment Ratio hasdecreased froTh 89% in 1990 to 84% in 1994. Real per capita incomes have Mllen in Kenya over'this period of time, and some parts of the country have been affected by drought.

17. Secondary Education. The agreed adjustnent program has included limits on thesecondary teacher pavroll, which have been observed. Additionally, the Government initiatedbursaries for ncedv students in secondary schools; with I 5 million Kenya pounds provided for thispurpose in 1993i94

18. Sector N1 ana-ement. As set out in the LSP, this would include strengthening CHE, andimproving information s%stems, policv analysis, and planning in the the Mlinistry of Education. Asdescnbed elsew%herc in this Mlemorandum (para. 13 above and para. 20 below), there has beengood progrcss %%ith rcspc.t to CHE. UK ODA has assisted Planning Division %%lth computers, andtwo additional economists have been recruited for the Division. A Nfanagement InforrmationSystems stud! for thc Nlinistry has been prepared. and is being reueviecd

56

IV. Actions Listed in Schedule 3(B)

Conditions Relating Specifically to Higher Education

19. "Admissions to public universities for academic year 1993/94 have not exceeded10,600 new undergraduates." The actual number is 8459. This condition is therefore fulfilled.

20. "CHE is effectively overseeing the planning, programming, budgeting, and financingof public universities, and is handling grants from the public sector to universities as well asdonor assistance." CHE has performed effectively in coordinating the preparation of the publicuniversity financing plans. With effect from July 1, 1994, the Government appointed the Secretaryof CHE as Officer Accounting for grants allocated to the public uiniversities. At the same time, inthe 1994/95 Recurrent Estimates, the Government has shifted from the previous arrangement of anitemized Government budget allocation for each of the public universities, to a lump-sum grant foreach of the public universities. Budget implementation under the new arrangements has workedsmoothly. This condition is therefore fulfilled.

21. "A financing and investment plan for the public universities, acceptable to theAssociation, has been prepared." A three-year financial plan (1994/95-1996/97) for each publicuniversity, and a consolidated financial plan for the public university subsector as a whole, weresubnitted to IDA in November 1994. The plans provide for increased cost-sharing by bene-ficiaries, promotion of income-generating units, rationalization of academic programs, andretrenchment of excess staff. These measures are projected to result in balanced operating budgetsbeginning in 1995/96, and retirement of indebtedness by the end of the three-year period. Theplans are therefore acceptable. In the context of the UTP, IDA will monitor the progress beingmade by the public universities in implementing their financial plans.

22. "(i) For academic year 1993/94 each new and returning student of public universitieshas paid a minimum direct charge of KSh 6000, (ii) no more than 20% of students havereceived financial support to assist in meeting this charge, and (iii) the student loan has beencapped at KSh 21,500 for each student." This condition is substantively fulfilled. At theUniversity of Nairobi, the collection performance on the direct charge is in the range of 85-90%.Students who are in arrears on the direct charge are ineligible to receive diplomas. Futurereporting to IDA on university finances, in the context of UiP, will include reporting on thecollection performance on the direct charge. With regard to financial support to students, as haspreviously been agreed uith IDA, slightly more than 20% of students receive bursaries, amountingin value to na more than 20% of the total direct charges due, through granting of partial bursaries,The student loan cap is being observed.

23. "The Borrower has carried out an evaluation of the measures to improve the rate ofstudent loan recover and has submitted to the Association for review proposals for furtherimproving student loan recovery." A Report evaluating measures implemented to date, andsetting out furth4r .. rnn d measures, was submitted in November 1994, and this condition istherefore mct. feiI.> rg are key points from the report. Since its inception. the SLS hasdisbursed loans to acout 97,000 student debtors. In March 1994. the SLS Ulnit commencedcompuccnzacrn Ot L; nominal roll. i.e., dcbtors names and relatcd personal and academicinformation. nc,.; :nuding about 9!.000 debtors. and a start has been made on computenzingdebtors accounts Ledgcr books have been opened for 33.560 graduates %%ith mature loans whoha.c been idcnzi:hcd or traced Loans have been paid off in full by '32 debtors. Among Lheromaining group. 2'.001 arc ernploved in uh^ public sector. %%iLh 10.456 tn tC pn%ane sectcr

57

Repayment performance arnong public sector employees is: repaying on schedule, 2%1 in arrears(partial default), 20%; pure default, 58%. Among private sector employees, comparable data are:on schedule, 1.7%; partial default, 1.3%; pure default, 97%. Among the total portfolio, 15% arerepaying on schedule, with 14% in partial default, and 70% in pure default.2

24. Repayments during 1993/94 were KSh 30 million, or about 4.4% of the total amount ofKSh 677 million due, including arrears. (Tere have been no write-offs of bad debts thus far.)Collections in the first quarter of 1994/95 were KSh 11 nmillion, indicating a slight improvement inthe collection rate.

