Malaysia - Education Sector Support Project

Document of The World Bank Report No: 18890-MA PROJECT APPRAISAL DOCUMENT ONA PROPOSED LOAN IN THE AMOUNT OF US$244.0 MILLION TO MALAYSIA FOR AN EDUCATION SECTOR SUPPORT PROJECT February 12, 1999 Human Development Sector Unit East Asia and Pacific Region  CURRENCY EQUIVALENTS (Exchange Rate Effective February 8, 1999) Currency Unit = Malaysian Ringgit (MYR) MYR 1= US$ 0.263 US$ 1.00 = MYR 3.8 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS DEO District Education Office DPSD Development Privatisation and Supply Division (Ministry of Education) EMIS Education Management Information System EPRD Educational Planning and Research Division EPU Economic Planning Unit (Prime Minister's Department) GOM Government of Malaysia HED Higher Education Department ISD Information Systems Division IT Information Technology ITTHO Institut Teknologi Tun Hussein Onn JKR Jabatan Kerja Raja (Public Works Department) M&E Monitoring and Evaluation MOE Ministry of Education MOF Ministry of Finance NEP New Economic Policy PCC Project Coordination Committee PMR Project Management Report REO Regional Education Office SDP Staff Development Program RECSAM Regional Education Center for Science and Mathematics (SEAMEO) TED Teacher Education Division TED Technical Education Department TTC Teacher Training College UPE Universal Primary Education UPST Universiti Pendidikan Sultan Idris Vice President: Jean-Michel Severino Country Director: Ngozi N. Okonjo-Iweala Sector Manager: Alan Ruby Task Team Leader: Rozany R. Deen  MALAYSIA EDUCATION SECTOR SUPPORT PROJECT CONTENTS Page A. Project Development Objective 1. Project development objective 3 2. Key performance indicators 3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3 2. Main sector issues and Government strategy 4 3. Sector issues to be addressed by the project and strategic choices 6 C. Project Description Summary 1. Project components 7 2. Key policy and institutional reforms supported by the project 9 3. Benefits and target population 10 4. Institutional and implementation arrangements 10 D. Project Rationale 1. Project alternatives considered and reasons for rejection 11 2. Major related projects financed by the Bank and other development agencies 12 3. Lessons learned and reflected in proposed project design 13 4. Indications of borrower commitment and ownership 14 5. Value added of Bank support in this project 14 E. Summary Project Analyses 1. Economic 14 2. Financial 14 3. Technical 15 4. Institutional 15 5. Social 15 6. Environmental assessment 15 7. Participatory approach 16 F. Sustainability and Risks 1. Sustainability 16 2. Critical risks 16 3. Possible controversial aspects 17  G. Main Loan conditions 1. Effectiveness conditions 17 2. Other 17 H. Readiness for Implementation 18 I. Compliance with Bank Policies 18 Annexes Annex 1: Project Design Summary 19 Annex 2: Detailed Project Description 24 Annex 3: Estimated Project Costs 34 Annex 4: Cost-Effectiveness Analysis Summary 35 Annex 5: Fiscal Sustainability Analysis 42 Annex 6: Procurement and Disbursement Arrangementsand Financial Management 54 Annex 7: Project Processing Schedule 61 Annex 8: Documents in Project File 62 Annex 9: Statement of Loans and Credits 63 Annex 10: Country at a Glance 64 MAP(S) IBRD 30074 IBRD 30093  MALAYSIA Education Sector Support Project Project Appraisal Document East Asia and Pacific Region Country Operations Division Date: February 12, 1999 Team Leader: Rozany R. Deen Country Manager/Director: Ngozi N. Okonjo-Iweala Sector Manager/Director: Alan Ruby Project ID: 58681 Sector(s): EP - Primary Education, ES - Secondary Education, ET - Higher Education, EV - Vocation/Technical Education, EY - Other Education Lending Instrument: Specific Investment Loan (SIL) Theme(s): Poverty Targeted Intervention: No Project Financing Data N Loan - O Credit ] Grant O Guarantee R Other (Specify) For LoanslCredits/Others: Amount (US$m) 244.0 Proposed Terms: R To be defined 3 Multicurrency N Single currency O Standard Variable 1 Fixed OI LIBOR-based Grace period (years): 3 Years to maturity: 15 Commitment fee: 0.75% Service charge % Front end fee on Bank loan 1,00% Government 118.0 0.0 118.0 IBRD 123.0 121.0 244.0 IDA 0.0 0.0 0.0 Total: 241.0 121.0 362.0 Borrower: Malaysia Guarantor: Responsible agency: Ministry of Education Implementing agency(ies): Ministry of Education Address: Ministry of Education, Block J, Pusat Bandar Damansara, 50604, Kuala Lumpur, Malaysia Contact Person: Datuk Ahmad bin Tokimin, Deputy Secretary of Finance and Development. Tel: 60-3-2513-175 Fax: 60-3-2554-960 Email:  Estimated disbursements ( Bank FYIUS$M): Annual 28.5 95.0 025 Cumulative 28.5 123.5 218.5 244.0 Project implementation period: 1999 - 2002 Expected effectiveness date: 06/01/99 Expected closing date: 12/31/2002 OCS PAD Form: October 9, 1998 -2-  A: Project Development Objective 1. Project development objective: (see Annex 1) The project development objectives are: * to mitigate the negative impacts of the economic and financial crisis on the education sector; and * to assist in the medium-term economic recovery through the cost-effective development of technical skills. In July 1998, after a five year hiatus in borrowing, the Government of Malaysia (GOM) requested Bank assistance for the education sector. The support was to help revive the constraints, resulting from the East Asian economic and financial crisis, in achieving the education sector objectives of the Seventh Malaysia Plan (1996-2000). These objectives as articulated in the Plan are expanding access to and equity in education, promoting quality and excellence, and improving the efficiency of sectoral management. It, thus, became necessary to prepare a project in a very short time period to support the Government's ongoing reforms and address the negative effects of the economic downturn on the education sector. The project, as designed, will help GOM maintain past education sector achievements and help realize the access, quality and efficiency objectives of the Plan. It will help reinstate programs that were cut as a result of the crisis. The project also supports investments that will help restore economic growth and confidence in the economy. The project provides funding to the Ministry of Education (MOE's) core programs in basic education (construction of facilities, teacher training and upgrading and extension of basic education) so that they can continue with minimal disruption during this period of fiscal stringency. It will continue to assist Malaysia produce middle-level technical specialists with high skills and productivity, through assistance to the polytechnic system, in which the Bank has been long involved. Such skills are necessary for the medium-term recovery. The project will also support institutional strengthening activities including improved sector management, staff development in domestic universities and project management. 