Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 47225-AM

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

Public Disclosure Authorized IN THE AMOUNT OF SDR 17.0 MILLION (US$25.0 MILLION EQUIVALENT)

TO THE

REPUBLIC OF ARMENIA

FOR A

SECOND EDUCATION QUALITY AND RELEVANCE PROJECT (APL 11)

IN SUPPORT OF THE EDUCATION QUALITY AND RELEVANCE (APL) PROGRAM Public Disclosure Authorized April 15,2009

Human Development Sector Unit Europe and Central Asia Region Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective February 28,2009) Currency Unit = Armenian Dram AMD 306.00 = US$l.OO SDR 1 = US$1.476090

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS ANQA Armenian National Quality Assurance Agency APL Adaptable Program Lending ATC Assessment and Testing Center CEP Center for Education Projects (Project Implementation Unit) ECD Early Childhood Development EMIS Education Management Information System ESDP Education Sector Development Project GDP Gross Domestic Product ICTs Information and Communication Technologies IDA International Development Association ISDS Integrated Safeguard Data Sheet TI Transparency International MoES Ministry of Education and Science MoF Ministry of Finance NaCET National Center of Education Technology os1 Open Society Institute SAPPU Strategic Analysis, Planning and Personnel Unit PCN Project Concept Note PDO Project Development Objective PID Project Information Document PIRL S Progress in International Reading Literacy Study PISA Programme for International Student Assessment PIU Project Implementation Unit MED Marz Education Department TEMIS Tertiary Education Management and Information System TIMSS Trends in International Mathematics and Science Study UNICEF United Nations Children’s Fund VET Vocational Education and Training

Vice President: Shigeo Katsu Country Director: Asad Alam Sector Director: Tamar Manuelyan Atinc Country Manager: Aristomene Varoudakis Sector Manager: Mamta Murthi Task Team Leader: Juan Manuel Moreno ARMENIA Second Education Quality and Relevance Project (APL 11)

CONTENTS

Page

I. STRATEGIC CONTEXT AND RATIONALE ...... 1 A . Country and sector issues ...... 1 B . Rationale for Bank involvement ...... 3 C . Higher level objectives to which the project contributes ...... 3

I1. PROJECT DESCRIPTION ...... 3 A . Lending instrument ...... $4 B . Program objective and Phases ...... 4 C . Project development objective and key indicators ...... 5 D. Project components ...... -6 E . Lessons learned and reflected in the project design ...... 9 F . Alternatives considered and reasons for rejection...... 10

I11. IMPLEMENTATION ...... 11 A . Institutional and implementation arrangements ...... 11 B . Monitoring and evaluation of outcomeshesults...... 12 C . Sustainability...... 12 D. Critical risks and possible controversial aspects ...... 14 E. Credit conditions and covenants ...... 15

IV. APPRAISAL SUMMARY ...... 15 A . Economic and financial analyses ...... 15 B . Technical ...... 15 C . Fiduciary ...... 16 D. Social...... 16 E . Environment...... 16 F . Safeguard policies ...... 17 G . Policy Exceptions and Readiness ...... 17 Annex 1: Country and Sector or Program Background...... 18 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 23 Annex 3: Results Framework and Monitoring...... 24 Annex 4: Detailed Project Description...... 29 Annex 5: Project Costs ...... 44 Annex 6: Implementation Arrangements ...... 45 Annex 7: Financial Management and Disbursement Arrangements ...... 50 Annex 8: Procurement Arrangements ...... 56 Annex 9: Economic and Financial Analysis ...... 68

Annex 10: Safeguard Policy Issues ...... 73 Annex 11: Project Preparation and Supervision ...... 74

Annex 12: Documents in the Project File...... 75

Annex 13: Statement of Loans and Credits ...... 76 Annex 14: Country at a Glance...... 77 ARMENIA

SECOND EDUCATION QUALITY AND RELEVANCE PROJECT (APL#2)

PROJECT APPRAISAL DOCUMENT

EUROPE AND CENTRAL ASIA

ECSHD

Date: April 15, 2009 Team Leader: Juan Manuel Moreno Olmedilla Country Director: Asad Alam Sectors: Secondary education (55%); Tertiary Sector ManagedDirector: Tamar Manuelyan Atinc education (25%); Pre-primary education (20%) Themes: Education for the knowledge economy (P); Education for all (S) Project ID: PI07772 Environmental screening category: Not Required Lending Instrument: Adaptable Program Loan Project Financing Data [ ] Loan [XI Credit [ ] Grant [ ] Guarantee [ ] Other:

Source Local Foreign Total RECIPIENT 5.09 1.17 6.26 International Development Association (IDA) 20.33 4.67 25.00 Total: 25.42 5.84 3 1.26

Recipient: Republic of Armenia Armenia

Responsible Agency: Ministry of Education and Science Government House 3 Armenia Tel: 3741 526602 www. edu.am

:Y 2010 2011 I 2012 2013 2014 2015 ' innual 2.00 3.00 I 6.00 6.00 5.30 2.70 hmulative 2.00 5.00 11.00 17.00 22.30 25.00

Expected closing date: November 30, 20 14 Does the project depart from the CAS in content or other significant respects? ReJ [ ]Yes [XINO PAD I.C. Does the project require any exceptions from Bank policies? ReJ PAD IKC. [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [ IN0 Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [ ]Yes [XINO Re$ PAD ZZZ. E. Does the project meet the Regional criteria for readiness for implementation? Re$ [XIYes [ ]No PAD ZV. G. Project development objective Re$ PAD ZZ.C., Technical Annex 3 The proposed Project Development Objectives are: (i)enhance school learning in general education and improve the school readiness of children entering primary education; and (ii)support the integration of Armenian Tertiary Education system into the European Higher Education Area. Project description [one-sentence summary of each component] Re$ PAD ILD., Technical Annex 4 Component 1. Enhancing the Quality of General Education (total estimated cost: US$I9.66 million of which US$15.73 million are IDAfinancing) Sub-component 1. Promoting School Readiness and equal opportunities at the start of General Education (US$2.49 million IDAfinancing;). The main objective of this sub-component is to increase the level of school readiness among Armenian children, with a focus on the poorest and most vulnerable communities. Sub-component 2. Supporting further improvements in the quality of education through improved teacher in-service training and professional development (US$3.53 million IDA financing). The objective is to improve quality of teaching through (a) developing a national system for teacher and principal professional development, and (b) creating a school improvement network.

Sub-component 3. Continuing support to the integration of ICT in teaching and learning process (US3.72 million IDA financing;), The objective of this sub-component is ensure that all schools in Armenia are equipped with up-to-date technologies, connected interactively through the Internet, and ready to use all these technologies effectively to deliver the curriculum and to enhance and facilitate student learning.

Sub-component 4. Supporting the implementation of high-school reform (USSS. 99 million IDA financing$. The objective of this sub-component is to support teachers and schools in the implementation of the 12-year general education system and the high-school reform, including the curriculum and assessment reforms, so that school-leavers will be equipped with knowledge and skills comparable to those of 18 year-old in OECD countries.

Component 2. Supporting tertiary education reforms in the context of Bologna Agenda (total estimated cost: US$7.53 million of which US$6.02 million IDAfinancing)

Sub-component 2. I : Establishment and Strengthening of the National Quality Assurance System (US$2.47 million IDAfinancing;). The objective of this sub-component is to establish and strengthen the capacity of the national Quality Assurance system for tertiary education.

Sub-component 2.2: Developing a Tertiary Education Management Information System (US$O.39 million IDA financing). The objective of this sub-component is to support the creation of an integrated Tertiary Education Management Information System (TEMIS) as an effective tool to support policy planning, management, monitoring and evaluation of performance of the sector both at the national and university levels.

Sub-component 2.3: Strengthening the Capacity to Implement a Sustainable Financing System (US$1.93 million IDA financing;). The objective of this sub-component is to support the government in defining and putting in place a sustainable financing system for tertiary education.

Sub-component 2.4: Reforming Pre-service Teacher Education (US$1.22 million IDAfinancingj. The objective of this sub-component is to support development of initial teacher education in the spirit of Bologna Process through (a) longer-term twinning arrangement between the Armenia State Pedagogical University (and the Consortium of Pedagogical Institutes, including Yerevan State University) and an international higher education institution, and (b) upgrading necessary teaching facilities and equipment in these institutes to support modernization of primary school teacher education.

Component 3: Project Management, Monitoring and Evaluation (total estimated cost: US$4.06million of which US$3.25 million IDAfinancing. The key objectives of this component will be to: (i)provide continued support of mainstreamed arrangements for the management and administration and monitoring of project activities; and (ii)institutionalize key management functions in the MoES covering policy planning, monitoring and evaluation.

Which safeguard policies are triggered, if any? Re$ PAD IKF., Technical Annex IO The Project has been classified as category C for its low impact on the environment.

Significant, non-standard conditions, if any, for: ReJ PAD III,F. Board presentation: None

Credit effectiveness Condition: The Recipient has approved the Operational Manual, acceptable to the Association.

Credit Disbursement Condition: The Recipient has hired the Component and Subcomponent Heads, satisfactory to the Association,

I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues 1. Armenia’s poverty and extreme poverty rates declined in 2006 to 26.5 percent and 4.1 percent of the population, respectively (from 34.6 percent and 6.4 percent, respectively, in 2004). Inequality also decreased, as measured by a reduction in the Gini coefficient (income concentration) from 0.395 in 2004 to 0.369 in 2006. Prudent fiscal and monetary policies were instrumental in maintaining macroeconomic stability and contributing to poverty reduction. Real GDP grew by 13.1 percent per year on average over the period 2003-07, more than twice as much as the PRSP-1 target. Inflation averaged 3.9 percent during the same period, which was very low compared with similar economies in the region. Social expenditures also increased to 4.7 percent of GDP, well above the projected PRSP-1 goal of 3.0 percent. Increased resources to the social sectors have improved the access to and quality of general secondary education, and have led to improvements in overall utilization and geographic access to basic health services. However, the worsening international economic environment and growing domestic imbalances represent significant challenges to this outlook: GDP growth is in fact projected turn negative in 2009 and stay depressed in 2010. Revenues are expected to shrink and budget levels revised considerably from what was planned in the PRSP-2. It is important that the Government keeps its medium term agenda as far as the education sector is concerned in sight even as growth slows down as improvements in the education system will be critical for Armenia’s growth prospects in the medium and long term.

2. Education has been a priority sector for public investment in Armenia since the late 1990s. The Government has aimed to reduce poverty by increasing access and improving quality of general secondary education (grades 1-9), and boosted public spending on that sub-sector. The focused investment has contributed considerably to the development of general secondary education, but has also resulted in the relative neglect of other sub-sectors, Le., preschool and tertiary education. The challenge that the proposed Project would address is to sustain and extend the accomplishments in general secondary education with second-generation quality-oriented reforms while at the same time addressing equity and quality concerns in both preschool and tertiary education. In this regard, Armenia can take advantage of the demographic decline affecting general education to strongly pursue the education quality agenda and to also respond to the increasing demand for preschool and tertiary education (See World Bank, 2008, Public Expenditure Review: Education Sector). 3. The proposed project would build on the achievements of the Education Quality and Relevance Project (APL I),while at the same time extending the original APL agenda to incorporate both preschool and higher education. The following are some of the key accomplishments of APL I:(i) the development of the National Curriculum Framework, standards and syllabi and implementation of the new curriculum up to the gth grade; (ii)the creation of the Assessment and Testing Center and the introduction of a transparent examination system and enhanced capacity to assess student performance; (iii) the establishment of the National Center of Education Technology and creation of school learning centers through an effective Computer Revolving scheme; (iv) a massive and significant in-service teacher training effort carried out through an improved National Institute of Education; and (v) consolidation of a successful per capita funding system resulting in substantial efficiency gains, increased student-teacher ratios, and enhanced school autonomy.

