for education

TABLE 4.2 Transfer mechanisms between the federal government and the states for education

TRANSFERS CURRENT TRANSFER

Type General transfer, nonearmarked

Objectives General support for state budgets including education expenditures (adequacy) Use of resources Support for overall state budgets, including salaries and, in some cases, nonsalary recurrent spending

STATE DEVELOPMENT TRANSFER

Project-based transfer, including but not limited to education projects

Ad hoc support for selected ongoing development projects (adequacy)

Support for ongoing development projects, including education projects

Determination of pool of funds Based on projected revenues for the year, using past levels of revenues and expenditures as proxies; usually represents between 25 and 33 percent of total federal revenues Ad hoc allocation Off-budget support in form of grants 2 percentage points of the current transfer is earmarked

SPECIFIED TRANSFER SPECIAL TRANSFER

Targeted transfers for specific purposes, including higher education Education-specific transfer

Provision of off- budget grant directly to public higher education institutions (adequacy) Support for higher education institutions as a grant, not earmarked for specific spending categories Economies of scale in acquisition of education inputs (efficiency)

Used to finance specific inputs such as textbooks and managed centrally; priorities are determined by the FMoE and the high committee every year

Allocation of pool

Issues and policy challenges Horizontal allocation formula determined by the FFAMC based on a set of eight criteria Varies based on states’ planned, ongoing, or completed development projects Varies depending on the institution receiving direct support (for example, higher education institutions or prisons); grant amount is based on previous year’s allocation Varies depending on the program being supported; for example, the distribution of textbooks among states depends on enrollment numbers

Little evidence that allocation decisions are aligned with the criteria; moreover, there are strong concerns about budget credibility No clear rationale underpinning the allocations for state development transfers; conflict about who should be funding these projects; some states indicate that they receive little support from the federal level whereas the federal government wants states to rely less on federal funds Higher education institutions do not systematically report on their use of the grants Unclear how well-aligned these funds are with the states’ needs; some states have indicated that they prefer to manage these resources directly

Source: World Bank. Note: FFAMC = Fiscal and Financial Allocation and Monitoring Commission; FMoE = Federal Ministry of General Education.

president’s office until its operations were suspended after the investiture of the new government in September 2019. However, although the principle underlying the equalization of transfers was well-understood, it lacked clarity and specificity on, for example, whether the equalization should be achieved by providing equal access to services such as health and education, by increasing access to funding, or by some other approach. There was also a complete lack of transparency on what factors were used to determine the vertical share of transfers from

the federal government. Federal transfers to states between 2012 and 2018 have ranged between 25 and 33 percent of total federal revenues.

The horizontal allocation formula that is currently used by the FFAmC at times contradicts the objective of redressing funding imbalances across states. Table 4.3 outlines the eight criteria used to determine the horizontal allocations and the relative weights placed on each. The formula-based allocation system was introduced in Sudan in 1998 to equalize funding across states, taking into account the expenditure responsibilities and own-revenue capacity of each state, and to reimburse them for specific costs. The formula has been changed several times over the years. The criteria consist of both formula-based and discretionary factors. Each of the eight factors has its own set of elements, which together constitute the score for each factor. The final score for the state is then computed from the scores across all eight factors. For example, a state with a high teacher-student ratio receives a score of 3, while a state that has more students overall receives a score of 5. States with security issues receive higher scores than states without security issues.

The education criteria themselves (student-population ratio, teacher-student ratio, and number of students) do not capture critical equity aspects such as the share of out-of-school (OOS) children or disparities in access across gender and between urban and rural areas. moreover, states that are able to generate more own-revenue and those that are able to carry a budget surplus are favored in the allocation formula, which defeats the underlying objective of achieving greater equity across states. For example, states that carry a budget surplus are allocated more points (three) than those with a budget deficit (one) in the overall scoring. It should be noted that the exact application of the formula is not made explicit by the FFAmC, neither is it communicated to the subnational levels, so any nuances in the interpretation of the formula may not be fully captured.

There is little to no evidence that this formula is being applied. The complexity of the formula has made it difficult for the federal government to clearly communicate the basis on which it decides the amount of federal resources to be transferred to the states, which creates a lack of transparency and prevents the achievement of the intended equalization objective.

Figure 4.14 shows the distribution of federal transfers in 2018 compared with the population size and poverty rates in each state. Although it is clear from panel a that population size is correlated to some extent with transfer size, panel b confirms that there is a very weak correlation with the share of population living under the national poverty line. This further reinforces the possibility that the allocation formula fails to adequately account for socioeconomic disparities between states.

The fiscal autonomy of states is also limited by a lack of capacity to generate their own revenues. most states, despite decentralization, depend to a large extent on federal transfers to finance their constitutionally mandated basic services, including teacher salaries, which is the largest item in the state education budgets.

Figure 4.15 shows the percentage of federal transfers as a share of total state revenue in 2017 and 2018. The level of dependence on federal grants varies significantly across states from as low as 26 percent in Khartoum state to as high as 89 percent in Central Darfur. The share of federal transfers represents at least 50 percent of the revenues of all states in Sudan except for Khartoum state.

The actual levels of state revenue also vary widely. Figure 4.16 shows total state revenues by source. “National government transfers” are unallocated,