Documentof The World Bank FOR OFFICIAL USEONLY ReportNo: 26267-MK PROJECT APPRAISAL DOCUMENT ONA PROPOSEDLOAN INTHEAMOUNT OFUS$5MILLION TO THE FORMER YUGOSLAV REPUBLIC OF MACEDONIA FOR A N EDUCATIONMODERNIZATIONPROJECT NOVEMBER 13,2003 Human Sector DevelopmentUnit Europeand CentralAsia Region This document has a restricted distribution and may be used by recipient only inthe performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective November 13,2003) CurrencyUnit = Denar 1Denar = US$0.019 US$ 1 = 53.60Denar FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan BDE Bureau for the Development of Education CAS Country Assistance Strategy EU EuropeanUnion EA Environmental Assessment EAU EducationAssessment Unit EBR Extra-Budgetary Resources EMP Education Modernization Project EMIS EducationManagement InformationSystem ESW Economic and Sector Work GDP Gross Domestic Product GNI Gross NationalIncome IDA International Development Agency MOES Ministry of Education and Science NGO Non-Governmental Organization PAD Project Appraisal Document PCU Project Coordination Unit PMU Project ManagementUnit POM Project Operational Manual PTR PupiUTeacherRatio REB Regional Evaluation Board SDP School Development Plan SEI State Education Inspectorate SIG School Improvement Grant SIL Specific Investment Loan SSE School Self-Evaluation Vice President: Shigeo Katsu Country Director: Orsalia Kalantzopoulos Sector Manager: Maureen McLaughlin Task Team Leader: Peter Darvas FOR OFFICIAL USEONLY FYR MACEDONIA EducationModernizationProject CONTENTS A .STRATEGIC CONTEXT AND RATIONALE ................................................................... 1 1. Country and sector issues.................................................................................................... 1 2. Rationale for Bank involvement......................................................................................... 3 3. Higher level objectives to which the project contributes .................................................... 3 B PROJECT DESCRIPTION .................................................................................................... 4 1. Lending instrument............................................................................................................. 4 2. Project development objective and key indicators.............................................................. 4 3. Project components ............................................................................................................ 5 4. Lessons learned and reflected inthe project design............................................................ 7 5. Alternatives considered and reasons for rejection .............................................................. 8 C IMPLEMENTATION ............................................................................................................ . 9 1. Partnership arrangements.................................................................................................... 9 2. Institutional and implementation arrangements.................................................................. 9 3. Monitoring and evaluationo f outcomes/results ................................................................ 11 4. Sustainability..................................................................................................................... 12 5. Critical risksand possible controversial aspects............................................................... 12 6. Loan Conditions and Covenants ....................................................................................... 13 D APPRAISAL SUMMARY ................................................................................................... . 14 1. Economic and financial analyses...................................................................................... 14 2. Technical........................................................................................................................... 15 3. Fiduciary ........................................................................................................................... 16 4. Social Assessment............................................................................................................. 16 5. Environment...................................................................................................................... 17 6. Safeguard policies ............................................................................................................. 17 7. Policy exceptions and readiness........................................................................................ 17 ANNEXES: Annex 1: Country and Sector Program Background .................................................................... 19 This document has a restricted distribution andmay be used by recipients only in the performance of their official duties I t s contents may not be otherwise disclosed without World Bank authorization . . Annex 2: Major RelatedProjects Financedby the Bank and/or other Agencies.......................... 25 Annex 3: Results Framework and Monitoring.............................................................................. 26 Annex 4: DetailedProject Description ......................................................................................... 36 Annex 5: Project Costs.................................................................................................................. 41 Annex 6: Implementation Arrangements...................................................................................... 42 Annex 7: Financial Management andDisbursementArrangements ............................................ 45 Annex 9: Economic and Financial Analysis ................................................................................. 57 Annex 10: SafeguardPolicy Issues............................................................................................... 64 Annex 11:Project Preparation andSupervision........................................................................... 65 Annex 12: Documents inthe Project File..................................................................................... 66 Annex 13: Statement of Loans and Credits .................................................................................. 67 Annex 14: Country at a Glance..................................................................................................... 68 MAP(S) IBRD28959R1 FORMER YUGOSLAV REPUBLIC OF MACEDONIA EDUCATION MODERNIZATION PROJECT Date: November 13,2003 Team Leader: Darvas Peter Country Director: Orsalia Kalantzopoulos Sectors: Primary education (45%); Secondary Sector MangerDirector: Maureen Anne Education (45%); Central Government McLaughlin Administration (10%) Themes: Other public sector governance (P); Education for all (P) Project ID: PO66157 Environmental screeningcategory: Not Required Lending Instrument: Specific Investment Loan Safeguard screening category: No impact [XI Loan [ 3 Credit [ 3 Grant [ 3 Guarantee [ 3 Other: For Loans/Credits/Others: Total Bank financing (USsm.): 5.00 Proposedterms: VSL Grace Period: 5 yeas Years to maturity: 17years Pinan Plan (TJSSmh Borrower 2.90 0.00 2.90 International Bank for Reconstruction and I 5.00 0.00 5.00 Development Netherlands: Min.of ForeignAffairs / 11.40 0.00 11.40 Min.ofDev. Coop. Total: 19.31 0.00 19.31 Borrower: FORMER YUGOSLAV REPUBLIC OF MACEDONIA ResponsibleAgency: Ministry of Educationand Science Project Coordination Unit Address: Dimitrie Chupovski 9, Skopje Contact Person: Mrs.Aferdita Hadzijaha Imeri-PCUDirector Telephone: 389 2 3129096 e-mail: eduproject@mn.gov.mk Annual 0.50 0.50 1.oo 1.oo 1.oo 1.00 0.00 0.00 0.00 Cumulative 0.50 1.00 2.00 3.00 4.00 5.00 0.00 0.00 0.00 Project implementation period: March 30, 2004 -March 31, 2009 Expected effectiveness date: March 30,2004 Expected closing date: September 30, 2009 Does the project depart from the CAS incontent or other significant respects? Ref:PAD A.3 [ No Does the project require any exceptions from Bank policies? Y ReJ PAD D.5 [ ]Yes [XINO Have these beenapprovedby Bank management? [ ]Yes [XINO I s approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated "substantial" or "high"? ReJ PAD C.5 [ ]Yes [XINO Does the project meet the Regional criteria for readiness for implementation? ReJ PAD 0.6 [XIYes [ ] N o Project development objective. ReJ PAD B.2,Annex 3 Objective1: Improve quality o f learning andparticipation at the targeted schools by strengthening school level planning and management. Key indicators to measure this will be the following: 75 percent o fthe schools receiving school improvement grants underthe project will have measurable improvements either inquality o f learning (tested via school based assessments) or ineducation participation (measured at the school level by increased enrollments, attendance and retention rates, dependingon the nature o f their most critical challenges). Objective2: Improved equity and efficiency for a decentralized education system. Key indicators to achieve this will include (i) declining disparities between municipalities and schools based on per student allocation; (ii)increased spendingon non-recurrent costs (Le., in-service training) and (iii)increased spendingon pupils attending zero (introductory) year instruction. In addition, plans developed by participating municipalities will target efficiency improvements and will be measured by student/school ratio, studentlteacher ratio, proportion o ffull-time teachers or by efficiency inuse o f utilities. Project description. ReJ PAD B.3.a,Annex 4 Component 1: Improving Education Quality and Participation (USD 16.34 million).The objective o fthe component i s to improve the quality o f learning and educationparticipation at the targeted schools through strengthening school level planning and management, in-service training and through the implementation o f a school grants program. Component2: Capacity Buildingfor DecentralizedEducation (USD 1.75 million). This component will improve systems and capacity to operate a decentralized education system, including improving strategic planning, management, and monitoring and accountability procedures inthe education sector. Component3: Project Management and Monitoring and Evaluation (USD 1.17 million). The objective o fthis component i s to provide overall coordination and supervision o f project activities, and to ensure the highestquality through monitoring and evaluation o fproject indicators. Which safeguard policies are triggered, if any? ReJ PAD 0.6,Annex I O Significant, non-standard conditions,if any, for: Loan effectiveness: 0 Signing o f the Trust FundAgreement for Dutch co-financing Grant Disbursement for School Improvement Grants Component) : Completion o f School Improvement Grant Guidelines A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues The Government o f the FYR Macedonia (elected in2002) i s fully committed to fighting poverty and developing a more prosperous economy through reforming and investing in the human development sectors. However, consensus on the nature o f the reforms i s limited by ongoing political differences, and a lack o f capacity in public administration. The present Government inherited from its predecessor a lengthy and, thus far, unproductive process o f defining its poverty reduction strategy and - separately from that - developing an effective educational strategy. The existing education strategy, which was approved by the previous Government in 2000, i s mostly directed at funding existing agencies without making long-term projections o f enrollments, staffing and resources, and without articulating comprehensive objectives, or the necessary structural and policy changes that would ensure long term sustainability. Demand for and outcomes in education are differentiated based on diverse social expectations, yet education administration and management are overly centralized. Therefore, the system is unable to adjust to demographic trends, and to local needs and priorities. This can cause inequities and inefficiencies, as per student allocations, and the way they are used, typically vary betweenregions, municipalities and schools. The quality o f education, which had been among the highest when Former Yugoslav Republic o f Macedonia (FYR Macedonia) was part o f Yugoslavia, has seriously declined since the breakup o f the Federal Republic. During the last four years international tests have ranked FYRMacedonia among the worst performing countries interms o f education quality - a lot o f it explained by disparities among different social groups, regions and localities. Curriculum and teaching i s constrained by rigid and outdated input norms and standards, and by overly specialized program structures in secondary education. For some schools, given the local conditions and the quality o f inputs, high standards are out o f reach. The present system also fails to motivate those on the supply side, Le., schools and teachers have no incentives to sustain or to improve quality and effectiveness; their capacities are often strained providing basic services. Disparities in the system are noticeable in terms o f inputs (funding, qualified teacher supply, etc.), participation (including enrollment to preschool, secondary and tertiary education, and education attainment) and student performance (measured in sample based tests). This leads to a decrease in school effectiveness, and a more general dissatisfaction and can result in withdrawal from education services (low level attendance, completion), for instance, among the country's Roma population. There are conflicting reports and a lack o f transparency interms o f various participation rate indicators (enrollment, attendance, dropout and retention rates). Official accounts put primary education enrollment at nearly maximum with negligible levels o f attendance and dropout rates. However, in the absence o f a census, population data i s difficult to capture and 1 school information i s not always reliable or even accessible. At the same time, survey based information shows significant problems incertainpockets o f society: at risk groups in some parts o f the country face problems o f attendance, dropout rates and low overall education attainment. Inall, questions regarding quality, relevance and participation in education are strongly defined by local conditions, including the communities socio-economic status and expectations and the schools' capacities and commitment to find adequate responses to critical challenges. The creation o f a politically independent Republic in 1991 has reopened traditional rivalries. In January 2001, ethnic violence erupted in the country, resulting in physical destruction and civilian casualties. On August 13, 2001, a ceasefire was reached through the signing o f the "Framework Agreement" between "The Republic o f Macedonia and the Euro- Atlantic community''. This agreement prompted a new education policy agenda. Foremost on the list o f reforms was the call to hand over responsibilities for establishing, financing and administering education to the municipalities, followed by measures to provide additional support to ethnic minorities to achieve equal quality and participation to significant ethnic groups. As a first step inits reform effort, the Government intends to establish new competencies and capabilities at different levels o f education administration and management. In its policy statement for the proposed project, the Ministry o f Education and Science (MOES) has called for "chang(ing) centralized management, excessive concentration o f decision-making responsibilities (and speeding up) the process o f decentralization and de-politicization (exclusion o f politics' influence) o f the education system" (The Education Modernization Project and Strategic Priorities in the Education System). Accordingly, in the Government statement, the four main identifiedobjectives o f the MOES are: 0 Decentralizationo f the education administration; 0 Improving teachers' professional development; 0 Improving the education assessment and evaluation; 0 Decentralizationof the education system; and 0 Development o f education information system. Inaddition, the central government has some well-definedpolicy priorities which require additional resources, investments and changes in public resource allocation, and incentives to stimulate school level initiatives. Some o f these have implications for participation, including: (i) extendingprimary education by introducing universal preparatory year prior to first grade; (ii) improving attendance; (iii) increasing the primary education retention rate; and (iv) increasing enrollment to secondary education. Others have implications for quality and relevance. These include: (v) redefining education standards and carrying out assessments to measure student performance; (vi) strengthening teacher qualification, and providing better opportunities for professional development; and (vii) introducing the Matura exam at the completion o f secondary education and increasing the number o f students studying ingeneral programs. All o f these challenges, including decentralization, improving quality and increasing participation are constrained by limited governance capacities at all levels. Therefore, the foremost task for the proposed project i s a gradual development o f these capacities, including 2 school improvement, strategic and financial planning, information management and policymaking, monitoring and assessment through setting up newprocedures and structures, and through training. 2. Rationale for Bank involvement With the Government's limited borrowing capacity, the Bank involvement's can stimulate institutional changes that will result in measurable and sustainable progress in access and quality over the long-term. The Bank could continue its focus on investment in infrastructure or into other areas o f need in the education sector, however, without changes in quality and management reforms these improvements would be far less effective. The Bank has gained much valuable experience inthe sub-region (including Bosnia and Herzegovina, Serbia and Kosovo) in promoting education decentralization while empowering education authorities to strengthen their focus on access and quality. In FYR Macedonia, too, the MOES expects that the proposed Bank financed project will be the key pillar o f the education decentralization program, as well as a major learning source, given the Bank's experience in activities with comparable project agendas inthe region. Currently, a reform o f the entire public administration system i s under development and two subsequent public sector management adjustment projects are providing technical assistance to the reforms. While other international organizations may be able to provide some technical assistance for education, the Bank i s strategically placed to promote a mutually strengthening and cross-feeding relationship between this operation and its general support to public administration reform, as well as other human development or community driven projects. This position i s being reinforced by other donor organizations' direct commitment to co-finance the project (Le., the Dutch Government) and to define their development agenda on a complementary basis with the Bank project (including USAID, DFID and the Soros Foundation). 3. Higher level objectives to which the project contributes The Government's higher level objectives are tied to: (i) Framework Agreement the (including the rights for equal access to "uniform" quality o f education, some extra support to ethnic minorities in terms o f access); (ii)the Government Education Strategy o f preserving or improving the quality o f education; and (iii) the ongoing process o f decentralization o f public administration, including a recent L a w on Local Self-governance, empowering the municipal governments to establish, administer and finance public education at pre-tertiary level. There are three key development challenges and opportunities for education, defined in the Bank's Country Assistance Strategy (CAS), presentedon September9,2003 (Report R2003- 0158). 1. To maintain uninterrupted provision of core services while the education administration i s beingdecentralized. 