Key Development Issues 4. The government has boosted public expenditure on education in the recent years, and is committed to further increase it in the next decade. In the first Poverty Reduction Strategy Paper (PRSP) in 2003, the government planned to boost public education spending to 4.0 percent of GDP by 2015, as an important pillar of its poverty reduction strategy. Indeed, between 2003 and 2008, the consolidated budget for education increased by 26 percent per annum at nominal (or 20 percent at real) from AMD 35 billion (US$61 million) to AMD 111 billion (US$362 million). In particular, the government has made a concerted effort to allocate more to general secondary education in order to improve access to and quality of education at this level. The second PRSP, prepared in 2008, aimed to raise education spending further

1 up to 4.5 percent of GDP by 2021.’ However, despite its strong commitment to education, the global economic crisis might force the government to slow down the overall spending increase and be more selective as to where to invest more. This could in turn become an opportunity to further improve effectiveness and efficiency in education financing. For instance, instead of raising the salary level for every teacher, the government could introduce differentiated salary scales based on performance. The expected demographic transition (declining numbers of school-age (6-1 7 year-olds) population) over the next five years or so requires the government to adjust staffing. These savings in recurrent spending are crucial to pursue planned capital investments in relation to the High School reform and in the Education and ICT program, to increase non-salary recurrent spending for quality improvement in general secondary education, and also to increase total spending on the other underfunded sub-sectors, i,e., preschool and tertiary education. 5. Addressing equity concerns, particularly in preschool and higher education, is important to ensure that the poor participate in the benefits of growth. The enrollment rate and the quality of preschool education in kindergartens have dropped sharply since the funding and management responsibility was transferred from the central government to local governments in 1996. In 2006, the rate was 22 percent, (28.5 percent in urban areas and 10.5 percent in rural areas). There were 1,100 kindergartens functioning in 1996, but only 623 in 2007. All this is seriously affecting the school readiness of Armenian first graders. Most local governments simply will not be able to finance the increase of enrollment rates of preschool age children (4 to 6 years-olds) up to 90 percent by 2015, the goal set by the recently approved preschool strategy. In particular, the economic crisis may force many local communities, especially poor ones, to cut down spending on preschool education. There is urgent need for viable models of preschool education delivery and allocation of additional funds in order to expand and develop preschool services in all marzes, to meet the national goal. 6. Tertiary Education has seen a dramatic decline in funding and governance and quality assurance are still weak. Government funding for higher education is well below the regional average, which partly accounts for the fact that enrollment rates have increased only from 20 to 24 percent since independence. Public financing in tertiary education as a percentage of GDP and as a percentage of total education spending is only about 0.2 percent and 8-9 percent, respectively, compared with 1.3 percent and 20 percent in the OECD. State universities have increasingly relied on tuition fees as the weight of state funding has declined sharply in the last decade. The high dependence on tuition fees makes higher education financing extremely volatile. Moreover, governance of tertiary education is weak and in particular fails to tackle what appears to be pervasive corruption in the sub-sector. Quality assurance policies and institutions also need systematic support for Armenia to be increasingly aligned with Bologna goals in that area. 7. Tuition fees in public universities amount to 30-40 percent of per capita income, as compared to, for instance, 11 percent in the US or Japan. High tuition fees limit access to higher education among the poor. Poor households cannot afford tuition fees for fee-paying places in state or private universities. Without easy access to other financing sources, merit-based full-scholarships in state universities are almost the only way for these households to enroll their children in higher education, but the number of those scholarships is extremely limited. Moreover, they are not easily accessed by poor households who cannot afford private tutoring, so their children tend to perform less well in university entrance examinations. In addition, many more families that are affected by the recent economic crisis may not be able to afford the high tuition fees without access to student loans or need-based scholarships. 8. Completing the introduction of 12-year general secondary education system calls for a substantial reform of upper secondary schools, which is already under way and needs to be carefully monitored and aligned with the also ongoing reform of VET institutions and programs at that same level, The high school consolidation plan will be costly in the short to medium term, but given the sharp decline and subsequent slow growth of the school-age population in the foreseeable future, it is necessary. It will be crucial, however, to keep in place mitigation measures to help rural children, especially girls, who might not have easy access to the new high schools. The new learning environment also demands more

‘ The Government of Armenia, 2008, Program for Sustainable Development (revised version of PRSP-2). 2 investments on the effective use of ICT and ongoinghimely upgrade of technologies and software, which entails further efforts in teacher training, production of web-based teaching and learning materials and creation of e-learning educational environments. Despite their importance and urgency of the high school reforms and the effective use of ICT, these reforms which require substantial capital investment could face a risk of budget shortages under the current economic crisis. It is still uncertain how the crisis might pressure on capital spending as a whole, but as it becomes clearer, while the MOES will need to secure the planned investment budget as much as possible, it may also need to adjust the investment scale and schedule to maximize the benefits of the reforms and to minimize any potential negative impacts on students. 9. The government is ready to accelerate the implementation of preschool, general and tertiary education reforms. The Armenian government has recently approved a National Strategy for Preschool Education for 2008-2015, and the Strategic Program for upper secondary education reform. In tertiary education, the Government aims to increase access and improve quality and relevance to help the country build a competitive knowledge economy. Having joined the Bologna Process at a relatively late stage (in 2005), Armenia will need to commit substantial organizational and financial resources in an effort to close the gap with other countries that have had more time to establish the new system. An important step forward has been the creation, in November 2008, of the Armenian National Quality Assurance Agency. The project will therefore focus its support on the implementation of those plans, extending what has been achieved under APL Iand providing support in the areas of preschool and tertiary education. B. Rationale for Bank involvement 10. The proposed project is fully in line with the goals of the current Country Assistance Strategy (CAS) dated June 30, 2004, as well as those of the Sustainable Development Program (SDP), which was discussed by the Board on December 2, 2008. The CAS aims to support the government in improving quality and efficiency of basic public services and to reduce non-income poverty through education, health and infrastructure reforms. The SDP further prioritizes activities to reduce poverty and ensure universally accessible quality education from pre-school to higher education. The proposed project will support these objectives, which will allow a larger share of the population to benefit from economic growth. Further, the Bank has recently carried out a Public Expenditure Review focused on Tertiary Education, and has followed up with technical assistance in the areas of Quality Assurance and Higher Education financing. This has provided a solid foundation to the expanded agenda for APL 11. Finally, the proposed investment activities are likely to be well aligned with the DPO that is now under preparation, with some triggers and milestones of the DPO reinforcing key actions of strategic importance for APL 11, particularly with regard to overall financing of education in the budget as well as specific targets for Preschool and Higher Education.

C. Higher level objectives to which the project contributes 11, The project is deeply embedded in both the existing CAS framework and the country’s new Sustainable Development Program (see above). The Government continues to see this activity as a priority even in the current economic environment and the new Country Partnership Strategy (CPS), now under preparation, will refer to the proposed project as part of the FY09 deliverables. The new CPS is expected to have two pillars-addressing near-term vulnerability and long-term competitiveness. The project’s support of Armenia’s medium-term and long-term development goal related to modernizing the education system is consistent with the second of these. Armenia needs to strengthen the knowledge base and skills of its human capital. This is an especially important dimension of the country’s long-term competitiveness strategy. Improving quality of secondary education and increasing access and quality of tertiary education are necessary for growth. Further, ensuring quality, relevance and equal opportunity in secondary and tertiary education requires an increasingly complex strategy with a shift in focus from inputs to processes and outcomes, and from a level-specific to a sector-wide perspective. The project will also serve the cross-cutting theme of governance by enhancing the capacity of the Ministry of Education and Science in the areas of policy formulation, personnel management and planning, in order to improve the use of financial, human and physical resources, and of monitoring and evaluation. It will also help to tackle specific governance and corruption issues in higher education, strengthen the information management system, and enhance communication with the public on educational issues. 3 11. PROJECT DESCRIPTION

A. Lending instrument 12. The lending instrument is an Adaptable Program Loan (APL), financed by an IDA Credit in the amount of US$25.0 million equivalent, on standard IDA terms. The Government counterpart contribution is estimated at US$6.26 million (of which US$5.32 million would be tax obligations), integrated within the annual government budget allocation for the education sector.

B. Program objective and Phases 13. The original APL framework was for a 10-year program, divided into three phases (4-3-3 years) at a total cost of US$51 million, including $44 million of IDA financing. The Program objective is to improve the quality and relevance of the Armenian school system to meet the challenges of the knowledge society. Because of the strong performance under APL Iand a clear reform direction for the next five years, it is proposed to merge APLs I1 and I11 into a 5-year APL 11. As of January 2009, all seven triggers leading to the second phase of the APL have been met and, even more importantly, four of the five triggers established for the transition from the second to the third phase have also been fully met. (See Annex 1 for details). Thus, it can clearly be expected that the end-of-project objectives of the original APL will be achieved by the end of the 5-year reconfigured APL 11. 14. Quality and Relevance Reforms. Through the implementation of APL I, the government of Armenia has implemented key quality reforms, including the new National Curriculum and Syllabi, the unified university entrance examination and school-based assessment, the Computer Revolving Fund for information and communication technologies in schools, and a very effective in-service teacher training system. At the general secondary education level, Armenia’s national Sth and 1 Oth grade examinations have still not produced reliable indicators to measure students’ performance. However, the results of TIMSS 2007 (4thand gth grade student achievement in Math and Science) clearly show that the quality of the education system has improved significantly over the past four years. In fact, Armenia is the only ECA country that obtains significantly better scores in all four categories in comparison to the results of 2003. While the Armenian tradition of Mathematics teaching is likely to be an important underlying factor, APL 1 can legitimately take some credit for these results, as the effort carried out in curriculum reform and in training master trainers and primary and secondary teachers of Mathematics has been substantial. 15. Efficiency Reforms. Financing reforms implemented under APL Iin general secondary education have boosted efficiency at the school level and enhanced school autonomy. Largely due to the introduction of the per capita financing scheme accompanied by financial autonomy at the school level, the majority of general secondary schools have consolidated classes to the extent possible and there is little room for further efficiency gains at the school level. Despite the continuous declines in enrollment, ratios for general secondary education started to increase in 2002 (although they are still quite low) primarily due to the implementation of the school rationalization and teacher redundancy programs. As the number of students, driven by demographic changes, declined by over 20 percent, the number of classes was reduced by 24 percent, teaching staff positions by 35 percent, and non-teaching staff positions by 34 percent. The most dramatic reduction in teaching and non-teaching staff occurred between 2003 and 2005 when the optimization program was introduced, and it has continued even after 2005. This program has helped to increase student-teacher ratio (STR) from 10.8 in 2003 to 13.9 in 2006 and the average teaching load increased from 18 to 22 hours per week. Reduction of staff helped the government to increase nominal wages and salaries and the share of non-salary allocations in school budgets, which in turn has allowed discontinuing practices such as the “school maintenance fund” (parent informal payments which were presented as compulsory). 1 6. Building Governance, Management, Planning and Monitoring Capacity. APL I focused on strengthening the existing and creation of new capacities to plan, implement and monitor the education reforms aimed at enhancing the quality of education and its provision. Improved governance and financial management through enhancing management capacity of schools and full-scale practice of professional leadership of school principals are among the priorities of the policy reform under APLII. The role and the capacity of School Boards as key accountability instruments was strengthened under APL I and 4 allowed, among other things, to directly tackle corruption practices in general schools. Moreover, the high schools pilots financed by APL Ihave already made a difference in terms of reducing private tutoring at that level and all the dubious practices associated to that phenomenon. 17. This second phase of the APL will continue to focus on the reforms of the general secondary education system. In doing so, it will also address key policy issues in both higher education and preschool education that are intimately related to those reforms. Thus, APL I1 entails a shift to a more comprehensive approach to the education sector in Armenia. The recently approved high-school reform will create a more diversified upper secondary education which in turn will also demand a more diversified tertiary education system, both with regard to institutions and specific study programs. The second-generation reforms related to the quality of education in primary and secondary education will be strengthened if the school readiness of Armenian children is improved by the time they start their compulsory education. APL I1 will then be supporting the implementation of the national program of preschool education which was approved in 2008, the high-school reform, and strategic reforms in higher education within the context of the Bologna declaration, signed by Armenia in 2005. C. Project development objective and key indicators 18. The proposed Project Development Objectives are: (i) enhance school learning in general education and improve the school readiness of children entering primary education; and (ii) support the integration of Armenian Tertiary Education system into the European Higher Education Area. More specifically, in the next five years, the education system in Armenia should be able to achieve the following goals which the project can support:

