Initial Project Information Document (PID) Report No: AB124

Project Name -Education 2 Region Europe and Central Asia Region Public Disclosure Authorized Sector Secondary education (70%); Tertiary education (30%) Theme Education for the knowledge economy (P); Education for all (S) Project P081439 Borrower(s) Implementing Agency(ies) MOF, MES Ministry of Education and Science (MES) Address: Valnu iela 2, LV 1050, Republic of Latvia Contact Person: Ms. Sarmite Vegere, State Secretary, Ministry of Education and Science Tel: Fax: Email: Environment Category F (Financial Intermediary Assessment) Date PID Prepared June 12, 2003 Auth Appr/Negs Date April 2, 2004 Public Disclosure Authorized Bank Approval Date September 1, 2004

1. Country and Sector Background Introduction

Latvia is a small country of 2.4 million people situated on the Baltic coast of Europe. Since gaining independence in 1991, Latvia has made progress in stabilizing the economy and completing its transition to a market economy. After a dramatic decline in output in the early 1990s, it has become one of the fastest growing economies in Europe, with GDP increasing by 5.7 percent on average between 1996 and 2001 (Ministry of Economy of Latvia ). In 2001, GDP annual growth peaked at 8 percent, twice that of , or (World Development Indicators, ). The country is currently in the final steps of becoming a member of the . Living standards are thus gradually

Public Disclosure Authorized improving. However, significant challenges remain: there are regional differences in GDP per capita, unemployment is high at about 13 percent, and the Gini coefficient increased from 0.30 in 1996 to 0.34 in 2000. As a small country with limited resources, Latvia sees its human capital as its comparative advantage in the global economy. Like Estonia and Lithuania, Latvia has made the reform of its education system one of its priorities.

Main education sector issues

General

After nearly a half century of central direction and control by the Soviet authorities, Latvia inherited an education system that failed to address the needs of its new society and economy and was operating at a very high cost. Latvia started to introduce education reforms in the early 1990s, trying to adapt to emerging market forces and new demands coming from students, enterprises and employers, the Public Disclosure Authorized government, and public opinion, as well as to democratic conditions in society and the State. The current Development of Education Concept Paper (DECP: 2002-2005): (a) recognizes the importance of cooperation and partnership of education policy makers and all players involved in the implementation of the education policy - MES, municipal education boards, professional organizations of teachers, makers of university and vocational teaching programs (curricula) and employers, (b) includes the following 2 PID

priority areas for the development of education: improving quality, increasing efficiency, developing institutions and improving access to education, and (c) envisages an integrated administration of education. MES is planning to prepare a long-term strategic plan for 2003-2010 to implement DECP and the commitments made in the Government Declaration of the recently elected Government.

Latvia’s school education system consists of a 9-year compulsory basic education, followed by three years of general secondary education or 2-3 years of vocational secondary education. Academic and professional curricula are offered within the higher education system (bachelor’s program of 3-4 years, master’s program of 2-3 years and doctoral program). The education system has wide coverage and, in general, education outcomes are high. Net enrollment in primary schools is close to 100 percent. About 60 percent of the secondary students attend general secondary schools, and the rest attend professional/vocational schools. At about 50 percent, Latvia’s tertiary participation rate (gross enrollment ratio) is on the same level of , , and the .

Public expenditure on education was about 6.5 percent of GDP in the lates 1990s, compared to an average of 5.3 percent in the OECD countries. The most recent European Commission report (EC 15 quality indicators of lifelong learning performance in Europe, 2002) confirms Latvia’s comparatively higher level of public spending on education. The average figure for EU members is 5.2 percent of GDP, rising to 5.8 percent for EU candidate countries. In addition, the contribution of the private sector represents a growing source of funding in Latvia. Tuition fees paid to higher education institutions account for more than 30 percent of their budget.

There are inequities in educational opportunities in rural and urban areas and across regions. Economic activity is concentrated in Riga city and region, and accounts for more than 50 percent of GDP, 40 percent of tax revenue and 37 percent of population. About half of Latvia's poor live in rural areas and about one third live in smaller cities other than Riga. Poverty is also regionally concentrated. The rural poverty rate stands at 28.5 percent, in contrast to the 10.8 percent rate in Riga city and the 12.6 percent poverty rate in Riga region. The average per capita income in the Latgale region of eastern Latvia is less than one quarter that in Riga. Lack of successful efforts to optimize school education networks and delays in the implementation of the territorial reform hamper progress in reducing inequities and contribute to the low efficiency.

Educational attainment has risen rapidly in recent years. In 2000, only 19 percent of Latvians aged 25-34 years had failed to complete at least upper secondary education. In the European Union (EU) countries, this figure was 29 percent on average. In the EU candidate countries, however, the percentage of people who have not completed upper secondary is, on average, smaller than in Latvia. In , the , Lithuania and , for example, the figure is below 10 percent. Great efforts are being made in order to align the education system closer to those in the western neighboring countries. The EIP I project supported by the World Bank has made several contributions to the overall reform of education system in Latvia. However, the education system still suffers from problems of poor quality and relevance, low efficiency, and weak management capacities.

