Sri Lanka - a review of recent trends and issues

Report No. 17748-CE Sri Lanka Social Services: A Review of Recent Trends and Issues April 28, 1998 Poverty Reduction and Economic Management South Asia Region rH Document of the World Bank  CURRENCY EQUIVALENTS Sri Lanka Rupee (SLR) US $1.00=SLR 62.61 (April 24, 1998) FISCAL YEAR (FY) July I-June 30 ACRONYMS AND ABBREVIATIONS ADB - Asian Development Bank CFS - Consumer Finance Survey GEP II - General Education Project II HIES - Household Income & Expenditure Survey IAEP - International Assessment of Education Progress IDA - International Development Association BrA - International Association for the Education Achievement IFAD - International Fund for Agricultural Development IMF - International Monetary Fund fRDP - Integrated Rural Development Program I; PS - Institute of Policy Studies ISCED - International Standard Classification of Education JSP - Janasaviya Program JT F - Janasaviya Trust Fund MEHE - Ministry of Education & Higher Education MOH - Ministry of Health NDTF - National Development Trust Fund NEC - National Education Commission NGO - Non-Government Organization NIB - National Institute of Education PMC - Private Medical College REAP - Rural Economic Advancement Program f.3EC F - Overseas Economic Cooperation Fund of Japan OECD - Organization of Economic Cooperation Development SIDA - Swedish International Development Agency TETD - Teacher Education and Teacher Deployment TVEC - Tertiary and Vocational Education Commission UJNDP - United Nations Development Program UJNESCO - United Nations Educational, Scientific and Cultural Organization UNFPA - United Nations Population Fund UNICEF - United Nations Children's Fund VTA - Vocational Training Authority W*HO - World Health Organization Vice President - Ms. Mieko Nishimizu Country Director - Mr. Roberto Bentjerodt Sector Manager - Mr. Roberto Zagha ITask Leader - Mr. Eric Bell  TABLE OF CONTENTS Page No. Preface Executive Summary .................................................................i Chapter 1: Health Sector ...............................................................1I Introduction I. Outcomes and Indicators ............................................................1 II. A Weakening Public Health Sector ............................................................2 III. Increased Private Sector Participation ........................................................... 4 IV. The Overall Health Care System: Issues and Challenges ................................. 5 (i) Aging Population and Sustainable Financing ..................................... 5 (ii) Future Role of the Public Health Care System ................................... 6 (iii) Quality Controls for Private Health Care ......................................... 7 V. Current Reforms and Proposals .8 VI. Strengthening the Reform Process .8 VII. Role of Donors ............................................................8 Chapter 2: Education Sector ............................................................... 10 Introduction I. Outcomes ................................. 10 II. Dominance of the Public Sector ..................................11 (i) Regulatory Framework .................................. 11 (ii) Delivery of Services .................................. 12 (iii) Financing .................................. 13 III. Limited Private Sector Participation ................................. 13 IV. Recent Education Reforms and Proposals .......... ....................... 15 V. Directions for Change ................................. 16 VI. Role of Donors ................................. 20 Chapter 3: Poverty and Social Welfare ............................ 21 Introduction I. Poverty Strategy and Programs ................................. 21 II. Assessment of Poverty Strategy ................................. 23 (i) Outcomes .................................. 23 (ii)Effectiveness of Strategy and Programs .................................. 24 III. Role of Donors and NGOs ................................. 28 IV. Future Work in Poverty ................................. 28 Conclusion ...... 33  List of Text Tables, Figures and Boxes Page No. Chapter 1: Health Sector Table 1: Health, Nutrition and Population: Sri Lanka and the World ............................ 2 Box 1: Resource Mobilization in Sri Lanka's Health Sector.6 Chapter 2: Education Sector Table 1: Education Indicators .................................................................. 11 Box 1: Curriculum Reform in Hungary .................................................................. 17 Box 2: Improving Higher Education Quality in Indonesia ........................................... 18 Chapter 3: Poverty and Social Welfare Table 1: Welfare and Social Infrastructure Expenditures ..................... .......................... 22 Table 2: Poverty in Sri Lanka, 1985-91 ................................................................... 24 Box 1: Lessons from International Experiences in Poverty Reduction ........................ 25 ANNEXES Annex 1: Sri Lanka at a Glance Annex 2: Sri Lanka Social Indicators This document was prepared by Eric Bell, Task Leader (SASPR), Naresha Duraiswamy (SACCO), Rapti Goonesekere (SACCO), Stephen Heyneman (ECSHD), Valerie Kozel (SASPR) and Alexander Preker (HDNHE) based on a World Bank mission to Sri Lanka in December, 1997. Peer reviewers were Jeffrey Hammer (DECRG) and Harsha Aturupane (University of Colombo, Sri Lanka).  PREFACE At the request of the donor community in November 1996, a World Bank mission carried out a review of policies and developments in Sri Lanka's health, education, and social welfare sectors. This report, which complements the Economic Update prepared for the May 1998 Development Forum, provides a preliminary analysis of the situation in the three areas and lays out the key issues facing the Government. The main theme of the report is that the enlightened social policies of the 1940-60s that led to astonishing progress in health and education in Sri Lanka, lost much of their momentum in later years. These policies have not adjusted fully to the socio-economic needs of society, and especially the open, market economy that emerged in the late 1970s. Today, Sri Lanka faces daunting challenges which unless addressed forcefully may trigger an irreversible deterioration in key social services. It is commendable that the Government has recently begun to address some of these issues.  EXECUTIVE SUMMARY 1. Visionary social policies. Sri Lanka's early achievements in human development despite low per capita income levels can be attributed to the strong and visionary social policies implemented since the 1940s. These included not only early investments in education and health, but also sound policies such as free education, free health care, an extensive outreach capacity for the civil administration, a well defined delivery network of schools and hospitals, and good health service practices. Sri Lanka complemented these human resource development policies by placing a unique emphasis on protecting the minimum consumption levels of its entire population. Good policy choices in other areas such as water and sanitation, female empowerment, social mobilization, and universal suffrage, also had a positive impact on outcomes such as child care, nutrition, fertility, and female education. 2. As a result, Sri Lanka catapulted to developed country standards on several social indicators, and even today continues to preserve its edge over other developing countries in basic health, education and social welfare indicators. It has also successfully eliminated destitute poverty, and the coverage of basic health and education services is extensive with the population having free access to these services. The most vulnerable segments of the population are thus reasonably well protected, and socio-economic mobility and political participation are high. The status of women is also generally higher than in other low-income countries-- for example, the participation rate of women in the labor force has increased over the last two decades and female enrollment at university is around 50 percent. 3. Insufficient adjustment to changing needs. Notwithstanding this continued edge over other developing countries, the performance record in health, education and poverty during the last two decades has not improved in consonance with earlier achievements, especially when taking into account the quality of services provided and new indicators of sector performance. This is primarily due to the slow adjustment of policies to the emerging needs of society and an outward-oriented economy. 4. Health Sector Review: * Sri Lanka's impressive record in health outcomes is a result of the combination of strong and proactive health, education and social policies that were implemented early in the country's development process. Health care in Sri Lanka today is relatively cheap, technically adequate, and equitable, especially given the low level of expenditures in the sector. A thriving private sector complements the public health care system, and has helped take some of the burden off the public sector. * However, steady increases in per capita income since the late 1970s and the aging of the population have raised new challenges. The country's health authorities are now confronted with patterns of disease typical of low-income countries (malnutrition, iron deficiency anemia among pregnant women, and malaria) while at the same time they must face problems characteristic of more affluent societies (drug resistant tuberculosis, STD/AIDS, diseases associated with an aging population, and socio-health problems such as mental disorders, suicides, alcoholism and drug addiction). * Existing financial and managerial systems established over the last decades are no longer adequate to meet these new challenges. The Government is currently rethinking its health sector strategy and important changes are being prepared. Issues that need to be addressed include: (i) redefining the relative roles of the public and private health care systems in health  ii provision; (ii) securing sustainable financing and equitable access to health care, especially given the high cost implications for secondary and tertiary health care associated with the country's epidemiological transition; and (iii) addressing problems of market failure. Whatever the direction taken, it will be essential for the Government to play a stronger role in regulatory oversight and in developing public health infrastructure. 