1. IDENTIFICATION Title/Number Sector Reform Contract: Third Primary Education Development Programme (PEDP III) EUR 49.5 million for budget support

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1 ANNEX 1 of the Commission Decision on the Third Primary Education Development Programme (PEDP III) Action Document for Sector Reform Contract: Third Primary Education Development Programme (PEDP III) 1. IDENTIFICATION Title/Number Sector Reform Contract: Third Primary Education Development Programme (PEDP III) Total cost Aid method / Management mode and type of financing Type of aid code CRIS number: amendment to DCI-ASIE/2011/22542 Total amount of EUR 50 million contribution of which EUR 49.5 million for budget support EUR 0.5 million for complementary support Budget support Direct management Sector Reform Contract A02 Sector Budget Support Markers BSAR DAC-code Sector Primary Education Aid method / Management mode and type of financing Complementary support Direct management -procurement of services DAC-code Sector Primary education 2. RATIONALE AND COUNTRY CONTEXT 2.1. Summary of the action and its objectives The proposed sector budget support of EU aims to continue and build up on the ongoing developments of Primary Education Development Programme (PEDP III), through additional financing and extension of the implementation period. The overall objective is to contribute to the achievement of the goal of the government s sector programme PEDP III, which is establishing an efficient, inclusive and equitable primary education system delivering effective and relevant child-friendly learning to all Bangladesh s children from pre-primary to primary education. The anticipated outcomes of PEDP III are: (i) improving student learning outcomes; (ii) ensuring universal access and participation; (iii) minimising regional, gender and 1

2 other forms of disparities; (iv) enhancing education decentralisation and school governance; (v) strengthening sector budget effectiveness; and (vi) enhancing sector and programme planning and management Country context Main challenges towards poverty reduction/inclusive and sustainable growth Bangladesh has an impressive track record for growth and development, aspiring to be a middle-income country by Despite being considered as a test case of development at its independence and prone to political upheavals and natural disasters, the per capita and Gross National Income (GNI) grew by 4.9 % per annum and accelerated to 5.8 % per annum in the 2000s, and is projected to increases to 8 % by 2015 The stable economic growth has resulted in steady poverty reduction over the past three decades. Poverty headcount rate declined to 31.5 % in 2010 from as high as 57 % at the beginning of the 1990s. Part of the growth in incomes was supported by rising worker remittances (with over 8 million Bangladeshis working abroad) which now account for over 11 % of GDP with associated poverty-reducing benefits. Economic growth was also translated into substantial improvements in rural income per capita, which helped make growth more pro-poor and inclusive. The country has mostly met its Millennium Development Goals of halving the poverty rate by Meanwhile, the role of women in economic and social activities has improved over time making a major contribution to poverty reduction. Participation of women has increased both in wage employment (especially in the garment industry) and selfemployment (such as through microfinance schemes). A sharp increase in education attainment for girls over the past 20 years has supported influx of young women into the labour market at higher earnings. Nevertheless, the illiteracy rate is much higher among adult women than men, vulnerability of women remains significant, and women continue to have a limited voice in political and policy arenas. There also remains a significant wage gap between working women and men. Reinforcing the pro-poor nature of growth, inequality (as measured by the Gini coefficient of consumption) remained broadly stable during , a decade when Bangladesh experienced accelerating growth. All this was achieved in conjunction with improvements in a number of social indicators, with Bangladesh standing out on several fronts when compared to the averages in the South Asia region and low income countries. Despite such accomplishments, Bangladesh remains one of the poorest countries in the world. Chronic malnutrition is pervasive across socio-economic strata. Moreover, growing economic disparities between geographic regions and various socioeconomic demographic groups have been observed in recent times. The challenge to reduce poverty further is worsened by Bangladesh s vulnerability to shocks like severe flooding, cyclones, and droughts and political instability which have devastating consequences for the poor. 2