e Reverse the current deterioration - in enrollments and in quality - of preschool education, thus improving the school readiness of Armenian six year-olds so that they can successfully complete primary and secondary education. e Complete the implementation of the 12-year general education system, including the curriculum and assessment reforms. e Improve teacher quality through pre-service and in-service training, reforming Pedagogical Universities and Colleges, taking full advantage of the existing network of 52 School Centers, moving towards a school-based professional development system, and ensuring that teachers are ready to use the newly available teaching and learning materials, particularly modern school libraries, computer labs and web-based materials. 0 Continue the reforms leading towards a system of school-based management. School principals will be prepared and empowered to carry out effectively the managerial and pedagogical leadership functions, with all schools in Armenia being able to implement their school development and improvement plans. e In tertiary education, continue to improve quality in an increasingly diversified system with increased chances of access. This is to be achieved through the design of a financing reform which sets the right incentives and regulations (competitive and performance-based funding) to allow tertiary institutions become more accountable for their performance and through the consolidation of a new set of policies and institutions for quality assurance. 19'. To measure the impact of the proposed operation, a series of outcome indicators have been identified: (i) increased preschool enrollments; (ii) improved school readiness among entering first graders in participating communities; (iii) improvement of learning outcomes of gth graders as measured by TIMMS 201 1 and of the 12'h graders by the Armenian unified examination, using the 2007 and 2008 results as the baseline, respectively; (iv) in higher education, enhanced program and institution accreditation and quality assurance as measured by the reports produced by the new Armenian National Quality Assurance Agency (ANQA) and eventually its acquiring the status of candidate member to the European Network of Quality Assurance Agencies; and (v) standings of Armenia in the Bologna Scorecard (both in the overall score and the partial scores related to quality assurance, recognition and program structure). These indicators will also be complemented with other indicators which are component-specific (See Annex 3).

5 D. Project components 20. APL I1 aims at supporting the Government of Armenia in two main endeavors: Enhancing the quality of General Secondary Education and supporting Tertiary Education reforms in the context of the Bologna Declaration. A summary of project components costs, activities, and expected outputsh-esults follows: Component 1. Enhancing the Quality of General Education (total estimated cost: US$19.66million of which US$lS. 73 million are IDAfinancing) Sub-component I. Promoting School Readiness and equal opportunities at the start of General Education (US82.49 million IDAfinancing). The main objective of this sub-component is to increase the level of school readiness among Armenian children, with a focus on the poorest and most vulnerable communities. More specifically, this sub-component will assist the Government in its effort to increase the number of children enrolled in preschool education and to increase the quality of services provided. Approximately 8,750 children in total, ages 5-6, will benefit from participation in a kindergarten class, either through an enhanced existing preschool or through the establishment of a KG classroom in the local primary school. As a result, it is expected that these children will enter Grade 1 with a higher level of school readiness as measured by ED1 (Early Development Index). 140 poor and vulnerable communities will benefit from targeted grants that will allow them to enhance the quality of preschool education provided in their existing structure (if they have one) or to establish a new KG classroom in the local primary school (if they do not have an operating preschool). They will also be expected to contribute to the financial sustainability and management of these enhanced or new KG classrooms and will be empowered by the project to progressively become more autonomous through capacity building efforts in the areas of community sensitization and fundraising for the purpose of preschool education.

Sub-component 2. Supporting further improvements in the quality of education through improved teacher in-service training and professional development (US$3.53 million IDA financing). The objective is to improve quality of teaching through (a) developing a national system for teacher and principal professional development, and (b) creating a school improvement network. This sub- component will provide teachers with better access to professional development opportunities that they need in order to improve teaching in schools. Teachers will benefit from this sub-component in two ways: On one hand, they will be offered in-service training and other professional development support directly by the government institutions as before. On the other hand, specific professional development grants will be made available to - potentially new - service providers so that they can design and deliver in-service training based on teachers’ needs. This sub-component will also finance school improvement grants to schools enrolling in the School Improvement Network, training of school principals to become both pedagogical leaders and managers in a school-based management system, technical assistance to support the reform of the overall teacher and principal professional development policy (in the context of the National Strategy for Teacher Education and Professional Development), and trainer and teacher guidebooks and other printed teaching materials. Sub-component 3. Continuing support to the integration of ICT in teaching and learning process (US3.72 million IDA financing). The objective of this sub-component is ensure that all schools in Armenia are equipped with up-to-date technologies, connected interactively through the Internet, and ready to use all these technologies effectively to deliver the curriculum and to enhance and facilitate student learning. This sub-component should fit into the overall government strategy for IT development in Armenia and will focus on strategic interventions not covered in the ambitious Education and ICT Program financed by the National Budget. Thus, the Computer Revolving Fund, as it has been working for almost five years, will not be needed in the future. Even more, APL I1 will not finance hardware for the school computer labs, and will rather focus on the development of high- quality and relevant electronic materials and on the training and capacity building of those who need to be ready to integrate them in the curriculum and in the classrooms of Armenian schools.

6 The first challenge under APL I1 will be to extend this technical infrastructure to schools not covered under APL I, enhance the reliability and speed of the existing networking, and finance the procurement and roll-out of basic hardware to all schools to support the computerization of basic administrative tasks, especially those related to data collection for the national education management information system (EMIS). Then, a second challenge will be to ensure the effective use of this technical infrastructure to support improved teaching and learning, building off activities under APL I related to teacher training and the development and dissemination of electronic learning materials via CD-ROM and the national education portal. Specific activities to be financed by this sub-component include the following: Provide internet connectivity to about 400 most remote schools. 0 Provide schools with hardware for school management purposes. Provide schools with electronic learning materials for all key school subjects. Train teachers in subject-specific use of ICT. 0 Support to the National Education Portal as the host of electronic materials, virtual communities of teachers and learners and dissemination tool for good practice. 0 Technical assistance on the use of ICTs for school management purposes.

Sub-component 4. Supporting the implementation of high-school reform (US$S.99 million IDA financing). The objective of this sub-component is to support teachers and schools in the implementation of the 12-year general education system and the high school reform, including the curriculum and assessment reforms, so that school leavers will be equipped with the right skills and competencies. . Specific activities to be supported include: Establishment of resource centers in 100 high schools (libraries plus computer labs). Training of 150 high school librarians. 0 Training of 2750 high school teachers. 0 Training of 150 principals for the new high schools. Curriculum and syllabi design for each of the three streams in the new high school, ensuring a better articulation between high school and tertiary education. 0 Capacity building for the staff of MES and of Marz Education departments who are directly in charge of the implementation of the high school reform Technical assistance to help design of counseling and guidance services at the new high schools.

Component 2. Supporting tertiary education reforms in the context of Bologna Agenda (total estimated cost: US$7.53 million of which US$6 02 million IDAfinancing) Sub-component 2.1I. Establishment and Strengthening of the National Quality Assurance System (US$2.47 million IDAJinancing). The objective of this sub-component is to establish and strengthen the capacity of the national Quality Assurance system for tertiary education. The government established the Armenian National Quality Assurance Agency (ANQA) in November 2008. MoES also created a Working Group on Quality Assurance, which will assist the consolidation of ANQA during the initial stage. This sub-component will support the ANQA and the WG on QA to establish the external QA system and universities to develop internal QA units. Activities: (i) Establishment of the External Quality Assurance (EQA) system Coordinate public awareness campaigns related to QA and Bologna process Capacity-building of EQA stakeholders Develop EQA policy, standards, criteria, procedures and guidelines 0 Plan and implement orientation and briefing sessions for external evaluators Organize a study tour to learn activities of other EQA agencies 0 Pilot accreditation of selected universities and expand it to the remaining universities 0 Elaborate and disseminate outcomes and progresses of QA activities in Armenia and abroad

7 (ii)Development of the Internal Quality Assurance (IQA) system 0 Capacity-buildingof IQA stakeholders (university IQA Units, student representatives) Develop approaches to IQA necessary policy, student assessment unified system, standards, procedures and guidelines and updating requirements for faculty qualifications 0 Provide grants to HEIs to develop IQA units and improve IQA system 0 Specific grant scheme to promote good governance and transparency in HEIs

Sub-component 2.2: Developing a Tertiary Education Management Information System (USSO. 39 million IDA financing;). The objective of this sub-component is to establish an integrated Tertiary Education Management Information System (TEMIS) as an effective tool to support policy planning, management, monitoring and evaluation of performance of the sector both at the national and university levels. APL I1 will provide technical assistance to the NaCET and universities to design, develop and implement an integrated TEMIS. TEMIS will (i)collect and store data related to different managerial and academic aspects of the universities; (ii)provide institutions’ management and various academic and non-academic departments with timely and reliable information; and (iii) provide the MoES with detailed data on each university for policy making, planning, monitoring and evaluation. This sub-component will also provide technical assistance to the MoES and universities to develop information-based planning, monitoring and evaluation capacities. Once TEMIS becomes operational, the MoES will be in a better position to update the Higher Education Strategy 2003 in line with the Bologna Process and Armenia’s achievements to that date. Each university will also produce an annual strategic plan and self-assessment reports using TEMIS data.

Sub-component 2.3: Strengthening the Capacity to Implement a Sustainable Financing System (US$].93 million IDAJinancing;). The objective of this sub-component is to support the government in defining and putting in place a sustainable financing system for tertiary education. The first activity will be to design a student loan scheme to provide all needy students with financial aid to pay their tuition fees and living expenditures. The scheme will be tested on a pilot basis with a small number of masters’ degree students. Second, it will assist the government in setting up priority areas and viable procedures for the operation of a future competitive innovation fund (CIF) in support of quality improvement and innovations in tertiary education institutions. It is envisaged that once the CIF is designed under APL 11, the Bank’s next higher education project and/or other donors would provide funding to implement it. Third, it will review the existing resource allocation mechanisms for tertiary education, including current scholarship schemes, and provide evidence and alternatives for the Government to design and implement a more sustainable, equitable and efficient funding system.

Sub-component 2.4: Reforming Pre-service Teacher Education (US1.22 million IDAJinancing;). The objective of this sub-component is to support development of initial teacher education in the spirit of Bologna Process through (a) longer-term twinning arrangement between the Armenia State Pedagogical University (and the Consortium of Pedagogical Institutes, including Yerevan State University) and an international higher education institution, and (b) upgrading necessary teaching facilities and equipment in these institutes to support modernization of primary school teacher education. This technical assistance delivered by a selected international university will focus on upgrading degrees and curricula, enhancing methods of teaching and studying, strengthening educational research capacities, modernizing management and governance, setting the norms of ethics, and establishing networks of field schools for practical parts of new teacher education. This sub-component will finance technical assistance, training activities of selected teaching staff of the Consortium of Pedagogical Institutes and Yerevan State University, teaching and study facilities in laboratories and libraries, and printing of teaching and training materials.

8 Component 3: Project Management, Monitoring and Evaluation (total estimated cost: USs4.06 million of which US$3.25 million IDAJinancing.