5. Education Sector Review: * Like in health, Sri Lanka is well known for its success in ensuring free and equitable basic education to both boys and girls, and the State has played a proactive role in pursuit of this objective as far back as the 1 940s. * Unlike in health, however, and following the nationalization of private schools in 1961, the Government has maintained a strong monopoly in the provision of education services. Numerous distortions such as highly restricted access to university education, restrictions on language of instruction and non-public financing have consistently constrained Sri Lanka's ability to keep abreast with international innovations in pedagogical methods. * The strong record on school enrollment is diluted by the inadequate quality of education services. Curricula and pedagogical methods are outdated and unable to equip graduates with the broad analytical and linguistic skills as well as basic knowledge needed for a modern economy. Funding of education services is particularly low given the demand for wider, better quality and more diversified education while teacher recruitment has for many years been very politicized. The roles of the central and provincial governments in the delivery and management of education are unclear. Last but not least, the education system is perceived as having poorly helped promote social and ethnic cohesion. * Sri Lanka has begun to address several of these issues under various projects starting in the 1990s, but a broad and systemic approach to reform of the sector has begun only recently. A Presidential Task Force was established in early 1997 to assess needs and options for wide- ranging changes, and implementation of some of the changes has started. 6. Poverty/Social Welfare Review: * At least since World War II, successive Sri Lankan governments have given priority to universal provision of basic health and education and ensuring minimum consumption levels to the population. In 1977, the strategy was expanded to include implementation of market economy reforms and specific safety net programs. Nonetheless, income transfers have consistently accounted for a large share of government spending over the years and have been a recurrent threat to fiscal stability. * These policies have helped Sri Lanka achieve levels of human resource development unknown in economies with low per capita income. Also, there has been considerable success in poverty alleviation: there is virtually no destitution even in the most isolated areas and existing poverty is not age or gender biased. * However, there is increasing evidence that the costs of poverty programs, especially the poorly targeted ones, are no longer sustainable and cannot be justified on the basis of their benefits. For instance, significant pockets of poverty persist, one-fourth of the population live below the poverty line, access to safe water and sanitation is inadequate, malnutrition and stunting remain high, and alcoholism, domestic violence and child abuse are significant social problems. In fact, the Government's well-intentioned efforts to protect the poor may have at times worked against fostering self-reliance and sustainable poverty alleviation.  iii * The Government has recently launched analytical work to update Sri Lanka's poverty profile and assess past progress. This will provide the basis for reformulating the strategy and instruments for poverty alleviation. It is clear though that the Government will need to review its social and poverty policies with a view to reducing the role of income transfers in poverty reduction. This needs to be accompanied by an increase in the role of infrastructure development in areas with high incidence of poverty, and interventions aimed at promoting rural development. There will also be a need to protect the most vulnerable through safety nets based on self-targeting. 7. Weak public sector management and devolution. The lack of innovation in social sector policies is partly due to a weakening of public administration. This weakening began in the early 1970s with the politicization of the administrative apparatus, and was accentuated in the late 1980s by economic stagnation resulting from increasing domestic unrest. Devolution, introduced in 1987, was appropriately intended to improve the political and economic management of public service delivery and policy implementation in Sri Lanka. However, because of the sudden manner in which it was introduced, the process has been fraught with confusion and inefficiencies. As a result, there remain today serious shortcomings in the system of management, including a lack of clarity in many areas of functional responsibility, accountability, incentives, and the budget preparation process. The Central Government's role is still strong at the local level, and provinces have little discretion over their main expenditure items, management decisions, and overall administration. This state of partial devolution has in fact further weakened management capacity in government services. 8. The Northeast conflict. Sri Lanka's social development has been inevitably affected by the conflict in the North and Eastern parts of the country. Its full impact is difficult to quantify however, especially as there is little information available on conditions in the war-torn regions. Nonetheless, the visible costs are already high in terms of large financial outlays on defense, domestic security, pensions to invalids, higher premia on international trade, foregone foreign investments and tourist arrivals etc. More importantly, the human costs are also high: over 55,000 deaths have been recorded in total since 1983, and 800,000 people were estimated to be internally displaced in 1997. In addition, there are considerable disruptions to social welfare and economic activity due to the tight domestic security system. Bomb blasts, road blocks and security checks mean a continuous state of anxiety. As in most countries in conflict, Sri Lanka's social fabric is constantly under pressure due to factors such as conscription of young children and women into the guerrilla movement, increasing school dropout rates in war-torn regions, rising numbers of female-headed households, and war deserters. A less obvious but significant impact of the conflict is the distraction of Government from administration and economic policy making. 9. Conclusion. Government policies over the years have emphasized satisfying the basic needs of the poor. Unfortunately, emphasis on broad economic restructuring and reform has not been comparable. This along with other factors have constrained Sri Lanka's growth potential, especially given the country's initial endowments in human resources. Likewise, greater success in poverty reduction has been constrained. It will be extremely difficult for Sri Lanka to maintain its record of social performance without a strong underlying economy that provides the resources to implement reforms. For this, Sri Lanka needs to implement a comprehensive program of broad economic reforms at the earliest. Successful implementation of new economic and social policies may well be crucial in determining the nation's future economic stability and national integration. Donor support will remain critical for Sri Lanka in this process.  CHAPTER 1: HEALTH SECTOR Introduction 1.01 Sri Lanka's impressive record in health outcomes is a result of the combination of strong and proactive health, education and social policies that were implemented early in the country's development process. Health care in Sri Lanka today is relatively cheap, technically adequate, and equitable. The network of hospitals and health services is well spread across the country, and the public and private health care systems complement each other quite well. Notwithstanding its overall good performance however, the sector still faces two major challenges: (i) eliminating old health problems such as malnutrition, iron-deficiency anemia among pregnant women, and malaria; and (ii) gearing up to emerging threats, such as drug resistant tuberculosis, STD/AIDS, changing disease patterns due to an aging population, and socio-health problems such as mental disorders, suicides, alcoholism and drug addiction. Existing financial and managerial systems established over the last decades are no longer adequate to meet these challenges. In this context, the Government is now rethinking its health sector strategy. I. Outcomes and Indicators 1.02 Sri Lanka established an excellent health record since the 1950s, and reached developed country standards in death rates, maternal mortality and female life expectancy by the late 1970s. Today, infant and child mortality are 16 and 19 per thousand live births respectively, and maternal mortality is 30 per one hundred thousand live births. The fertility rate is around replacement level and total life expectancy is 72 years (75 years for women). In addition, Sri Lanka is the only low-income country with a virtually complete demographic transition. 1.03 Although the above indicators of health status have continued to improve over the years, Sri Lanka's health sector now faces several challenges. First, although keeping its lead over countries of comparable socio-economic backgrounds with regard to basic health indicators, Sri Lanka is still behind many countries of East and Central Asia in some indicators such as the incidence of low birth weight and tuberculosis, access to safe water and sanitation, the number of physicians per 1,000 population, etc. (Table 1). 1.04 Second, whereas overall performance remains better than in several developing countries, Sri Lanka is still beset with a few old health problems such as child malnutrition, iron deficiency anemia among pregnant women, and malaria.' Third, looking ahead, Sri Lanka will have great difficulty preserving its historical performance given the epidemiological transition of its aging population, emerging threats such as drug resistant tuberculosis and STD/AIDS, and other socio-health problems such as mental disorders, drug addiction and poisoning (Sri Lanka has the highest suicide rate in the world).2 ' About 38 percent of children under five are malnourished, 65 percent of pregnant and lactating mothers have iron deficiency anemia; a malaria outbreak in 1987 affected 677,000 people, and recently there have been outbreaks of dengue fever and cholera. 2 Mental disorders have increased from 176.8/100,000 in 1970 to 247.4 in 1994; pesticide poisoning was the leading cause of hospital deaths in five districts in 1994.  -2- Table 1: Health, Nutrition and Population: Sri Lanka and the World Low and East Asia Europe & Middle High & Central South INDICATORS ' Income Income Pacific Asia Asia GNP per capita (US$) 2650 24370 830 2240 350 Human Development (mr 1985-95) Low birth weight 19 6 11 33 Child malnutrition . 32 - 23 3 52 Urbanization 39 78 31 65 26 Access to safe water 56 94 67 -- 63 Population growth rate 1.6 0.4 1.2 0.3 1.8 Health Challenges (mr) Tuberculosis incidence (per 100,000) 66 9 56 33 108 Adult HIV/AIDS prevalence (%) 0.6 0.3 0.1 0.0 0.3 Smoking prevalence (%) 29 30 33 41 23 Health services indicators (mr 1990-95). In-patient beds per 1,000 population m 2.4 7.6 2.2 9.2 0.7 Physicians per 1,000 population m 5 1.4 2.4 1.2 3.1 0.3 Access to health services 80 --87 -- 77 Immunization coverage, measles 76 83 88 80 73 Health finance indicators (mr) Total health expenditure/GDP 5.6 9.9 3.5 5.5 4.1 Public health expenditure/GDP 2.8 6.1 1.5 4.5 0.8 Private health expenditure/GDP L 2.9 3.9 2.0 1.0 2.6 Public health expenditure, per cap. US $ g 3'r 31 1 1421 10 81 3 Note: 1\ Estimate. Source: World Bank (1997). Health, Nutrition and Population Strategy Paper. 11. A Weakening Public Health Sector 1.05 Development of the public health care system.3 Sri Lanka did not have a consistent national health policy to guide strategic planning in the health sector until 1992, and much of the historical success in health outcomes owes to a vibrant public sector which emphasized extensive service delivery infrastructure at the grass roots, good policies and practices in health delivery, and strong social mobilization campaigns.4 The strong emphasis on female education also had a positive impact on health standards, especially child care, nutrition and fertility. 1.06 The delivery infrastructure of public health care has historically been strong in Sri Lanka and owes much to three landmark decisions beginning in the late 1920s. The first and probably most important decision was the establishment of the "health unit system" in 1926, and the early emphasis on well-developed .primary care and hospital systems. Under this system, health unit areas were demarcated and paramedical personnel made responsible for the health status of about 40,000 people in each of these areas. This system emphasized preventive health care which turned out to be a critical factor in producing the well-known health outcomes of Sri Lanka. It also proved particularly effective in carrying out health campaigns, namely the anti-malaria campaign. The second decision came in the 1940s when the traditional ambulatory care provided by central dispensaries was de-emphasized in favor of a comprehensive and better quality hospital-based care. Although the central dispensary was the first line of contact in curative care, it had no in-patient facilities and thus provided only limited care. In the new framework, some central dispensaries were upgraded to rural hospitals with the addition of wards in order to more I National health care is 80 percent Western allopathic and 20 percent Ayurvedic. 4 For example, the introduction of antibiotics, the Anti-Malaria campaign, the STD/AIDS Control Program, the Polio Immunization campaign.  -3- effectively treat medical ailments at the grass roots level. This second stage provided a very strong boost to curative interventions. The third landmark decision was the policy of free health care to all citizens in 1951. The combination of the above three initiatives led to the decline in infant and overall mortality rates beginning in the late 1930s. 1.07 Sri Lanka continued to make large strides in health sector performance in the 1950s due to its well-established health unit system and significant efforts to increase the delivery infrastructure. The number of hospital beds went up by 49 percent while the number of doctors, nurses and assistant medical practitioners increased twice over as compared to the previous decade. This massive expansion effort slowed down however in the 1960s and 1970s primarily due to fiscal constraints. Over these two decades, the number of hospital beds just kept up with the increase in population, while the number of people covered in each health unit area increased significantly making it difficult for medical personnel to effectively carry out public health work. As a result, health indicators continued to improve, but at a slower rate than before. 1.08 ' Setbacks in public sector management. Some early signs of a weakening of the health system appeared in the 1980s when several setbacks (i.e., economic slowdown, an exacerbation of the ethnic conflict, and a youth insurrection in the South) led to fiscal pressures that constrained public expenditures. This situation was aggravated by stagnant health sector policies and a lack of improvement in the overall management framework of the sector. Public sector management has remained weak and centralized, accountability and incentives unsatisfactory, and planning and evaluation very limited. The most obvious signs of a weakening system were overcrowded tertiary hospitals, reduced community outreach due to difficulty in attracting physicians to rural administrative posts, and erosion of the service ethic. Today, government health services delivery continues to suffer from major weaknesses such as underfunded maintenance and replacement of equipment, inadequate analysis and use of data from the health information system, a weak management system for regional deployment of health professionals and distribution of drugs/supplies, and a poor referral system which has led to an overutilization of tertiary facilities and an underutilization of primary care and peripheral facilities. 1.09 The management difficulties experienced in the late 1980s were exacerbated by the devolution policies introduced in 1987. Although provincial councils were given legal responsibility for many aspects of health services, in practice, implementation of the process has remained truncated, with the result that today there is a dual governance structure in place. The most serious shortcomings that have had a negative impact on the health sector include: lack of clarity in many areas of functional responsibility; continued top down planning; central bureaucratic resistance to a full implementation of existing rules of devolution; lack of responsibility, accountability, incentives, and management capacity (including little authority over training and deployment of cadre) at the provincial level; and a non-transparent budget process. The public health care system has in addition experienced serious rollbacks in the devolution process, including the transfer back of several medical institutions to the center and a continuation of centralized staff recruitment. This partial devolution has left the health sector with the worst of two worlds-- an ineffective provincial system and a central Ministry that has not assumed its new strategic policy oversight role. Moreover, centrally planned provincial health care systems such as these are no better than similar systems run by the Central Government. 1.10 Inadequate financing. Public expenditures in the health sector now face two challenges. First, while impressive results have been achieved with relatively low levels of public expenditure (1.5-2.0 percent of GDP in the past 50 years), these expenditure levels are no longer  -4- sufficient to sustain progress into the future. The historically low levels of public health expenditures are due to global budget mechanisms, strong centralized procurement of pharmaceuticals, low paid civil servants, and good practices in health service delivery. In 1996, health care expenditures in Sri Lanka were about 1.6 percent of GDP compared with a 2.8 percent average for low- and middle-income countries. Second, due to fiscal pressures in the 1980s in particular, Sri Lanka has shifted reliance to donor-supported tertiary care5 at the expense of primary and secondary health care. This has skewed budget allocation towards tertiary health care, while recurrent expenditures on primary and secondary facilities have become inadequate. III. Increased Private Sector Participation 1.11 The private sector has always been an important contributor to Sri Lanka's health care success. Its involvement began as early as the 1940s with the introduction of the 1949 Nursing Homes Act. Since then, the Government has encouraged expansion of private health care, a trend that was accentuated over the years as the public sector recognized its inability to respond fully to increasing demands for hospital-based care and higher quality services (especially with the emergence of a middle class willing to pay for greater consumer satisfaction). The biggest boost to private health care was in the late 1970s when the State restored the opportunity of private practice to government doctors. This privilege, which had been revoked in the early 1970s, was restored in the context of a broader emphasis on the private sector in the development plans of the country-- drug imports were liberalized and local manufacturing of drugs permitted. 1.12 Additional measures were taken in the 1990s to increase private sector involvement in the health sector. In 1990, financial and other incentives were offered to a few private investors to set up state of the art hospitals under the legislation for foreign business enterprises. These led to a significant expansion in the number of private nursing homes and facilities. A second round of incentives were introduced in the 1998 Budget in the form of duty exemptions to private health investors for the import of medical and dental equipment and accessories. Tax exemptions on equity investments, free land, income tax concessions, and duty waivers have been offered to encourage specialized private health care institutions operating on a two tier basis, i.e., one tier dedicated to free health for the poor and the other tier to fee-based emergency health care. As a result of these incentives, private financing of health care in Sri Lanka has grown steadily over the years to represent 40 percent of overall national health expenditures and 50 percent of outpatient care in 1997. 