3 Fundamental values Despite Bangladesh being a signatory to many international treaties related to human rights, the country faces difficulties in the implementation of its international obligations. A national Human Rights Commission has been created in 2009, but is still institutionally weak. The death penalty remains in force. The recent 10 th Parliamentary elections in January 2014 had very low turnout and were boycotted by the main opposition party. Political influence on the judiciary, impunity, extra-judicial killings, enforced disappearances and the use of torture are reported frequently. Access of vulnerable and disadvantaged groups to justice in such context is quite limited Eligibility for budget support Budget support eligibility is being regularly assessed and confirmed with PEDP III disbursements Public policy In the 'Outline Perspective Plan of Bangladesh (Making Vision 2021 a Reality)' government outlines the overarching goal as to propel Bangladesh into a trajectory of high performing growth and to join the ranks of the middle-income countries by The target is to reach an average per capita income level of around USD (in present dollar terms), based on a GDP growth rate of at least 8% per annum over the next fifteen years. The Plan also outlines the vision for Education sector which follows the National Education Policy (NEP) to a considerable extent. The NEP emphasizes holistic and balanced development of the entire education sector and sets out to shape the education system to support the national aspirations of Bangladesh. It is a robust, result based sector policy with commitment towards the reforms and marked by a number of positive policy decisions for primary education. This includes (i) establishing an integrated school system encompassing pre-school to higher secondary levels under a framework that unifies public, NGO and private providers; (ii) Improving quality of learning through reduced class size, improved teaching practices, and a focus on information communication technology literacy; (iii) ensuring inclusiveness of learning opportunities for all children, young people and communities and (iv) maintaining equity of approach to the schooling environment (v) decentralising primary education administration and management and (vi) engaging in partnerships with NGOs and the private sector. The ongoing ( ) Sixth Five Year Plan (SFYP) serves as the planning framework and institutional mechanism for resource provisions, coordination, as well as monitoring of reform and development efforts across the sectors. It also sets out the sectoral strategies, programmes and targets. The Primary Education Development Programme (PEDP III) is the third in a series of large, multi-donor investments in primary education. It is consistent with the aspirations set out in the Constitution and embodies the directions indicated in the new policy. PEDP III incorporates a sub-sector Wide Approach and aims to 3

4 encompass all interventions and funding that support pre-primary and primary education in Bangladesh. Since its beginning in July 2011, PEDP III is continuing many of the quality improvements, institutional and systemic reform initiatives introduced under the previous programme (PEDP II) although with an increased focus on improving the learning outcomes in the classroom. One of the most important policy changes implemented since the inception of PEDP III is the nationalization of registered non-governmental schools (RNGPS). The Government of Bangladesh made a decision in 2012 to nationalize 20,168 RNGPS, which were delivering education to 3.8 million students, in order to bring up the quality standard of these schools to the level of government schools. The performance monitoring system under PEDP III uses 15 Key Performance Indicators (KPI) and 15 Primary School Quality Standards indicators to track sector progress. Based on the Annual Primary School Census data, which is judged to be of acceptable standards, the Annual Sector Performance Report (ASPR) is used as the reference for assessing the sector performance. Despite a specific division under the Directorate of Primary Education, responsible for monitoring the sector performance, improving the timeliness and robustness of these reports remains a challenge. The main instrument for translating sector policy targets (as reflected by the PEDP III program document) into a consistent budget framework is the Medium Term Budget Framework (MTBF). According to the Medium Term Macroeconomic Policy Statement , expenditure on education sector 1 has remained steady at more than 2 % of GDP over the period For the period , education expenditure shall increase by 9.5 % annually (average increase of budgetary expenditure is 6.1 %) to BDT billion (approx. EUR 3.5 billion) in FY18 2. However, education expenditure fell short of the SFYP ambitious target of 4 % of GDP by 2014 while education share of total expenditures has been constant at around 15-16% in the past decade, well below the EFA recommended benchmark of 20%. MOPME annual expenditure has almost doubled from 2008 (BDT 47.2 billion / approx. EUR 446 million) to 2013 (BDT 94.1 billion / approx. EUR 890 million). Following a mid-term review, all PEDP III annual budgets will have to be equal to or more than the original primary education budget for FY 14 (BDT billion / approx. EUR 1.1 billion) as a way of protecting the primary education budget, and the share of PEDP III in the development budget will have to increase every year. Based on the above assessment, it is confirmed that a credible and relevant primary education sector development programme is in place that supports the national policy objectives Macroeconomic policy Economic activity was disrupted by political unrest and uncertainty in the run-up to the January 2014 general elections. However, macroeconomic stability was maintained and international reserve buffers have been built up further. As calm returns following the elections and activity normalizes, growth is expected to recover 1 Covers the activities of the Ministry of Primary and Mass Education, Ministry of Education and Ministry of Science and Information and Communication Technology. 2 Financial Year in Bangladesh is from July to June. 4

