Economic and Social Reforms for Peace and Reconciliation

Prepared by the World Bank

February 1, 2001

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Beginning with its creation in 1946, the Federal Republic of Yugoslavia was a positive force for Kosovar Albanians in terms of access to Albanian language education. Prior to the second world war, education in the province of Kosovo was conducted almost exclusively in Serbian, and at the time of the creation of FRY nearly three-quarters of adult Kosovar Albanians were estimated to be illiterate. Albanian language enrollments rose steadily under FRY, with a dramatic increase in the ten years beginning in 1968 when the proportion of Kosovar Albanians in the region’s education system rose from 38 to 72 percent.¹ The University of Pristina (formerly a branch of the University of Belgrade) was created in 1969 and enrollments in Albanian language higher education programs experienced a similarly dramatic increase. Illiteracy among the adult population is said to have decreased to well under 10 percent, but may have begun to increase again during the past decade.

Although access was increasing dramatically, local influence and control over education content was not. The federalist 1974 constitutional reforms gave the mixed ethnic population of Kosovo theoretical control over nearly all education governance and content matters, and Kosovar Albanians were empowered and emboldened to promote their own culture and history through education. As a backlash against the outcome of these federalist reforms – which lead to serious university student demonstrations in 1981 - authorities in Belgrade moved to re-centralize control over education content during the 1980s. All authority for education content was finally transferred back to Belgrade with the abolition of Kosovo’s formal autonomy and the adoption of the 1990 Serbian constitution – events which led to creation of the "parallel" system in education. It is important to note that while control over curriculum content, particularly in history and cultural subjects, is a central element of the ethnic conflict in Kosovo, a strong system of decentralized management and financing of the education system was in place in FRY. The Kosovar Albanians did participate in this fiscally devolved system and, to some extent, controlled the management and financing of general education in many majority Kosovar municipalities prior to 1989.

In 1991-92, the majority of Kosovar Albanian students left the formal Yugoslav-supported education system. Although formal, government-supported salaries were discontinued, the education of Kosovar Albanians, representing about 90 percent of overall enrollments in general education, continued in the roughly half of school facilities that they controlled. This situation resulted in serious over-crowding of facilities, and alternatively, the use of non-school buildings and private homes to conduct education. A "parallel" governance structure was gradually established including simple regulations and arrangements for financing the system from within and from external remittances. Consistent and reliable data on the "parallel" system were not kept, but estimates are that about 20,000 teachers, professors and non-teaching staff supported over 300,000 pupils in roughly 400 primary schools, over 50,000 students in 65 secondary schools and over 10,000 students in 20 university faculties. Enrollment is reported to have declined, particularly at lower levels, throughout the decade due to outward migration and dropouts.

Following the 1991-92 school year, during which little funding was made available to the education system, the informal governance system reportedly succeeded in paying only a nominal DM 20 per month stipend to most teachers and other education employees in 1992-93. Between 1994-98, the informal system attempted to pay salaries at minimum rates of between DM 120 to 160 per month, depending on level and qualification. Although some higher income municipalities reportedly were able to exceed these minimum payments on occasion, nearly all salary payments were made irregularly. As hostilities in Kosovo increased over the past 12 to 18 months, salaries were paid with increasing irregularity. Some teachers were reported not to have been paid for up to 18 months. With the exception of some textbooks, which were predominantly funded from abroad, non-salary recurrent expenditures – to the extent any were made - were covered by informal direct parent contributions to schools in cash or in kind.

Informal municipality-level tax collection (between 3 to 5 percent) is said to have provided for about 60 to 70 percent of education salary expenditure. Contributions collected from abroad accounted for the remainder of education spending and acted as an equalization fund for municipalities that could not meet the minimum salary payments from local revenue. External funding could not, however, ensure complete equalization, and allocations of external funding were said to be, to some extent, politically motivated. Internally generated municipality revenues, assigned to education by a municipality financing council, were managed by the municipality education director in cooperation with school directors, as was external funding once it arrived at the municipality level. The cost of supporting the "parallel" education system is estimated at about DM 3 million per month, although available financing was frequently less.

Despite the remarkable efforts during the past nine years – particularly among teachers – to maintain a functioning education system under extremely difficult conditions, it is inevitable that the quality of education delivered in the classroom has suffered. However, because of the lack of consistent student performance information with which to make comparisons (a problem even with the pre-1989 system), it is not possible to be definitive about the cost of the past nine years in terms of learning outcomes. Enrollment ratios, thought to be over 90 percent in primary prior to 1989, have almost certainly declined substantially over the past decade, particularly among girls. But, due to internal migration and re-settlement, precise figures remain unavailable.

