Reaching the marginalized: EFA global monitoring report, 2010; 2010

010CHAPTER 12Education for All Global Monitoring ReportUnlike richcountries,most developingcountrieslack roomfor manoeuvrein nationalbudgetingExpanding ‘fiscal space’:an Education for AllpriorityThe term ‘fiscal space’ describes a factor that hasprofound consequences for governments’ capacityto finance vital social and economic programmes.Put most simply, it is about room for manoeuvrein national budgeting. Tax revenue is the primarysource of finance for public spending. Butgovernments can also resort to other revenueraisingmeasures, including domestic orinternational borrowing, printing money and, inthe case of the poorest countries, international aid.The options open to governments vary widely –but they are most limited in the poorest countries.‘Fiscal space’ defines the budget parameterswithin which governments have to operate. TheInternational Monetary Fund (IMF) defines it as‘room in a government’s budget that allows it toprovide resources for a desired purpose withoutjeopardizing the sustainability of its financialposition or the stability of the economy’ (Heller,2005, p. 32). Less technocratic approaches wouldincorporate the financing of wider humandevelopment goals, including Education for All(Roy et al., 2007). In the context of the globalrecession, the issue facing governments is thatof using national budgets to strengthen demand,stabilize financial systems and maintain vital socialinvestments despite a shrinking revenue base.Rich countries have responded to the financialcrisis by exploiting fiscal space on an epic scale.With their economies contracting, their financialsystems requiring support and demands on publicspending for social welfare rising, fiscal policy hasprovided a major stimulus. Overall fiscal deficits areprojected to increase by about six percentage pointsof GDP, with spending financed by a large increasein public debt. 2 Much of this has been used to shoreup banking systems. 3 While bank bail-outs are notstrictly comparable to aid flows in financial terms,the contrast between what has been mobilized inthe two cases is striking. The four largest assetinsurance programmes for commercial banksobliged the governments of the United Kingdomand the United States to take on US$786 billion inpotential liabilities – over seven times the amount oftotal international development assistance flows. 4Fiscal policy has also played a wider role inadvanced economies. Public spending has goneto support demand and unlock credit markets,creating a countercyclical stimulus for recovery.Many governments have used that spending tostrengthen the social and education infrastructure.In the United States, the American Recovery andReinvestment Act (ARRA) passed by Congressin February 2009 delivered a prospectiveUS$789 billion stimulus to the economy. Thatstimulus also staved off a financing crisis ineducation that threatened to result in thousandsof teachers being laid off and many schoolsclosed (Box 1.1).Unlike rich countries, most developing countriesoperate in a highly constrained fiscal environment.Some, including China and India, have been in aposition to counteract the impact of the downturnthrough increased public spending. But themajority of the poorest countries are walkinga fiscal tightrope. Overall tax revenue ratios areprojected to decline in well over half of all lowincomecountries and by more than 2% of GDPin one-quarter of them (IMF, 2009c). Meanwhile,pressures to increase spending arise from severalsources, including the need to finance socialprotection programmes. The combination oflimited fiscal space and revenue decline has thepotential to translate into painful public spendingadjustments, including in education.The research for this Report by DevelopmentFinance International explored the dimensionsof the fiscal space available to thirty-seven lowincomecountries in sub-Saharan Africa that arefacing financing challenges in education (Martinand Kyrili, 2009). 5 This ‘fiscal space assessment’starts by defining ‘sustainability thresholds’,based on comparative international evidence,in three key areas: domestic and internationalborrowing, revenue mobilization and aid. 64. The programmes involved Citigroup, Royal Bank of Scotland,Lloyds and Bank of America (Panetta et al., 2009).2. On average, public debt will climb from around 70% of advancedeconomy GDP in 2008 to a projected 100% by 2010 (IMF, 2009g).3. Capital injections, debt guarantees and asset guarantees represented44% of GDP for the United Kingdom and 7% for the United States as ofJune 2009 (Martin and Kyrili, 2009).5. The countries are those classified by the World Bank as ‘IDA-only’:eligible only for concessional International Development Associationloans. Hence the list includes Cameroon, the Democratic Republic ofthe Congo and Djibouti, even though the latest World Bank data put themin the lower middle income category.6. See Martin and Kyrili (2009) for a detailed explanation of the thresholds.28