Scope for increasing efficiency of education spending

Increased funding will not necessarily lead to improvements in outcomes; it is how funds are invested that can make a difference (oECD, 2010). it is important to note that Latvia, a country with a relatively low expenditure on education, has in fact managed to improve the performance of its students during the last decade and is now performing close to the oECD average on PisA. Latvia aims to continue this positive trend and further improve the quality and inclusiveness of its education system, while aiming for further efficiency. several reports have noted that the latter is an issue deserving urgent policy attention (oECD, 2014a, 2015a; World Bank, 2014).

Well-designed funding models can help steer improvements in quality, equity and efficiency (Levacic, 2008; OECD, 2014a). In recent years, Latvia has taken important measures to improve the funding of school education and tertiary education. in 2009 Latvia revised its school funding model with the aim of increasing the efficiency of the system while increasing student achievement (Cabinet of ministers, 2009). Based on the analysis of a report by the World Bank (2007) the government moved decisively to implement a number of fundamental reforms to contain budget expenditures and improve the efficiency of education provision. Central norms on class size were relaxed and school directors and local education authorities were allowed more flexibility over resource management. in addition to creating incentives for improved efficiency (and improved quality) the basis of financing primary and general secondary education was to be revised to finance students rather than teachers and schools (World Bank, 2010).

The per-student financing model, often referred to as “money follows the student” (Box 1.2) has been in operation since 2009/10. The intention was to bring about greater efficiency and at the same time enhance student achievement (Cabinet of ministers, 2009). implementation of the model was managed by the 119 municipalities established as a result of the territorial reform of 2009 (World Bank, 2010). municipalities could decide how to distribute resources among their schools and supplement them with their own funds.

An OECD report on the Latvian teacher remuneration system noted that the funding model is a relatively transparent budgeting tool; the system takes into account the costs of educating a student and the attendant differences between schools. it also provides incentives to increase class sizes (OECD, 2014a). several years on, however, it is also clear that Latvia is struggling to make further efficiency gains and several weaknesses of the model have become apparent. These include insufficient sensitivity to children with special education needs and a failure to take account of teachers’ experience.


Box 1.2. Latvia’s per-student school funding system

In 2009/10 the Latvian government implemented school funding reform by introducing a new per-student school funding model for primary, lower secondary and upper secondary education. The economic crisis had provided the imperative to develop this new model. Before the economic crisis expenditure on education had grown rapidly and Latvian schools were found to be overstaffed (World Bank, 2010). The government’s aim was to bring about greater efficiency and enhance student performance.

The funding formula consists of two components: 1) a calculation defining the teacher workload that 2) feeds into the calculation of the total budget for salaries. The formula is based on detailed conversion rules to take into account the number of students at each grade, regulations for class size and location of the schools.

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