2. To maintain social cohesion by reducing variations in educational attainment across gender and ethnicity 3 3. To improve the quality and relevance o f education and - especially decreased the disparities ineducational outcomes. According to the goals set by the CAS, the project will support specific sectoral elements o f the decentralizationprocess and seek to mitigate against critical risks, such as a breakdown in the delivery o f key services. Further, it will focus on improving the quality o f primary and secondary education inFYRMacedonia while piloting new financing arrangements. The project will also seek to improve the access o f minority groups (especially girls) to primary education through school-based initiatives, which remains a key weakness in FYR Macedonia's progress towards the MillenniumDevelopment Goal (MDG) o f universal primary education. B. PROJECT DESCRIPTION 1. Lendinginstrument The proposed project will be financed through a Specific Investment Loan o f US$5 million, complemented by donor co-financing o f EURO 10 million (US$1 1.4 million equivalent)', and Government co-financing o f roughly US$3 million over five years. An Adjustable Program Loan (APL) was initially envisaged duringproject identification. Though usingthe APL framework had several compelling arguments, it was eventually rejected, as the political economy in FYR Macedonia does not provide a sufficiently sound basis for the longer term aspects involved in an APL framework. Specifically: 0 The long term directions o f education reform have not yet been crystallized for all levels. 0 Given the uncertainty o f the role o f municipalities, it i s too soon to be making assumptions and drawing up plans for how municipalities would participate in education administration. The most important questions are how municipalities will manage the necessary consolidation o f school systems, will monitor and sustain quality, and adjust their relevance to meet local needs. 0 The Government's limited borrowing capacity does not allow it to envision further new borrowing for education, while there continue to be competing reform agendas in the health sector and inthe social assistance regime. 2. Projectdevelopmentobjectiveand key indicators Objective I: Improve quality o f learning and participation at the targeted schools by strengtheningschool level planning and management. Key indicators to measure this will be the following: 75 percent o f the schools receiving school improvement grants under the project will have measurable improvements either in quality o f learning (tested via school based assessments) or in education participation (measured at the school level by increased enrollments, attendance and retention rates, depending on the nature o f their most critical challenges). Exchange rate as o f October 3,2003. 4 Objective 2: Improved equity and efficiency for a decentralized education system. Key indicators to achieve this will include (i) declining disparities betweenmunicipalities and schools based on per student allocation; (ii) increased spending on non-recurrent costs (Le., in-service training); and (iii) increased spending on pupils attending zero (introductory) year instruction. In addition, plans developed by participating municipalities will target efficiency improvements and will be measured by student/school ratio, studentheacher ratio, proportiono f full-time teachers or by efficiency inuse o futilities. 3. Project components(see Annex 4 for a detailed description and Annex 5 for a detailed cost breakdown): The Project has three components: (i) improving education quality and participation; (ii) capacity building for decentralized education; and (iii) management and monitoring and project evaluation. The first two components were designed to foster decentralized education administration and management, as well as to enable schools to better focus on key policy expectations, including improving quality, relevance, equity, efficiency, and transparency. Component1:ImprovingEducationQuality and Participation(US$ 16.34 million) The objective o f the component is to improve the quality o f learning and education participation at the targeted schools through strengthening school level planning and management, in-service training and through the implementation o f a school grants program. Sub-component: 1.1 SchoolDevelopmentPlanning This sub-component targets primarily school effectiveness, which is central to improving education quality, relevance and participation. Schools will be empowered and trained (1) to carry out self-evaluation based on common standards o f school effectiveness, --including identifying concerns related to participation (including enrollment, attendance, retention) and quality - and (2) develop school development plans to use resources more efficiently, improve daily management and pedagogicalprocesses and mobilize new resources. Sub-component 1.2: SchoolImprovementGrants (SIG) Schools that voluntarily carry out a School Self-Evaluation (SSE) exercise and undertake the preparation of a School Development Plan (SDP) will be eligible to submit applications for grants of approximately US$lO to US$15 thousand to the School Improvement Grants (SIG) program. Schools will receive technical assistance in methodologies for undertaking the preparationo f school development plans and grant applications. All schools will be eligible to participate in the SIG program, and it is envisioned that about 500 grants will be allocated. While poor schools with limited management capacities will receive extra assistance to ensure they don't drop out of the project, some more affluent schools may not find the grants sizeable enough to warrant participation in the project. Since FYR Macedonia receives support for education from other international agencies and parental support 5 i s significant in these more affluent communities, it i s expected that these schools will garner support from other resources. Sub-component1.3: EducationAssessment This sub-component will helpto carry out both school-based (formative) assessments and external (national and international) assessments to monitor the quality improvements in the schools during project implementation. The Education Assessment Unit (EAU) o f the Bureau for the Development o f Education will administer the external assessments, as well as providing guidance for developing school capacity to carry out formative assessments. The EAU will develop standards for examinations, such as the Matura exam at the end o f secondary education. Sub-component 1.4: In-serviceTeacher Training This sub-component will establish an accreditation system to assure that in-service teacher training services are provided by multiple providers and that they meet adequate standards o f quality. The system will facilitate schools to use SIGs to acquire training services from these providers. Whereas the social assessment indicatedthat both schools and teachers are interested in in-service training, the MOES i s also planning to introduce, at a later phase o f the project, a teacher certification system, which would link with in-service training. Component2: CapacityBuildingfor DecentralizedEducation(US$1.75 million) This component will improve systems and capacity to operate a decentralized education system, including improving strategic planning, management, and monitoring and accountability procedures in the education sector. It will target the organization and staff o f the MOES, and a pilot o f 10 to 15 municipalities which would usedto test the methodology developed and could at a later stage be rolled-out to all municipalities once the Administrative reforms are complete. Given the limitedplanning and management capacities and the overly centralized administration, new competencies for the education administration unitswill be introduced inseveral phases. Sub-component2.1: Strategicand FinancialPlanning This subcomponent will build capacity within the MOES for strategic and financial planning through the establishment and support o f two Units, the Strategic and Policy Unit (SPU) and the Analytical Unit. This will strengthenplanning systems and the strategic capacity for the central and local governments to administer and manage education in a decentralized environment. Strategic and financial planning are key competencies for the MOES to function in a decentralized education system. The SPU will be responsible for defining (i)a Strategic Education Model (SEM), which helps project enrollment trends (including key indicators o f participation), input needs, planned expenditures, and financing need according to various policy scenarios (elaborated in Technical Assessment, D2); (ii)a Medium-Term Expenditure Framework (MTEF) as well as yearly budget plans; and (iii) a formula for financing education. Eventually, these instruments will help improve overall system performance in terms o f equity and efficiency. 6 Sub-component2.2: EducationManagementInformationSystems The focus o f this sub-component will be the development and maintenance o f an EMIS - a tool designedto monitor education service delivery and outputs (based on agreed standards and indicators), and resource flows, and help to strengthen partnerships between all levels o f authorities and operations. The EMIS will provide supporting information and analytical capacities for decentralized governance and management education systems at all levels. The EMIS will be usedfor projections and assistance in decision making. It will increase flexibility in decision-making and help apply lessons learned to improve policy decisions. The subcomponent will also include technical support, hardware, software, goods and training at central, regional and municipal levels. The EMIS will be housed at the IT Department o f MOES, who will be responsible for the maintenance o f the data and day-to-day functioning o f the system, but hosted by the Analytical Unit who will be responsible for the functional specification and will drive the development o fthe system. Component3: ProjectManagementand Monitoringand Evaluation (US$1.17 million) The objective o f this component is to provide overall coordination and supervision o f project activities, and to ensure the highest quality through monitoring and evaluation o f project indicators. The Project Coordination Unit (PCU) i s expected to be part o f the MOES and staffed partly by consultants and partly by Ministry staff. It will fulfill all the administrative and fiduciary responsibilities related to the project (e.g., financial management, procurement, disbursement, monitoring and reporting) and will ensure effective monitoring and evaluation of project achievements and outcomes duringthe project. 4. Lessonslearnedand reflectedinthe projectdesign The Bank's Education Policy Note2 in 2002 identified the following areas as critical challenges and opportunities for the Government: (a) strengthening strategic and policy capacities to improve attainment and overall system performance; (b) improving education finance to assure equal access and equitable allocation o f public resources; (c) improving the relevance o f education through new curriculum (matura), improving the quality o f instruction and learning, and by developing education standards and sustained assessment activities; and (d) reforming tertiary education. Regarding these challenges, the proposed project especially targets (a), (b), and to some extent (c), as the project will help set up adequate capacities and procedures for improving quality o f instruction and learning. During the first project in the sector (Education Rehabilitation Project 1997-2001), the major part o f the investmentwas directed at centrally administered school rehabilitation efforts. In a decentralized education system, however, it is not clear how the methods applied for the selection o f schools, designs, contractors, etc., would be sustained. The proposed project uses lessons learned regarding the previous project's focus on education assessments by broadening the use and impact o f assessment activities, bringing them closer to school level and central decision making. Lessons learned from the problems o f previous project's teacher training subcomponent were key in designing a new subcomponent targeting a competitive and * "Toward an Education Strategy for the Twenty-First Century" (ReportNo. 24831-MK, July 1,2002). 7 professionally coordinated in-service teacher training system, rather then attempting to centrally administer an in-service training system. The focus on governance and finance capacities and structure will help confront the implications (challenges and opportunities) stemming from governmental decentralization. Decentralization and institutional capacity building have been a key issues in neighboring countries, inparticular inSerbia and Montenegro, Bosnia and Herzegovina, and Kosovo. School grants have proved to be attractive in several Bank financed projects, not only in terms o f efficient support to the level o f service delivery but also in empowering schools to engage in planning, improving quality and making education responsive to local need and conditions, with the objective o f improving both the cognitive and social outcomes o f education, thereby promoting a more effective and efficient school system. Projects based on institutional grants are being implemented in other ex-Yugoslavian countries, as well as in Romania and Russia. Such projects are widespread inother regions, including similar projects in Sub-Saharan Africa and in East Asia (Vietnam and Cambodia). Especially in the latter, the focus i s on empowering schools as part o f an overall effort to decentralize previously overly centralized systems and improve the quality o f education. 5. Alternatives considered and reasons for rejection The three critical aspects o f the project designand approach that were considered are: (i) supporting a system reform; (ii)supporting a school-based initiatives; and (iii)focusing on improvement o f education infrastructure. Supporting systemic reform versusfocus on a subset of issues. The Government faces major challenges stemming from the new L a w on Local Self-Government, the Framework Agreement as well as from the public administration reform, in general. Consequently, a systemic focus on governance and strengthening the local communities' capacity to improve access to and quality o f learning was deemed to be more appropriate rather than targeting a specific level or sub-sector withinthe education system. Supporting school based initiatives versus centrally driven reform. The key aspect o f this project design is that it relies on schools as primary agents to achieve some o fthe keypolicy objectives. Both the Government strategy and the Bank policy note call for improving the relevance o f curriculum, structure o f education programs, and effectiveness to teaching. These could be considered as parts o f a centrally driven reform program. However, given the diversity o f needs in the regions and given the general expectation that local agencies - such as schools and local communities - are to be given important roles in defining education services, the project i s designed to heavily rely on school based initiatives. Macedonian schools are functioning in highly diverse local communities and need to meet a diverse set o f social expectations. In some areas, attendance and education attainment are challenging, especially for some at risk groups (such as girls from ethnic minority communities). In other regions, the declining quality of learning i s considered a key challenge. Therefore, the proposed project helps empower the school community to effectively function in a decentralized environment while it also helpsto achieve some sector-specific goals inthe long-term. 8 Focusing on improvement of education infrastructure versus focus on quality and effectiveness. During project design, the Bank considered continuing investing into school rehabilitation. However, there were compelling reasons for not putting a major focus on school infrastructure. Infrastructure improvement may only be carried out efficiently once local agencies o f education administration have incentives to adjust services to changing demographics. It i s also clear that without significant restructuring o f the public expenditures and the way education i s financed, the present and future infrastructure need o f education or the maintenance o f rehabilitated schools will not be adequately attended. Further, the scope o f the project financing doesn't allow to even begin to address the need for capital improvements. A meaningful program o f school rehabilitation requires about 10 times the projected total costs o f the project. The Government i s pursuingother grant or credit based donor funding opportunities for these purposes. C. IMPLEMENTATION 1. Partnershiparrangements Giventhe limited borrowing capacity o f the Macedonian Government, it is expected that two thirds o f the external funding targeted for supporting the Education Modernization Project will be provided as a grantby the DutchGovernment on a co-financing basis. The Government of Netherlands has also agreed to provide bridge funding during the project preparationphase to finance technical assistance, project coordination, as well as piloting the school planning/school improvement grants subcomponents. 2. Institutionaland implementationarrangements The MOES is responsible for implementation. Since a major emphasis is on institutional capacity, the implementation process i s closely connected to the regular activities o f the central and local agencies o f education administration. For each sub-component the MOES has nominated a coordinator, who will be trained to work with the Project Coordination Unit (PCU) and MOES units whose mandate overlaps with the respective project activities and objectives. Component 1. The component has five key elements, to ensure effective implementation and transparency: (i) setting up a baseline information and continuous monitoring system for key indicators o f education participation. This will be carried out by the MOES (later via the newly established analytical unit); (ii)agreed standards and procedures for school-based assessments, to be developed (and training provided) by the EAU; (iii) agreed standards and evaluation procedures to measure school effectiveness, including indicators o f participation, quality o f learning and teaching and management efficiency, which will be the basis for schools to carry out school self-evaluation and school development planning. The key institution responsible for the standards as well as monitoring effectiveness i s the SEI; (iv) agreed standards for school development plans to be designed and implementedunder the guidance o f a consultant firm; and (v) agreed approval and monitoring process for the SIG defined inthe SIG Guidelines. The MOES will establish a SIG Steering Committee which will be responsible for 9 the development o f the self-evaluation and planning standards and procedures, the application procedures for the SIG, training as well as for monitoring and evaluation o f the sub-component. Regional SIGApproval Boards will be established to oversee the implementation o f the planning procedures, will approve school proposals, decide upon the allocation o f the grants and will evaluate the school projects. The SEIi s expected to play a key role inthe Regional SIG Boards. Component 2. Overall harmonization o f laws, procedures and capacities with the objectives o f education decentralization, but also the implementation o f EMIS will be overseen by an Education Administration Advisory Group. The Group will have to include stakeholders, representatives o f municipal government and that o f the school and business communities. The MOES i s expected to appoint a staff member for the sub-component targeting better budgeting, financial planning procedures and per-capita funding. The coordinator for the sub-component on Teacher Policy and Staff Professional Development will report a Teacher Professional Development Council (TPDC), which will advise the MOES on teacher policy, launching pilot training schemes and on standards and accreditation for training providers. Component3. The PCU within the MOES will be responsible for overall coordination, project management, financial management arrangements, disbursements, reporting, organizing and managing procurement, and coordinating potential parallel financing by other donors. The PCU reports to the MOES. Under the Director, the PCU will have a Financial Management Specialist and a Procurement Specialist. Financial Management. The financial management arrangements o f the project are acceptable to the Bank. The project financial management will be carried out by a PCU established within the MOES. Project Financial Management Reports (FMRs) will be used for project monitoring and supervision. Agreed upon formats o f these are included in the Project Operational Manual (POM). The PCU will produce a full set o f FMRs every three months throughout the life o f the project. Project accounts, records and Financial Statements will be audited each fiscal year by independent auditors acceptable to the Bank and in accordance with standards and guidelines acceptable to the Bank. Funds Flow. Bank and Dutch Grant funds will be disbursedunder the Bank's traditional procedures including SOEs and direct payments. Supporting documentation for SOEs, including completion reports and certificates, will be retained by the Borrower and made available to the Bank during project supervision. Disbursementsfor expenditures above the SOE thresholds will be made against presentation o f full documentation relating to those expenditures. At present there i s no planto move to periodic disbursements. MOES will open and manage separate Special Accounts (SAs) for the Bank Loan and Dutch Grant funds in Macedonian National Bank (MNB). Withdrawal applications for the replenishments o f the SAs will be sent to the Bank at least every three months, or when the balance o f the SA i s equal to about half o f the initial deposit or the authorized allocation, whichever comes first. 