Poor Quality and Relevance

The challenge of quality pervades every dimension of Latvia's education system (OECD, Reviews of National Policies for Education - LATVIA, 2001). The most critical quality and relevance problems, however, are found in the realities of its schools and classrooms and in its higher education institutions.

In General Education: An ongoing concern of the Latvian education reform is to change how school 3 PID

teachers teach and how students learn, to be prepared for the labor market, for participation in civil society, and for life-long learning. While progress has been made by modernizing the education curricula and introducing new subjects and teaching methods, further success depends on significant improvements in the delivery of quality education. A condition of success for the introduction of new standards and program of studies, is having a cadre of teachers and school principals that not only understand the changes but that also value them and have the skills and motivation to put them in practice. Teachers should not only know how to use the new programs but also be able to adapt their teaching practices accordingly.

Student achievement. Latvia participated in the two most recent and comprehensive international studies on student learning, the Third International Mathematics and Science Study (TIMSS) and the OECD Program for International Student Assessment (PISA). In both studies, Latvian students performed less well than their European counterparts. The graph below shows that in the PISA study, Latvian students achieved lower results than the average for participating OECD countries, EU countries and EU candidate countries. In the case of TIMSS –which surveyed mathematics and science– Latvians faired better than students from Lithuania and but worse than the average for OECD and EU countries. Even more worrying, 30 percent of 15 year old students were graded at level 1 or lower in reading literacy in the PISA survey in contrast to the high figure among EU members. This means that Latvian “...students are not benefiting sufficiently from the educational opportunities available and are failing to acquire the necessary knowledge and skills to do so effectively in their future school careers and beyond" (OECD, 2001).

Mean score in student performance on combined reading literacy scale (PISA 2001) Brazil 396 Czech Republic* 492 EU average** 498 480 * Country 458 Latvia* Mean 422 500 México 479 462 OECD average 522 * 0 200 400 600 Scandinavian***

Source: OECD data base, 2001. Table 4.1. * EU candidates ** All EU members except The Netherlands *** , Norway and

There is no single factor associated with the relatively low achievement of Latvian students in these international comparisons. An analysis of TIMSS data showed that “the students were better trained in the simple reproduction of knowledge where they had been trained to perform formal tasks and to answer straightforward command-type questions. They definitely had more problems when confronted with questions based on real life situations” (Zabulionis: TIMSS in Transition Economies, 2001). It is clear that poor infrastructure, especially inadequately equipped classrooms and outdated textbooks, play an 4 PID

important role in affecting what and how pupils learn in school. Low teachers salaries and lack of inspiring working conditions in schools demoralize the teaching cadre and thus prevent the schools to do better than they apparently do.

Teaching profession Teaching lacks prestige and is poorly paid. The teaching profession has difficulty attracting university students which leads to problems in quality of potential new teachers. Other problems are the drain of trained teachers to other professions, the diminishing social support structures in the society and the increasing cost of living. Teachers salaries have been a central issue in Latvia’s education policy and improving remuneration is one of the key conditions for faster improvement of the quality of education. Since teachers earn relatively less than their equally trained peers in other professions, this results in: (a) teachers (especially in Riga and some other urban areas) having to add more teaching hours to their workload in order to attain reasonable living standards. In some cases teachers may teach up to 40 hours a week to earn more. According to the OECD, the average workload of Latvian teachers is about 1.3 times the basic level (the standard basic salary of a teacher is based on 21 hour-weekly formula). Mathematically, this means that even though there are 41,000 teachers in Latvia, only 37,000 actually do the work. Teachers’ salaries have been artificially increased by shifting the basic weekly teaching load from 21 hours to 27 hours; and (b) teachers looking for additional income from other sectors of the economy when no additional teaching is available in schools. In many cases, these teachers are providing private tuition for those students and families who can afford it. In order to prevent teachers to search for other jobs, some municipalities have introduced additional funding schemes for raising teachers’ salaries. These two features of teachers’ work in Latvia have led to a situation where teachers find it difficult to have time for professional development or attending provided in-service training events. It is therefore necessary to move the focus of professional development support and in-service training toward school-based solutions and on-the-job actions.

Since Latvia's teacher education system is in transition, the roles of various institutions need to become more coherent. With the lack of a coherent policy and operational environment, it is not surprising that initial teacher training is not yet in line with the educational reforms introduced by the MES during the past decade. Similarly, in-service training of teachers does not cover the whole country and it suffers from relevant provision in terms of the needs of the teachers. Furthermore, given the intensity and depth of the ongoing educational change, the resources available at the MES and the municipalities (except City of Riga) are not sufficient. The potential of wider prevalence of new pedagogical ideas among teachers exists due to the recent active cooperation of many external agencies and partners in Latvia (e.g. Open Society, EU, Nordic countries).

School leadership and principals. The role of school principal is becoming more important as a provider of educational leadership in schools. One aspect of the new school management approach, is understanding of school improvement and professional development of teachers in school. School principals need new managerial capacities and knowledge about how to develop quality of teaching and learning in schools. The quality of school management influences also the quality of classroom management and pedagogy. Therefore, it is vital that the professional development of teachers be supported also through enhancing the leadership and management of schools as organizations.