5 in the second half of FY14 and in FY15but inflation could increase by one point to 7.5 % in FY14. The Budget deficit remains at around 4 % of GDP and public debt is also kept at 40 % of GDP. The structural reform agenda remains centered on: (i) strengthening fiscal revenue and tax administration capacity, including through steady implementation of the new value-added tax (VAT); (ii) enhancing public financial management, particularly debt management, cash flow forecasting, and financial reporting in state-owned enterprises; (iii) reforming the state-owned commercial banks; and (iv) boosting inclusive growth through a revamped and well-prioritized public investment plan, enhanced social safety nets, streamlined trade and foreign exchange regulations, and improved labour and safety standards. The government is currently designing a new five-year development plan to set out its medium term development priorities. The expected pick-up in imports and economic activity should help boost revenues in the second half of FY14 and in FY15. Beyond the cyclical recovery in revenue, continued efforts are needed to raise on a permanent basis the tax-to-gdp ratio (very low, even when compared to other low-income countries) in order to create space for increased priority spending. The principal risk for the near term is a resurgence of political unrest, which would lower growth, push up inflation, and potentially put pressure on reserves. Lack of firm progress in upgrading labour and safety standards in garment factories could trigger loss of preferential access to the European Union (EU), a high-impact risk. The IMF approved in April 2012 a three-year Extended Credit Facility (ECF) with Bangladesh for an amount of USD 986 million. The 4 th review under the ECF was satisfactorily completed in May 2014 with USD million already disbursed. In view of imminent plans for big infrastructure projects, it is expected that the Government will seek a new arrangement with the IMF to ensure availability of foreign exchange. Based on the reports of IMF and other international organizations which highlight sustained economic growth as well as country resilience to external shocks, it is confirmed that there is a credible stability-oriented macroeconomic policy Public financial management In Bangladesh, the last PEFA assessment at the national level was undertaken in October 2010 and the draft report was presented in March 2011but published officially only in December The report shows positive developments in all the concerned areas with a few exceptions. Concerns remain mainly in terms of corruption and capacity constraints. A more specific analysis of some of the PEFA indicators was undertaken at the level of Ministry of Primary and Mass Education (MOPME) in March The aim of the sectoral PEFA was to have a better understanding of the fiduciary risks and PFM reforms required to build upon the MOPME system through which the primary education system and PEDP III operates. The Government, with support of the World Bank, has started a repeat general PEFA in March

6 The main PFM policy guidelines are included in the Outline Perspective Plan of Bangladesh (Making Vision 2021 a Reality) and the Sixth Five Year Plan The Government has not approved a PFM reform strategy but adopted an action plan in 2006 called "GoB Vision and Medium Term Rolling Action Plan ". A National Integrity Strategy was adopted in October The Government is in the process of preparing a new five-year plan and many donors are asking the Government to prepare a PFM reform strategy. The Strengthening Public Expenditure Management Program (SPEMP) funded through a WB Multi Donor Trust Fund was approved in 2009 and was complemented by the SCOPE project funded by Canada. These two projects have been providing support to Finance Division of the Ministry of Finance (budgeting, IFMIS, debt management), OCAG (external audit) and PAC (legislative oversight). Both projects will come to an end in In the case of the SPEMP project, design misalignment and considerable delays have had an impact on the expected outcomes. Negotiations are going on regarding the continuation or design of a new PFM reform programme. At the PFM Task Team, DPs have insisted on the need for the Government to prepare a comprehensive PFM reform strategy. The EU has reserved an allocation for PFM reform in the new MIP in view of these developments. The extension of the WB trust fund in charge of the SPEMP project will serve to ensure continuity of some key reforms and could also provide the platform to decide next steps on PFM reforms in the country. One of the areas where progress has been more evident is external audit and legislative oversight. The activities to build the capacity of the Comptroller and Audit General (C&AG) and the Parliamentary Audit Committee (PAC) have also achieved significant progress in terms of improved efficiency of the OCAG and PAC, and timelier audit reports. The capacity of the Office of the C&AG was built through new staff, training and auditing tools. The Public Accounts Committee has been very successful in clearing the considerable backlog of audit reports. In the area of procurement, the main reform project is the WB Public Procurement Reform Project II which was extended in With an amount of USD 36 million, the project is currently consolidating two areas: e-government Procurement (e-gp) combined with procurement performance monitoring, and capacity development of CPTU and the four target agencies. Revenue reforms are intensifying with the WB VAT Improvement Program (VIP). This USD 60 million project, started in 2014, will support the government to implement the new VAT law which comes into effect in 2015 and aims to provide better services and reduced administrative costs for taxpayers. The EU-funded Tax Policy and Administration Topical Trust Fund of the IMF is providing support to the Government on the areas of VAT, income tax, property tax and transfer pricing. At sector level, PEDP III has been a pioneer of PFM reforms by integrating both revenue and development budgets, and making use of the accounting functionalities provided by ibas accounting system. For this reason, PFM aspects are at the core of PEDP III. The arrangement of channelling the Development partner's support through country systems has given an opportunity to assess the weaknesses of financial management and procurement, and provide technical assistance where necessary. PEDP III has a pool of financial experts working on PFM aspects since 6