10 The funds under the School Grants Component will be disbursed from the Special Accounts in MNB directly to individual sub-accounts o f beneficiary schools, which are part o f the Treasury Single Account. The PCU will authorize spending limit for the grant funds o f each school based on an approved budget and procurement plan. The detailed procedures regarding the disbursement and financial monitoring o f the school grants are included in Financial Management Section o fthe SIG Guidelines. Procurement Management. The PCU will carry out procurement o f goods and consulting services required for all but School Grants program project components in accordance with the World Bank Procurement Guidelines. For School Grants program, the PCU will play a supervisory and coordination role and assist the schools incarrying out procurement o f small value contracts with the financing from awarded grants. Selection o f consulting services and training included in the school grant proposals will be made by the PCU by consolidating requests from the schools with the schools participating on the evaluation committees. 3. Monitoringand evaluationof outcomesh-esults 1. An initial baseline information survey will capture data on participation in education (enrollment rates, attendance, retention, completion o f primary cycle, transfer to and completion o f secondary education and overall education attainment (average number o f years completed) by different student groups as well as key quality indicators based on external assessments. A follow-up survey will be carried out at project completion. 2. Outcomes will be monitored and evaluated through school based self-evaluations and plans. These will be carried out based on an agreed system o f measuring school effectiveness, pre-defined manuals developed by trained staff. School-boards are expected to approve these as well as to monitor the implementation o f the school improvement grant activities. 3. Regional Evaluation Boards will be set up and trained to monitor the SIG process regionally and evaluate individual SIG proposals. They will also be involved in monitoring the SIG implementation and will develop regional progress reports. 4. Three steering/monitoring agencies will be set up to monitor key project components and also to inform the MOES about the impact and policy implications o f as well as to consider ways to sustain the key activities: the SIG Steering Committee, the Education Administration Advisory Group and the Teacher Professional Development Council. Their function is described inthe institutional arrangements above. 5. As part o f the central agencies o f education administration, the SEI i s expected to play a key role inevaluating school effectiveness. The EAU will carry out sample based tests to monitor overall quality o f learning and will assist in training the schools to carry out formative assessments. The Analytical Unit of the MOES, hosting the EMIS, will be in charge of monitoring enrollments, attainment, attendance as well as the implementation 11 and impact o f the formula-based funding system on per-capita allocations by regions and schools. 6. The PCU will have an overallproject monitoring and evaluation system, which will help oversee and regularly report on overall project implementation, outcomes and impact o f components on different indicators as well as on key fiduciary issues, such as procurement and financial management. 7. The PCU shall arrange forperformance audits to be carried out on the activities under SIG program by external independent specialists on an ongoing basis for the duration of the project. The Bank team will carry out regular supervision missions and will also carry out a mid- term review on April 2006. 4. Sustainability e The aim o f the project is to establish sustainable institutional arrangements and capacities at central and local levels to runthe education system effectively and efficiently. Sustainability i s vested intraining and inthe viability o f the new organizational arrangements. 0 The school grants program presupposes that investments in maintenance, equipment, and training will be sustained by non-project based resources. To the extent communities experience the benefit o f small scale investments, they will continue to demand that the state or the municipality or the community continues to fund such programs. e The project also has the expectation that the approaches inherent to the school planning/improvement grants system, including the self-evaluation and planning system, the community participation through the Boards, and the school choice/management vested in school based initiatives, will be sustained ina decentralized system. e One particular issue in FYR Macedonia has been that progress and sustainability has often been threatened by the constant replacement o f school management staff. This threat will most likely be mitigated by new legislation which creates a more solid professional status (including terms o f hiringand firing) o f school directors. 5. Critical risks and possible controversial aspects Schools and teachers do not remain S TA to establish the institutional framework interested and motivated in should help reach out to schools and school participating inproject activities. teachers especially inat risk areas. 12 MOES does not maintain focus on M M&Eis established at an early phase and the monitoring and evaluation o f stakeholders are involved. the project. MOES does not involve S Settingup the institutional framework i s stakeholders and civil society in transparent, project information i s presented monitoring and evaluation. from early to civil society. Schools do not have sufficient S I PCU will supervise procurement at the capacity to carry out procurement schools level and provide assistance to the weakest schools as identified by self- assessment o f procurement capacity to be done for each school; PCU will arrange for on-going operational audit; Bank will carry out frequent post review (by Macedonia - based PAS). Fr m Componc ts to outputs Clear mandate givento schools by S School Directors and representatives o fthe the new Laws (see above). local community (municipalities and school board members)should be involved in discussing the various options o f decentralizationand management tools to be delegated to school level. Political commitment to S Project objectives, implementation and involvement o f stakeholders and outcomes should be regularly presented to transparency o f information on the stakeholders; midterm review should decentralization, governmental involve them indiscussing the outcomes policy priorities and finance policy. and possible necessary adiustments. PossibleControversialAspects The risk o f decentralization leading towards segregation shall be mitigated by keeping the focus o f education decentralization on the sector-based objectives: to establish systems and capacities that are better suited to improve quality o f learning, relevance, equity o f allocations and efficiency, as well as transparency o f education management. Safeguards in the school grant mechanism are expected to help avoid competition betweendifferent constituencies for accessing SIGs. All schools will be eligible to participate in the school planning/school grant programs, eligibility and adequacy o f proposals will be based on professional criteria and evaluation process, and a pre-definition o f eligible level o f school grants will be based on objective measurement. 6. LoanConditionsand Covenants Loan effectiveness 0 Signingo fthe Trust FundAgreement for Dutch co-financing Grant. Disbursement(for SchoolImprovementGrants Sub-component) 0 Completion o f School Improvement Grant Guidelines. 13 FinancialCovenants 0 PCUwill maintain a financial management system acceptable to the Bank. 0 The project financial statements, SOEs and SA will be audited by independent auditors acceptable to the Bank and on terms o f reference acceptable to the Bank. 0 The annual audited statements and audit report will be provided to the Bank within six months o f the end o f each fiscal year. D. APPRAISAL SUMMARY 1. Economicand financial analyses Benefits from the school improvement grants. As Annex 9 shows, investments that in the long-term would help increase access, will bringabout benefits from higher earnings, smaller risks o f unemployment (primary or individual returns), and larger contribution to the national production, as well as productivity improvements (social returns). Recent research in the Bank and elsewhere shows that the increasing quality of schooling, holding years o f schooling constant, has a highrate of return. The SIG component has features that would lead to the expectation that the rate o f return would be higher thanjust increasing the years o f schooling as it would not only contribute to the increase educational attainment, but it would also help raise school quality and improve the acquisition o f skills, necessary for economic competitiveness. Efficiency gains from strategic and financial planning. The traditional budgeting system is presently contributing to increasing inefficiencies and also limits non-recurrent expenditures that could assist efforts to improve quality and performance. Performance is not computed in the budgeting process, information on outcomes and targets i s scarce, and no relation between resources and outcomes exists. Schools have no incentives to focus on performance and effectiveness. Thus, strategic and financial planning (performance based budgeting) at the central level, and the power and capacity to use the formula based funds efficiently at the school level are expected to bringabout higher level o f financing for categories and activities, which will result inimproved performance and effectiveness. Gains from more equitable allocation of public resources. School budgets are determined through negotiations that lack transparency and norms that are defined for each expenditure category (Le. cleaning staff need per square meter) regardless o f real local need. There are no mechanisms to consolidate the institutional structure, thus to bring quality education to all children. An allocation system based on the number o f enrolled pupils would help to adjust local school budgets to need, motivate local actors to increase enrollment and retention o f all pupils from their catchment area. (See details about budgeting system in Annex 9). 14 2. Technical Improving Quality and Effectiveness via School Improvement Grants School-based initiatives are widely proven to be effective instruments to improve overall effectiveness and quality o f learning. They are in line with the principles o f a decentralized system, which provides local communities and schools to make their own choices regarding their development objectives and ways to achieve them. The grants are also useful in fragmented systems where the critical challenges widely vary. InFYR Macedonia, some communities have basic problems o f making sure children complete primary education, whereas elsewhere the problem i s to assure adequate quality o f teaching or improve student performance. The initial assessment in FYR Macedonia shows that schools have a variety o f feasible options how to use the small grants. Examples: 0 Improve qualification o f Albanian math and science teachers. Existing pre-service teaching i s inadequate, and Albanian students regularly and significantly under-perform relative to Macedonians. 0 Introduce introductory ("zero") year classes in poor rural schools. Whereas student numbersinthese schools go down, those who are going to school have low performance, and little motivation to continue their education as their family background often doesn't provide enough stimulus. 0 Assure that all children, particularly those at risk (i.e. Roma) regularly attend and are retained via improved equipment and teaching methods. Children in these communities often do not feel motivated to stay in school given the poor environment, lack o f books and other instructional materials. 0 Improve hygiene to assure retention o f girls. In some schools, poor bathrooms cause parents to withdraw their children especially late intheir primary education cycle. 0 Establish school partnerships to acquire training in specific skills (such as mathematical literacy). Schools, that would plan to improve student skills face limitations o f traditional high standards and lack o f in-service training. Schools could use their small grants to carry out pedagogical innovation and thus improve student skills in these areas (as measured through formative tests). 0 Improve equipment, materials and strengthen qualifications for teachers in secondary schools, which introduce Matura exams and relevant new study programs for students on general secondary track. Developing Strategic Education Model Strategic Education Model (SEM) i s a sector simulation model, which has been developed in a number o f developed and transition countries. A simplified SEM i s usedby the World Bank to assess total and external resource needs related to `Education for All' strategies adopted by various countries. Elaborating the model should be done in close cooperation with a limited number of high-level staff from MOES, in order to transfer the methodology, designthe scenarios, interpret the outcomes and, more generally develop a policy dialogue. 15 SEM i s designed to project: (i)enrollments by grade, gender and urbadrural location in all levels on the basis o f demographic projections and alternative assumptions conceming admission and transition ratios into each level, and retention; (ii)input needs including number o f schools and classes, teaching and non-teaching staff and equipment needs; (iii) recurrent and capital expenditures, by level/type o f education, expenditure categories; and (iv) financing projections by sources o f funding and cost recovery. The SEM will include key education sector reform objectives, including the introduction o f universal zero year education; expansion o f general secondary education; increased allocations for in-service training or teaching materials and improved efficiency via consolidation o f school network; improved energy efficiency; improved teacher policy or the impact o f pedagogical reforms, such as multi-grade teaching in primary education; integration o f pre-school classes into primary schools, etc. The SEM helps to carry out sensitivity analysis in order to test the impact o f limited variations o f key parameters on the main outputs o f the model, build preferred scenarios to be used for operationalizing MOES long term reform agenda in MTEF and yearly budget plans, design optimal formula for financing and to monitor actual inputs and outputs with projections, and serve as a basis for explaining deviations. 3. Fiduciary The financial management arrangements o fthe project are acceptable to the Bank. A Country Financial Accountability Assessment (CFAA) for FYR Macedonia has been carried out in 2003. The draft CFAA concludes that the Public Financial Management (PFM) framework in FYR Macedonia i s still evolving, and improvements are required in many o f the components comprising the P F M system. In addition to establishing modem financial institutions, the country has had to develop the skills and capacities to manage its own affairs. Given the current state o f public financial management in FYR Macedonia, the draft CFAA assesses the global fiduciary risk to the government as substantial and the overall fiduciary risk to Bank project funds as moderate. Thus the PCU implementing this project has developed policies and procedures that operate inaddition to those o f the PFMto minimize project financial management risks. The draft Accounting and Auditing Report on the Observance o f Standards and Codes (A&A ROSC) of June 2003 concludes that there are serious audit quality issues and absence o f an adequate professional auditing organization and recommends the establishment o f a regime to regulate the audit profession. Accordingly, the project accounts, records and Financial Statements will be audited each fiscal year by independentauditors acceptable to the Bank and in accordance with standards and guidelines acceptable to the Bank. 4. Social Assessment A rapid beneficiary assessment was carried out by a group of Macedonian sociologists in addition to the sector-specific assessments, each o f which targeted key social issues and worked with stakeholder groups intheir respective fields o f concem. Here are some o f the outcomes o f the assessment: 16 Schools are overburdened by the expectation to meet the responsibilities o f high standards and rigid norms set by the MOES, and by the pressure to fulfill the annual working plans. These pressures weaken the relations with local communities. There is no technical expertise for strategic planning in the schools that would enable them to conduct self-evaluation. Principals have shown lack o f skills for planning. Schools have no system for monitoring quality; as it i s considered as duty o f the SA and the BDE. There is an evident need for continuous training o f teachers. Standards for pupils' assessment are absent, teachers are not objective inassessing students' achievements. The content o f the curricula i s considered by teachers and parents to be too extensive. Parents expressed their dissatisfaction with students being overburdened with lessons, which according to them was not intheir benefit. Cooperation between school management and school boards and parent councils should be stronger and more transparent. It was evident that there was deficiency in terms o f information exchange betweenSchool Board, Parents' Council and non-member parents. The role o f local self-govemments ineducation should be increased not only with respect to financing, but also interms o f competences. 5. Environment With the exception o f minor repairs in some schools, the project does not involve civil works, nor any other activities with impact on the environment. 6. Safeguardpolicies 7. Policyexceptions and readiness The procurement documents for the first year's activities include RPF packages for the technical assistance contracts are plannedto be ready by project effectiveness. The PCU i s being assisted by individual consultants to prepare detailed TORSand RFPs for TA packages to be * By supportingthe proposedproject, the Bank does not intend to prejudice the final determination o f the parties' claims on the disputed areas 17 procured under QCBS method and are being financed from the bridging grant for project preparationprovidedto the BorrowerinOctober2003. The POM was submittedto the Bank in a draft form prior to appraisal and discussedin detail and agreed upon during appraisal mission. By the end of November 2003, the Borrower will submit the draft POM for the Bank's review and comments. The POM, with the exception ofthe SIGGuidelines,will be adoptedbythe MOESby December31,2003. 