In terms of provision of educational inputs (which say little about learning outcomes), the past nine years and the recent conflict have taken a serious negative toll. As mentioned above, education financing was available during the "parallel" system at only 10 to 20 percent of pre-1989 financing levels. Few teachers, professors or administrators - with the important exception, perhaps, of those living abroad - have benefited from any organized professional skills upgrading. Even prior to 1989, pre-service teacher training lacked a methodological focus and education administrators were not exposed to modern public sector management skills. In addition, the system as a whole has been isolated for a decade from recent trends and advancements in pedagogy, methodology and education administration and management. Basic textbooks for primary and general secondary education were reported to have been generally available to most students, financed through external contributions, but their pedagogical and physical quality is said by teachers to be lacking, and many of these books were destroyed or lost during the recent conflict.

Current estimates by UNMIK show a student to teacher ratio of 17.5/1 for primary education (within a range of 15/1 to 18/1 across the five UNMIK-created administrative regions), a student to teacher ratio of 15/1 for secondary education, and 14/1 for higher education. These ratios would suggest that Kosovo is supporting student to teacher ratios which are lower than the Western European average, particularly for primary education, leading to significantly higher personnel costs. Likewise, the ratios of teaching to non-teaching staff (just over 4/1 in primary and 5/1 in secondary) are slightly lower than the European average. These broad averages could also be hiding serious over-crowding of facilities balanced by under-utilization of other facilities across or even within municipalities. At the same time that teachers are in relative surplus, shortages of teachers with certain skills, particularly language and computers, will inevitably be a major issue. UNMIK estimates that Serb children remaining in Kosovo account for only 4.5 percent of total primary pupils, with all other ethnic groups (Turks, Bosniacs, Roma, other) accounting for another 3 percent combined. Serbs are estimated to be about 7 percent of total secondary students, with other groups accounting for only 2 percent of the secondary cohort. Nearly all Serbs and, to the extent their numbers are large enough, other ethnic groups, are educated in separate schooling facilities. Few if any Serbs attend the University of Pristina, and numbers for other ethnic groups are unavailable.

In terms of what is currently being taught in the system, Kosovar Albanian authorities and UNMIK decided to use the existing curriculum that was in use under the "parallel" system for the 1999-2000 and 2000-2001 school years, although there is consensus that this curriculum needs to be replaced as soon as possible with a more up-to-date framework of subjects and performance standards. Progress in adapting a new curriculum has been delayed by the slowness of institutional development. It is likely that updates and improvements will come predominately on an ad hoc basis, driven mostly by donor efforts, until the new Department of Education can be properly staffed and a viable curriculum change process can be elaborated. The Serb community is continuing to use the pre-existing Serb curriculum. Cooperative program development between Kosovars and Serbs is not possible in the short term.

A decision was made to re-print existing textbooks, at least for core primary and secondary subjects, for use during the 1999-2000 and 2000-2001 school years, pending a curriculum and textbook review, which is subject to the same institutional constraints cited above for curriculum development. Special donor funding has already been mobilized for this initiative, and textbooks are available for most core subjects and levels during the 2000-2001 school year.

The physical condition of schools in Kosovo presents a serious constraint to re-starting the education system. According to EC/IMG estimates, which continue to be updated, slightly more than half of the approximately 1,000 primary school buildings are in need of repair. Roughly 30 to 40 percent of primary schools require light to medium repairs, while roughly 10 percent are seriously damaged. The EC’s initial estimate for the costs of repairing/re-building primary schools is about DM 36 million (20 million Euro). The EC monetary estimate does not include the cost of furnishing/re-equipping schools. The percentage of damage to schools is thought to be about the same for Kosovo’s 66 secondary schools. Although the unit cost of secondary reconstruction is higher, the smaller number of secondary schools should mean that secondary re-construction needs would be less than half that of primary. University facilities have not sustained serious damage, but are reported to be in need of re-furnishing and re-equipping. No monetary estimate for higher education re-construction has been forthcoming from the donors, although university authorities estimate their repair/re-equipping needs at DM 8.8 million. While about 10 percent of all school facilities were largely or completely destroyed during the recent conflict, the lack of maintenance during the past decade and the age of many schools (about 25 percent of school buildings are over 40 years old) are an equal if not greater cause of physical deterioration in most schools.