2. Key performance indicators: (see Annex 1) B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 18812-MA Date of latest CAS discussion: March 30, 1999 The CAS is under preparation, jointly with the I1C, and is scheduled for Board presentation in March 1999. The CAS indicates that as a result of the economic crisis the pressure on public expenditures has intensified following a shift in demand from private to public services, and that the gains made in education and health services are being adversely affected. These developments in the social sectors are important for the short-term, but also have medium-term consequences because they are constraining Malaysia's development of human capital. The latter is the cornerstone of Vision 2020, Malaysia's goal to achieve developed nation status by that year. The CAS proposes a two pronged approach to assist Malaysia. Its objectives are to focus on crisis-related as well as medium-term challenges, both in providing support for the social sectors and for restoring economic growth. The project fully supports the CAS objectives. On -3-  the first, the project will assist GOM restore priority expenditures for education during this crisis period, with special emphasis on increased expenditures in the poorer states. This would provide continued access to high quality education services in the face of increased budgetary pressures. In the medium-term, the CAS objective is to provide assistance to restore sustainable growth and competitiveness. This would include the continued strengthening of human capital and enhancing its productivity. The CAS highlights the need for improved skills in science, mathematics, information technology (IT) and other specialized expertise for the "knowledge economy". It indicates that under Vision 2020, Malaysia aims to promote itself as an open, export-oriented economy based on high value-added and efficient manufacturing and services sectors. This would entail substantial investments in specialist education and technical training. The project supports this objective by financing training in high priority areas across all levels of the education sector and, in particular, by increasing access to high quality education in the polytechnics. 2. Main sector issues and Government strategy: Background: Malaysia's education development and reforms have, since independence, been characterized by the Government's efforts to adapt education to national development needs, specifically economic and human resource development. GOM has invested heavily in education (in 1996, public expenditure for education was 20% of total public expenditure and 5.0% of GDP) based on the belief that the quality and efficiency of schools make a difference to educational achievement, and subsequent opportunities for employment and career development of the student. The Malaysian school system consists of 6 years of elementary, 3 years of lower secondary, 2 years of upper secondary, 2 years of post-secondary or pre-university, and 4 years of University education. Education is not compulsory, and promotion during the first 9 years is automatic. Education is a federal responsibility, and is centrally administered. There have been impressive improvements in the enrollment rates of relevant age groups at all levels of education over the past 35 years. Universal primary education (UPE) has been a reality since 1990. The rate for lower secondary level rose dramatically from 17.9% to 82.5%, and for upper secondary from 10.2% to 55.8% over the period 1960-1995. The enrollment rate of the relevant age group for post-secondary education increased from 0.1% to 23.2%, while that for the university level rose from 0.04% to 3.7%. If students in private and foreign universities are included, the tertiary rate could be double this figure. Sector Issues: Despite these impressive achievements, there are a number of challenges still facing the education sector. These are briefly summarized below. Some of the issues have been further exacerbated by the current economic and financial crisis. The issues are: (a) Access to and quality of basic education needs imrprovement: Under the Sixth and Seventh Malaysia Plans, GOM has been implementing its policy of providing eleven years of basic education to all. Results have been encouraging, with impressive improvements in enrollment ratios, particularly at the secondary level as indicated in the above paragraph. However, these figures hide inequities in access: enrollment rates in remote and sparsely populated regions (Sabah and Sarawak, in particular) continue to lag behind those of the more urbanized, developed areas. One issue is the shortage of infrastructure (school buildings, hostels, staff housing) in underserved areas. Another issue is inefficiencies in the delivery system. Increased emphasis needs to be placed on qualitative aspects such as the professional competence of teachers, curricula that are relevant, and effective use of technology and multimedia in service delivery. In particular, there is an important residual of secondary school teachers whose educational qualifications need to be upgraded to a university degree. The GOM intends to make these teachers fully qualified by -4-  2004 through a special degree program. In addition, new curricula need to be introduced to make the "school to work" transition smooth for students who will be joining the workforce after graduation from upper secondary school. (b) Investments in secondary technical and vocational education requires rationalization: GOM is developing a more selective approach to public investments in technical education and vocational training through an ongoing program to convert MOE-operated vocational schools into secondary technical schools. This program is supported by the ADB. In addition to this structural change, external efficiencies of the secondary technical schools need to be improved, training programs need to more closely respond to market demand, and private sector contribution to the development, operation and financing of these schools needs to be promoted. GOM is looking at ways to accelerate employer participation through new policies and* programs such as the Time Sector Privatization Program and the Human Resource