The issue related to teacher development, training and support in Latvia is not primarily the lack of training provision or opportunities to attend in-service training. The core of the issue is that the present provision of professional development support to teachers and school principals alike is not consistent with the actual needs of the current reform and undergoing changes. Professional development support to teachers is by and large through short courses outside the school to which individual teachers attend based on their own interests. There are little opportunities for whole schools or municipalities to organize longer-term development programs that would aim at more sustainable changes in the culture 5 PID and functions of the schools. Moreover, there is no commonly accepted understanding of what are the professional features and requirements for school principals and how these qualities should be developed.

In Higher Education (HE): Latvia’s HE system has experienced profound changes. Progress in reforming and modernizing HE has been achieved through: (a) increased learning opportunities (HE enrollment has more than doubled during the past decade); (b) expansion of the institutional base (state institutions have increased from 10 in 1990 to 20 in 2000 and 14 new private institutions have been established); (c) increased funding and diversification of funding sources (public expenditure in higher education has been decreasing in relation to GDP but private funding, originated from tuition fees paid by students both in state and private institutions, has been growing continuously); (d) compliance with the Bologna declaration; (e) accreditation of programs and institutions (a quality assurance system is in place and the first round of accreditations in 2001 accredited more than 90 percent of all programs and 31 out of the 34 higher education institutions); (f) a new vision for science and technology (research institutes have now been formally attached to universities, national research priorities have been established, and additional priorities for Latvia’s research cooperation with the EU have been identified); and (g) reorganization of the system of governance and coordination (after Independence, the Law on Education of 1991 introduced significant reforms to the status of HE such as depolitization of educational content, authorization for the establishment of private HEI, free choice for students, and administrative decentralization. Presently, the governing principle of higher education is institutional autonomy in accordance with the Law). (J.J. Brunner, Latvia - Higher Education: Changing Conditions, Problems, Challenges and Policy Options; January 2003).

Figure A Latvia and Western Europe in selected knowledge variables (normalized values)

Tertiary enrollment 10 Internet hosts per 10.000 Gross tertiary science and persons engineering enrollment 5

Computers per 1000 Total expenditure for R&D 0 persons (% GNI)

Patent applications granted Private sector spending on by the USPTO R&D

Number of technical papers per million persons

Latvia Western Europe 6 PID

Although significant progress can be observed, new problems and issues have emerged which pose also new challenges to HE institutions, governing bodies of the HE system, and society at large. In particular, growth of a global knowledge-based economy creates great opportunities, and poses great challenges, particularly for those countries dealing with difficult transitions from centralized forms of economic organization. A general overview of Latvia's position on the road towards a knowlewdge-based economy can be seen in Figure A above, which compares Latvia's performance to that of the countries of Western Europe (not pertaining to the G7 group) in a set of selected knowledge variables. It shows that in all relevant variables, with the exception of tertiary enrollment, Latvia’s performance clearly lags behind, particularly in those elements that are crucial for a productive national innovation system (NIS).

Major areas of problems and challenges for Latvia’s HE have been identified. While relevance of HE for national development and the quality of teaching are the most critical ones, the institutional organization of higher education, the innovation system and the role of R&D, the funding mechanisms, and the governance and coordination, are also key to understand the current difficulties:

Quality of teaching. International experience shows that in any rapidly expanding HE system, particularly when material and financial resources do not increase at the same rate, problems and issues of quality arise that must be confronted. In this respect, two separate sets of quality issues stand up as the most important in Latvia: (a) availability of a high-qualified faculty. There are two particularly serious problems: (i) the aging of teaching staff, and (ii) the very small number of PhD graduates, well below the quantity needed to renew the teaching staff at HE institutions; and (b) the need to find adequate balances in the orientation and organization of study programs between theory and practice, general and specialized education, teaching and learning, and between studying and working.

Relevance of HE for national development. In a rapidly changing economic, social and cultural environment, HE must continually adjust to these changes, react to the economy’s needs, respond to labor markets demands, and act in response to local, regional, national and international requirements. In this regard, there are three major topics of concern: (a) the balance between vocational, non-university, short term programs, and university, academic and professionally oriented courses; (b) the distribution of graduates by knowledge areas and the correspondence between supply and demand of hard and soft skills; and (c) the relevance of acquired skills to the economy and employers’ needs. Latvia’s HE degree structure, as well as significant number of education programs and a considerable share of enrollment are all skewed in favor of academic, non-vocational content. In fact, Latvia has a weak tradition in vocational education and practically no tradition of this type of education at the tertiary level, which in other European countries comprises between 18 and 63 percent of total enrollment. Moreover, its development has been weak during the last years, with only 8 percent of total enrollment, at all levels, attending vocational training programs. In the case of HE, only a small fraction of students was enrolled in vocational programs, despite the Government’s efforts to modernize and make more attractive vocational education and training.

Institutional-support arrangements . HE relevance and quality need to be supported by adequate infrastructure. Latvia faces severe problems in this regard. Major shortages can be found in four areas: (a) general infrastructure (maintenance and renovation of buildings, heating); (b) teaching infrastructure (teaching laboratories and equipment, libraries, access to electronic and specialized data bases); (c) research infrastructure (research laboratories and equipment) and (d) management infrastructure. During the last decade funding for all these four purposes has been scarce and as a result, there is growing pressure on government to finance investment programs in state HE institutions.