In the latter half of 1999, the institutional situation in education was marked by competing claims to authority and responsibility for creating a Ministry of Education between the former government in exile and the KLA-backed provisional government. In response, a Joint Civil Committee for Education (JCCE) was created under UNMIK’s Education Department made up of four representatives from the Albanian language system, two from the Serb language system and representatives from UNESCO, KFOR and UNICEF. However, the JCCE preformed a consultative function only and was not a successful mechanism for decision making in education.

Earlier efforts to coordinate and manage education activities at a central level in Kosovo have been superceded by the formation of an Interim Administration in which UNMIK authorities will share power with locally nominated officials. Co-Heads of the Department of Education and Science have been appointed and they are in the process of establishing a department which is expected eventually to evolve into the principal education authority for a future Kosovo administration. To date, establishment of the Department of Education and Science has been hindered by inadequate staffing, both expatriate and local, and tenuous communications and cooperation with local authorities and school level officials. The initial focus has been on contracting teachers and other education employees, which has proven problematic in terms of determining real staffing needs. The contracting of university professors and employees has also dominated the dialogue between the University of Pristina Faculties and the new Department of Education and Science.

Leadership responsibility and lines of authority for education between the center, the five regional authorities and the 30 municipalities continue to evolve in Kosovo. Expatriate regional education officers are currently coordinating education finance and administration efforts with local education officers in the municipalities. The formalization of responsibilities and accountabilities between these levels is a crucial undertaking for UNMIK and for the future of education in Kosovo (see discussion of alternatives in the education governance and finance sections below). The formation or continuation of parallel institutions between Serb and Kosovar Albanian municipal officials continues to present a serious problem for which the immediate solution - as in parts of the Federation of Bosnia and Herzegovina - may be to accept parallel structures in the short term in order to ensure provision of education services, while providing incentives for cooperation in the medium-to-long term - for example, in terms of co-managing funding and working together on highly technical issues.

Within this context, UNMIK’s Education Department has launched an initiative (DESK – Developing Education in Kosovo) under which transitional working groups have been created to address development issues in primary, secondary and higher education, as well as overall systemic and strategic issues. Each group is composed of various local stakeholders (public/private, unions, administrators, pedagogues, academics, etc.) and international representatives. With support from external technical assistance, these groups will study and report on various innovations and issues (including finance and governance, system performance, quality assurance, early childhood development, etc.) and would be expected to serve as a focal point for debate, knowledge accumulation and participatory consensus building in the sector. A presentation of this proposal is included in UNMIK’s concept paper, Developing the Education System in Kosovo (October 17, 1999).

Priorities in education can be expressed in two broad categories:

• The need to restore a minimally acceptable learning environment to children currently in schools, and
• The need to define a new education system and policies that will serve children in Kosovo for generations to come.

There is a natural tendency to put reconstruction needs ahead of systemic issues on the priority list, and this is well justified when it comes to allocating investment programming. Ninety percent or more of investment funding should be devoted to emergency restoration of schooling facilities. However, it would be a serious mistake - which would entail increasing costs in years to come - to allow the focus on emergency reconstruction to crowd out the equally urgent need for strategy and policy development in the short term. The education system in Kosovo needs to begin a transition that has been underway in many of its central and eastern European neighbors for the past seven to eight years. Education and political authorities in Kosovo and the donor community should not lose sight in the short term of the unique opportunity that is being presented to build a modern and responsive educational system that is compatible with a new economic environment and with European legislation, policies, governance and institutions, as well as content and performance standards.

In view of the highly uncertain political and institutional situation and the long time isolation of Kosovo’s professional educators from external advancements in their profession, it is not realistic to expect authorities in Kosovo to develop a detailed, realistic and appropriate education strategy or policies in the short term. The development of a locally-prepared education strategy, which addresses the sector across its component parts (levels, inputs, performance, etc) and in its economic and social context, should, in fact, be seen as a medium term (two to three years) objective. While comprehensive, locally driven strategy and policy development will take time to evolve, there are a number of key priorities and objectives that an eventual education strategy for Kosovo would be expected to address.

