Document o f The World Bank

Report No: 25386

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 29.6 MILLION (US$40.3 MILLION EQUIVALENT)

TO THE

DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA

FOR

IMPROVING RELEVANCE AND QUALITY OF UNDERGRADUATE EDUCATION

May 12,2003

Human Development Unit South Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective April 1,2003)

Currency Unit = S r i Lankan Rupees (LKR) LKR 1 = US$0.0103 US1 = LKR96.9

ADB AG APL A Q A A BQA CAS CIGAS D C A EMP FMR GCE GEF GNP GPA GCE A/L GRE A/L IBRD ICB ICR ICT IDA IMF IRQUE IT LKR LTS L M O M I S MoFP MTE&T NEA N C B N G O PAD PPDU PHRD PIP

FISCAL YEAR January 1 -- December 3 I

ABBREVIATIONS AND ACRONYMS

Asian Development Bank Auditor General Adaptable Program Loan Accreditation Quality Assurance Agency Board for Quality Assurance Country Assistance Strategy Computerized Integrated Government Accounting System Development Credit Agreement Environmental Management Plan Financial Management Report General Certificate o f Education Graduate Employment Fund Gross National Product Grade Point Average General Certificate o f Education Advanced Level Graduate Record Examination Advanced Level International Bank for Reconstruction and Development International Competitive Bidding Implementation Completion Report Information Communication Technology International Development Association International Monetary Fund Improving Relevance and Quality o f Undergraduate Education Information Technology Sri Lankan Rupees Local Technical Secretariat Labor Market Observatory Management Information System Ministry o f Finance and Planning Ministry o f Tertiary Education and Training National Environmental Act National Competitive Bidding Non-Governmental Organization Project Appraisal Document Policy Planning and Development Unit Policy and Human Resource Development Project Implementation Plan

PPF PRSP QEF QET SDA SFB SIL SoE TAI TEI TEMIS TOEFL UGC UGC-CVCD

Project Preparation Facility Poverty Reduction Strategy Paper Quality Enhancement Fund Quality Enhancement Team Special Dollar Account Selection Based on a Fixed Budget Sector Investment Loan Statement o f Expenditures Tharuna Aruna I1 Insti tute Tertiary Education Institutions Tertiary Education Management Information System Test o f English as a Foreign Language University Grants Commission University Grants Commission - Committee o f Vice-Chancellors and Deans

Vice President: Mieko Nishimizu Country Director: Peter C. Harrold

Sector Manager: Michelle Riboud Task Manager: Rosita Van M e e l

SRI LANKA IMPROVING RELEVANCE AND QUALITY OF UNDERGRADUATE EDUCATION

CONTENTS

A. Project Development Objective

1. Project development objective 2. Key performance indicators

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2. Main sector issues and Government strategy 3. Sector issues to be addressed by the project and strategic choices

C. Project Description Summary

1. Project components 2. Key policy and institutional reforms supported by the project 3. Benefi ts and target population 4. Institutional and implementation arrangements

D. Project Rationale

1. Project altematives considered and reasons for rejection 2. Major related projects financed by the Bank andor other development agencies 3. Lessons leamed and reflected in the project design 4. Indications of borrower commitment and ownership 5. Value added o f Bank support in this project

E. Summary Project Analysis

1. Economic 2. Financial 3. Technical 4. Institutional 5. Environmental 6. Social 7. Safeguard Policies

Page

2 3

3 3 5

12 13 14 15 16

16 19 19 19 22 22 24

F. Sustainability and Risks

1. Sustainability 2. Critical r isks 3. Possible controversial aspects

G. Main Credit Conditions

1. Effectiveness Condition 2. Other

H. Readiness for Implementation

I. Compliance with Bank Policies

Annexes

Annex 1: Project Design Summary Annex 2: Detailed Project Description Annex 3: Estimated Project Costs Annex 4: Cost-Benefit Analysis Summary Annex 5: Financial Summary Annex 6: (A) Procurement Arrangements

(B) Financial Management and Disbursement Arrangements Annex 7: Project Processing Schedule Annex 8: Documents in the Project File Annex 9: Statement o f Loans and Credits Annex 10: Country at a Glance

MAP(S) Sri Lanka (Map No. 32271)

24 25 27

27 27

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29 33 47 48 60 61 72 77 79 82 84

86

SRI LANKA Improving Relevance and Quality o f Undergraduate Education

Project Appraisal Document South Asia Regional Office

SASHD

BORROWER

Date: May 12,2003 Sector Manager: Michelle Riboud Country ManagedDirector: Peter C. Harrold Project ID: PO50741 Lending Instrument: Specific Investment Loan (SIL)

Team Leader: Rosita Maria Van Meel Sector(s): Tertiary education (100%) Theme(s): Education for the knowledge economy (P)

5.70 1 5.00 I 10.70

Project Financing Data

IDA 21.30 I 19.00 1 40.30 Total:

I ~. ~ ..

Borrower: GOVERNMENT OF SRI LANKA Responsible agency: MINISTRY OF TERTIARY EDUCATION AND TRAINING Address: Ward Place 18, Colombo, Sr i Lanka Contact Person: Mr. Saman Ediriweera, Secretary Tel: 94.1.883.337 Fax: 94.1.883.337 Email: vtri@panlanka.net Other Agency(ies): Ministry o f Employment and Labor Address: Narahenpita Colombo 5 Contact Person: Mr. Mahinda Gammampila Tel: 94.1.368.164 Fax: 94.1.582.938 Email:

Estimated Disbursements ( Bank FYlUS$m): FY I 2003 1 2004 I 2005 I 2006 I 2007 I 2008 I 2009 I

27.00 I 24.00 I 5 1 .OO

Annual I 1.20 I 7.20 I 9.10 I 9.40 I 7.70 I 4.00 I 1.70 I Cumulative I 1.20 I 8.40 I 17.50 I 26.90 I 34.60 I 38.60 I 40.30 1

Project implementation period: August 2003 -June 2009 Expected effectiveness date: 0711 512003 Expected closing date: 1213 112009

A. Project Development Objective

1. Project development objective: (see Annex 1)

The Government’s Long-Term Vision and Reform Program

The Government has made tertiary education reform a priority and i s developing a long-term strategy to respond to national concerns that the tertiary education system i s failing to provide the modem ski l ls required for Sri Lanka’s development. This reform w i l l include rationalization and restructuring o f university and non-university institutions, improving public-private partnerships, introducing accreditation mechanisms and cost-recovery strategies, supporting innovative faculties to enhance educational quality, and increasing access when the major quality issues are resolved.

The Government started to review i t s major policies on tertiary education during the mid-1990s. The International Development Association (IDA) was invited to undertake a comprehensive study o f the education sector to develop a strategy to enhance the quality o f education (World Bank Education Sector Strategy Report - Sri Lanka, 1995). A constructive policy dialogue was initiated among policy makers, stakeholders, c iv i l society and donors through the “National Policy on University Education”by the National Education Commission, 1996, and the “Reforms in University Education” by the Presidential Task Force on University Education, 1998. These two documents were widely circulated for discussion and review among key stakeholders, including universities, academics, researchers, students, Government officials, chambers o f commerce, federations o f employers, community-based organizations and development partners such as IDA and the Asian Development Bank (ADB). Subsequently, the Government embarked on an in-depth analysis and review o f the tertiary education sector. This process was pursued in partnership wi th key stakeholders and supported by a technical assistance grant from the ADB. Based on these inputs, the Government concluded that a far-reaching transformation o f the tertiary education sector i s urgently needed and requested support from IDA and ADB.

The Government reported on the results o f the tertiary education reform process during the Development Forum in Paris, December 2000, and put forward i t s strategy for tertiary education reform.

The Government’s long-term objective i s to reorient and improve tertiary education so that i t i s more supportive o f the country’s social and economic development needs. To achieve this goal, the Government defined six major areas for action: (i) revising the policy framework to introduce performance incentives; (ii) improving quality and quality monitoring; (iii) financing and resource mobilization; (iv) improving the employablity o f the currently unemployed graduates in the private sector; (v) creating a level playing field for private sector investment; and (vi) increasing access.

Proiect Development Obiectives

This project w i l l support the Government’s long-term tertiary education reform program by enhancing institutional capacities to achieve greater relevance and quality in undergraduate programs. The project i s expected to be the first in a series o f Credit operations to support the Government in carrying out i t s long-term reform o f tertiary education. The project w i l l contribute to building human capital which i s one o f the key factors in poverty reduction (Poverty Reduction Strategy Paper [PRSP], as discussed at the Bank‘s Board o f Directors on April 1,2003).

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2. Key performance indicators: (see Annex 1)

The following impact indicators have been agreed with the Government to support the study programs to achieve the project development objectives:

0

0 0

0

0

Higher employment rates among future graduates o f selected undergraduate programs; Improvement o f Information Technology (IT) capabilities; Improvement in English proficiency level; Improvement o f Graduate Records Examination (GRE) where applicable; Grade Point Average (GPA) test scores; and Higher employment rates among retrained unemployed graduates.

B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 25413

This project w i l l contribute to the sector-related CAS goal o f supporting human capital development. Improvement o f relevance and quality in tertiary education i s expected to contribute to efficient public administration, economic development and social harmony. This w i l l be achieved by assisting the Government to introduce incentives for improved relevance and quality o f undergraduate programs and open the sector to private sector participation and investment.

Date of latest CAS discussion: April 1, 2003

2. M a i n sector issues and Government strategy:

University undergraduate education in S r i Lanka i s offered by 13 public universities; 12 offering internal degree programs, and one Open University providing distance education. There were about 61,600 undergraduate students enrolled in public universities during the 2000/2001 academic year, o f whom 48,000 were in internal programs and the balance in the Open University. In 2001, public universities admitted 12,000 students out o f 73,500 students who qualified for admission on the basis o f their General Certificate o f Education Advanced Level (GCE A/L) performance. In 2000/2001, there were also 3,250 postgraduate students in universities. In addition to the public universities, there are 2 1 public Advanced Technical Institutes, offering diploma programs. Private sector tertiary education consists o f about ten private degree awarding institutions wi th a total enrolment o f 2,500 students. Private tertiary institutions offer diploma programs and courses in four areas: (1) Business Management; (2) Computer Science; (3) Economics/Arts; and (4) Specific subjects, Le., Accounting, Law and Chemistry. Three o f these private institutions are affiliated with foreign universities and award university degrees through their partner universities.

Full-time enrolment in public universities in Sri Lanka i s less than 2% o f the age group, versus an average o f 8% in South Asia; far below the East Asian countries that Sri Lanka seeks to emulate such as Malaysia (1 1%); Thailand (20%); and Singapore (34%). The University Grants Commission (UGC), established in 1978, i s responsible for planning and coordinating university education, allocating funds to public universities, maintaining academic standards, and regulating administration o f undergraduate admission to universities. However, there i s no formal legal or regulatory framework for accreditation and quality control o f tertiary education which limits the UGC's potential role in this area.

This stands in sharp contrast to general education in S r i Lanka consisting o f primary education (grades 1-5 enrolling 1.9 mill ion students) and secondary education (grades 6-13 with 2.3 mi l l ion students).

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N e t enrolment in primary education has reached 97% o f the age cohort, while net secondary enrolment i s over 70%. These ratios are the highest in South Asia, and comparable to East Asia.

Main Sector Issues:

Insufficient relevance and quality in public universities: Teaching and learning practices do not encourage the acquisition o f competencies and social sk i l ls demanded in the labor market and curricula in many disciplines are not in tune with broader economic and social needs. Faculties lack critical learning resources, modern IT systems, laboratory equipment and consumables, library materials and adequate facilities. A high proportion o f academic staff (over 60%) lack postgraduate education and exposure to high quality teaching and research environments. In addition, faculty management systems fail to encourage sound performance and transparent quality monitoring.

High unemployment among graduates: L o w quality and poor economic and social relevance o f the educational programs offered by the public universities contribute to high graduate unemployment. Among graduates below 25 years o f age, 58% are unemployed; and among graduates aged 25-30, 35% are unemployed. Student unrest i s often closely related to poor employment prospects faced by graduates [Youth Commission Report, (1989)l. High graduate unemployment, associated with past youth unrest, has compelled the Government to absorb the major proportion o f the tertiary education graduates, considerably in excess o f the actual numbers needed in the public sector. At the same time, surveys indicate that employers are dissatisfied wi th the sk i l ls o f graduates.

Social harmony and gender equity: In most S r i Lankan universities, subjects l i ke social harmony and peaceful conflict resolution are not part o f the core curricula, and language barriers make communication and the exchange o f ideas between the different groups almost impossible. Although gender disparities have narrowed in Sri Lanka during the last two decades, equal opportunities for female students remain an issue. Female university graduates are twice as unlikely to find jobs after graduation due to a disproportionately large number o f females studying arts and humanities, which are less marketable than the sciences and professions.

Low student intake: University and tertiary education enrolment i s far below countries wi th which S r i Lanka has to compete in a technologically highly sophisticated global economy. In S r i Lanka, the number o f tertiary education students per 100,000 population i s 474, well below the average for South Asia (604); East Asia and the Pacific (704); and low- and middle-income countries as a whole (980). Tertiary education enrolment in comparison to secondary enrolment i s only 1: 15, substantially lower than South Asian neighbors, such as Pakistan (1 : lo); Nepal (1 :8); India (1 :7); and Bangladesh (1 :3); and East Asian countries, such as Malaysia (1 :5); Thailand (1 :3); and Singapore (1 :2).

Poor internal efficiency due to student unrest: Degree programs, typically organized as three- to four-year courses, often take longer to complete due to on-campus student political activism, which causes some universities and faculties to close for periods o f time.

Weak administration: Good governance, which sets the parameters for management, i s a necessary condition to achieve high quality performance. The Ministry o f Tertiary Education and Training (MTE&T) and the UGC have limited institutional tools for policy making, program implementation and quality control. Performance incentives and systematic feedback mechanisms on the achievements of TEIs are lacking.

Inadequate and non-performance-based financing: Sri Lanka has spent comparatively less on tertiary education than other countries in Asia during the last decade. For instance, in 1995, tertiary education

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expenditure per student was 64% o f the Gross National Product (GNP) per capita. This i s lower than the average for low- and middle-income countries (91%); below the South Asia average (76%); and less than countries such as Malaysia 77%, India, 78%, China, 81% and Nepal, 156%. Also, resources within the tertiary education sector are not allocated according to performance criteria. Allocation o f funds to universities i s based on historical patterns, rather than on current student numbers or other performance-based indicators related to teaching and research. As a result, universities have insufficient economic incentives to increase student enrolment or enhance research and teaching performance.

Absence of a national quality control and monitoring system: The tertiary education system lacks a mechanism for controlling and monitoring institutional and faculty performance, and promoting the responsible exercise o f authority at the varsious levels o f management. The system lacks objective assessments o f the achievements o f faculties and academic programs in relation to appropriate national and international standards.

Government Strategies:

The Government has recognized the fundamental weakness o f the tertiary education system and the urgent need to address i t s major shortcomings.

The Government stressed that addressing the problem o f the currently unemployed graduates i s among i t s most urgent priorities. The 27,000 unemployed graduates are an economic problem in terms o f a chronic under-utilization o f human capital and a social problem in terms o f potential social unrest. Given the high unemployment among graduates o f public universities, despite the limited intake o f students, the Government decided to focus on improvement o f relevance and quality o f undergraduate education prior to increasing enrolment in public universities. With regard to private institutions, the Government decided to actively promote private sector investment to increase intake in disciplines highly in demand in the labor market. In addition, private TEIs are allowed to offer degree programs, on the condition that they are affiliated to accredited universities abroad. Four such private TEIs already exist, while others may start in the coming years. Preliminary initiatives have been taken to address the issue o f accreditation by individual public universities and the UGC. The UGC has also requested universities to prepare corporate plans to allocate future development funds to universities on a competitive basis. The Government i s seeking to promote social harmony and cohesion through courses on the multi-ethnic, multi-religious, and multi-cultural nature o f the country.

3. Sector issues to be addressed by the project and strategic choices:

The Government seeks IDA support to address the following sector issues: (a) high unemployment among graduates; (b) insufficient quality and relevance o f undergraduate education; (c) insufficient attention to cultural diversity; and (d) weak administration and lack o f quality assurance mechanisms. The project w i l l focus on:

Improving the employability of currently unemployed graduates in the private sector through work experience modules and training in English, IT and job acquirement ski l ls. Improving relevance and quality in public universities through reforms triggered by a competitive Quality Enhancement Fund. The reform process includes the strategic shift o f tertiary education institutions (TEIs) to take into account the needs o f the labor market as part o f their education mission. The performance o f graduates in the labor market w i l l be included as one o f the performance indicators in self-assessments and quality assurance reviews, including proficiency in English and IT skill for graduates in al l disciplines. Social harmony through cross-cultural and courses on conflict resolution, collaboration and

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exchange among study programs o f different universities, and courses offered in English would be considered to counter-balance the actual segregation which challenges the multicultural society o f Sri Lanka. Strengthening administration, quality assurance mechanisms and participation of private TEIs through support for specific activities which are pre-requisites for increased performance. The widespread agreement among the Government, academics, and employers that fundamental changes are necessary creates a favorable set o f conditions to improve the performance o f the system.

e

Strategic choices: The Government's priority i s to improve the employability o f unemployed graduates in the private sector through work experience modules and training in English, IT and job acquirement sk i l l s . The Government w i l l support a broad range o f eligible TEIs to become centers o f development, generating multiple links with c iv i l society and industry rather than promoting only a few centers o f excellence with a limited focus on research and teaching. Support to TEI's wil l be provided after a competitive selection process in which institutions o f comparable institutional capacities compete among each other for additional support rather than financing activities in the best or the weakest developed TEI's. This approach aims to support the Government's objective to increase the impact o f the reform process on a larger number o f TEIs and students.

The Government invited IDA to concentrate on improving relevance and quality o f undergraduate education because o f IDA'S experience in tertiary education reforms. The ADB has been requested to focus on the relevance and quality o f the Open University programs and post-secondary non-university education programs.

C. Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown):

The project comprises the following two major components:

Component 1. Building institutional capacity in the tertiarv education svstem through

(i) Strengthening national planning, monitoring and evaluation systems, and coordination at the national level. National-level governance bodies w i l l set the vision, define the policies and develop the strategies. Implementing these functions requires further capacity to monitor and evaluate the sector's performance. The improved national planning and monitoring system will support tertiary education policy makers in monitoring the implementation o f new policies. This sub-component w i l l finance capacity building in the MTE&T and the UGC and provide technical assistance to introduce a Management Information System (MIS) and a Labor Market Observatory (LMO). Financial support w i l l be available to conduct policy studies including, inter alia, the feasibility o f a voucher scheme, support to the new national policy framework to increase access, and the introduction o f national planning, and monitoring and evaluation systems.

(ii) Establishing the Board for Quality Assurance (BQA). The B Q A w i l l be responsible for developing policies related to quality criteria and organizing independent peer reviews o f self-assessments by faculties and accrediting, on demand, national and international accreditation agencies. The B Q A w i l l develop a comprehensive evaluative review system, which w i l l apply to all public and private institutions, based on techniques and tools consistent wi th international best practice. The results o f quality reviews wil l be made available to the public via the UGC Web site. This evaluative

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framework w i l l become institutionalized in a continuous degree program review cycle. The B Q A will: (a) be established within the framework o f the UGC; (b) become an independent body by 2004; (c) be subject to periodic reviews; and (d) be supported by an appropriate MIS.

(iii) Strengthening management of public universities and faculties. The project w i l l finance efforts to improve planning and management capacity at universities and other TEIs. Training and technical assistance w i l l be available to help institutions modernize their practices in strategic planning, financial management, human resource management, academic management, and management of buildings and equipment. Institutional grants will be available for special programs to strengthen management, student services, social harmony, improved English language competency, and computer sk i l ls o f teachers and graduates. Training w i l l be provided to public and private TEIs to prepare proposals to be submitted.

(iv) Enhancing public awareness. As part o f the strengthening o f the MTE&T and the UGC, a continuous public awareness campaign and stakeholder dialogue w i l l be supported to build consensus on the various stages o f the reform program and disseminate information about achievements attained.

(v) Monitoring and evaluation. Research activities wi l l be implemented to monitor and evaluate the impact o f project investments on important academic, economic and social outcomes. Both the national and institutional levels w i l l be covered through monitoring and evaluation measures. The studies w i l l be contracted through research institutions and consulting f i rms.

Component 2. ImurovinP relevance and aualitv o f tertiary education by:

(i) Establishing a Quality Enhancement Fund (QEF) to allocate resources to improve undergraduate degree study programs in public and private TEI's. This sub-component will support quality improvement block grants for study programs to enhance the relevance and quality o f undergraduate degree programs. The QEF will support programs selected by transparent and objective procedures. Universities w i l l be invited to submit development plans elaborated by degree programs. Each development plan w i l l indicate: (i) how the degree program w i l l improve the employability o f future graduates in the coming three years; (ii) additional investments needed; (iii) resource mobilization strategies to ensure the sustainability o f investments; and (iv) monitoring and evaluation o f progress to access the next tranche o f the grant. The review panels for the QEF w i l l select the proposals which offer the maximum net benefits and help accelerate the pace o f improvement in undergraduate programs.

To promote competition among institutions o f comparable institutional strength the potential grant recipients w i l l be tiered in four categories: (i) established public universities; (ii) regional public universities; (iii) conflict-affected public universit ies; and (iv) private institutions and professional organizations (see Annex 2).

Eligibility w i l l be limited to existing study programs (with the f i rs t intake o f students before January 1, 2001) and whose minimum entry requirement i s passes in two national GCE A/L subjects taken in the same year. A maximum o f three block grants w i l l be awarded to any one university.

In addition to the general eligibility criteria, private institutions receiving grants w i l l also be required to provide: (a) evidence that investment to the grant amount w i l l be made in the corresponding study program by the institution; (b) evidence o f use o f at least 5% o f the grant for

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social and inter-cultural harmony initiatives; and (c) in the case o f private institutions, agreement to repay the principal o f the grant (interest free), after a five year grace period in five equal tranches over a five year term if the annual tuition fee per student (including fees for examinations and administration) i s greater than 100,000 SLR. Private institutions wi l l also be required to provide a legally registered guarantee equal to the grant amount. The Quality Enhancement Team wil l manage the collection o f grant repayments and a revolving fund made up o f such funds (to be established by the Government). The revolving fund wil l be used to finance further quality enhancement investments in the private tertiary education sector.

(ii) Tharuna Aruna 11 Program (Young Professional 11 program). This sub-component wi l l support training initiatives that lead to more appropriate and productive employment for a maximum of 10,000 currently unemployed graduates. The proposed program wi l l support work experience modules and training for unemployed graduates to become more employable in the private sector. An unemployed graduate i s defined as “a graduate from a Sr i Lankan tertiary education institution, under the age o f 35 years, with less than 1 hour paid occupation in the previous week.” An unemployed graduate wi l l be considered to have found “full-time employment” when he or she has obtained a contract with a minimum duration o f one year in the private sector. Unemployed graduates entering the Tharuna Aruna I1 Program wi l l be eligible for up to 12 months training under the scheme. This training wi l l comprise up to 8 months o f work experience, during which a graduate wil l be eligible for an allowancelstipend o f LKR 6,000 per month. The Government, through IDA-support, wi l l provide LKR 4,000 per month and the company accepting the graduate wi l l match this with a further LKR 2,000 per month. The training component wil l comprise up to 4 months o f intensive courses, or 8 months o f intensive evening and weekend courses. The Government, through IDA-support, wi l l fund a combined living/travel allowance o f LKR 5,000 per month for up to 4 months o f attendance in a training program by an approved course provider. In addition, the Government will, through the proposed program, provide each participating unemployed graduate with LKR 40,000 in vouchers, redeemable only with approved course providers. An unemployed graduate wil l not be required to undertake the full twelve month program if an employment opportunity becomes available. Helshe may accept a job offer at any time during the work experience module or course period. This wi l l end his or her participation in the program and allowanceslstipends wil l cease.

Component

1) Building institutional capacity by: (a) strengthening national planning and monitoring; (b) establishing the Board for Quality Assurance; (c) strengthening management o f universities; and (d) enhancing public awareness. 2) Improving relevance and quality by: (a) establishing QEF to provide block grants; and (b) establishing the Tharuna Aruna I1 Program to improve the employability o f unemployed graduates in the private sector

Total Project Costs

Total Financing Reauired

Indicative costs

(US$M) 14.70

36.30

51.00 51.00

% of Total

28.8

71.2

100.0 100.0

Bank- financing (US$M)

13 .OO

27.30

40.30 40.30

% of Bank-

financing 32.3

67.7

100.0 100.0

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2. Key policy and institutional reforms supported by the project:

The Government w i l l take the lead in creating a level playing field for public and private tertiary education institutions to provide high quality teaching and learning by measures which could trigger additional investments in private institutions, and establishing a framework for earmarked funds for quality improvements to be allocated on a competitive basis in public tertiary institutions.