18 Annex 1: Country and Sector ProgramBackground FYRMACEDONIA EducationModernizationProject Participationand EducationAttainment Although availability and reliability o f statistical data are limited, the main trends in access and education attainment (measured in the average number o f years completed ) are somewhat distressing: Participation in pre-primary education varies greatly by ethnic group (90 percent among Macedonians, 54 percent among Albanians, 37 percent among Turkish), by region, by urban versus rural area, and by income level. Due to these variations, student achievement during the first years o f basic education is very uneven. Primary school coverage went down to 85 percent in 1993, since 1990, and has since come up slowly to 89 percent. However, this data i s disputed by the Government Statistical bureau and - in absence o f census information, cannot be considered to be definite. Since both dropout and repetition i s reported at minimum (less than 1 percent each), the cause o f less than adequate coverage is likely to be limited access by children from the poorest background. However, precisely the account for some o f the ethnic groups i s problematic and i s subject o f political debates. Overall secondary school enrollment rates (around 65 percent) in FYR Macedonia are low by both regional (South-East Europe) and international standards. With some 15 percent o f the students enrolled in three-year vocational programs, the average attainment level is well below international averages (approximately 10.7 years against 16.4 in OECD countries). Of the age group graduating from grade 8 in 1991,for example, only 62 percent graduated from secondary school 4 years later, and only 12.8 percent obtained a first degreeat tertiary level in 1999. Low enrollment rates at the overall secondary level (general and technical/vocational) signal important inequalities. Differences emerge across ethnic groups, gender, location, and income groups. While, for instance, Albanians represent a higher proportion among pupils participating in basic education relative to their proportion in the overall population (indicating higher live birth rates), their participation in secondary education, though growing, is significantly lower than their proportion within the cohorts or even lower than their proportion within the overall population. Survival rates of Roma students-and indeed o f Albanians and Turks-are very low beyond grade 8. By the time students reach the end o f grade 12, the vast majority o f those continuing into higher education are Macedonian. The highest numbers o f young unemployed persons are those with only basic or secondary education. Consequently, those coming from ethnic minority groups and have low education attainment have the highest risk o f becoming unemployed. One critical issue is Albanian and other ethnic minority girls' education. While girls take equal part in secondary education among Macedonians, they barely reach one third o f the total number in their respective ethnic groups. Gender differences exist especially in Skopje and other urban areas where the Albanian and Roma minorities are concentrated. Improving participation in education and increasing education attainment (measured by the average number o f years completed by different groups o f students) should be important for FYR Macedonia for the following reasons: (i)the low overall education attainment is widely considered as a constraint o f economic competitiveness; (ii)equal participation by ethnic 19 minorities should be considered a key factor in establishing social cohesion in an ethnically diverse society; and (iii) poverty i s closely connected with success in education attainment, as the Government education policy should better focus on poverty reduction measures. The Macedonian government has undertaken some initiatives to improve the targeting o f education resources towards the poor. However, despite such measures, the poor still are disadvantaged. The reasons for this are fundamental: (i)information about true access, attainment, and attendance are not reliable (limited transparency); (ii)the distribution o f government funding to education shows disparities. Richer households receive a much higher average per capita subsidy for education in both secondary and tertiary education. In addition, the level o fthe per capita subsidy is much lower inrural than inurban areas; and (iii) need, local student choice is not reflected inthe structure o f programs (especially at secondary and tertiary levels) and inthe curriculum. Short o f expecting major capital inflow into the sector, the Government needs to do the following to improve access and attainment in the long-term: (i) should develop a reliable it information system that shows student flows, attendance, funding and other inputs; (ii) it should allocate funds by minimizing disparities but also by focusing more on problems o f the poor; (iii) it should give priorities to pre-primary education and access to secondary education; and (iv) empower local governments and school communities to adjust demand to better fit local need. Especially, schools should be empowered to better attend some o f the key concerns affecting participation, such as regular attendance o f classes, retention o f students from grade to grade and higher rate o f transfer from primary to secondary education. Curriculum,EducationAssessment andEvaluation Education inFYR Macedonia doesn't appear to be flexible enough to be able to adjust to volatile economic needs. Civic challenges also overwhelm the educational system inwhich local context and relevance has limited space within centralized curricula and a traditionally selective system o f grading and examination brings about early streaming and favors privileged (affluent and urban) groups. Although the government has made significant commitment to improve civic education in FYR Macedonia, flexibility in the curricula i s largely lacking. In parallel with an overloaded curriculum and its focus on factual knowledge, the teaching, acquisition and assessment o f this knowledge takes place by extensive, passive learning by students, lecturing by teachers and frequent oral examination (questioning) o f studentsby teachers. Curriculum inFYR Macedonia has been specified by the Bureau for the Development o f Education (BDE), without reference to stakeholders. The curriculum i s said to have been largely unchanged for 20 years and out o f touch with the needs o f modern society and economy. There was little curricular choice for students. In response to these problems, two reform programs were initiated: the modernization o f secondary vocational education (the PHARE program); and the reform of the gymnasium curriculum and the Matura examinations. However, the most critical concern i s that in a highly diverse society, centralized curriculum reform i s very difficult to achieve whereas adjustment o f curriculum at local level to meet local need i s not feasible. Schools function in very diverse environments, even to achieve similar standards, they need a variety o f activities, including training for teachers, better equipment, or the introduction o f 20 instructional programs that are in demand. In absence o f an appropriate environment for centralized curriculum, these require the empowerment o f schools. A new gymnasium curriculum comprises o f a mix of compulsory and optional subjects. Teachers and students seem universally to support the principles o f the new curriculum. There has already been some success in making learning more interactive, with both students and teachers reporting a higher level o f interest and in some cases achievement. However, it i s widely believed that these reforms were introduced too quickly and with inadequate training for teachers. Lack o f textbooks and insufficient access to computers were the most widely cited problems. Problems were also being encountered because o f the lack o f specialized equipment and materials (e.g. chemicals for science lessons or maps for geography). Educational assessment and evaluation in FYR Macedonia - carried out mostly by the Assessment Unit o f the BDE - have some strengths, but also areas where development i s necessary. Some aspects o f summative assessment (recording and certificating the knowledge attainment o f students) and assessment for evaluation (accounting for the quality o f education) are strong, in particular the Grade 4 National Assessments and the participation o f FYR Macedonia in international assessments. However, school-based summative assessment needs to be strengthened. Grades awarded by teachers are unreliable and there does not appear to be a strong tradition o f formative assessment (monitoring student progress and improving the quality o f learning) in schools. There is no effective system o f external evaluation o f schools and no arrangements for school self-evaluation. The EAUbegan developing the new Matura in2000. The current plan is to introduce the Matura in 2005, when the first cohort o f students following the new general education curriculum completes their four-year program. All students completing general education are expected to sit the Matura. Students completing vocational education may opt to sit the Matura (if they are interested in progressing to university) or `final examinations'. The Matura requirementsare the same for general and vocational education students. The Matura comprises external examinations in Mother Tongue and in either Mathematics or a Foreign Language; school-based examinations intwo optional subjects; and internally assessedelements. National Assessment at Grade 4 i s part o f the system o f external monitoring o f students' achievements being established inFYR Macedonia. Assessment i s conducted on a representative sample o f schools and students. The first cycle o f assessment - in Macedonian and Albanian Languages started in 2000. Each year, two subjects will be assessed and then repeated in four- year cycles. The main aim o f National Assessment i s to provide valid data about students' achievements to be used by educational authorities and professional institutions in creating educational policy, and also by schools and teachers inimproving the quality o f education. The EAUparticipates inthree international projects: TIMSS-R, PIRLS and PISA+. Their aim has beento measure students' progress inreading skills (PIRLS at the end o f Grade 4, and in PISA+ with students aged 15), as well as students' achievements in mathematics and in science (TIMSS-R at the end of primary education and PISA+ at the end o f primary education or the beginning o f secondary education). By the time of the project appraisal, the first results o f all the 21 international assessments, (TIMSS-R, PIRLS and P1SA-t) have been published and the information about the overall effectiveness o f education inFYRMacedonia are not promising. All three international assessments showed that FYR Macedonia is significantly below international standards and i s one o f the worst among those countries, which participated in the assessments. Most recently, the PSA+ results also confirmed this trend, which shows that the system does not equip students with adequate skills to succeed inthe international context. FYR Macedonia was the 38th out o f the 41 participating countries in reading, mathematical and scientific literacy assessment. Further, analysis showed large variations in performance within the country and showed a number of factors that play a role in this performance, including, among others, the qualification o f the teachers. These results so far have not been adequately disseminated nor discussed within the country. The tasks o fmonitoring school effectiveness and teacher performance are attended bythe BDE and by the SEI, however, the distinction betweentheir respective roles is unclear. A BDE Advisor visits each school at the beginningo f each school year to discuss the plans for the year, levels o f staffing and equipment, then conducts monitoring and review visits at the end o f the first term and the end o f the school year. School visits are also made in response to reported problems. Subject Advisors visit the classrooms o f all teachers for whom they are responsible, but particularly new teachers or those experiencing problems. Training and support for schools are provided through subject specialist workshops, visits by teachers to the Bureau, and group visits o f Advisors to selected schools. In practice, the system was no longer able to operate as described. Often, the entire school monitoring function was exercised through a single annual visit. Often, teachers had not seen a Subject Advisor for a few years. There i s a mismatch between the Bureau's responsibilities and its staffing resources, brought about through a substantial number o f early retirements combined with a sharply increased development load. The current curriculum development agenda leaves Subject Advisors with inadequate time for other responsibilities. Some subjects were poorly covered by Advisors because o f the random impact o f early retirement. On the other hand, the Bureau retains many staff who undertake school monitoring visits but were said not to have the skills for development o f curricula and assessment, or teacher training. The SEI comprises of some 25 inspectors. Each school i s supposed to be visited once a year. A normal annual visit takes one day or more depending on the size o f the school. Additional visits may occur where problems are reported. The inspector's role i s to check compliance with Ministry regulations on such matters as conditions o f work, qualifications o f teachers, curriculum, and textbooks. Schools produce annual programs o f work, that include some developmental objectives, but there i s no culture o f school planning linked to self- evaluation. The main function o f inspection reports i s to keep the Minister informed about what i s happening in schools, especially in relation to the adherence to legal regulations and possible parental complaints. There was no evidence that these reports impacted the quality o f provisions or resources in schools, or overall school effectiveness (i.e. student outcomes, attainment, satisfaction, etc.). 22 A critical issue for botheffectiveness and quality is the lack of adequate teacher policy in FYR Macedonia. Teachers are public employees, constituting over 40 percent o f the country's public sector staff and exposing the education sector to frequent pressures at times o f economic and fiscal crises. Efficiency i s challenged by qualification problems, lack o f local capacities to adjust supply to demand, and relatively low weekly workload. As a result, overall expenditures are somewhat skewedtowards salaries (relative to other countries), even ifteachers are seriously underpaid relative to the average wage levels and compared to other medium-level economies. Consequently, they are not motivated adequately to improve performance. This i s reflected, among others, in declining quality, aging teacher population, lack o f male teachers, and inadequate level o f aspiration to receive in-service training. Further, the outdated and rigid pre- service training and the lack o f sustainable in-service training results in gaps inthe qualification o f teachers. In-service training provisions are not competitive, they are limited to a few potential providers who are not motivated to extend or improve their services. Inadequate access to training for teachers in minority languages causes more serious problems in the education o f ethnic minorities. Arguably, in some regions where the population o f ethnic Albanian community i s dominant, the low qualification o f Albanian speaking teachers i s the biggest impedimentto improve quality of learning. EducationalAdministrationand Management The education system in FYR Macedonia i s overly centralized. It requires that the MOES: impose detailed directives on schools; approve all transactions; solve even the minor problem or issues o f contestation in the system; and appoint and dismiss school directors. In addition to the MOES, the Ministry o f Finance (MOF) has a key role indeterminingbudgets and monitoring expenditures, and the Public Service Agency has a key role in administering and monitoring staff hiring/firingand salaries. The daily administration load distracts the MOES from strategic functions such as policy formulation, long-term planning, standards setting, and inter-ministerial cooperation. Presently, the Government's education strategic focus is swayed by political considerations and limitedby the lack of capacity to connect development agenda with clear policy targets and necessary sources o f funding and other resources. Two recent efforts in 2000 and 2001 provided fundamentally different approaches to strategy development. In 2000 a radical reform agenda was presented by an expert group with about 100 priority actions but no clear understanding o f feasibility and sustainability. In 2001, the "Education Development Strategy" elaborated by MOES was focused on investment priorities to attract donor interests and external funding without much o f any review o f education sector performance, challenges and opportunities how the system, including internal resource allocations needto change. This centralization is especially problematic given the fragmented school network o f FYR Macedonia. Because o fthe rural and mountainous areas and diverse society, there are over 1000 school facilities, half o f them only teaching four grades, one third with less then 50 students. Given the physical conditions, the primary schools are organized in clusters, one third o f the schools have full administration and are account holders inthe treasury system, and about two third o f them are satellite schools usually, though not always, teaching only four grades and administered by the central schools. 23 The major implications o fthe overly centralized systems are the following: 0 There are no mechanisms to improve efficiency possibly by: (i)consolidating the fragmented network o f schools; (ii) adjusting resources (Le. number o f teaching staff) to changing demographic need; and (iii) providing autonomy and creating incentives for efficient service delivery. 0 There are no mechanisms to improve school effectiveness - including attending possible problems o f education participation and quality o f learning -nor to adjust the content and delivery to make school programs more relevant, curriculum to better fit with local priorities. The overly centralized system does not leave much autonomy at the level o f municipalities or schools. Municipalities historically did play an important role in the administration o f education. This involvement ceased following the break-up o f the Socialist Federal Republic o f Yugoslavia in 1991. At the same time the number o f municipalities was increased. In 1991 there were 34 municipalities in 2000 there were 124. Nearly two-thirds o f the municipalities have a population o f fewer than 10,000 persons, 37 percent have fewer than 5,000 inhabitants. The current inequities between schools in different parts o f the country i s attributed to the former system o f municipal control in which some municipalities could not or did not put the same level ofresources into schools. Municipalities have neither recent experience in education administration nor the human and financial resources to take major responsibilities in education inthe immediate future. They have little authority to raise tax revenues, and so municipal revenues represent no more than 2 percent o f total public revenues. Opportunities for stakeholder participation inmaking decisions about educational matters are also very limited. Municipal officials are quite adamant that if responsibilities are to be delegated to them there will need to be appropriate funding arrangements, as municipalities do not have the capacity to raise funds locally themselves. School directors should have a larger role in implementingbudget and assuring inputs such as hiringteachers, providing textbooks, taking care o f the school facilities. School directors also issue annual pedagogical plans indicating staff and resource needand allocations. However, these are done under rigid central regulations and frequent oversight through approvals and regular reports. In reality, the school authority does not mean real autonomy over service delivery. Inabsence o f real power, school boards are mostly formal agencies. Recent legislative efforts have targeted strengthening the position, status, qualification and power o f school directors as well as those o f the school boards. The proposedproject's agenda to strengthentheir competence inimproving school effectiveness i s in line with these efforts. 