The current unsettled situation in education presents an important opportunity to establish modern mechanisms and incentives that will serve to enhance quality, efficiency, and equity in the system. As a general western trend, the key to establishing an efficient distribution of responsibilities and functions across levels in education is twofold: first, to allocate to the center the authority for policy/strategy formulation and for ensuring equity of access (redistribution to disadvantaged areas) and the quality and consistency of educational programs; and, second, to ensure that lower levels are given the responsibility and authority (including budget and expenditure authority) to implement programs flexibly and creatively within established norms. In fact, the education system in the former Yugoslavia, in contrast to its central and eastern European neighbors, was an early and interesting example of just such a division of authority and responsibility in education. This tradition of decentralization in education was continued by the Kosovar Albanians in the operation of their "parallel" education system over the past nine years as municipality education authorities were given significant discretion for managing both locally-generated and centrally-provided resources for education. This authority entailed mainly assigning and re-allocating personnel (salary levels were centrally established), but also involved managing informal cash and in-kind contributions from parents.

Given western trends and local traditions for decentralized control over education inputs, a priority for authorities in Kosovo and the donor community should be to continue a policy of decentralization to ensure the authority of municipal officials to manage the majority of resources for education. This approach does not preclude, and is in fact complementary with, allocating authority for standard setting and quality assurance to central authorities. However, unlike in FYR, where locally generated revenue was kept at the municipal level to fund education, authorities in Kosovo should consider various alternatives including a system of fiscal devolution for education funding in which central revenue is devolved to local education authorities on an equitable, per student basis. The design of a system of fiscal devolution for education in Kosovo would include two crucial elements:

(i) Once the relative priority for education has been determined at the center in competition with other sectors and priorities, the distribution of resources for education to the municipalities could be carried out in the form of block grants on the basis of a per student budget formula. Such a formula-approach to education funding – common in Western Europe and North America and recently adopted in Hungary, Poland and the Czech Republic - would help ensure equity (all children in Kosovo would be entitled to an equal level of funding) and provide a powerful incentive for municipality officials to manage education resources more efficiently. The formula can be adapted to take into account existing disparities (separate urban and rural budgeting norms, for example), and to allow additional spending for programs in low performance areas. A centrally mandated public pay scale for teachers and other employees in education could also be maintained under such an arrangement. The introduction of per student funding would also contribute greatly to transparency in terms of allocation of resources across ethnic groups.

(ii) Despite the tradition of local management and financing councils, priority would have to be given to supporting municipality governance structures to develop their public administration skills and for re-defining the role of local school boards and parent associations - which are mandated without much description in informal Kosovar Albanian legislation. Local school boards, in particular, should be expected to play an important role in ensuring accountability in the definition of local priorities and the expenditure of funds to achieve those priorities.

The central ministry’s role in ensuring educational standards and consistency within a fiscally devolved system is discussed below in the curriculum and assessments section.

As a last point on general education governance, a high priority should be given to helping authorities at all levels ensure the availability of reliable administrative, financial and performance information, as a pre-requisite for beginning a productive dialogue on education reform and for facilitating strategy and policy development. In the short term, the need for reliable school mapping information (currently supported by UNESCO) will be an increasingly urgent priority in order to promote efficiency, as reconstruction resources decline and reconstruction/investment decisions become more difficult. In addition, the development of per student formulas and a focus on measuring learning outcomes will go a long way toward helping to measure inputs and outcomes in the system. Helping to create capacity for producing and using management information at the central, municipality and school levels should be a priority for the governance reform strategy.

Unlike integrated universities in Western Europe and North America, the University of Pristina operates as a loose association of faculties each with a legally autonomous status and management structure. This dispersal of authority in what should be a single institution has led to a redundancy of programs, personnel, and facilities across faculties which diverts resources from improving the quality of teaching and learning. The weakness of the university rectorate also hinders an effective prioritization of programs in the face of a changing economic and social environment and allows autonomous faculties to resist systemic reforms aimed at investing efficiency gains in improving the quality of programs. As the university is re-established and new legislation is drafted over the coming months/years, authorities in Kosovo should not miss the opportunity to make their university compatible with European standards in university governance and management. Along with new legislation, there is a need for a strategy aimed at developing academic and institutional accreditation within Europe in the medium term.

Per student funding formulas for various programs should also be developed for higher education as a way to instill transparency of funding and provide incentives for increased efficiency. The potential for a gradual institution of fee charges for various high demand programs should also be closely examined as a way to focus more resources on qualitative improvement, in combination with the development of student loan schemes and fellowships targeted on need. Cost recovery should be re-instituted as soon as possible - nominal fees of around DM 70 per student were collected during the "parallel" system - in terms of requiring increased student contributions to previously subsidized dormitories, food and transport costs.