The key institutional reforms supported by the project w i l l include: (i) improving national planning, monitoring and coordination; (ii) establishing a Board for Quality Assurance; (iii) strengthening management in universities; (iv) establishing formal labor market linkages among universities and businesses; (v) improving curricula; and (vi) improving faculty management, including the introduction o f differentiated revenue-generating strategies to ensure the sustainability o f the reform program.

3. Benefits and target population:

The project i s expected to benefit students by: (i) enhancing the quality o f teaching; (ii) improving access to modern learning resources such as computers, laboratory material and library facilities; (iii) increasing the market-orientation o f courses; (iv) expanding the availability o f places in private institutions; (v) enhancing the employability potential o f future graduates; and (vi) improving the employability o f currently unemployed graduates. The project w i l l support universities to initiate activities that address cultural diversity and to facilitate access and participation o f physically disabled students.

The project will also benefit the academic staff o f universities by: (i) providing them with opportunities for staff development through postgraduate degree programs, exchange fellowships and study visits; (ii) improving their working conditions through investments in information and communications technology, equipment and academic literature; and (iii) enhancing professional opportunities through consulting and business linkages with industries.

The project w i l l benefit professional staff in the MTE&T, the UGC and the universities by enhancing access to new technologies and technical resources, and providing opportunities for additional training, good governance and administration in the tertiary education sector and TEIs through policy formation, program implementation and quality control.

The project i s expected to contribute to broad economic and social benefits including greater labor market relevance o f undergraduate degree programs. The project w i l l also benefit the unemployed graduates through the intensive training in English, IT sk i l ls and job acquirement skil ls. The private sector i s expected to benefit from a greater pool o f well trained graduates with a more positive orientation towards a career in the private sector.

4. Institutional and implementation arrangements:

The project wi l l support activities to be implemented over a period o f six years. The Ministry o f Tertiary Education and Training, through the Policy Planning and Development Unit (PPDU) and the Quality Enhancement Team (QET) in collaboration with the University Grants Commission (UGC), w i l l serve as the main executing agencies for the project. The Secretary, MTE&T, wil l be accountable for the project and report directly to the Minister.

The Monitoring Board will overview the reform progress on a monthly basis. The MTE&T monitoring Board wi l l consist o f the Honorable Minister o f the MTE&T, the Advisor to the Minister, the Secretary, the Chairman and Vice-chairman o f UGC, a director o f a private Tertiary Education Institution, the Project Coordinator, the Deputy Director, PPDU and the Deputy Director, Quality Enhancement Team.

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The Ministry o f Employment and Labor w i l l set up a Steering Committee to overview the organization and implementation monitoring o f the Tharuna Aruna I1 Program.

The MTE&T w i l l carry out the reform program through the PPDU and the QET o f the MTE&T in collaboration with the UGC. The overall management o f the PPDU and the QET w i l l be the responsibility o f the Project Coordinator. The PPDU and the QET are to become permanent units to support the long-term reform in tertiary education. The PPDU will be responsible for providing policy advice on higher education reform to the Minister and the Secretary MTE&T, contributing to the implementation o f the MTE&T strategy for higher education and overviewing the selection and implementation o f the institutional grants. The QET w i l l initiate the launch, monitoring and continuous support o f the Quality Enhancement Fund. The PPDU and the QET w i l l be supported b y an administrative Secretariat. The Project Coordinator, the staff o f the PPDU, the QET and the administrative Secretariat will be appointed by the Government by May 2003 and w i l l consist o f the Project Coordinator, two Senior Academics, two Senior Public officers, two Administrative staff, one Computer assistant and one clerk. In UGC, two additional senior academics w i l l be appointed by the Government to strengthen the policy making and accreditation capacity. The PPDU, the QET and the UGC w i l l be supported b y national and international technical assistance.

The selected study programs in public universities and eligible private institutions wi l l play a major role in executing, monitoring and evaluating the project through the Local Technical Secretariat, to be set up in each university receiving block grants

Institutional Grants w i l l be available for public universities, wi th exception o f the Open University. The PPDU w i l l launch the preparation process o f the five institutional grants through national and regional workshops and set up a review process to start the selection o f the institutional grants within six months after Credit effectiveness. Universities w i l l submit action plans to be eligible for any o f the grants available for: (i) improved planning and management capacity; (ii) social harmony; (iii) improved student services, (iv) improved English language competency grants; and (v) the improved IT sk i l ls grants.

Each plan w i l l indicate: (i) purpose and objective o f the investment; (ii) number o f students likely to benefit from the grant; (iii) proposed impact and impact monitoring; (iv) hours o f operation o f facilities; and (v) investments needed including a detailed procurement plan for each grant.

For the improved English language competency grants and the improved IT sk i l ls grants, an eligible public university wi l l submit action plans indicating for each: (i) baseline data on the current performance o f students in the final year before graduation using a TOEFL test and an agreed upon IT test; and (ii) target test results for the next five years for any representative sample o f students in the last year before graduation. The content and format o f grant proposals have been agreed with IDA during appraisal and are include in the Project Implementation Plan (PIP).

Oualitv Enhancement Fund Grants will use a competitive peer review process for the selection o f grant proposals. Awards w i l l be made in two rounds o f competition providing five-year development grants in the f i rs t round and four-year development grants in the second round. Each round o f competition w i l l involve a three-stage peer review process. The selection mechanism, selection criteria, and the composition and weights o f evaluation scores wi l l be described in the “QEF Guidelines” to be published and included in the Project Manual. These criteria w i l l be broadly disseminated and workshops w i l l be conducted to train and develop a common interpretation o f the criteria among the reviewers. The content and the format o f the grant proposal have been agreed with IDA during appraisal and are included in the PIP.

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The Quality Enhancement Technical Secretariat w i l l disseminate information about the QEF to the academic community and civ i l society, and provide training to reviewers and key stakeholders through central and regional workshops, and documentation available on the UGC and QET websites, print and electronic media. On completion o f the awareness and training phase, and in the second hal f year o f project implementation, academic institutions w i l l be invited to participate and submit proposals. For each institution receiving a QEF, grant management w i l l be the responsibility o f a special unit (Local Technical Secretariat), established prior to the f i rs t grant disbursement in each recipient study program, and maintained throughout grant implementation.

Technical assistance from the QET to Local Technical Secretariats w i l l consist o f training in the use of reporting formats and procedures for procurement and financial management. The standard formats w i l l be designed by a national firm contracted by the QET for this purpose. Institutional capacity building in procurement and financial management has started and w i l l be ongoing, in addition to technical assistance to the MTE&T, the PPDU, the QET and the Local Technical Secretariats throughout the project. The QET w i l l also organize bi-annual workshops for grant recipients to review progress and provide an opportunity to share lessons learned in financial management and procurement.

The Local Technical Secretariats will be responsible for presenting to the QET quarterly implementation progress reports, and consolidated bi-annual implementation, procurement and financial reports, satisfactory to IDA. Information requirements and reporting formats have agreed with IDA during appraisal and are included in the PIP.

The Tharuna Aruna I1 Program: The responsible implementation agency for the program w i l l be the Ministry o f Employment and Labor. The Ministry o f Employment and Labor w i l l appoint the Tharuna Aruna I1 Board (the Board) to oversee the implementation o f the program, wi th terms o f reference agreed with IDA, the Board w i l l appoint a full time Chief Executive Officer (CEO) to oversee day-to-day management. The Tharuna Aruna I1 Institute w i l l implement the Tharuna Aruna I1 Program under the guidance o f the Board and the l ine management o f the CEO. This organization w i l l be established by revising and streamlining the Tharuna Aruna Institute. The CEO will report to the Board every month. The responsibilities o f the Ministry o f Employment and Labor, the Tharuna Aruna I1 Board, the private implementation organization, the companies, the course providers and the graduates w i l l be described in a Memorandum o f Understanding (including the codes o f conduct) to be approved by the Secretary o f the Ministry o f Employment and Labor and agreed with IDA before funds are disbursed.

The Tharuna Aruna I1 Institute will have a central office in Colombo and w i l l establish a regional office in each o f Sri Lanka’s nine Provinces, financed by the Government. Regional offices could be established in local branches o f Chambers o f Commerce, career guidance centers in universities or similar offices in other organizations on the principle o f reducing establishment costs by attaching to existing structures and to promote cross-fertilization o f ideas and enhance cooperation amongst stakeholders. The Regional offices w i l l be responsible for day-to-day monitoring of: (i) unemployed graduates registered with the program; (ii) companies providing work experience opportunities, and (iii) course providers. The Regional offices will provide consolidated monthly reports o f implementation progress in their Province. Career counseling, establishment o f networks with companies and course providers to the benefit o f the graduates w i l l also be essential tasks o f the Regional offices. The National office in collaboration wi th the Regional offices w i l l constitute the Tharuna Aruna I1 Network. Consolidated quarterly reports from the Regional and National offices w i l l be considered by the Board in formulating new, or revising existing, policies and practices to enhance the success o f the program during i t s implementation. During regular IDA supervision missions, these quarterly reports w i l l be available to the supervision team for review and comment. Any policy changes recommended by the Board w i l l

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require IDA review and no objection prior to any such change being effected. In particular the terms of agreement between IDA and the Government w i l l include a covenant to the effect that a policy change which sought to create employment opportunities in the public sector for unemployed graduates involved in the program w i l l constitute non-compliance and may lead to cancellation o f IDA funding for the program. Communication between the Regional and National offices w i l l be facilitated by on-line connections. I t i s expected that the use o f I T w i l l improve the effectiveness o f implementation and may reduce operating cost during the lifetime o f the project.

Funds Flow

The Project funds w i l l be deposited into two Special Dollar Accounts (SDA) to be opened in the Central Bank o f Sri Lanka. The SDA w i l l be operated by the PPDU and the Tharuna Aruna I1 Institute under the responsibility o f the two respective Secretaries, who can delegate this authority.

PPDU w i l l withdraw funds from this SDA to expend on project activities. The Government w i l l provide an advance to the PPDU to cover the Government's and IDA's share o f project expenses (as i s the normal practice for all donor funded projects in Sri Lanka). Thereafter, the PPDU will make project payments f rom the Government's advance account and periodically reimburse IDA share o f project expenses from the funds in the SDA. For activities under the QEF component, on approval by the QETS o f the proposals submitted by the universities, the PPDU will release funds from the SDA to a separate local currency project account to be opened by the university specifically for this purpose. On a quarterly basis, all universities w i l l report back to the PPDU (formats for these specified in the project implementation plan). The PPDU w i l l consolidate this information, and submit withdrawal applications to the World Bank for replenishment o f the SDA as well as prepare the quarterly progress reports.

For the Tharuna Aruna I1 Program, the Tharuna Aruna I1 Institute (TAI) w i l l operate and manage the funds in the second SDA. The Government will provide an advance to the Tharuna Aruna I1 Institute to cover the Government's and IDA's share o f project expenses (as i s the normal practice for all donor funded projects in Sri Lanka). Thereafter, the Tharuna Aruna I1 Institute wil l make project payments f rom the Government's advance account and periodically reimburse the IDA share o f project expenses from the funds in the SDA. The Tharuna Aruna I1 Institute w i l l be responsible for preparing the replenishment application for the SDA that they operate.

D. Project Rationale 1. Project alternatives considered and reasons for rejection:

This project w i l l be a Sector Investment Loan (SIL) to support the f i rs t stage o f the Government's long-term tertiary education reform program by enhancing institutional capacity conducive to increase relevance and quality o f undergraduate education.

This project i s expected to be the first in a series o f Credit operations and w i l l have a duration o f six years. If satisfactory results are achieved in the f i rs t Credit, it i s envisaged that at the end o f the fourth year, preparation o f a second Credit w i l l be initiated to extend the period o f IDA support.

An Adaptable Program Loan (APL) approach was initially considered as an alternative because it supports a long-term framework required to address the challenges o f introducing systemic changes in the tertialy education sector. A SIL was nevertheless preferred over an APL because the long-term development objectives can be equally achieved with a series o f SILs. The ten-year perspective o f an APL was considered less appropriate given the political situation in Sri Lanka where successive Governments prefer some flexibility to fine-tune implementation modalities and are reluctant to endorse

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in every detail commitments made by previous Governments.

Sector Issue

Ban k-financed Increase supply o f trained manpower and improve management expertise.

Establish the Institute for Constraining

During project preparation the fol lowing design options were discussed with the Government and it was decided that the project:

Project

Cr. 1 130-CE Vocational Training Project (US$25 mil l ion) Approved 7 April 198 1 Cr. 1698-CE

wil l not finance large infrastructure investments o r new construction at the universities as the intention i s to use the existing facilities more efficiently. wil l not attempt to establish or strengthen a small number o f centers o f excellence in specific disciplines given the l imi ted number o f students that wil l benefit f r om this. Instead, the primary objective wi l l be to improve the quality o f teaching and learning in several undergraduate degree programs to become centers o f development aligned with the country's broad economic and social development needs. wil l not support increased access in public universities at present, given the high number o f unemployed graduates, but w i l l focus o n quality dimensions o f undergraduate education such as human resource development, curr iculum development, and acquisition o f essential technology and equipment. wil l no t select universities for support but use a tiered competition between institutions o f comparable institutional strength because competitive incentive schemes have proven to be more effective to introduce sustainable reforms within universities. Furthermore, such schemes provide an opportunity to faculties and study programs to develop pro-active approaches towards challenges and opportunities which are at the center o f quality management and institutional capacity building in higher education.

L. M a j o r related projects financed by the Bank and/or other development agencies (completed, ongoing and planned).

Training and Development ( ICTAD) and support an intensive management training program.

Upgrade schools.

Improve quality, access and equity, strengthen management, and promote sustainability.

Improve equity, rationalize teacher

Second Vocational Training Project (US$13 mil l ion) Approved 13 M a y 1986 Cr. 2072-CE General Education Project (US$49 mil l ion) Approved 12 December 1989 Cr.3 0 14-CE Second General Education Project (US$70.3 mi l l ion) Approved 9 December 1997 Cr. 2881-CE

Latest Supervision (PSR) Ratings

(Bank-financed projects only) Implementation

Progress (IP)

S

S

S

U

S

Development Objective (DO)

S

S

S

S

S

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recruitment, deployment and training policies, upgrade teacher education programs, and increase equitable allocation o f teacher training institutions and resources.

Teacher Education and Teacher Deployment Project (US$64.1 million) Approved 13 June 1996

IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

3. Lessons learned and reflected in the project design:

The Bank's recently published policy on tertiary education, Constructing Knowledge Societies: New Challenges for Tertiary Education, (December 2002), offers the following major recommendations that have been incorporated into the project design:

3ther development agencies ADB

GtZ SIDA/SAREC

DfID JICA

UNICEF activities

0 The Bank w i l l pay close attention to the political economy o f a country and take into account lessons learned from history in determining what kind o f policy changes are feasible, what role stakeholders and beneficiaries should play in this process, and how long it i s likely to take for sensitive policies in education to become accepted and owned; and Well-designed competitive funds can greatly stimulate the performance o f tertiary education institutions and be powerful engines o f transformation.

Secondary Education Ski l ls Development Project Teacher Education Distance Education Research Cooperation Primary Teacher Training Construction and Rehabilitation o f Teacher Training Institutions School o f Computing (Colombo) Electronics and Engineering (Moratuwa) Dental Faculty Project (Peradynia) Curriculum development; and in-service teacher programs

The Bank has built up substantial experience with competitive funds in tertiary education in Indonesia, Vietnam, Romania, Argentina, Chile and Jordan. Tertiary education reform programs in these countries contain accreditation, M I S and performance-based funding as key elements to trigger enhancement o f quality and efficiency. In Indonesia, for instance, competitive funds were established for three tertiary education projects. The new financing mechanism introduces transparent resource allocation systems linked to performance. Under this approach, faculties are invited to submit development plans, taking into account national policies and local opportunities, thereby striking a balance between centralized and decentralized management within the universities. The development plans o f different study programs i s evaluated by specialist panels.

The project design also seeks to incorporate lessons learned from previous Bank-financed tertiary education projects in Argentina, Chile, Ghana, Congo, Hungary, Sri Lanka and Indonesia.

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The following lessons are considered to be particularly relevant:

Incentives generate more significant and lasting reforms than do conditionalities. This i s the documented experience for the Fund for Quality Improvement in Argentina and the Millennium Science Project in Chile. Conditionalities under Bank-financed tertiary education projects during the 1990s in Ghana, Kenya, Nigeria and Hungary had a very poor record o f success. As a result, the proposed project will employ a competitive funding scheme, modelled after similar approaches developed in Bank-financed tertiary education projects for Argentina, Chile and Indonesia. Where benefits are provided to universities on the basis o f competitive performance, procurement procedures for these benefits should enable good performance to be quickly rewarded. This approach (documented in the assessments o f the tertiary education projects in Indonesia) w i l l be adopted by this project. To the extent permitted by Bank guidelines, procurement w i l l be managed directly by each participating university rather than consolidating al l requests into large bidding packages. This enables more efficient universities to obtain their benefits more quickly and enhances ownership and accountability. Universities are generally stronger, better endowed and more capable than other public institutions. They possess an organized and influential constituency o f staff, students and alumni who can act as powerful interest groups. Borrower ownership, sustained commitment and participation o f major stakeholders are crucial to successful implementation. This i s a main lesson o f the Bank’s previous tertiary education projects in Congo and Ghana. Consequently, consultation has been a major activity throughout project preparation and will continue during implementation. Ambitious reform programs in tertiary education should be implemented in carefully phased stages and project design should be as simple as possible. This greatly improves the chances o f successful implementation and achievement o f immediate project objectives which, in turn, may influence the attainment o f long-term development objectives. These lessons are generated by the Higher Education Reform Project in Hungary and the Teacher Education and Teacher Deployment Project in Sri Lanka. In l ine with these lessons, the project’s main focus w i l l be on relevance and quality o f undergraduate programs and a funding mechanism to maximize the potential impact rather than to address the complete range o f sector issues. Managed expansion o f tertiary enrollments i s key for maintaining educational quality. This message i s transmitted by the Tertiary Education Project in Ghana. Consequently, this project addresses relevance and quality related issues and provides support to the Government to elaborate an expansion strategy without compromising quality.

4, Indications of borrower commitment and ownership:

The Government i s finalizing studies to support the implementation o f i t s reform program though a Japanese Population and Human Resource Development (PHRD) Grant, and i s also implementing a public awareness program supported by a Project Preparation Facility (PPF) to inform stakeholders and the public on the need and goals o f the reform.

The Government, through the UGC, has made considerable progress towards establishing the basis for a quality assurance system covering public institutions. A “Quality Assurance Handbook for Sri Lankan Universities” has been published and 200 subject and 30 institutional reviewers have been trained. The Government wishes to continue this work and complete self-assessments and audits o f all public universities and institutes by 2005.

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5. Value added o f Bank support in this project:

The value added in the Bank's involvement in this project includes: (i) global experience with tertiary education reforms in other developing countries; (ii) continuity and complementarity in dialogue and assistance in a key sector (two ongoing Credits supporting teacher education and general education); and (iii) the Bank's combination of awareness o f sector issues in the overall economic and social context o f the country. The Bank's value added wil l be to redirect Sri Lanka's tertiary education system towards more effective support for economic and social development.

1. Labor earnings

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4): 0 Cost benefit NPV=US$71.9 mil l ion; ERR = NA % (see Annex 4) I-/ Cost effectiveness 1-1 Other (specify)

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~~

Decreases in Job Search Duration: Alternative Scenarios Job search Job search Job search Job search duration

reduced by 3 by 6 months by 9 months by 12 months months 90,165 90,42 1 90,788 91,154

duration reduced duration reduced duration reduced

Quantified Benefits

Improved Labor Market Performance through Reduced Job Search Durations and Increased Earnings

The production o f superior quality university graduates through improvements to the quality and relevance o f degree programs in public universities i s expected to reduce j o b search durations and unemployment rates among graduates, and increase labor productivity and earnings. The expected benefits o f this investment, calculated under several alternative scenarios related to decreased j o b search periods and increased average earnings o f graduates, are presented in the table below.

Increases in increased by 7% 1

Economic Benefits o f the Quality Enhancement Fund (present values in US$ '000s)

Alternative Scenarios

- increased by 6% 3. Labor earnings 64,404 64,741 65,083 65,418

4. Labor earnings I 5 1,523 5 1,795 52,067 52,339 increased by 4% 5. Labor earnings increased bv 3%

38,642 38,844 39,052 39,257

Note: The present values o f US$ denominated benefit streams were computed at a 5% discount rate applied over the life-cycle earnings o f graduates of public universities. The 5% discount rate was chosen based on the long-term trend US$ borrowing cost to the Sri Lankan govemment on intemational capital markets. The assumptions were also made that: (a) all public universities offering internal degree programs will participate, and (b) the project impact wi l l be gradual, with the coverage of public university undergraduates through the quality enhancement fund rising from 10% in 2004 to 50% by 2008,

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The information in the table above shows that the project has the potential to yield substantial economic benefits through improved graduate labor market performance. At the high end o f the scale, assuming that labor earnings increase by 7% and job search durations decrease by 12 months, the present value of benefits w i l l amount to over US$ 91 million. At the low end o f the scale, assuming that earnings rise by 3% and job search durations fall by three months, the present value o f benefits w i l l s t i l l be over US$ 38 million. Middle case scenarios, where earnings increase by 4%-6% and job search durations decline 6-9 months, yield benefits in the range o f US$ 52 mill ion to US$ 78 mi l l ion in present value terms. If the scenario where labor earnings increase by 6% and job search decreases by 6 months i s taken as an average case, the present value o f benefits w i l l be over US$77 million.

Scenario 1 in table above Scenario 2 in table above Scenario 3 in table above

J i nearly all scenarios in the table above, benefits o f improved labor market performance alone exceed the total project cost. In the scenarios where earnings increase by 6-7% the present value o f benefits range between 125%-180% o f the cost. In the average case, where earnings increase by 6% and job search declines by 6 months, the benefit i s over 150% o f the total project cost.

Cost savings per Case 1: Present value Case 2: Present value Case 3: Present value annum of cost savings, o f cost savings, of cost savings, (‘000s) assuming benefits assuming benefits assuming benefits

commence in 2007 commence in 2008 commence in 2009 815 12,266 11,595 10,957

1,090 18,487 15,509 14,654

2,490 42,192 35,428 33,477

Cost Savings through Demand Switching from Foreign Universities to Private Degree Awarding Institutions and Universities in Sri Lanka

The improved quality o f degrees in Sri Lankan universities and degree awarding institutions can be expected to attract a number o f students to enroll in them, rather than study in universities overseas, as Sri Lankan institutions operate at considerably lower costs. Such demand switching from overseas universities to universities and degree awarding institutions in S r i Lanka w i l l generate cost savings in foreign exchange to the economy.

The present value o f cost savings generated through these three demand switching scenarios are shown in the Table below, under alternative assumptions. In the f i rs t case, the assumption i s made that the quality improvement o f Sri Lankan higher education institutions over the f i rs t three years will be sufficient to attract potential candidates o f foreign universities to attend universities and degree awarding institutions in Sri Lanka from 2007 onwards. The second and third cases assume that the demand shift occurs in the fifth year o f the project and the year after the project closes, respectively. The streams o f potential cost savings are discounted over the project repayment period o f 40 years, assuming a discount rate o f 5%, as a good approximation to the long te rm US$ interest rate in the S r i Lankan economy.

Present Value of Potential Cost Savings Through Demand Shifts from Foreign Universities to Universities and Higher Education Institutions in Sri Lanka: Alternative Scenarios (present values

in US$ ‘000s)

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The information in the table above shows that foreign exchange cost savings from the project, under the different scenarios, could range between US$ l 1 mi l l ion and U S $ 42 million. The present value o f cost savings in the lowest case scenario, US$I 1 million, w i l l be approximately 34% o f the present value o f the project IDA cost o f about US$32 million, and about 28% o f the present value o f the total project cost o f US$ 51 million. In the highest case scenario, the present value o f cost savings, U S $ 4 2 million, i s greater than the share o f IDA financing and about 82% o f the present value o f the total project cost. In a middle case scenario, such as the US$15.5 mill ion costs saved under scenario two, case two, these savings amount to around 48% o f the project’s IDA cost and 30% of the total project cost measured in present value terms.

The overall quantities o f students in the above scenarios have been kept constant over time. In practice, as the economy grows and per capita incomes rise, the demand for overseas universities i s likely to increase. I f the higher quality o f Sri Lankan public universities and private degree awarding institutions, due to project investments, cause demand to shift in their favor at a faster rate than the rate at which the demand for foreign universities increases, the magnitude o f cost savings can well be higher than the estimates in the table above.

Non-Quantified Benefits

The project has the potential to yield a series o f further benefits.