24 Annex 2: Major RelatedProjectsFinancedby the Bank and/or other Agencies FYR MACEDONIA EducationModernizationProject The Bank's first education sector specific investmentproject inFYR Macedonia was the Education Rehabilitation Project between 1997 and 2001. The fundamental challenge was to simply continue the implementation during a period of political crises, major turmoil following the Kosovo war and the influx o f refugees, whose number fundamentally changed the ethnic balance within the country. During the implementation period, there were four changes in the Government with four changes in the position o f the Minister o f Education and that o f the Director o f Project Management Unit. For these reasons, there were some delays and some worse than expected outcome indicators and an overall OED "unsatisfactory" rating. The internal review and the Implementation Completion Review's own rating was more positive given the extremely unfriendlypolitical environment and the fact that during this period, only the World Bank could sustain some dialogue with the Government on education strategy and education reform. Presently, the Youth Project, the Community Development Project, and the Public Sector Management Adjustment Loan are expected to have some impact on some segments o f the youth who are outside o f the school system; the Community Development Project - on school education sector: the Youth Project - on families with pre-school aged children as well as on infrastructure in a limited number o f municipalities, where this sector i s being identifiedby the local community as priority; and the Public Sector Management Adjustment Loan - on tertiary education management. Additional Bank-finance projects include the following: IProject I project^^ I Implementation Development Progress (IP) Objective(DO) Community Development PO76712 S S Community Development PO63577 S S and Culture Project 25 Annex 3: ResultsFramework and Monitoring FYRMACEDONIA EducationModernization Project ResultsFramework ProjectDevelopment Outcome Indicators Use of OutcomeInformation Objectives (PDO) Improve quality o f learning and 75 percent o fthe schools Education quality and education participationat the receiving school improvement participation indicators are used targeted schools by strengthening grants under the project will have as part o f standards o f school school level planning and measurable improvements either effectiveness. management. in quality o f learning(tested via school based assessments) or in Outcome indicators are used in education participation the school self evaluation and (measured at the school level by development planning process. increased enrollments, attendance and retention rates, depending on Indicators will demonstrate the the nature o ftheir most critical success o f the SIG process in challenges). changingthe quality o f learning and improving participation. Improved equity and efficiency Declining disparities between Outcome indicators are used in for a decentralized education comparable municipalities and the strategic planning process system. schools based on public per and inmedium term expenditure student allocation and targeting framework. measures for municipalities in need. New budget circulars follow strategic objectives, including the Increased spending on non- indicatorsmeasuringequity and recurrent expenditures (i.e,, in- efficiency and include spending service training). on non-recurrent expenditures. Increased spending on pupils Fundingis based on capitation attending zero (introductory) year formula, reflecting declining instruction. disparities. Plans developed by participating Municipality plans include municipalities will target efficiency improving measures efficiency improvements and will and indicators. be measured by student/school ratio, studentheacher ratio, proportion o f full-time teachers or by efficiency in use o f utilities. 26 IntermediateResults Results Indicatorsfor Each Use of ResultsMonitoring One per Component/subcomponent Componentlsubcomponent Component One: Component One: Component One: SubcomponentOne: SubcomponentOne: SubcomponentOne: School level planning, Targeted schools carry out self- Monitor to ensure that the new management, and participatory evaluations and development evaluation and planning monitoring capacities improve in plans. procedures motivate schools to targeted schools. participate and ifplans are realistic. SubcomponentTwo: SubcomponentTwo: SubcomponentTwo: Schools implementSIG projects Indicators on quality o f learning, Outcome indicators are used by improving school effectiveness. resource use and on education Regional Evaluation Boards to participation - including monitor SIG implementation and retention, completion o f primary impact and by State Inspectorate education and enrolment to to monitor school effectiveness. secondary education by girls and children from ethnic minorities show improvements in participating schools. SubcomponentThree SubcomponentThree Subcomponent Three Central and local policy makers, Quality indicators are used in External assessment results are school management have the strategic plans at central and used instrategic planning at skills to use external and school- municipal levels. central municipal level. based assessment to measure quality. Number o f schools usingschool Manual on school based based assessment to measure assessments i s developed. quality increases. Reports on school based Number o f secondary schools assessments are used to assess adopting Matura examination education quality. increases. Report on Matura examination is developed. SubcomponentFour Subcomponent Four Subcomponent Four Teachers' skills in participating Number o fteachers participating Report on the in-service training. schools improve. in in-servicetraining increases. Manual on in-service training accreditation system is published. Component Two: Component Two : Component Two: SubcomponentOne Subcomponent One Subcomponent One Strategic and Financial Planning Staff in MOES and in selected The Government produces Capacities improve at the central municipalities are trained, strategic education model, level as well as in selected planning procedures are medium term budget framework municipalities. established. and uses performance based 27 IntermediateResults Results Indicatorsfor Each Use of Results Monitoring One per Component/subcomponent Component/subcomponent budgetinginyearly circulars. Formula for funding from central Government to municipalities Handbook on strategic and developed and implemented. financial planning and formula fundingis publishedand Yearly budget circular reflects discussed. capitation formula. Municipal education plans are completed and disseminated in a number o f municipalities. SubcomponentTwo SubcomponentTwo SubcomponentTwo EducationManagement Analytical capacities are EMIS data is regularly published, Information System is available established, staff in MOES and in used for evaluation and for for central and local decision municipalities are trained. allocating public funds. makers. ComponentThree: Component Three: Component Three: Project Coordination Unit helps Project deliverables are Project management reports to effectively implement the implemented and evaluated in an guide project implementation Project, monitors and evaluates efficient manner and on a timely process. implementation and outputs, basis. outcomes. 28 3 vl r- I 8mE5 0 r? 3 c? I I , I 2>. s s m 0 10 F 2>. s 0 m 2 s 0 co I 8a x cm 3 $9x E 3 m m sEs P x $ I 0 m U No$ I I I I .9 e .%5 m .Y n 'q E &s = c d - s 23 Y E I I Y Annex 4: DetailedProjectDescription FYRMACEDONIA EducationModernizationProject ProjectComponent1:ImprovingEducationQuality and Participation(US$16.34 million) The objective of the component is to improve the quality of learning and education participation at the targeted schools through strengthening school level planning and management and through the implementationo f a school grants program. The component will: (i) establish a school development planning system: (ii)implementa school improvement grant (SIG) program; (iii) carry out external and school-based assessments; and (iv) establish a competitive in-service teacher training system. The component targets primarily school effectiveness, which is central to improving quality, relevance and participation. The component's school-based program will include training staff to carry out self-evaluation and planning and to implementsmall (US$lO to US$15 thousand) school improvement grants. Sub-component:1.1 SchoolDevelopmentPlanning The component's school-based program will include training staff to carry out self- evaluation and planning and to implement small (US$15 thousand equivalent on average) school improvement grants. The sub-component will empower and train schools to: 0 carry out self-evaluation based on common standards o f school effectiveness, including identifying concerns related to participation (including enrollment, attendance, retention) and quality; 0 measure student performance through formative assessments; 0 based on self-evaluation, establish school development plans to use resources more efficiently, improve daily management and pedagogical processes and mobilize new resources; 0 implement school improvement grants to carry out critical components o f the development plans; 0 acquire in-service training services from multipleproviders; and 0 involve the community through School Boards inthe monitoring and evaluation process. The sub-component targets primarily school effectiveness, which i s central to improving education quality, relevance and participation. Prior to capacity building for school self evaluation, standards o f school effectiveness will be developed. It i s expected that the project- funded EMIS (see below) would provide information about improvements in education participation (enrollment, attendance and retention o f students) which would further assist schools with development and planning. 36 Sub-component 1.2: School ImprovementGrants (SIG) Schools that voluntarily carry out a School Self-Evaluation (SSE) exercise and undertake the preparation o f a School Development Plan (SDP) will be eligible to submit applications for grants o f approximately ten to fifteen thousand USD to the School Improvement Grants (SIG) program. The grant application will be based upon a project proposal for the school which in turn should be baseduponthe priorities inthe School Development Plan. Interested schools will receive technical assistance in methodologies for undertaking the preparation o f school development plans and grant applications. The grant application to the SIG program will be evaluated along with the SDP, which i s an important part o f the grant application process as it shows that the school i s serious and motivated inits efforts at becoming a more effective school. All primary and secondary schools will be eligible to apply for grants. There will be separate categories o f grants for primary and secondary schools, with appropriate difference in the guidelines, given the different nature of primary and secondary education programs. These guidelines will be developed in line with the specific and eligible education policy objectives that the schools pursue. A detailed set o f criteria for evaluation will be set out inthe POM. In some cases, and based upon criteria to be set out in the POM, some schools could be eligible for a second round o f grants. The primary responsibility for implementation o f the grants will rest with the schools, under the oversight o f their school boards, school management and staff. In addition, five Regional Evaluation Boards (REBs) will be established under the project which will evaluate grant applications based on criteria set out inthe POM. Arrangements will also be made to have interested stakeholders (parents, local businesses, NGOs, etc.) participate in the oversight o f the grants. Sufficient advisory and technical support to the schools should also be arranged in light o f the fact that this i s an area inwhich the schools have little experience. Specific activities will include: (i) establishment o f approval, monitoring and evaluation processes; (ii) establishment and training o f REBs to monitor and evaluate SIG program according to agreed criteria and procedures set out inPOM; (iii)piloting o f SIG program inten districts; (iv) implementation o f SIG program to allocate funds to schools that present satisfactory plans and proposals and make commitment to improve quality o f learning, teaching performance, attendance or attainment; and (v) monitoring and evaluation o f SIGprogram. A School Improvement Grants Guidelines (SIG Guidelines) will define the following: (i) the school selection processes; (ii) eligibility criteria; (iii) eligible and ineligible activities to be financed through the SIGs, including the proportion of the expenditures by categories; (iv) the allocation formula for grant award limits; (v) list o f potential SIGs objectives and activities; and (vi) implementation and reporting arrangements. The completion o f the SIG Guidelines satisfactory to the Bank will be a condition for disbursingagainst school grants' category. Sub-component1.3: EducationAssessment This sub-component will help to carry out both school-based (formative) assessments and external (national and international) assessments to monitor the quality improvements in the schools during project implementation. The EAU o f the Bureau for the Development o f 37 Education will administer the external assessments, as well as providing guidance for developing school capacity to carry out formative (school based) assessments. The EAU will develop standards for examinations, such as the Matura exam at the end o f secondary education. The project will also strengthen the SEI to develop standards for school effectiveness and develop competence and capacity to monitor it as well as to take lead role in approving and monitoring school improvement grants. Specific activities will include: (i)strengthening o f the EAU's organization and development, including national assessments at grade 4 and grade 8, international assessment studies, using assessment results to evaluate quality o f school education; (ii)introduction o f Matura external examinations; and (iii) development o f School Based Assessments (SBAs). It is expected that through other project-funded activities the Education Management Information System (EMIS) will provide information about improvements in participation (enrollment, attendance and retention o f students). The project will also strengthen the State Education Inspectorate (SEI) to develop standards for school effectiveness, and develop competence and capacity to monitor it as well as to take lead role in approving and monitoring school improvement grants. Sub-component 1.4: In-serviceTeacher Training This sub-component will establish an accreditation system to assure that in-service teacher training services are provided by multiple providers and that they meet adequate standards o f quality. The system will facilitate schools to use SIGs to acquire training services from these providers. Whereas the social assessment indicated that both schools and teachers are interested in in-service training, the MOES i s also planning to introduce, at a later phase o f the project, a teacher certification system, which would link with in-service training. Activities will be implementedinphased modules to sequence relatedproject components. Specific activities will include: (i)establish institutional framework for developing human resource management and teacher policy; (ii) establish procedures for implementing a competitive system o f delivering in-service training for education staff (teachers and education administrators); (iii)establish mechanism for general accreditation of education in-service training providers; (iv) develop training standards and curricula, and monitoring o f in-service training; (v) develop service providers to develop and deliver a "train the trainer" program for potential providers o f in-service training; and (vi) develop a certificatiodlicensing system. Component2: CapacityBuildingfor DecentralizedEducation(US$1.75 million) The objective o f the component is to buildcapacity for the central and local governments to operate ina decentralized education system. The component will improve strategic planning, management, and monitoring and accountability procedures inthe education sector It will target the organization and staff o f the MOES, through the establishment o f two Units at MOES that will be charged with providing information specifically in support o f the above aims and a pilot o f 10 to 15 municipalities, which would used to test the methodology developed and could at a 38 later stage be rolled-out to all municipalities once the planned Administrative reforms are complete. Sub-component2.1: Strategic and FinancialPlanning The principal activity will be the setting up and support o f two Units at MOES, a Strategic and Policy Unit,which will be responsible for developing and carrying out (i) a SEMto help project enrollment trends (including key indicators of participation), input needs, planned expendituresand financing need according to various policy scenarios; (ii) MTEF, as well as a yearly budget plans; and (iii)a formula for financing education. Formula financing will be developed gradually, in line with the decentralization process, starting with a formula for financing assets. The activity will be completed by a full capitation-based financing formula. Secondly, support will be afforded to the Analytical Unit, this Unit i s responsible for coordination o f EMISmanagement system activities, data collection, and carrying out analysis to provide key information for strategic and financial planning. A key concern will be to ensure data collection i s targeted at the needs o f MOES and i s carried out in an efficient and timely manner. This may involve coordination with the Central Office for Statistics to ensure there i s no unnecessary duplication indata collection activities; The Analytical Unit would, in addition, specifically be responsible for data collection, analysis, and the provision o f information related to strategic and financial planning for MOES and other key stakeholders. It i s expected that the Analytical Unitwill be the main driver behind the development and management o f the EMIS to be developed under Sub-component 2.2. The sub-component will also target municipalities, once their responsibilities are clarified under the new legislation. The project will develop and test a strategic education model inthese municipalities, including the use o f public and private revenues for education, monitoring access and enrollment trends, school infrastructure, and school consolidation ifnecessary. Sub-component2.2: EducationManagementInformationSystems The primary objective o fthis subcomponent is the establishment o f an EMIS. The EMIS will be a tool usedto monitor education service delivery and outputs (based on agreed standards and indicators), and resource flows, and help to strengthen partnerships between all levels o f authorities and operations. The EMIS will be housed at the IT Department o f MOES, who will responsible for the maintenance o f the data and day-to-day functioning of the system, but hosted by the Analytical Unit who will be responsible for the functional specification and will drive the development o f the system. The main objectives o f the EMIS would be: a) to provide education planners, administrators and managers (at all administrative levels) with appropriate, reliable andtimely data and information requiredfor decisionmaking; b) to coordinate national efforts in data collection, processing analysis and dissemination with respectto data relevant to education; and 39 c) to streamline the flow o f information used for decision making by reducing, and if possible, eliminating duplication indata collection. The EMIS will be developed in phased functional modules, based on established user needs and priorities. At this stage it i s thought the that the most important modules would cover data collection on enrollments, student flows, information on the school network with space and capacities, and information on expenditures. Subsequently, the EMIS will also include data on teachers, effectiveness and quality. Activities will be implemented in phased modules to sequence with relatedproject components based on established User Requirements. Specific activities will include: (i) assessment o f the current status o f the education information system and development o f specifications for expanding the system; (ii) development o f software to provide technical support at central, regional and municipal levels; (iii)develop hardware systemfollowing determinationofrequirementsfor the Statistical and Analytical Unit to effectively function as the hub o f the system as well as regional and municipality offices; and (iv) provide training to school and municipal managers and central government staff for the EMIS. The general approach to EMIS development would comprise a three stage approach. Initially, under the guidance o f an EMIS Working Group established by MOES, the User requirements and a Functional Specification would be developed, this would form the basis for Software Development. After development and testing o f the software had been carried on a pilot region, then the major hardware procurement and roll-out o f the system to the whole o f FYR Macedoniawould be carried out. ProjectComponent3: ProjectManagement(US$1.17 million) This sub-component provide overall coordination and supervision o f project activities, and ensure the highest quality through monitoring and evaluation o f project indicators. The PCU i s expected to be part o f the MOES and staffed partly by consultants and partly by Ministry staff. It will fulfill all the administrative and fiduciary responsibilities related to the project (e.g., financial management, procurement, disbursement, monitoring and reporting) and will ensure effective monitoring and evaluation o f project achievements and outcomes duringthe project. Specific activities and responsibilities o f the PCU will include inter alia: (i) coordination of overall project implementation activities for all components and sub-components o f the projects as specified in the POM; (ii) managing and facilitating all planned technical assistance and training contracts under the project; (iii)assisting schools in procurement and financial management under SIG program and carrying out post review o f the contracts awarded by the schools; and (iv) ensuring effective monitoring and evaluation o f project achievements and outcomes during the project, and managing a monitoring and evaluation budget. 