Innovation system and the role of R&D . Future development of Latvia’s economy and society crucially depends on the ability of its enterprises, government and people to create, import, adapt and disseminate 7 PID knowledge. The National Development Plan (NDP) for the period 2003-2006 strongly emphasizes the need of knowledge, skills and innovation in the more dynamic sectors of the economy: i.e., the forestry and fishing industries, metal-fabricating and machine-building sectors, electronic and electro technical sectors, communication and information technologies. A National Innovation Systems is the most common set-up designed to meet these requirements. Latvia’s performance over the last five years can be seen has having improved its innovative capacity, particularly with respect to its economic incentive regime, its information infrastructure and its education system. However, the capacity to produce and disseminate innovations is lagging behind, and when compared to Western European countries (Figure A above), Latvia shows distinctive shortfalls. This apparent underperformance is not only caused by low expenditure in R&D. It also reflects a more generalized weakness in the development of R&D capacities and their link with industry, especially high tech industry (see below).

Innovation Infrastructure and Capacities

Scientists and Technicians in Science and High Technology Royalty and Patent engineers in R&D engineering exports license fees applications R&D (per million students (% of (Payments $ filed (per million people) (% of total manufactured millions) (Residents) people) tertiary level exports) students)

Norway 4095 1836 26 17 391 1731 3240 2643 25 21 .. 3339 Estonia 2164 540 27 30 8 14 2161 877 26 5 49 292 Ireland 2132 589 31 48 7899 1226 Lithuania 2031 632 31 4 12 86 Hungary 1249 485 32 26 257 787 Latvia 1090 301 23 4 12 94 Source: The World Bank (2002a)

Funding mechanisms . Latvia’s public expenditure in HE and R&D presently stands at around 1 percent of GDP. Although private financing both of HE institutions and R&D has increased during the last years, there is also need to expand state financing in both directions, and to improve the funding mechanisms used to allocate public resources to state HEI. State HEI receive funding through a mechanism described as normative cost of student places (an optimal cost for each student place is set for the different study programs and the calculation includes faculty salaries and estimated amounts for utilities, taxes, maintenance and research. A coefficient formula is determined whereby the optimal unit cost for a student in social sciences, economics and administration study programs receives a value of 1, and places in all other programs are then multiplied by the corresponding coefficient. The state decides every year the number of student places it will grant for each HEI). In practice, however, the principle of normative costs does not work, mainly because of limited public funds. In fact, government is forced to apply “compressed” coefficients, so as to reduce the actual amount allocated per student place. The consequence is that the principle of linking the amount of the subsidy given per student to a normative cost, thereby creating an incentive for institutional efficiency on the part of HEI, is abandoned in practice. Although not yet perfected, a loan scheme was recently established to support students in public and private HEI who cannot pay a tuition fee from their own or family income.

Governance and coordination. A requirement for effective and efficient government intervention and system coordination is the existence of a state-body endowed with the authority, instruments and resources to carry out these functions. In most countries, the Ministry of Education fulfills these roles. 8 PID

In this respect, Latvia’s situation is more complex and has come under criticism. Not only does the Ministry of Education and Science exercise responsibility in the sphere of HE, but also five additional ministries (of Agriculture, Welfare, Interior, Culture and Defense). According to the OECD sector review, “the fragmentation of Latvian higher education is mirrored at the level of state agencies”( OECD, 2001:156). For expedient policy design and action, the MES also needs to strengthen its supervisory, information and management capacities. Latvia’s HE system and NIS have become both too complex and vital for the future of the nation and its economic development to be managed in less than at the highest professional level. In addition, sector regulations need to be revised and simplified. Narrow specifications of how and when state-allocated resources should be spent, curtail the HE institutions ability to rationalize expenditures, monitor price changes and save money in order to invest in alternative objectives.

Low efficiency.

One of the most difficult and widely recognized issues in Latvia is the decline in the number of school children, and thus the small class sizes and the small student-teacher ratios. Both class and school size have declined over the last 15 years. In 2000, the number of students in general schools was only 5 percent higher than in 1985. The number of teaching staff had increased by 22 percent in that time, however, and the number of schools by 12 percent. Class sizes are also much smaller in Latvia (11.6 students per teacher) than the EU (19.4) and OECD (14.4) countries. The information commonly published in Latvia shows an even lower ratio ( 9 students per teacher) because it includes both full-time and part-time teachers. Demographic trends suggest that this situation will tend to worsen in the coming years. The number of school children will continue to decline, as a result of a decrease in the fertility rate in the 1990s. According to recent estimates, in 2020 the number of young people aged 15-19 will be half the number recorded in 2000 (Prognosis of demographic development in Latvia: 1998-2025. Informative material. Ed. P. Zvidriòð. Riga: University of Latvia, 1999). As this situation is not financially efficient or sustainable, Latvia needs a serious optimization effort of its education institutions. However, this creates difficult situations for local communities where schools play an important role.