Development Fund, two initiatives designed to provide employers with opportunities to contribute. Such employer input will also partly deflect the high cost of vocational and technical education and training. (c) Access to high-quality technological education needs to be increased: The polytechnic system is designed to provide certificate and diploma-level training in technical and commercial specializations. It has received Bank support since 1982. There are currently 9 polytechnics (6 in operation, 3 under construction) with plans to build 6 more under the Seventh Malaysia Plan. Total 1998 enrollment was about 26,000, and output about 6,500 graduates. Demand for graduates is outstripping supply, even during the current economic downturn. GOM has decided to more than double current enrollment capacity by building the new polytechnics and expanding six older polytechnics, for an additional 28,000 places. The main issues GOM faces in this expansion program are: (i) mobilizing the financing for this large investment (one new polytechnic is estimated to cost US$55-65 million, fully equipped); (ii) improving the operation, management and financing of these institutions (operational and financial autonomy at the institutional level); (iii) maintaining and/or enhancing the quality of instruction (training of teaching staff, curriculum development, maintenance/renewal of equipment); and (iv) industrial linkage or increasing employer participation in the operation and financing of polytechnics (relevance of training, financial support), and the placement of graduates in jobs. (d) Improvements are necessary in sector efficiency and quality: Notwithstandinig the large numbers of educators and administrators trained in a broad range of skills under the previous Bank projects, MOE still faces shortages of sophisticated technical and managerial skills required to maintain past achievements and reach its goal of strengthening institutional management. Previous staff development programs were biased towards school pedagogy at the expense of system planning and management and there is a lack of a continuous personnel development program to replenish and/or augment institutional and departmental staffing needs. In addition, the existing Education Management Information System (EMIS) has not been as effective as expected. National implementation of the system has yet to be achieved, and weak horizontal integration of data collected by different divisions has led to inefficient use of resources and has impeded strategic educational planning and management. Further, given the liberalization and rapid expansion of university education quality and efficiency improvements are still needed, including further staff development and policy assessments in areas such as improved funding mechanisms, quality assurance and IT strategies. Government Strategy: GOM's three key objectives for the education sector under the Seventh Malaysia Plan (1996-2000) are: 1. Promoting quality and excellence in the teaching and learning process through measures such as improving the delivery system through an increase in the number of experienced and qualified teachers -5-  (with bachelor degree qualification) particularly in rural schools; and fnancial assistance and opportunities for teachers to pursue studies at the diploma, graduate and post-graduate level in local institutions or abroad; 2. Expanding equitable access to quality education by extending basic education from 9 to 11 years, thereby increasing primary school enrollment from about 2.8 million to 2.9 million and secondary school enrollment from about 1.6 million in 1995 to 2.0 million in the year 2000. Measures include the building of physical facilities (schools, teacher housing and hostels) particularly in rural areas; implementing safety net programs such as health and nutrition programs, textbooks on loan, and fnancial assistance to the vulnerable; provision of loans to deserving undergraduates through the Higher Education Loan Fund; and 3. Improving managerial efficiency in education in the areas of policy analysis, management and decision-making; implementing a staff development program with strong practical orientation for senior and middle level managerial and technical personnel in policy making, sectoral planning, monitoring and evaluation; strengthening skills in the use of IT as management tool; and upgrading project management/implementation capabilities. Government strategy and implementation measures were formulated taking into consideration these sector issues. However, the current economic downturn has necessitated some adjustment in GOM's efforts toward sustaining and improving the quality of education as planned, since public expenditures on education decreased to about 18.7% of total public expenditures and 4.3% GDP in 1998 from the pre-crisis levels. The measures undertaken included cutting MOE's core programs in basic education, reducing the number of sponsored students and teachers pursuing graduate and post-graduate studies abroad; increasing the number of students pursuing graduate and post-graduate studies at local institutions causing capacity constraints; and substantially reducing funding allocations for all staff development programs. One example of the latter is that the teacher in-service training programs were cut by 72%. Given the long-term nature of human capital development, and the detrimental effects of a lapse in the ongoing programs, GOM is trying to preserve the core programs and has requested Bank assistance for this effort. 3. Sector issues to be addressed by the project and strategic choices: The project will address some of the sector issues outlined above, in line with Government's strategy and objectives, taking into account the effects of the regional economic downturn. Support under the project is being provided to priority activities, some of it focused on poor and underserved areas. The issues addressed are summarized below, and specific project support is outlined in Section C. (a) Improving access to and quality of basic education - the project will provide basic school infrastructure, with a special emphasis on the poorer states of Sarawak, Terranganu, Kelantan, Sabah and Pahang. Schools will also be built in Selangor to deal with the problem of overcrowding as a result of migration from neighbouring towns and emerging problems of urban poverty. The emphasis is on ensuring that UPE is maintained, meeting the increased secondary enrollment targets, and providing better teaching and learning environments. A survey by MOE has found that access to basic education has not been seriously affected by the financial crisis and the need for special measures to prevent drop-outs, as in other East Asian economies, has not arisen. Quality would be ensured by restoring discontinued or restricted programs of teacher training and upgrading, and improving instructional materials. The emphasis for the training programs is on priority subjects like Science, Mathematics, English and IT. The latter, in particular, for supporting the Smart School Program which promotes teaching and learning through the use of multi-media.  (b) Increasing access to high-quality technological education - the project will support the polytechnic sector to produce better educated and more adaptable workers of the caliber required by Malaysia's economic and export profile. Capacity expansion concerns are being addressed by restricting Bank support to only a single new polytechnic being developed in an industrial park in Sabah, where many large industries like Nippon, Petronas and Telecom Malaysia have purchased land. The project also assists the upgrading and expansion of six existing polytechnics, since this is considered more cost-effective than building new institutions. Private sector support is ensured through participation in programs such as the Time Sector Privatization Program. The project will fnance tracer studies and employment surveys to plan future enrollnents and outcomes. Support is also being provide to improve the quality of the programs and planning and management systems; and (c) Improving sector efficiency and quality - the project will support the increased professionalism of a number of MOE staff and a strengthened and an expanded EMIS, with a focus on Sabah and Sarawak and its integration into the national system. Assistance for staff development and selected policy assessments for domestic universities will be provided. The project is not dealing with secondary, technical and vocational education, school health and nutrition programs or student loan funds as they are being supported by other donors or projects. C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): 1. Improving access to and the quality of basic education; 2. Expanding access and improving the quality and relevance of polytechnic education; and 3. Institutional Strengthening. Component 1: Basic Education The objective is to support government's policy of expanding basic education from 9 to 11 years, through a program of capacity expansion and quality improvements by helping restore programs that have been cut as a result of the economic crisis. Project support will be for: 1.1 Capacity Expansion: * Construction and equipment of schools, staff housing, and student hostels primarily in states which are lagging behind in economic development, education achievement and basic school infrastructure, viz., Sarawak, Sabah, Kelantan, Terengganu and Pahang and Selangor. 1.2 StaffDevelopment: Teacher training and upgrading at various levels, solely in areas of priority, as follows: * Short-term in-service training programs for primary and secondary teachers in priority subjects such as Mathematics, Science, English, and Information Technology (IT), and workplace training and skills for a pilot school to work program; and * Upgrading of secondary teachers from diploma to University degree level. -7-  Component 2: Polytechnic Education The objective is to increase the enrollment capacity of the polytechnic system and enhance the quality and relevance of training programs. This objective continues Bank support provided by the ongoing Polytechnic Development Project (Loan 3 57 1-MA). The project will support the following activities: 2.1 Capacity Expansion: * Construction and equipping of a new polytechnic at Kota Kinabalu, Sabah; and * Upgrading and capacity expansion of six existing polytechnics. 2.2 Staff and Curriculum Development: * Training of polytechnic staff in a variety of domestic training programs conducted at the Institut Teknologi Tun Hussein Onn (ITTHO) and other domestic institutions; and * Curriculum and training materials development. 2.3 Enhanced Polytechnic Planning and Management System: * Annual conduct of tracer studies and employer surveys for all polytechnics; * Introduction of the first phase of the Polytechnic Management Information System; * Preparation of Master Development Plans for the six polytechnics to be upgraded; and - Quality management and efficiency of polytechnic operations, including analysis of training costs and utilization of resources, and implementation of quality management systems (MS ISO 9000). Component 3: Institutional Strengthening The objective is to support MOE's institutional development plans, which are being constrained due to the budget cuts and could effect the quality of education and efficiencies in sectoral management. The project will support: 3.1 EMIS * Hardware, software , training and technical assistance to enable the system to be implemented nationally, be Y2K compliant, and improve decision making through the integration of multiple data bases. Special emphasis would be on support for Sabah and Sarawak. 3.2 MOE Staff Development * Staff Development (short and long term programs) in selected areas such as program evaluation and monitoring; policy and data analysis and strategic planning. 3.3 Higher Education Staff and Institutional Development * Staff development program for higher education institutions to improve quality and increase competencies in specialized areas. Policy assessments of funding methodologies, quality assurance and information strategies for universities will support institutional development. 