1.13 Today, private health care services in Sri Lanka are largely ambulatory. Over 800 full- time private general practitioners (compared to approximately 5,000 government doctors) provide outpatient care from private clinics on a fee for service basis. This is supplemented by the thriving private practice of government doctors who work from home, clinics or private hospitals. Private health care facilities are also growing, and currently there are 85 private run hospitals with over 1,800 beds (compared with 510 government hospitals with about 55,000 beds). The private sector is also well represented in the retailing of pharmacies and diagnostic laboratories. External aid flows represent between 2-4 percent of total public health expenditures and close to 40 percent of capital expenditures.  -5- IV. The Overall Health Care System: Issues and Challenges 1.14 Despite historically low expenditures on the sector, health care in Sri Lanka is relatively cheap, technically adequate and quite equitable for current circumstances. The network of hospitals and health services is well spread across the country (90 percent national coverage). These factors, combined with good education and social policies that have developed very responsive behaviors on the part of patients, are responsible for the impressive health outcomes in the country.6 Another important factor which has had a positive impact on national health care is the complementarity that exists between the public and private health care systems. For instance, the free availability of health care in the public sector (and its low cost of production) has a dampening effect on the cost of services across the country, and the public sector has been able to retain its high quality professionals because of the possibility for its doctors to operate in the private sector after working hours. Similarly, the private sector has been able to respond to the expectations and demands of a certain segment of the population which values consumer quality in addition to diagnosis and cure, thus relieving some of the pressure on the public sector. 1.15 The poor, except those in remote rural areas, are generally well served by the prevailing health system. Survey results indicate that the poorest quintiles receive a greater share of the benefits of taxation funded health services than do the richest quintiles. Also, despite a tax system that is not very progressive, government health services allow for a net redistribution of resources in favor of the poor because of the coexistence of two sources of care (public and private) which have different characteristics. The poor have full access to the public sector where technical quality is reasonable and effective in improving health status.7 Despite quality in the public health system being low in various consumer-perceived respects such as overcrowding, proximity, standard of amenities, and waiting times, according to an IPS/Harvard opinion poll carried out in 1995, the majority of the population was satisfied with public health services, although a significant number of the rich were dissatisfied.' 1.16 Notwithstanding these positive features however, the country's health sector, especially the government component, is presently overburdened, which has led to widespread calls for reform. The key issues in the sector include the emerging patterns of morbidity and mortality due to the aging population and the need for financial sustainability; changes in the roles of the central and provincial health ministries as well as the public/private mix in health delivery; and finally, the need for quality control in health services, especially in the private sector. (i) Aging Population and Sustainable Financing: 1.17 A major issue facing Sri Lanka's health sector is the need to secure sustainable financing and to ensure that patients are able to avail themselves of costly secondary and tertiary health care. While the public health care system developed when the focus was on the prevention of infectious and communicable diseases, the epidemiological transition and changing disease patterns combined with increasingly constrained public resources now raise basic questions of G In a sample of 1,600 illness episodes reported by households, 99.4 percent of respondents were able to clearly identify and categorize their symptoms or conditions. It was found that the availability of a basic health infrastructure, together with a literate generation of mothers was producing an usual capacity for survival in some poverty-stricken environments of Sri Lanka (Rannan- Eliya and de Mel. 1997. Resource Mobilization for the Health Sector in Sri Lanka). 'In addition, keeping the top of the tertiary care pyramid of the health care system in the public system has ensured that the poor are not deprived of life-saving and advanced care. The Government's concern for the health needs of the poor goes back to the 1940-60s when it expanded the public health infrastructure beyond the urban centers. A most recent example of this concern is the incentives provided to private health providers in the 1998 Budget on the condition that they offer assistance to the poor. K Rannan-Eliya and de Mel (1997).  -6- health policy. Rethinking health policy has become particularly important in areas of resource mobilization and expenditure allocation within the sector. 1.18 Sri Lanka now faces a major epidemiological transition. The percentage of the population over 60 will increase from 8 percent currently to 13 percent in 2010, making Sri Lanka the third oldest country in Asia after Japan and Singapore. The median age of the population will increase from 25 currently to reach 30 in 2005. Adding to the challenge is that Sri Lanka will achieve this transition at a lower level of per capita income than any other country. This epidemiological transition has significant implications for health expenditures. For instance, the pressure for additional spending on health care increases as chronic and degenerative diseases become more widespread.9 In addition, the complexity of health services required increases considerably, i.e., medical personnel need to be more highly qualified and specialized, and the technology for diagnosis and treatment needs to be more sophisticated. The greatest effect of these pressures for increased financing will be seen in the rising demand for hospital bed capacity. In sum, the more expensive mix of interventions implied by the epidemiological transition will put increasing pressure on government health resources, and issues such as resource mobilization will soon need to be addressed more directly (Box 1). gkggBCxbWgggfig: I.^^I_ s i 0 0 a t Sri Lanka has had its own experiments with user charges in government health services. In 1971, with severe fiscal constraints the Government re-introduced user charges, which had been abolished in 1951 with the policy of universal free health care. A small token charge was introduced to raise additional revenues, but the system was discarded in 1977 because of the insignificant amounts collected, the poor administrative framework for their collection, and the negative impact it had on utilization of health services (an average reduction of 30 percent in outpatient visits). Today, user fees are collected for health services in only two instances. The first is the Sri Jayewardenepura General Hospital (SJGH), which is a 1,000 bed tertiary hospital (started operation in 1984) located just outside Colombo and run by a Statutory Board; it is the only government hospital that is managed by an autonomous board and the only one with a comprehensive scheme of user fees. From its inception, SJGH has charged fees from all outpatients, and from "nonpoor" inpatients, though the bulk of its income remains a block grant from the Health Ministry.'0 The second instance of user charges in Sri Lanka is the Merchant's Ward in the General Hospital of Colombo. This hospital provides a very limited number of private rooms to in-patients in return for a reasonable fee (Rs. 500-1,000/day). The existence of fees at these two hospitals has not caused much conflict with the principle of free medical care, as their services are in addition to the basic services provided by the main government hospitals, and since they were originally expected to provide a level of service higher than normally provided. The most widespread system of user financing of private health care in Sri Lanka today is the group insurance policy that is paid for by employers as a benefit to their employees. These expanded rapidly in the 1980s and were estimated to cover about 140,000 employees in 1994. They usually involve large public and private companies and provide generous, but limited, annual benefits. In January 1997 an insurance scheme consisting of medical insurance, accident insurance and a loan guarantee scheme was introduced to cover all officers in the public service. Under this scheme, the premia for the compulsory medical insurance which provides maximum coverage of Rs. 50,000 per year is borne by the Government, while a monthly premium of only Rs. 11 is charged for the optional coverage of accident insurance and loan guarantee. (ii) Future Role of the Public Health Care System: 1.19 The second most important issue concems the future role and configuration of the public health care system. As described in previous sections, the public sector is already stretched to its limits due to resource constraints, and is unable to meet increasing demands for more diverse health care needs. Hence, it has tended to rely more heavily on private sector inputs to meet these new demands. This complementary financing from the private sector is likely to become 9Ischaemic heart disease is the leading cause of hospital deaths in Sri Lanka and cerebrovascular disease is the second leading cause of death in eight districts. Treatment for such new diseases is more costly and requires longer term care. "I The cost recovery ratio was 21 percent in 1994, the last year for which complete accounts are available.  -7- more important as it is evident that improvements in Sri Lanka's health indicators, given their already high level, cannot be achieved without additional resources. As importantly though, the sector needs a far-reaching modernization program, including a managerial overhaul, better medical equipment, changes in treatment protocol and more streamlined expenditure. This modernization also necessitates a redefinition of the role of the State, changes in the overall structure and organization of the public sector, and improvements in health care management in the context of resource constraints. Without adequate modernization, the health sector faces a risk of further stagnation and even a decline in performance. 