The CEP as the Project Implementation Unit of the Project will be responsible for implementation and management of the procurement process, disbursements and financial arrangements, project monitoring, and reporting. The Unit will work with the existing management and monitoring framework designed to coordinate, monitor and build the capacity of participating institutions. However, some adjustments will be made to the framework to ensure the gradual transfer of responsibilities from the CEP to the Ministry of Education related to policy, planning, monitoring and evaluation functions (see Annexes 4 and 6 for details). The key objectives of this component will be to: (i) provide continued support of mainstreamed arrangements for the management and monitoring of project activities; and (ii) institutionalize key management functions in the MoES covering policy planning, monitoring and evaluation. Specific activities to be supported by the Component are the following: e Financing a Project ImplementationUnit with core staff hired as consultants. e Implementation and management of the procurement process, disbursements, and financial management, project monitoring, and reporting. e Acquisition of minor additionsheplacement of office furniture and equipment. e Financing associated with upgrading the PIU facilities. e Financing of local travel, utilities and publications, translations, small office repair, office supplies, fuel, internet service, bank commission charges, vehicle maintenance and repair. e Systematic maintenance of the Monitoring and Evaluation system with updates on key performance indicators, which will be carried out jointly between the NaCET, the ATC, the entity responsible for policy, planning monitoring and evaluation in the MoES, and the CEP. e Impact evaluation of the Preschool subcomponent and beneficiary assessment of the high school reform. Participation fees for TIMSS 201 1 will also be covered. e Financing of implementation and management of impact assessments and special studies planned. e Facilitate coordination, communication flows and dissemination of information with participating institutions. e Facilitate working group arrangements and the organization of seminars and workshops. e Support the NaCET in the usage and management of the EMIS. e Provide training to staff in the CEP in the areas covering procurement, disbursements, information technology, project management and other areas identified and proposed in the course of project implementation.

The expected outputs of this component will be: The CEP staffed with adequate number and professional staff, Project financed goods, works, and services procured without delays in accordance with World Bank procurement guidelines. The CEP prepares quarterly and annual progress reports and submits them to IDA on a timely basis. Implementation and dissemination of the results of the planned assessments and evaluations. Monitoring and Evaluation systems, including impact evaluation of selected activities, with updates on key performance indicators The entity in the MoES assuming full responsibilityfor carrying out planning, monitoring and evaluation functions. E. Lessons learned and reflected in the project design 2 1. Lessons learned from in-country experience. Important lessons are being generated in Armenia through the pilot preschool projects implemented under APL I.Indeed, the preliminary assessment of these pilots indicate the following trends: grants have been properly used by communities to refurniswenhance KG classrooms; children have begun to attend preschool services on a daily basis at the

9 beginning of the school year; and the participation of communities and parents is very active and often goes beyond expectations. Moreover, the ongoing pilots of the high school reform, also financed by APL 1, are beginning to yield some results with regard to transition rates and processes from lower to upper secondary education, fine-tuning of the curriculum reform, and recruitment mechanisms of upper secondary teachers. All these are being carefully taken into account in the scaling up of the reform that APL I1 is setting out to support. Lessons learned from international experience 22. Preschool education. International evidence worldwide documents the significant impact of quality preschool education on children’s school readiness (including their cognitive, social, emotional, and physical development) and on their future capacity to become productive citizens. Furthermore, investments in the early years (i.e., up to 5) are deemed to be the most cost-effective investment a government can make in its population. Lack of access to preschool has been internationally documented as detrimental to children’s capacity to learn in Grade 1 and beyond, to transition successfully from one grade to another, to complete their education and to eventually become fully contributing and productive members of society. Hence, APL I1 is emphasizing school readiness of Armenian children. 23. Student loan schemes. Student loan schemes are in operation in more than seventy countries around the world.* Student loans can bring various benefits, particularly in countries where tuition fees represent a high share of family income, such as Armenia: They relieve pressures on national budgets by facilitating greater cost-sharing and provide better access to tertiary education for financially needy students and financial independence and flexibility for any students in general. Student loan schemes can encourage students to study in selected institutions or programs of national priorities and also perform well by forgiving portions of principal based on academic performance. Most loan schemes are subsidized by the government which bears repayment default risks and administrative costs. 24. Competitive innovation funds. An innovation fund is a pool of discretionary funds that are earmarked for one or more uses. With more than 30 innovation funds being experimented in various parts of the world, including Chile, Uruguay, Vietnam, Ghana, and Indonesia, the generic benefits of such instruments are clear. International experience suggests that innovation funds are highly effective mechanisms for improving transparency and efJiciency of the budget allocation for tertiary education, and for boosting educational quality and relevance within tertiary in~titutions.~They offer four main types of benefits: First, the competitive nature of these funds generally makes them more efficient instruments for the allocation of public funding than more traditional approaches based on budgetary planning. Second, they are effective mechanisms for improving educational quality and relevance. Third, their incentive system fosters changes in professional attitudes and institutional culture. Fourth, innovation funds are very flexible and can quickly respond to changing policy priorities. In Armenia, where public financing of higher education has declined dramatically over the last decade, the Government’s goal to raise enrollment to 33 percent by 2012 and to improve the quality of education requires that total spending increase beyond current projections. Competitive funding appears as the most potentially effective and politically appealing mechanism to do so. APL I1 will support all the necessary foundation work for the design of an innovation competitive fund for tertiary education in Armenia.

F. Alternatives considered and reasons for rejection 25. One alternative was considered and rejected: a second phase of the APL focused on support for general secondary education alone. This option was abandoned because a focus on secondary education alone, without including pre-school and tertiary education, could begin to compromise the results and accomplishments of APL I.The government was a strong champion of the expansion of scope to include the two sub-sectors. At the same time it is recognized that the progress that can be made under the APL

2 Shen. Hua & Zierman, Adrian, 2008, Student Loans Repayment and Recovery: International Comparisons, The Institute for the Study of Labor (IZA) Discussion Paper No. 3588. Saint, W, March 2006. Innovation Fundsfor Higher Education: A Users’ Guide for World Bank Funded Projects, Education Working Paper Series No. 2, The World Bank. 10 series is finite and further investments, by the Bank or other donors, would be needed in higher education in particular to capitalize on the reforms supported under APL2 111. IMPLEMENTATION

A. Institutional and implementationarrangements 26. Institutional set-up and Administrative Structure of the Second Education Quality and Relevance Project (APL 11). The Ministry of Education (MoES) of Armenia will be responsible for the implementation of the Project supported by the services of a Center for Education Projects (CEP) acting as the Project Implementation Unit. The structure of the MoES has been evolving; further changes are under consideration by the Government in order to respond to institutional needs for carrying out second- generation reforms aimed at enhancing the quality of secondary education and supporting tertiary education reforms. The Organizational Chart in Annex 6 highlights the evolving structure of the MoES and the new institutional challenges. As depicted in the chart, during APL I1 there will be an increasing number of institutions participating under the project. Therefore, great efforts will need to be directed at clarifying and further defining the roles and functions of each participating entity, including coordination mechanisms and information flows, to ensure effective cross-agency collaboration. 27. The process of mainstreaming management, coordination and monitoring activities into the Government structure will be continued under the APL 11. The success of this process will require the continuation of the CEP’s role in institutional capacity building and training on management and accountability mechanisms benefiting directed at beneficiary state institutions. In addition, greater efforts and specific steps will be needed to gradually build the capacity in the MoES in the areas of policy planning, monitoring and evaluation. To mitigate the risk of having these tasks remain under the management of the CEP, it will be essential to have the CEP build the capacity of a designated entity in the MoES that will take on these responsibilities. The CEP will work closely with the entity responsible for policy, planning, monitoring and evaluation, building the capacity of, and gradually transferring these responsibilities to, this entity. The key responsibilities to be transferred include: a) quality reporting; b) internal and external evaluations, studies and assessments; c) monitoring and evaluating the project’s outcomes and results; and d) arranging regular meetings between the Minister and Deputy Ministers with working groups to discuss the status of project activities and issues. The entity in the MoES assuming full responsibility for carrying out policy planning, monitoring and evaluation functions is an expected outcome under Component 3. The status of this process will be assessed during supervision missions and will be part of the integral review of the mid-term review.

28. The CEP will work within the existing organizational structure of the MoES supporting state management institutions (Technical Departments in the MoES, Marz Education Departments, the State Inspectorate of Education), as well as key beneJiciary state institutions such as the National Institute of Education (NIE), the National Center for Education Technology (NaCET), and School Centers, which served as key implementing entities under the APL I. Although the Assessment and Testing Center (ATC) created under the APL I will not be a beneficiary institution under the APL 11, it will be a participating entity involved in monitoring and evaluation activities. The CEP will also work with institutional entities related to tertiary education, such as the newly established Armenian National Quality Assurance Agency (ANQA) and higher education institutions. Working groups have been established for the implementation of the component on tertiary education, which will coordinate with other participating institutions and partners. It will also coordinate with pre-schools and high schools, the other institutions be targeted under the APL 11. Details on these institutions are provided in Annex 6. 29. Project Management and Coordination. Since its creation in 1996, CEP has gained significant strengths in project management though the implementation of the Bank-funded Education Financing and Management Reform Project, the APL I and several other small-scale projects. In the absence of a centralized management and operational framework in the MoES for administering, coordinating and monitoring donor-financed projects, the establishment of the CEP was essential to ensure the effective implementation of project activities. The CEP under the current APL IProject has been very effective in filling this institutional gap in the Ministry and, more importantly, has provided support for institutional capacity for managing reforms and project activities. Under APL 11, the CEP will continue its activities 11 related to general administration, coordination, implementation, monitoring and evaluation, as well as facilitating the decision-making process. It will comprise a core group of technical, administrative, and support staff which is described in Annex 6. 30. Implementation Arrangements. Implementation arrangements under APL I1 will be governed by the guidelines and procedures set out in the Operational Manual (OM). The CEP will develop the OM, drawing from the lessons learned and experiences gained in the implementation of the APL I, and reflecting financial management, procurement and reporting arrangements planned for the APL 11. 3 1. Partnership Arrangements. The APL I1 will continue effective working relationships established under APL I with UNICEF. Under APL I,the Bank, UNICEF, the US State Department and the Open Society Institute (OSI) successfully collaborated on the implementation of a number of priority reforms covering education curriculum development, educational software development, and teacher professional development. Under APL 11, the training of preschool teachers and administrative staff would benefit from the ongoing collaboration with UNICEF and Step-by-step. UNICEF will be expected to finance the provision of adequate training for approximately 280 ECD staff (2 per beneficiary community); Step-by- Step will be expected to deliver the proposed training modules. 32. Financial management capacity. CEP currently implements Education Quality and Relevance (EQRP) project (APLI). Previously, CEP also implemented closed Education Management and Financing Project. There are no major weaknesses at the CEP. For capacity building purposes the following actions have been agreed with and implemented by CEP:

Agreed Actions Responsible Completion Date Implementation Status Update the Financial CEP Prior to negotiation Implemented. CEP has developed a Management Manual separate Financial Management (FMM) to reflect the Manual (FMM) for APLII to reflect specific activities ofthe the specific activities ofthe Project Project. Develop detailed control CEP Prior to negotiation Implemented. The detailed control mechanism over fund mechanism over fund flows of the flows of the grants and grants has been developed, agreed describe it in the grants with the Bank, and will be included Operational Manuals. into the new grants’ Operational Manuals once the manuals are

I I developed.