An administrative/territorial reform of regions and local governments has been proposed, and this will certainly help improve the process. However, it will not guarantee a more efficient allocation of resources within the school system. The proposed Novads will lack the appropriate incentives and capacity to prepare and implement school network optimizations plans. The importance of optimizing resource use cannot be underestimated. If the average class size were 11 students instead of 9 –which would still be below the OECD average– there would be 22 percent more resources per student. It would then be possible to more than double the resources available for school maintenance, inputs and pedagogical supplies or to increase teachers’ salaries by the same proportion. This issue is all the more important in light of the fact that there is limited scope for raising additional funds.

A second area in need of efficiency improvement is related to expenditures on heating and electricity. Latvia spends more than twice as much per student for the heating and lighting of schools as Western systems in similar climates. As a consequence of these inefficiencies, education quality suffers. Under the ongoing EIP I Project, three groups of schools benefited from efficiency improvements, namely (i) general education schools; (ii) vocational schools; and (iii) pedagogical institutes. These improvements contributed to (i) increased cost effectiveness by obtaining energy savings, reducing repairs and maintenance costs, which translated into decreases in the schools recurrent costs; (ii) improved teaching and learning environment standards; (iii) prevention of emergency situations, ensuring the safety of school teachers and students; and (iv) optimization and better utilization of school space. The ongoing Project completed the renovation of 120 schools, or only about 10 percent of the educational 9 PID

establishments in Latvia. There is a strong need to continue the renovation of educational establishments.

Weak management.

Management of the education system in Latvia is carried out at three governmental levels: at the national level , the Parliament adopts legal acts and the State budget for the MES, and approves an Education Concept Paper every four years. The Cabinet of Ministers lays down regulations and provides overall direction to MES. MES, which was created in 1992, provides leadership and central support to the public education system. As defined by the new Education Statute introduced in January 2003, the key role of MES is to formulate policies, set standards and norms, coordinate education activities, manage and disburse State budget to educational institutions, accredit institutions, monitor and evaluate educational activities. At the municipal level, regional municipalities, supervise boarding schools, special needs schools, children’s homes and out-of-school institutions, whereas town and rural municipalities supervise pre-school education institutions, and elementary and secondary schools. Private institutions and state managed schools are not under the jurisdiction of municipalities. Regional municipalities set up regional school boards to exercise their functions. At the institutional level, educational institutions are administered by their heads (principals in schools, and rectors in higher education institutions). Educational institutions enjoy autonomy in organizing their work, carrying out academic activities including choosing and employing educators and technical aids, and adopting institution’s internal rules.

Public educational institutions in Latvia are financed from the State budget (through six ministries including MES, Agriculture, Welfare, Culture, Local Government), from the budget of the municipalities, as well as some natural and legal persons, external projects and establishment funds. The share of State and the municipalities expenditure in education was 5.4 percent of GDP in 2000. Education expenditure accounted for 17 percent of consolidated State budget in 2000. Education consumes the lion’s share of municipal spending (about half of municipal expenditures in 1998).

One of the major constraints to manage the education system effectively with a constant focus on quality improvements, has been its weak management capacity. MES staff turnover is high due in part to the low pay scale of MES staff. No systematic efforts are being made to strengthen capacity of education managers at the local level to manage quality education programs. Since schools are divided into State-managed schools and municipality-managed schools, the over fragmentation has made it difficult to optimize the school network and enhance efficiency. At present, roles and responsibilities of different MES departments and units are not clear. Inter departmental coordination is weak. EMIS activities are not given proper attention. Under the current MES structure, one division under the General Education Department with three staff and one small unit in ISEC oversee the teacher training issues. There are gaps between planning and implementation of activities mainly due to financial resource constraints and there is no medium-term planning framework to facilitate annual planning.

Government strategy:

The Government strategy in developing general education is to continue to support the efforts made earlier that are based on the principles of improving the quality of education, securing access to education for all, and increasing cost-effectiveness of education provision. The Government has taken several steps already to meet the set strategic goals by: (1) renewing the national curricula and standards of teaching and learning; (2) establishing new structures and policies to enhance quality assurance and information management; (3) increasing teachers’ salaries and setting higher professional standards for 10 PID teaching profession; and (4) improving the information provision of education system to the stakeholders.

One of the key areas within the ongoing education reform in Latvia is to have closer attention to school teachers. This means that teachers salaries need to be brought to the level that reflects their training and qualifications vis-à-vis other similarly trained professionals. The Government has committed to achieving these targets by increasing the share of education expenditures in the national budget and optimization of the education provision. At the same time, the MES requires that from 2004 on, every teacher in Latvia needs to have a university-level qualification to teach. In 2002, the Cabinet of Ministers issued a regulation that 26 out of 40 credit points (or study weeks) devoted to educational/psychological studies in teacher preparation programs should be reserved for field practice in schools. The Government has also approved several new regulations in order to improve the qualifications and competencies of teachers. Additional premiums are also planned to be awarded to those teachers working in more complicated or demanding environments, such as ethnic minority schools.

In addition, professional support and in-service training would support teachers in adopting the introduced reforms. The MES is planning to have a national knowledge promotion and training campaign in order to make the rationale and expected changes of the education reform more concrete to teachers. However, with the limited resources and lack of proper strategy on teacher education and further professional development, there will be serious gaps between what is expected from teachers and what their capacities will be. Without a holistic view on teacher education and development, what will be offered to teachers is likely to be only short training and information inputs that will have a limited impact on teachers daily work.