1.20 A related issue is the configuration of the public health management system. The devolution that has occurred over the last ten years has left the health sector with the worst of two worlds: (i) an ineffective provincial system as higher levels of care and most experienced staff are still under central control; and (ii) a central Ministry that has not assumed its new strategic policy oversight role, i.e., dealing with health issues of national interest, regulatory oversight and securing an equitable source of sustainable financing for the health sector. A clarification of central-provincial roles and a more effective devolution of health care provision and management is imperative for the improved functioning of the entire health sector. (iii) Quality Controls for Private Health Care: 1.21 The third issue relates to the increasing evidence of market failure and the absence of quality control and equity considerations, especially in private health care. The unregulated private sector leaves patients without consumer protection, creates an uneven playing field where it is difficult for private providers to engage in fair competition, and siphons resources, i.e., equipment, staff, and funding, from the public sector. Another such example is the benefit caps imposed by private hospitals on standard surgical packages for which a fixed price is negotiated in advance. Once the expenditure limits are exceeded, patients are transferred to public hospitals. In this way, the public sector provides "free" catastrophic re-insurance for the private sector. As the number of private providers has increased over the years, so has competition and, in the absence of clear sector-wide standards for the level of this benefit cap, hospitals stay competitive by selectively "creaming" the lighter cases and hiring untrained support staff to reduce overall unit costs. 1.22 The rapid increase in private sector participation has occurred almost entirely in the absence of an appropriate regulatory framework. For instance, a large number of unregistered medical practitioners are operating throughout the country (this has recently prompted the Government to prepare legislation imposing severe penalties on such practitioners). Similarly, private health facilities, such as diagnostic laboratories and nursing homes, are often not under direct professional supervision by competent staff, and hence particularly fraught by low quality. The regulatory framework governing the private practice of government doctors is also weak. For instance, there is no system of controls to ensure that government doctors engaged in private practice attend to their government duties during official hours. Abuse of this privilege of private practice has led to a deterioration of morale, discipline and the quality of service provided by all categories of supporting staff within the public sector. Other problems which have emerged include preferential access to free in-patient care in government hospitals, and significant diversion of drugs and consumables for use in private clinics and pharmacies. 1.23 Given these problems, a constructive partnership with the private sector will require that private providers are able to survive in a competitive environment where there are clear rules and where market failure is addressed effectively. The formulation of an overall strategic policy  -8- framework, wherein the private sector's role is clearly enunciated, has hence become a priority for the health sector. V. Current Reforms and Proposals 1.24 To address health care challenges, a Presidential Task Force on Health Reforms was established in early 1997 to review and make recommendations on needed changes in the health sector. The Task Force examined a broad range of issues that included geriatric care, staff development and training, mental health, reform of the health care delivery structure, institutional links between the public and private sectors, quality control, performance appraisal, increased resource generation, financial accountability etc. The main recommendations include measures to (a) create an effective and efficient organizational and management structure in the health care system; (b) strengthen links between the private and state health sectors; (c) develop the health sector's infrastructure and services; and (d) optimize resources to increase effectiveness, efficiency and equity. A move towards implementing these reforms began in January 1998 with the establishment of a Health Sector Reforms Implementation Unit (HSRIU) located in the Ministry of Health. The unit is presently coordinating the phased implementation of the Task Force recommendations. The priority is to strengthen management structures by: (i) establishing a Commission for National Health-- this will require an Act of Parliament that is scheduled for end- 1998; (ii) redefining the roles of the Ministry of Health (an implementation organization) and the Department of Health (responsible for research, oversight and standards); and (iii) establishing provincial health authorities and boards of management. Draft legislation, in the form of ammendments to the Private Medical Institutions Act, is also being prepared to ensure quality control in the private sector. To improve the overall financing of public health, the Task Force has recommended the introduction of policies to encourage private provision of health services, a strengthening of financial management in public health institutions and the development of private health insurance. Although the reform implementation process is already underway, the cost implications have not been fully analyzed as yet. VI. Strengthening the Reform Process 1.25 It is not possible to delineate in detail a specific reform path for Sri Lanka at present as the reform process itself is at the nascent stage. The Government's proposals go in the right direction; they however would benefit greatly from a broadening of scope to address the fundamental problems of the health sector in a more comprehensive and sustainable way, in particular, the secondary and tertiary health care needs of the population. Specific issues such as the corporatization of the delivery system, risk pooling between the private and public sector, raising the quality of care through health curriculum reforms, etc. need to be considered. Also required is a technically sound implementation plan that is both politically feasible and economically affordable in the current fiscal context. It is crucial to enlist the support of all stakeholders at an early stage during the reform process. Also, Sri Lanka would benefit greatly from foreign technical assistance that would allow policy makers to avail themselves in a greater way the lessons of health reform in other countries. VII. Role of Donors 1.26 Sri Lanka's health sector has in the past benefited from generous support from the international donor community. Donor assistance to the health sector has traditionally been of two kinds. The first comprises the multilateral institutions (World Bank, ADB, WHO, UNFPA,  -9- UNICEF, UNAIDS etc.) which provide assistance either to formulate policies or to address specific health care issues such as malaria control, STD/AIDS control, family planning etc. The second comprises bilateral donors (mainly Japan, Korea and China) who provide assistance for civil works and equipment largely for hospital based care. Foreign aid, which financed as much as 12 percent of total public sector health expenditures in 1992,has concentrated primarily on the provision of capital investment in the tertiary sector. The capital intensive nature of these recent investments have tended to bias recurrent expenditure patterns in operating costs for the larger capital stock, at the detriment of primary and secondary health care. 1.27 Given the complexity of the Government's proposed reform package, it is critical that aid from international donors be more closely coordinated in the future. A continuation of the past project-based external assistance may not be as productive during the next phase of development assistance to Sri Lanka. Future assistance may be more effective if redirected towards a mutually agreed upon sector approach to addressing health issues in the country and supporting an acceptable reform package. It is also important that donor assistance shifts from its past focus on expanding physical infrastructure to focus on outcomes, especially for the poor (including population based approaches, intersectoral action, and selective targeting), performance of service delivery systems (devolution, management capacity, quality, equity, efficiency), consumer satisfaction, and sustainable financing.  -10- CHAPTER 2: EDUCATION SECTOR Introduction 2.01 Like in health, Sri Lanka's early success in providing equal access to basic education through wide coverage and free delivery can be attributed to a strong and proactive role of the State as far back as the 1940s, and large initial investments in the sector. The country's good education performance has had positive impacts on health and population outcomes, poverty reduction, socio-economic mobility, female empowerment, and political participation. However, despite the successes of the past, today the education sector faces many problems: an unsatisfied demand for university education, low quality and relevance of education to labor market and social needs, insufficient financing, and poor management practices (including large numbers of untrained teachers). Several of these issues are currently being addressed under various projects, and a systemic approach to reforms in the sector began in the early 1990s,' gathering momentum in 1997 amidst widespread calls for reform. I. Outcomes 2.02 As far back as the 1950s, Sri Lanka had surpassed today's low-income country averages in education indicators. It has since then preserved its edge over other developing countries in these traditional indicators. For instance, the estimated adult literacy rate is 90 percent, and gross enrollment ratios in primary and secondary are 105 and 74 percent, respectively; participation rates in primary education are 90 percent, in lower secondary 86 percent, and upper secondary 38 percent. In addition, there are no stark gender disparities in Sri Lanka's education outcomes (e.g., women account for approximately 50 percent of enrollments, even in universities, and the dropout rate for girls in secondary education is lower than for boys). The emphasis on female education has had high pay-offs in other areas such as health and population. 