3.4 Project Management * Specialist assistance for MOE staff in positions directly linked with project planning, implementation and financial management. -8-  1. Basic Education EP - Prirnary 145.8 40.5 87.6 60.1 Education 2. Polytechnic Education EV - Vocational 197.3 54.9 138.6 70.2 Education & Training 3. Institutional Strengthening EY - Other 16.5 4.6 15.4 93.3 Education Total Project Costs 359.6 99.3 241.6 67.2 Front-end fee 2.4 0.7 2.4 100.0 Total Financing Required 362.0 100.0 244.0 67.4 2. Key policy and institutional reforms supported by the project: Extension of basic education from 9 to 11 years: This policy has been gradually implemented since the Sixth Malaysia Plan. MOE is now focusing on reforming the curricula and training the teachers at this level so that education in the last 2 years will enable a smoother "school-to-work transition" for students who will leave the school system after Grade 11. This program is being supported and evaluated for further replication. Improving the Polytechnic Education System: To alleviate concerns on excessive capacity expansion, institutional programming and required curriculum changes and industry linkages, a number of reform measures are being sought. These include the re-examination of design briefs and development of long-term academic and physical development plans for phased upgrading of existing polytechnics that take into account demand considerations and changes in programs due to advancing technology and specializations. There will be continued emphasis on tracer studies and surveys of employers as a basis for planning courses and enrollments in line with outcomes and costs. Decentralization of the responsibilities of the polytechnics as they continue to expand is also being encouraged. Increased efficiency in allocating public funds to universities and other policy assessments: Although there is no major support for the higher education sector, a number of policy assessments are included. The key one is on resource allocation. This will provide an in-depth review of the unit cost of university studies, in different disciplines and different universities. Based on these figures a more objective and transparent method of allocating budgetary resources to the universities, e.g., based on their outputs, will be devised. A study to review these issues, including training programs for university officials in charge of financial management, is included under the project. -9-  3. Benefits and target population: Direct beneficiaries will be the present and future students and teachers/lecturers at institutions where project activities take place, ranging from construction activities and equipment provision to staff and teacher training. Staff at MOE will also benefit. It is estimated that the basic education component would benefit about 45,000 children through the school and hostel construction, and the pilot school to work program. Improved quality in basic education would result from the training and upgrading of about 5210 staff. The polytechnic component will benefit approximately 18,600 students by providing them improved access to post secondary technical training and at least 1,130 teaching staff with improved skills and training. The staff and students will be able to maximize the productivity of the large public and private investments in knowledge-based industries to help in the economic recovery. The sector wide management support would improve the effectiveness and professionalism of at least 336 staff from MOE and the domestic universities. The entire education sector will benefit from more efficient and modem management methods. Indirectly, beneficiaries include the whole nation since its human capital, the most important economic and development resource, would have acquired new knowledge and skills which will enable the country to move closer to its goal of being at the forefront of global science and technology in the next century. 4. Institutional and implementation arrangements: General oversight of project implementation will be the responsibility of a Project Coordinating Committee (PCC), chaired by the Deputy Secretary-General (Finance and Development) of MOE. MOE's Education Policy and Research Division (EPRD) will serve as the PCC's secretariat. PCC membership will comprise MOE departments and divisions which will be responsible for implementing the different components (Technical Education Department (TED); Teacher Education Division (TED); Development, Privatization and Supply Division (DPSD); Higher Education Department; and the Prime Minister's Department's Economic Planning Unit (EPU) and Implementation and Coordination Unit (ICU). DPSD, which is responsible for preparing the school construction component, will also be in charge of planning and implementing all procurement activities, project accounting and disbursements. DPSD project management procedures, and its performance in past Bank projects, have been satisfactory. A fimancial management assessment was carried out at DPSD. The objective of the review was to determine whether it has an adequate financial management system in place and, based on the findings, to assess the readiness of the project to implement Project Management Report (PMR) based disbursements under the Loan Administration Change Initiative (LACI). The assessment revealed a financial management system based on a branch accounting system controlled by the Accountant General (AG), which meets the Bank's requirements. In particular, the following characteristics are present: a) experienced accounting staff involved with an on-going Bank project; b) clear accounting instructions, standardized procedures and forms which facilitate accurate and timely data input and processing; c) strong internal controls which include rigorous segregation of duties with clear instructions for authorization and approval of invoices, control over bank accounts and custody of assets; d) a Government accounting system which includes monthly reporting; and e) an independent National Audit Department, headed by a professionally qualified Auditor General, which employs staff who are adequately trained to carry out the audit function in accordance with generally accepted auditing standards. Thus, the project was assessed as being ready to implement PMR based disbursements under LACI. However, given the need for expediency resulting from the short time-frame of the project, an experienced -10-  accountant and a procurement specialist will be appointed on a full-time basis to strengthen the accounting and procurement functions within DPSD. EPRD, as the PCC Secretariat, will have overall responsibility for project coordination and monitoring and evaluation in cooperation with the other MOE departments and divisions. Each MOE department and division has identified the key performance indicators based on the objectives of individual components. EPRD has prepared the Project Implementation Plan (PIP) with input from the other MOE departments and divisions. Project monitoring will be aided by the EMIS, being strengthened by the project, under the direction of EPRD. Primary responsibility for monitoring project progress and evaluation of achievements based on stated targets (e.g., numbers of classrooms built, students enrolled and graduated, staff trained, teaching materials distributed, etc.) will rest with the implernentation units carrying out the project activities of the various project components and will be reported in the quarterly PMRs. In addition, a