7.9 Subnational education spending by financing source, 2018

uncertified counterparts. Finally, certified municipalities have a much higher variation in per student spending, although this might be a result of the difference in sample size between certified municipalities (62 plus Bogotá) and uncertified municipalities (1,038).

Subnational spending in education and the role of intergovernmental transfers

Subnational spending has four main sources of funding. Figure 7.9 shows that in 2018, approximately 84 percent of spending in the education sector was financed through earmarked education transfers from the national budget through the decentralization fiscal transfer mechanism (the General Participation System or GPS). An additional 7 percent was financed through local authorities’ ownsource revenue, while other transfers made through the GPS for the school food program and early childhood education and general purpose represent 0.73 percent. Royalties (transfers from the central government that are not part of the GPS) represent 3 percent. Therefore, approximately 88 percent of public education spending comes from transfers made by the national government in the form of royalties and GPS transfers.

These data show that fiscal transfers made through the GPS, the main financing source of public education in Colombia, are highly fragmented (earmarked education transfers, food program transfers, early childhood transfers, and general-purpose transfers spent at the discretion of municipal governments on education) and managed separately, creating administrative burdens that can be avoided with better alignment.

FIGURE 7.9

Subnational education spending by financing source, 2018

Central level education spending (6%) Education sector transfers made through the decentralization transfer system (84%)

Subnational education spending (94%)

Other transfers made through the decentralization transfer system (0.7%)

Royalties (2.8%)

Own-source revenue (6.5%)

Source: World Bank calculations based on education expenditure data from public budget laws from 2010–18 and Investment Expenditures Database, Unique Territorial Form (accessed October 2019), https://sisfut.dnp.gov.co/app/login.

How do fiscal transfers work?

Decentralization and the history of Colombia’s transfer system can be divided into two periods—1993 to 2001 and 2001 to 2021. Each period was focused on different policy objectives and had different ways of calculating the total amount of resources to be transferred and different mechanisms for allocating the transfers among different levels of government. Between 1993 and 2001, under Law 60 of 1993, the main objectives were to increase equity and access to services between regions of Colombia, the total amount of transfers was a fixed percentage of the central government´s revenue, and the transfers were distributed across states and municipalities and sectors in fixed percentages.

A fundamental problem with this system was that the size of the budget allocated to fiscal transfers was set as a percentage of national current revenue, thus making it highly volatile and vulnerable to economic downturns. In 1999, Colombia went through an economic crisis that resulted in a decrease of 8.4 percent in national current revenue, which had two negative effects (National Planning Department 2002). First, it decreased the amount of transfers distributed to local governments, which put pressure on the provision of social services. Second, local governments incurred debt to maintain their previous expenditure levels, which created a dangerous fiscal and macroeconomic imbalance.11

The government reformed the system in 2001. Efficiency was introduced as an objective, in addition to the existing objectives of equity and access to social services, and learning as an objective was introduced through decrees in 2011. These objectives were promoted through funding and performance-based formulas. Under the new system the total amount of transfers would grow annually in real terms (until 2016 when the formula reverted to depending on the average of the growth of revenue of the previous four years), and these would first be distributed across sectors in fixed percentages and then across levels of government. Finally, in 2013, and as a result of a mandate from the Constitutional Court, gratuity—the obligation of the state to exonerate families from the costs of sending their children to school—was also included as one of the priorities for the education sector, and schools have received funds for this mandate since then.

These changes have also been accompanied by changes in the relative importance of transfers in GDP and the national budget. Figure 7.10 shows total transfers and education-specific transfers as a percentage of GDP and the total government budget. Total fiscal transfers increased significantly between 1994 and 2002, reaching 5 percent of GDP and 19 percent of the national budget in 2002. After the 2001 reform, fiscal transfers started decreasing as a percentage of GDP, and then remained relatively constant at about 3.8 percent between 2011 and 2019. As a share of the budget, transfers decreased significantly after the 2001 reform, when the total amount of transfers was uncoupled from increases in revenue, but have increased since 2016, when the total pool of resources for transfers was again linked to revenue growth. Education transfers follow the same pattern. In 2019, total transfers accounted for almost 18 percent of the national budget, and education-specific transfers for 10 percent.

The GPS is described in figure 7.11. First, the pool of resources to be transferred for all sectors was determined based on inflation until 2016, and on trends in revenue over the previous four years since 2016. Until 2016, if the economy grew at more than 4 percent per year, additional resources were provided, earmarked for