7 PEDP II. Additional safeguards like Quarterly and Annual Fiduciary Review have been put in place to assess the capacity and weaknesses of the systems. Audit at MOPME has been strengthened in coordination with SPEMP. For the first time, the audit of a Government department has covered both revenue and development expenditure. However, discussions are still on-going in a way to institutionalize this new modality of audit for SWAPs. The PEPD3 Joint Financing Arrangement (JFA) also includes an annex on actions to be implemented related to financial management and procurement. The PFM monitoring framework sets out 19 separate Actions under headings for: Budgeting, Funds Flow, Accounting, Internal Controls and Internal Audit, Financial Reporting, Audit and Accountability; and Procurement. The PFM action plan was last updated in the annual joint review mission of May In the area of corruption, the Government made an important move by adopting a National Integrity Strategy in October 2012, which is a full-fledged and comprehensive strategy with short, mid-term and long-term actions. It covers more than 10 state institutions as well as 6 non-state institutions, the challenges they are facing, and recommendations for actions. However, little effort has been made to implement or put in practice some of its recommendations. Most of the important accountability institutions of the Government lack legal empowerment and are constrained by low financial and human resources as well as weak political support. Based on the progress in several PFM projects as well as the improvements on public financial management brought about by PEDP III programme, the Delegation confirms that there are credible programmes to improve public financial management. The currently proposed top up, however, will be conditional either upon a positive outcome of the negotiations between development partners and the Government on the presentation of a PFM reform strategy, or an effective extension of the World Bank Trust Fund, in particular with respect to financial accountability and support to line ministries for medium term budgeting Budget transparency and oversight of the budget According to the Open Budget Survey 2012, Bangladesh scored 58 out of 100 and is among the countries which provide "some" budgetary information. Bangladesh produces only 4 out of 8 budget documents measured but has improved from a score of 39 in 2006 to 58 in Bangladesh does not prepare pre-budget statement (though the finance ministry officials sit with business associations, economists and civil society to gain their inputs), citizens budget, year-end report and audit report (not timely produced and published). However, as mentioned under PFM, considerable progress has been made in dealing with the backlog in audit reports, so the Open Budget Index (OBI) could go up, and a budget booklet to share knowledge of budget policies and institutions with citizens has been published. Public engagement in oversight activities is weak. The Delegation confirms that the government has already published the Executive's proposal in the website of the Ministry of Finance: Thus, the entry point for this eligibility criterion is met. 7