One of the main interests of the Government is to strengthen the quality assurance system of general education. The MES is planning to complete reforming the system of educational evaluation in basic and general education through national exams and tests that will be externally managed. The aim is to have a unified and single system of assessing the quality of school-level . Attached to this quality aspect of educational development, is the intention to create an internationally comparable system of educational indicators that could be used to inform the public as well as policy makers on the actual state of the education system.

As a part of school network optimization and enhancement and maintenance of education establishments, local management and leadership will be emphasized. The Government aims at increasing the self-regulatory role of schools and authority of local and school managers.

The main strategic direction for higher education in particular, is to increase its relevance and quality to effectively contribute to Latvia’s progress towards a knowledge based economy. The government plans on meeting this general objective through the following activities: (a) Increase funding for higher education and investments in science and technology, especially for training scientists and engineers, and strengthen knowledge production and absorption in areas critical for economic growth and competitiveness and for national development; (b) Strengthen institutional capacity in R&D through a complete and organic integration of research institutes into universities, the establishment of national research programs and excellence centers, and the adoption of the following criteria for R&D funding: competitive funding of research projects reviewed by peers, public funding of a limited number of national research programs in priority areas, selected with the participation of scientists, officials and the business community, funding of scientific infrastructure at state research centers, funding of excellence centers that are internationally competitive; (c) Focus these capacities in the following priority areas: 11 PID

Organic Chemistry; Bio-medicine and Pharmacy; Material Sciences; Information Technology; Forestry and Wood Sciences, and Lettonica. At the same time, increase research collaboration with the EU in the following priority areas: information technology and telematics, life sciences and biotechnology –biomedicine, drug construction, and biotechnology, new materials, ecology and environmental protection, energy technologies, forestry and agriculture research, social and economic research; (d) Improve the quality and relevance of higher education programs through a variety of mechanisms, such as (i) expanding professional and vocational courses, (ii) facilitating the transfer of students between academic and professional programs and short and long duration courses, (iii) creating new standards to better align professional courses with labor market needs, (iv) investing in general infrastructure and teaching facilities, (v) reforming teacher education programs, and (vi) most important of all, training a new generation of graduates at the doctoral level that will renew not only the age composition of the present academic staff but also its teaching practices and use of pedagogical approaches and methodologies; and (e) Further expand the quantitative outcomes of tertiary education as envisaged in the following figures set as targets for year 2010:

2000 2010 Number of students financed by state budget 32,588 50,000 Ph.D. student number 1,301 4,500 Number of professors 330 1,000 Number of scientists and engineers per million people 1,090 2,000 Number of specialists trained (annual) 12,000 30,0 00 Number of Ph.D. graduates (annual) 37 700 Number of yearly SCI publications 141 1,000

Finally, the National Development Plan (2003-06) has set the balanced and sustainable development of regions as one of the national priorities. To address the problems related to diseconomies of scale due to fragmentation of municipalities, the Government has taken initial steps toward reform. The Law on Administrative and Territorial Reform was introduced in 1998. It aims at creating economically sustainable administrative territories with local and regional municipalities able to provide quality services. According to the Law, the implementation of administrative and territorial reform of local municipalities would be completed by November 30, 2004.

2. Objectives The project development objective is to support the ongoing EIP I reforms, build on achievements in general education and expand the scope to include higher (tertiary) education improvements which are vital to Latvia' s engagement with the knowledge economy. The project aims at improving professional capacities of school teachers and principals, supporting optimization of schools networks and energy efficiency, improving higher education and strengthening management capacities in the education system.

3. Rationale for Bank's Involvement No other donor agency is available to provide either the technical or financial resources to support sector wide education reform in Latvia. The Bank has already supported the pilot quality improvement strategies and energy efficiency enhancement activities, and the achievements of the ongoing project could not be sustained without additional investments. In addition, the Bank brings the unique experience of supporting education reforms in several countries in the region. Particularly relevant for Latvia is the case of Lithuania. 12 PID

4. Description It is envisaged that the project would consist of four basic components:

Component 1: Teacher Development would provide support to teachers expected to change their teaching according to the new curriculum and educational standards. Teacher development would be enhanced in two ways. First, all teachers would be helped to understand the essential features of the curriculum and assessment reform. Second, mathematics and science teachers in general secondary schools would be supported to upgrade their knowledge, skills and ways of thinking related to teaching and learning of these subjects. This project would make an input on the national educational innovation system by disseminating good practices from Latvian schools and bringing in relevant ideas from international experts. This component also aims at creating professional standards for school principals that are based on international experience on school management. The project would finance program design, training of regional and local trainers, design and printing of information materials, work on professional standards, and piloting of models.