Because governance and finance issues in higher education are fundamentally important to ensuring the long term pay-off of investments in the university, major investment in the university should be aimed at supporting governance and finance reforms prior to, or at least concurrent with, committing direct investments to improving the quality of programs in individual faculties. The key will be not to allow direct investments in single faculties to re-enforce the inefficiency and redundancy of the current governance structures. Apart from support for university restructuring, specific higher education programs, which respond to particular development needs or skills shortages – such as the development of programs for medical, business administration and public administration programs – should be a first priority in terms of program development support.

There is an awareness among leading professional educators in Kosovo that educational programs at all levels are characterized by a dense and ambitious body of knowledge to be learned, leaving little flexibility to focus on thinking and learning skills or to deal with children with varying capabilities. In order to make the education system responsive to changes in the skill needs of the labor market, reforms will be needed not only in what is learned in school but also in how it is learned. Rather than focusing on a traditional redefinition of precise curriculum content and syllabi, course by course and level by level, local authorities should take time to review recent innovations in western European education systems which focus on defining learning objectives and performance standards in the context of a coherent curriculum framework. Closely tied to this focus on performance standards is the need to develop a capacity, currently non-existent in Kosovo, to measure student performance in a standardized manner. The availability of student performance information helps ensure the accountability of education authorities to the public they serve, and is key to allowing education authorities at all levels – school, municipality, center – to identify problem areas and focus programs and resources on improving student and school performance.

In keeping with past tradition in Yugoslavia and recent western trends in education, the authority for developing and monitoring a curriculum framework and modern learning standards should be placed at the center. Agreement among all stakeholders on an institutional mechanism and process for beginning this fundamental effort should be a priority for the coming year. Every effort should be made to expose leading stakeholders throughout the system to technical and process innovations in neighboring countries and in Western Europe. It will obviously be important to ensure maximum flexibility in any curriculum framework to accommodate the desire on the part of minority ethnic groups to define and control their learning process at decentralized levels. As is the hope in neighboring Bosnia and Herzegovina, part of the answer to ensuring standards in the context of a non-cooperative environment across ethnic groups could be a focus on developing a student assessment capacity, which could be carried out on an independent, professional basis. It is too early to pre-judge the appropriate institutional arrangement for assessments, but developing such a capacity, to cover all children in Kosovo, should be a priority for local authorities and for donor investment.

The eventual development of a modern curriculum framework for Kosovo, together with changes in information technology, will determine the number and types of textbooks and other educational materials that will be needed in the medium term. The hundreds of textbooks currently prescribed for the system will no longer be justified or sustainable once the structure and orientation of programs have been reformed. The decision to use existing curricula and re-print existing books for the beginning of the coming school year takes the pressure off the need to develop new books that may or may not be appropriate for curriculum changes in the future. Given the myriad priorities and urgent reform needs in education, decisions on privatizing textbook production and re-organizing textbook selection and financing can be delayed until curriculum reform efforts are underway.

Most teachers in Kosovo have been isolated from professional innovations and professional skills upgrading over the past nine years. A further constraint in the system is that pre-service teacher training faculties and academies in Kosovo and the former Yugoslavia did not traditionally emphasize child-centered or inter-active teaching methodologies, nor the need to use learning evaluation techniques to improve their effectiveness. There is, therefore, complete agreement among education authorities in Kosovo that top priority should be given to upgrading the teaching skills of nearly all the estimated 22,000 primary and secondary school teachers currently serving the system. Local authorities and donors should balance support between the need to re-define pre-service teacher training curriculum and re-structure delivery mechanisms for in-service training – reform initiatives which should start soon – with the need to provide at least some remedial training to existing teachers with a degree of urgency over the next year or two. Donors and NGOs should play a major role in helping to organize both medium term teacher training reform and offering urgent skills training to teachers in the short term. A number of interesting and successful pilot or experimental schools projects are ongoing throughout the region (particularly in Albania, Bosnia and Herzegovina, and FYR Macedonia), and these interventions could offer a starting point for authorities in Kosovo to learn about innovations and opportunities.