25. According to the Evaluation Report, loan recovery has been relying on employers' goodwillto implement payroll check-off. The Scheme has lacked rules conceniing deceased debtors,university dropouts, unemployed debtors with no assets, self-employed debtors, and debtorsresiding outside Kenya. Following a letter from the Head of the Public Service, 629 additionaldebtors employed in the public sector have boee identified for billing.

26. For the future, the following measures are planned: (a) completion of computerization ofdebtors' accounts, and issuance of computer-generated bills; (b) issuance of a PersonalIdentification Number to incoming students; (c) means-testing rather than automaticity in grantingof loans; (d) identification of graduates in publiec sector employment with the assistance ofcomputers and personnel departnents; (e) legislation to exterd check-off to the private sector.

Other Schedule 3(B) Conditidns

27. "The Borrower has: (a) made provision for the education sector in its 1993/94 BudgetEstimates, including specific budgetary allocations for primary school textbooks, CHE,institutional strengthening in the Ministry of Education, and the Universities InvestmentProject, at levels acceptable to the Association; (b) furnished evidence that provisional actualrecurrent and development budget outcomes for 1992193, for the education sector, were atlevels satisfactory to the Association; and (c) updated its sector investment plan, satisfactoryto the Association." The 1993/94 Budget Estimates for the education sector were acceptable toIDA. Provisional accounts for 1992/93 have boen provided, indicating that the 1992193 budgetestimates, previously found to be acceptable, were implemented broadly as planned. MoE hasprovided a draft Public Investment Program for the education sector for 1995/96 - 1997/98, whichis satisfactory. This condition is therefore fulfiled.

28. "New admissions to Primary Teacher Colleges in 1993 have not exceeded 8000 andinclude at least 3000 experienced untrained teachers and no more than 5000 school leavers."The intake consisted of 8000, of whom 7000 were experienced untrained teachers (UTs), and only1000 were secondalr school leavers. This condition has been fulfilled.

In the Sermi-Annual Progress Report of August 1994, the Mlinisty of Education rcportcd that. of Lhctotal student debtors numbenng about 97,000. about 51.000 %%ere still in universiry or %%ere in thc gracepcriod. and that about 46.000 debtors should be repaNing. The percentages reported in para 24 arc bascdon thc 33.560 for hom ledgcr books have be-n opened. and thereforc understac thc rate of dcfault

58

29. "The number of teachers on the TSC Primary payroll has not exceeded 175,000 ofwhich no more than 33,500 are untrained teschers." The ceiling of 175,000, which was also asecond tranche condition, has been slightly exceeded for most months during the past two years.As was explained in the Memorandum to the Board on release of the second tranche, attrition hasbeen lower than projected at appraisal in formulating this ceiling. In addition, there were excessPrimary Teacher Training College (PTTC) admissions (and an inappropriate mix of secondaryschool leavers and UTs) in 1991. The Ministry of Education has ensured that this problem did notrecur in the PTTC adrmissions for 1992, 1993, and 1994. The Memorandum to the Board on thesecond tranche reported a primary teacher payroll of 175,470, and found the second tranchecondition to be "substantively met."

30. For September 1994, the primary teacher payroll was 175,625. In October 1994, theprimary teacher payroll increased to 180,674, reflecting this year's PTTC graduates reporting forduty, net of untrained teachers leaving the teaching payroll to ester PTTCs. The October payrollincluded 25,576 untrained teachers. The performance in reducing the percentage of untrainedteachers has therefore gone beyond the expectations at appraisal. It was never foreseen that thesize of the teachers' payroll would remain frozen for a long period of time. Due to unforeseencircunstances the EdSAC agreement has remained in effect longer than originally expected.Taking all factors into account, compliance with the condition relating to the primary teacher'spayroll is substantively met.

31. "The Borrower has carried out an evaluation of the primary school textbooksrinancing scheme." An evaluation report was submitted to IDA in Novernber 1994, and thiscondition has therefore been met. The report meets a majority of the requirrements set out in theterms of reference which had been provided earlier, but falls short in some respects. The sample ofschools in the evaluation was very small, and does not appear to be very representive of the entirepopulation of schools. The methodology was limited given the short time frame for the evaluation,The report did not recommend the most cost-effective form of future assistance from the GoK, oneof the items in the ToR. Within these limitations, the report revealed some problems and delays inbook distribution, and shortfalls in the desired textbook/student ratio. Where textbooks werereceived and used, respondents reported that they had a positive impact on teaching/learning.

32. "The number of teachers on the TSC secondary payroll has not exceeded 34,000 andthe non-teaching staff remains at no more than 4600." For July 1994, the number of secondaryteachers on the TSC payroll was 32,954. There were 4486 non-teaching staff on the payroll. Thiscondition is therefore fulfilled.

V. Conclusion

33. The agrced adjustnent program has included important reforms in higher education. Aftera lag, the agrced program in this area has been implemented. The introduction of cost recoverv,introduction of unp. ersit% financial planning, and strengthening of the role of CHE are importantaccomplishments SLS loan recoverv is an area where results have been modest thus far. IDA u%illcontinue to monicor improvements in the higher education subsector in the context of the ongoingUlniversities In srsum.nt Project.