Component 2: Efficiency of Resource Utilization, which would aim at promoting the optimization of schools network by supporting MES to build the technical capacities of the local education authorities to develop and introduce a methodology for schools network optimization. The project would also build on the experience of the ongoing Bank-financed education project and provide support towards cost effective renovation and energy efficiency measures, improvement of teaching environment standards, safety measures and improved efficiency of utilization of educational facilities. The project would finance plans and methodologies for optimization of schools, training in the preparation of plans, transportation, and publishing of materials. It would also finance design of renovation works, renovation of educational establishments, monitoring of project benefits and training of stakeholders.

Component 3: Higher Education Quality and Relevance , which would aim at improving the tertiary education system’s response to society’s needs for relevant, high quality human capital and for technological knowledge that will enhance Latvia’s competitiveness in the global market. The project would promote greater quality and labor market relevance in the preparation of tertiary education graduates, and strengthen the structures of higher education governance. It would deal with improvements of teaching quality of advanced teaching programs (PhD) in natural sciences and engineering, strengthening of teaching relevance at regional higher education institutions, and the improvement of management capacities within higher education institutions. The component would finance integrated projects via a competitive fund for teaching quality enhancement. It will also finance competitive block grants for selected regional higher education establishments. It will also finance program development, training, technical assistance and software development.

Component 4: Capacity Strengthening would aim at strengthening MES and local capacities and manage the EIP II project. In order to strengthen the MES capacity, the project would provide support to define the role and responsibilities of the MES, develop and implement a human resource development plan, create a common MES framework for system government, and operationalize a comprehensive EMIS covering higher education. Project support would be provided to further strengthen the MES Education Policy Department and the Communications unit, as well manage the project activities. Also, capacities of university managers, municipalities and school directors would be strengthened. The project would finance provision of training, equipment, facilities and materials to improve the working environment, technical assistance, and teaching-learning materials. 13 PID

5. Financing Source (Total ( US$m)) BORROWER ($10.00) IBRD ($35.00) BILATERAL AGENCIES (UNIDENTIFIED) ($0.00) Total Project Cost : $45.00

6. Implementation The project will be implemented over a five-year period. The MES would be responsible for the overall implementation of the project, and especially its Departments of Higher education and General Education, possibly through a streamlined Project Management Unit (PMU). Universities will also participate. A Project Steering (SC) would be established with the participation of MES, the Ministry of Finance, the Ministry of Economy, senior member of universities and regional education authorities. The SC would be responsible for providing overall policy guidance for the project.

To prepare the activities of the proposed project, the MES is establishing a Project Working Group (PWG) with MES officials, consultants working on the EIP I, experts, officials from the universities and other concerned stakeholders, who would report to the Minister of Education. A PHRD grant has been secured for the preparation of the project.

The project administration and management should have the capacity to operate a transparent competitive selection and allocation procedure, possibly including international peer review, as well as independent panels where not only MES, but representatives of the universities and the business communities, will participate.

Accounting, Financial Reporting, and Auditing: The existing EIP I PMU has a financial management system in place which is able to record and report all assets and liabilities and financial actions of the project. Separate accounts will be maintained for the new Project for all project components according to internationally accepted accounting standards. Project accounts will be recorded using the existing Hansa Financials software package. Supporting documentation for SOE expenditures will be maintained separately by Withdrawal Application and will be made available to Bank officials for review. Financial reports will be included in Quarterly Progress Reports. Annual project audits will be carried out by independent auditors acceptable to the Bank under agreed terms of reference. Audit reports will be submitted to the Bank within six months of the completion of the Government’s .

Procurement: The existing PMU also has procurement capacities in place. However, two issues are proposed to be considered during project preparation: (i) to enhance the use of funds, the preparation team would explore the possibility of integrating of the school renovation activities with the State Investment Program for Education, both in terms of integrating criteria and having the same unit to be responsible for both programs; and (ii) to decentralize procurement to the municipalities/ Novads, which would contribute to strengthen procurement capacity at the local level. PMU would thus be responsible for supervising procurement and implementation. Adopting this solution is subject to the Bank’s review of the National Procurement Law and acceptability of its provisions by the Bank for use under the Project as well as subject to a capacity assessment of the future PMU. 14 PID

7. Sustainability The proposed project will reduce the costs of providing education, strengthen capacities to undertake planning and support quality improvement processes. Moreover, the project would significantly contribute to the sustainability of the benefits being achieved under the ongoing EIP by continuing with current efforts to improve efficiency in the utilization of resources in the educational establishments, providing support to schools for the implementation of the new standards and exams through a far-reaching program for training teachers and reforming overall teacher training, broadening the impact of the current project by mainstreaming the policy analysis, EMIS and communication activities, and expanding the reform to the higher education levels.

Sustainability is also linked to Government and stakeholders ownership. As indicated above, the Government of Latvia has a strong ownership of the project.

8. Lessons learned from past operations in the country/sector

Lessons learnt from the ongoing project: (a) A condition of success for the introduction of new standards and program of studies under EIP, is having a cadre of teachers and principals that not only understand the changes but that also value them and have the skills and motivation to put them in practice. Teachers should know how to use the new programs and must be able to adapt their teaching practices accordingly. The current project is scheduled to produce supporting materials but is doing nothing to enhance the skills and competences of teachers and principals. Therefore, the proposed project would provide funding for a far reaching program aimed at improving teaching and school management skills. (b) When scaling up infrastructure components, more realistic planning with regard to school network optimization and improvement measures need to be identified before the educational establishments are accepted for project funding. (c) In terms of project management and implementation, project management units should assume a set of narrowly defined and specific project functions, such as procurement and financial management. In addition, the project should strengthen institutional capacity at the MES to manage the project.