2.03 These impressive outcomes are a result of a combination of factors, most importantly: (i) the Government's visionary policies as early as the 1930s and 1940s, including free education together with subsidies to encourage student participation; (ii) large initial investments in education infrastructure and an extensive delivery network; and (iii) strong commitment to broader aspects of human development at a very early stage, e.g., promotion of female education, population control, poverty reduction and community participation. A strong and proactive role of the State during the initial stage of education development is an additional factor for these good outcomes. 2.04 The irony however is that the strong role of the State, which helped build the country's initial educational endowments, subsequently became a constraining factor in the evolution of the entire education system. Over time, the State has continued to control management and delivery of the core education services of the country-- a role inconsistent with the move towards an open, market economy that began in 1977 and detrimental to non-public sector participation in education. This approach has not been successful in sustaining continued progress in educational performance in the past decade, especially as the public sector itself has started suffering from resource constraints and management deficiencies. Consequently, the education system in Sri Lanka has not been able to respond fully to the emerging demands of society and the economy, or ' Previous system wide reforms which were formulated in the early 1970s and 1980s failed at the implementation stage due to major political, economic and external factors.  -11- keep abreast with international innovations in education. The relatively high unemployment rates among the educated, and significant underemployment of university graduates is testimony to the poor relevance of education to labor market needs. Cross-country comparisons also demonstrate Sri Lanka's relatively low performance in several non-traditional education indicators, even in comparison to India (Table 1). Sri Lanka has a low level of enrollments in tertiary and university education; private sector participation in secondary education is very limited; public expenditure on education is very low and per pupil expenditures (as a percentage of GNP per capita) heavily skewed towards tertiary education; at the same time, a large proportion of the educated is unable to increase its earnings in a sustained manner. Table 1: Education Indicators Country Gross enrol. Enrol. in higher Public ratio in education at Private enrols. in expenditure Current expenditure per pupil on (numbers in tertiarya ISCED Level 6b secondary on education generalC and tertiary education parenthesis reflect (%) (as % of total (as % of (as % of GNP) (as % of GNP per capita) 1995 GNP per capita (* = 1990) enrollment) total enrols.) (* = 1992) General I Tertiary I Ratio in US$) 1993 1992 1992 1993-94 1992 (*= 1990) Sri Ankg (7_) : :66 >i7 2 > I32 .T7 . 7 3 ... India (340) 6* 88 N/A 3.8 28 70 2.5 Egypt(790) 17 83 4 5.7 11 93 8.4 Bolivia (800) 23 73 26 5.4 19* 35* 1.8 Philippines (1,050) 26 79 35 2.4 6* 11* 1.8 Thailand (2,740) 19 77 10 3.8 26 26 1.0 Malaysia (3,890) 9.6 44 5 5.3 32 117 3.7 Hungary (4,120) 17 58 - 7.0* 52 89 1.7 Korea, Rep. (9,700) 48 69 39 4.5 26 5 0.2 Notes: a Includes all post-secondary education. b ISCED (International Standard Classification of Education) Level 6: tertiary education that leads to a first university degree or equivalent. c Includes primary and secondary education Source: UNESCO World Education Reports; 1997 World Development Report; 1997 Human Development Report. II. Dominance of the Public Sector 2.05 The delivery and financing of education services in Sri Lanka have been dominated by the public sector since the early-1950s. This phenomenon was not unique to Sri Lanka at the time, and was perhaps the driving force behind the country's early educational achievements. What is unusual however, is that public sector representation in Sri Lanka's education system continues to remain strong, while barriers to private sector entry are high, even at the tertiary level. This is not in consonance with developments in other countries where a competitive environment has developed in the delivery of secondary and tertiary education.2 The regulatory framework, although changing moderately over time, has ensured that State control of all levels of education has remained entrenched. (i) Regulatory Framework: 2.06 Legislation specifying government's intervention in the provision of education was first introduced in Sri Lanka in the early 1900s for Indian Tamil immigrants working in the estate sector. Since then, pressures emerged for greater government involvement in providing equal opportunities in education, which culminated in the introduction of the 1939 Education Ordinance. The key stipulation of the 1939 legislation was the establishment of a Department of Education as the central authority for the universal provision of education. This landmark 2 The argument for private provision of secondary and tertiary education is based on rates of return analyses which indicate that, in general, the private rates of return to secondary and tertiary education are much higher than the social rates of return. The social rates of return to primary education however are relatively high, thus justifying public sector involvement and subsidies at the primary level.  -12- legislation provided a clear legal basis for the State's responsibility for all aspects of education thereafter. The 1939 legislation was followed in 1945 by a policy of providing free education to all students from primary to undergraduate levels. Along with this public financing of education, the State's control over management and policy making in the sector increased. 2.07 Between 1945 and 1960, existing private fee-levying schools (catering to 5 percent of the population and receiving substantial State finances at the time) were given two options: (i) joining the State system and abolishing fees in return for increased public finances; or (ii) remaining outside the State system, levying fees, but no longer receiving public finances. Several private fee-levying schools opted to join the State system, while only a handful of schools with healthy endowments decided to remain independent. Consequently, three categories of schools emerged in Sri Lanka: (i) non-fee levying Government schools; (ii) non-fee levying privately managed and State assisted schools; and (iii) fee-levying autonomous private schools. The culmination of the trend toward Government control of almost the entire education system occurred with the introduction of the 1961 Assisted Schools and Training Colleges Act which permitted the takeover of the administration and ownership of existing privately-managed assisted schools, and prohibited the establishment of new private schools for the 5-14 year age group.3 Hence, with the nationalization of private schools in 1961, the State had established full control of almost the entire education system in the country. The other key decision which continues to have profound implications for the sector was the phasing out of English and the introduction of Sinhala/Tamil as the medium of instruction in all schools in 1954. The 1956 Official Language Act which made Sinhala the official language in the country further strengthened the decision to use national languages in schools. (ii) Delivery of Services: 2.08 General education. With State dominance over the sector increasing, the Government launched a massive expansion of education facilities in the 1950s and 1960s. This resulted in an increase in the proportion of government schools from 55 percent in 1960 to close to 98 percent by the early-1970s, and has remained at this proportion since. This massive expansion reflected the Government's policy of establishing: (i) a primary school within every 3.5 square miles of a village; and (ii) several centers of excellence (Central Schools) throughout the country,thereby ensuring education access to students in even the most remote and poor areas of the country. Since the nationalization of schools in 1961 however, financial constraints and weaknesses in management and policy implementation contributed to a gradual deterioration of education quality and the emergence of regional disparities. Two small-scale surveys of language and mathematics skills of children in primary education conducted in 1982 and 1992 revealed that attainment in both these disciplines was poor, with little quality improvement occurring during the decade. Similarly, 80 percent of students taking the O/Level examination in 1996 failed at least one of the compulsory subjects (mathematics and Tamil/Sinhala language), while 8 percent failed in all 8 subjects. The State continues to maintain its monopoly on most aspects of education, i.e., uniform curricula and syllabi development, textbook preparation, publishing, and distribution, as well as teacher training, remuneration, and cadre selection. 3 A few of these assisted schools which did not want to come under complete State control were allowed to function as non-fee levying schools, but with no public assistance. However, these schools were unable to operate for long due to severe financial constraints, and in 1981 the State reverted to providing financial assistance to the schools. As a result, three categories of schools (govemment, assisted, and unaided) continue to exist in Sri Lanka.  -13- 2.09 Post-secondary education. All universities in Sri Lanka remain State owned and under Central Government control. In addition, Government has maintained a tight, centrally administered admissions policy which has kept full-time enrollment ratios in the range of 2-3 percent of the relevant age-cohort-- a rate very low by international standards. This policy was somewhat relaxed only in the mid-1990s when the government responded to increasing demands for wider access to university education by creating three new universitiesoutside of the Western Province where most of the universities are located. Over the years however, this restricted access to university admission, in the context of expanding demand and changing skills needs, has resulted in a large expansion of post-secondary vocational and technical education. Today there are approximately 500 vocational/technical institutions, all offering free education and operating without cross-recognition of diplomas and with no possibility of credit transfers to the university system. This sub-sector has expanded continuously despite widespread recognition that it suffers from problems such as poor quality of training with little relevance to labor market needs and underutilized facilities. Two oversight bodies, the Tertiary and Vocational Education Commission (TVEC) and the Vocational Training Authority (VTA), were established in 1990 and 1995, respectively, and all major institutions were brought under the Ministry of Vocational Training and Rural Industries and the Ministry of Science, Technology and Human Resource Development in an attempt to rationalize the sub-sector. However, little overall improvements have yet occurred in the system. (iii) Financing: 2.10 With the introduction of the free education scheme in 1945, the Government prohibited all schools and undergraduate institutions from mobilizing resources outside of State financing. Only private donations and facilities fees set by the Ministry of Education were permitted. These additional sources of financing have developed extensively over recent years. This, along with inequitable budget allocations in their favor, have helped a few prestigious National Schools maintain superiority over the entire school system at the expense of poorer provincial schools, thus perpetuating regional disparities in education. Universities, with the exception of postgraduate institutions, have however been unable to mobilize outside resources due to restrictions that reduce State assistance accordingly. Public expenditures on education have not increased to compensate educational institutions for the restrictions imposed on external resource mobilization. Budget allocations to education have remained low between 2-3 percent of GDP since the late 1970s, falling from a high of 5 percent in the mid-1960s (see Table I for cross- country comparisons). In this context, unit expenditures as a proportion of per capita GNP on primary and secondary education (7 percent) are considerably lower than the mean for Asia (27 percent) and for developing countries (52 percent). III. Limited Private Sector Participation 2.11 Due to the persistence of a strong State role and a restrictive regulatory framework, private sector participation in education has been severely limited over the years, and quality control of existing private institutions remain weak. The absence of private sector contributions at a time of financial constraints in the public sector has made it increasingly difficult for the education system to provide the type and quality of services demanded by the economy today. 2.12 General education. Since the introduction of free education in 1945 two categories of privately managed schools emerged: non-fee levying assisted schools receiving State financing, and fee-levying unaided schools. In practice however, both categories are not fully private as they are mandated to use State prepared and published textbooks, medium of instruction, as well  -14- as State defined school syllabi; the assisted schools also have their teaching cadre paid for by the State. These privately managed primary and secondary schools today represent less than 1 percent of the total number of schools in the country,4 but are perceived to offer higher quality education. 2.13 A completely new set of schools developed in the early 1980s due to the public's demand for an English language based system of education, an option not provided by the public and privately-managed schools. These new private fee-levying "International Schools," a total of approximately 45 as of 1997, have been established under the Companies Act and function outside of the national education system. Although growing in numbers over the recent years, these schools remain an insignificant proportion of the entire education system. International schools cater mostly to students demanding access to education overseas or employment in private sector firms, and have become increasingly popular among middle- to upper-income families. However, the complete autonomy of these schools which remain outside the purview of the Ministry of Education as well as the absence of a regulatory framework have resulted in a questionable quality of education being provided. Private tutories are another important form of private sector participation in education. These have developed extensively across all levels of general education over the last 15 years primarily due to increasing competition for university admissions, an inability of the public school system to deliver the expected results at all levels (increasingly even at the primary school level), and their importance as an additional source of income for teachers. Like International Schools however, these private tutories are not within the country's formal education system, but have instead become a parallel system run primarily by State teachers. There is growing concern that this parallel, non-formal system is undermining the formal education system in Sri Lanka and raising equity issues among students. 2.14 Post-secondary education. University education in Sri Lanka today remains fully subsidized and a monopoly of the State. An attempt was made to relax the prohibition on private sector participation in this type of education only in the mid-1980s through several amendments to the Universities Act. The Private Medical College (PMC) was established on the basis of these amendments, but mismanagement and a lack of transparency in admissions and administration of this institution sparked long-term unrest among university students which led to the absorption of the PMC into the State system in 1991. Since then, privatization of higher education has become a politically charged issue in Sri Lanka, and no private universities conferring local degrees yet exist. Currently the country has a handful of foreign-affiliated private degree awarding institution, all conferring only foreign degrees to its graduates. Most of these institutions have been established under the Companies Act. In recent years a number of post-secondary, non- degree awarding institutes with some foreign affiliation have also appeared in the country. As in the case of International Schools, the absence of a regulatory framework has made quality control in these institutions difficult. Notwithstanding the fairly high fees, enrollments in private institutions are growing, indicating that as in health, there is a willingness to pay for education in Sri Lanka, despite the free access. 2.15 It is only in the area of vocational and technical education that the Government has fully relaxed the regulations on private sector participation. Due to the limited access to universities, demand for this type of education has grown steadily, and the number of these private institutions 4 Sri Lanka's primary and secondary education system comprises approximately 10,200 government schools and 670 privately managed schools. Of the privately managed schools, 600 are temple/pirivena schools, less than 20 are unaided schools, and the remainder are assisted schools.  -15- providing both fonnal and non-formal post-secondary technical/vocational programs increased from 850 in 1975 to 3,785 in 1984. The sector is also quite fragmented and currently there are approximately 1,000 private institutions registered with the Tertiary and Vocational Education Commission (TVEC). IV. Recent Education Reforms and Proposals 2.16 Attempts at addressing some of the problems of education quality and insufficient policy implementation began in the early 1990s under three projects assisted by IDA and ADB. The Teacher Education and Teacher Deployment Project (TETD) was started in 1996 to help implement the existing policies on pre-service and in-service teacher training. The project helps finance the construction of National Colleges of Education, improve management in teaching institutions, develop curricula and courses, strengthen knowledge and skills of lecturers, and rationalize and redeploy teachers to meet system and geographical needs. Similarly, the General Education Project II (GEPII) was started in early 1998 with the objective of introducing systematic curriculum development, improving quality and distribution of textbooks with private sector participation, rationalizing school facilities, increasing the delivery of quality inputs, expanding school libraries, strengthening education management, and introducing a norm-based unit cost resource allocation mechanism for general education to address inequities in resource allocation. The Secondary Education Development Project (ADB) which started in 1993 assists the National Institute of Education in curriculum revision, increases teaching materials/equipment in remote secondary schools, rehabilitates teacher training institutions, and attempts to strengthen the public examination system. 2.17 The first attempt at addressing the systemic problems in the education sector in more recent years began in the early 1 990s due to a wide and non-partisan agreement in Sri Lanka that the education system is dated, under-financed, of low quality and insufficient coverage. As a result, a National Education Commission (NEC) was appointed in 1992 to identify reform issues in higher education, vocational and technical education, and general education. In early 1997, a Presidential Task Force was appointed with similar terms of reference and a mandate to report and begin implementation of reforms in 1998. Numerous subcommittees involving members from a wide diversity of agencies, interest groups, and levels of government were established, and several innovative recommendations have already emerged. These include suggestions for unit expenditure based financing of general education, private sector provision of vocational training, and within the technical/vocational education sub-sector, confinement of Government's role to that of standard setting, overall regulation and management thus allowing for and encouraging greater private sector participation in the provision of training. It has also been recommended that new university lecturers be placed on a contract system, with renewals influenced by student and departmental evaluations-- a revolutionary proposal given that staff presently have full-tenure and are not subject to any form of performance review. 