B. Monitoring and evaluation of outcomeshesults 33. Building the Ministry of Education’s capacity to monitor progress against learning outcomes is central to all Project components and subcomponents. Thus, generating data and analyzing results will not be done only to fulfill an M&E requirement of the project, but rather as integral parts of the capacity building included in two main project components. The objective will to move the responsibility for M&E from being largely a CEP function (through hired consultants), to center stage in the Ministry’s reporting requirements vis-a-vis the rest of the Government, Parliament, and other stakeholders. 34. Under the APL 11, efforts will be directed at gradually building the capacity within the MoES in the areas of policy planning, monitoring and evaluation. These areas of responsibilities have largely been assumed by the CEP, which has contributed to education reforms over the past 10 years. These key areas of management need to be mainstreamed and institutionalized in the MoES. There is an already existing structure in the Ministry such as the Information Analysis and Development Programs Department which appears to be involved in some aspects of policy planning and monitoring. This entity could be strengthened through capacity building, training and technical assistance to assume a stronger role in management and coordinating functions associated with policy, planning, monitoring and evaluation. C. Sustainability 35. The sustainability of the proposed Project will be determined by four aspects: first, the Government’s ownership of the project; second, fiscal sustainability and cost effectiveness of the project 12 activities; third, institutional capacity building of the technical level staff and fiduciary management in the education sector under a strengthened and evolving organizational structure; and fourth, an experienced CEP with staff in project management mainstreamed in the MoES. 36. The second PRSP, prepared in 2008, aimed to raise education spending up to 4.5 percent of GDP by 2021, which was the best guarantee of sustainability for the interventions and reforms supported under APL 11. However, the global economic crisis might slow down that projected increase in education investments, forcing the government be more selective and to look for further efficiency savings. Before the economic crisis started, the government had budgeted US$413 million for education in 2009, and projected to raise it to US$479 million in 2010, US$553 million in 201 1, and US$761 million in 2013.4 Of all investments supported by the Project, high school reforms require the most the government’s continued financial commitment: The government has planned to invest US$160 million between 2009 and 201 1 (US$7 million or roughly 2 percent of the total education budget in 2009, US$84 million or 17 percent in 2010, and US$69 million or 12 percent in 201 1) for renovation works and US$5 million (around 1 percent of total education budget each year) for equipment in the new high schools. After the initial investment, the government will also need to finance recurrent expenses, which could cost US$l- 17 million a year (assuming 3-10 percent of the initial investments, and cumulative annually). This will be equivalent to less than 1 percent of the total education budget in 2009 or 1-3 percent in 201 1 (not adjusted for inflation). The government is also committed to investing in the integration of ICTs in education, as reflected in the 2009 State Budget, which includes US$2.3 million for Internet connectivity and maintenance and US$l.6 million for computer equipment for schools (0.9 percent of the total education budget). The government plans to continue investing in ICT-US$3.1 million in 2010 (0.6 percent) and US$3.7 million (0.6 percent) in 201 1.

37. Altogether these two major reforms are expected to require 4 percent of total education budget in 2009, 19-20 percent in 2010 and 14-15 percent in 201 1. If the economy were to grow as steadily as projected, all these investment and future recurrent costs of the reforms would have been affordable. However, the overall government budget is likely to get tighter in the next few years. Without the government’s uninterrupted commitment, the Project’s investment in the high school reform which focuses on the quality enhancement of education will obviously not achieve its full potential. APL I1 will complement the government’s initiatives to integrate ICTs in the teaching and learning process and seeks to extend and capitalize on investments begun under APL I.Therefore, even under the difficult economic situation, it is paramount that the government continues prioritizing education and particularly the high school reforms and ICT in education, if the ultimate goal of a high quality general education system is to be achieved,

38. Concerning preschool education, the sustainability of the Project’s investment does not depend on the central government, but rather on local communities’ financial commitment. To assure sustainability, communities and parents’ commitment to contributing to recurrent expenses is the eligibility criterion. However, some communities might find it difficult to afford the recurrent expenses under the current recession, which may require support from the central government. More importantly, to achieve the preschool enrollment rate target at 90 percent by 2015, it is estimated that the government will need to invest US$3-6 million per year (0.6-1.2 percent of the total education budget in 2010) until 2015. To address these issues, the government is revising the legislative framework for preschool education and creating a viable financing mechanism that assures adequate funding, policy reforms which will be supported under the Development Policy Operation, now under preparation.

Medium Term Expenditure Framework (MTEF) 2009-1 1 and PRSP-2. The dollar figures are estimated based on the exchange rate at AMD 306/US$ at the time of appraisal. This does not reflect the recent (March 2009) sharp depreciation of the local currency down to around AMD 365/US$. 13 D. Critical risks and possible controversial aspects

39. According to the recent Business Environment and Enterprise Performance Survey (BEEPS) report, the corruption in Armenia is significant with about 30 percent of businesses indicating that it is an impediment to doing business. Adequate mitigation measures are incorporated in the project, and the Bank staff will closely monitor performance during implementation. The country risk is significant and the residual risk after mitigation is assessed to be moderate.

A. Risks B. Mitigation measures Risk Rating Macroeconomic risk The downturn in the economy anticipated in 2009 triggered by the global financial crisis will have implications for the budget of M Armenia and how much can and should be spent on Education. The Government, however, has committed to continuing to make education a priority and making high school reform in particular a priority, as it is a key to future competitiveness. The high school reform may bl The high school reform will be preceded by thorough planning on resisted by local stakeholders mobility of students as well as teaching and non-teaching staff. M (parents, principals, teachers, Suitable mitigation measures such as provision of reliable and non-teaching staff) transportation services and/or boarding facilities and improvement of facilities of merged high schools will be adopted to minimize negative impacts on access to upper secondary education. MoES will also organize public awareness campaigns to inform stakeholders of expected benefits and measures to mitigate potential negative outcomes. Before scaling up the pilot, the MoES and local authorities will evaluate its impact. Higher education financing MoES will organize public awareness campaigns to inform reforms may be resisted by stakeholders of the importance of financing reforms for more L high academic performance equitable, efficient, and transparent distribution of resources. students (and their families) A student loan scheme will be introduced to assure students of access to universities regardless of their economic background. Corruption in Higher MoES will provide, through the Project, financial incentives for Education is a serious issue. universities, which will be linked to quality improvement M Thus, external quality (competitive and performance-based funding). Corruption will also assurance may be resisted by be directly addressed within a grant scheme to promote good university managers and governance and transparency in higher education institutions. faculties Corruption in general schools, The government is developing a systematic process of self- most notably out-of-pocket evaluation and professional development of teachers and principals, M payments for private tutoring, so that teacher performance is evaluated based not only on student’s remains and could get worse a: academic performance, but also on professionalism and conduct. the economy deteriorates. Capacity of local authorities ’he Government will provide local authorities with additional and Marz Education unding, taking into consideration their financial capacities and L Departments is low in relation nrollment level, for the implementation of the preschool education to the planned preschool eforms. The Project will provide capacity building training for local education reforms ,overnments and other stakeholders. Project complexity may lead tc The second phase of the APL will continue to focus on the capacity implementation delays building of implementation agencies, beginning with the MoES itself. M Some communities may not be This proposed project will incorporate lessons learned from the able to contribute to the preschool pilot project in this regard; One of the criteria for the M preschool (financially and selection of community proposals will be their willingness and otherwise) to the extent capacity to finance recurring costs, particularly teachers’ salary. required by the project. The most disadvantaged Capacity building efforts will take place at the community level to L children may remain excluded ensure that sensible options can be implemented (e.g., waiving of fees from preschool education, for certain groups of children, such as orphans, children of single even in those communities that mothers, disabled children, children of families getting social receive a grant assistance from the state). The CEP has previous experience with such schemes implemented in previous WB-financed projects (e.g., purchase of textbooks in primary school).

E. Credit conditions and covenants

40. The CEP will maintain a financial management system acceptable to the Bank. The project financial statements, including Statement of Expenditures (SOEs) and Designated Account Statements will be audited by independent auditors acceptable to the Bank and on terms of reference acceptable to the Bank. The annual audited financial statements and audit report will be provided to the Bank within six months of the end of each fiscal year. The Recipient shall also prepare and furnish to the Bank not later than forty-five (45) days after the end of each calendar quarter, interim unaudited financial reports for the project covering the quarter, in form and substance satisfactory to the Bank. 4 1. Credit Effectiveness Conditions. The Recipient has, through the MoES, adopted an Operational Manual, satisfactory to the Association. 42. Credit Disbursement Conditions. The Recipient has hired the Component and Subcomponent Heads, satisfactory to the Association. IV. APPRAISAL SUMMARY A. Economic and financial analyses 43. Education has been a priority sector for public investment in Armenia since the late 1990s. In particular, the focused investment in general secondary education as a poverty mitigation measure has contributed considerably to the development of the sub-sector, but has also resulted in under-funding of other sub-sectors, Le., preschool and tertiary education. The APL I has supported the government in increasing access and improving quality of general secondary education. The proposed APL I1 will continue supporting the government in tackling the present multi-dimensional challenges-to sustain and extend the accomplishments in general secondary education with second-generation quality-oriented reforms and to address equity and quality concerns in both preschool and tertiary education. 44. The economic analysis justifies the proposed investment by analyzing cost-effectiveness of investing in preschool education, ICT network and its integration in teaching and learning, and cost- efficiency and quality improvement of high school reforms. First, good quality preschool education is critical and cost-effective for children’s later development. By targeting rural communities where preschool enrollment rates are lower due to lack of access, the proposed project will contribute to more equitable access to good preschool education. Second, the investment in creating high quality learning environment for the restructured upper secondary network is cost-effective, cost-efficient and complementary to the government’s investment in infrastructure. The project will also monitor the implementation of mitigation measures to minimize the negative impacts of the school network restructure. Third, extending internet connectivity to remote schools will help narrow the digital divide between rural and urban schools. Investments in content development and teacher training will ensure ICTs will be effectively used for better quality education. The financial analysis suggests that the project investment will have a visible, but not overpowering impact on the total public education spending. The sustainability of investment in preschools will be assured through a prudent analysis of financial capacity and willingness of communities. A review of the school financing formula is necessary to enable high schools to finance higher unit costs to maintain the equipment and facilities invested through the high school reforms. Finally, since there may be another funding source for internet connectivity in rural areas, it will be necessary to reassess the investment needs after the project becomes effective. B. Technical 45. The development objective will be achieved through its technically sound design, focusing on policy advice, institutional capacity building, and support for broad-based education sector reforms. The

15 APL I1 will help Government consolidate a system-wide reform focusing on completing the introduction of the 12-year general secondary education, professional development and school improvement plans, and setting the stage for a more profound and badly needed tertiary education reform. Technical assistance will be provided to strengthen the capacity of the MoES to implement these key reforms. Managerial and analytical capacity building will take place at all levels to ensure that the various parts of the organization are effectively coordinated. Quality assurance and oversight will also be strengthened. C. Fiduciary 46. The CEP will be responsible for implementation of the Financial Management (FM) function of the project including, flow of funds, budgeting, accounting, reporting, and auditing. The CEP currently implements Education Quality and Relevance (EQRP) project (APLI). 47. Fiduciary Risk at the Project Level. The FM arrangements of the CEP have been reviewed periodically as part of EQRP (APLI) project supervisions and have been found satisfactory. Based on the FM assessment, it was established that the CEP has overall acceptable FM arrangements in place: particularly, (i) the well systematized filing system allows keeping all supporting financial documentation; (ii)FMRs have always been received on time and were acceptable; (iii) the CEP procured and installed adequate accounting software for the project implementation; and (iv) annual audits of the active project were satisfactory. 48. The overall financial management risk for the project before mitigation measures is moderate and after mitigation measures, the risk is low. 49. As the project will be implemented in an environment where corruption is perceived as an important issue, adequate mitigation measures have been put in place and will be closely monitored to ensure that the residual project risk is acceptable, including: (a) the Government’s move towards e- procurement and use of public websites to disseminate tenders and announce results; (b) a formal internal control framework described in the Financial Management Manual; (c) the flow of funds mechanism agreed with the Recipient will be enforced; (d) the project financial statements will be audited by independent auditors and on terms acceptable to IDA; and (e) regular FM supervision and procurement prior and post reviews will be conducted to monitor and assess the corruption risk. 50. Fiduciary Risk at the Country Level. Based on the CFAA and CPAR assessments of the fiduciary risk as significant and high, as well as based on the results of the recent PEFA report no elements of the country FM systems are planned to be used under project. The use of the country PFM systems for the project implementation will be considered, as the government progresses with the PFM reforms in internal and external audits, internal control framework, accounting standards, and treasury and budgeting systems. 5 1. As the banking arrangements with a local commercial bank (HSBC Bank Armenia) have been found satisfactory under active projects, they will remain in place during EQRP2 project implementation, unless other banks in Armenia or the State Treasury become acceptable for opening designated accounts. D. Social 52. During the implementation of APL I, good progress has been made through sizable Government investments in badly needed physical infrastructure, putting educational technology in schools, and preparation of key reforms focusing on the quality of education. As a result of these efforts, the enrollment rate for compulsory education is high, and the literacy rate is almost 100 percent, irrespective of gender and ethnicity. Beyond age 16, however, enrollment rates dropped sharply, and there is some uncertainty as to how the high school reform is going to impact rural areas and disadvantaged students in terms of access and opportunity to learn. Moreover, at the start of compulsory education, the already mentioned deterioration of the preschool network is severely affecting the school readiness of increasingly more young students throughout Armenia. E. Environment 53. There are no significant environmental issues in the proposed APL 11. The Environmental Category of the APL I1 is “C”. No safeguard policies are expected to be triggered because of the nature 16 of the activities to be financed under the Project. Support under the project would be limited to the refurbishment associated with: (i)resource centers, including computer labs and modern school libraries in high schools; (ii) the enhancement of kindergarten classrooms or the establishment of new kindergarten classrooms in existing primary schools, financed under school grants; and (iii) minor repair work for CEP. This will consist of cosmetic repairs covering replacement of windows and doors, the plastering of walls, the painting of windows, walls, and doors, and the painting and repairing of flooring. There will be no construction activity supported by the Project. The Project will not finance any lead paint, asbestos material or otherwise dangerous/hazardous material in conducting these repairs; such prohibitions will be specified in the contract bidding documents. As regards high school laboratories, the project will ensure that appropriate facilities for handling, storing, and disposing of chemical reagents associated with the high school laboratories will be in place. F. Safeguard policies

Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP 4.01) [I [x 1 Natural Habitats (OPIBP 4.04) [I [x 1 Pest Management (OP 4.09) [I [x 1 Physical Cultural Resources (OPIBP 4.1 1) [I [x 1 Involuntary Resettlement (OP/BP 4.12) [I [x 1 Indigenous Peoples (OP/BP 4.10) [I [ XI Forests (OPIBP 4.36) [I [x 1 Safety of Dams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OPIBP 7.60)' [I [ XI Projects on International Waterways (OP/BP 7.50) [I [x 1 54. The Project has been classified as category C for its low impact on the environment, G. Policy Exceptions and Readiness

55. Policy Exceptions: The project does not require exceptions from current Bank policies

56. Readiness Criteria: Progress made under the ongoing APL Iin addition to the implementation arrangements in place provides a sound basis for the implementation of APL 111

* By supporting the proposedproject, the Bank does not intend to prejudice the final determination ofthe parties' claims on the disputed areas 17 Annex 1: Country and Sector or Program Background ARMENIA: Second Education Quality and Relevance Project (APL 11)

1. Government Education policy and strategy. Education has been a priority sector for public investment in Armenia since the late 1990s, and the government has made a concerted effort to allocate more to general secondary education, in particular to improve access to and quality of education at this level. The education sector in Armenia is currently prioritized as one of the prerequisites of sustained development of the country as well as preservation and reproduction of human capital. Reform projects at all levels of education are being implemented to ensure universally accessible quality education and to increase efficiency. The National Strategy for Preschool Education (2008), the High School Reform Plan (2008), and the signing of the Bologna Declaration (2005) are the three policy highlights showing Armenia’s commitment with a profound modernization of its education system. 2. Armenia has increased public expenditure on education considerably in recent years with a clear vision, but total spending is still relatively low compared to countries at a similar income level. Due to that sustained increase of public expenditures, and according to the PSD approved by Governmental Decree on October 30, 2008, their share in the GDP will steadily grow and will reach 4 percent of the GDP in 2015 and 4.5 in 2021. Thus, in 2021 this indicator will increase by 1.7 percentage point as compared to 2006 and will approach the 2005 average for the ECA and FSU countries. However, in nominal terms, this growth will ensure approximately 7-time increase of annual public expenditures per beneficiary compared to 2006. Education Sector issues and challenges 3. Overview of the Education system in Armenia. Until recently, the general secondary education system in Armenia consisted of eight years of compulsory basic education (three years of primary and five years of lower secondary) and two years of upper secondary education. Currently, this system is being extended, in two steps, to nine years of basic education (grades 1-4 for primary and grade 5-9 for lower secondary) and three years of upper secondary education (grades 10-12). ‘Tertiary’ education consists of ‘vocational’ or ‘professional’ education (1 -5years after lower secondary school) and university education (after upper secondary school or vocational school). Compared to other countries at similar income levels, Armenia has high average enrollment rates at all levels of education, except for the preschool level. In particular, enrollments in higher education have been rapidly growing in recent years. Since 2007, the salary matrix for general secondary education teachers is no longer uniform across the marzes. Different marzes and schools responded differently to the government’s guidance to increase salaries by up-to 27 percent. While the starting salaries of teachers have reached almost equal to GDP per capita in Armenia, due to the narrow salary differentiation between teachers regardless of their qualifications and/or experience, the upper end of the scale in Armenia is still about 30- 40 percent lower than the OECD average in terms of its ratio to GDP per capita. 4. Education Financing. The government has boosted public expenditure on education in the recent years, and is committed to further increase it in the next decade. In the first Poverty Reduction Strategy Paper (PRSP) in 2003, the government planned to boost public education spending to 4.0 percent of GDP by 2015, as an important pillar of its poverty reduction strategy. Indeed, between 2003 and 2008, the consolidated budget for education increased by 26 percent per annum at nominal (or 20 percent at real) from AMD 35 billion (US$61 million) to AMD 111 billion (US$362 million). In particular, the government has made a concerted effort to allocate more to general secondary education in order to improve access to and quality of education at this level. The second PRSP, prepared in 2008, aimed to raise education spending further up to 4.5 percent of GDP by 202 1.’ When the government prepared the Program for Sustainable Development in 2008, the GDP growth rates were projected at 13.8 percent for 2009 and 12.6 percent for 2010. Given the high growth projection and a gradual increase in education spending as percentage of GDP from 3.0 percent in 2008 to 3.2 percent in 2009, the education budget was estimated to increase from AMD 11 1 billion (US$362 million at AMD 300/US$) in 2008 to AMD 135

5 The Government of Armenia, 2008, Programfor Sustainable Development (revised version of PRSP-2). 18 billion (US$450 million) in 2009 in the PRSP-2. The 2009 budget is slightly lower than the PRSP-2 projection, but it still substantially increased to AMD 126 billion (US$421 million). 5. Despite its strong commitment to education, the global economic crisis might force the government to slow down the overall spending increase and proportionately cut education spending as well. With the anticipated economic slowdown, education spending may be lower than what the government envisaged in the next few years. Then, the government may need to make hard choices over priorities. Possible savings may need to come from, for instance, instead of raising the salary level for every teacher, the government could introduce differentiated salary scales based on performance. The expected demographic transition over the next five years or so may require the government to reduce the number of teachers at the secondary level where the student population is expected to drop significantly, and better targeting vocational training. These savings in recurrent spending are necessary to pursue planned capital investment. For instance, the government should not postpone the on-going high school reforms that have been and will continue being supported under APLl and APL2 as they will not only improve the quality of high school education, but also create an efficient school network. Without government’s capital investment, the potential benefits of the project’s investment in quality improvement may not be optimal. Also, even though only local communities that are committed to contributing recurrent spending will be selected for the preschool pilot, the economic crisis may force some communities to cut down spending on preschool education, which might risk the sustainability of preschools, particularly in poorer communities. In addition, since the demand for preschool education will remain high, Le., a wider coverage and longer years, the government should continue increasing investment in preschool because of its long-term benefits on children’s performance.

6. Quality Issues. The low enrollment of pre-school age children in ECD/ECE services is leading to increasing inequity at the very start of primary school and is affecting the long-term quality of academic performance of the majority of Armenian children. The enrollment rate and the quality of preschool education in kindergartens have dropped sharply since the funding and management responsibility was transferred from the central government to local governments (communities) in 1996. Overall enrollment was 22 percent in 2006, 28.5 percent in urban areas and 10.5 percent in rural areas. From about 1100 kindergartens functioning in 1996 only 623 were functioning in 2007. Besides, around 47 percent of communities in Armenia lack adequate buildings for establishment of preschool institutions. Most local governments simply will not be able to finance the increase of enrollment rates of preschool age children (4 to 6 years-old) up to 90 percent by 2015, the goal set by the recently approved preschool strategy. There would be need of alternative mechanisms for delivery of preschool education and additional funds for expanding and developing preschool education for all marzes, with higher allocation for poor marzes, to meet the national goal. 7. The new National Curriculum Framework, approved by the Government of Armenia in 2004, became the cornerstone for the reviewing of the goals of general secondary education and followed with the changes in education content, methodology and new policy of development. APL I brought about radical changes in general secondary education focusing on the need to provide graduates with the knowledge, abilities and skills relevant to the new market and knowledge economy. Despite these remarkable developments, critical changes remain ahead to sustain all the important reforms recently introduced in the general secondary school area. 8. The results of TIMSS 2007 were made public on December gth, 2008. The results in 4‘h and gth Grade Mathematics are stunning, while those for Science are just acceptable. The overall score in 8th grade Math is 499, right in between the intermediate and high international benchmark and, to give a comparative reference, better than the results of Italy, Scotland, Australia or Sweden. Even more importantly, Armenia is the only ECA country that obtains significantly better scores in all four categories in comparison to the results of2003. While the Armenian tradition of Mathematics teaching is likely to be an important underlying factor, APL Ican legitimately take some credit for these results, as the effort carried out under the project in curriculum reform and in training master trainers and primary and secondary teachers of Math has been considerable. The Ministry of Education has just created a TIMSS Unit at the Assessment and Testing Center and has allocated funds in the 2009 national budget to

