The Main Issues in Global Education Finance

In order to achieve the 2030 target for universal basic education, low- and lower-middle-income countries need to spend US$504 billion or 6.3% of their gross domestic product (GDP) annually.

Yet, public expenditure grew modestly in low-income countries, from 3% in 2010 to 3.6% in 2020 and remained stable in lower-middle-income (as well as in richer) countries at about 4.7% of GDP.

Stagnation in lower-middle-income countries hides differences between them. For instance, 43% of them spent below 4% of GDP. This is one of the two finance benchmarks set in the Education 2030 Framework for Action, the other being that countries should allocate at least 15% of their total public expenditure on education. One in three countries in the world fall below both benchmarks.

Even countries that reach their finance benchmark achieve very different results in terms of effectiveness, efficiency and equity. Equitable finance policies, for instance, help those most in need. However, an analysis of 78 low- and middle-income countries showed that only one in five, mostly upper-middle-income and Latin American countries, maintained a strong equity focus through their financing policies.

Donor focus on supporting the poorest (countries) is insufficient

And we should not only think of within-country equity. An equitable approach should also see more resources spent in countries that are further behind, an idea that makes not only moral but also economic sense. However, at present, every year, of the US$5 trillion spent on education worldwide, only 0.5% is spent in low-income countries, while 66% is spent in high-income countries, even though the two groups have a roughly equal number of school-age children.

Aid to education could help close this gap. But aid levels overall have been constant at around 0.3% of donor countries’ gross national income, well below a commitment to allocated at least 0.7%. Within this total aid, the share of education fell between 2000 and 2015, although it recovered some of the lost ground between 2015 and 2020. And within total aid to education, two indicators are important. First, the share of basic education – which is more likely to reach the poorest – has remained constant at about 40%. Second, the share of total aid to education going to low-income countries has also remained relatively stable at about 20%.

The extent to which various donors prioritize aid in general and prioritize basic education and low-income countries within their aid to education portfolio can be compared using the interactive graphs on SCOPE. Here, we chose to look at Germany, Norway, the United Kingdom and the United States. Norway spends 0.9% of its income on aid, while the United States only 0.2%. But the two countries have prioritized basic education and low-income countries much more than Germany and the United Kingdom. While Germany never prioritized basic education and low-income countries, the United Kingdom used to be the main champion but its priorities have changed rapidly in recent years.

Germany is the largest single donor to education in these countries but a large share of this aid is going to post-secondary education, which indicates that these resources are largely spent on foreign students who study in Germany, mostly from China and India, rather than necessarily contributing to equity and quality at the basic education level in the poorest countries.

The importance of household spending on education is underappreciated

Out-of-pocket spending by families on education varies with household wealth, ambition and peer pressure to ensure that their children have access to education of the highest possible quality. But it is often a response to low government spending, which forces parents to pay for items that otherwise would be available free of cost.

On average, households spend 1.9% of GDP on education, while governments spend 4.5% of GDP. This means households account for about 30% of total education spending. But shares range from 15% in high-income countries to 39% in low- and lower-middle-income countries.

In this graph, which is interactive on the website, each of the bars represents a country in the world. The higher the share of households in total education spending (i.e. the red section), the larger the risk of inequality in learning. In some countries, including Bangladesh, Haiti and Nigeria, the share of households in total education expenditure rises to over 70%.

Gaining a better picture of household spending gives a much more holistic overview of education financing. For example, in 2019, Nigeria had one of the lowest levels of government expenditure as a percentage of GDP. Yet, once household contributions are taken into account, Nigeria’s total national expenditure on education as a percentage of GDP was similar to that of France.

The government of Pakistan, meanwhile, spent about 2.5 percentage points of GDP less on education than did Germany, but Pakistan spent overall more than Germany because its households spent more than 3 percentage points of GDP on education.