Externality beneflts through enhanced research capacity and postgraduate teaching. Project investments to improve the quality and relevance o f degree programs w i l l include human resource development o f academic staff, and expansion o f the stock o f ICT facilities and equipment, laboratories and library material. While the direct objective o f these investments i s to increase the quality and relevance o f undergraduate degree programs, the enhanced capabilities o f academic staff and the higher stock o f academic resources can also produce extemality benefits through expanded research and increased postgraduate programs and courses. Since postgraduate programs are fee levying, this w i l l also generate a source o f extra revenue for universities. In principle, some o f these extemality benefits, such as the expansion o f research activity and the generation o f additional revenue through postgraduate teaching, are quantifiable and instruments can be set in place during project implementation to measure them.

Strengthening university-industry linkages and generating revenues through consultancy activity and short courses. Improving the capabilities o f universities in areas such as administration and management w i l l also enable these institutions to better exploit revenue generating opportunities such as consultancy activity and the forging o f university-industry linkages. Such measures can also increase the earnings o f academic staff, improve staff morale and motivation, and reducing the brain drain. Again, in principle, some o f these benefits, such as the increase in staff incomes and the decrease in the number o f highly qualified staff leaving the university system, are quantifiable and can be measured during project implementation.

The provision of a rational basis for expanding undergraduate enrolment over time. In the past, the expansion o f undergraduate enrolment has been largely politically driven. Only modest attempts have been made to expand university in-take to match labor market needs or plan the financial requirements o f enrolment expansion over the entire undergraduate education cycle o f students. The strengthening o f planning capacity w i l l improve the capability o f policy makers to plan enrolment expansion over time, taking into account private sector capacity and labor market needs, and also assess budgetary requirements and act to ensure that adequate finances are available to increase intake without reducing quality.

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Promoting social cohesion. Sri Lanka has experienced a 20 year c iv i l conflict which has cost more than 60,000 lives and caused massive economic and social hardship on the country. The project, through support for social cohesion promoting activities, w i l l contribute to the formation o f a peaceful, unified nation. The university system can play an important role in the developing a multi-ethnic and multi-religious nation where multi-culturalism i s valued.

Reducing unemployment among currently unemployed graduates. S r i Lanka i s estimated to have about 20,000 unemployed and under-employed graduates at present. High graduate unemployment has generated severe social costs to the country, including two youth-led insurrections. The project has the potential to decrease unemployment and under-employment among graduates through training in I T and English, and other sk i l ls in demand in the labor market. This can reduce the social costs o f graduate unemployment.

2. Financial (see Annex 4 and Annex 5): NPV=US$ 71.9 million; FRR = % (see Annex 4)

Fiscal Impact:

The project w i l l add approximately USS51 mill ion to the University education budget over the period 2003-2009. The project resources are assumed to flow gradually into the system, commencing in 2004, peaking in 2004-2005 when project investments are most intense and then tapering down slowly over 2006-2009. The project w i l l add about 7% to public university spending in 2004-2005 and 6% in 2006. The impact on the university education budget in 2007-2008 w i l l be between 2-5%, and in the final year o f the project about 1%. The project i s also expected to increase income tax revenue to government, through higher labor market earnings o f graduates, o f about U S $ l 1.6 mill ion in present value terms. There may also be subsidy elements, to sustain activities o f the quality enhancement fund and the young professionals training fund for five years beyond the project l i fe, o f about US$10.2 million. The net revenue impact, increased tax earnings less subsidy costs o f the quality enhancement fund and the young professionals training fund, i s estimated at about US$1.4 mill ion in present value terms.

3. Technical: In view o f Sri Lanka's impressive achievement in primary and secondary education, it i s technically appropriate to support tertiary education, which, by international standards, i s underdeveloped.

Project design has been technically informed by best practice in other Bank projects, as noted in Section D3. This includes well-defined, transparent, eligibility criteria and strategically relevant development objectives for the QEF and the Tharuna Aruna I1 Program to enhance the employability prospects o f unemployed graduates.

To ensure that appropriate and sustainable technologies w i l l be used, compliance with Open System Industry standards will be a requirement for al l proposed technologies and technical solutions. The appropriate high bandwidth Internet access technologies w i l l be selected on an as needed basis.

4. Institutional:

4.1 Executing agencies:

MTE&T, through the Planning and Development Unit and in collaboration wi th the University Grants Commission, w i l l serve as the main executing agency for the project. The Secretary, MTE&T, w i l l be the primary officer accountable for Component 1 and sub-component 2.1 reporting directly to the Minister. The selected study programs in public universities and eligible private institutions will play a major roles

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in executing, monitoring and evaluating the project through the Local Technical Secetariat, to be set up in each university receiving block grants. The PPDU will coordinate wi th the UGC activities in relation to Policy Planning and Quality Assurance. The Government has agreed to strengthen UGC by two senior academics to be seconded from the higher education sector.

The responsible implementation agency for Component 2.2, the Tharuna Aruna I1 Program, w i l l be the Ministry o f Labor and Employment. The Ministry o f Labor and Employment will appoint the Tharuna Aruna I1 Board (The Board) to overview the implementation o f the program, wi th terms o f reference agreed with IDA.

4.2 Project management:

For Component 1 and sub-component 2.1, the MTE&T, through the Policy Planning and Development Unit (PPDU) and the Quality Enhancement Team in collaboration wi th UGC, wi l l serve as the main agencies for project implemetation. The PPDU and the QET are to become permanent un i t s to support the long-term reform in tertiary education. The Secretary, MTE&T, w i l l be accountable for the project and report directly to the Minister and IDA. The MTE&T w i l l carry out the reform program through the Policy Planning and Development Unit and the Quality Enhancement Team o f the MTE&T in collaboration wi th the University Grants Commission.

To carry out the peer review and selection o f proposals supported by the QEF, the project w i l l support the establishment o f expert peer review panels. Each panel w i l l be comprised o f two national and two international senior academics with recognition in their discipline, and international experience (including developing countries) in tertiary education reforms.

The selected study programs in public universities and eligible private institutions w i l l play a major role in executing, monitoring and evaluating the project through the Local Technical Secretariat, to be set up in each university receiving block grants.

The Monitoring Board w i l l overview the reform progress on a monthly basis. The monitoring Board w i l l consist o f the Honorable Minister o f the MTE&T, the Advisor to the Minister, the Secretary, the Chairman and Vice-chairman o f UGC, a director o f a private Tertiary Education Institution, the Project Coordinator, the Deputy Coordinator PPDU and the Coordinator Director, QET.

The Ministry o f Employment and Labor w i l l set up a Steering Committee to overview the organization and implementation monitoring o f the Tharuna Aruna I1 Program. To implement and manage Component 2.2, the Tharuna Aruna Institute w i l l have a central office in Colombo and w i l l establish a regional office in each o f Sri Lanka's nine Provinces, financed by the Government.

4.3 Procurement issues:

The MTE&T has not implemented procurement for any Bank-financed project, but i s currently executing a number o f projects in collaboration wi th several international development agencies. The proposed project wi l l be implemented through the MTE&T and UGC in 12 public universities and selected private institutions. The Government prepared guidelines on "Government Tender Procedure" in 1996 (revised August 1997) under Chapter 13 o f the Financial Regulations. For the f irst time the guidelines and ru les provide the framework for all public procurement, including the UGC and the network o f universities. The guidelines also include a separate chapter (revised December 2000 and issued as a separate booklet) for projects assisted by international development agencies to ensure transparency in procurement. Though some officials are somewhat conversant with the systems and procedures to be followed for procurement under Bank-financed projects at the central level, the officials implementing the project may

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not necessarily be those who have been associated with any Bank- or donor-financed projects in the past. So far, the university officials have no experience and i t i s therefore necessary to build capacity at the UGC and the universit ies. It was agreed with the Ministry o f Finance and the MTE&T that the universities w i l l obtain the services o f an external agency to assist in procurement functions including preparation o f bidding documents and bid evaluation reports, notification o f contract awards, and monitoring o f the procurement process.

The project w i l l also finance several regional procurement seminars to train staff from participating universities. In addition, a procurement agent w i l l train MTE&T and UGC staff, and staff from public and private institutions for two years, b y which time sufficient capacity w i l l be created within these institutions to phase out the services o f the external agency. The procurement agent w i l l conduct a series o f workshops to develop the procurement capacity at the central level and stakeholders, and follow-up on issues with individual institutions. The components o f the proposed program and their procurement arrangements are summarized in Table A, Annex 6, and procurement methods and prior review thresholds are presented in Table B, Annex 6.

The Government has agreed to delegate financial authority up to a maximum o f LKRlO mil l ion to the Deans o f faculties to handle procurement related matters, which does not conflict with the current level o f authority delegated (LKR25 million) to the Project Tender Boards.

4.4 Financial management issues:

The project w i l l have a satisfactory financial management system, subject to the actions in the Action Plan below being completed. Project financial management and disbursement arrangements are streamlined, to the extent possible, to use the existing system o f the government and the universities.

A critical issue to resolve was the need for building financial management capacity at the level of universities to enable them to manage the grants released to them under the project. Possibilities considered ranged from augmenting the existing resources in the universities, to hiring a consultancy firm to provide these services to al l the universities. Given that project activities should not be delayed for lack o f financial management capacity, but at the same time, efforts should be made to ensure that benefits o f the project are sustained beyond the project period, the most suitable option was considered to be the engagement o f an accounting firm with a provision for training and capacity building o f university staff.

The project w i l l be implemented by two key agencies, namely, the Policy Planning and Development Unit (PPDU) and the Tharuna h a I1 Insti tute (TAI). These two agencies w i l l maintain separate accounts for their respective components and disbursements w i l l also be tracked separately. The accounts maintained by the two key implementing w i l l not be consolidated.

The project will use the transaction based disbursement from i t s inception. However, Financial Monitoring Reports (FMRs) w i l l be produced on a quarterly basis and submitted to IDA by the PPDU and the TAI, for their respective components. Two special accounts will be opened at the Central Bank o f Sri Lanka and operated according to terms and conditions acceptable to the IDA.

The project w i l l operate within the public sector's internal control framework and adopt a cash basis o f accounting as allowed for in the public sector accounting system. The annual external audit o f project accounts, for all, components except Tharuna Aruna, will be carried by the Auditor General, which i s the supreme audit institution o f Sri Lanka. Project accounts o f the Tharuna Aruna I1 Program w i l l be audited by an independent private auditor appointed by the Board, also acceptable to IDA.

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5. Environmental: 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis

A standard code o f practice for environmental management w i l l be included in the Project Manual, covering for example, procedures for detoxification and disposal o f laboratory waste, water supply and sewage disposal, and solid waste management for new or expaned facilities sponsored under the project. N o land w i l l be purchased under the project. The National Environmental Act (NEA) and i t s associated regulations, as well as building codes o f Sri Lankan authorities, stipulate waste dischargeldisposal standards w i l l be used as a guide in developing the codes o f practice for environmental management. Land acquisition for any new or expanded facilities w i l l be through private purchases, not use o f eminent domain, and therefore O D 4.30 w i l l not be triggered. The Environmental Management Code w i l l be included in each Individual Environmental Management Plan.

5.2 What are the main features o f the EMP and are they adequate?

Individual Environmental Management Plans (EMP) w i l l be prepared for each rehabilitated or expanded facility financed under the project. N o new facilities w i l l be built. The EMP will contain details on procedures for detoxification and disposal o f laboratory waste in keeping wi th the requirements o f the NEA, codes o f practice for water supply and disposal o f wastewater, sewage disposal in accordance with the building codes o f the respective S r i Lankan authorities, and solid waste collection and disposal in accordance with both the NEA and Sri Lankan authority legislation. Since none o f the activities proposed for financing under the project w i l l lead to any irreversible or significant adverse environmental impacts, it i s anticipated that the EMPs to be prepared for each sub-activity w i l l be adequate to ensure minimal adverse impact on the environment.

5.3 For Category A and B projects, timeline and status o f EA:

NIA 5.4 How have stakeholders been consulted at the stage o f (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms o f consultation that were used and which groups were consulted?

NIA

5.5 What mechanisms have been established to monitor and evaluate the impact o f the project on the environment? Do the indicators reflect the objectives and results o f the EMP?

NIA

6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes.

Tertiary education represents an important avenue for social mobility in Sri Lanka. The policy o f providing access to public universities according to a regional quota system facilitates access to universities for students from working class and lower income families. The UGC estimates that 50% o f tertiary education students come from underprivileged families. Current enrollment rates in public universities show that slightly more than hal f o f the students are female. The number o f female students are higher in subject areas such as law, arts, architecture, dentistry, veterinary science and commerce. As such, the tertiary education system can play an important role in promoting future gender equity and economic, social and political empowerment.

Environmental Category: C (Not Required)

Date o f receipt o f final draft:

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6.2 Participatory Approach: How are key stakeholders participating in the project?

Extensive efforts have been made during project preparation to involve university stakeholders and the public which wil l continue during project implementation. The MTE&T established a project preparation advisory committee who advised the Ministry on the details o f the project components. The advisory committee consisted of: (i) the Secretary, MTE&T; (ii) a Deputy Secretary, MoFP; (iii) the Chairman, UGC; (iv) a Senior Additional Secretary, MTE&T; (v) the Deputy Chairman, UGC; (vi) three Vice Chancelors and three Deans o f faculties; and (vii) two senior and respected representatives f rom the private sector, and two representatives from student organizations. This advisory committee conducted consultations wi th major stakeholders, including representatives from Non-Governmental Organizations (NGOs), the private sector and various student organizations. The committee was also supported by international and national technical assistance experts. The Government organized various national seminars on tertiary education reform involving academics and leaders o f chambers o f commerce, and the national newspapers published various interviews with the Minister and leading academics on the need to modernize the tertiary education system to enhance S r i Lanka's competitiveness. At present, the MTE&T i s elaborating a public awareness campaign and has requested support to continue this effort during the l i f e o f the project. The UGC website (http://www.ugc.ac.lk) provides an overview o f the university system, the aims o f the reform program, and the ongoing activities and initiatives carried out in collaboration wi th other development partners. This website w i l l be used to disseminate, to all stakeholders, information during the various stages o f the project and give an opportunity for the public to provide feedback via email.

6.3 H o w does the project involve consultations or collaboration with NGOs or other civil society organizations?

Periodic extensive consultations among universities, academics, researchers, students, key private sector organizations such as banks, chambers o f commerce, employers federations, c iv i l society, NGO's and international development organizations w i l l be held during the project through workshops and seminars.

6.4 What institutional arrangements have been provided to ensure the project achieves i t s social development outcomes?

Gender balance w i l l be observed for fellowships and scholarship programs supported b y this project.

6.5 How will the project monitor performance in terms o f social development outcomes?

Number o f female scholarship recipients who successfully complete scholarship programs.

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7. Safeguard Policies:

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

The National Environmental Act and i t s associated regulations, as well as building codes o f Sri Lankan authorities, stipulate waste dischargeldisposal standards will be used as a guide in developing the codes o f practice for environmental management. The Environmental Management Code w i l l be included in each Individual Environmental Management Plan (EMP). Individual EMPs w i l l be prepared for each rehabilitated facility financed under the project.

Land acquisition for any new or expanded facilities w i l l be through private purchases, not use o f eminent domain, and therefore OD 4.30 wil l not be triggered.

Since none o f the activities proposed for financing under the project w i l l lead to any irreversible or significant adverse environmental impacts, i t i s anticipated that the EMPs to be prepared for each sub-activity w i l l be adequate to ensure minimal adverse impact on the environment.

F. Sustainability and Risks 1. Sustainability:

Project sustainability: The project aims to trigger flexible responses in tertiary education programs by enhancing the relevance and quality o f these programs. In practice this w i l l involve, in each supported study program, different combinations o f curriculum changes, new pedagogical approaches, updated equipment, additional training o f the academic and admmistrative staff and linkages wi th the private sector. These changes are likely to be adopted by the most forward-looking and dynamic study programs and will set an example for other study programs once tangible results have been achieved. An important element o f the modernization process i s based on behavioral changes and w i l l not need important incremental financial investments. Project proposals w i l l entail cost recovery efforts by the study programs to produce additional resources needed to sustain improvements in teaching and learning after project completion.

The Tharuna Aruna I1 Program aims to reorient career aspirations o f unemployed graduates towards the private sector. This program w i l l contribute to a better utilization o f human capital and social stability in S r i Lanka. The overall goal o f the program i s to address the needs o f the large pool o f unemployed

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graduates who are in danger o f becoming a “lost generation” in the sense that they currently do not have sk i l ls which w i l l lead to employment either under the present economic conditions, nor in the medium term under forecasted economic growth.

Financial sustainability: To ensure institutional commitment for improvements hnded under this project, a university counterpart contribution w i l l be requested as part o f the QEF application process. The Tharuna Aruna I1 Program i s supporting the Government’s transition strategy to strengthen the private sector. The Government expects that at the end o f this project, the Tharuna Aruna I1 initiative could become a private sector initiative.

2. Critical R isks (reflecting the failure o f critical assumptions found in the fourth column o f Annex 1):

Risk :rom Outputs to Objective jovernment bodies are not able (or villing) to implement changes.

r’requent changes in the Government might interrupt project implementation.

Support for administrative and institutional changes may not continue with changes in governments.

Existing regulatory frameworks may inhibit institutions to respond quickly to new challenges and opportunities.

Institutions and study programs not supported by the project may oppose the reform.

From Components to Outputs Academic community resistant to accept performance-based incentive schemes and cost recovery.

Management structures are not supporting performance enhancement in

Risk Rating

S

H

H

S

S

Risk Mitigation Measure

[nstitutional capacity building within the LITE&T.

Public awareness campaign.

3ngoing dialogue with the MTE&T.

Constitution o f a national task force for reform 3n tertiary education and a sounding board o f national experts, assessing the change process md helping to remove obstacles.

Risk beyond the scope o f the project. However, successive Governments have consistently confirmed the need for reforms in tertiary education. Extensive discussions during project implementation should ensure support o f major political parties for reforms.

Discussions held with controlling bodies during implementation should ensure their support for the success o f the reform.

The public awareness campaign w i l l help create awareness o f the reforms. The selection o f study programs w i l l be organized in two batches, providing a second chance for study programs to be selected.

Study programs to be supported w i l l be required to develop proposals in close collaboration with beneficiaries.

The project wi l l support self-contained facilities based on the needs o f the participatior

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/tertiary education institutions.

Lack o f transparency in the reviews organized by the Board for Quality Assurance and the Quality Enhancement Team. Lack o f transparency in allocation o f the block grants to qualifying institutions.

M

M

H

H

Student unrest.

Tharuna Aruna I1 Program: Insufficient number o f acceptable private companies and training providers available to absorb the 10,000 unemployed graduates in a timely manner

study programs and institutions.

Clear procedures and criteria: IDA w i l l monitor the ru les and their application through regular detailed supervision.

Clear procedures and criteria: IDA w i l l monitor the rules and their application through regular detailed supervision.

Proposals selected for funding w i l l be made public on the MTE&T/UGC Web site.

Public awareness campaigns and student consultation. Some investments w i l l target student needs in an early stage o f the project. Professional and decentralized management o f the Tharuna I1 Network to identify all potential private companies and training providers. National awareness campaign for the Tharuna Aruna I1 Program. Coaching and guidance o f unemployed graduates to build up a positive reputation for the Tharuna Aruna I1 Program.

Overall Risk Rating

Risk Rating - H (High Risk), S (Substantial Ris

~~ ~~ ~.

Risk 1. Delays in establishing and operating the two funds as the MTE&T, the PPDU, the QET and universities lack experience in providing and accessing funds under a block grant system.

issues at the level o f universities in managing the block grants because o f lack o f sufficient number o f trained accounting staff.

consolidated project progress reports because the universities and the PPDU: (i) lack sufficiently trained accounting staff; (ii) rely on a manual system; and (iii) are not familiar wi th the integrated physical and financial reporting.

efficiently manage the program due to organizational and capacity constraints.

2. Financial management and disbursement

3. Delays in receiving quarterly

4. Inability o f the Tharuna Aruna II Institute to

Financial Risk Analysis

Rating M

H

H

H

S , M (Modest Risk), N(Negligib1e or Low Risk)

Risk Mitigation Measures Quality Enhancement Team w i l l be established to assist the PPDU and technical assistance support provided under the Droiect. Engagement o f an accounting firm to assist and train the university staff.

Same as above

Consultant accountant to be hired to assist the Tharuna Aruna I1 Institute.

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3. Possible Controversial Aspects:

Misunderstanding o f the Bank's role i s widespread, generating an almost constant confusion between creating a level playing field for private sector investment in tertiary education and privatization o f the public universities.

G. Main Credit Conditions 1. Effectiveness Condition

The Government w i l l have implemented a management structure for project oversight and implementation within the MTE&T (PPDU) as agreed during appraisal.

2. Other [classify according to covenant types used in the Legal Agreements.]

Disbursement Conditions

N o withdrawals shall be made in respect o f expenditures under part B2 (Component 2.2) for the Tharuna Aruna I1 Program, expenditure category 7 (vouchers, stipends, minor works, equipement, technical assistance, workshops and training), until an accountant has been hired by the Tharuna Aruna Institute and the computerized accounting system has been operationalized.

No withdrawals shall be made in respect respect o f expenditures under the Tharuna Aruna I1 Program category 7 until a code o f conduct, setting the roles and responsibilities o f the Ministry o f Employment, the Tharuna Aruna Board, the Tharuna Aruna Institute, the work experience providers, the training providers and the unemployed graduates has been developed and agreed wi th IDA.

Financial Covenants

1. MTE&T and Tharuna Aruna Institute will ensure that throughout the project period a satisfactory financial management system i s maintained.

2. Submit to the IDA audited annual financial statements o f the project, no later than September 30 o f the following fiscal year, for Part B 2 o f the project, and June 30 o f the following fiscal year for all other parts o f the project.

3. Produce FMRs and submit to the IDA no later than 45 days following the end o f the reporting quarter.

H. Readiness for Implementation 1. a) The engineering design documents for the f i rs t year's activities are complete and ready for the

start o f project implementation. 1. b) Not applicable.

0 2. The procurement documents for the first year's activities are complete and ready for the start o f

? 3. The Project Implementation Plan has been appraised and found to be realistic and o f satisfactory

c] 4. The following items are lacking and are discussed under loan conditions (Section G):

project implementation.

quality.

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I. Compliance with Bank Policies . - .

. 1. This project coinplies with al l applicable Bank policies. 2. The following exceptions to Bank policies are recommended for appro\d. The project coinplies

with a l l other applicable Bank policies.

S . IL, shyiva S + S ~ Michelle Riboud Sector Manager try ManagerlDirector Team Leader

Annex 1: Project Design Summary SRI LANKA: Improving Relevance and Quality of Undergraduate Education

Hierarchy of Objectives jector-related CAS Goal: To reorient and improve ertiary education making it nore supportive to Sri ,anka's social and :conomic development ieeds.

Jroject Development Ibjective: To support the 3ovemment's tertiary :ducation reform program )y enhancing institutional :apacities conducive to peater relevance and p a l i t y in undergraduate :ducation.

Key Performance Indicators

Sector Indicators: Adequate number o f well-qualified graduates meeting the demand o f the labor market.

Outcome I Impact Indicators: Higher employment rates among future graduates o f selected undergraduate programs.

improvement o f IT capabilities; improvement in English proficiency level.

Improvement o f GRE and GPA test scores.

Higher employment rates among re-trained unemployed and underemployed graduates.

Data Collection Strategy

'ectorl country reports: 'tatistical reports on mployment and wages.

~

'reject reports:

iational tracer studies; 'OEFL.

Jational IT test.

;RE and GPA reports.

3i-annual progress and ntemational review eports.

Critical Assumptions "om Goal to Bank Mission) lconomic growth ontributes to poverty eduction.

'olitical commitment to eform tertiary education In part o f the Government.

from Objective to Goal)

konomy needs well- rained graduates.

The Government i s able to wercome resistance to :hange by the academic : o m u n i t y and students.

lcademic community i s vi l l ing to participate in :apacity building.

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Hierarchy of Objectives Output from each Component: Building institutional capacity at the tertiary education level by:

(a) Strengthened national level capacity

(b) Strengthened quality assurance

(c) Strengthened management capacity at public and private TEI's

(d) Enhanced public awareness

Improving relevance and quality o f tertiary education by:

(a) Established QEF

(b) Established Tharuna Aruna I1 Program

Key Performance Indicators

Output Indicators:

Strategic planning i s improved at the MTE&T and UGC; a TEMIS and L M O are created and operational.

BQA constituted and operational.

Train university staff and faculty to participate in competitive bidding; improve student services; enhance social harmony; improve English language competency; improve IT courses.

Mass media campaigns are carried out and complemented by workshops and seminars for stakeholders.