40 Annex 5: ProjectCosts FYR MACEDONIA EducationModernizationProject ExpenditureAccounts by Financiers The Dutch World (US$ '000) Government Government Bank Total Amount Amount Amount Amount I.InvestmentCosts SIG Grants 2,23 1.47 7,200.00 3,680.00 13,166.47 Goods 258.16 13.70 1,160.00 1,43 1.86 Consultant Services 142.65 3,480.00 25.00 3,647.65 Training 113.95 754.00 10.00 877.95 Operating Costs 28.87 40.6 20.00 89.47 Front-End Fee 50.00 50.00 Unallocated 116.00 55.00 171.00 TotalInvestmentCosts 2,875.1 11,247.93 5,000.00 19,278.54 11.RecurrentCosts Recurrent Cost 37.67 - 37.67 Total RecurrentCosts 37.67 37.67 TotalPROJECT COSTS 2,912.77 11,403.23 5,000.00 19,316.21 41 Annex 6: ImplementationArrangements FYRMACEDONIA EducationModernizationProject The implementingagency for the Project will be the MOES. To meet project objectives, MOES shall establish and maintain the following, directly reportingto the Ministry: 0 A PCU, to coordinate the project activities; Advisory Groups, responsible for overall policy guidance on the Project. There shall be three Advisory Groups, (i) EducationAdministration (Decentralization) Advisory Group, (ii) SteeringCommittee, and(iii) ProfessionalDevelopmentCouncil;and SIG Teacher Regional Evaluation Boards Throughout the project implementation, MOES, through the SIGprogram, shall closely collaborate with: Local School Communities, which would include School Boards, Teachers' Councils, Parents' Councils, Students' Councils and Municipal Authorities; and Educational Service Providers, which would include Pedagogic Institutions, Training Institutions, NGOs, etc. 1.School levelplanning and incentives The MOES will nominate and train a coordinator for school level initiatives including establishing standards and procedures for quality assessment, school level planning: the coordinator will be responsible for organizing and coordinating the SIG activities. report - which will be responsible for the development of the quality and planning standards and The MOES will establish a SIG Steering Committee, - to whom the coordinator will procedures, the application procedures for the SIG, the training system for the school principals and board members as well as for monitoring and evaluation o f the sub-component. Regional SIG Boards will be established to oversee the implementation o f the planning procedures, will decide upon the allocation o f the grants and will evaluate the school projects. Terms o f reference for these boards will be included inthe POM. Technical assistance will be contracted to assist intraining the regional boards. Adequate funding will also be made available to conduct performance audits o f grant implementation throughout the project's lifecycle. The principal criterion for allocating grants across the regions will be the official number o f primary and secondary students enrolled in each region in the 2004-2005 school year. As part of the project preparation, the MOES has started a pilot o f the SIG process with ten schools. These schools are selected by a set o f transparent criteria (including school levels, 42 size and ethnic background as well as location) from the Skopje region. During the pilot, the training manuals, manuals o f the SIG process will be developed and tested, and the schools as well as the REB will be trained. The pilot schools will receive a school improvement grant. The pilot process will be monitored and evaluated and the manuals updated based on the lessons learnt duringthe pilots. 2. Education Decentralization The MOES has appointed a coordinator who acts as the MOES'sprincipal counterpart for the tasks o f decentralizationand legal harmonization and that of capacity building at central and municipal levels. The coordinator i s also expected to coordinate technical assistance and training contracts. Overall harmonization o f laws, procedures and capacities with the objectives o f education decentralization will be overseen by an Education Administration Advisory Group. The Group will have to include stakeholders, representatives o f municipal government and that o f the school and business communities. Terms o f reference for the coordinator, for the advisory group as well as for the technical assistance during the project implementation, including the pilot training programs, will be agreed at appraisal and included inthe POM. 3. Project Coordination The PCU within the MOES will be responsible for overall coordination, project management, financial management arrangements, disbursements, reporting to co-financing agencies, organizing procurement and coordinating potential parallel financing by other donors. A PCU has been established to coordinate project preparation activities but needs to be strengthened in terms o f its mandate and capacities via technical assistance during project preparation and project implementation. Under the Director, the PCU will have a Financial Management Specialist, a Procurement Specialist plus coordinators for each subcomponent. A technical advisor will coordinate technical assistance, other donor activities, monitoring and evaluation and reporting. In addition to regular oversight by the Minister, an intergovernmental board was recommended consisting senior representatives (possibly Ministers or Deputy Ministers) o f the MOF, Ministry of Labor, Ministry o f Local Government and/or other central governmental agencies plus representatives o f stakeholders. This board will needto review each by-yearly progress reports and participate inthe mid-termreview. 4. Monitoring and Evaluation of outcomeshesults The project will have five levels o f monitoring and evaluation: (1) school level self- evaluation with active local participation in monitoring and evaluation; (2) a regional evaluation system for the SIGs; (3) central steering bodies focusing on the main project components; (4) key central agencies and management systems (SEI, EAU, EMIS/analytical unit o f MOES); and (5) the PCU settingup an overall monitoring, fiduciary supervision and evaluation system. The key to monitor and evaluate the outcomes o f the main investments are the school based self-evaluations and plans. These will be carried out based on pre-defined manuals by trained staff. School-boards are expected to approve these as well as to monitor the implementation o fthe school improvement grant activities. 43 Regional Evaluation Boards will be set up and trained to monitor the SIG process regionally and evaluate individual SIG proposals. They will also be involved in monitoring the SIG implementation and will develop regional progress reports. Three steering/monitoring agencies will be set up to monitor key project components and also to inform the MOES about the impact and policy implications o f as well as to consider ways to sustain the key activities: the SIG Steering Committee, the Education Administration Advisory Group and the Teacher Professional Development Council. Their function i s described inthe institutional arrangements above. As part o f the central agencies o f education administration, the SEI is expected to play a key role in evaluating school effectiveness. The EAU will carry out sample based tests to monitor overall quality o f learning and will assist in training the schools to carry out formative assessments. The Analytical Unit of the MOES, hosting the EMIS, will be in charge o f monitoring enrollments, attainment, attendance as well as the implementation and impact o f the formula-based funding system on per-capita allocations by regions and schools. The PCU will have an overall project monitoring and evaluation system, which will include an ongoing performance audit and will help oversee and regularly report on overall project implementation, outcomes and impact o f components on different indicators as well as on key fiduciary issues, such as procurement and financial management. 44 Annex 7: FinancialManagementand DisbursementArrangements FYRMACEDONIA EducationModernizationProject Country Issues A Country Financial Accountability Assessment (CFAA) for FYR Macedonia has been carried out in 2003. The draft CFAA concludes that the public financial management (PFM) framework in FYR Macedonia i s still evolving, and improvements are required in many o f the components comprising the PFM system. In addition to establishing modern financial institutions, the country has had to develop the skills and capacities to manage its own affairs. Given the current state o f public financial management in FYR Macedonia, the draft CFAA assesses the global fiduciary risk to the government as substantial and the overall fiduciary risk to Bank project funds as moderate. Thus the PCU implementing this project has developed policies and procedures that operate inaddition to those o f the P F Mto minimize project financial management risks. The draft Accounting and Auditing Report on the Observance o f Standards and Codes (A&A ROSC) of June 2003 concludes that there are serious audit quality issues and absence of an adequate professional auditing organization and recommends the establishment o f a regime to regulate the audit profession. Accordingly, the project accounts, records and Financial Statements will be audited each fiscal year by independent auditors acceptable to the Bank and in accordance with standards and guidelines acceptable to the Bank. Strengths and Weaknesses The significant strengths that provide a basis of reliance on the project financial management system include: (i) Project "ring fencing" through the establishment o f a dedicated PCU with a suitable staffing structure; and (ii) PCU has already gained experience with the Bank's financial management requirements during the disbursement o f the PHRD grant for Project preparation. There are no significant weaknesses o fthe project financial management system. Implementing Entity MOES established a PCU within the Ministry. The PCU will coordinate the implementation o fthe Project. Funds FIow Project funds will flow from: (i) Bank, either via a single Special Account which will the be replenished on the basis o f SOEs or by direct payment on the basis o f direct payment withdrawal applications; (ii) the Dutch grant Special account which will be opened inMNB; or (iii) Government,viatheTreasuryAccountofMOES. the 45 MOES will open and manage separate Special Accounts (SAs) for the Bank Loan and Dutch Grant funds in MNB. The authorized allocation o f the SA would be US$500,000. The authorized allocations should be limited to US$250,000, until the aggregated amount o f withdrawals from the Loan Account plus the total amount o f all outstanding special commitments shall be equal to US$2,000,000. Withdrawal applications for the replenishments o f the SAs will be sent to the Bank at least every three months, or when the balance o f the SA i s equal to about half o fthe initial deposit or the authorized allocation, whichever comes first. The funds under the School Grants Component will be disbursed from the Special Accounts in MNB directly to individual sub-accounts o f beneficiary schools, which are part o f the Treasury Single Account. The PCUwill authorize spendinglimit for the grant funds of each school based on an approved budget and procurement plan. The detailed procedures regarding the disbursement and financial monitoring of the school grants are included inthe Small Grants Manual. Staffing The PCU includes Director, Technical Assistant, and Procurement Specialist. The financial function i s covered by the Procurement specialist and an external financial management consultant who was responsible for the implementation o f the PCU's financial system. A full time Financial Specialist and Financial Monitoring Specialist are being recruited. Detailedjob descriptions, responsibilities and authorities o f each PCU member are included inthe P O M and approved by the Bank. The Financial Monitoring Specialist (FMS) will exercise financial control over the disbursementsand reporting o fthe SIG beneficiaries. Accounting Policies and Procedures The accounting books and records will be maintained on a cash basis and project financial statements will be presented in the Loan currency. The PCU has instituted a set o f appropriate accounting procedures and internal controls including authorization and segregation o f duties that are described inthe P O Mandthe Small Improvement Grant Guidelines. Internal Audit The Internal Audit in the Public Sector o f FYR Macedonia has been assessed as not sufficiently developed by the recently finalized CFAA. Therefore no reliance i s currently placed on the results o f its operations. ExternalAudit The Project Financial Statements, Statements o f Expenditures,and Special Accounts will be audited each fiscal year by independent auditors acceptable to the Bank in accordance with standards and terms o f reference agreed with the PCU and acceptable to the Bank and submitted within six months o fthe fiscal year end. The cost o fthe audit will be financed from the loan. 46 Reporting and Monitoring PCUwill produce all financial reports and SOEs for the Bank with the project accounting software, which has been customized by an external consultant and i s used in a number o f Bank financed projects in Macedonia. Project management-oriented Financial Monitoring Reports (FMRs) will be usedfor project monitoring and supervision. The PCU will produce a full set of FMRs every three months throughout the life ofthe project. The formats of the FMRshave been .. agreed with the PCU and will include: .. Project Sources and Uses o f Funds; Uses o f Fundsby Project Activity; Project Balance Sheet; Physical Progress Reports; and Procurement Monitoring Reports. I nformation Systems An accounting software package has been installed and tailored to the specific requirementso fthe project. DisbursementArrangements Bank and Dutch Grant funds will be disbursed under the Bank's traditional procedures including SOEs and direct payments. Supporting documentationfor SOEs, including completion reports and certificates, will be retained by the Borrower and made available to the Bank during project supervision. Disbursements for expenditures above the SOE thresholds will be made against presentation o f full documentation relating to those expenditures. At present there i s no planto move to periodic disbursements. SupervisionPlan During project implementation, the Bank will supervise the project's financial management arrangements in two main ways: (i)review the project's quarterly financial management reports as well as the project's annual audited financial statements and auditor's management letter; and (ii)during the Bank's supervision missions, review the project's financial management and disbursement arrangements. As required, a Bank-accredited FMS will assist inthe supervisionprocess. 47 Annex 8: Procurement FYRMACEDONIA EducationModernizationProject This section describes the procurement arrangements under the Education Modernization Project financed by IBRD and other donors. The total cost of the proposed Project i s estimated at US$19.31 million, o f which the IBRD loan (Loan) would finance US$5.0 million. The project i s expected to be co-financed by the Government o f the Netherlands in the amount o f EURO 10 million and possibly other donors. IBRD and Dutch Government Grant (Grant) financed Goods and Works contracts under the project will be procured in accordance with the World Bank Guidelines Procurement under IBRD Loans and IDA Credits, dated January 1995, revised in January and August 1996, September 1997 and January 1999 (henceforth referred to as Procurement Guidelines). IBRD and Dutch Gov Grant -financed contracts for Consulting Services requiredfor the project will be awarded following the World Bank GuidelinesSelection and Employment of Consultants by World Bank Borrowers, dated January 1997, revised in September 1997, January 1999 and May 2002 (henceforth referredto as Consultant Guidelines) The project inputs, estimated costs and procurement methods for both Loan and Grant are presentedinTable A based on the details o f proposed procurement arrangements outlined inthe POM. The project Procurement Plan i s included in Table B1. Other procurement information, including prior review thresholds for IBRD and Dutch Grant financed contracts, and summary assessment o f the procurement capacity o f the implementing agency and IBRD's review processes are presented in Table B. For procurement under the Loan and the Grant, the Borrower will use the Bank's latest Standard Bidding Documents (SBD), Standard Form o f Consulting Contracts and Request for Proposals (RFP), and Standard Bid Evaluation Report Forms. The Standard Bidding Documents for procurement o f Information Systems would be used for procurements o f IT equipment for EMIS component estimated at over US$lOO,OOO per Biddingor Supply and Installation o f Information Systems - Two Stage Bidding (version March contract These will comprise Supply and Installation of Information Systems - Single Stage 2003 or more recent). Also, the sample procurement documents and forms developed in ECA Region for small value procurement would be adapted to suit the Project needs for procurement, especially under the School Improvement Grants (SIG) Component, and described in SIG Guidelines. Notification of Business Opportunities A General Procurement Notice (GPN) will be publishedinNovember 2003 issue o f the Development Business announcing goods and consulting services to be procured and inviting interested eligible suppliers and consultants to express interest and to request any complementary information from the Borrower. The GPN will be updated annually thereafter for all outstanding procurement under International Competitive Bidding (ICB) procedures, and consulting assignments. Specific Procurement Notices (SPN) will be published in on-line edition o f the Development Business for all ICB contracts. For goods to be procured through ICB, individual bidding opportunities would also be advertised in a major local newspaper and posted on the project Web site maintained by the MOES at least 30 days in advance o f the bidding documents. The local advertisements will be inthe Englishlanguage and, at the option o f the Borrower, will 48 also be in the local language. For consultants' contracts above US$200,000, SPNRequest for Expression o f Interest will be advertised in on-line edition o f the Development Business and in a t least one major national newspaper of wide circulation (inthe national and English languages). The advertisement procedure (at municipal and community level) for procurement packages School Improvement Grants Component will be done in a local language(s) for all small value procurement o f civil works, goods and services as described inthe SIGProcurement Handbook. 