19 cover Armenia’s participation fees in the next administration of the Test. This is good evidence of the commitment and ownership with one of the crucial interventions supported by the APL I. 9. Efficiency Issues. Financing reforms in general secondary education have boosted efficiency at the school level and enhanced school autonomy. Largely due to the introduction of the per capita financing scheme accompanied by financial autonomy at the school level, the majority of general secondary schools have consolidated classes to the extent possible and there is little room for further efficiency gains at the school level. However, the government has maintained many small rural schools for equity and socio-political reasons. Hence, government is yet to run the general secondary education system as a whole more efficiently, while assuring access to good quality education for rural children. 10. Overall, student-teacher ratios have been much lower in Armenia than the OECD and EU19 averages at all levels, but the low ratios are more serious for tertiary education than general secondary education. Despite the continuous declines in enrollment, ratios for general secondary education started to increase in 2002 (although they are still quite low) primarily due to the implementation of the school rationalization and teacher redundancy programs. As the number of students, driven by demographic changes, declined by over 20 percent (from 560,637 to 446,140), the number of classes was reduced by 24 percent, teaching staff positions by 35 percent, and non-teaching staff positions by 34 percent. The most dramatic reduction in teaching and non-teaching staff occurred between 2003 and 2005 when the optimization program was introduced, and it has continued even after 2005. The teacher redundancy package also helped reduce the number of teachers after 2004. Even though the reductions were lower than the government’s original targets, the rationalization program has helped to increase STR from 10.8 in 2003 to 13.9 in 2006 and the average teaching load increased from 18 to 22 hours per week. Reduction of staff helped the government to increase nominal wages and salaries. The staffing ratios for state universities are extremely low. On average, student-teacher and student-non-teaching staff ratios are about 8.0 on average. 11. From an education perspective, the problem of the oversized system is more severe. In most countries, small and rural schools are often less resourceful, efficient, and lag far behind in terms of delivering high quality education. Most likely, this is also true in Armenia, where small schools, particularly in rural areas- simply can not attract enough teachers to teach the complex curriculum. Also, characteristically to the region, many teachers, especially new recruits, have low qualifications. Even the increased salary does not seem to be enough to attract the best and the brightest to the teaching profession. In addition to the massive trainings of teachers, classroom based support is needed for further sustaining the changes in their behavior. According to the evidence from teacher training workshops, teachers receive the idea of mentoring and classroom based support rather positively. Moreover, they have found it helpful in raising students’ engagement and thereby the quality of their learning. About 75 YOof the total numbers of all teachers are already trained on new national .curriculum, standards, syllabi, and interactive/ cooperation methods. The challenge is to convert these quantitative achievements into qualitative change focusing primarily on methodological issues. This also means diversification of professional development methods and making necessary changes in pre-service teacher education. 12. Preschool Education. The funding and management responsibility of early childhood education was transferred from the State Government to local governments (Le., community councils) in 1996, as part of a broader decentralization effort. This process has created problems both on the supply and on the demand side of preschool education. On the supply side, many communities have been unable to fully maintain the existing preschool structures that were in place during the soviet times. Hundreds were shut down (i.e., from 1,100 functioning kindergartens in 1996 to 623 in 2007), and others continue to exist but simply cannot provide the quality of care that would be appropriate for child development and school readiness purposes (e.g., lack of training of staff, decrepitated buildings, lack of funds for heating and other utilities in the winter time, etc.). On the demand side, families are either not satisfied with the quality of care and early education provided and therefore decide to keep their children at home, or they simply cannot afford the fees charged (usually in the order of 1,000 to 2,000 drams per month, i.e., US$3 to 6 in rural communities and of 4000 to 10000 drams per month, Le., US$13 to 35 in urban areas) to finance part of the daily expenses (e.g., food served to children, small materials, etc.).

20 Triggers from APL I to APL I1 Status as of December 1,2008 Immediate Next Steps

Policy for addressing the needs of The Law on the Education for Children with This trigger has been met. special education students agreed with Special Education Needs has been adopted by the Bank and approved by the the National Assembly on May 25,2005 Government National plan for educational The Assessment Policy for Student has been This trigger has been met. assessment and evaluation agreed with adopted by the Government of Armenia, the Bank and approved by the (Decree n. 14, April 14, 2005) Government Minimum standards for school libraries The “School Library Development principles, This trigger has been met Triggers from APL I to APL I1 Status as of December 1,2008 Immediate Next Steps approved by the Government, management and methodological guidelines assessment ofthe current situation in for general education institutions of Armenia” schools with respect to these standards was approved by the Ministerial Decree N completed, and plan for libraries agreed 698-AIQ, dated September 9, 2008. with the Bank and approved by the Government Textbook Revolving Fund cash flow For 2008, the cash flow projection is US$14.7 This trigger has been met projection for years 2008-2010 million, and this will go up to US$16.0 demonstrate its self-sustainability million in 2010.

Comprehensive teacher education and The Ministry of Education has established a This trigger has been met professional development strategy is working group with representatives from approved by the Government MoES, pre-service teacher institutions, NIE, CEP and other stakeholders. A draft document has been completed and, after internal discussion, has been formally approved as a Ministerial Decree on January 23rd,2009. Education Chapter of PRSP revised to The Education Chapter of the draft PRSP This trigger has been met reflect developments during phase 1 reflects developments of phase 1 and was approved in January 2008 New policy and implementation plan The Law on inspection was passed b) the This trigger has been met for school management and inspection National Assembl). (Adopted by RA National service agreed with the Bank and Assembl) on November 15,2005). The nen approved by the Government State Inspectorate was established by the Government degree n. 497-N, March 16,

Triggers from APL I1 to APL 111 Status as to January, 2009 Immediate Next Steps Evaluation of the Phase Icurriculum Evaluation Report of the Curriculum and The trigger has been met and assessment reform completed and assessment reform was completed in revisions made accordingly September 2008 and is being used in revising the curriculum for the High School reform and the unified examination system. Textbook Revolving Fund cash flow For 2008, the cash flow projection is US$14.7 The trigger has been met projections for years covered by next million, and this will go up to US$] 6.0 phase demonstrate its sustainabilitv million in 20 10 Comprehensive teacher education and Although the Strategy was only recently The trigger has been met professional development plan approved, there is a clear sense of direction in implementation progressing the teacher professional development policy satisfactorily and all the envisaged reforms are progressing satisfactorily. New policy and implementation plan No progress made Start dialogue with the for cost-efficient reform of student Ministry of Education social and support services agreed with the Bank and approved by the Government Education chapter of PRSP revised to Chapter revised reflecting developments of The trigger has been met reflect developments during phase 2 of the one-year extension of APL I. the APL

22 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ARMENIA: Second Education Quality and Relevance Project (APL 11)

1. The International Development Association (IDA) provided a Credit in 2003 (Education Quality and Relevance Project APL 1) of US$l8.0 million. The Government’s contribution was US$6.4 million.

Projects Supported by Other International Agencies

2. UNICEF has been providing support for pre-school education in collaboration with the MOES and UNICEF Armenia. The activities included the maintenance of the current network of the pre-school institutions and improvement of their service quality and the development and introduction of new, community based alternative services for vulnerable children. In addition, UNICEF conducted trainings of 2000 staff members of pre-school institutions, supported development of legal, statutoryhormative acts and designed the Manual of curricula-methodological instructions. Annual project “The Education Reform and the Child’s Development” is also implemented by UN Children’s Fund. Moreover, with the support of UN Children’s fund the “Life Skills” subject has been taught for almost 7 years now in grades 1 though 7 of secondary school.

3. Open Societv Institute - in 1998 the Open Society Institute implemented the “Step-by-step” project aimed at the introduction of child-centered methods. The program helps parents take care of the educational needs of their children and prepare them for the school. With the support of US Embassy in Armenia and OSI-AF-Armenia, “Project Harmony” and “ACCELS”, a school connectivity project has been implemented, as a result of which more than 300 schools of the republic have obtained computer classrooms and internet connection. ,

4. World Vision International has implemented the “Inclusive Teaching Development Project” in 26 pre-school institutions of the Republic of Armenia. It also created a “Support Center for lntegrated Teaching” and provided technical, methodological and professional assistance.

5. Save the Children, USAID and the Swiss Development and Cooperation Agency have developed compilations of movies and stories for children and a “Form Master’s Manual” was created for supervising instructors. Within the framework of Community Self-Support Project, Save the Children is also implementing an overhaul of kindergartens, heating system rehabilitation activities and installation of local networks throughout the Marzes of Armenia.

6. TEMPUS Erasmus Mundus External Cooperation Window, Marie Curie and 7Ih Community Framework Programmers invest extensively in exchange programs between Armenia and EU at higher education level.

23 Annex 3: Results Framework and Monitoring ARMENIA: Second Education Quality and Relevance Project (APL 11)

Results Framework

1. The monitoring and evaluation of outcomes and results under the proposed project will be consistent with and be an integral part of Armenia’s capacity to monitor the sector. The formal responsibility of monitoring and evaluating the project’s outcomes and results will fall on the CEP and on the Policy Analysis Unit (together with the EMIS department), all in the Ministry of Education and Science. Moreover, the Assessment and Testing Center (ATC) will be in charge of national assessments and examinations and also of the coordination of Armenia’s participation in TIMSS.

PDO Project Outcome Indicators Use of Project Outcome Information (i) Enhance school learning in general Improved ED1 scores of students in Improved ED1 scores will send a education and improve the school KG and schools receiving the grants strong signal to the Government to get readiness of children entering primary compared to students in the control more involved in the financing of education; group preschool education.

Improved examination and tests scores Assess if the new curriculum, resource in project-targeted schools and high centers and teacher training are schools (TIMSS 201 1 and Unified resulting in improved learning entrance examination) outcomes as measured by national and international tests.

Standings of Armenia in the Bologna Improved standings will bring (ii) Support the integration of Scorecard improving from Orange and international recognition of progress Armenian Tertiary Education system Yellow to Green (both in the overall made in higher education policy, into the European Higher Education score and the partial scores related to particularly in quality assurance Area quality assurance, recognition and program structure).

Intermediate Outcomes Intermediate Outcome Use of Intermediate Indicators Outcome Monitoring Component 1. nhancing the Quality of General Secoi lary Education. Improved quality of teaching in % of teachers intensively using ICT Assess if training of teachers is general secondary school classrooms. and other new materials in the translating into an actual change in classroom teaching style and behavior in the classroom. % of teachers taking part in pedagogical development programs

% of teachers still using exclusively the presentationirecitation mode of teaching

% of schools with school improvement plans approved and under implementation. New resource centers in 150 new High % of high school students who visited Low levels of laboratory and school Schools are being actively used by the resource center (laboratory and library use will signal insufficient teachers and students library) in the previous month. teacher training and school principal’s leadership. Low levels of daily lessons YOof daily lessons which take place at held at the resource center will the resource center indicate failed implementation of the new curriculum and of in-service training.

24 Component 2. Supportin tertiary education reforms in the coni rt of the Bologna Agenda ANOA becomes a candidate member No. of public and private universities Assess the capacity of ANOA as a of tie ENQA. evaluated against the newly developed credible agency and identify QA standards, criteria, procedures and additional project activities, if any, to guidelines. help ANQA be able to evaluate universities. Number of public and private universities’ that have operational Assess the progress of universities in internal QA Units in place according establishing internal QA Unit and to the new QA standards. identify and provide means such as training, provision of funding to assist them completing the task. MoES, NaCET, universities and The updated Higher Education Ensure that MoES, NaCET and colleges use TEMIS for policy Strategy using the informationidata universitiesicolleges actually use the planning, management, monitoring collected through TEMIS. informatioddata provided through and performance evaluation. TEMIS. Number of Universities producing a strategic plan and self-assessment reports using the informationidata collected through TEMIS. The government defines and agrees Identification of funding sources for Ensure the government’s ownership of with a more sustainable, equitable and the student loan scheme. new financing mechanisms and efficient financing system. specific funding tools.

Curriculum for teacher education in Number of teacher education curricula Assess the progress of the Consortium line with the Bologna Process comparable to a typical teacher universities in designing, approving education program within the Bologna and implementing reformed teacher Higher Education Area. education curricula.

No. of students studying in the revised curriculum. Component Project Coordination, Monitoring a1 Evaluation Project is successfully implemented Assessment on World Bank Continuously assess project supervision reports implementation progress Increased capacity of the MoES for policy planning, monitoring and Assessment on World Bank Ensure the mainstreaming of key evaluation. Implementation Completion Reports functions in the Ministry of Education and Science. The entity in the MoES assuming fill responsibility for carrying out policy planning, monitoring and evaluation finctions

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0 Annex 4: Detailed Project Description ARMENIA: Second Education Quality and Relevance Project (APL 11)

Component 1. Enhancing the Quality of General Secondary Education (total estimated cost: US$I9.66 million of which US$I5.73 million are IDAfinancing) Sub-component I. Promoting school readiness and equal opportunities at the start of General Education (US$2.49 million IDAfinancing) 1. The lack of access to preschool has been internationally documented as detrimental to the school readiness of children, i.e., their capacity to learn in Grade 1 and beyond, to transition successfully from one grade to another, to complete their education and to eventually become fully contributing and productive members of society. In Armenia, while it is true that official statistics show relatively low levels of school repetition and drop out, the number of dropouts has sharply increased in the recent past (Le., at an average annual growth rate of 250%), and there is evidence of significant school wastage, particularly in relation to absenteeism and because many children are not learning but are automatically promoted to higher grades without any form of remedial educations6

2. In response to this critical situation, a recently approved preschool strategy aims to increase the enrollment rates of preschool age children (ages 4 to 6) up to 90 percent by 2015. However, no funds from the central government have been committed to this effort, primarily because communities are deemed responsible for the necessary financial investment since the decentralization policy of governance according to the Law on Local Self-Governanceof 1996.