QEF created and operational; two rounds o f grant awards are carried out.

rharuna Aruna I1 launched and operational.

Data Collection Strategy

Project reports:

Bi-annual progress reports.

Bi-annual progress reports.

Quality assurance reviews published on UGC website. Bi-annual progress reports.

Bi-annual progress reports and media impact assessments.

Bi-annual progress reports and UGC website publication o f proposals receiving grant awards.

Annual reports on employment performance o f graduates.

Annual results published on Tharuna Aruna I1 and UGC website.

Critical Assumptions from Outputs to Objective)

Project implementation igencies are capable and willing to change.

BQA peer reviews are Jased on transparent and inbiased criteria.

Adequate incentives are put in place to retain qualified staff.

Specialized social communications f i r m s are available to be contracted.

Proposal evaluation i s impartial and adequate.

MTE&T capacity to manage a competitive fund i s strengthened.

Private sector companies are willing to invest in human resources development.

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Hierarchy of Objectives Project Components I Su b-components: Building Institutional Capacity in the Tertiary Education System

Build national level capacity.

Strengthen quality assurance.

Strengthen management capacity at public and private universities.

Monitoring and Evaluation

Enhance public awareness.

Improving Relevance and Quality o f Tertiary Education

Establish QEF

Establish Tharuna Aruna I1 Institute

Key Performance Indicators

inputs: (budget for each component) US$14.7 million

US$5.6 mill ion Technical assistance, training, equipment and software, upgrading facilities and incremental operating costs.

US$1 .O mill ion Technical assistance, training, computers and software, office equipment, library books and incremental operating costs.

US$6.5 mi l l ion Technical assistance, training, equipment, software, upgrading facilities and incremental operating costs.

US$ 1 .O mil l ion Studies, training, workshops.

US$0.6 mi l l ion Mass media campaigns, training workshops and seminars,

US$36.3 million

US$25.2 mi l l ion Block grants awarded competitively to public and private universities for quality enhancement purposes.

US$ 1 1.1 mi l l ion Regional center operations,

Data Collection Strategy

'roject reports:

3i-annual progress reports.

3i-annual progress reports.

3i-annual progress reports.

%ogress results available )n UGC website.

3i-annual progress reports.

3i-annual progress reports.

h n u a l graduate tracer ; tudies .

rest scores (TOEFL, GRE, 3PA and others).

3i-annual progress reports.

Critical Assumptions :from Components to 3utputs)

MTE&T and UGC are reorganized to efficiently manage tertiary education reform.

Universities and faculty are willing to accept and collaborate in extemal quality assessments.

University managers and faculty become more accountable and adopt results-based management.

Enhanced information w i l l mobilize support for tertiary education reform among government officials, university staff, faculty and students, and the public.

Grant awards are made according to transparent and adequate criteria.

Universities capable o f carrying out effective gradate tracer studies.

Unemployed graduates are willing to be re-trained and

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Iatabase o f companies, raining providers and yaduates operational, yaduates engaged in work :xperience modules and raining modules

Innua l graduate tracer itudies covering trainees md non-trainees.

o prove themselves in xivate sector companies.

sufficient work experience )laces in the private sector ind trainer providers ivailable in Sri Lanka.

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Annex 2: Detailed Project Description SRI LANKA: Improving Relevance and Quality of Undergraduate Education

By Component:

Project Component 1 - US$14.70 million

Component 1 - Building Institutional Capacity in the Tertiary Education System (US$14.7 mill ion with contingencies)

The Government recognizes that priority must be given to strengthening the management o f tertiary education and increasing the relevance and quality o f undergraduate education to ensure that university graduates effectively contribute to economic development and social harmony. To attain this goal the institutional capacity o f the tertiary education system needs to be strengthened. This w i l l be achieved through:

Sub-Component 1.1 - Strengthening National Level Capacity Building (USS5.6 mill ion wi th contingencies)

This sub-component aims to build the institutional capacity o f the MTE&T and the UCG in the areas o f strategic planning, general management and monitoring and evaluation, through the provision o f technical assistance, training, workshops and seminars, computers and software, office equipment, vehicles, upgrading office facilities, and support for incremental operating expenses. The specific activities planned are:

(i) Capacity Building for Strategic Planning. This activity aims to build capacity o f the MTE&T and UGC to formulate policy and regulatory framework for tertiary education at the national level on the basis o f the Government’s sector development strategy. Funding w i l l be provided to develop capacity in the areas o f policy design, strategy formulation, information-based decision-making processes, data collection methods and analysis. In terms o f policy formulation, specific activities to be supported include design o f a strategy to expand access and equity in tertiary education, and design o f a funding strategy to promote innovation and improve performance among TEIs consisting o f

(a) Expansion Strategy to increase access to public and private universities, including improved access for physically disabled students. Technical assistance w i l l be provided to define a national expansion strategy to increase tertiary education coverage from the current low level o f enrollment to a higher level that w i l l be determined by the Government using the year 2020 as a target. This w i l l involve analyzing a range o f options and institutional configurations to achieve the expansion targets in a fiscally sound and sustainable manner, and taking into account labor market needs, including the needs for graduate retraining in key areas where technical change i s rapid. Among the options to be considered in the design o f this expansion strategy are the following:

e

e e

Increasing the capacity o f existing public universities through rationalization o f existing infrastructure, program mix andor construction o f new facilities; Introducing distance education delivery modes in existing institutions; Creating new public non-university TEIs such as technical institutes and community colleges;

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0

Creating virtual/online TEIs; and Expanding the existing Open University;

Promoting policies to expand existing private TEIs andor attract additional private investments.

(b) Funding Strategy. Technical assistance and training w i l l be provided to define and implement a national tertiary education funding policy reform. Specifically, technical assistance w i l l focus on carrying out a feasibility study for the design o f a funding formula for public universities based on enrollment, thus establishing an objective and transparent basis for resource allocation. Staff training w i l l be provided for the implementation o f the new funding formula, and technical assistance w i l l also be provided to help universities restructure their financial management practices during a transition period preceding the application o f the new funding formula.

(ii) Management Information System. Technical assistance w i l l be provided to design a Tertiary Education Management Information System (TEMIS), which w i l l be operational by the end o f the second year o f project implementation. Project funds will be used to procure the necessary computer equipment and software, design the system, and provide training for the staff. The TEMIS w i l l integrate all basic information on major aspects o f the operation and performance o f TEIs, including enrollment, graduates, study programs, faculty, equipment, infrastructure, student support activities, and cost and financing data.

(iii) Labor Market Observatory (LMO). Although graduate unemployment i s a problem, Sri Lanka has insufficient information to analyze the problem and make informed policy decisions in this area. There i s lack o f data on the characteristics o f unemployed graduates, supply and demand factors causing unemployment, study programs where graduate unemployment prevails, and sk i l l s needed in the labor market. To address this problem, the project wi l l support the design and implementation o f a LMO, in coordination wi th the relevant ministries. The L M O w i l l track graduates as they leave TEIs and enter the labor market. Staff w i l l be trained to use this information for policy-making purposes, and to disseminate the information publicly. Specific activities planned include:

0

Feasibility study to analyze the institutional and methodological aspects involved in establishing the L M O and to design the survey instruments; Technical assistance, training and purchase o f required equipment and software; and Annual graduate tracer surveys to determine their labor market performance and provide feedback to their respective faculties and universities. I t might be possible to carry out these surveys using staff from other organizations already experienced in labor market surveys and data analysis. The survey will also provide valuable data on the true extent of brain drain that Sri Lanka i s experiencing.

Sub-component 1.2 - Strengthening Quality Assurance ( U S 1 .O mil l ion with contingencies)

The Government has made considerable progress towards establishing a quality assurance system o f public universities and institutes, with support from the ongoing Second General Education Project. A “Quality Assurance Handbook for Sri Lankan Universities” has been recently published; 200 course and 30 institutional reviewers were trained; pilot institutional self-assessments were carried out; audits o f one public and one private institution were undertaken; and 18 course reviews were completed. The aim o f this sub-component i s to continue and expand this work, reaching the following targets:

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0 0

e

0 0

0

0

Complete self-assessments and audits o f public universities and institutes by 2005; Train 3 13 course-reviewers by 2006; Establish a Board for Quality Assurance at the University Grants Commission to develop national standards and oversee the assessment and training process by the end o f 2003; Train an additional 300 course reviewers and 45 institutional reviewers by 2007; Train reviewers to assess institutional and study program self-assessments; Establish procedures for quality monitoring and accreditation o f public and private tertiary education institutions; and Establish procedures to accredit national and international accreditation agencies.

The Board for Quality Assurance w i l l operate initially as part o f the University Grants Commission, but provisions w i l l be made for i t to become an independent body by the end o f the f i r s t project year. Once established, the B Q A w i l l assume responsibility for all training and assessment activities. The BQA wi l l have a Chair, three members representing tertiary education providers, three representing other key stakeholders, and a secretariat o f about 15 members. Before the B Q A can expand accreditation and quality assurance to foreign universities operating in S r i Lanka, it wi l l be necessary to negotiate with the Board o f Investment a strategy for making the necessary legal and regulatory changes to permit such oversight. Currently, the MTE&T and the UGC have no jurisdiction over foreign tertiary education institutions operating in S r i Lanka with a tax exemption from the Board o f Investment.

To support the activities planned for this sub-component, the project w i l l finance a feasibility study, and training and developmental work necessary to ref ine existing procedures and manuals. Consultant services, equipment (including computers, software and office equipment), and specialist quality assurance library books and journals will also be provided. Reliance on foreign specialists wi l l be considered to widen the pool o f potential peer reviewers.

Sub-component 1.3 - Strengthening Management Capacity at Public and Private TEIs (US$6.5 mi l l ion with contingencies)

This sub-component provides support to: (a) special programs to improve planning and management capacity at public institutions; build social cohesion, improve appropriate language sk i l ls and information technology sk i l ls among faculty and students; and (b) improve student services. Financing will be provided for technical assistance, rehabilitation o f physical facilities, and procurement o f equipment and software.Training w i l l be provided to public and private TEI's to prepare proposals to be submitted to the QEF.

(a) Special Programs:

(i) Improved Planning and Management Capacity of TEIs. The areas selected for improvement are: strategic planning, financial management, human resources management, academic management, management o f infrastructure and facilities, and equipment management.

(ii) Improved social harmony. The mission o f the tertiary education system i s not only to train graduates with appropriate professional competencies and skills, but also to instill the positive values that w i l l enable the graduates to function as responsible citizens. Considering the important disruptions brought about by twenty years o f c iv i l war, i t i s important to consolidate the ongoing peace process with a social harmony program that will be implemented in all the universities, including private institutions. To achieve this goal, the project will finance a work

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program to define a range o f relevant activities to promote positive values (including courses, pedagogical and extra-curricular activities, student exchange, special activities involving disabled students among others), and the implementation o f the planned activities in each institution.

(iii) Improved English language competency. The lack o f English language competency has been identified as a serious constraint for most graduates. The project w i l l support a national program to improve English language competency through grants awarded to any university committed to improve the average TOEFL score o f students in the final year before graduation. Language training for teaching staff w i l l also be provided. To receive the grant, the institution w i l l submit an Action Plan indicating, among other aspects, the actual average TOEFL score, the annual TOEFL-target for the next five years, the number o f students and teachers likely to benefit from the program, hours o f operation o f language lab facilities, and baseline information on the current English proficiency level using TOEFL tests.

(iv) Improved IT skills. A minimum level o f IT ski l ls i s presently lacking among tertiary education graduates and has become a necessity as Sri Lanka seeks to increase the productivity of i t s economy. The project will fund a national program to improve IT skil ls. Grants wi l l be available to universities upon production o f an action plan indicating, among other aspects, the number o f students and teachers likely to benefit from the IT training program, hours o f operation o f computer lab facilities, and baseline information on the current IT score o f students in the final year before graduation, using an agreed upon IT test and the target IT-test score for the next five years.

(b) Improve Student Services. Each university w i l l be eligible for a grant to provide better facilities for students, including basic services such as water and electricity, as well as remodeling o f complementary facilities such as cafeterias, and access to computers and the Internet. Grant awards w i l l be contingent upon the presentation o f a detailed action plan. N o new construction will be funded.

Sub-component 1.4 - Monitoring and Evaluation (US$1 .O mil l ion with contingencies)

This sub-component wi l l support monitoring, evaluation and research activities into the social and economic impact o f project investments. The studies w i l l cover important project outcomes in relation to graduates, such as labor market performance, IT capability, English language competence, subject content mastery, quantity o f enrolments in private degree awarding institutions, and employer satisfaction levels. In addition, monitoring and evaluation activities w i l l assess institutional strengthening measures, such as the establishment and operation o f the Accreditation Board, Education Management Information System, Fund and Graduate Employment Fund. Further, the potential externality benefits o f project investments, such as the effect on university research and postgraduate teaching, consultancy activities and industry linkages, will be measured through research activities. The monitoring and evaluation research w i l l cover both the national and institutional levels. These studies wi l l be contracted through research institutions and consulting f i rms .

Sub-component 1.5 - Enhancing Public Awareness (US$0.6 mi l l ion with contingencies)

As part o f the institutional strengthening o f MTE&T and UGC, a communication strategy will be defined and implemented to conduct a continuous public awareness campaign and organize stakeholder consultations to build consensus in support o f the various elements o f tertiary education reform. A

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critical element o f successful tertiary education reform i s that the c iv i l and academic community be informed o f proposed policy changes and their implications. Enhanced awareness o f the reform strategies w i l l broaden debate, promote stakeholder involvement and support consensus building. The introduction o f competitive grant schemes, contemplated by the project, requires wide dissemination o f grant award criteria to ensure that decisions are transparent, according to experience in countries where such schemes have been established. Project funds w i l l be used to contract a national media consulting firm to carry out the public awareness campaign. The campaign w i l l cover printed and electronic media as well as workshops to inform stakeholders and promote their participation in the reform process. This activity continues and builds upon the work done during project preparation. In addition, funding wil l be provided for start-up and initial operating costs (during the f i rs t three years o f project implementation) o f a national journal to stimulate debate in the academic society on the reform process and to disseminate information about achievements attained

Project Component 2 - US$36.30 million

Component 2 - Improving Relevance and Quality (US$36.3 mi l l ion with contingencies)

This component aims to improve the relevance and quality o f undergraduate tertiary education programs in public and private institutions through the establishment o f competitive block grants to support specific quality enhancement initiatives and improve the employability o f graduates. This w i l l be achieved through:

Sub-component 2.1 - Establishing a Quality Enhancement Fund (QEF) (US$25.2 mi l l ion with contingencies)

The project w i l l support the creation o f a Quality Enhancement Fund to improve the relevance and quality o f undergraduate study programs in the public and private sector. The QEF requires that all block grant recipients support initiatives which contribute to social and inter-cultural harmony as well as improved teaching and learning. Approximately 40 development block grants, not to exceed U S $ l .O mil l ion each, wi l l be provided. Grants w i l l cover investments over a period o f four or five years. Eligible expenditures to be funded by the grants include:

0 0 0 0

0

0 0 0 0 0

0

staff development; vehicles; equipment for laboratories and classrooms to improve teaching and learning; rehabilitation o f existing facilities (but no new construction); adjustments to facilitate access for disabled students; technical assistance; textbooks, scientific joumals, and library books; teaching grants to support innovations in teachingllearning; research grants to support supervisors o f students involved in research activities; incremental operational costs for social and inter-cultural harmony initiatives; and management costs.

General Grant Eliaibilitv Criteria: Competition w i l l be open to eligible undergraduate degree study programs, in both public and private tertiary education institutions. Grants w i l l be restricted to existing study programs (except in the case o f Open University which i s receiving development assistance from the ADB). Among existing programs, only those that have as minimum entry requirement passing grades in two national General Certificate o f Education Advanced Level tests w i l l be eligible. Institutions w i l l receive grants for a maximum o f three study programs through the project l i fe . The presentation o f a detailed plan for the application o f grant resources i s a general condition o f eligibility.

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Eligibility - Criteria for Private Institutions: Besides meeting the general eligibility criteria, the following additional eligibility criteria apply to private institutions: (a) evidence that investment to the grant amount w i l l be made in the corresponding study program by the institution; (b) evidence o f use o f at least 5% o f the grant for social and inter-cultural harmony initiatives; and (c) in the case o f private institutions, agreement to repay the principal o f the grant (interest free), after a five year grace period in five equal tranches over a five year te rm if the annual tuition fee per student (including fees for examinations and administration) i s greater than 100,000 SLR. Private institutions w i l l also be required to provide a legally registered guarantee equal to the grant amount. The Quality Enhancement Team w i l l manage the collection o f grant repayments and a revolving hnd made up o f such funds (to be established by the Government). The revolving fund w i l l be used to finance further quality enhancement investments in the private tertiary education sector.

Special Eligibility Criteria for Suecific Twes o f Institutions: To promote competition among institutions o f comparable institutional strength, the potential grant recipients w i l l be tiered in four categories: (a) established public universities; (b) regional public universities; (c) conflict-affected public universities; and (d) private institutions and professional associations. Table 2.1 describes the specific eligibility criteria for each institutional category.

Table 2.1: Special Eligibility Criteria for Specific Types o f Institutions Institutional Category

(a) Established Public Universities

(b) Regional Public Universities

(c) Conflict-Affected Public Universities

(d) Professional Associations and Private Academic Institutions

Eligibility Criteria Public university funded by the State. Student enrollment greater than 3000. Staff (academic and administrative) greater than 800. Percentage of academic staff employed at senior lecturer level, or above, greater than 40%. Graduate output greater than 700 (2001 base year). Annual recurrent budget greater than LKR 200 million. Public university funded by the State. Student enrollment less than 3000. Staff (academic and administrative) less than 800. Percentage of academic staff employed at senior lecturer level, or above, less than 40%. Graduate output less than 700 (2001 base year). Annual recurrent budget less than LKR 200 million. Public university funded by the State. Located in the North or East o f Sri Lanka. Affected by conflict. Nonprofit and for profit private institutions awarding a degree, or providing courses leading to a recognized degree; Willingness to provide a matching fund investment in the recipient study program equal or greater than the grant amount. Private institution raising annual tuition fees above 100,000 LRS, willing to repay the QEF grant into a revolving fund to provide a capital fund for on-going investment to the private tertiary education sector. Private study programs where the average waiting time for graduates to find suitablt employment i s less than one year for 80% or more o f the graduates, will be invited put forward development plans to increase the intake of students while maintaining the same rate of emulovment.

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Table 2.2 describes the main characteristics o f the grants according to the type o f recipient institution.

Table 2.2: QEF Grants by Category and Preliminary list o f Eligible Institutions

Category

(a) Established Public Universities

Maximum Category Grant Aggregate

Amount US$ millions US$ millions

1 .o 11.0

(b) Regional Public Universities (c) Conflict-affected Public Universities (d) Professional Associations and Private 4.0

Institutions with eligible study programs

University o f Colombo, University o f Moratuwa, University o f Kelaniya, University o f Sr i Jayewardenapura, University o f Peradenya, Universitv o f Ruhuna University o f Wayamba, Rajarata University, University o f Sabarangamuwa South Eastern University, Eastern University, University o f Jafha Informatics Institute o f Technology, Royal Institute, Institute o f Engineers, Sri Lanka Institute o f Chemistry, Sri Lanka Institute o f Architects, Sri Lankan Law College, Sri Lankan Institute o f Marketing, Sri Lanka Library Association, American College o f Higher Education Sri Lanka, London Business School, Aquinas College o f Higher Studies, Asia Pacific Institute o f Information Technology, American Business School, Australian College o f Business Technology, Institute o f Technological Studies, Singapore Informatics, Sri Lanka Institute for Information Technolow

Grant Selection Procedures. The Quality Enhancement Fund will use a competitive peer review process for the selection o f grant proposals. Awards w i l l be made in two rounds o f competition providing five-year development grants in the f i rs t round and four-year development grants in the second round. Each round o f competition will involve a three-stage peer review process:

(i) Ini t ia l Proposal, which must meet a minimum “cutting score” (agreed with IDA at appraisal and documented in the Project Implemtation Plan) for the applying institution to continue in the selection process. The In i t ia l Proposal comprises a self-evaluation and a strategic five-year plan linked to the results o f that self-evaluation. The self-evaluation i s intended as an analytical baseline to increase awareness o f quality improvement needs on the part o f the institution and provide a basis for planning. The self-evaluation covers key dimensions o f the study program, identifying perceived strengths and weaknesses, and articulating a preliminary plan to build on those strengths and address weaknesses;

(ii) Comprehensive Proposal, which must meet a minimum “cutting score” (agreed with IDA at appraisal and documented in the Project Implemtation Plan) to proceed. The proposal comprises a time-bound development plan o f the proposed investments and an explanation o f how these investments wi l l improve the teachingAearning experience o f students and improve labor market performance o f graduates including a procurement plan acceptable to IDA.

(iii)Site Evaluation, intended as final verification o f the quality and pertinence o f the proposal by the selection committee.

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The Quality Enhancement Team w i l l organize review teams to assess the proposals. For each stage of the selection process, review teams w i l l be composed o f two international and two national reviewers. To avoid conflict o f interests, reviewers w i l l not be involved in reviewing a proposal submitted by hislher home university, or a proposal in which heJshe helped prepare.

The selection mechanism, selection criteria and the composition and weights o f evaluation scores w i l l be clearly described in the “QEF Guidelines” to be published and included in the Project Manual. The “QEF-Guidelines“ w i l l also include eligibility and selection criteria, eligible expenditure guidelines, the description o f the evaluation process, and provide templates for self-evaluation, proposal presentation and procurement plan. The content and format o f the Project Manuals were agreed with IDA during Appraisal. These criteria w i l l be broadly disseminated and workshops w i l l be conducted to train and develop a common interpretation o f the criteria among the reviewers.

The Quality Enhancement Team w i l l ensure that within one month o f the evaluation o f Init ial and Comprehensive Proposals and Site Evaluations, both successful and unsuccessful applicants receive a written report summarizing the major strengths and weaknesses o f their proposal and provide a rationale for the peer review consolidated evaluation score.

To ensure transparency o f the selection process within the academic community, the consolidated peer review score for all applicants at each stage o f the review process w i l l be made available on the UGC Web site, and a Web si te to be developed and maintained by the Quality Enhancement Team. Information w i l l also be disseminated to c iv i l society w i l l through the publication o f the l i s t o f grant recipients and the US dollar value o f the grants in a daily national newspaper.

Implementation Phases. During the first hal f year o f project implementation, the Quality Enhancement Team will disseminate information about the Quality Enhancement Fund to the academic community and civ i l society, and w i l l provide training to reviewers and key stakeholders, through central and regional workshops, documentation available on the UGC and QET Web sites, and print and electronic media. On completion o f the awareness and training phase, and in the second half year o f project implementation, academic institutions w i l l be invited to participate and submit proposals. In each institution receiving a QEF, grant management will be the responsibility o f the Local Technical Secratariat, established prior to the f i rs t grant disbursement in each recipient study program, and maintained throughout the implementation o f the grant.

Grant Contract. Contracts will be signed for each grant between the Quality Enhancement Team as the f i rs t party and the Local Technical Secratariat as the second party. The contract w i l l provide, inter alia, for grant disbursement in six-month tranches, and for direct transfer o f grant funds to the LTSs Special Account. Disbursements w i l l be conditional upon: (i) evidence o f deposit by the recipient institution into the grant special account o f matching funds, equal to 5% for public universities and 100% for private universities o f each tranche; (ii) evidence o f achievement o f performance indicators as agreed with IDA during appraisal and specified in the block grant contract; (iii) evidence o f compliance with standard Government accounting norms; and (iv) the standard formats to report procurement and financial transactions, satisfactory to IDA, w i l l be a condition for disbursement o f the f i rs t grant tranche; thereafter, annual consolidated reports will be presented for IDA review not later than two months after the close o f each fiscal year during the implementation o f the grant; failure to present such reports will cause suspension o f grant disbursements.

Grant Supervision. The Quality Enhancement Team w i l l be directly responsible for monitoring grant implementation and for providing assistance to strengthen management and implementation capacity

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within QEF-recipient study programs. Grant supervision w i l l entail annual site evaluations to each grant recipient to review implementation progress and w i l l make available for IDA review within one month o f site evaluations, a summary report highlighting achievements and implementation obstacles observed. The Quality Enhancement Team w i l l take the lead role in monitoring implementation progress and w i l l ensure that agreed performance indicators which act as “triggers” for the disbursement o f bi-annual tranches o f the grant have been satisfactorily attained before a subsequent tranche i s released to the study program.

Technical Assistance from QET to LTSs w i l l consist o f training in the use o f reporting formats and procedures for procurement and financial management. The standard formats w i l l be designed by a national firm contracted by the QET. The QET w i l l also organize bi-annual workshops to grant recipients to review progress and provide an opportunity to share lessons learned.