8 2.4. Lessons learnt Being the first ever Sector Budget Support Programme in Bangladesh, PEDP III has been playing a vital role in enhancing the Development Partners' understanding of the country system's challenges while at the same time acting as the vehicle for strengthening and capacity building of all the stakeholders. However, for EU in particular, it has been challenging to engage in a dialogue in PFM with the Government given the limited ownership of the PFM reforms. While harmonising with the other eight donors, it was also difficult to ensure proper understanding of the specific EU requirements within the government entities. Nevertheless, due to consistent support and commitment to the education sector, EU has played a key role in strengthening the dialogue and the process of education sector reforms. EU's active involvement with all the relevant partners of the sector has been instrumental in the dialogues for strengthening the coordination between state and non-state actors in order to improve service delivery. The mid-term review of PEDP III was launched in mid As a part of the process, Government jointly with development partners and civil society groups, met in March 2014 to assess the progress of the programme implementation and performance. This review mostly confirmed the findings of the previous annual review missions (JARMs). Moreover, the review also suggests for a one year extension of the programme given the initial delay and slow progress in some of the programme components. Key lessons learned from PEDP III implementation so far are that The sector-wide approach has i) created high level of government ownership and leadership of the development process and ii) enhanced programme sustainability compared to standalone projects approach Government organisation has been strengthened through use of existing structure and systems for implementation which enabled greater focus on governance and systemic issues The holistic programme based approach has enhanced sector efficiency through minimising duplication and fragmentation of activities; On the other hand, there are also some less positive lessons learned like (i) Limited policy focus discussions, this has led to poor implementation of some programme priorities (ii) Under-utilisation of technical assistance (despite the common TA framework) mainly due to lack of ownership and capacity to plan and coordinate (also mentioned by ROM) (iii) Limited capacity exists in complying with the special provisions in JFA procurement requirements (iv) While reducing the fiduciary risks, using Govt. system for budget management and execution has led to some challenges for PEDPIII with respect to donor funding 8

9 (v) Despite PEDP III design being conceptually strong with the emphasis on learning, fullest possible benefits of the programme requires more systematic and coordinated monitoring and evaluation (vi) For EU Budget support instrument, presence of an embedded TA is crucial in order to increase the understanding and capacity within the line ministries Complementary actions The EU support for PEDP III (budget support & TA support through UNICEF) is highly complementary with other EU interventions in the sector, in particular targeted interventions (such as education in Chittagong Hill Tracks areas, primary school feeding) and civil society partnership programmes (such as the non-formal education programme SHARE 'Supporting hardest to reach through basic education' and support to education network CAMPE). Using this combination of programme and project-level support, EU has been playing an instrumental role in engaging with the government and other partners at a policy level dialogue on sector reforms. This 'twopillar' strategy has also been highlighted by a Court of Auditor s education review as exemplary pro-poor. Additionally EU has been co-chairing for past two years the Education Working Group of the Local Consultative Group (ELCG), thus leading the sectoral policy dialogue Risk management framework The risk management framework was first prepared in February The last update took place in January The inherent risk levels remain the same except for macroeconomic risk which decreases from moderate to low risk. Following a difficult year in 2014 due to political violence and social agitation, the economic outlook for 2014 and 2015 is more positive. Political risk remains substantial due to a deterioration of the human rights and democracy situation. However, taking into account that this is a sector reform contract, political risks can easily be mitigated. Developmental risk is substantial mainly due to poor Government effectiveness. Public Financial risk is substantial, in particular due to poor control on budget execution. However, PEDP III contains several safeguards and technical assistance measures in this area. Corruption is rated as a high risk area and is the riskiest category. This is due to a very high perceived level of corruption but also because of weaknesses in public sector. 3. DETAILED DESCRIPTION OF THE BUDGET SUPPORT CONTRACT 3.1. Objectives General Objectives: Formation of human capital for sustaining economic growth and poverty alleviation Specific objectives: Establishing an efficient, inclusive and equitable primary education system delivering effective and relevant child-friendly learning to all Bangladesh s children from pre-primary to primary education 9

