Improving the quality of Indonesia’s education spending

Author: Pedro Cerdan-Infantes, World Bank

Indonesia has made an extraordinary commitment to education in the past decade. Since 2002 the government has had a constitutional mandate to allocate at least 20 per cent of its budget to education, a figure it achieved in 2009.

This rule has led to one of the most rapid increases in resources for education in the world — spending has almost tripled in real terms in 10 years. Increased spending has been accompanied by fundamental changes in the way the education sector is managed. Most management decisions have been decentralised and a majority of spending now goes directly to district governments and schools. The reforms have led to impressive advances in access to all levels of education, especially for the poorest segments of the population.

The increases in access and equity are truly remarkable. Children from poor families are enrolling earlier and staying in school longer than ever. The share of the poorest 15 year olds who are enrolled in school increased from 60 to 80 per cent between 2006 and 2010. The percentage of job market entrants with at least a senior secondary education surpassed 50 per cent in 2008 for the first time. Indonesia’s labour force is becoming educated fast, and the country has very ambitious plans to make it even more capable in the future.

Yet there is a growing concern that improvements are not developing in proportion to the increase in resources. Enrolment rates in early childhood education, senior secondary and higher education are still low by regional standards. Few poor students complete senior secondary education and even fewer reach higher education. Moreover, the quality of Indonesian education does not seem to be improving; the country scored poorly in maths and science in the latest round of the OECD’s Programme for International Student Assessment, which tests 15 year olds in language, maths and science. This low level of skill is confirmed by employer surveys, which reveal that many recent graduates are not meeting employers’ expectations. This points to the biggest challenge in education in Indonesia at the moment: improving the quality of education.

An upcoming study by the World Bank, Spending More or Spending Better: Improving Education Financing in Indonesia, suggests that disappointing trends in the quality of Indonesia’s education sector can partly be explained by the way Indonesia spends its resources. The report found that additional resources are often allocated across levels of education in the same way as previous spending. This means that 9 years compulsory education receive a majority of additional resources. Comparing Indonesia to other countries in the region, it is clear that this composition will have to change in the future. Indonesia currently spends a significantly higher share of its resources on basic education than does Thailand and Malaysia, let alone Singapore or South Korea.

More importantly, almost two-thirds of additional resources have gone to teacher salaries as the number of teachers increased and the government introduced a teacher certification program that doubles the teacher’s salary upon completion. Indonesia already had one of the lowest student–teacher ratios in the world in 2005, and this ratio has only decreased since then. Yet recent evidence shows that adding new teachers does not lead to better learning outcomes for Indonesian students. The impact of the teacher certification program is not promising either. An ongoing evaluation of the program shows that the certification allowance improved the lives of teachers because higher salaries made them less likely to hold second jobs, but did not affect the results of their students.

The budgetary implications of increased salary spending are not yet fully apparent. Indonesia relies heavily on contract teachers, who represent around 40 per cent of the teaching body and who generally receive about half the starting salary of a civil servant. The low percentage of certified teachers has also kept the salary bill affordable. But the share of contract teachers is now likely to decline while the number of certified teachers will undoubtedly increase. This will have a drastic effect on the budget in the near future.

The World Bank report points to two main reasons for Indonesia’s excess of teachers: the way money is transferred from central to district governments provides an incentive to hire teachers; and there are generous teacher entitlement formulas for small schools, with small schools proliferating in Indonesia. These reasons are relatively well known, but the solutions are not straightforward. They are complex and will require stronger collaboration across different ministries and levels of government, as well as innovative approaches to teacher management.

The education challenge is big, but if Indonesia gets it right, the pay-off is likely to be bigger. The future of the Indonesian economy depends on a well-educated labour force. That, in turn, depends on improving the quality of spending now.

Pedro Cerdan-Infantes is an economist at the Human Development Department, the World Bank, Jakarta. The views expressed in this article are his own and not necessarily those of the World Bank.