Approximately 70 percent of secondary students are estimated to be enrolled in specialized technical and vocational programs throughout Kosovo. Degree courses are offered for such specialties as waiters, cooks, shop assistants, nurses and tailors. However, due to the constraints of the "parallel" system and the recent destruction of facilities and equipment and loss of books and materials, many specialized schools will undoubtedly succeed in organizing only general core subjects and theory-based courses in the coming school year. When operating normally, specialized technical and vocational programs are often expensive to operate – due to low student/teacher ratios and equipment needs – and externally inefficient – graduates are trained in narrow, occupational specialization for which there is currently questionable labor market demand.

As currently designed, the secondary system in Kosovo is out of alignment with the emerging market economy’s need for broad-based skills, labor flexibility and continuous learning. It is crucially important for donors not to rush into the re-establishment of the current secondary system until local authorities have developed a strategy for secondary reform. Focus should then be put on the medium term objective of developing new broad-based programs and on an extensive re-training program for the existing secondary teaching force.

A reform of secondary technical/vocational education will also necessitate commensurate reforms in the field of adult training and two-year higher education technical/professional programs. The goals are to develop a network of training suppliers (public university, private-for-profit, semi-public, NGOs, etc.), to bring social and private sector partners into the governance of adult training, to complement government funding with cost recovery, and to facilitate the availability of labor market information. In this context, there is an urgent need to provide remedial training for specific skills such as business/enterprise management and various technical and engineering skills needed to ensure an effective operation of public sector resources and utilities.

The UNMIK Education Department has prepared a recurrent budget (see Table 6) for 2000 which will be funded through the Kosovo Consolidated Budget. The most important decisions were the establishment of initial salaries and a non-salary spending contribution adequate to keep teachers in the schools and allow minimal school operating expenditure, while being sustainable in terms of expectations of donor contributions in the short term and reasonable revenue generation prospects in the medium term.

With a share of 28 percent, education is by for the largest expenditure category in the overall Kosovo consolidated recurrent budget, followed by health and social protection each with a 20 percent share. Total recurrent spending on education is estimated to be about US$62 million in 2000, or just over US$5 million per month. Primary education accounts for 65 percent of the education budget, with secondary and higher education accounting for 19 percent and 11 percent, respectively. These relative shares are close to regional averages, with the exception of slightly lower spending on secondary education, reflecting an extremely low differentiation between primary and secondary teacher salaries (see below). Personnel expenditure accounts for 80 percent of the primary budget and 75 percent or the secondary and higher education budgets. Education administration accounts for only 0.4 percent of the education budget, a share that will increase several fold as a new education administration is established over time.

Personnel Costs: Following nine years of hardship, teachers in Kosovo have expectations of returning immediately to pre-1989 salary rates. However, it is clear from GDP estimates that the Kosovo economy will not support relative pre-1989 wage rates in the short to medium term. Initial salary rates for 2000 have, therefore, been calculated to provide some improvement in salary rates over what was paid irregularly in the "parallel" system, while attempting to ensure that salaries are sustainable once donor contributions to recurrent financing are discontinued. Net salaries currently set by UNMIK – DM 265  average for primary teachers, 285 average for secondary teachers and 325 average for university professors - are, in fact, only slightly lower than current wage rates in Macedonia and both entities of Bosnia and Herzegovina. Although a 20 percent income tax is being considered, net pay rates are expected to be at least maintained throughout 2000 and 2001. Donor experience in Bosnia and Herzegovina has shown that wage rates have recovered in terms of regional norms within three years.

Non-Salary Expenditure: As mentioned above, non-salary spending needs have been estimated at 20 percent for primary education and 25 percent for secondary and higher education, which translates into non-salary per student spending of about DM 30 per student in primary, DM 50 per student in secondary and DM 90 per student in higher education. A typical eight-room primary school of approximately 320 students would be entitled to about DM 10,000 in expenditure for goods and services. Expenditure categories are limited to pedagogic materials (books, paper, and other learning materials), heat and other utility costs, replacement furniture and light equipment, maintenance costs (cleaning supplies, winterization, and small works), and administration costs (record books, office supplies). Salary supplements and major civil works are not permitted, and school furniture and equipment such as computers and photocopiers are approved by UNMIK only on an exceptional basis. Student transfers or subsidies are not allowed accept through prior authorization by UNMIK. UNMIK is expected to organize auditing of selected municipalities/schools to ensure compliance, and the auditing function should be announced publicly in advance.