1. ImplementationProcurement Management Procurement management i s a responsibility o f the PCU which was established during the project preparationperiod within the MOES. The PCU has a full time procurement specialist inplace who was assisted by an international procurement consultant duringproject preparation and also attended a procurement training course at the I L O center in Turin and the course on selection o f Consultants inBelgrade in2003 deliveredby the Bank specialists. The procurement capacity o f the PCU needs to be strengthened in the following areas: (i)procurement o f IT equipmentinanticipation of ICB tenders for computer equipment and software; (ii) procurement o f civil works; and (iii) preparation o f RFP for and evaluation o f large TA packages. For IT related procurement, a specialized course on procurement o f Information Systems at ILO center can be considered. In regard to the civil works, the PCU will cooperate with the specialists/ engineers from an Investment unit o f the MOES who would assist the schools and the PCU in preparation o f the bill o f quantities and supervision o f works. For an assistance with selection o f consulting firms for large value contracts procured under QCBS procedure, an experienced short term procurement advisor would need to be selected to assist the PCU at all stages o f the selection process duringthe first 1.5 years o fthe project. A series o f workshops, initiated by the Project Launch workshop scheduled around February 2004, would be the vehicle for training municipalities and schools /communities in community-based procurement procedures . Inanticipation o f the start o f the project implementation, the PCU is working to finalize the P O Mwhich will include a detailed description o fprocurement method and procedures for the school grants component described in a separate volume o f the POM - "SIG Procurement Handbook". The P O M will be approved by IBRD and will be adopted as a legal document as a condition to Negotiations. Any changes in the procedures set forth in the POM, including Procurement Handbook will be subject to IBRDapproval, prior to being implemented. ProcurementArrangements The procurement methods and arrangements applicable to the various expenditure categories under the project are summarized below. PROCUREMENTOF GOODS Goods (approx. US$1.4 million equivalent) consisting o f office and computer equipment, software, training and printingmaterials, and publications will be grouped to the extend possible 49 and considering project objectives inpackage sizes that will encourage competitive bidding. The following methods o f procurement will be followed: (0 International Competitive Bidding (ICB). Computer equipment and software under the EMIS component of the Project for contracts above US$lOO,OOO equivalent per contract will be procured using ICB procedures in accordance with the Bank's Procurement Guidelines. (ii) International Shopping (IS) procedure will be used for readily available off-the-shelf goods, including office and computer equipment for the Education Assessment unit and would have standard specifications, estimated to cost less US$lOO,OOO equivalent per contract. This procedure will be based on obtaining and comparing price offers from at least three suppliers from at least two different countries in accordance with paragraphs 3.5-3.6 o f Procurement Guidelines. (iii) National Shopping (NS) will be used for readily available from more than one source in the country and include minor computer equipment for the MOES and the PCU, printed materials and publications and will be based on comparing price quotations obtained from at least three domestic suppliers in accordance with paragraphs 3.5-3.6 o f Procurement Guidelines. ConsultingServices and Training (approximately US$4.4million) Contracts for Consulting Services will be packaged to combine related skills and services in order to make them attractive for competition and reduce the number of contracts to be administered taking into consideration a small size o f the PCU and its limited capacity to administer large number o f contracts. To the extent practicable, training activities would be incorporated with consulting services contracts. Consultant services consist of short-and long- term assignments to be contracted to firms and/or individuals (national and/or foreign or jointly) depending on the nature and duration o f the assignments. Selection procedures will be generally through competition among qualified short listed consultants. The short lists for consultant services contracts with firms shall comprise o f three to six firms with a wide geographical spread, and with no more than two firms from any one eligible country. The consultants' short lists may comprise entirely o f national consultants for consulting assignments that are estimated to cost below US$lOO,OOO. The procurement o f consultant services contracts financed under the Loan and Grant will be in accordance with the provisions o f the Consultant Guidelines. For consulting assignments exceeding US$200,000 equivalent per contract, expressions o f interest will be obtained by advertisement in the Development Business (on-line), supplemented with notices issued inthe national press and posting on the MOES Web site. The following procurementprocedures will be used for selection o f consultant services: (i) Quality and CostBased Selection (QCBS) procedures, as described in Section 11, paras 2.1 to 2.28 o f the Consultant Guidelines, would be usedfor procurement o f consulting services for the following components o f the project: Improving Education Quality and Participation (component 1)' and Capacity Building for Decentralization Education (component 2) estimating to cost above US$ 100,000 equivalent per contract. 50 (ii) Least Cost Selection (LCS) procedure would be used for selection o f an auditor to carry out audit o f the Financial Statements o f the Project estimated to cost less than US$ 60,000 per contract. (iii) Selection Based on Consultants' Qualifications (CQ) will be used for contracting firms for public information campaign under component 1 and training o f EMIS under component 2 for which the value o f the assignments i s estimated to cost less than US$lOO,OOO equivalent (iv) Individual Consultants (IC) . Many specialized activities where specific skills are needed per contract. for short period o f time at scattered intervals and which would not be practical to package with the assignments for consulting firms described above, would be best served through the recruitment o f individual consultants (both foreign and national) to (i) the MOES assist and the PCU in project implementation (component 1 and 3), and (ii) EMIS component (component 2). Selection o f individual consultants will be carried out in accordance with Section V o f the Consultant Guidelines. Individuals will be selected on the basis o f their qualifications for the assignment by comparing the CVs obtained in response to an advertisement in the national press. The PCU staff would be selected as individual consultants with an exception o f the following four Sole Source (SS) contracts: PCU Director, Procurement Specialist, Financial Management Specialist and Assistant who are currently hold individual consultants contracts financed under the bridgingDutchtrust fund and would continue their services under the Education Modernization Project. All the above individual specialists were originally selected among qualified candidates based on comparison o f qualifications. Civil servants can not be hiredas individual consultants with financing under the Loan and Grant. TrainingActivities Training i s an integral element o fthe project's capacity buildingobjective. The Loan and the Grant will finance training programs, including training workshops, study tours and local training. Such training programs would be included in large TA contracts with firms to reduce administrative burden on the PCU. The PCU would be responsible for administration o f small number of local workshops (including project launch, mid term and completion workshops) and limited number o f study tours for the MOES and PCU specialists. The total cost o f such activities i s estimated not to exceed US$90,000 equivalent. Expendituresrelated to such training activities include: (a) for local training and workshops - per diems o f participants to cover transportation, lodging and subsistence; minor organizational expenses (stationeries, handouts, training materials, coffee breaks); and (b) for international study tours - international travel and visa costs, per diems (lodging and subsistence) and course-related expenses (fixed tuition or participation fee). Design o f the training courses and study tours will be done by the specialists contracted as short term consultants under relevant QCBS, CQ and/or I C procedures depending on the value o fthe assignment as described above inthis Annex. Estimated budget, list o f participants and draft agenda for each training event will be subject to IBRD prior review. Expenditure items for training activities, including study tours, would be reported under SOEs. The status o f the training plan would be included as part o f the quarterly progress reports, and would be updated and/or modified as may be mutually agreed betweenthe coordination unitsand IBRD. 51 CommunityParticipationunder School ImprovementGrantsComponent School grants (aggregate value US$13.1 million) expected to range up to US$20,000 equivalent each for primary and secondary schools and will include procurement o f minor works, goods and services such as teaching aids, library books, minor equipment, consultant fees for short term training courses for teachers' training, costs o f organizing/advertising meetings to facilitate attendance by parents and community members, providing adequate facilities and subject content, and etc. Procurement o f goods, works and services will be carried out by the procurement committees which will be established in each participating school following an approved budget and procurement plan and employing community-based procurement procedures, as indicated inparagraph 3.15 o f the Guidelines, and described in detail inthe P O M (Volume 11. SIG Procurement Handbook). Records o f the applied procedures and original o f the receipts will be kept by the schools for spot-check supervision by the PCU, investment department o f the MOES and audits, including on-going performance audit. The PCU would be responsible for preparation o f consolidated reports. The Bank will, on a sample basis, review the procedures followed by the schools as part o f procurement post review. Recurrent Operating Costs Incremental recurrent costs generated by the project include the day-to-day operational costs for office maintenance and consumables and incremental costs o f operating and maintaining the equipment provided under the project for P M U and PCU. These recurrent cost items and operating expenses estimated at US$O.l million will be planned for and executed on the basis o f annual operating budgets approved by the MOES and IBRD. Financing of incremental operating costs will be on a declining basis. Expenditure items would be reported underthe SOEs. Review by the Bank of Procurement Decisions Scheduling of Procurement. Prior to the issuance o f any invitation for bidding, the proposed procurement plan (Table B1) for the project will be updated by the PCU and approved by IBRD. Procurement o f goods and services for the project will be carried out in accordance with the agreed procurement plan, which will be regularly updated and included in the FMRs subject to IBRD's review. Full documentation should be submitted to the IBRD for prior review on the following procurement contracts: 0 all goods contracts awarded under I C B procedure; 0 first goods contract awarded under International Shopping procedure; 0 first goods contract awarded under National Shopping procedure; 0 all consulting firm contracts under QCBS procedure; 0 first two consulting firm contracts under CQ procedure; 0 first consulting contract under LCS procedure; 52 0 all consulting contracts with individual consultants and firms awarded through Sole Source selection method with an exception of consulting contracts awarded under the School Grants component; 0 all consulting contracts over $50,000 equivalent with firms; and 0 all consulting contracts over $25,000 equivalent with individual consultants. All other contracts will be subject to selective post-award reviews carried out by IBRD supervision missions. Table B summarizes applicable procedures and reviewrequirements. Inaddition, the first ten procurement plans prepared by the first ten schools, which got awards, indicating packaging, procurement method, procurement responsibilities (Le. composition of the procurement committee) and time schedule should be reviewed by IBRD prior to any procurement can start. Ex-post reviews o f procurement carried out by the School grants recipients would be undertaken by PCU, MOES and IBRDon a random basis but not less than every 5th grant during the first year and every 10th grant during the second and the third year of project implementation. Annual operating budget ofthe PCU will be subject to prior reviewby IBRDas well. Table A: Projectcosts by proposed procurementarrangements (US$ MILLION EQUIVALENT) PROCUREMENTMETHOD ICB National Other * N.B.F. Total Competitive Bidding 1. Goods 1.3 0.1 1.4 2. TechnicalAssistance, Audit 0.00 3.5 3.7 3. Training 0.00 0.9 0.9 4. School ImprovementGrants 0.00 13.1 13.1 5. IncrementalOperatingCosts 0.00 0.1 0.1 6. Front EndFee 0.00 0.05 0.05 TOTAL 1.3 17.9 I 0.00 19.3 'Figures are the amounts to be financed by the Loan, Grant and Government. All costs include contingencies. *Includes goods to be procured through national shopping, consulting services, services o f contracted staff o f the PCU, training, technical assistance services, and incremental operating costs related to (i)managing the project, and (ii)schoolgrants 53 Table B: Thresholdsfor ProcurementMethodsand Prior Review' Contract Value Contracts Subject to ExpenditureCategory Threshold ProcurementMethod Prior Review (US$ thousands) (US$ millions) 1. Goods >100,000 ICB All <100,000 I S First contract <50,000 N S First contract 3. Services Firms >100,000 QCBS All Firms <100,000 CQ First two Firms <$60,000 LCS First contract Individuals IC All >US$25,000 Individuals-any ss All amount 4. Grants CBP Procurementplans for Total value o f contracts subject to prior review: 90% (excluding School Grants) Overall Procurement Risk Assessment: High Frequency o f procurement supervision missions proposed: One every six months (with frequent post reviews) The PCU will maintain complete procurement files which will be reviewed by IBRD supervision missions. All procurement related documentation that requires IBRD prior review will be cleared by Procurement Accredited Staff (PAS) and relevant technical staff. No packages above mandatory review thresholds by RPA are anticipated. Procurement information will be recorded by the PCU and submitted to the MOES and IBRD as part o f the quarterly FMRs and annual progress reports. A simple management information system with a procurement module would be established to assist the PCU procurement specialist to monitor all procurement information, especially under the School Grants component. 54 Table B1: ProcurementPlan (as of October 14,2003) I I I I 1.2 Software for EMIS component * G 1 ICB Sept 2005 Nov 2005 Dec 2005 May 2007 1.3 Printing equipment for Assessment Unit I** G 2 I S Feb 2004 March 2004 May 2004 August 2001 I I I I I I I 11. Consultants' Services and Training 2.1 TA for School Planning, M&E and cs 1 QCBS April 2004 June 2004 August Dec 2 0 0 1 SIG** 2004 2.10 Short term TA to PCU*** CS Multiple I C Jan 2004 Jan 2004 Jan 2004 Jan 2008 2.11 Financial Audit' *** cs 1-2 LCS Sept 2004 Oct.2004 Dec2004 April 2009 2.12 Operational (Performance) Audit for CS 1 I C May 2004 June 2004 July 2004 April 2009 School Grants '*** 2.13 Training for MOES and PCU staffC** TR Multiple N/a3 Over the life o f the project 1 . includes procurement o f exam duplicators (mini print shop), bar code readers and printers "PCU Consultants" : PCU Director, Procurement Specialist, Assistant, FMS hired for the project preparation PCU will stay on the project subject to satisfactory performance and approval by the MOES and IBRD. Duration o f audit contracts (financial and performance) may exceed the Loan Closing date (including 4 months grace period) by 1-2 months to allow for final audit o fthe completed project. 55 Totalfor ConsultantsServices and I 4.0 Supplies,h e l , office rent, I SOE I Multiple 1Small contractsthrough out the life ofthe Project. Disbursedagainst communication,and services *** SOEs basedon PCIU operating budget approvedby the MOES and I Abbreviations: CS -Consultant Services ;QCBS -Quality and Cost Based Selection, LCS -Least Cost Selection; CQ -Consultant Qualification ;SSS - Single Source Selection; IC -Individual Consultant; SS - Sole Source (for IC contracts); G- Goods; ICB- International Competitive Bidding; I S - International Shopping; N S -National Shopping; PCU-Project Coordination Unit; SOE- Statementof Expenditures; MOES-Ministry o fEducation and Science; IBRD-International Bank for Reconstruction and Development Notes: ***financed from the Loan ***financed from the Grant till Year 3 ofthe projectand from the Loanafterwards from the Grant financed "Nia" : Training (list of participants, agenda, estimatedbudget, destination are subject to prior approvalby IBRD). Includes study tours, in-country workshops and seminars, including mid term review and project completion workshops Grants: Procurement Procedures for procurement of goods, works and services under the School Grants Componentas per SchoolGrants ProcurementHandbook 56 Annex 9: Economicand Financial Analysis FYR MACEDONIA EducationModernization Project Estimates of Potential Benefits There is no available data from labor market surveys to estimate social rates o f returnto education in FYR Macedonia However, it i s useful to look at social rate o f returns to education inother middleincome countries, especially to primary and secondary education. Rates o freturn to education in FYR Macedonia shouldn't be expected to be much less than the lower end o f the range o f such estimates for other middle income countries. Table 1 below shows a selection o f middle income countries for which labor market data was available to do rate o f returnestimate inyearsjust prior to 1994. The table also shows Gross National Income (GNI) per capita for the year 2000, just to give a rough estimation o f the ranking o f these countries in the scale o f development. Macedonia's GNIper capita i s listed inthe World Bank's Development Indicators (2002) as being $1,820 for the year 2000. Table 1. Social Rates of Returnto Education for Selected Middle Income Countries GNIper capita Returnto Primary Returnto Secondary Countries Argentina 7460 8.4 7.1 Bolivia 990 9.3 7.3 Brazil 3580 35.6 5.1 Chile 4500 8.1 11.1 Columbia 2020 20.0 11.4 CostaRica 3810 11.2 14.4 Ecuador 1210 14.7 12.7 El Salvador I 2000 16.4 18.7 Mexico 5070 19.0 9.6 Thailand 2000 30.5 13.0 Uruguay 6000 21.6 8.1 Venezuela 4310 23.4 10.2 Only 3 countries show primary rates o f return below 10 percent, and these are still reasonably close to 10 percent, which i s the usual benchmark value used for rates o f return to Bank investments (when it i s possible to calculate them). As usual, the social rate o f return to secondary education i s lower inmost cases than it i s for primary education. One major caveat to a comparison with rates o f return i s that the unemployment rate in FYR Macedonia may be much higher than in some o f the other countries. So labor market conditions would also have to be compare as well as the status o f access to primary and secondary education. However, some o f these countries are also known to have unemployment problems as well. 57 Another caveat i s that such rate o f return calculations refer to the data from the labor market as a whole, and not specifically from any given project. However, in the case o f this project, the SIG component has features that would lead to the expectation that the rate o f return would be higher thanjust increasing the years o f schooling. The SIG component would not only contribute to the increase educational attainment, but it would also help raise school quality. Recent research in the Bank and elsewhere shows that the increasing quality o f schooling, holding years o f schooling constant, also has a highrate o f return. The SIG component is also expected to have a positive impact on poverty through the use o f explicit criteria to provide extra support to schools with satellite units which are mainly in rural and poor areas. Schools inthese areas will also receive extra support interms o f improving school performance via training to encourage more effective community input into school boards and school management. In this way, SIGs can be adapted to the local needs of such communities. Finally, the SIG component, incoordination with the reforms ineducation administration, would lead to savings in the form o f efficiency gains from improved management and governance o f the system. Ifthis i s added to the returns for improving both educational attainment and quality, then it seems there i s a persuasive rationale for why the benefits o f the project are expected to outweigh the costs. However, there i s still no substitute from doing a complete analysis using Macedonian data. The project would make provisions for this by building upon the foundation o f national assessments and by establishing a policy unit in the MOES to study issues o f education, the economy and the labor market in shaping education policy. Thus, Macedonian educational policy inthe future would have a much firmer foundation for decision making, which constitutes a real benefit o fthe project. FinancialAnalysis, Budgetingproceduresand Their Implicationsfor Education Decentralization The Table 2 below shows that public education expenditure vary around 4.0 percent o f GDP, a rather low level when compared with other European countries, where the average is between 5 and 6 percent. When considering extra-budgetary resources, including income generated by schools, grants and loans, however, education expenditure reach 5.2 percent o f GDP (2002). Table2. PublicExpenditureson Educationand Science and Share in GDP (Denar million) 58 *: estimated data Source: State Statistical Office The share o f education intotal public expenditurehas declined slightly from 14.3 percent in 2000 to 11.8 in 2002, after a low 10.5 percent in 2001. This is a low proportion when compared to other countries inthe region, and to WesternEuropean countries. BudgetingProcess and their Implicationson Expenditures The budget framework i s rather traditional, with a functional classification including 8 headings (Administration, Primary, Secondary, Higher, Students Standards, Students Boarding, Science and Scientific Institutions), without subdivision. Since the budget framework i s not categorized by program and does not include output and outcome indicators, there i s no way o f relating budgeted expenditures to goals, objectives and concrete targets. The budget cannot be considered as a tool for achieving specific objectives, only as a way o f allocating resources to the sector without providing any justification other than: `Staff must be paid and minimal operating expendituresmet'. Whenpreparingtheir budget, all institutions must foresee their extra-budgetary resources (EBR), generating from participationfees and all sorts o f school-organized activities, and specify their use bytype o fexpenditure.Because ofthe very limited funds allocated by the budgetto school inputs other than staff, EBRplay a rather significant role inallowing schools to fundvital activities. Recent changes inthe budgetprocess may be interpretedas making it more simple and decentralizing it to a point, while increasing Ministryo f Finance (MF) global control over it. This is especially the case with: 0 The institution o f the single treasury account, which gives full control to MF in the execution o f the budget; 0 The allocation o f a global amount o f resources to MOES for non-salary expenditures, while salaries stay excluded from this increased flexibility in internal allocation by MOES; 0 Expected changes inthe new Law on Municipalities financing (see below). Article 22 o f the new Law on Local Self-Government specifies that, in the field o f education, municipalities are competent for establishing, financing and administering primary and secondary schools, incooperation with the central government, in accordance with law; and organizing students' transportation and their accommodation in dormitories. This article i s voluntarily vague, but the general meaning seems clearly to be that the central government i s presentlythe actual decision-maker inabout all fields. Transfers o f central resources earmarked for education would accompany such devolution o f responsibilities. N o increase of local tax rates i s foreseen in the Law, but options would be to increase the local proportion o f shared taxes and/or transfer a higher proportion o f State taxes to municipalities. 