Grantees Reporting Requirements. The LTSs w i l l be responsible for presenting to the QET quarterly implementation progress reports, and consolidated implementation and annual financial reports, satisfactory to IDA. Information requirements and reporting formats w i l l be agreed with IDA during appraisal.

Audits. An independent audit firm, acceptable to the Auditor General and IDA, w i l l be recruited to undertake annual audits o f the Quality Enhancement Fund. The audit reports wi l l be made available for IDA review not later than six months after the close o f each fiscal year throughout the implementation o f each grant.

Sub-component 2.2 - Improving the Employment Prospects o f Unemployed Graduates ( U S 1 1.1 mi l l ion with contingencies)

In 2003, the number o f unemployedlunderemployed graduates i s estimated to be 27,000. This presents the Government wi th both an economic problem, in terms o f a chronic underutilization o f human capital and a pressing social problem, in the sense that the pool o f unemployed graduates represents a signif icant potential for social unrest. The Government perceives potential radicalization o f unemployed graduates as a significant threat to the ongoing peace process. The Government has stressed that addressing the issue o f unemployed graduates i s amongst i t s highest and most urgent priorities.

Surveys conducted by the Sri Lankan Chambers o f Commerce Association and I L O indicate that the skil ls, knowledge and attitudes acquired during an undergraduate education in Sri Lankan universities do not match the needs o f prospective employers in the private sector. There are in particular five areas o f deficiency: (1) English language proficiency; (2) information technology skil ls; and (3 ) poor o f understanding o f career opportunities in business environments; (4) poor social and job acquirement skil ls; and (5) inability to work independently and unrealistic career expectations.

The Government attempted to address this problem through a Tharuna Aruna program that operated for five years from 1997 to June 2002 with very modest success. During this mission, the Government invited the IRQUE-appraisal team to participate in an intensive dialogue to revise the existing Tharuna Aruna program taking into account the lessons learned during five years o f operation. During this mission, Government has taken the lead to re-design the program, including the institutional and implementation arrangement and requested IDA to provide a share o f the funding for a more efficient and effective program.

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The proposed Tharuna Aruna I1 Program w i l l support a major revision o f the initial Tharuna Aruna program initiative drawing on lessons learnt, which include; (1) that the program should be exclusively private sector oriented; (2) that a blend o f training and work experience rather than just work experience i s required; (3) that the training module should be demand-driven rather than supply driven; (4) that the stipend amount should be increased to support a realistic level o f subsistence requirements to avoid massive drop-out; (5) that the private sector should bear an equal share o f the cost o f the graduate during the work experience module as a compensation for the work done by the graduate and to demonstrate a convincing level o f commitment; (6) that the program should be decentralized to provide better access for rural unemployed graduates; (7) that clearly articulated performance indictors should be introduced for work experience and training providers; (8) that training and work experience providers should be accredited; and (9) that an independent monitoring and evaluation regime should be introduced to ensure quality, efficiency and transparency.

The proposed program primary goal i s to re-orient unemployed graduates’ career aspirations towards the private sector and to equip them with the s l u l l s they need to become more employable in the private sector. The program proposes to do this both through intensive training courses and through the work experience module in private sector companies.

The Proposed Program (Tharuna Aruna I1 Program)

The proposed program w i l l support a work experience module and training for unemployed graduates to become more employable in the private sector. An unemployed graduate i s defined as “a graduate from a Sri Lankan tertiary education institution, under the age o f 35 years, wi th less than 1 hour paid occupation in the previous week Definition used by the Department o f Census and Statistics in Sri Lanka.” An unemployed graduate w i l l be considered to have found “full-time employment” when he or she has obtained a contract with a minimum duration o f one year in the private sector.

Unemployed graduates entering the Tharuna Aruna I1 Program w i l l be eligible for up to 12 months training under the scheme. This training w i l l comprise:

0 Up to 8 months of work experience, during which a graduate will be eligible for an allowancelstipend o f LKR 6,000 per month, where the Govemment, supported by IDA, will provide LKR 4,000 per month and the company accepting the graduate w i l l match this with a further LKR 2,000 per month. Up to 4 months of full-time intensive courses. The Government, supported by IDA, w i l l fund a combined living I travel allowance o f LKR 5,000 per month for up to 4 months o f attendance in a training program by an approved course provider. In addition the Govemment, through the proposed program w i l l provide each participating unemployed graduate wi th LKR 40,000 in vouchers, redeemable only wi th approved course providers. Should an unemployed graduate choose an approved training course where the course tuition fee was greater than LKR 10,000 per month helshe wil l be responsible for paying the amount in excess o f LKR 10,000. Should the course tuition fee be less than LKR 10,000 the course provider w i l l only be reimbursed for the actual monthly tuition fee, which w i l l be agreed when the training provider was registered and approved by the Board.

0

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0 Up to 8 months o f intensive evening and weekend courses combined with work experience modules. The Government, through the proposed program wil l provide each participating unemployed graduate with LKR 40,000 in vouchers, redeemable only with approved course providers. The vouchers could be used for courses o f a minimum period o f one month each. The course provider wi l l only be reimbursed for the actual monthly tuit ion fee which wi l l be agreed when the training provider was registered and approved by the Board.

An unemployed graduate wil l not be required to undertake the full twelve month program if an employment opportunity became available. Helshe may accept a j o b offer at any t ime during the work experience module or course period. This wil l end his or her participation in the program and allowanceslstipends wi l l cease.

Persons eligible to enter the program wil l be unemployed graduates, with less than 1 hour paid occupation in the last week, under the age o f 35 years, f rom universities in Sri Lanka and who seek employment in the private sector. A maximum o f 10,000 unemployed graduates wil l be supported during the project l i fe time. A data base o f a l l eligible undergraduates w i l l be prepared with the abi l i ty to disaggregate by region, f ie ld o f study, level o f English proficiency and level o f IT proficiency. Prospective work experience providers wi l l identi fy their preferences based o n these categories and wil l be provided with a complete l i s t o f a l l eligible unemployed graduates meeting their specific profile. The work experience provider wi l l then select by interview an intern f rom the short l ist generated f rom the database o f a l l eligible unemployed graduates matching their preferred profile.

Institutions eligible to provide work experience modules will be private organizations, private non-profit organizations, NGOs, international organizations and bilateral donor organizations, registered with the Tharuna Aruna Board and meeting the minimum requirements defined by the Board, and agreed with IDA. Organizations such as the Bank o f Ceylon and the People’s Bank are not eligible to provide work experience modules.

Institutions eligible to provide training courses wil l be both publ ic and private institutions offering courses in English language proficiency, IT proficiency and Job Search Skills, registered with the Tharuna Aruna Board and meeting the minimum requirements defined by the Board. Prior to f inal selection o f the training provider data base IDA will review and agree the selection criteria and selection process. Courses in other disciplines wil l be eligible if the usefulness o f these courses in relation to future employment prospective could be demonstrated. Requests for registration o f these courses could be submitted to the Tharuna Aruna I1 Board by graduates, companies and training providers. The Tharuna Aruna I1 Board wi l l in fo rm IDA about the new requests and decide in agreement with IDA on the registration o f the new courses.

Eligible expenditures for support under the program will be: stipends, vouchers, technical assistance, studies, publ ic awareness activities; organization and maintenance o f databases; monitoring and evaluation, equipment, workshops, and seminars. Not eligible for support wi l l be c iv i l works, overseas study tours, scholarships and stipends other than for unemployed graduates undertaking approved work experience modules or training. The Government wil l fund costs incurred in managing and administering the program.

Work Experience ModuZes. The program wil l provide a stipend o f LKR4,OOO per month for any unemployed graduate working in a work experience module in an eligible organization up to a maximum o f eight months. The company wil l complement this stipend with L K R 2 , O O O per month. Modules wil l be

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o f four months duration. A graduate w i l l normally undertake two four month work experience modules during the twelve month program with two different companies, however, by mutual agreement, a company and graduate may complete both modules, that is, up to eight months work experience with one company. The company w i l l provide the graduate with a remuneration o f LKR6,OOO per month, paid one month in advance, on the normal pay day used by the company for employees. The Government, through the program w i l l ensure that the company hosting the graduate w i l l receive the Government LKR3,OOO portion by the last day o f each calendar month during which a graduate was placed with the company.

Training Modules. Unemployed graduates in the program w i l l be offered up to four months o f intensive training. Lessons learnt from the initial Tharuna Aruna program suggest that the training should be “demand driven” rather than “supply driven”. To accomplish this it i s proposed that participating unemployed graduates are provided with vouchers to the value o f LKR40,OOO. These vouchers could only be redeemed in courses offered by training providers approved by the Tharuna Aruna Board against a set o f minimum criteria to be agreed with IDA. Unemployed graduates w i l l be offered a menu o f training options by a range o f providers configured broadly as three format choices; either full-time training courses o f (a) two by two month duration or (b) a one by three month and one by one month configuration or (c) part-time evening and weekend courses o f a minimum o f one month duration taken in conjunction wi th an approved work experience program.

For the full-time options, generally the f i rs t module w i l l provide an introductory course while the second module will start at a more advanced level. Each module w i l l contain sections to strengthen English proficiency, IT-skills and job acquirement sk i l ls and describe the level o f s k i l l s acquired after successful completion o f the module. Ideally, but not essentially, a four month work experience module w i l l be taken between training courses. During the training the graduate w i l l receive a stipend o f LKR5,OOO per month to cover costs o f living, transportation and accommodation, where necessary.

Monitoring and Evaluation of the Graduate’s Performance. At the end o f each work experience, the company will provide each graduate wi th a certificate describing the nature o f the work experience module, the sk i l ls acquired, the names o f referees and an overall evaluation o f performance. At the end o f the training course, the training provider will provide each participant with a certificate describing the nature o f the course, the sk i l ls acquired, the names o f referees and an overall evaluation o f performance during the course. The certificates w i l l be in a standard format approved by the Tharuna Aruna Board, and agreed with IDA. Unsatisfactory performance or an unsatisfactory behavior rating o f the graduate, in either a training module or a work experience module, w i l l lead to the exclusion o f this graduate from the Tharuna Aruana I1 program. The exclusion w i l l become effective from the date o f the endorsement o f the unsatisfactory rating by the regional coordinator.

Institutional Arrangements. The executing agency for this project w i l l be the Ministry o f Tertiary Education and Training. The responsible implementation agency for the program w i l l be the Ministry o f Employment and Labor. The Ministry o f Employment and Labor w i l l appoint the Tharuna Aruna I1 Board (the Board) to overview the implementation o f the program, with terms o f reference agreed with IDA, the Board will appoint a full time Chief Executive Officer (CEO) to overview day-to-day management. An organization w i l l be created to implement the Tharuna Aruna I1 Program under the guidance o f the Board and the l ine management o f the CEO. This organization - the Tharuna Aruna 11 Network, w i l l be established by revising and streamlining the Tharuna Aruna Insti tute. The CEO w i l l report to the Board every month. The responsibilities o f the Ministry o f Tertiary Education and Training (Executing Agency), the Ministry o f Employment and Labor (Implementation Agency), the Tharuna Aruna I1 Board, the private implementation organization, the companies, the course providers and the graduates w i l l be described in the code of conduct to be approved by the Secretary o f the Ministry o f

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Employment and Labor before the effectiveness o f the Credit. A Special Account w i l l be opened at an agreed Government Bank for the Tharuna Aruna I1 Program. The Tharuna Aruna Board w i l l be responsible for providing consolidated financial reports to the Ministry o f Employment and Labor every six months detailing expenditures incurred, supported by original receipts, on the basis o f which the appointed Minister o f Labor and Employment delegate wi l l prepare a replenishment request to the Special Account.

Implementation Arrangements. The Tharuna Aruna I1 Institute w i l l have a central office in Colombo and w i l l establish a regional office in each o f Sri Lanka’s nine Provinces, financed by the Government. Regional offices could be established in local branches o f Chambers o f Commerce, career guidance centers in universities or similar offices in other organizations on the principle o f reducing establishment costs by attaching to existing structures and to promote cross-fertilization o f ideas and enhance cooperation amongst stakeholders. The Regional offices w i l l be responsible for day-to-day monitoring of: (i) unemployed graduates registered with the program, (ii) companies providing work experience opportunities, and (iii) course providers. The Regional offices w i l l provide consolidated monthly reports o f implementation progress in their Province. Career counseling, establishment o f networks wi th companies and course providers to the benefit o f the graduates w i l l also be essential tasks o f the Regional offices. Consolidated quarterly reports from the Regional and National offices w i l l be considered by the Board in formulating new, or revising existing, policies and practices to enhance the success o f the program during i t s implementation. During regular supervision mission by an IDA team, these quarterly reports w i l l be available to the supervision team for review and comment. Any policy changes recommended by the Board w i l l require review and the no objection o f IDA prior to any such change being effected. In particular the terms o f agreement between IDA and the Government will include a covenant to the effect that a policy change which sought to create employment opportunities in the public sector for unemployed graduates involved in the program w i l l constitute non-compliance and may lead to cancellation o f IDA funding for the program. Communication between the Tharuna Aruna I1 offices w i l l be facilitated by on-line connections. It i s expected that the use o f IT wil l improve the effectiveness o f the implementation and may reduce operating cost during the l i fet ime o f the project.

Monitor ing and Evaluation.The Secretary o f the Ministry o f Employment and Labor, through the Board o f Tharuna Aruna I1 Institute w i l l monitor the implementation o f the program takmg into account the consolidated quarterly progress report produced by the National office. The National and Regional offices w i l l produce operational progress reports including action plans for the coming six months to the Tharuna Aruna 11 Board and to IDA. The action plan o f the National and Regional centers w i l l include visits to companies, course providers, career counseling activities, entry and exit interviews with graduates and problem solving strategies to improve the success o f the program. The National and Regional focal offices wi l l collect data on the performance o f graduates, companies and course providers to guide graduates and to inform the Board o f Tharuna Aruna I1 and IDA. Misuse o f stipends, or any funds made available during this program may exclude the graduate, the company or the course provider from the Tharuna Aruna I1 Program. Companies and course providers, participating in the Tharuna Aruna I1 Program w i l l record the attendance o f graduates on a daily basis. An independent company, reporting directly to the Secretary o f the Ministry o f Employment and Labor, wi l l be appointed and maintained through out the l i f e o f the program under terms o f reference acceptable to IDA. Reports from this monitoring and evaluation company w i l l be made available on a regular base for IDA review and comment, where possible reports w i l l be provided one month prior to scheduled supervision missions and the findings integrated into the terms o f reference for the supervision mission. During regular supervision mission by an IDA team the Regional and National offices will be visited and sample site visits w i l l be conducted to training providers and companies providing work experience modules to review implementation progress.

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Performance Indicators. The overall impact o f the proposed program w i l l be evaluated annually during the l i f e o f the project by comparing the success in finding employment in the private sector o f matched samples o f unemployed graduates who have, and have not, been through the work experience and intensive training courses. Comparator groups w i l l be matched for field o f study, university, region, gender and duration o f time unemployed. The performance target set for the program i s that the proportion o f program participants that find full-time employment in the private sector within six (6) months o f completing the program w i l l exceed the proportion o f a matched comparator group o f unemployed graduates having found employment in the private sector within the same time frame, by greater than 80%. A supplementary indicator w i l l be salary at entry o f the comparator groups. The target set for the program i s that the average starting salary o f graduates who have been through the work experience and training program w i l l be ten (10) percent higher than the matched sample who have not been through the program. The impact o f training w i l l also be monitored against pre- and post-, independently administered, standardized English proficiency and IT proficiency tests, (either TOEFL or IELTS and the British guild test o f IT proficiency. The performance targets set are that greater than 70% o f course participants w i l l have a better than ten (10) percent increase in post over baseline standardized tests o f English proficiency and IT proficiency. The design o f the Tharuna Aruna I1 Program could be reviewed at any point by the Tharuna Aruna II Board during the life time o f the project and modifications made to enhance the impact o f the program with the prior agreement o f IDA.

Scope and Indicative Costs. The maximum unit cost (to the Government) per participating unemployed graduate for a full twelve months w i l l be LKR84,OOO (US$890 equivalent). The full cost per participant w i l l be LKR108,OOO including an LKR24,OOO contribution by companies providing work experience modules. In calculating the possible scope o f the program the availability o f work experience modules and training places could be a constraint in the short term. Based on the experience o f the Tharuna Aruna program the most realistic scenario in the short te rm will be a projected ability o f the private sector to place 2,000 unemployed graduates per annum in worthwhile work experience modules and intensive training courses. The scope o f the program w i l l be reviewed annually and flexibility wi l l be preserved in the design to allow the Government to react to changing circumstances. Prior to the commencement o f each year o f operation, the Ministry o f Employment and Labor w i l l agree with IDA on an annual work plan for which an IDA no objection w i l l be required before the annual plan was put into operation for the coming year.

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Annex 3: Estimated Project Costs SRI LANKA: Improving Relevance and Quality of Undergraduate Education

1 Total Project Costs

Total Financing Required

Project Cost By Component 1.1 : Institutional Strengthening and Capacity Building: National Level Capacity Building 1.2 Institutional Strengthening and Capacity Building: Strengthening Quality Assurance 1.3: Institutional Strengthening and Capacity Building: Institutional Level Capacity Building 1.4: Institutional Strengthening and Capacity Building: Monitoring and Evaluation 1.5: Institutional Strengthening and Capacity Building: Public Awareness Campaign 2.1 : Improving Relevance and Quality: Establish Quality Enhancement Fund 2.2: Jinproving Relevance and Quality: Establish Tharuna Aruna I T Program Total Baseline Cost Physical Contingencies Price Contingencies

27.00 27.00

Local US $million

3 .OO

0.70

4.60

0.40

0.90

4.40

10.00

24.00 0.70 2.30

Foreign US $million

2.00

0.14

1.10

0.06

0.00

17.60

0.00

20.90 0.60 2.50

24.00 24.00

Total US $million

5 .OO

0.84

5.70

0.46

0.90

22.00

10.00

44.90 1.30 4.80

5 1 .OO 51.00

Services Sub-projects (Block Grants)

rJote: These estimates may b e revised. All f igures are rounded. I Identifiable taxes and duties are 0 (US$m) and the total project cost, net o f taxes, i s 51 (USSin) Therefore, the project cost sharing ratio is 79 02% o f

total project cost net o f taxes

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Annex 4: Cost Benefit Analysis Summary SRI LANKA: Improving Relevance and Quality of Undergraduate Education

The proposed project has two components: (i) building institutional capacity; and (ii) improving the quality and relevance o f degree programs and courses by allocating investment resources through a quality enhancement fund, and decreasing unemployment among current graduates by ski l ls training through an employment fund.

Building institutional capacity. This component i s intended to: (a) strengthen national planning, monitoring and evaluation capacity in the university system; (b) establish a Board o f Quality Assurance (BQA), which w i l l be responsible for policy development on quality criteria and the organization o f degree program assessments in public universities and private degree awarding institutions; (c) strengthen the management o f public universities and private degree awarding institutions in areas such as strategic planning, human resource management, building planning and maintenance, financial management, and academic management; and (d) enhancing public awareness on the rationale o f reforms under implementation and, over time, the extent to which objectives are attained.

Improving quality and relevance of undergraduate degree programs. The objective o f this component i s to support initiatives to improve the quality and relevance o f undergraduate degree programs in public universities and private degree awarding institutions through resource allocation according to a competitive funding formula, called the Quality Enhancement Fund (QEF). In addition, the project w i l l support investments to improve IT capabilities and English language competence among undergraduates. These investments in I T and English are intended to enhance the technological sk i l ls and learning potential o f students, and improve their future labor market prospects. Also, funds w i l l be available to support innovative approaches to promoting social cohesion through the undergraduate system. In addition, resources w i l l be provided through the Tharuna Aruna I1 Program to train currently unemployed graduates to match their ski l ls more closely to labor market opportunities.

The two components together aim to invest strategically in the university system by strengthening i t s institutional framework and enhancing the academic quality and economic relevance o f i t s core program, undergraduate degrees. A range o f potential economic and social benefits can be expected through this investment. These include: (i) improved labor market performance o f graduates through reduced job search durations and increased earnings; (ii) cost savings generated through substitution o f private degree awarding institutions and local universities for expensive foreign universities; (iii) externality benefits through enhanced research capacity and postgraduate teaching; (iv) strengthening university-industry linkages and raising university revenues through consultancy activity and short training courses; (v) providing a rational basis for enrolment expansion in public universities over time; and (vi) promoting social cohesion.

Quantified Benefits

Improved Labor Market Performance through Reduced Job Search Durations and Increased Earnings

The production o f superior quality university graduates through improvements to the quality and relevance o f degree programs in public universities i s expected to reduce job search durations and unemployment rates among graduates and increase labor productivity and earnings. The expected benefits o f this investment, calculated under several alternative scenarios related to decreased job search periods and increased average earnings o f graduates, are presented in Table 4.1 below.

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Table 4.1. Economic Benefits of the Quality Enhancement Fund (Present Values in U S $ ‘000s)

rote: The present values o f US$ denominated benefit streams were computed at a 5% discount rate applied over life-cycle earnings o f graduates o f public universities. The 5% discount rate was chosen based on the long-term trend US$ borrowing cost to the Sri Lankan Government on international capital markets. The assumptions were also made that: (a) all public universities offering internal degree programs will participate, and (b) the project impact will be gradual, with the coverage o f public university undergraduates through the quality enhancement fund rising from 10% in 2004 to 50% by 2008.

The information in Table 4.1 shows that the project has the potential to yield substantial economic benefits through improved graduate labor market performance. At the high end o f the scale, assuming that labor earnings increase by 7% and job search durations decrease by 12 months, the present value o f benefits wi l l amount to over US$91 million. At the low end o f the scale, assuming that earnings r ise by 3% and job search durations fall by three months, the present value o f benefits will s t i l l be over US$38 million. Middle case scenarios, where earnings increase by 4%-6% and job search durations decline 6-9 months, yield benefits in the range o f USS52 mi l l ion to USS78 mi l l ion in present value terms. If the scenario where labor earnings increase by 6% and job search decreases by 6 months i s taken as an average case, the present value o f benefits w i l l be over US$77 million.

In nearly all scenarios in Table 4.1 the benefits o f improved labor market performance alone exceed the total project cost. In the scenarios where earnings increase by 6 7 % the present value o f benefits range between 125%-180% o f the cost. In the average case, where earnings increase by 6% and job search declines by 6 months, the benefit i s over 150% o f the total project cost.

Cost Savings through Demand Switching from Foreign Universities to Private Degree Awarding Institutions and Universities in Sri Lanka

The improved quality o f degrees in universities and degree awarding institutions in Sri Lanka can attract a number o f students to enroll in them, rather than study in universities overseas, as Sri Lankan institutions operate at considerably lower costs. Such demand switching from overseas Universities to universities and degree awarding institutions in S r i Lanka w i l l generate cost savings in foreign exchange to the economy.

- 4 9 -

Number of Students

Unit Cost per Total Cost Student

Baseline Scenario

(US$) (US$ ‘000) Foreign universities 7,500 5,000 37,500

Domestic private degree 2,500 1,500 3,750 awarding institutions Domestic universities Total

60,600 1,000 60,600 70,600 101,850

Scenario One

Several demand switching scenarios are shown in Table 4.2. The opening scenario i s the baseline case, against which other scenarios are measured. In the baseline scenario, enrolment in foreign universities i s 7,500, enrolment in private degree awarding institutions 2,500 and enrolment in public universities 60,600 in Sr i Lanka. The total expenditure on university education, foreign, Sr i Lankan private and public, i s just under US$102 million. The first alternative scenario assumes that 2,000 students who wi l l otherwise have enrolled in universities abroad are attracted to local institutions instead, 1,000 to public universities and 1,000 private institutions, due to quality improvements resulting from project investments. The incremental increase in unit student costs o f Sr i Lankan institutions i s assumed at lo%, derived from the US$ 40 million estimated cost o f the proposed project. The switch in demand o f 2,000 students from foreign to Sr i Lankan institutions leads to a cost saving o f about US$815,000 per annum. The second alternative scenario assumes that 2,000 students enroll in Sri Lankan higher education institutions instead o f foreign universities, as in scenario one, but that 1,500 o f these students enter public universities and 500 students enter private institutions. In this case, cost savings amount to over U S S l

Foreign universities 5,500 5,000 27,500

degree awarding Domestic private 3,500 1,650 5,775

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Scenario T w o

institutions Domestic universities 61,100 1,100 67,760 Total 70,600 101,035 Foreign universities 5,500 5,000 27,500 Domestic private degree awarding

3,000 1 1,650 I 4,950 1

degree awarding institutions Domestic universities Tota l

6 1,600 1,100 1,100 70,600 99,360

mil l ion per annum. In the third scenario, the assumption i s that 2,500 potential students o f foreign universities enroll in Sri Lankan higher education institutions instead. Among these, 1,500 enroll in private institution and 1,000 in public universities. In scenario three, cost savings amount to nearly USb2.5 mi l l ion per year.