The recurrent budget for education in Kosovo was generated almost exclusively as a function of teachers and wages. UNMIK education and budget authorities are well aware that this traditional perspective on education financing provides a significant incentive to increase employment in education and a significant disincentive to maximizing the efficient use of personnel and facilities, the two most costly educational inputs. The current surplus of teachers being paid under the consolidated budget (as indicated by the low student-teacher ratios) will not be sustainable as teacher salaries begin to recover to regional norms. In order to avoid the phenomenon – common in many developing education systems - in which personnel costs crowd out spending on improving education quality, UNMIK’s highest priority in education finance is to define and establish a system in which the main unit of education spending is the student. In addition to providing an efficiency incentive, a per student allocation would serve to ensure equity across the municipalities and schools, as well as ethnic groups, and provide a premium to overcrowded facilities (those with high student-teacher ratios). A summary description of such a system is provided below.

Capital Budgets: School reconstruction, re-equipment and re-furnishing needs are expected to be covered in their entirety by donors. UNMIK has proposed a DM 76 million investment program for 2000 which is appropriately focused on school reconstruction and re-equipping. Once simple works and emergency needs are met, the pace of implementation will undoubtedly slow as works become larger (wholly re-built schools) and investment decisions require more analysis. To the extent that urgent needs are not being covered in an urgent time frame, minor winterization and furnishing costs have been and will continue to be eligible expenditures for schools under their goods and services budgets, as was the case in late 1999 when UNMIK financed invoices for schools and the university on a capitation basis by municipality.

A first priority of the UNMIK Education Department should be to guide and track capital expenditure on the part of the donors and provide up to date information on implementation and achievement against reconstruction goals. Facilities standards will have to be defined and issued, and simple criteria for investment programming based on efficient utilization of existing facilities should be shared with donors. As mentioned in the respective sections on secondary and higher education above, the highest priority for UNIMK in terms of guiding donor investments will be to ensure that decisions on investments in individual secondary schools, university faculties and boarding facilities are made in the context of an overall reform agenda for these levels of education – necessitating that some investment in these areas may have to be re-directed to other priorities until an adequate strategy has been agreed. For example, boarding facilities should not be refurbished by donors without a strong commitment to reduce subsidies and institute cost recovery; and vocational schools should not be re-equipped without some evidence of the priority of re-establishing occupational training for secondary students.

As mentioned above, existing textbooks are in the process of being re-printed as an interim measure with donor financing already obtained. These books are expected to last for several years and some minimum additional funding will be required to provide supplemental materials during this period. Decisions on financing a second wave of textbooks should be made on the basis of relevance to new curriculum programs and the acceptance of minimum cost recovery for some books and levels.

In education, the budget request process is traditionally based on the number of teaching and non-teaching staff required to meet predicted class rolls, and a series of norms established for wages (salary scale) and for other expenditures such as educational materials, utilities, maintenance, administration, etc. In the interest of ensuring equity in public educational funding entitlements within a small system, this process of establishing norms is normally decided at the central level, and it is strongly recommended that this be the case in Kosovo.

Once budgets have been approved at the center, in competition with other public spending priorities (health, infrastructure, social benefits, pensions, etc.), there are various methods for allocating budgeted funds to the service provider – the school. In traditional centralized systems, funding is allocated as credits against various budget categories and lower levels or institutions have little discretion in terms of shifting the mix of expenditures to meet their own local priorities. However, many countries in Western Europe and North America, as well as several Eastern and Central European countries (Hungary, Poland, and the Czech Republic) decentralize the responsibility for defining local spending priorities, within broad limits, by devolving funds in the form of block grants to lower administrative levels or to the schools themselves. In this scenario, local governance structures (or directors in the case of schools, in consultation with local school councils) are responsible for allocating funding according to their own local priorities and needs in education. A single pay scale and minimum salaries can continue to be mandated from the center. In an environment of severe revenue constraints and under-funded budgets (i.e. ideal norms cannot be met for all schools), this mechanism has the added advantage of allowing available non-salary funding to be allocated on an equitable basis and pushing down decisions to local officials over what spending trade-offs most meet their needs. Given the tradition in Kosovo for decentralized management of education at the municipality level under FRY and in the "parallel" system, it is recommended that such a system be considered and potentially piloted in Kosovo.

