The Asset We Cannot Afford to Neglect

“An investment in knowledge pays the best interest,” wrote Benjamin Franklin. A fervent advocate for public education, and a founder of libraries, schools, and the University of Pennsylvania, Franklin viewed education as the foundation of human progress. If he were alive today, he would be horrified by the state of education in developing countries – and he would most likely be backing the International Finance Facility for Education (IFFEd) proposed by the International Commission on Financing Global Education Opportunity, led by former British Prime Minister Gordon Brown.In an increasingly knowledge-based global economy, quality education is more important than ever. Yet the world is facing an education crisis. Some 260 million children are not even in school. More than twice that number are in school, but learning so little that they will emerge without the basic literacy and numeracy they need to flourish. This is not only destroying the hopes of young people; it is impeding the progress of entire countries – and thus of the world.

Three years ago, world leaders committed to Sustainable Development Goal 4, which calls for the provision of inclusive and equitable quality education for all by 2030. Yet, if current trends continue, more than 800 million children will fall short of that target. Given the importance of education for virtually every meaningful indicator of development – from child survival to maternal health and poverty reduction – this failure will spill over to other SDGs.
Under-investment is at the heart of the education crisis. Failing to recognize the very high returns on offer, developing-country governments invest, on average, just 4Pct of national income on education. Even if they raised that share to 6Pct, the global financing deficit would amount to USD40 billion per year, and rising, by 2020.

International development finance has a crucial role to play in narrowing the gap. The modestly good news is that, after six years of stagnation, aid to education rose in 2016. The bad news is that the share of education in overall aid has been shrinking – and too little aid goes to basic education in low-income countries.

But it is not just the poorest countries that need help. The financing shortfall also affects the 53 lower-middle-income countries (LMICs) with incomes between USD1,000-USD4,000. These countries – ranging from Bangladesh and Zambia to Indonesia and the Philippines – account for almost 500 million of the children who will not be learning by 2030.

Many LMICs are trapped in a financial no man’s land. As their incomes rise, they receive less of the interest-free grant aid earmarked for the poorest countries. But they are unable – or unwilling – to draw on other development finance, notably loans from the World Bank and regional development banks. These loans are provided on far more favorable terms than most LMICs could secure on world markets, thanks to the World Bank’s credit rating.

Part of the problem is that developing-country governments are not demanding finance for education. Most prioritize loans for physical capital, like transport and energy infrastructure, over human-capital investments like education. This is plain bad economics: Countries with first-world roads and bridges but fifth-rate education systems are heading nowhere fast in terms of long-term economic growth and human development.

The World Bank itself has also attached too little weight to education. Just 5% of its loan portfolio is directed to the sector – and most of that goes to a handful of wealthier middle-income countries.

To his credit, World Bank President Jim Yong Kim is now openly challenging governments that neglect investments in their citizens. He has announced the creation of an index that will rank countries on their investment in human capital. The World Bank must now work with governments to ensure that more of its USD50 billion lending portfolio goes to education – and regional development banks should follow suit.

The IFFEd could help catalyze change. Specifically, it would create a new facility designed to underwrite education loans from the World Bank and regional development banks. Because the World Bank’s credit rating enables it to advance around USD4 in lending for every USD1 in reserves, USD2 billion in guarantees could mobilize USD 8 billion in financing for education.


6th Year • July 16 – Aug. 15 2018 • No. 64

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