Case One. Present Value of

Cost Savings, Assuming Benefits Commence in 2007

(‘000’s)

The present value o f cost savings generated through these three demand switching scenarios are shown in Table 4.3 below, under alternative assumptions. In the f i rs t case, the assumption i s made that the quality improvement o f Sri Lankan higher education institutions over the f i rs t three years w i l l be sufficient to attract potential candidates o f foreign universities to attend Sri Lankan universities and degree awarding institutions from 2007 onwards. The second and third cases assume that the demand shift occurs in the fifth year o f the project and the year after the project closes, respectively. The streams o f potential cost savings are discounted over the project repayment period o f 40 years, assuming a discount rate o f 5%, as a good approximation to the long term US$ interest rate in the Sri Lankan economy.

Case Two. Present Value o f

Cost Savings, Assuming Benefits Commence in 2008

(‘000’s)

Table 4.3. Present Value of Potential Cost Savings Through Demand Shifts from Foreign Universities to Universities and Higher Education Institutions in Sri Lanka: Alternative Scenarios

18,487 Scenario 1 in Table 4.2 Scenario 2 in Table 4.2 15,509

cost savings

per annum

(‘000’s) 815

42,192 1,090 2,490 35,428

12.266 I 1 1.595

I Scenario 3 in Table 4.2 Note: The present value o f cost savings are computed over the 40 year project repayment period. The 5%.

Case Three. Present Value o f

Cost Savings, Assuming Benefits Commence in 2009

(‘000’s)

10.957 14.654 3 3,477

iscount rate assumed i s

The information in Table 4.3 shows that foreign exchange cost savings from the project, under the different scenarios, could range between US$ 1 1 mill ion and US$42 million. The present value o f cost savings in the lowest case scenario, US$11 million, w i l l be approximately 34% o f the present value o f the project IDA cost o f about US$32 million, and about 28% o f the present value o f the total project cost o f US$ 1 million. In the highest case scenario, the present value o f cost savings, US$42 million, i s greater than the share o f IDA financing and about 82% o f the present value o f the total project cost. In a middle case scenario, such as the USS15.5 mill ion costs saved under scenario two, case two, these savings amount to around 48% o f the project’s IDA cost and 30% o f the total project cost measured in present value terms.

The overall quantities o f students in the above scenarios have been kept constant over time. In practice, as the economy grows and per capita incomes rise, the demand for overseas universities i s l ikely to increase. If the higher quality o f domestic public universities and private degree awarding institutions, due to project investments, cause demand to shift in their favor at a faster rate than the rate at which the demand for foreign universities increases, the magnitude o f cost savings can well be higher than the estimates in Table 4.3.

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Non-Quantified Benefits

The project has the potential to yield a series o f further benefits.

Externality benefits through enhanced research capacity and postgraduate teaching. Project investments to improve the quality and relevance o f degree programs w i l l include human resource development o f academic staff, and expansion o f the stock o f ICT facilities and equipment, laboratories and library material. While the direct objective o f these investments are to increase the quality and relevance o f undergraduate degree programs, the enhanced capabilities o f academic staff and the higher stock of academic resources can also produce externality benefits through expanded research and increased postgraduate programs and courses. Since postgraduate programs are fee levying, this w i l l also generate a source o f extra revenue for universities. In principle, some o f these externality benefits, such as the expansion o f research activity and the generation o f additional revenue through postgraduate teaching, are quantifiable and instruments can be set in place during project implementation to measure them.

Strengthening university-industry linkages and generating revenues through consultancy activity and short courses. Improving the capabilities o f universities in areas such as administration and management w i l l also enable these institutions to better exploit revenue generating opportunities such as consultancy activity and the forging o f university-industry linkages. Such measures can also increase the earnings o f academic staff, improve staff morale and motivation, and reducing the brain drain. Again, in principle, some o f these benefits, such as the increase in staff incomes and the decrease in the number o f highly qualified staff leaving the university system, are quantifiable and can be measured during project implementation.

The provision of a rational basis for expanding undergraduate enrolment over time. In the past, the expansion o f undergraduate enrolment has been largely politically driven. Only modest attempts have been made to expand university in-take to match labor market needs or plan the financial requirements o f enrolment expansion over the entire undergraduate education cycle o f students. The strengthening o f planning capacity w i l l improve the capability o f policy makers to plan enrolment expansion over time, taking into account private sector capacity and labor market needs, and also assess budgetary requirements and act to ensure that adequate finances are available to increase intake without reducing quality.

Promoting social cohesion. S r i Lanka has experienced a 20 year secessionist conflict which has cost more than 60,000 l ives and caused massive economic and social hardship on the country. The project, through support for social cohesion promoting activities, w i l l contribute to the formation o f a peaceful, unified nation. The university system can play an important role in the developing a multi-ethnic and multi-religious nation where multi-culturalism i s valued.

Reducing unemployment among currently unemployed graduates. Sri Lanka i s estimated to have about 27,000 unemployed and under-employed graduates at present. High graduate unemployment has generated severe social costs to the country, including two youth-led insurrections. The project has the potential to decrease unemployment and under-employment among graduates through training in IT and English, and other sk i l ls in demand in the labor market. This can reduce the social costs o f graduate unemployment.

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Project Performance Monitoring, Impact and Evaluation

Indicators

The project’s quantitative and qualitative benefits outlined in the preceding analysis demonstrate i t s potential impact on economic and social welfare. I t i s important, during project implementation, to monitor and evaluate the actual realization o f these potential benefits. The range o f performance monitoring and impact evaluation envisaged in the project i s outlined in Table 4.4 below. This includes types o f indicators, measurement instruments, analytical techniques, responsible institutions and capacity requirements for implementation. Table 4.4 also shows that monitoring and evaluation w i l l be conducted at national and institutional levels.

Measurement Responsibility Information Needs and Instruments and Technical Capacity

Techniques Required

Higher income levels, lower job search durations and lower unemployment rates of graduates from degree programs supported through the quality enhancement func in relation to graduates from degree programs not supported through the quality enhancement fund. Higher real income levels, - lower job search durations and lower unemployment rates o f graduates from degree programs supported through the quality enhancement fund in relation to past graduates from the same degree programs prior to quality enhancing investments . Number and proportion o f degree programs in public universit ies participating in the Droiect. Number and proportion o f students and academic staff from public universities benefiting from the project. Number and proportion o f private degree awarding institutions participating in

Tracer studies o f graduates from the different types o f degree programs.

Tracer studies o f graduates from the same degree programs before and after project interventions.

MIS.

MIS.

MIS.

Ministry o f Tertiary Education and Training and UGC.

Ministry o f Tertiary Education and Training and UGC.

Ministry o f Tertiary Education and Training and UGC.

Ministry o f Tertiary Education and Training and UGC.

Ministry o f Tertiary Education and Training and UGC.

Capacity to conduct surveys and analyze information exists in the country. Project funds w i l l be available for technical assistance to contract private f i r m s to implement the studies.

Capacity to conduct surveys and analyze information exists in the country. Project funds will be available for technical assistance to contract private f i r m s to implement the studies.

Capacity exists in the UGC.

Capacity exists in the UGC .

Limited capacity exists in the UGC. Further capacity

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the Droiect, Number and proportion o f students and academic staff from private degree awarding institutions benefiting from the Droiect. Enrolment increase in private degree awarding institutions caused by the availability o f project funds and foreign exchange savings resulting from students substituting local degree awarding institutions for foreign universities. Coverage and volume o f information available to graduates through the Labor Market Observatory. Employment rates and job search durations o f graduates through the activities o f the Labor Market Observatory. Quantity and value o f foreign investment attracted through the higher quality o f human resources available.

Number and proportion o f degree programs in public and private institutions accredited through the Accreditation Board.

Establishment and utilization o f EMIS in policy formulation. GPA and GRE scores o f students graduating from degree programs supported through the quality enhancement fund in relation to students graduating from other programs.

MIS.

Monitoring and evaluation studies, MIS.

Monitoring and evaluation studies.

Tracer studies o f current unemployed and under-emplo yed graduates .

Establishment studies.

Ministry o f Tertiary Education and Technical Training and UGC administrative information svstem. Management studies.

MIS, GRE-Tests.

Ministry o f Tertiary Education and Training and UGC.

Ministry o f Tertiary Education and Training and UGC.

Ministry o f Tertiary Education and Training and UGC.

Ministry o f Tertiary Education and Training and UGC.

Ministry o f Tertiary Education and Training and UGC.

Ministry o f Tertiary Education and Training and UGC.

Ministry o f Tertiary Education and Training and UGC. Ministry o f Tertiary Education and Training and UGC.

milding i s needed. Limited capacity exists m the UGC. Further capacity milding i s needed.

Limited capacity exists in the UGC. Further capacity building i s needed.

Capacity building i s needed.

Capacity building i s needed.

Capacity to conduct surveys and analyze information exists in the country. Project funds w i l l be available for technical assistance to contract private f i r m s to imdement the studies. Capacity exists.

Capacity exists.

Capacity building i s needed.

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Svstem Wide and Individual Institutions

same institution. Job search durations and unemployment rates o f graduates from project supported degree programs and past graduates from the same degree programs prior to project support.

Feedback from employers, public and private, concerning the quality o f graduates from degree programs supported through the quality enhancement func in comparison to degrees from other degree programs and past graduates o f the same degree programs. Number, proportion and value o f research activities and postgraduate teaching stimulated through project investments.

Tracer studies.

Number, proportion and value o f consultancy services and university-industry linkages stimulated through project investments. IT capabilities o f university academics and graduates in relation to defined competency levels. Level o f English language capabilities o f university academics and graduates in relation to defined competency levels. Drop out from universities and degree programs.

Employer studies.

Ministry o f Tertiary Education and Technical Training, UGC and University administrative information systems. MIS, administrative and financial information systems.

Assessments o f IT competency levels.

Assessments o f English language competency levels.

Follow up studies o f drop-outs.

Level o f Individual Institutions Job search durations and unemployment rates o f graduates from project supported and unsupported degree programs within the

Tracer studies.

Ministry o f Tertiary Education and Training, UGC and Universities.

Ministry o f Tertiary Education and Training, UGC and Universities.

Ministry o f Tertiary Education and Training, UGC and Universities.

Ministry o f Tertiary Education and Training, UGC and Universities. Ministry o f Tertiary Education and Training, UGC and Universities.

Ministry o f Tertiary Education and Training, UGC and Universities.

Universities.

Universities.

Capacity to conduct surveys and analyze information exists in the country. Project funds w i l l be available for technical assistance to contract private f i r m s to implement the studies.

Capacity exists.

Limited capacity exists. Further capacity building i s required.

Limited capacity exists. Further capacity building i s required.

Limited capacity exists. Further capacity building i s required.

Capacity exists.

Capacity exists.

Capacity exists.

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GPA and GRE performances o f graduates f rom project supported and unsupported degree programs within the

~~

same institution. GPA and GRE performances o f graduates f rom project supported degree programs and past graduates from the same degree programs prior to project support. Feedback from academic staff concerning the responsiveness, transparency and processing speed o f university activities such as budget allocations among degree programs, procurement o f equipment and material, and facilitation o f human resource development activities. Feedback from students concerning the quality o f teaching. Proportion o f university revenues earned through industry linkages, consultancy services and Dostuaduate courses. Number and proportion o f degree programs accredited by the Accreditation Board.

University administrative information systems, GRE-test

University administrative information systems, GRE-test

Surveys o f academic staff.

Student assessments o f teaching quality.

University administrative and financial information systems.

Self assessments, Peer reviews

Universities.

Universities.

Universities.

Universities.

Universities.

Accreditation Board. Results o f all Accreditation reviews available on MTE&T and UGC websites.

Capacity exists.

Capacity exists.

Capacity exists.

Capacity exists.

Capacity exists.

Capacity exists.

In most cases identified above research capacity exists in the country to implement the monitoring and evaluation activities. However, in some cases, the further capacity building i s required. In these cases the project w i l l support capacity building through institutional strengthening activities at national and institutional level.

Fiscal Impact and Sustainability o f Project Investments

Public education expenditure in Sri Lanka has been about US$370-430 mi l l ion per year during 1996-2000, approximately 2.5-3% o f national income and about 9-1 1% o f total public spending. Public expenditure on university education has ranged between US$ 60-75 mi l l ion per year over the same period, approximately 15-19% o f public education expenditure. This i s comparatively low by international standards. For instance, Sri Lanka’s public expenditure on tertiary education represents per student spending o f about 64% o f GNP per capita. The average tertiary education spending in low and

- 56 -

middle income countries i s considerably higher, at about 91% o f GNP per capita. Many countries in South-East and South Asia, such as Malaysia (77%), India (78%), China (81%) and Nepal (156%) devote a higher share o f GNP per capita to tertiary education than Sri Lanka.

Baseline Scenario Alternative Scenario

University Education University Education Expenditure Without Expenditure With the

Year the Project Project

The project w i l l add approximately US$51 mill ion to the university education budget over the period 2003-2009. The impact o f this additional f low o f resources into the university education system from 2004 onwards i s shown in Table 4.5 below.

Budget Share o f the Project in Total

Public University Education

Expenditure

2004 2005 2006 2007 2008 2009

(US$ Million) (US$ Mil l ion) (%) 91 98 7

113 122 7 140 149 6 152 160 5 166 170 2 180 182 1

3nn4 (US$ Million) (US$ Mil l ion) (%)

91 98 7

Note: The baseline university education expenditures have been projected over 2004-2008 on the assumption that 16% o f public education spending will be allocated to universities. This has been the average university expenditure share out o f the overall public education budget during the period 1995-2000.

LUU I

2008 2009

The project resources are assumed to flow gradually into the system, commencing in 2004, peaking in 2004-2005 when project investments are most intense and then tapering down slowly over 2006-2009. The project w i l l add about 7% to public university spending in 2004-2005 and 6% in 2006. The impact on the university education budget in 2007-2008 wil l be between 2-5%, and in the final year o f the project about 1%.

I J L 1 uv J

166 170 2 180 182 1

Under the assumption that graduate earnings increase the project has the potential to generate extra public revenue through higher income tax income. A large proportion o f Sri Lankan graduates, about 90%, are employed in the public sector, where earnings are tax exempt. Also, private sector employees qualify for income tax only i f they earn over LKR20,OOO (about US$200) per month. The assumptions can be made that the higher labor market relevance o f graduates through project interventions w i l l increase the proportion o f graduates employed in the private sector from about 10% to 30% over time, and that 50% o f these graduates wi l l receive incomes above the tax threshold o f LKR20,OOO per month. Under these assumptions, in the average case where graduate earnings increase by 6% and job search duration i s reduced by 6 months, the present value o f higher tax revenues to the Government w i l l be about US$ 1 1.6 million.

The quality enhancement fund may need to be sustained by GOSL for a period o f 5 years beyond project completion, as a special fund, to establish the principle o f performance based financing firmly within the university system. The assumption i s made that GOSL w i l l sustain the QEF as a special fund from 2010 onwards at the same resource level as in the final project year 2009. In this case the present value o f the GOSL subsidy to the QEF will be approximately US$6.7 million.

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The Tharuna Aruna I1 Program, to retrain unemployed graduates, may also need to be sustained by the government for a period o f 5 years beyond project completion as a special fund to reduce graduate unemployment, especially among graduates o f degree programs that were not covered by the QEF. Again, the assumption i s made that the government w i l l sustain the Tharuna Aruna I1 Program as a special fund from 2010 onwards at the same resource level as in the final project year 2009. In such a case, the present value o f the government subsidy to the YPTF w i l l be approximately US$3.6 million.

The net revenue impact equals increased tax revenues less the subsidy for the QEF and Tharuna Aruna I1 Program. This amounts to about US$ 1.4 mill ion in present value terms. The fiscal sustainability o f project investments beyond the project l i f e cycle i s sound. The project accounts for only a small proportion o f public investment in university education. Further, in the final year o f the project, i t s share o f total public university expenditure w i l l be just 2%. With the S r i Lankan economy expected to grow at well over 6% per year in 2004-2005 and at 7% per year from 2006 onwards, and Government revenues expected to increase over the same period, matching this volume o f funds after the project ends w i l l be well within the fiscal capability o f the Government. (The IMF growth forecasts for Sri Lanka are 6.5% in 2004, 6.8% in 2005 and 7.0 in 2006. Government revenues are expected to increase from slightly over 17% in 2003 to over 19% by 2006). Also, the increase in tax revenue through improved labor market performance w i l l be more than sufficient to meet the subsidy cost o f the QEF and the Tharuna Aruna I1 Program.

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[For projects with benefits that are measured in monetary terms]

Benefits:

Higher earnings and reduced job search duration of graduates

Cost savings resulting from demand switching from foreign universities to domestic degree awarding institutions

Sustaining QEF activities for five years beyond the project life

Sustaining Tharuna Aruna II Program actvities for five years beyond the project life

Present Valuc Economic Analvsis

77,504

35,428

if Flows Financial Analysis'

costs: 41,055

Fiscal Impact

Taxes

1 1,626

I 10,260

Subsidies

6,660

3,600

1 1,626

I If the difference between the present value o f financial and economic flows i s large and cannot be explained by

taxes and subsidies, a brief explanation o f the difference i s warranted, e.g. "The value o f financial benefits i s less than that o f economic benefits because o f controls on electricity tariffs."

Summary of Benefits and Costs:

Main Assumptions: Described in this Annex.

Sensitivity analysis I Switching values of critical items: NIA

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Annex 5: Financial Summary SRI LANKA: Improving Relevance and Quality of Undergraduate Education

Years Ending

IMPLEMENTATION PERIOD ~

I Year1 I year2 I year3 I year4 I Year5 I Year6 I Year 7 Total Financing Required Project Costs Investment Costs 1.4 8.9 11.3 11.7 9.6 5.4 2.2

Recurrent Costs 0.1 0.1 0.1 0.1 0.1 0.1 0.0 Total Project Costs 1.5 9.0 11.4 11.8 9.7 5.5 2.2 Total Financing 1.5 9.0 11.4 11.8 9.7 5.5 2.2 I Financing

IBRDllDA 1.2 7.2 9.1 9.4 7.7 4.0 1.7 Government 0.3 1.8 2.3 2.4 2.0 1.5 0.5

Centra I 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Go-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 User FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 1.5 9.0 11.4 11.8 9.7 5.5 2.2

Main assumptions:

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Annex 6(A): Procurement Arrangements SRI LANKA: Improving Relevance and Quality of Undergraduate Education

Procurement

Procurement Implementation Capacity

The MTE&T has no t implemented procurement for any Bank financed project, but i s currently executing a number o f projects with several international funding agencies. The proposed project wi l l be implemented through MTE&T/UGC in the 12 eligible publ ic universities and the participating private TEI’s in the country. The Tharuna Aruna I1 program for unemployed graduates wil l be implemented through MTE&T in collaboration w i th the Ministry o f Labor and Employment. The Government prepared guidelines o n “Government Tender Procedure” in 1996 (revised in August 1997) under Chapter 13 o f the Financial Regulations. For the f i rs t time the guidelines and rules provide the framework for a l l publ ic procurement in the country, including U G C and the network o f universities, and also includes a separate chapter (XIII) for projects assisted by foreign funding agencies (this chapter has been revised in December 2000 and issued as separate booklet) hence ensuring transparency in procurement. Though some o f the officials are somewhat conversant with the systems and procedures to be fol lowed for procurement under Bank financed projects at the central level, the officials implementing this project may not be the same and the staff o f the universities doesn’t have extensive experience in this field. I t i s therefore necessary to build capacity centrally within the MTE&T at the P P D U and the U G C and regionally at the universities implementing the grants. I t was agreed that the universities wil l obtain the services o f an external agency to assist in procurement functions such as procurement planning, preparation o f the bidding documents, bid evaluation reports and contract awards, the Government has also agreed to delegate financial authority - up to a maximum o f LKR 10 m i l l i on - to the Deans o f Faculties to handle procurement related matters; this threshold i s below the current threshold (LKR25 mil l ion) delegated to the Project Tender Boards. The project wi l l finance several regional training programs in procurement fo r a l imi ted number o f staff selected f rom universities. In addition, an Individual Procurement consultant will assist the MTE&T/UGC and the universities staff unt i l a Procurement Agent has been selected. The procurement consultant wi l l assist the MTE&T w i th procurement in the early months o f the project until a Procurement Agent i s recruited. The selected Procurement Agent, wil l continue to carry out procurement o n behalf o f the MTE&T whi le capacity i s being developed. T o promote the development o f this capacity the Procurement Agent will have Government counterparts assigned for each procurement function and wil l provide a mentor role as part o f i t s terms o f reference. Further the Procurement Agent will conduct a series o f workshops to develop the procurement capacity at the central level and at the university level. Progressively, over the f irst two years o f project implementation, the Procurement Agent wil l hand more and more responsibility to i t s Government counterparts and, after two years mentoring and training, in house capacity in procurement i s expected to have been created.

The components o f the proposed project and their procurement methods are summarized in Table A. The procurement methods and pr ior review thresholds are presented in Table B.

Project and Procurement Arrangements

The project has two components -- Institutional Strengthening and Capacity Building (US$14.7 1 million); and Improving Relevance and Quality o f Undergraduate Education (US$36.29 mil l ion) -- and i s expected to be implemented over a six year period. Approximately 12 public and 6 private institutions wil l participate in project implementation. IDA review conditions in vigour fo r the various categories o f

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expenditure are presented in the paragraph ”Review by IDA o f procurement decisions” and summarized in Table B o f this Annex.

Component 1: Building Institutional Capacity in the Tertiary Education System (US$14.70 million with contingencies)

This component w i l l support strengthening the management o f tertiary education through building national and institutional capacities, strengthening quality assurance, monitoring and evaluation and continuing the public awareness campaign. At the national level the component w i l l develop a comprehensive qualtiy management framework which, during the l i fe o f the project, w i l l develop the regulatory and legislative framework for accreditation in both, public and private TEIs. Capacity w i l l be developed through international and national technical assistance, studies, comparative study tours, targeted short te rm training, a program for visiting scholars and investments in an integrated management information system. The project w i l l also fund on a declining basis incremental operating costs associated wi th quality monitoring and accreditation, and management information systems.

Capacity building in the 12 eligible public universities, w i l l be funded through 5 types o f institutional block grants. These block grants w i l l fund investments identified by public universities to improve (i) planning and management capacity; (ii) IT-skills; (iii) English competency; (iv) learning facilities; and (v) social harmony. Proposals for block grants, including a detailed procurement plan, will be submitted to the MTE&T for evaluation and IDA will review the selection process, recommendation to award and proposed procurement plan before grants were provided. The following paragraphs provide an estimate o f the total expenditure under Component 1, including estimates o f the expenditures for the 5 institutional block grants.

Works (US$1.60 million): This sub-component envisages civ i l works activities to cover improved student services such as study facilities, cafeterias, sanitary facilities, provision o f water and electricity etc. in approximately 12 locations and minor works at 10 locations to refurbish the existing building housing o f the M I S system by providing air conditioners, utility connections and other facilities.

The majority o f works (approximately 10 contracts) are expected to cost less than US$50,000 equivalent each and these will be executed through local shopping by soliciting three quotations or UnitIPiece Rate System. Force Account procedure may be used as a last resort. Participating universities w i l l contract these works on their own. A few works contracts are expected to cost in the range o f US$50,000 to US$150,000 equivalent. These w i l l be procured through National Competitive Bidding (NCB) procedures, and the participating universities w i l l hire consulting f i r m s as procurement agents to carry out the bidding process. Centage charges, if any, for services rendered by any Government owned Department/Institution for construction w i l l not be financed under the project.