detailed annual project implementation progress report (by October 1 of each year) and a summary progress report (by May I of each year), including qualitative assessments, will be prepared based on the PIPs of the various components and submitted to EPRD. An overview of implementation progress will be prepared by EPRD for submission to the PCC. On the PCC's approval, the progress reports will be submitted to the Bank. D: Project Rationale 1. Project alternatives considered and reasons for rejection: a. In light of the request from GOM for quick-disbursing assistance, the option of a Sector Adjustment Loan was considered. It was concluded that given the need for a substantial updating of the Bank's knowledge of the education sector,-rather than design an adjustment operation with conditionalities and tranches, it would be preferable to design the operation as a Specific Investment Loan building upon GOM's ongoing reforms and programs in the education sector. b. The GOM's request for Bank fmancing of two other higher education components - a School of Dentistry at the Universiti Sains Malaysia, and a library complexfor Universiti Pendidkan Sultan Idris (UPSI) (a newly established university for teacher education), was considered but not included under the project. It was felt that the School of Dentistry could not be supported within the project's key objectives - mitigating the negative impact of the economic and financial crisis, and assisting in the medium term economic recovery - an argument with which the GOM agreed, and this item was dropped from the project. As for the UPSI library, due to the lack of clear undertakings on a number of issues, including a defined and rigorous academic development plan, the future size and location of the university and enrollment plans, this component was also not considered eligible for Bank financing. c. The preparation mission had identified two polytechnics for possible Bank financing. During the pre-appraisal, the Government requested the addition of another polytechnic, increasing the number to three. After a detailed review, including an assessment of state of readiness of the components, demand, cost and sustainability issues it was concluded that Bank support was justified for only one polytechnic and the upgrading of six existing ones. The project design reflects this decision. -11-  2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). 1h:.Seto Issu Projot (S)RtingsE Implementation Development Bank-financed Progess (IP) Objective (DO) Malaysia COMPLETED Basic Education First, Second and Third S S Primnary & Secondary Education L2685(1986-1992), L2987 (1988-1992), L3536 (1993-1996) University Development L2887 (1988-1992) S S Training Industrial Training, S S L2145 (1982-1989), L2601 (1985-1992) ONGOING Sector Adjustment Loan Economic Recovery and Social Sector Loan Polytechnic Polytechnic Development S S L3571(1993- Health Health S S L3682 (1994- PLANNED Social Sector Social Sector Support (Project ID 60943) Other development agencies COMPLETED Islamic Development Bank '85-'88 Islamic Teachers Training $8,000,000,00 College Project COMPLETED ADB, 1980-1995 TechnicalVocational Ed Project #1-#4 (#1-$20 million -Technical Education, #2-$58 million -Labor Market Analysis, #3-$72 million -Strategic Education Reviews #4-$72 million) -12-  ONGOING Germany Contract Foreign TAs: Vocation Training System, National Occupational Skill Standards ONGOING ADB, 1998-2003 Technical Education Project #5 Loan No.1596 MAL PLANNED Public Service Department. ASEAN Comprehensive Human ASEAN/Japan Development Program (Scholarships) POSSIBLE Japan (OECF)/ADB Program currently under discussion Poverty and Social Protection IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: The project will support the GOM's education programs under the Seventh Malaysia Plan. The project reflects lessons learned from the Malaysia education projects in the past, viz.: Primary and Secondary Education, Polytechnic Development, and Higher Education projects. The review of the Implementation Completion Reports (ICR), Project Completion Report (PCR) of Malaysia education projects from the Bank, Project Performance Audit Report (PPAR) of Operations Evaluation Department, and other development agencies revealed the following lessons, which the task team has taken into account in preparing the present operation. Primary Education, Education Reform, OEP-Precis, Loan No.2685, 2987 From these projects, the Bank learned that the projects' shortcomings stemmed from issues and actions left unresolved at project design, the seemingly different priorities of the Bank and the Borrower, while the projects' achievements stemmed mostly from the government's firm commitment to its own educational goals and programs. Third Primary and Secondary Education Project, ICR, Loan 3536 The Bank has learned several important lessons: (1) the Bank should carefully review the Government's commitment and its implementation capacity when complex components and subcomponents are planned in projects; (2) all programs need to have an in-built evaluation system so that evaluation can be done concurrently; (3) the need for the Bank to provide adequate supervision to help resolve project management difficulties, encourage more timely submission of reports and better diagnose and solve problems arising in more complex components; and (4) where a project contains a combination of civil works and human development activities, it is important not to reallocate funds to the physical works without ample justification because this reduces attention to the important institutional goals that may have more far reaching effects. Higher Education, PCR, Loan No.288 7, 1988-1992 This project experience has provided several lessons, some of which have been learned from previous projects: (I) the importance of borrower commitment or "ownership" of the project (which was evident in -13-  the successful implementation of the two university components that were the borrower's idea as contrasted with the relative failure of the university management and planning component that was predominantly the Bank's idea); (2) the value of detailed planning and programming as a basis for each project component to ensure that it can be implemented within the time and resources intended; and (3) the importance of building specific manpower training programs and arranging tracer studies of graduates. Technical/Vocational Education The experience of ADB's Technical/Vocational Education Project #1-#4, 1980-1995, provided some lessons: (1) careful site selection and preparation; (2) horizontal coordination between project components; (3) frequent revision and review of the TVE curriculum and programs to keep pace with rapidly changing industrial needs; (4) mechanisms to improve school-industry linkages and the placement of graduates; (5) benefit monitoring and evaluation (BME) as a management tool in the framework of an educational management information system (EMIS); (6) strengthening Technical Vocational Education teacher training programs; and (7) enhanced efficiency through strengthened management, cost reduction and cost recovery. 