59 Insummary, three mainlimitations affect the budgetframework: 0 The budget is not output or performance oriented, and i s not designed to show the relation betweenresources and outcomedtargets; 0 Resources are allocated to schools in a rigid way, not allowing them to reallocate credits to alternative uses, inducing inefficiencies inthe resource allocationprocess; and 0 Resources allocated to non-salary expenses, including such vital inputs as teaching materials, maintenance and repairs are extremely limited, inducing inefficiencies in the teaching-learning process and delaying much neededrehabilitation o f the school network. There are many other, systemic sources o finefficiency, such as: 0 Declining pupil/teacher ratios (PTR) related to low fertility and declining age groups; 0 L o w PTR in schools located in areas characterized by low density population or internal migrations; 0 Lack o f actual multi-grade teaching inprimary schools with small enrollments; 0 Grade 5/9teachers trained inonly one subject; and 0 Highnumberso f non-teaching staff. Improving efficiency can be achieved through combined actions at the school level (allocation formula) and the system level (formula funding and school network planning related to population changes in schools' catchment areas, changes in human resource management and teacher-policy and changes incurriculum standards). BudgetAllocations The Table 3 below gives breakdown o f this spending by levels o f education and expenditure categories for the year 1999,which gives a patterntypical for the last few years. I Table 3. Financingof educationby leveland type of expenditure(inDenars) Education level I Goods & Services Subsidies I Pre-school 1 Basic education I 3926650559 I 339348088 I201 711 532 I 76 651 075 (grades 1-8) Upper secondary 1652667926 150849554 70 500 376 73 605 788 (general +VET) Tertiary education 1128051439 136655 814 235941510 29997062 (univ. post-sec) + TOTAL I 6707369924 I 626853456 I 508 153 418 1 180253 925 1. Pre-school finance is the responsibility o f the Ministry o f Labor and Social Affairs. However, the MOES subsidizes about 15 000 children in 720 groups at 16 000 dinars (approximately US $223) per teacher per month. Source: MoES, 2000. 60 One major distinguishing feature o f lower secondary i s that many classes are taught by subject specialists, such as mathematics, biology or history. One issue raised about the efficiency o f lower secondary i s that subject specialist teachers are too narrowly trained and cannot easily teach related disciplines or take integrated approaches to new curricula in the sciences or social studies. This does not allow for flexible redeployment possibilities among the teaching force when enrollments may vary at particular schools, as they often do. The structure o f budget allocations by type o f expenditures is particularly revealing: 79 percent o f basic education expenditure i s for salaries, while the remainder i s distributed for goods and services, maintenance and capital spending. Not surprisingly, this leaves little to be spent on improving educational materials. 9 percent was devoted to goods and services, out o f which more than half went to heating: school buildings have high ceilings, insulation doesn't seem to be very effective, especially when windows, doors and/or ceilings are not in good condition, and premises don't seem to be especially designed for energy efficiency. Anecdotal evidence seems to show that classrooms are rather cold during winter. 9.9 percent went to transfers and subsidies, out o f which nearly 6 percent to families, for transportation and boarding; and d) a very limited 2.1 percent went to capital expenditures, mostly for maintenance. This type o f allocation, which reflects the financial constraints faced by MOES, is extremely inefficient, with nearly no resources for teaching-learning inputs except teachers, and very limited amounts for maintenance and repairs of premises, postponing the much needed rehabilitation o f the school network. Although teacher salaries are a large percent o f the expenditures, they are not extraordinarily high by international benchmarks. If we do a quick estimation o f the average salary in basic education by dividing total expenditures on basic education by the number o f teaching personnel, we get 295,000 Dinars (gross) per teacher. This i s in the range o f average teacher salaries given by other reports on FYR Macedonia, such as 110,000 Dinars net and 168,000 net. Taking the gross figure o f 295,000 relative to GDP per capita in 1999, the ratio i s 3.5, well within the range o f international norms as givenin World Bank research (see Mingat et al), which shows that the ratio o f average teacher salary relative to GDP per capita ranges from 0.6 to 9.6. That Bank report recommendeda value o f 3.5 as a useful benchmark for countries to strive for in trying to achieve universal primary education. Although Macedonian teacher salaries are at the ratio recommended, each country has to look at the specific labor market conditions prevailing, including where teachers are located within the public sector salary scale relative to comparable professionals, and also within the private sector labor market relative to comparable professionals. Extra-budgetary (EB) resources and resources from external grants and loans play a key role inthe financing o f education. They are usedto compensate the very limited level o f budget allocations, especially for operation and maintenance, and capital expenditures (furniture, equipment and repairs). In2002, they amounted to 22.7 percent o f total education expenditures, but those percentages were respectively of 6.2, 26.0 and 40.4 for primary, secondary and higher education, confirming that the higher the level, the higher the resource mobilizing capacity o f education institutions. The proportion o f EB resources was also o f respectively 50.5 and 36.8 61 percent in the field o f transportation and boarding, since parents must contribute to these services. More significantly, since EB resources are not usedfor funding salaries, it i s important to note that they represented respectively two thirds and one third o f total education expenses on goods and services and capital expenditures, showing that MF allocations for these items are minimal. Regarding recurrent expenses, the highest amounts o f EB resources are directed toward supplies, service contracts and other operational expenses. In the field o f capital expenditures, the biggest amounts o f EB resources go to maintenance, and office equipment and furniture. In primary education, per student annual expenditures are respectively 17.6 Thousand Denar and 19.7 Thousand Denar, without and with non-budget resources. Out o f 1,642 Denar (approximately $ 25) allocated per student by the budget for buying goods and services, 1,290 Denar (78.6 percent) went to utilities and heating, leaving very limited amounts for anything else. Self-financing resources (1,23 1 Denar per student) were mainly used for supplies (78,4 percent), showing the very tense situation o f school budgets, while other sources ( 943Denar per student) were usedto fundutilities, supplies and capital expenses, especially maintenance. Insecondary education, per student annual expenditures are respectively 16.9 thousand Denar and 25.6 thousand Denar , without and with non-budget resources. Per student budget allocations for goods and services are nearly the same in primary and secondary education ( 1,649 Denar in secondary education). Out o f 1,649 Denar allocated per student by the budget for buying goods and services, 1,290 Denar (78.2 percent) went to utilities and heating, and 196 to supplies. Resources mobilized through self-financing are five times higher than in primary education, and also high in absolute terms (6,654 Denar per student, or around US$ 100 per student per year): they are used for all types o f recurrent and capital expenditures (see Table 5). Resources from external grants and loans (2004 Denar per student) are usedfor capital expenses (furniture, equipment andmaintenance), as well as recurrent expenses, which are probably linked to project activities. In tertiary education, per student annual expenditures are respectively26.0 thousand Denar and 48.9 thousand Denar, without and with non-budget resources. Per student budget allocations for goods and services (Denar 2,728, or approximately $ 42) are higher than in primary and secondary education, although the amount devoted to utilities and heating i s not very different (respectively 298 Denar and 1136 Denar in higher education, against 297 Denar and 977 Denar in secondary education). But significantly more went to supplies and others. Resources mobilized through self-financing (mostly student fees) are more than fifteen times higher than inprimary education, and very highinabsolute terms (18,939 Denar per student, or around US$ 294 per student per year): they are used for all types o f recurrent and capital expenditures. Clearly, education institutions are able to function and survive thanks to self-financing activities and externally fundedprojects. One might even say that average resources available per student in secondary and tertiary education should allow them to function close to normal, but this does not seem true for primary education. This is an average picture, likely hiding the situation o f schools located in a poor environment, which are not able to mobilize many 62 resources through self-financing activities and are typically not benefiting from project-related resources. These schools skew overall system performance as shown in national and international assessments. 63 Annex 10: SafeguardPolicy Issues FYRMACEDONIA EducationModernizationProject The projectdoes not involve civilworks nor any other activities with impactonthe environment. 64 Annex 11:ProjectPreparationand Supervision FYR MACEDONIA EducationModernizationProject Planned Actual PCD review March2002 March2002 Initial PID to PIC June 2002 June 2002 Initial ISDS to PIC June 2002 June 2002 Appraisal September 2003 September2003 Negotiations October 2003 October 2003 Boardapproval December 2003 December 2003 Planned date of effectiveness March2004 Planneddate of mid-termreview April 2006 Plannedclosing date September 2009 Key institutions responsible for preparationof the project: Bank staff and consultants who worked on the project included: Name Title Unit PeterDarvas Senior Education Economist ECSHD Ross Pavis Operations Officer ECSHD MariaVannari ProcurementAccredited Specialist ECSPS RossenPapazov Financial Management Specialist ECSHD Rajna Cemerska Project Officer ECSHD Anna Goodman Program Assistant ECSHD Nadejda Mochinova Program Assistant ECSHD Nikolai Soubbotin Senior Counsel LEGEC Nicholay Chistyakov Senior Finance Officer LOAGl Guido Tielman Representativeo f co-financier Maurice Boissiere Consultant, School Improvement Grants RonTuck Consultant, Assessments and Evaluations Claude Tibi Consultant, Strategic and Financial Planning Andrew Hutson Consultant, Teacher Policy N e i l Mc.Donald Consultant, Decentralization Aigli Zafeiraku Consultant, Teacher Training Hagop Angaladian Consultant, Procurement Vanja Oluic Consultant, Operations Bank funds expended to date on project preparation: 1. Bank resources: US$296,800.57 2. Trust funds: 7,216.00 3. Total: US$304,016.57 Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$67,271 65 Annex 12: Documentsinthe ProjectFile FYRMACEDONIA EducationModernizationProject Project ImplementationPlan Government o f FYRMacedonia. 2003. Project Operational Manual (draft June) World Bank. 2001. Implementation Completion Reportfor FYR Macedonia Education Rehabilitation Project. Washington, D.C. World Bank. 2001. Transitional Support Strategy. Washington, D.C. 66 Annex 13: Statement of Loans and Credits FYRMACEDONIA EducationModernizationProject Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. F m . Rev'd PO76712 2002 COMM DEVT 0.00 5.00 0.00 0.00 0.00 5.55 1.45 0.00 PO63577 2001 COMM DEVT & CULT LIL 0.00 5.00 0.00 0.00 0.00 5.21 1.98 0.00 PO73483 2001 CHILD/YOUTH DEVT LIL 0.00 2.50 0.00 0.00 0.00 2.05 0.76 0.00 PO70089 2001 TRADE & TRANS FACIL INSE EUR 0.00 9.30 0.00 0.00 0.00 6.19 -3.42 0.00 PO42400 2001 FESAL 2 30.31 20.00 0.00 0.00 0.00 41.10 39.82 0.00 PO50589 1999 TRANSPORT 32.00 0.00 0.00 0.00 0.00 12.53 16.30 3.90 PO38399 1998 IRRIG REHAB 7.50 5.00 0.00 0.00 0.00 7.23 6.40 6.03 PO42399 1998 POWER 35.00 0.00 0.00 0.00 0.29 12.77 7.49 0.00 Total: 104.81 46.80 0.00 0.00 0.29 92.63 70.78 9.93 MACEDONIA, FORMER YUGOSLAV REPUBLIC OF STATEMENT OF IFC's HeldandDisbursedPortfolio InMillions ofUSDollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1997 Makedonija 1.76 0.00 0.00 0.00 1.76 0.00 0.00 0.00 1997 Nikol-Fert 3.80 0.00 0.00 0.00 3.30 0.00 0.00 0.00 1999 SEAF Macedonia 0.00 2.50 0.00 0.00 0.00 1.17 0.00 0.00 1997 SEF Masinomont 0.82 0.00 0.00 0.00 0.82 0.00 0.00 0.00 1998/00/01/03 Stopanska Banka 0.00 0.00 1.95 0.00 0.00 0.00 1.78 0.00 1997102 Teteks 5.30 0.00 0.00 0.00 4.00 0.00 0.00 0.00 1999/00 Alkaloid 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 Komercijalna 4.31 0.00 0.00 0.00 4.31 0.00 0.00 0.00 2003 MFB Macedonia 0.00 1.13 0.00 0.00 0.00 1.13 0.00 0.00 1998 Macedonia Telcom 0.00 11.31 0.00 0.00 0.00 11.31 0.00 0.00 Total portfilio: 15.99 14.94 1.95 0.00 14.19 13.61 1.78 0.00 Approvals PendingCommitment FY Approval Company Loan Equity Quasi Partic Total pending commitment: 0.00 0.00 0.00 0.00 67 Annex 14: Country at a Glance FYRMACEDONIA: EducationModernizationProject Europe 8 Lower- POVERTY and SOCIAL Macedonia, Central middle- FYR Asia income Development diamond* 2002 Population, mid-year (millions) 2.0 476 2,411 Life expectancy GNI per capita (Atlas method, US$) 1,700 2,160 1,390 GNI (Atlas method, US$ billions) 3.5 1,030 3,352 - Average annual growth, 1996-02 Population (%) 0.5 0.1 1.o Labor force (%) 1.o 0.4 1.2 GNI Gross Most recent estimate (latest year available, 1996-02) per \ primary capita enrollment Poverty (% of population below national povemline) Urban population (% of total population) 60 63 49 Life expectancy at birth (years) 73 69 69 - Infant mortality (per 1,000live births) 22 25 30 Child malnutrition (% of children under 5) 6 11 Access to improved water source Access to an improvedwater source (% ofpopulation) 91 81 Illiteracy (% ofpopulation age 15+) 3 13 Gross primary enrollment (% of school-age population) 99 102 111 1 -Macedonia, FYR Male 99 103 111 Lower-middle-income group ~ Female 99 101 110 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 Economic ratlos. GDP (US%billions) 2.3 3.4 3.7 Gross domestic investmentlGDP 15.6 18.3 21.9 Exports of goods and ServicesIGDP 54.3 42.4 36.8 Trade Gross domestic savingsIGDP 16.6 5.2 0.5 Gross national savingslGDP 14.8 14.0 13.1 Current account balancelGDP -0.8 -6.8 -6.1 Interest paymentslGDP 1.6 1.3 Total debVGDP 41.4 43.5 Total debt servicelexports 12.8 11.1 Present value of debffGDP 34.0 Present value of debffexports 77.2 Indebtedness - 1982-92 1992-02 2001 2002 2002-06 (average annual growth) GDP 0.9 -4.5 0.7 4.1 Macedonia, FYR GDP per capita .... 0.2 -4.9 0.6 3.5 Lower-middle-income group Exports of goods and services 4.1 -15.7 -4.4 6.5 ~ STRUCTURE of the ECONOMY I 1982 1992 2001 2002 Growth of Investment and GDP (Oh) (% of GDP) I I^ Agriculture 17.1 11.7 12.1 -10 1" Industry 39.8 32.1 29.7 10 Manufacturing 32.9 20.3 18.6 0 Services ........ 43.2 56.1 58.2 Private consumption .. 63.9 70.0 16.7 General govemment consumption .. 19.5 24.8 22.8 Imports of goods and services .. 53.3 55.5 58.2 1982-92 1992-02 2o01 2o02 (average annual growth) Growth of exports and Imports (Oh) Agriculture -02 -10 8 2 3 4 0 - Industry 0 2 -6 4 4 8 Manufacturing -1 8 -3 9 Services 1 9 -1 6 Private consumption 2 0 -100 6 3 General government consumption 3 1 29 7 Gross domestic investment 3.4 -11.9 1.1 -Exports --O-lmports Imports of goods and services Note: 2002 data are estimates. 'The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. 68 Macedonia. FYR PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Domestic prices Inflation (Oh) I (% change) Consumer prices 1.690.7 5.5 1.9 implicit GDP deflator 1,271.8 3.6 1.4 Government finance I (% of GDP, includes current grants) Current revenue 34.2 35.9 Current budget balance -2.5 -1.3 -GDP deflator +CPI Overall surpius/deficit -9.8 -6.3 -5.7 TRADE I 1982 1992 2001 2002 (US$ millions) Export and import levels (US$ mill.) Total exports (fob) 1,199 1,154 1,112 Raw materials 37 35 Food 144 65 75 Manufactures 825 778 Total imports (ci9 1,198 1,688 1,963 Food 112 194 246 Fuel and energy 127 234 241 I Capital goods 85 284 407 1 Export price index (1995=100) 69 71 96 97 98 99 W 01 Import price index (1995=100) 79 81 Exports Imports O2 Terms of trade (1995=100) 87 88 BALANCE of PAYMENTS 1982 1992 2001 2002 (USS millions) Current account balance to GDP ("h) Exports of goods and services 1,259 1,395 1,364 Imports of gwds and services 1,236 1,934 2,158 Resource balance 23 -539 -792 Net income -72 -39 -31 Net current transfers 30 343 498 Current account balance -19 -235 -324 Financing items (net) 79 318 194 Changes in net reserves -60 -82 131 Memo: Reserves including gold (US$ millions) 60 775 735 Conversion rate (DEC, locaVUS$) 5.1 68.0 64.4 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 (US$ mill/ons) Composition of 2002 debt (US0 mill.) Total debt outstanding and disbursed 1,423 1,613 IBRD 124 138 IDA 254 293 ~ 64 138 Total debt service 194 167 iBRD 12 13 93 IDA 2 2 501 Composition of net resource flows Official grants 67 Official creditors -27 -22 Private creditors 23 25 Foreign direct investment 442 77 Porffolio equity 0 1 292 World Bank program Commitments 24 20 A IBRD - E Bilateral Disbursements 23 34 E - I D A D - Other multilateral F Private -- Principal repayments 4 6 C IMF - G -Short-term Net flows 19 28 Interest payments 10 9 Nettransfers 10 19 9/17/03 69