1. Methodology for the
Introduction of Budget Norms
and Equalization Norms
in the Education Sector
Jean-Marc Lepain
Intergovernmental Fiscal Advisor
Manilay Thiphalansy
Research Consultant

2. Part I.
Defining the Budget Norm
Policy Framework

3. Definition
“A budget norm system is methodology for allocating
budgetary funds based on expenditure needs in a fair
and transparent manner with the objective of
avoiding political bargaining and correcting
horizontal imbalance. Budget norms are usually
integrated in the design of grant transfer formulae.”

4. Objectives
• correcting horizontal budgetary imbalance;
• Ensuring that all provincial basic needs are covered;
• Balancing operational cost and investment;
• Ensuring maintenance of all infrastructures;
• Ensuring a linkage between national and provincial
budgeting and the national development strategy;
• Ensuring budget predictability
• Multi-year budget programming

5. PRESENT BUDGETING SYSTEM NEW BUDGETING SYSTEM
Principles: Principles:
• System based on revenue • System based on expenditure
assignment needs
• Allocations based on historical • Allocations based on objective
trends criteria
• One year budgeting • Multi-year budgeting
Consequence:
Consequence:
• Horizontal imbalance
• Equalization of expenditures
• Lack of equity and transparency
• Equity and transparency
• Lack of predictability
• Predictability
• Insufficient funding for
• Better funding for maintenance and
maintenance and operation
operation
• Poor linkage with planning and
• Better linkage with planning and national
national strategy
strategy
• Lack of control of the Ministry
• Better control of the Ministry over
over provincial spending
provincial spending

6. Horizontal Imbalance
Definition: “Horizontal imbalance measures the
disparity in revenue assignment between
provinces based on their respective
expenditure needs.”

7. Horizontal Imbalance in Laos
Poverty Domestic Exp. Operating Exp. Capital Exp.
Index /Population /Population /Population
Vientiane Capital 1,17 0,45 0,24 0,27
Savannakhet 1,43 0,25 0,22 0,06
Champasak 1,18 0,34 0,26 0,10
Khammoune 1,34 0,32 0,31 0,07
Luangphrabang 1,23 0,36 0,34 0,07
Bolikhamxay 1,29 0,39 0,36 0,09
Houphan 1,52 0,48 0,32 0,21
Oudomxai 1,45 0,72 0,31 0,46
Xayabury 1,25 0,49 0,31 0,23
Xiengkhuang 1,42 0,48 0,42 0,12
Vientiane Pro. 1,19 0,43 0,34 0,13
Bokeo 1,21 0,53 0,38 0,25
Phongsaly 1,51 0,40 0,34 0,15
Luangnamtha 1,23 0,74 0,46 0,38
Saravanh 1,54 0,28 0,23 0,09
Attapeur 1,44 0,76 0,50 0,37
Xekong 1,42 0,60 0,54 0,20

8. Two Types of Norms
• Grant transfer norms
• Budget formulation norms
Maintenance
Other goods and services
Small investments

9. Sectors to be covered
• Education
• Health
• Transport
• Agriculture
• General Administration (5 ministries)
• Provincial Administration

10. Grant System
+ Shared Revenue
+ Equalization Grant
+ Investment Grant
+ Other conditional grants
+ Ad hoc Grants to other organizations
=--------------------------------------------------
=Total transfer to provinces

11. Equalization Grant
+ Provincial Fiscal Envelope
- Targeted Local Revenue
- Shared revenue
-----------------------------------------
= Equalization Grant

12. Fiscal Strategy
• Fiscal envelope for Budget Norm: 5% of
FY2007/08 (Fiscal Envelope for Education: 1,02% )
• Implementation in three phases (Education and
Health: Phase 1starting in FY2010/11)
• Implementation Plan 6 years (Education
Implementation Plan 4 years for recurrent expenditures and 3
years for investments)

13. Part II
Methodology

14. General Methodology
• Policy framework and strategy
• Calculation of the fiscal envelope available for
budget norms
• Budget Norm planning
• Macro-fiscal modeling and consolidation
• Budget norm implementation strategy
• Transfer system design

15. Sectoral Budget Norm Calculation
• Sector Profile and Policy Review
• Expenditure Need Assessment
• Macro-fiscal modeling
• Consolidation and reporting
• Validation

16. Sector Profile
• Sector long term objectives in relation to
MDG, NGPES and NSEDP
• Program structure and objectives
• Collection of relevant statistical data
• Analysis of budget data
• Indicators

17. Sector Policy Review
• Review of performance
• Analysis of budgetary and non budgetary
issues
• Analysis of budget alignment with objectives
• Preparation of budget projection for the next
three years
• Recommendations

18. Expenditure Need Assessment
• Analysis of cost drivers
• Need assessment by economic categories
• Balance between recurrent expenditures and
Investment
• Sizing of investments in relation to objectives
• Identification of budget norm indicators

19. Macro-Fiscal Modeling
• Analysis of budgetary trends
• Development of sectoral fiscal model for the
next three years
• Testing of budget norm formula
• Consolidation of all sectoral model in one
macro-fiscal model

20. Implementation Strategy
• Selection of indicative budget norms and
budget norms for the intergovernmental
transfer system.
• Assessment of the number of years required
to correct horizontal imbalance
• Recommendation for multi-year
implementation

21. Part III
Budget Norm Selection

22. Education Budget Norms
The transfer should be based on:
• number of children in age to go to school
• Number of children registered
• Literacy rate
• Programmes
• Cost factor (salaries including bonuses, training
needs, etc.)
• Maintenance needs and other non-wage
expenditures

23. Equalization Norm
• FY2007/08 Recurrent Budget = 85,000 kips per capita
• FY2008/09 Recurrent Budget = 102,000 kips per
capita
• Minimum Investment Budget = 7% of Recurrent
Budget
The equalization norm based on minimum spending
per capita must be replaced by a budget norm based
on spending per children of different school
programmes.

24. Structure of the Transfer Formula
A possible formula could be:
• T = Transfer
• Sp.I. = Spending Norm
• N = Need Indicator
• C = Cost Indicator
T = (Sp.I. x N) + (Sp.I. x C)

25. Selection of a spending indicator
Possible spending indicator:
• Spending per capital
• Spending per child under age of 15
• Spending per age class (1 to 5, 6 to 9, 9 to 15,
etc.)
• Spending per child by programme
• Other indicators ?

26. Selection of Need Indicators
• Literacy rate
• Children Registered / Total Children Population
• Girls registered/ Total number of children
• Territory covered by school network
• Number of teacher required (number of
teachers/number of students)

27. Selection of Cost Indicators
Cost indicators should record variations in cost
for similar services by province and by district.
• Salary Indicators
• Maintenance Cost
• Management Cost

28. THANKS