Goods (US$4.94 million): Goods to be procured include computers, computer software, office equipment to support the M I S offices and the LMO, specialized equipment for Language and IT laboratories, computers and office communication equipment for the B Q A and furniture, library books and vehicles. Given the low volumes o f these goods required by each participating university under the Institutional Grants, equipment, furniture and vehicles will be procured by each institution through national shopping in packages costing less than US$30,000 equivalent value. In the case o f Institutional Grants for Enhancing English Proficiency and IT Proficiency there are expected to be sufficient similarities in the technical specifications o f computing equipment and language laboratories proposed to provide greater efficiencies by packaging at the national level into one or two packages to be procured under ICB. However most contracts (approximately 20) are expected to cost below US$50,000 each will

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be procured following N C B procedures. Proprietary software costing less than US$lO,OOO equivalent value per contract up to an aggregate amount o f equivalent to US$80,000 w i l l be procured through direct contracting. Small Items each costing less than US$500 equivalent, w i l l be procured through direct contracting up to an aggregate amount o f equivalent to US$20,000

Technical Assistance, Studies, Training and Workshops (US%7.73 million): The Project w i l l fund services required for project implementation centrally for the MTE&T, PPDU, QEFTS and the UGC and regionally at the participating universities, including public awareness campaigns, training workshops, seminars, research studies, audits o f performance, reforms, quality and efficiency, and procurement technical assistance. Consultant services will be contracted as per Guidelines for Selection and Employment of Consultants by World Bank Borrowers. Services for the public awareness campaign shall be selected following paragraphs 3.8 - 3.11 o f the Guidelines. Contracts for policy research studies and for reviews o f performance, reforms, quality and efficiency, costing less than US$lOO, 000 equivalent per contract w i l l be awarded based on Consultant Qualifications (paragraphs 3.1 and 3.7 o f the Consultant Guidelines). Individual consultants including the services o f the Implementation Specialist for the PPDU for the launch o f the first batch o f Quality Enhancement Block Grants and Higher Education Quality Monitoring & Quality Control Specialist wi l l be contracted following Section V o f the Consultants Guidelines to deliver training and technical assistance to the MIS, LMO, and B Q A and to develop implementation and planning capacity in the PPDU. All Individual Consultant appointments where the estimated total value o f the contract exceeds US$50,000 w i l l be advertised internationally and if the Government decides not to evaluate the CVs o f all prospective consultants who express interest, IDA prior review and agreement w i l l be required for the proposed short l is t .

Incremental Operating Costs (US$0.44 million): These w i l l be financed on a declining basis and w i l l cover expenses incurred on salaries o f agreed additional staff, operation o f equipment and buildings, and office expenses, including utilities and consumable office supplies identified as solely for the benefit o f the project.

Component 2: Improving Relevance and Quality (US$36.29 million)

This component comprises two major sets o f activities: the f i rs t i s related to enhancing the relevance and quality o f undergraduate programs and the second to improving the employment outcome o f unemployed graduates. For the QEF, funding w i l l be allocated to universities and private TEI’s on a competitive basis. Specific study programs w i l l be selected to receive grants, based on detailed proposals up to a maximum o f US$1 .O mill ion per four-year grant, according to selection procedures described in Annex 2.

An overall procurement plan for this component i s not feasible, as the study programs receiving grants are not known in advance. Instead, procurement plans w i l l be developed and reviewed before the award o f the grants. During the implementation o f each grant, updated annual procurement plans wil l be required from each participating university, and the annual procurement plan w i l l require IDA review and no objection prior to implementation o f the second and each subsequent year for the duration o f the grant. For the QEF, the funding will be allocated to universities, TEI’s and private organization on a competitive basis according to evaluation criteria for the evaluation o f proposals agreed at Appraisal, satisfactory to IDA.

Procurement arrangements w i l l be the responsibility o f institutions that are awarded a grant, for small value contracts for works, goods and equipment the Local Technical Secretariat wi l l be responsible for procurement through I S or N S procedures. The institutions have the capacity to procure contracts for

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small works and goods on their own, but w i l l require the services o f a procurement agent to implement N C B procurement.

Considering the nature o f activities, this component w i l l be financed as Sub-projects. Estimates o f procurement for this component w i l l be:

Works (estimated to be 12% o f the QEF Grants US$3.02 million). Two types o f works w i l l be eligible: (a) refurbishment o f existing infrastructure, such as laboratories and workshops; and (b) improvement o f existing facilities. The majority o f the contracts for works (approximately 60 contracts) are expected to cost less than US$50,000 equivalent, and these wi l l be executed through local shopping by soliciting three quotations or UnitlPiece Rate System. Force Account procedure may be used as a last resort. Institutions w i l l contract these works on their own. A few contracts for works are expected to cost in the range o f US$50,000 to US$lOO,OOO equivalent, and these will be procured through N C B procedures, for which institutions w i l l appoint consulting f i r m s as procurement agents. Cent age charges, if any, for services rendered by any Government owned DepartmentIInstitution for construction w i l l not be financed under the Project.

Goods and Services (including Fellowships) (estimated to be 65% of the QEF Grants US$16.34 million). Goods to be procured include equipment, furniture, books, software, learning resources, and educational materials. Services to be procured include fellowships for overseas PhD. and Master degrees. Procurement o f equipment and furniture w i l l be phased on an annual basis, in accordance with the requirements o f individual grant proposals. Because o f the likely wide variation in the type o f goods required by each grantee over a period o f 4 to 5 years, there w i l l be l i t t le scope for bulking the procurement o f goods to form ICB packages. A large share equipment procurement i s expected to be carried out through NCB, in packages o f US$30,000 to US$150,000 equivalent each. Other equipment, such as furniture, will be procured through national shopping in packages costing less than US$30,000 equivalent each. I t i s estimated that approximately 150 goods contracts o f average cost o f US$50,000 equivalent; some 30 contracts o f average cost o f US$50,000 to US$lOO,OOO equivalent; and 15 contracts costing above US$lOO,OOO equivalent.

Because o f the low volumes o f the various library books, proprietary software, learning resources and educational materials to be procured by each university, preparation o f attractive packages to solicit quotationslbids will not be possible, and direct contracting with the authorized dealerslsuppliers i s the most appropriate method for procurement for contracts not exceeding US$ 10,000 equivalent each up to an aggregate amount o f US$ 120,000 equivalent. In addition, small items each costing less than USS500 equivalent w i l l be procured through direct contracting up to an aggregate amount o f US$20,000 equivalent.

Technical Assistance, Studies and Workshops (estimated to be 20% of the QEF Grants US$5.03 million). The Project w i l l fund services required for implementation o f workshops, seminars, teaching grants, research grants, technical assistance and studies. Services o f consultants, both individuals and f i rms, including the services for construction supervision, will be contracted according to the Guidelines for Selection and Employment of Consultants by World Bank Borrowers.

Incremental Operating Costs (estimated to be 3% o f the QEF Grants US$0.76 million). Incremental operating costs will be financed. These costs cover salaries o f agreed additional staff within the MTE&T/UGC and the participating universities, expenses incurred on operation o f equipment and buildings, travel expenses and office expenses, including utilities and consumable office supplies identified as solely for the benefit o f the project. For each grant, total incremental operating costs i s

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expected not to exceed 5% o f the total grant amount for each institution

Stipends and Training Vouchers under Component 2.2 (US$ll.l4 million). The project w i l l finance stipends and vouchers under the Tharuna Aruna I1 program, technical assistance, equipment and set-up costs o f the Regional centers.

Procurement Implementation Capacity

The specific institutions that w i l l participate in Component 2 cannot be identified a pr ior i ; therefore i t i s not possible to assess their procurement capacity. However, a procurement questionnaire was applied to a sample o f 6 institutions that represent the profile o f institutions likely be get selected to receive grants. The analysis o f the questionnaire responses, combined with in-depth discussion with each institutions, show that institutions have the capacity to procure small works but require the services o f consultants for the contracting and supervision o f larger works. The procurement consultants w i l l be hired in accordance with Guidelines for Selection and Employment of Consultants by World Bank Borrowers.

The analysis also shows that institutions have limited capacity to procure goods. Typically, institutions are not conversant with Bank's procurement procedures o f N C B and ICB, and have largely been following Government Tender Guidelines o f inviting open tenders in small value packages. At best, the institutions wi l l be able to manage small procurement packages costing up to USS30,OOO equivalent through national shopping procedures. For NCBACB they w i l l need assistance from an external procurement agency to prepare the documentation, and assist in bid evaluation and contract award activities.

Bank-financed works and goods w i l l be procured using the Guidelines for Procurement under IBRD Loans and I D A Credits o f January 1995, revised January 1996, August 1996, September 1997 and January 1999. Services w i l l be procured using the Guidelines for Selection and Employment of Consultants by World Bank Borrowers o f January 1997, revised September 1997, January 1999 and May 2002. The procurement methods applicable to the various expenditure categories are summarized below. For procurement under the Project, the Bank's standard bid documents (Sr i Lanka specific documents agreed with IDA) shall be used.

Contracts for works estimated to cost more than US$50,000 equivalent each, w i l l be carried out following N C B procedures acceptable to the Bank. Each works contract estimated to cost equivalent to US$50,000 or less w i l l be procured following procedures acceptable to the Bank: (a) national shopping; (b) Unit/Piece Rate System; or (c) through Force Account, as last resort. Work contracts are not expected to be amenable to packaging for procurement through ICB procedures. Contracts for the purchase o f goods valued more than US$-30,000 but less than US$150,000 equivalent, w i l l be awarded on the basis o f N C B procedures acceptable to the Bank. Items or groups o f items valued at US$30,000 equivalent or less per contract may be procured on the basis o f international and national shopping procedures. Proprietary equipment, including library books, proprietary software, learning resources and educational materials costing US$20,000 or less per contract, and other items or small groups o f items valued at less than US$500 equivalent per contract, may al l be procured through direct contracting,

Contracts for consumable office supplies, and for operation equipment, vehicles and buildings, under the incremental operating costs category, may be awarded through (a) direct contracting, or (b) national shopping procedures.

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All NCB contracts to be financed by the Credit w i l l follow procedures satisfactory to IDA, which are:

Only the model bidding documents for N C B agreed with IDA (and as amended from to time) shall be used for bidding; Invitations to bid shall be advertised in at least one widely circulated national daily newspaper, at least thirty days prior to the deadline for bid submission; Bid documents shall be made available by mail or in person, to all who are wil l ing to pay the required fee; Qualification criteria (in case pre-qualification was not carried out) shall be stated in the bidding documents, and, if a registration process i s required a foreign firm declared as the lowest evaluated responsive bidder shall be given a reasonable opportunity to register without hindrance; N o special preference w i l l be accorded to any national bidder when competing with foreign bidders, irrespective o f whether they are state-owned enterprises, or small-scale enterprises; Bids shall be opened in public, in one location, immediately after the deadline for submission o f bids; Bids shall not be rejected merely on the basis o f a comparison wi th an official estimate without prior concurrence o f IDA; Contracts shall be awarded to the lowest evaluated responsive bidder; Except with the prior concurrence o f IDA, there shall be no negotiation o f price wi th the bidders, even with the lowest evaluated bidder; Re-bidding shall not be carried out without prior concurrence o f IDA; Except in cases o f force majeure andor situations beyond the control o f the project, extension o f bid validity shall not be allowed without the prior concurrence of: IDA (a) for the first request of extension if i t i s longer than eight weeks; and (b) for all subsequent requests for extension irrespective o f the period; All bidders/contractors shall provide bidperformance security as indicated in the bidding documents; Evaluation o f bids shall be made in strict adherence to the criteria disclosed in the bidding documents, in a format and specified period agreed by IDA; A bidder’s bid security shall apply only to the specific bid, and contractors’ performance security shall apply only to the specific contract under which i t was furnished; Bids shall not be invited on the basis o f percentage premium or discount over the estimated cost; and There shall not be any restrictions on the means o f delivery o f the bids.

Review by IDA o f Procurement Decisions

Procurement Planning

Due to the nature o f the project i t i s diff icult to identify up front the institutions that wi l l be eligible to receive credit funds. However, once MTE&T has identified the universities/institutions that w i l l participate in capacity building under Component 1, procurement plans w i l l be developed based on the agreed implementation plans, and w i l l be submitted for IDA review. For Component 2, the QET w i l l select public universities, private TEI’s and private f i r m s on a competitive basis. The selected institutions w i l l prepare procurement plans as part o f their grant proposals, these plans will be submitted for IDA review prior to initiating any procurement actions. In addition, grantees wil l be required to submit updated annual program plans during the grant implementation period.

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Prior Review

Contract subject to prior review by IDA include: (a) the f i rs t N C B civ i l works contract from each institution, regardless o f value; (b) al l civil work contracts costing more than US$500,000 equivalent; (c) all goods contracts costing more than US$250,000 equivalent; and (d) the f i rs t N C B contract for goods from each participating institution regardless o f value, as per provisions set forth in paragraphs 2 and 3 o f Appendix-1 o f the Guidelines for Procurement under IBRD Loans and IDA Credits o f January 1995, revised January 1996, August 1996, September 1997 and January 1999. All consultancy contracts wi th f i r m s costing more than US$lOO,OOO equivalent, and individual consulting contracts costing more than USS50,OOO equivalent, w i l l be subject to prior review by IDA as per provisions set forth in paragraphs 2 and 3 o f Appendix 1 o f Guidelines for Selection and Employment of Consultants by World Bank Borrowers o f January 1997, revised September 1997, January 1999 and M a y 2002.

Post Review

Contracts below the prior review threshold for works, goods and consultant services are subject to post review by IDA, as per procedure set forth in paragraph 4 o f Appendix-1 o f the Guidelines for Procurement under IBRD Loans and IDA Credits o f January 1995, revised August 1996, September 1997 and January 1999 and paragraph 4 o f Appendix-1 o f Guidelines for Selection and Employment of Consultants by World Bank Borrowers o f January 1997, revised September 1997, January 1999 and May 2002. About 10% o f the contracts are expected to be post-reviewed. The project provides for a financial audit to be conducted by independent auditors to be hired by the central implementing unit. These audits w i l l cover project expenditures as well as asset verification and technical audit. In addition, an external consultant wi l l be hired by the central implementing unit to carry out ex-post reviews and assets verification for not less than 10% (by value and number) o f the contracts. IDA will conduct a sample ex-post audit o f these external audits.

Procurement Information

For Component 1, the PPDU will prepare a quarterly progress reports giving details o f bids floated, bids rejected, contracts awarded, contracts completed and percentage utilization o f project funds. These quarterly reports will be available for IDA review.

For Component 2.1, each participating university w i l l prepare quarterly progress reports giving details o f bids floated, bids rejected, contracts awarded, contracts completed and percentage utilization o f grant funds. These reports w i l l be submitted to the QET, which in turn will aggregate the individual reports into a simple quarterly report to be submitted to the MTE&T and to IDA for review.

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Procurement methods (Table A)

Procurement Method’ Expenditure Category ICB NCB Othe: N.B.F.

1. Works 0.00 0.00 0.10 0.00

Institutional Capacity 2. Goods 0.80 0.40 0.30 0.00

Institutional Capacity 3. Services 7.68 0.00 Component 1 : Building 0 0 (5.86) (0.00) Institutional Capacity 4. Sub-projects 0.00 6.48

Block Grants 5. Sub-projects 0.00 0.00 25.15 0.00 Component 2.1: Improving (0.00) (0.00) (17.01) (0.00) Quality and Relevance 6. Sub-projects 0.00 0.00 11.14 0.00 Component 2.2: Tharuna (0.00) (0.00) (10.25) (0.00) Aruna II Program 7. Incremental Operating and 0.00 0.00 0.46 0.00

Component 1 : Building (0.00) (0.00) (0.08) (0.00)

Component 1 : Building (0.60) (0.30) (0.20) (0.00)

Component 1.3: Institutional (0.00) 0 (5.95) 0

Management Costs (0.00) (0.001 (0.12) (0.00)

Table A: Project Costs by Procurement Arrangements (US$ million equivalent)

Total Cost 0.10

(0.08)

(1.10) 1.50

7.68 (5.86)

6.48 (5.95)

25.15 (17.01)

11.14 (10.25)

0.46 (0.12)

Total 0.80 0.40 49.80 0.00 5 1 .OO (0.60) (0.30) (39.47) (0.00) (40.37)

’I Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies.

z Includes c iv i l works and goods to be procured through national shopping, consulting services, services o f contracted staff o f the project management office, training, technical assistance services, and incremental operating costs related to each grant. The total incremental operating costs are expected not to exceed 5% o f the total grant amount for each institution.

Note: All consultant contracts are “other” irrespective o f some if some o f them are selected internationally.

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Table B: Thresholds for Procurement Methods and Prior Review'

Expenditure Category

Works

Goods (a) Equipment

Contract Value Threshold

(US$ thousands) (a) Works estimated to cost the equivalent o f US$50,000 or less per contract may be executed by: (i) Fixed price contracts

(ii) Unit/Piece Rate System through qualified contractors (iii) Force Account, as last resort, in a manner satisfactory to IDA (b) Works estimated to cost more than the equivalent o f US$50,000 per contract.

(i) USS30,OOO equivalent or less per contract

(ii) Proprietary equipment costing US$ 10,000 equivalent or less per contract up to an aggregate amount o f us$200,000 equivalent (iii) Contracts o f more than USS30,OOO equivalent, but less than US$150,000 equivalent

(iv) Contracts costing

Procurement Method

(i) National shopping (ii) Rate Contract

(iii) Force Account

NCB

(i) International and national shopping (ii) Direct Contracting

(iii) N C B

(iv) ICB

Contracts Subject to Prior Review (US$ thousand)

(i) Post Review only

(ii) Post Review only

(iii) Post Review only

The f i rs t N C B contract for works by each institution (regardless o f value) and al l contracts estimated to cost more than US$500,000 equivalent, are subject to prior review. All other N C B contracts are subject to post review. (i) Post Review only

(ii) Post Review only

(iii) The f i rs t N C B bidding document and f i rs t contract f rom each institution w i l l be subject to prior review and all contracts estimated to cost US$250,000 equivalent or more (iv) All ICB contracts

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I more than US$150,000 I I I

(b) Other small equivalent per contract US$500 equivalent or Direct contracting Post Review only

equipment or materials items

Services (comprising procurement agent, research and studies, professional services, training, workshops and fellowships)

less per contract, up to an aggregate amount o f US$40,000 equivalent.

Incremental Operating costs

Consultant services may be contracted through:

(i) More than U S $200,000 equivalent per contract

(ii) More than US$ 100,000 and up to US$200,000 equivalent per contract

(iii) US$lOO,OOO equivalent or less per contract.

;xpenses incurred on ncremental staff salaries, lperation o f equipment, luilding and vehicles, onsumable office upplies and ut i l i t ies may le executed by:

i) Packages estimated to ost up to US$5000

(i) Quality and Cost-Based Selection, Quality Based Selection with short l i s t and following Section V o f Bank's Guidelines (ii) Selection based on a Fixed Budget (SFB) and following Section V o f the Bank's Guidelines

(iii) Selection based on consultant's qualifications, nd following Section V o f the Bank's Guidelines

(i) Direct contracting

Prior review o f consultant :ontracts shall be governed by:

(i) With respect to each :ontract for a consulting firm :stimated to cost USSlO0,OOO equivalent or more, w i l l be subject to prior review

(ii) With respect to each contract for individual consultants, estimated to cost US$SO,OOO equivalent or more, the qualifications, experience, terms o f reference, and terms o f employment, short l i s t shall be submitted to IDA for prior review (iii) Terms o f reference for al l consultant contracts estimated to cost US$20,000 equivalent or more per contract in the case o f f i rms, and US$lO,OOO equivalent per contract in the case o f individuals, shall be submitted to IDA for prior review

(i) Post Review only

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equivalent (ii) Packages estimated to cost US$5000 equivalent or more

Total value o f contract subject to prior review: Overall Procurement Risk Assessment:

Proposed frequency o f procurement supervision:

The MTE&T will hire an external consultant to carry out ex-post reviews and asset verification for not less than 10% (by value and number) o f the contracts. IDA w i l l conduct a sample ex-post audit o f contracts including consultant's outputs. IDA w i l l also review procurement, as necessary, either by site visi ts or by desk reviews o f documentation.

(ii) National shopping

Approximately 5% o f the total High

Bi-annually, including supervision for post-review and audits.

An external consultant w i l l be hired by the MTE&T to carry out ex-post reviews and asset verification for not less than 10% (by value and number) o f the contracts. IDA w i l l conduct a sample o f ex-post audit on the consultant's reviewloutput. IDA w i l l also review the project as necessary, either by site visits or by desk reviews.

Frequency o f procurement supervision missions proposed: One every six months (includes special procurement supervision for post-reviewlaudits).

Thresholds generally differ by country and project. Consult "Assessment o f Agency's Capacity to Implement Procurement" and contact the Regional Procurement Adviser for guidance.

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Annex 6(B): Financial Management and Disbursement Arrangements SRI LANKA: Improving Relevance and Quality of Undergraduate Education

Financial Management

1. Summary o f the Financial Management Assessment

Country Issues

Limited capacity for project f inancial management at the university level: Financial management functions at the university level are performed by the university bursars. However, present capacity in the university system i s insufficient to meet the current demands, and w i l l also be inadequate for the additional demands related to the project.

Delayed availability of adequate budget provision and project funds: Currently, there are significant delays in the release o f funds to the universit ies by the UGC. This i s due to cash flow problems in the General Treasury. However, as the project activities are to be funded by IDA, delays o f this kind should not occur. In addition, with respect to f low o f counterpart funds, the Government recently initiated a system for overcoming cash flow problems, which should help avoid such delays.

Limited classification of project expenses: Present Government accounting systems classifies expenses only by major disbursement categories and does not meet IDA reporting requirements. This issue w i l l be overcome b y specifying additional accounting requirements when recording and reporting on project transactions.

Strengths and Weaknesses

Strengths: The use o f the existing Government system for disbursing funds to universities, accounting and reporting on project transactions w i l l enhance expediency and reduce risk. University staff i s familiar wi th these procedures.

Weaknesses:

at the university level to cope-up with the increase in the volume o f financial transactions. 2. Lack o f experience in handling World Bank financed projects and block grant facilities at the university level. 3. Tharuna Aruna Institute does not have sufficient organizational capacity to manage the Tharuna Aruna I1 programme.

Implementing Agency

the capacity at the university level.

Training to be provided under the f i r s t component o f the project. In addition, the accounting firm w i l l also train university staff. Technical assistance to be provided to the Board. Consultants wi l l be funded under the project, including a qualified accountant, and w i l l assist the Board with init ial setting-up o f the program and thereafter in i t s management.

The project w i l l be implemented and coordinated by the MTE&T/PPDU. Other agencies, in particular, the public and private universities will liaise wi th PPDU for obtaining funds and reporting on project

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progress. A Quality Enhancement Technical Team (QET) will be established under the purview o f the MTE&T/PPDU for administration o f the second component. The Tharuna Aruna I1 program w i l l be managed by the existing, but to be substantially strengthened, Tharuna Aruna I1 Institute (TAI) and i t s Board o f directors.

Flow o f Funds

The Project funds w i l l be deposited into two Special Dollar Accounts (SDA) to be opened in the Central Bank o f Sri Lanka. The SDA will be operated by the PPDU and the Tharuna Aruna I1 Institute under the responsibility o f the two respective Secretaries, who can delegate this authority.

PPDU w i l l withdraw funds from this SDA to expend on project activities. The Government w i l l provide an advance to the PPDU to cover the Government's and IDA's share o f project expenses (as i s the normal practice for a l l donor funded projects in Sri Lanka). Thereafter, the PPDU will make project payments from the Government's advance account and periodically reimburse IDA share o f project expenses from the funds in the SDA. For activities under the QEF component, on approval by the QETS o f the proposals submitted by the universities, the PPDU w i l l release funds from the SDA to a separate local currency project account to be opened by the university specifically for this purpose. On a quarterly basis, all universities w i l l report back to the PPDU (formats for these specified in the project implementation plan). The PPDU w i l l consolidate this information, and submit withdrawal applications to the World Bank for replenishment o f the SDA as well as prepare the quarterly progress reports.

For the Tharuna Aruna I1 program, the Tharuna Aruna I1 Institute (TAI) w i l l operate and manage the funds in the second SDA. The Government will provide an advance to the Tharuna Aruna I1 Institute to cover the Government's and IDA's share o f project expenses (as i s the normal practice for all donor funded projects in Sri Lanka). Thereafter, the Tharuna h a I1 Institute w i l l make project payments from the Government's advance account and periodically reimburse the IDA share o f project expenses from the funds in the SDA. The Tharuna Aruna I1 Institute w i l l be responsible for preparing the replenishment application for the SDA that they operate

Staffing

During Appraisal the following options were considered: (a) augmenting the existing staff resources at the universities to carry out financial management and disbursements for the project; (b) hiring a consultant firm to provide these services to universities; and (c) a combination o f these. Given that project efforts need to be sustained, a suitable combination o f the two options seemed most appropriate, wi th provision o f training and capacity building to ensure the sustainability o f project outcomes.

Accounting Policies and Procedures

The project w i l l follow the cash basis o f accounting. The present government accounting requirements are explained in the Financial Regulations (FRs). However, FRs do not provide adequate classification of project expenses to extract information by project components, and they do not provide regular recording and reporting on physical and procurement information, as required by IDA-FMR guidelines.

Additional record books and reporting formats w i l l be maintained, in order to register component-specific expenditure information. Reporting formats were discussed and agreed upon during Appraisal.

- 73 -

All accounting records at the UGC, MTE&T, and at the universities are maintained manually. However, wi th assistance provided by an accounting firm, project accounts w i l l be computerized.

Implementing Agency University Grants Commission University Grants Commission

Internal Audit

Audit Auditor Due Date ProjectiSOE Auditor General June 30

Special Account Auditor General June 30

The internal audit departments in MTE&T and universities are very weak and not much reliance w i l l be placed on internal audits for the verification o f project transactions.