Block grants require some unit cost calculation for distributing funds and in education that unit is the ultimate beneficiary of the system, the student. Lump sum grants to municipalities would be determined on the basis of a per student funding which would include adjustments for varying circumstances of municipalities and individual schools. For example, typically rural schools would be entitled to a higher per student allocation to take into account the higher cost that may be associated with their isolation or with lower student-teacher ratios. Schools with similar circumstances and the same number of students will be entitled to the same level of funding.

In almost all such systems, capital costs (mainly civil works, equipment and furniture) are excluded from the funding formula due to disparities in the physical status and age of schools and the need to target scarce capital spending on the neediest areas. The amount of support coming from donors to cover capital spending in the short term makes this a non-critical issue. However, capital costs will eventually have to be budgeted through a detailed investment program, which should be established on the basis of detailed criteria for prioritizing investments. Before such an investment plan can be effectively established, consistent information will have to be collected and categorized on the status of schools and the efficiency with which facilities are being used. Donor assessments of schools should provide a base line for developing a centrally maintained school mapping database.

Allocating block grants on the base of a per student funding formula presents a number of advantages and constraints that should be taken into account in deciding whether or not such a mechanism is appropriate for Kosovo:

• Allocating funding on the number of students provides a powerful incentive for the municipality to use its scarce public education funding more efficiently, particularly the two most costly elements in education, teachers and school facilities. Low student-teacher ratios and under-utilization of facilities will become extremely important issues to local officials who would have an incentive to address the problem locally rather than simply requesting more resources from the center. In the opposite situation, schools with high student-teacher ratios and over-utilized facilities can at least expect a higher relative amount of funding to address these problems based on their higher relative number of students.

• Allocating block grants to municipalities is in keeping with the traditionally decentralized governance structure for education both in FYR and in the "parallel" system. Allowing local officials to determine their own needs and priorities in education, within broad norms, is generally thought to be a strength in modern education governance in that local authorities are more attuned to local needs than central administrators.

• Formula funding will bring about a more equitable distribution of resources – across all constituent groups - because it is based on the actual beneficiary of the education system and not on historical funding patterns. The formula can be modified over time to target public resources on disadvantaged groups or areas which are not performing up to established standards.

• The formula would be publicly available and serve to establish transparency of public funding for the education sector.

• Providing education funds in block grants to municipalities to be used exclusively for education limits the authority of municipalities to determine their own optimal mix of spending priorities across sectors, as was the practice in FYR. The goal of ensuring an equitable allocation of public resources for education across Kosovo and the need to ensure minimum spending standards for all children may outweigh this constraint. Municipalities would, of course, be able to make additional contributions to education with any revenues assigned to them or through private contributions.

• There would be little direct central control over education spending, accept for certain broad norms including the central salary scale. In this context, municipalities may attempt to divert education funding to activities other than education. Both a central auditing function and the re-enforcing of accountability systems within the municipalities would be necessary, as in any decentralized system, to guard against corruption and ensure that norms are respected.

• There could be some diseconomies of scale in terms of items that could best be procured centrally. Although many education systems are tending to push the responsibility for choosing textbooks to lower administrative levels or even to the schools, textbooks might, at least initially, be an item that is better funded outside the formula and distributed from the center.

• Microanalysis of school expenditure would not be immediately available in the system. New accounting/information systems would have to be developed to ensure consistent reporting which would be used to monitor the adequacy of the per student allocation and to make adjustments where necessary at the central level.

The introduction of block grants to municipalities through a per student funding formula would require an assessment of municipality capacity to implement such a system, as well as an assessment of existing or recommended accountability procedures designed to ensure that funding is used in the best interest of students and teachers, that centrally-established norms are respected (salary scales, maximum student-teacher ratios, for example), and that corruption in the system is reduced or eliminated. Because the introduction of new decentralized governance and financing systems is commonly an experience in which much is learned in the initial stages of implementation, it is recommended that donor financing be made available to organize a pilot exercise in one or more municipalities beginning with the 2000-2001 school year. In the meantime, much can be learned about capacity to manage such a decentralized governance system at both the central and municipality levels, through the process of funding the non-salary costs of the 1999 and 2000 education budgets.

Lastly, the full benefit of such a decentralized block grant system can only be realized if authorities in Kosovo have the capacity to measure the performance of its students and schools in some standardized way so as to allow comparisons and to re-allocate central funding to address problem areas. The need to develop a capacity for standardized student assessment is discussed above and should be considered by donors together with the proposal for a decentralized governance and financing system.

¹ Noel Malcolm, Kosovo: A Short History, Macmillan (1998), page 326.