10 Cross-cutting issues: The programme will contribute in promoting equal and nondiscriminatory access to primary education services and mainstream inclusiveness and gender. It also gives special attention to education response to potential impact of climate change and other natural disasters. For school infrastructure works, the government has adopted the World Bank s Environmental Management Framework and Social Management Framework and provides an annual report on their implementation. Sector governance is another key cross-cutting theme of PEDP III, focusing on strengthening decentralisation through delegation of greater management responsibilities sub-district education authorities. Schools and community are being empowered through nation-wide expansion of the school improvement grant scheme, alongside strengthening providing capacity building for school management committees. Programme-level governance is to focus on strengthening the public financial management of the primary education systems through implementation of the PFM Action Plan Expected results The expected results of PEDP III, with which the specific SPSP objectives are aligned, are: (i) improving student learning outcomes; (ii) ensuring universal access and participation; (iii) minimising regional, gender and other forms of disparities; (iv) enhancing education decentralisation and school governance; (v) strengthening sector budget effectiveness; and (vi) enhancing sector and programme planning and These six results are described below in terms of expected outcomes that will measure progress towards achieving the reforms under PEDP III. Learning Outcomes Results Area: All children acquire grade-wise and subject-wise expected learning outcomes or competencies in the classroom Participation & Disparities Results Area 2.1: Improved participation of all children in pre- and primary education in all types of schools (formal, non-formal, and madrasah) Results Area 2.2: Regional and other disparities reduced in terms of participation, completion and learning outcomes Decentralisation & Effectiveness Results Area 3.1: decentralised Results Area 3.2: Programme Planning and Management Results Area 4: management Sub-district (upazila) and school level management functions Increased effectiveness of budget allocation and utilisation Improved sector and programme planning and results based 10

11 3.3. Rationale for the amounts allocated for budget support The total amount allocated for education and skills development sector under MIP is 300 million EUR of which 11 % is to be delivered under the present budget support programme. This amount is based on the following assessment: Bangladesh tax-to-gdp ratio of around 13% is very low even compared with similar countries. Budget deficit is in the region of 4-5 % of GDP and gradually increasing. Although foreign external assistance commitments have grown considerably, the Government mainly relies on domestic financing to cover its deficit, which is causing some problems in the financial sector. In this complex scenario, the Government has difficult decisions to make with regards to the allocation of resources. Even though education is a policy priority for the Government, the limited domestic resources, the intra-government competition for allocations, the low efficiency in expenditure and the increasingly important demands for ambitious infrastructure plans, makes focus on education financing an important goal for development partners. The Government has repeatedly committed to increase the current stagnating 2 % of GDP expenditure on education. On the other hand, the budget for primary education is one of the most credible and it is aligned with the MTBF which makes the connection between policies and budget. The education budget for FY increased by 15 %. The modality of budget support selected by the EU is aligned with the treasury model of PEDP III which in practice means the use of country systems for the implementation of the programme. As such, the treasury model is an ideal modality for the use of budget support, which is based on policy dialogue with the Government and use of country systems. MOPME's annual expenditure has almost doubled from FY08 (EUR 446 million) to FY13 (approx. EUR 890 million). Following PEDP III mid-term review, all annual budgets will have to be equal to or more than the original primary education budget for FY13/14 (approx. EUR 1.1 billion). PEDP III development expenditure has suffered from an earlier delay but there is a growing concern for funding gap for the rest of PEDP III period due to critical policy changes (nationalisation of RNGS, extension of primary education till grade 8) and increased construction unit costs. Overall, PEDP III objectives have been achieved so far through the use of budget support and treasury model. PEDP III is a result-oriented programme based on the policies of the Government with a solid monitoring system. The EU planned budget support of EUR 10 million per year represented only 0.06 % of Government revenue but 1.1 % of MOPME budget in FY However, DPs contribution to PEDP III under the Treasury model is approximately 20 times that of the EU. Thus, DPs assistance to primary education could represent approximately 20% of MOPME expenditure, which in fact is 5 % higher than originally planned. This is due to Government over-expenditure forecast. 11