59

34. In prniary education, progress has been mnade by reducing by rnore than half (from 30% to13%) the percentage of untrained teachers in the teaching force, and the availabilitv of textbooks inschools in poor districts has increased. However, during this period of econorric hardship inKenya, the gross primary enrollment ratio has declined. At the secondary level, an importantinitiative (not planned under EdSAC) to provide bursaries to needy students has becn introduced.

35. EdSAC has facilitated a substantial diaJogue between the Govcrnment and IDA oneducation policy issues, and considerable progress has been made in improving the policyframework for the education sector. Discussions with the Government on a PHRD Grant, to befunded by the Government of Japan, to prepare a new lending operation in the education sector, areat an advanced stage. This operation, cntitled Student Financing, will support further improve-ments in the policy framework for the educaiion sector.

36. Thc Governnent of Kenya has met the specific conditions set out in Schedule 3(B) forrelease of the third tranche. In addition, progress in inplanenting the overall program described inthe Lcrter of Education Sector Policy is satisf;&ctory, and a satisfactory macroeconomic frameworkis in place. Consequently, the Governmnent of Kenya has becn advised of the availability of thethird and final tranche.

Lewis T. Preston

-S.. ~ ~ ~ ~ ~ ~ ~~*.

60

APPENDIX D FA5 2 PHUII-,O~ WORLD B.ASK (F.01FX24 1052P 0

MINISTRY OFLEDUCAflON

Tde.-mis 'EflUCATION". NMzoxi .JOGO HOUSETdepUc: Naihobl 311 1I I{.AMB2E AVENUE

V-ts,= mpo" pku- qWA. P.O. Box 30040adIl.. N1.0/66. .ArROBL

ad dam .27th June 95...

t.r. J.M. RamungcE&.acation Consultant

Tne wcr.d BankUpper Hill

Dearr

COST-_qABTNG IMTA~PlCTQ M KENIYA

r discussed the above mentionei subject with you recently and Ieubsequently considered it appropriate to confirm the linistry'sposition in writing.

As you well know, the GovernmOnt providea grants to the TeachersColleges to cover recurrent expenseo. Personal emolumenta of thetutors are excluded ea they sre covered in the T.S.C payroll;however the non-teaching ataff are paid from the grants.

The cost-sharing policy was effected in colleges when fees subsidywas introduced in 1993. A ma.xAum of Kshs.15,200/- is-payable byeach student for a two-year courae to subsidize. expenses in theareas of teaching pra_...ce, boarding, teaching equipment, repair.maintena.nce and imprcvem.ent, electricity, water and conservancy,and loca; cransport and :raveliing. Studenta also pay for ur.fcrmand FNEC exanr.ation fees.

Government grants have not kep4 pace with the escalating recurrentcosts in recent yeuzH and consequently, the culi.ges have beenadvised to initiate varicua income-generating activitias tosupplement the granzs. These activities include farmlng ventureawhere land is ave.'la-:e. charging house rent to staff. and hire ofcollege buses and halls, etc.'

In apite of these financial arrangementa, many of the collegea haveaccumulated cebss. A.rTtr considerable consuitaricr.s, rhe soluti'on

ilhas been decermi.ed to be the lintroduction of direct fees payableL te t hC -'ia'-ie2) whlcn would cover fullI ccst of

jsboar- ins aa fccd._ h nas been recor-mended to the Gcvernrment.

rS(TUE}E) I 5 WORLD BA.\ (F.Oj 61 FAX:2S4 272652 P.004

STUDENTS LOAN BREAKDOWN.

CURRENT NEW

TUITION{ 5,0oo/- 8,00co0/

CATERING 10, 760/- * 18;,000/=

ACCOMMODATION 2,240/- 7,000/-

BOOK ALLOWANCE 3,5001-' 9,000/e n

TOTAL 21,500/- 42,000/-

-Z.,-r A.L

MAP SECTION

IBRD 26150

SUDAN

KENYA

To Add,. Ablb4

RIFT\ /// VALLY \EASTERN

< VALLE NORT H

z I N

<

D~~~~~~~~~~~~~~~~~~~~~~

EASTERN >o KN2KA ~~KAAMEOA\

KISU EMS

To Tairca gEA>.

V? ', .uVA EY C A S T

O MAJOR TOWNS

i) NATIONAL CAPITAL ToAru..h\

MAIN ROADS LI n/A, aNDI

4 NATIONAL AIRPORTS ol

INTERNATIONAL AIRPORTS T. A U ETN

DISTRICT BOUNDARIES LoEA s /

INTERNATIONAL BOUNDARIES M MaA A v-

| | __ | 8 t~~~~~~~~~~~~~~WANDA

The boundarles, colors, denominations ond any other informotion T. TANZANIAsho-n on this mop do not imply, on the port of The World Bank Iar E. Sola-Group, soy udgmest on the legal 5tatus of any territory, or anyendorsement or acceptonce of such boundories A 1A99

AUGUST 1994

L M A (GT I N & T

Report No: 150 5 OTrype: ICR