2.18 In addition, the national reforms aim, inter-alia, at the following: (i) reforming curriculum and improving quality in primary schools; (ii) reforming the GCE A/Level courses and examinations; (iii) modifying and enforcing the compulsory education regulation; (iv) strengthening English language skills among teaching staff and students; (v) improving evaluation and assessment mechanisms, especially in universities; (vi) providing career guidance and counseling to university students; (vii) permitting student mobility and credit transfers between universities; and (viii) streamlining the structure and functioning of the Ministry of Education and Higher Education (MEHE). An Education Reforms Implementation Unit was  -16- established in June 1997 in MEHE, and the implementation of general education reforms (curriculum and textbook reforms for Grade 1) was initiated on a pilot basis in the Gampaha district. It is expected that these Grade 1 reforms will be implemented islandwide in January 1999. Similarly, reforms of the GCE A/Level courses and examinations will be introduced in August 1998. A Technical and Vocational Education Reforms Secretariat has also been established in the Ministry of Vocational Training and Rural Industries to spearhead the implementation of Task Force recommendations on technical education and vocational training. One of its main priorities is the preparation of a Skills Development Fund that will promote private sector involvement in vocational/technical training. Like in the case of the health sector reforms however, the cost implications of the proposed education reforms have not as yet been fully analyzed. V. Directions for Change 2.19 The reform intentions are ambitious. The reform process itself is at an early stage and it will undoubtedly be time consuming. Also, there are a number of important issues that need to be addressed in a more direct way. These issues and some possible options for change (based on cross-country experiences) are described below. In defining its own reform program in the future, Sri Lanka would need to evaluate the relative priorities and political feasibility of each of these options. 2.20 An outdated education system. Broad education performance has stagnated during the last two decades in Sri Lanka. This stagnation can partly be attributed to historical distortions such as public monopolies (in university provision, textbook publishing, etc.), poor implementation of policies, and a system of centralized management inconsistent with the prerequisites for educational professionalism across the sector. Similarly, outmoded pedagogical and learning methods based primarily on rote-learning and lecture notes, as well as unchanged curricula and textbooks contribute to the prevalence of a rigid and outdated system of education, despite evidence of increasing demand for a more modem system.5 Although the status of education today in Sri Lanka cannot easily be assessed, especially in comparison to other countries,6 there are clear indications of low and stagnant student attainment in language, mathematics and science. The low external efficiency of the system is evidenced in relatively high rates of unemployment among the educated, e.g., nearly 35 percent of the unemployed have secondary education qualifications. The massive political recruitment of untrained teachers in the 1990s (70,000 at its peak) has contributed to the poor quality of education provided. Despite the vast recruitment, problems of geographical shortages and skills mismatch (especially in mathematics, science and English) persist. Also, there prevails a marked difference between staffing of Sinhala and Tamil medium schools. Finally, Sri Lanka has not kept abreast with modern evaluation techniques of educational outcomes that are now being used in other countries (these modem techniques include a new definition of "literacy," the use of net enrollment ratios as a better indicator of enrollment rates etc.). As demonstrated by increasing enrollments in Intemational Schools and foreign universities. 10 percent of tertiary students in Sri Lanka are enrolled in programs overseas, in comparison to I percent in India, 0.3 percent in Philippines and 0.2 percent in Thailand. 6 Sri Lanka lacks objective data on student achievement levels. Unlike some of its neighbors, it has never participated in any of the intemational surveys of academic achievement, either through the International Association for the Evaluation of Educational Achievement (IEA) or the Intemational Assessment of Educational Progress (IAEP).  -17- 2.21 Devolution of administrative responsibility provides a strong mechanism to address the main problems mentioned above (see Box 1). However, there is first an urgent need for increased clarity on the roles and responsibilities of each level of government in Sri Lanka.' The national government for instance could focus on financing a minimum level of quality inputs for each child, monitoring changes in inter-provincial equity, public reporting of problems and progress, financing norm-based expenditures in public universities and encouraging innovation through matching grants and open competition. The provincial authorities might well take the same functions, but apply them across the local district authorities within each province. They could manage each level of education, excluding national public universities, but might encourage the development of new higher education institutions at the local level. Similarly, schools and universities should have autonomy to select students, manage fungible unit expenditure budgets, retain teaching and support staff, raise and allocate non-public resources, and maintain relations with governing boards and the general public. Finally, although perhaps politically difficult to achieve, each school's goveming board might be empowered to choose the language(s) of instruction. Wherever there is sufficient local demand, English could be permitted to act as the medium of instruction with Tamil and Sinhala taught as compulsory language requirements. -ibt 1: Curmculu Reo i Hungary, which implemented a National Core Curriculum in 1996, is an example of a country adapting a decentralized system of curriculum developmenta to address concerns of regional and international integration, internal social cohesion, and market requirements. Performance standards, as articulated in the National Core Curriculum, are designed to balance national standards with a wide latitude of curricula and pedagogical choice at the local level. These standards determine curricula for less than two thirds of the school time, thus leaving the balance time for local preference on objectives and content. Schools are empowered to choose, establish and group teaching material in a manner they think most effective, and teachers allowed to pick from a multitude of educational materials produced by private manufacturers. This autonomy in selection of teaching materials fosters a more modern and professional teaching corps and education standard than the previous system of centralized textbook design and supply. Note: a. While in the past, curriculum has often been confused with"syllabi," a modern curriculum concentrates on "performance standards"(the overall social and educational quality expected from a student after completing education), with decisions over syllabi (courses, class schedules etc.) left to local authorities. 2.22 A restricted and weak university system. University education in Sri Lanka has three major deficiencies which have adverse downstream impacts on the whole education system. First, as indicated in the previous sections, it is unresponsive to the needs of society and the labor market. It is unresponsive to the needs of society in that access is limited to only a small fraction (2-3 percent of the age cohort and 20 percent of those eligible) of students demanding and willing to finance a university education. Selection for university admission is based purely on minimum aggregate A/Level examination marks, outdated subject requirements for entry into different specializations, and district quotas for entry to science and medical faculties to make allowances for existing regional disparities in secondary education (60 percent of admissions are based on district quotas). It is unresponsive to labor market needs primarily dueto administrative rigidities (e.g., a lack of student choice in the selection of courses) and over-specialization which prevent the institutions from responding to shifts in the economy. As a result, substantial unemployment and underemployment among university graduates still prevails. Second, it is inefficient in 7 In practice, devolution to the provinces has not been fully implemented. This is mainly due to a lack of clarity on the roles of govemment and management weaknesses. For instance, 81 percent of education's capital budget was controlled by the center in 1997, although administered by the provinces. Similarly, all major activities of the education sector including the remuneration and selection of provincial teaching cadre, preparation and distribution of textbooks/teaching aids, curriculum/syllabi development, and inspection and standard setting remain centrally controlled, despite some of these activities being legally devolved to the provinces.  -18- resource allocation in that there is little possibility to transfer from one specialization to another, course sequence is specified without regard to convenience or efficiency of learning, and faculty promotion and tenure are granted without adequate attention to classroom performnance, pedagogical techniques or research skills. Furthermore, budget allocations, which are set on the basis of historical precedent, bear no relation to student demand or the input requirements of the sector. Third, university education is inefficiently financed as all admitted students receive free higher education irrespective of (i) their financial need or willingness to pay;' (ii) the unit costs of the program in which they are enrolled; or (iii) their need for subsidized residential accommodation. 2.23 Most of these problems stem from the public sector monopoly over educational opportunity as well as centralized control over admissions and budgetary allocation irrespective of demand. Consequently, higher education remains a source of significant student dissatisfaction and political tension in Sri Lanka. Removing the stringent bottleneck for access to university will relieve some of these tensions and improve national integration. However, this will occur only to the extent that university expansion is accompanied by substantial quality improvements in the system (Box 2 provides an example of a country with on-going reforms in university education). ,l< 0<:'<