12 3.4. Main activities The main activities to implement the budget support package are policy dialogue, financial transfer, performance assessment, reporting and capacity development Budget Support As a part of the main activities to implement the budget support package, policy dialogue in the primary education sub-sector is ongoing. These are usually around the conditions for financial transfer and reform priorities. In PEDP III, certain conditions are to be met together with specific performance, against which the financial transfer is done. Therefore, the dialogue is also around regular monitoring and performance assessment against the set target and indicators, reporting on progress and issues arising in the implementation of reforms. The verification of conditions and the payment of budget support have been closely linked and being followed up with the issue of government ownership and capacity development Complementary support Complementary assistance will include Technical Assistance to support the Delegation and Government of Bangladesh in implementing the PEDP III programme. Detailed terms of reference will be developed in consultation with Government following the addendum to the existing Financing Agreement. This technical assistance will be in addition to the existing technical cooperation channelled through UNICEF Donor coordination As a SWAp financed by nine development partners, the PEDPIII programme has a strong coordination framework which includes a donor consortium and four working groups (Administration & Monitoring, Disparity, Quality, and Procurement & Finance). Sector PFM issues are mainly discussed at the Procurement & Finance Working Group (PFWG). There is LCG Education Working Group (ELCG) which is currently chaired by the European Union. The LCG has two sub-groups: the PEDPIII Consortium and the Skills Development Working Group. The dialogue on PFM issues takes place mainly under the Governance Working Group (chaired by the EU), where two specific task forces have been created dealing with PFM and Anti-Corruption, respectively. The Governance Working Group as well as the PFM and the Corruption Task Forces are chaired by one representative from the Government and one representative from development partners. The Governance Working Group normally meets twice a year to review the activities of the different task forces created under it Stakeholders The main stakeholders/beneficiaries of the programme are the Ministry of the Primary and Mass Education (MoPME), the Directorate of Primary Education (DPE), the Ministry of Finance (MoF), local government education authorities at district and sub-district levels, pre-primary, primary and non-formal education schools (public, private and non-government organisations), school management 12

13 committees, school teachers and head teachers and parents and children. The nine development partners supporting the programme - EU, Asian Development Bank, Australia, Canada, Japan, Sweden, UNICEF, United Kingdom and the World Bank and non-governmental organisations are also main stakeholders of PEDP III Conclusion on the balance between risks (2.6.) and expected benefits/results (3.2.) Bangladesh risks are assessed as Substantial but mitigation measures reduce the risks to Moderate level. However, the risk of corruption and fraud remains substantial even after mitigations measures are considered, while the risk of non-intervention and the abandonment of some of the key quality activities of the programme could disrupt the current, decade-long reform process and on-going policy dialogue. Quality of education is a key driver for economic growth. From an economic point of view, delaying a reform by one year means 19 million students could lose one year of quality education. Investing on quality of education is the only way Bangladesh can become a middle-income country and improve the productivity and competitiveness of its economy. 4. IMPLEMENTATION ISSUES 4.1. Financing agreement In order to implement this action, it is foreseen to conclude an addendum to the financing agreement DCI-ASIE/2011/22542 with the partner country, referred to in Article 184(2)(b) of Regulation (EU, Euratom) No 966/ Indicative operational implementation period The indicative operational implementation period of this action, during which the activities described in sections 3.4. and 4.4. will be carried out, is 72 months, subject to modifications to be agreed by the responsible authorising officer in the relevant agreements Criteria and indicative schedule of disbursement of budget support a) The general conditions for disbursement of all tranches are as follows: Satisfactory progress in the implementation of the National Education Policy through PEDP III and continued credibility and relevance thereof; implementation of a credible stability-oriented macroeconomic policy; satisfactory progress in the implementation of PFM reform programmes/projects; satisfactory progress with regard to the public availability of timely, comprehensive and sound budgetary information; b) Eleven specific conditions on primary education sector reforms will be required for the variable tranches Production & Distribution of Textbooks Teacher Education and Professional Development Pre-Primary Education 13

14 Needs Based Infrastructure Development Decentralized School Management and Governance Grade V Terminal Exam Strengthened Teacher Recruitment and Deployment Annual School Census Sector Finance Universal Primary Completion (EU only) Reduced Regional Disparities (EU only) The indicative schedule of disbursements is summarised in the table below (all figures in EUR millions) based on fiscal year of Bangladesh. Tranche Type Y1 (paid in October 2012) Y2 (paid in March 2013) Y3 (paid in May 2015) Y4 (to be paid in Septembe r 2015) Y5 Y6 Y7 Total Fixed Tranche s Variable tranches ( ) ( ) 18 ( ) 7.5 (0 +7.5) 18 ( ) 13.5 ( ) Total ( ) 64( ) ( ) 4.4. Details on complementary support Procurement (direct management) Subject in generic terms, if possible Type (works, supplies, services) Indicative number contracts of Indicative trimester of launch of the procedure Technical Assistance services 3 1 st half Scope of geographical eligibility for procurement Subject to the following, the geographical eligibility in terms of establishment for participating in procurement and grant award procedures and in terms of origin of supplies purchased as established in the basic act shall apply. 3 Late remaining payment from the variable tranche ) 4 Late remaining payment from the variable tranche ) 14