Lessons learnt from the higher education policy dialogue and sector work : (a) In Latvia's rapidly expanding higher education system, there is a need to confront problems of quality, particularly when material and financial resources are not keeping pace; (b) Higher education relevance and quality need to be supported by adequate infrastructures; (c) The future development of Latvia’s economy and society crucially depends on the ability of its enterprises, government and people to create, import, adapt and disseminate knowledge. This is also acknowledged by the National Development Plan (2003-2006) which strongly emphasizes the need for knowledge, skills and innovation in the more dynamic sectors of the economy; (d) Effective and efficient government intervention and system coordination is needed through a state-body endowed with the authority, instruments and resources to carry out these functions; and (e) As an introductory stage for intervention, sector studies in general, and policy dialogue have been extremely helpful in achieving a comprehensive view of the higher education sector.

Lessons learnt from international experience : (a) International experience shows that many HE systems face both the new challenge of supporting knowledge-driven development and the old challenge of promoting quality, efficiency, and equity; (b) The establishment of a competitive fund to allocate resources to improve quality in undergraduate programs in public and private HEIs, selected by transparent and objective procedures, has been positively evaluated; (c) Improvements in quality and relevance of selected postgraduate programs, with an emphasis on science and technology, and establishment of research training scheme to recognize and reward those institutions that provide high-quality research training environments and support excellent and diverse research activities has been successful (In Australia funds are provided to eligible institutions based on a formula that reflects 15 PID

each institution's research performance. The formula takes into account higher degree by research completions (50 percent), research income (40 percent) and research publications (10 percent)); (d) Knowledge based economies are at advantage in today’s liberalized global market. The OECD countries with extensive knowledge assets drive rapid technological progress and reap the benefits in terms of economic growth and rising living standard.

Lessons from OED report on Tertiary Education (2002): (a) Key constituencies should be consulted early and their support maintained throughout implementation of reforms. (b) Positive incentives for implementing tertiary education reforms, such as allocating funds on a competitive basis, have shown promising results. (c) Enhanced monitoring and evaluation of tertiary education projects generates reliable and timely indicators of education and labor market outcomes.

9. Environment Aspects (including any public consultation) Issues : No significant environmental issue has been identified. No potential large scale, significant and/or irreversible impacts are expected. There are no environmental issues related to three of the Project Components, namely Teacher Development, Higher Education Quality and Relevance, and Capacity Strengthening. Component 2: Efficiency of Resource Utilization would comprise renovation sub-projects to renovate the educational establishments. Renovation may include works, such as thermal insulation, renovation of heating system, repairs to improve hygienic conditions and safety or improvements to university teaching facilities or laboratories. The sub-projects would be of a small size and of rehabilitation nature. The civil works will mainly involve the rehabilitation of the existing structures. No land acquisition is expected. Therefore, no major environmental issues are anticipated under the proposed EIP II Project. However, some of these sub-projects may include energy efficiency measures consisting in replacement of old piping, valves or boiler plants that may be insulated with materials comprising asbestos that will require special mitigation measures for handling and disposal of such materials. Environmental concerns will be mitigated in the selection and implementation of sub-projects.

The Latvian Environmental Law sets adequate mechanisms and responsibilities for environmental screening, preparation of environmental assessment and review of its results. The legal framework on environmental issues is set out in the Law on Environmental Protection (Vides aizsardzibas likums) adopted on August 6, 1991. Other laws that address environmental issues and are related to the renovation investment are set out in: (i) Law on assessment of impact on environment (Likums par ietekmes uz vidi novertejumu) adopted on October 14,1998; (ii) Law on pollution (Likums par piesarnojumu) adopted on March 5, 2001; (iii) Building law (Buvniecibas likums) adopted on August 13,1995; (iv) Law on administrative territorial reform (Administrativi teritorialas reformas likums) adopted on October 21, 1998; and (v) Regional Development Law adopted on April 9, 2002. The ministry responsible for implementing environmental policies and protection is the Ministry of Regional Development and Environmental Protection. At the local level, currently, the Municipalities are responsible for environmental protection activities.

The Construction Council of the Municipality conducts a case-by-case review and sets conditions for the environmental assessment (EA) that are conducted by local specialized firms. The investor is responsible for EA. Under the ongoing EIP I, project staff reviewed the environmental issues during the selection of individual projects and is monitoring identified mitigation measures as well as achieved environmental effects. While the current laws and capacity, both at the Ministry and local level, is assessed as sufficient, institutional arrangements and capacity, after the territorial reform has been completed, is difficult to assess at this point of the Project design. The project team will re-assess the capacity before 16 PID the project appraisal.

10. List of factual technical documents: NA

11. Contact Point:

Task Manager Ana Maria Jeria The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone : 202-458-0369 Fax: 202-614-1666

12. For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:// www.worldbank.org/infoshop

Note: This is information on an evolving project. Certain components may not be necessarily included in the final project.