Reporting and Monitoring

Financial Reporting Formats (FMRs) w i l l be used for reporting to the Bank on a quarterly basis. For all components, except the Tharuna Aruna I1 sub-component, one consolidated FMR will be prepared by the PPDU. As capacity i s limited, training w i l l be provided to PPDU and MTE&T.

For the block grants component, there i s a separate reporting format spelt out in the Project Implementation Plan. Wi th the assistance o f the accounting firm, these reports w i l l be prepared at the university level and consolidated by the QET and incorporated in the FMRs.

TAI w i l l prepare a different set o f FMRs on the basis o f formats to be confirmed at credit negotiations, for the sub-component to be managed by them.

Format o f Financial Statements

Formats for the Financial Management Reports (FMRs) have been developed during Appraisal and agreed during Negotiations. The formats w i l l be in accordance with the guidelines issued by IDA as of November 30, 2001. The FMR formats w i l l be agreed during Negotiations.

Information Systems

Project financial transactions w i l l be maintained manually as required by the Computerized Integrated Government Accounting System (CIGAS) where most o f the information w i l l be recorded and maintained electronically in a government computer database. Additional project information requirements may be computerized if an accounting firm i s contracted for this purpose

2. Audit Arrangements Project accounts w i l l be audited annually by the Auditor General o f Sri Lanka (AG). AG i s the supreme audit institution o f S r i Lanka and has been accepted by IDA for auditing Bank financed projects. Accounts o f the TAI w i l l be audited by an external auditor as appointed b y the TAI.

The following audit reports w i l l be monitored in the ARCS:

1 Tharuna Aruna Institute I Proiect/SOE I Private Auditor I SeDtember 30 I I Tharuna Aruna Institute I Special Account I Private Auditor I September 30 I

- 74 -

3. Disbursement Arrangements The project wi l l use transaction-based disbursements. Given the limitations o f the Government’s accounting system, i t i s unlikely that FMRs can be used as a basis for disbursements. Nevertheless, after providing adequate training to all concerned implementing agencies, FMRs wi l l be produced quarterly, starting in the f i rs t quarter after Credit effectiveness. There wil l be two Special Accounts established under this Project with authorized allocations equivalent to four months o f estimated expenditures. A Special Account for category 7 -Tharuna Aruna-I1 Program grants totalling US$400,000 wil l be limited initially to US$ 200,000 until disbursements total approximately SDR 600,000 equivalent under categorie 7. For categories 1 to 6 and 8, a Special Account totalling US$ 1,4 million wi l l be limited initially to US$ 700,000 until disbursements total approximately SDR 2 million equivalent

Expenditure Category Amount in US$miliion 1 .Works 0.01 ‘(a) Part B.2 o f the project (b) Other parts o f the project 0.07 2.Goods 0.10 (a) Part B.2 o f the project

Retroactive Financing

Financing Percentage 80%

80% 100% of foreign expenditures; and 80% o f local expenditures for items procured

locallv

Payments made for expenditure before the date o f the Credit but after June 17, 2002 in respect o f categories 1 to 8, can be claimed under the credit subject to an aggregate maximum of US$4 million.

(b) Other parts of the project

3. Consultant Services (a) Part B.2 o f the uroiect

Allocation of credit proceeds (Table C)

0.90 100% of foreign expenditures; and 80% o f local expenditures for items procured

locally 75% for Individuals and 85% for Firms 0.40

Table C: Allocation of Credit Proceeds

4. Fellowships, Workshops and Training

(b) Other Parts o f the project (a) Part B.2 o f the project

5. Institutional Block Grants 6. Grants for Improving Quality and Relevance

0.20 100%

1.30 100% 4.00 90% 20.00 80%

7. Grants for Tharuna Aruna I1 Program 8. Incremental Operating Costs 9. Refunding o f PPF Funds 10. Unallocated

Total Project Costs with Bank Financing

Total

I(b’r Parts o f the uroiect I 2.30 I 75% for Individuals and 85% for Firms I

7.00 100% 0.10 50% 0.50 3.49

40.37

40.37

- 75 -

Note 1: Component 2.2 corresponds to Part B.2 in the Development Credit Agreement (DCA). Note 2: "Other Parts of the project" correspond to Parts A.l; A.2; A.4 and A.5 in the DCA.

Action Guidelines for releasing funds under the Quality Enhancement Component Financial Monitoring Report formats Financial Monitoring Report formats

Recruitment o f a FMS to the PPDU to oversee and coordinate engagement o f the accounting firm

Use of statements of expenditures (SOEs):

Withdrawals under the Credit may be made on the basis o f Statement o f Expenditure (SOE) procedure for:

Responsible Person Completion PPDU by negotiations

WB/PPDU at negotiations WB/Tharuna Aruna at negotiations

PPDU June 30,2003 Institute (TAI)

(i) civi l works obtained through contracts costing less than US$500,000 equiv.each; (ii) goods obtained through contracts costing less than US$250,000 equiv. each; (iii) contracts with consulting firm services obtained through contracts costing less than US$lOO,OOO equiv each; (iv) contracts with individual consultants costing less than US$50,000 equivalent each; (v) fellowships, workshops and training; (vi) all grants; and (vii) all Incremental operating costs

Accounting firm to be engaged on the basis o f a TOR acceptable to the Bank

Financial Covenants

PPDU October 30, 2003

The MTE&T and the Tharuna Aruna Institute wi l l : e e

ensure that throughout the project period a satisfactory financial management system i s maintained; submit to the LDA audited annual financial statements o f the project, no later than September 30 o f the following fiscal year, for Component 2.2 (Part B.2 in the DCA) o f the project, and June 30 o f the following fiscal year for a l l other parts o f the project; and produce FMRs and submit to the IDA no later than 45 days following the end o f the reporting quarter.

e

Consultant accountant to be hired to assist the T A I Computerized accounting system for TAI

TAI June 30,2003

TAI September 30,2003

Supervision Plans

The project w i l l require intensive supervision during the init ial few months, at least till the accounting firm i s fully on board. The Tharuna Aruna I1 programme w i l l also need intensive supervision.

- 76 -

Annex 7: Project Processing Schedule SRI LANKA: Improving Relevance and Quality of Undergraduate Education

Project Schedule Time taken to prepare the project (months)

Planned Actual 15 28

I First Bank mission (identification) I 0211 112003 I 0211 112003 I

Negotiations

Planned Date of Effectiveness

1 Appraisal mission departure I 0211 512003 I 0211 912003 I 0511 512003 0412212003 0711 512003

Prepared by: Ministry o f Tertiary Education and Training, Government o f Sri Lanka.

Preparation assistance: A Japanese PHRD grant for US$875,500 (TF026725-CE) was received and used for project preparation by the recipient to contract consulting services for the following preparation studies: (a) system-wide governance and management reform; (b) enhancing quality and relevance o f undergraduate education; and (c) improving access to undergraduate education. The grant i s successfully being executed by the MTE&T. All planned outputs are expected to be completed by June 15,2003.

A Project Preparation Facility for USE500,OOO was received and i s being used by the recipient to contract consulting services for public awareness activities, technical assistance and training o f administrative staff.

- 77 -

Bank staff who worked on the projecl Name

Appasamy, Irajen Anderson, Maria Aturupane, Harsha Champion, Bridie Chandrasiri, Sunil Dahanayake, Saraswathy De Pietro-Jurand Experton, Wi l l iam Fernando, Deepal Golladay, Frederick Graitge, Julie-Anne Greaney, Vincent Harbison, Ralph Herbert, Wi l l iam B. Hinchliffe, Keith Holm-Nielsen, Lauritz Jimenez, Emmanuel Krishnan, Santhanam O'Hare, Daniel Opatha, Madhuwanthi Perera, Corinne Raghavan, Vikram Rasiah, Irene Julitta Salmi, Jamil Sant'Anna, Anna Shrivastava, Shashi Sinclair, Grant Smith, Christopher J. Thulstrup, Erik Van Meel, Rosita Vos, Maj-Lis

ncluded:

Operations Analyst Implementation Specialist (short term consultant) Senior Economist Disbursement Officer (consultant) Economist (short te rm consultant) Operations Analyst Higher Education Specialist (short te rm consultant) Peer Reviewer Procurement Specialist Higher Education Specialist Program Assistant Lead Education Specialist Peer Reviewer (external) Operations Advisor Lead Education Economist Peer Reviewer Sector Director Senior Procurement Specialist Higher Education Specialist (short te rm consultant) Operations Anaylst (consultant) Team Assistant Legal Counsel Financial Management Specialist Peer Reviewer Implementation Specialist (short-term consultant) Senior Education Specialist Lead Implementation Specialist/Reviewer Higher Education Specialist (short te rm consultant) Higher Education Specialist (short t e r m consultant) Higher Education Specialist/Task Leader Operations Officer

Speciality

- 78 -

Annex 8: Documents in the Project File* SRI LANKA: Improving Relevance and Quality of Undergraduate Education

A. Project Implementation Plan To be completed by the GoSL.

6. Bank Staff Assessments 1. Aide Memoire, Improving Relevance and Quality o f Undergraduate Education (formerly

Development o f Undergraduate Education), Pre-Appraisal Mission, December 2002. 2. Aide Memoire, Development o f Undergraduate Education, Preparation Mission, July 2002 3. Aide Memoire, Development o f Undergraduate Education, IdentificatiodPreparation Mission.

January/February 200 1. 4. Back-to-Office Report, Development o f Undergraduate Education, September 1 1, 2000. 5. Back-to-Office Report, Development o f Undergraduate Education, November 9-30, 1999. 6. Aturupane, D.H.C. Economic Analysis. December 2002. Colombo. 7. Sri Lanka Quality Enhancement Review Tertiary Education Project, March 22,2001 8. Improving Relevance and Quality o f Undergraduate Education, Financial Management Assessment

Report. April 1, 2003.

C. Other Proi ect Background Documents:

1. Harbison, Ralph W. Education Strategy in South Asia -- A Status Report. Informal communication, December 1999.

2. Japan PHRD Legal Agreement TF026725 for Tertiary Education Reform Project dated February 15, 2002.

3. Kottahachchi, Dhanapali. Academic Performance and Drop-Out in Sri Lankan Universities, June 2000.

4. Project Preparation Facility (PPF No. Q2980-CE) for an Advance in preparing the Proposed Development o f Undergraduate Education Project, February 15,2002.

5. Sri Lanka' Universities Year Book 1997198. University Grants Commission. July 1998. 6. Technical Assistance Gfinanced from the Japan Special Fund) to the Democratic Socialist Republic of

Sri Lanka for preparing the Postsecondary Education Modernization Project. (TAR: SRI-3325 1). Asian Development Bank, December 2000.

Sector Background:

1. Advancing Knowledge and Skills for Development and Competitiveness. The Tertiavy Education Strategy. Development Forum, Paris 2000.

2. Bourdon, J. Mingat, A. and Orivel, F. Sector Study on Cost, Financing and Policy of Education in Sri Lanka. Institut de Recherche sur 1'Economie de l'Education, Universite de Dijon, France. September 1995.

3. Education and Training in Sri Lanka (An Asian Development Bank sponsored project). Volume 3, Development Perspective. Educational Consultants India Limited, July 1989.

4. de Silva, K.M. Sri Lanka: Ethnic Conflict, Management and Resolution. ICES Pamphlet Series 6. International Centre for Ethnic Studies, Kandy, S r i Lanka, 1996

5. Improving Education Planning (ADB TA 3073-SRI) Draft Final Report. Volume 111: Strategy Studies

- 79 -

6.

7. 8.

9. 10.

11.

12. 13.

14.

15.

16.

17.

18.

19. 20.

21.

22.

23.

24.

25.

and Volume I V : Action Plans, GRM International, October 1999. Improving Education Planning (ADB TA 3073-SRI) Drafi Final Report. Volume 11: Reports. GRM International, October 1999. National Education Commission. National Policy on University Education. June 1996. Patrinos, Harry A. and Ariasingam, David L. Decentralization of Education. Demand-Side Financing. Directions in Development. The World Bank Group, 1997. Presidential Task Force on University Education. 1998. Reforms in University Education. Colombo. Sri Lanka Tertiary Education Sector. Comments on Recommendations by the Presidential Task Force on University Education. November 1998. Washington Upgrading Administrative and Management Competencies (UAMC). Mid Term Report o f Teacher Education and Teacher Deployment Project. Ministry o f Education and Higher Education, Sri Lanka, German Agency for Technical Cooperation and TEAMS Consultants in Development, October 1999. World Bank Group (200 1). Development of Undergraduate Education: Project Concept Document. World Bank Group. Algeria - Science and Technology University Development Project. Implementation Completion Report, December 1998. World Bank Group. Constructing Knowledge Societies: New Challenges for Tertiary Education. Directions in Development, 2002. World Bank Group. Ghana - Tertiary Education Project. Implementation Completion Report, March 1999. World Bank Group. Chile - Higher Education Improvement Project. Project Appraisal Document, October 1998. World Bank Group. Higher Education in Developing Countries - Peril and Promise. The Task Force on Higher Education and Society. 2000. World Bank Group. Indonesia - Higher Education Support Project - Development of Undergraduate Education. May 1996. World Bank Group. Indonesia - Quality of Undergraduate Education. May 1997. World Bank Group. Jordan Higher Education Development. Project Appraisal Document, December 1999. World Bank Group. Kenya - Universities Investment Project. Implementation Completion Report, December 1999. World Bank Group. Mauritius - Industrial and Vocational Training Project, Education Sector Development Project, Higher and Technical Education Project. Implementation Completion Report, May 1999. World Bank Group. Zaire - Higher Education Rationalization Project. Project Completion Report, June 1994. Wanasinghe, Shelton and Gunetilleke, Neranjana. Responding To Future Challenges in Education and Training - Policy Issues At The Higher And Tertiary Levels. Research Studies, Human Resources Development Series No. 1. Institute o f Policy Studies, Colombo, Sri Lanka, September 1995. World guide to higher education: A comparative survey of systems, degrees and qualifications. UNESCO. 1996.

Countrv Documents:

1. World Bank Group. Sri Lanka - A Fresh Look at Unemployment. Poverty Reduction and Economic Management Unit, South Asia Region, August 1999.

2. World Bank Group. Sri Lanka - Country Assistance Strategy. May 21, 1996. 3. World Bank Group. Sri Lanka - Country Assistance Strategy -Progress Report. December 20, 1998. 4. World Bank Group. Sri Lanka - I n the Year 2000 - An Agenda for Action. Joint Sri Lankan and

- 80 -

World Bank Study. March 1996. 5. World Bank Group. Sri Lanka - Public Expenditure Review. November 1996. 6. World Bank Group. Sri Lanka - Recent Economic Developments and Prospects. Poverty Reduction

and Economic Management Unit, South Asia Region, May 1998.

Statistical References:

1. Tilak, Jandhyala, B.B. Costs and Financing of Education in Sri Lanka. October 1996

*Including electronic files

-81 -

Annex 9: Statement of Loans and Credits SRI LANKA: Improving Relevance and Quality of Undergraduate Education

16-Apr-2003 Difference between exoected

and actual Original Amount in US$ Millions disbursements'

Project ID FY Purpose IBRD IDA GEF Cancel. Undisb, Orig Frm Rev'd 0.00 13.09 0.00 0.00 PO74730 2003 National HlViAlDS Prevention 0.00 0.00 0.00

P 0 7 7 5 8 6 2003 PO77761 2002 PO76702 2002

PO50738 2001 PO69784 2001

PO71 131 2001 PO58070 2000 P 0 4 4 8 0 9 2000

PO10525 1998 PO34212 1998 PO35828 1998

PO10513 1997 PO10517 1996

PO42266 1996

LK Economic Reform TA

Renewable Energy for Rural Economic Dev Renewable Energy for Rural Economic Dev LAND TIT a REL SERV (LIL)

Distance Learning Initiative. LlL LK Central Bank Strengthening

North-East Irrigated Agriculture Project LEGAL AN0 JUDICIAL REFORMS GENERAL EDUCATION II

MAHAWELI RESTRUCTURI CONS OF MEDIC PLANTS

ENVIRONMENTAL ACTION PVT SECT INFRAS DEV TEACHER EDUCATION 8 TEACHER DEPLOYMEN

0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00

0.00 0.00

15.00

0.00 75.00 5.00 2.00

30.30

27.00 18.20 70.30

57.00 0.00

14.80 77.00 64.10

0.00 8.00

0.00 0.00 0.00 0.00

0.00 0.00

0.00

0.00

4.60 0.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00

0.00

0.00

0.00 0.86 0.00

0.00 0.00

15.02 0.00

14.93 -0.05 7.13 0.00

63.95 -15.00 4.23 0.77

0.99 -0.73 16.14 5.30

13.76 2.36 13.41 -4.86

30.73 33.76 18.81 17.88

0.59 0.45 1.61 2.21

32.11 54.26 11.01 16.23

0.00

0.00 0.00 0.00 0.00

0.00

0.00

0.00 0.00 0.00

0.00 0.00

14.20

11.40

0.00 455.70 12.60 15.88 242.49 112.58 25.60 Total:

SRI LANKA STATEMENT OF IFC's

H e l d and Disbursed Portfolio Jun 30 - 2002

In Mill ions U S Dollars

Committed Disbursed IFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1998 Apollo Lanka 0.00 1.11 0.00 0.00 0.00 1.11 0.00 0.00 1996197 Asia Power 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1999 Fitch Srilanka 0.00 0.09 0.00 0.00 0.00 0.09 0.00 0.00 1997 LOFAC 0.98 0.30 0.00 0.00 0.98 0.16 0.00 0.00 1981 Lanka Hotels 0.00 0.64 0.00 0.00 0.00 0.64 0.00 0.00 1996 Lanka Orix Lease 0.38 0.00 0.00 0.00 0.38 0.00 0.00 0.00 1998 MLL 0.50 0.00 0.00 0.00 0.50 0.00 0.00 0.00 2000 NDB Housing C o p 0.00 1.06 0.00 0.00 0.00 1.06 0.00 0.00 1999 Nations Trust 0.00 1.09 0.00 0.00 0.00 1.09 0.00 0.00

1999 S AGT 35.00 7.30 0.00 0.00 15.00 3.62 0.00 0.00 2000 Suntel 0.00 7.50 0.00 0.00 0.00 7.50 0.00 0.00 1988195 Union Assurance 0.00 0.50 0.00 0.00 0.00 0.50 0.00 0.00

1997 Packages Lanka 0.00 1.11 0.00 0.00 0.00 1.11 0.00 0.00

Total Portfolio: 36.86 20.70 0.00 0.00 16.86 16.88 0.00 0.00

- 82 -

Auurovals Pendine. Commitment

FY Approval Company Loan Equity Quasi Partic 200 1 SAGT SWAP 1.50 0.00 0.00 0.00

Total Pending Commitment: 1.50 0.00 0.00 0.00

- 83 -

Annex 10: Country at a Glance SRI LANKA: Improving Relevance and Quality of Undergraduate Education

POVERTY and SOCIAL

2001 Population, mid-year (millions) GNI per capita (Atlas method, US$) GNI (Atlas method, US$ billions)

Average annual growth, 1995-01

Population (%) Labor force (%)

Most recent estimate (latest year available, 1995-01) Poverty (% of population below national poverty line) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 live births) Child malnutrition (% of children under 5) Access to an improved water source (% of population) Illiteracy (% ofpopuiation age 15+) Gross primary enrollment (% of schooi-age population)

Male Female

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1981

GDP (US$ billions) 4.4 Gross domestic investmenffGDP 27.8 Exports of goods and servicesiGDP 30.5 Gross domestic savingslGDP 11.7 Gross national savingslGDP 17.8

Current account balancelGDP -10.0 Interest paymentslGDP 1.1 Total debffGDP 50.6 Total debt servicelexports Present value of debffGDP Present value of debtlexports

1981-91 1991-01 (average annual growth) GDP 3.9 4.9 GDP per capita 2.4 3.6 Exoorts of aoods and services 4.9 6.9

Srl Lanka

19.6 840 16.4

1.3 2.2

25 23 73 15 33 83 8

111 112 110

1991

9.0 22.9 28.2 13.9 17.1

-5.8 1.4

73.1 13.7

2000

6.0 4.3

18.0

South Asia

1,380 450 616

1.9 2.4

28 62 73 49 87 44

101 109 93

2000

16.3 28.1 39.7 11.2 21.4

-6.5 1 .I

55.4 9.6

42.8 89.6

2001

-1.4 -2.9

Lower- middle- income

2,164 1,240 2,677

1 .o 1.2

46 69 33 11 80 15

107 107 107

2001

15.9 22.0 37.0 15.3 19.7

-2.3 1.1

53.3 8.8

2001-05

4.5 3.4

-6.5 5.4

I

GNI Gross per 7 + primary

enrollment capita

Access to improved water source

" SriLanka Lower-middle-income group

Development diamond*

Life expectancy

-

Development diamond*

Life expectancy

-

I

GNI Gross per 7 + primary

enrollment capita

I Access to improved water source

" SriLanka Lower-middle-income group

Economic ratios.

Trade

-

L

Indebtedness

Sri Lanka a 1 " X "

Lower-middle-income group

(% of GDP) Agriculture Industry

Services

Private consumption General government consumption Imports of goods and services

Manufacturing

(average annual growth) Agriculture Industry

Services

Private consumption General government consumption Gross domestic investment Imports of goods and services

Manufacturing

1981

27.7 28.0 16.2 44.3

80.9 7.4

46.5

1981-91

2.0 4.9 6.5 4.4

3.5 6.6 0.7 3.4

1991

26.8 25.6 14.8 47.7

76.3 9.8

37.2

I991 -01

1.7 6.5 7.4 5.6

4.1 8.1 5.5 7.8

2000

19.5 21.5 16.9 53.0

72.4 10.4 50.5

2000

1.7 7.5 9.2 6.8

4.4 24.4 10.0 14.9

2001

19.5 26.7 15.8 53.8

74.6 10.1 43.1

2001

-2.9 -2.0 -4.0 -0.3

18.6 -18.8 -17.1 -10.1

Growth of Investment and GDP (%)

96 97 98 99 00 I 01

-20

'GDI *GDP

Growth of exports and Imports (%) 20

10

0 96 97 98 99 00

-10 + / 2 O - &-- Exports --O- Imports

10

0 96 97 98 99 00

-10 +

Note: 2001 data are preiiminary estimates. 'The diamonds show four key indicators in the country (in boid) compared with its income-group average. If data are missing, the diamond will be incompiete

- 84 -

Sri Lanka

PRICES and GOVERNMENT FINANCE

Domestic prices (% change) Consumer prices Implicit GDP deflator

Government finance (77 of GDP, includes current grants) Current revenue Current budget balance Overall surgius/deflcit

TRADE

(US$ millions) Total exports (fob)

Tea Other agricultural goods Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index (1995=100) Import price index (1995=100) Terms of trade (1995=100)

BALANCE of PAYMENTS

(US$ millions) Exporls of goods and services Imports of goods and services Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

Memo: Reserves including gold (US$ millions) Conversion rate (DEC, /ocal/US$)

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

IBRD IDA

Total debt service IBRD IDA

Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity

World Bank program Corn m itments Disbursements Principal repayments Net flows Interest payments Net transfers

1981

20.9

-12.4

1981

1981

2,054

-96 363

-442

404 38

19.2

1981

2,235 29

126

212 4 1

178 163 182 49

0

0 28 2

26 3

23

I991

12.2 10.6

22.6 0.1

-9.5

1991

1,987 432 261 804

3,295 485 234 720

1991

2,534 3,345 -81 1

-1 80 469

-521

942 -421

704 41.4

1991

6,580 76

1,058

416 15 11

173 563 36 48

0

242 187 12

174 14

161

2000

7.1 7.1

17.2 -3.0 -9.5

2000

5,522 700 442

2,982 8,221

693 901

1,737

151 132 115

2000

6,475 8,235

-1,760

-305 998

-1,066

447 619

1,049 77.0

2000

9,032 13

1,610

747 7

31

109 158 80

173 6

18 47 24 23 14 10

2001

14.2 13.2

16.9 -4.5

-10.5

2001

4,817 690 330

2,543 6,705

654 731

1,081

140 125 112

2001

6,084 7,133

-1,049

-281 960

-370

640 -270

1,338 88.0

2001

8,477 8

1,570

646 5

39

174 378

37 39 31 8

13 -5

I Inflation ( O h )

120 -

I Export and Import levels (US$ mill.)

I 95 98 97 98 99 00 01

Exports Imports

I Current account balance to GDP (X) 0

2

4

6

-8 -

I Composition of ZOO1 debt (US$ mill.)

G:449 A ' a

I A . IBRD E. Bilateral B . IDA D - Other multilateral F - Private C. IMF G -Short-term

ueveiopmenr tconomics Y/lt l /UZ

- 85 -

- 86 -

MAP SECTION