"This article is part of the #FundEducation blog series, which focuses on the urgent need to bridge the financing gap for SDG 4: Quality Education for All. The series gathers insights from partners and experts in education finance, reflecting on the challenges of enhancing the volume, efficiency, and quality of resources dedicated to education worldwide, as well as the actions needed to ensure that education is adequately funded in the future."
Main message: Low-and-middle-income-countries face many spending challenges, but with support from the international community, they can boost their revenue potential through tax reforms to increase government spending, including on education, and accelerate progress towards the Sustainable Development Goal 4: quality education for all.
Quality education for all, the fourth SDG, is central to achieving the 2030 Agenda for Sustainable Development. While the benefits of quality education for all are beyond doubt, the world is a long way from ensuring this goal. There have been considerable gains in access to education in recent years, but being in school does not equal learning for all: according to UNESCO, more than 617 million – or six in ten – children and adolescents worldwide, mostly in low-and-middle-income-countries, do not achieve even minimum levels of proficiency in reading and mathematics. In these countries, there is a strong correlation between increased spending and improved education outcomes. Nonetheless, there is an estimated USD 97 billion funding deficit for low- and lower-middle income countries to achieve the SDG for education (SDG 4).
Domestic financing, of which tax revenues are the primary component, is by far the largest source of funding for education in low-and-middle-income-countries, dwarfing the resources provided through development co-operation. Aid is already a small share of total education spending in low-and-middle-income-countries and it is in decline. There is an increasing urgency to raise domestic resources to address funding gaps, including for education. While debt relief and debt swaps can certainly help to expand fiscal space for low-and-middle-income-countries, public domestic financing is the only sustainable source of funding that has real potential to grow over the medium to longer term, and to contribute to improved learning outcomes in these countries.
Today, many low and middle-income-countries have a tax-to-GDP ratio of less than 15% — the IMF’s recommended threshold for supporting productive investments and sustaining growth – and far below the average for OECD countries of just under 34% in 2024. From 2012 to 2020, tax revenue as a percentage of GDP stagnated in low-and-middle-income-countries. They need to broaden their tax base as agreed at the Addis Ababa Conference on Financing for Development in 2015 as a necessary step to accelerate progress on SDG 4.
The IMF estimates that low-and-middle-income-countries could raise their tax-to-GDP ratios by a third to a half through tax system and institutional reforms. Tax revenue increases of this magnitude, if accompanied by a proportional increase in education allocations, would go a long way towards eliminating the annual funding deficit for achieving SDG 4. Moreover, if these increased education budgets are spent wisely and well, the resulting achievement of universal basic skills, such as literacy and numeracy, by 2035 would lead to considerable gains for countries in terms of increased GDP. In low-and-middle-income-countries, OECD analysis suggests the gains would be extremely high: a present value of gains averaging 13 times the current GDP of these countries. Translated into a percentage of future GDP, this implies a GDP that is 28% higher, on average, every year for the next 80 years for countries that achieve universal basic skills (OECD, 2015).
Spent wisely and well, tax revenues can further improve education outcomes and create a virtuous circle that helps achieve SDG 4 and other SDGs.
Achieving universal basic skills would complete a virtuous circle of education financing whereby improved educational outcomes and higher tax morale boost incomes and revenue capacity and, in turn, contribute to even higher allocations of expenditure to education, see figure below (OECD, 2020):
The OECD recommends two key steps for countries to take for the benefit of education and encourages the international community to support these efforts:
- Spending analysis: Produce a detailed diagnostic of the current state of a country’s education system, examining needs, coverage and its effectiveness, including equity issues and the financial sustainability of the system.
- Financing analysis: Identify the tax policy and tax administration options specific to each country to strengthen revenue raising capacity, including: assessing the advantages and disadvantages of the different reform options; quantifying their revenue potential; and building cross-government and development partner support for working on tax.
While spending more money on education is vital, how money is spent matters for learning outcomes and achieving SDG 4 almost as much. Therefore, to complete our virtuous circle, it is necessary for countries to generate data and evidence of educational outcomes through learning assessments, such as the OECD’s Programme for International Student Assessment (PISA) and other education surveys and research on which to base effective policies and increased resource allocations to ensure better teaching and learning takes place in the schools.
Disclaimer: This blog section features insights and ideas from the SDG4 High-Level Steering Committee members and other education partners on transforming education and leading SDG 4. The opinions expressed are those of the authors alone.