4. Indications of borrower commitment and ownership: The Project is a direct response to GOM's request for Bank assistance to the education sector, and builds upon ongoing MOE programs. Both EPU and MOE have attached much importance to the project as can be seen in their cooperation with the mission and response to information requests. GOM has given its assurance that sufficient counterpart funds will be allocated to the project. It has also agreed to selection criteria discussed with the Bank for prioritizing activities in the school construction and polytechnics components. 5. Value added of Bank support in this project: 3 In times of budgetary constraints, Bank's involvement will ensure careful prioritization, better structure and added impetus to promote existing and planned reform measures. 3 Bank's project monitoring methods, including establishment of Monitoring and Evaluation Indicators and identification of risks, promote a more rigorous and systematic method of tracking performance during implementation. i Bank's international expertise to provide GOM with advice to be incorporated into project design so as to maximize the impact of the project * Bank's ability to provide funding at a critical time. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (supported by Annex 4): * Cost-Benefit Analysis: NPV=US$ million; ERR= % O Cost Effectiveness Analysis O Other 2. Financial (see Annex 5): NPV=US$ million; FRR = % Not applicable -14-  Fiscal Impact: (See under sustainability below) 3. Technical: The civil works for the basic education component uses standard designs and plans that are generally applicable in Malaysia. The design of the new polytechnic at Kota Kinabalu, however, deviates in concept from the conventional design of past polytechnics. In order to prepare a design for the 21 st century, a team of architects and consultants was sent by the GOM on a study tour to the US and UK before undertaking the design and their experience is reflected in the design concept e.g. teaching spaces, labs and workshops are integrated into a single structure and provides for a better learning environment. On the upgrading of the six polytechnics, although the priorities differ depending on their different ages, locations and histories, most have an urgent need for additional classrooms and multi-purpose laboratory and workshop space in order to increase intake. Emphasis is being placed on modular designs which can be adapted to various uses and building sites. 4. Institutional: a. Executing agencies: Although the project involves a number of sub-sectors in MOE, key divisions dealing with the project have past experience in implementing Bank projects. b. Project management: An effective project management structure which balances coordination with efficiency has been designed. Coordination would be achieved through the establishment of the Project Coordination Committee (PCC), with membership from all MOE Departments and divisions responsible for specific components. Efficiency will be achieved by having EPRD, as the PCC Secretariat, responsible for overall project monitoring and evaluation working closely with DPSD, which will have a key role in implementation. Both EPRD and DPSD have considerable experience in project management, having jointly implemented a number of Bank financed projects in the past. 5. Social: The social impacts of the project are expected to be positive. It will help prevent any major negative social impacts in the short-run as a result of the cuts in the education budget, and ensure that the quality of education does not suffer more than necessary. A major portion of the school construction will be in the states with the greatest share of poor Kelantan (16.3%), Terranganu (15.7%) and Sarawak (7%), and the new polytechnic will be constructed in Sabah (18% of the poor) (Household Income Survey, 1995). Unemployment has increased from 2.7% in 1997.to a projected 4-5 % in 1998. The construction sector has been particularly affected and the construction activities under the project will assist generate employment and other domestic multiplier effects, besides benefiting the students and teachers. There is no significant gender gap in the Malaysian education system, particularly in basic education with female enrollments in the primary and secondary levels being 49% and 51% respectively in 1998. 6. Environmental assessment: Environment Category 1 A 13 B O C The project is expected to have no environmental impact. -15-  7. Participatory Approach (key stakeholders, how involved, and what they have influenced or may influence; if participatory approach not used, describe why not applicable): a. Primary beneficiaries and other affected groups: The key stakeholder's views on the proposed project in respect of its benefits, impacts, implementation and issues were obtained by GOM through a social assessment. The key stakeholders included education officials at all levels, lecturers in higher education institutions, teachers in schools and parents and community leaders. The study found widespread support for the project as it is expected to bring about educational development at all levels of the education system. It is seen as a balanced development project, providing both physical and human resource development. Communities and parents in remote and rural areas will benefit from the construction of new schools and hostels for their children. Teachers gain incentives through the provision of teachers quarters and also gain from the continuation of the in-service courses as well as upgrading to improve teaching and learning. MOE officials and lecturers from the various institutions will also benefit from the staff development programs. Concerns expressed by stakeholders such as the need for more resources for the short-term training programs, greater emphasis on IT, Science and Mathematics courses, and to revise the polytechnic curriculum to give more emphasis to new industrial skills, have all been incorporated into the project design. F: Sustainability and Risks 1. Sustainability: The financial analysis indicates that the sustainability of the project is assured since the estimated recurrent costs is less than one percent of the 1998 operating budget for education. It is also less than one percent of projected recurrent costs for education under both low and moderate GNP growth scenarios throughout the projection period. In terms of financial sustainability the impact of the project on the education operating budget is negligible. However, about 47% of the total incremental recurrent cost stems from the polytechnics capacity expansion activities. Thus, the share of expenditures channelled to the polytechnics would need to increase substantially to ensure their sustainability. 