15 The responsible authorising officer may extend the geographical eligibility in accordance with Article 9(2)b of Regulation (EU) No 236/2014 on the basis of urgency or of unavailability of products and services in the markets of the countries concerned, or other duly substantiated cases where the eligibility rules would make the realisation of this action impossible or exceedingly difficult Indicative budget of the additional funding Module Amount in EUR million Third party contribution 3.3. Budget support Sector Reform Contract 49.5 N.A Procurement (direct management) 0.5 N.A. Contingencies Nil N.A. Totals nil The overall budget for the programme is EUR 50 million from 2015 funds Performance monitoring EU sector budget support funding allocation and disbursement trigger conditions are aligned with the result framework of the PEDP III programme and are harmonised with the approach adopted by all development partners set out in the Joint Financing Arrangements under PEDP III. Annual Fixed Tranche release is based on a positive assessment of the four eligibility criteria for budget support covering (i) Satisfactory progress in the implementation of the nation Education Policy and continued credibility and relevance thereof (ii) implementation of a credible stability-oriented macroeconomic policy (iii) satisfactory progress in the implementation of PFM reform programme and (iv) satisfactory progress with regard to the public availability of timely, comprehensive and sound budgetary information. Assessment of the first eligibility criteria will be based on joint positive assessment by development partners on satisfactory progress in implementing sector policy under PEDP III at the joint annual performance review. Annual Variable Tranche release is based on a joint positive assessment by development partners on satisfactory meeting of a set of joint disbursement linked indicators (DLI) at the joint annual performance review. This set of DLIs is comprehensive in scope and reflects the medium term priorities of the government in primary education reform. The DLI matrix consists of targets for key intermediate performance indicators, including policy actions, institutional development and output indicators in the PEDP III components: learning and teaching, participation and disparities, decentralization and effectiveness of budget utilisation. 5 5 If a DLI has multiple actions/outputs in a given year, all conditions have to be met for the release of funding linked to that DLI. 15

16 In order to ensure there is sufficient focus on sector performance, at the request of EU, two outcome-level indicators will be included and only applied to EU sector budget support. The two EU-specific DLIs have been introduced in Year 3 (2014), taking into account that it will take some time for activities/outputs to translate into improved sector performance. The list of DLIs is shown under paragraph 4.3 b). For the variable tranche, targets not attained in year N may still be attained in year N+1, allowing for deferment of related funds until year N+1. In exceptional cases, if duly justified, a request could be sent to EU for extending the deferment further. Targets and corresponding fund release not attained in the final year, 2017, may be deferred until 2018 but not beyond. The criterion for release of funds is based on an equal weighting of specified indicators. Following the additional financing, the amount against the indicators will be doubled for year 5 and year Evaluation and audit As set out in the Joint Financing Arrangement (JFA), the Government of Bangladesh and development partners conducts: (i) a mid-term review of PEDP III after Year 3 in mid-2014; and (ii) an evaluation of PEDP III after completion in mid The government will coordinate and manage the review and evaluation processes jointly with the development partners, including preparation of terms of reference, contracting of any external technical assistance for the evaluation. The cost of mid-term review will charge PEDP III programme budget and the evaluation will be charged to the development partners participating in the process unless otherwise agreed to between the signatories of the JFA. As PEDP III funds are disbursed to the Consolidated Fund of the Government, the audit of PEDP III funds will be done according to audit procedures as described in the JFA. In addition to the joint arrangements, a small portion of the programme fund EUR 200,000 has been set aside for the EU Delegation to conduct independent programme evaluation and audit Communication and visibility Communication and visibility of the EU is a legal obligation for all external actions funded by the EU. This action shall contain communication and visibility measures which shall be based on a specific Communication and Visibility Plan of the Action, to be elaborated before the start of implementation and supported with the budget indicated in section 4.5 above. The measures shall be implemented either (a) by the Commission, and/or (b) by the partner country, contractors, grant beneficiaries and entrusted entities. Appropriate contractual obligations shall be included in, respectively, financing agreements, procurement and grant contracts, and delegation agreements. The Communication and Visibility Manual for European Union External Action shall be used to establish the Communication and Visibility Plan of the Action and the appropriate contractual obligations. 16