2. Critical Risks (reflecting assumptions in the fourth column of Annex 1): 0HSi ~ is Risk: Raik ; m RI 0 Risk Minim zattQni ''eas'ure From Outputs to Objective Decreased Government commitrnent to N GOM has placed very high priority on meeting educational objectives of education sector development. Seventh Malaysia Plan. Teachers and staff are unwilling to use M Emphasis is being placed on the highest new knowledge and skills learned. priority subjects e.g. Science Math and IT) and teachers are chosen on a competitive basis. Design and scope of quality M All necessary TA and operational improvements, particularly in support being provided for curriculum curriculum development, inadequate. review. -16-  From Components to Outputs Delays in timely availability of M A higher cost-sharing ratio as part of counterpart funds. the assistance strategy has minimized requirements for counterpart funds. Required funds for first year already available in the budget. Correct staff not sent for training M A very careful selection process ensures programs. the correct choice of staff. Implementation schedules for M Bidding process well in hand for first construction not adhered to. year program and will be agreed well before construction begins for second phase. Delays in the employment of necessary M Agreements in place that key project TA for project support. support will be hired prior to loan effectiveness. Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) 3. Possible Controversial Aspects None. The project provides support to an on-going program that has been constrained by budget cuts resulting from the East Asian financial and economic crisis G: Main Loan Conditions 1. Effectiveness Conditions 1. Confirmation that the Accountant General of Malaysia has written procedures and management guidelines for the Special Account and that these guidelines are disseminated and adopted by the Ministry of Education. 2. Appointment of a procurement specialist under TOR to be agreed with the Bank. The specialist to be maintained until project completion. 2. Other [classify according to covenant types used in the Legal Agreements.] 1. Review and agree on a program (schools, staff housing and student hostel places) for construction works to be undertaken from the year 2000, including both site selection and space norms. Proposed construction program to be furnished to the Bank by May 15, 1999; 2. Appoint a full-time accountant, a full-time project manager, and at least two additional technical staff (architect and quantity surveyor) by May 15, 1999; 3. Undertake, for each polytechnic, tracer studies of graduates and their employment, including feedback from employers on employability of graduates, and submit results to the Bank for information and comment no later than June 30 of each year commencing on June 30, 2001; 4. Submit to the Bank for information and comment, no later than June 30, 2001, the Master Development Plans for the six polytechnics to be upgraded; 5. Submit a fnal annual staff development program for the following calendar year, specifying staff to be trained, type of training and the institution by October 1 of each year, commencing October 1, 1999; 6. Complete policy assessments (resource allocation, quality assurance and IT strategy) for -17-  improvements in higher education by June 30, 2001 and submit results to the Bank for review and comment as they are completed; 7. Provide retroactive financing not exceeding $10 million for expenditures incurred for civil works and consultant services after July 27, 1998; 8. Establish a Special Account not exceeding the equivalent of $48 million; and 9. Undertake an annual review of project implementation progress in October of each year, commencing on October 1, 1999. H. Readiness for Implementation 0 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. E 1. b) Not applicable. 1 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. 1 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. El 4. The following items are lacking and are discussed under loan conditions (Section G): 1. Compliance with Bank Policies 1 1. This project complies with all applicable Bank policies. EIl 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. Rozany R. Alan Ruby . wea Team Lead Sector ManagerlDirector Co ManagerlDirector -18-  Annex 1: Project Design Summary MALAYSIA: Education Sector Support Project Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) Provide support to maintain - Expenditures on education - Government report on Complementary initiative in high quality social services meet or exceed pre-crisis expenditures and trade place for other social sectors. during the economic crisis. level. statistics - ESW work Improve economic - GDP and export growth competitiveness and develop resume upward trend. human capital to help restore and sustain future economic growth. Project Development Outcome / Impact Project reports: (from Objective to Goal) Objective: Indicators: 1. To mitigate the negative - Enrollment rates from base - MOE Educational Statistics Risks impacts of the economic and year (1998) in schools in - Review of the Seventh - Malaysian economy will financial crisis on the project states, and institutions Malaysia Plan continue to be in crisis during education sector improved by end of project the project period. (EOP) 2 To assist in the medium- - % increase in primary school - Tracer study of Polytechnic - Public expenditures on term economic recovery by teachers with improved graduates education further erodes developing cost-effective qualifications from teacher - Employment surveys of during the implementation technical skills. training colleges by EOP. Polytechnic graduates period. - % increase in secondary - Reports from the EMIS on school teachers with university school data (bachelor) degrees by EOP. -