Sub-component Objectives 3. The main objective of this sub-component is to increase the level of school readiness among Armenian children, with a focus on the poorest and most vulnerable communities. More specifically, this sub-component will assist the Government in its effort to increase the number of children enrolled in preschool education and to increase the quality of services provided. 4. The beneficiaries and expected benefits are as follows: a) Children age 5-6: Approximately 8,750 children ages 5-6 will benefit from participation in a kindergarten class, either through an enhanced existing preschool or through the establishment of a KG classroom in the local primary school. As a result, it is expected that these children will enter Grade 1 with a higher level of school readiness as measured by EDL7 b) Parents: The parents of these children will benefit from quality preschool education options for their children, which will in turn give them an opportunity to engage in educational or livelihood opportunities. In addition, parents are expected to become more aware of the benefits of quality preschool edication and, as a result, to become more involved in the schooling of their children as they progress through the educational system. c) Communities: Approximately 140 poor and disadvantaged communities will benefit from targeted grants that will allow them to enhance the quality of preschool education provided in their existing structure (if they have one) or in pre-school section of existing local primary/basic/secondary school (if they don’t have an operating preschool). They will also be

6 Haiyan Hua et al. (2008): School wastage study focusing on student absenteeism in Armenia 7 The restricted focus of this sub-component on the age group 5-6 (instead of 4-6 or younger) is motivated by three reasons: (1) special importance is given to this age group in the Preschool Education Reform Strategy for 2008-201 5 ,which makes it more likely that the central government will consider it as a priority for intervention; (2) international evidence indicates that one year of quality intervention prior to Grade 1 can have a significant impact on school readiness; and (3) while it is true that interventions would also be useful for younger children, both from an education point of view but also from the perspective of the holistic development of the child and to allow young mothers to pursue educational and employment opportunities, focusing on 5-6 year old is a necessary first step in ensuring children’s school readiness and in moving the policy dialogue forward with the central Government. 29 expected to contribute to the financial sustainability and management of these enhanced KG classrooms and will be empowered by the project to progressively become more independent from the State through capacity building efforts in the areas of community sensitization and fundraising for the purpose of preschool education. d) Marzes: The education departments in the regions will also be empowered through the project, particularly in the areas of project management (i-e., selection of proposals by communities) and monitoring and evaluation. Activities 5. The sub-component will reach approximately 140 vulnerable communities (30/40 per year) through grants that can be used for the enhancement of existing KG classrooms (Le., in existing kindergartens under the governance of communities) or in pre-school section of the existing primary schools. The grant may be used for renovation work and purchase of furniture and materials adapted to the needs of 5-year-old children. In addition, the project will finance the training of preschool teachers and administrative staff directly involved in the delivery of preschool education. Staff from the Marz education departments will also be invited to attend this training given that they will be involved in the management and monitoring and evaluation of these activities. This training will include an initial module and additional in-service modules as needed (in collaboration with UNICEF and Step-by-Step). 6. The specific steps involved in the allocation of grants for each community are: Sensitization of eligible communities and call for proposals: done jointly by the Marzes and the CEP. Selection of the proposals on the basis of agreed upon criteria, including a) level of vulnerability; b) commitment of communities to contribute to recurring expenses (including teachers’ salaries and utilities expenses when relevant), and c) willingness of communities to develop local schemes to ensure that the most disadvantaged children (Le., children with disabilities and the poorest children) can benefit from the project (e.g., through waiving fees or other means). This selection process will be done jointly by the Marzes and the CEP and should be validated by the “Preschool project board” established by the Minister of Education. Training of KG teachers, staff and MED (Marz Education Department) officials: done jointly between the Ministry of Education, UNICEF, and Step by Step. Refurbishment of classrooms: managed by communities and parents, who may contribute in- kind contributions such as free labor. Distribution of pedagogical materials on child-centered practices: done jointly with the Ministry of Education and UNICEF. Beginning of activities with children Continuous monitoring of the implementation and timely support to improve implementation arrangements, on the basis of the output indicators listed in 3) above. Ongoing classroom-based support to teachers on how to use child-centered approaches for teaching and on how to create a child-friendly atmosphere appropriate for the optimal development of 5-year old children (done by Step by Step). Provision of refresher trainings (done jointly between the Ministry of Education, UNICEF, and Step-by-step) and exchange of best practices / innovative approaches within each Marz (after approximately one year of initial implementation). Institutional and Implementation Arrangements 7. Assuming that the project becomes operational in the fall of 2009, children will start directly benefiting from preschool services in September 2010 (for the first batch of 30-40 communities). Subsequent groups of 30140 communities will benefit each year thereafter. , 8. The division of responsibilities will be as follows: a) Government entities:

30 0 At the central level, the Ministry of Education will be responsible for the overall management and oversight of this project, as well as for providing relevant pedagogical guidance and reference documents through the Division of preschool education and Inspectorate through the MoES and the National Institute of Education. 0 At the Marz level, education departments will be progressively empowered to play a role in the sensitization phase, in the selection of community proposals, and in the monitoring and evaluation of implementation. At the Community level, community heads and councils of elders will be progressively empowered.to bear more responsibility in the financing and in the overall management of quality preschool services. b) Partner agencies: 0 UNICEF will be expected to finance the provision of adequate training for approximately 300 ECD staff (2 per beneficiary community), both prior to the beginning of service delivery and in-service. 0 Step-by-step will be expected to delivered these training modules. 9. A Memorandum of Understanding (MOU) will be signed between the Ministry of Education, UNICEF, Step-by-step, and the World Bank to agree on the specific details of this partnership. 10. Technical assistance. Limited technical assistance will be required in the context of this subcomponent. At the national level, technical assistance will be provided through the CEP for the various sub-activities previously listed and for the process of capacity building at the level of Marzes and communities. Limited international technical assistance will also be provided in the context of the impact evaluation described above.

Sub-component 2. Supporting further improvements in the quality of education through improved teacher in-service training and professional development (USs3.53 million IDA financing) 1 1. Support to teachers and thereby improving teaching have been key elements of the government’s education reform. APL Ihas been successful in making available knowledge and pedagogical ideas that they need in implementing that reform. A vast majority of teachers have been trained to understand the requirements of the new national curriculum, related methods of teaching and assessment of student achievement. Furthermore, a network of 52 School Centers is now operational, experimenting new educational ideas and providing professional development support to the schools in their neighborhoods. Regardless of this good progress Armenian teachers are at the early phase of educational change that will lead to sustainably improved quality of teaching and learning. The starting point for this project is an active teaching cadre that is ready and able to move to forward in order to make permanent impact on quality of education in Armenia. 12. All efforts to improve quality of teaching and learning until now have focused on professional development of individual teachers or small teams of teachers. Furthermore, most of that professional development has been in-service training around the topics of curriculum, assessment, using ICT in teaching and, to lesser extent, methods of teaching. This leads to two further needs that this projects aims to meet. First, sustainable development of quality of education requires schools to be able to operate as professional learning communities. This means, in practical terms, that together with professional development of teachers, education reforms must help schools to improve as communities of professional practitioners. Second, sustainable improvement of teaching and learning requires also targeted methodological support to specific subject teachers. It is a common view among many Armenian education specialists that mathematics and science teaching are among those where improvement of teaching is the most urgent. 13. This component supports the shift from in-service training of individual teachers to supporting school improvement as a collective process of change. This means that whereas there will continue to be a significant need for conventional in-service training for all teachers, this project will help schools to become the locus of change. This requires developing a systematic process that would include guided and coordinated self-evaluation, development planning and annual implementation of agreed school improvement action plan by all schools. In order to make this a sustainable part of how schools operate in 31 the future, school leadership needs to be significantly enhanced. That is why this project also supports developing a permanent system for professional development of school principals. 14. The key reform challenges that this sub-component aims to address are the following: (1) lack of national system for teacher professional development; (2) lack of national system for school principals professional training and continuous development; (3) shortcomings in teaching mathematics and science in secondary schools in resonance with the needs of a knowledge economy; and (4) lack of capacity to maintain sustainable school improvement.

Sub-component Objectives and Beneficiaries 15. The objective of this sub-component is to improve quality of teaching through (a) developing a national system for teacher and principal professional development, and (b) creating a school improvement network. This requires new policies and regulations regarding recruitment and promotion of teachers and principals, incentives for teachers and principals and amendment to teachers’ and principals’ rights and obligations in relation to continuous professional development. This sub-component will finance grants to schools and providers of professional development services, training of trainers, principals and teachers, science laboratories and hands-on kits to schools, hand-held technologies for teaching mathematics, technical assistance to design teacher and principals professional development systems, and trainer and teacher guidebooks and other printed teaching materials. 16. This sub-component will target secondary schools, principals and teachers, excluding the newly established high schools that are targeted by sub-component 1.4 of this project. First of all, this sub- component will provide teachers with better access to professional development opportunities that they need in order to improve teaching in schools. Teachers will benefit from this sub-component in two ways. On one hand, they will be offered in-service training and other professional development support directly by the government institutions as before. The scope of this support falls into the set priorities of the ongoing education reform, such as teaching mathematics and science. On the other hand, specific professional development grants will be made available to service providers so that they can design and deliver in-service training based on teachers’ needs. 17. Another beneficiary group is school principals who will have opportunities and at the later stage also obligation to contemporary school leadership training and other learning opportunities. This will include all school principals except those leading the newly established high schools. This sub-component will help school principals to better understand the complexities of educational change and school improvement and thereby lead their schools towards sustainable improvement. Among the project beneficiaries are also schools that will form the School Improvement Network that will be established through the support by this sub-component. The total number of schools in this network by the end of the APL I1 is estimated at 400. 18. This sub-component also brings benefits to the emerging professional development providers in Armenia through more opportunities and resources to enhance and expand their services to schools and teachers. It is assumed that this sub-component will vitalize the in-service provider sector in Armenia and also raise the quality of services. This requires that adequate accreditation and quality assurance procedure will be established by the NIE. In this way also the NIE will be among those benefiting from this sub-component. Activities 19. The key activity of this sub-component consists of a grant scheme that has two different streams. One of them is grants to professional development service providers to teachers, principals and schools. The other is school improvement grants to schools enrolling into the School Improvement Network in order to help schools to be engaged in self-evaluation, networking with other schools, development planning and continuous improvement certain procedures need to be created using technical assistance. These procedures include manuals for schools, trained coaches and web-based platform for the Network. 20. Expected outputs of this sub-component are: (1) Teacher Professional Development System that is based on teachers’ right, obligation and incentives to demand-driven professional development or training; (2) School Leadership Development System that provides basic knowledge and skills and 32 continuous leadership training for school principals; (3) National School Improvement Network that will provide a supportive professional environment for professional development through school improvement; and (4) opportunities for diversified provision of professional development services for teachers and schools.

0 Grants to training service providers (non-state/private organizations, NGOs, state and private universities, colleges, etc.) for professional development purposes.

0 Grants to Schools including School Centres for professional development purposes, networking, development of new educational materials, teaching and learning guides, introduction and dissemination of good practice and innovative programs. 0 Training of trainers and teachers (emphasizing Science, Mathematics, languages); 0 School leadership programme and training for school principals and vice-principals; 0 Technical Assistance for the implementation of the National Strategy for Teacher Education and Professional Development, as well as design and implementation of impact evaluation study; Networking and communication between school centres (website, e-mail addresses, regular conferences, seminars and working sessions at the school, regional and national level),

Institutional and Implementation Arrangements 21. The Ministry of Education and Science through its Project Implementation Unit (CEP) will remain the main implementation agency. It will be responsible for the planning, administration and monitoring of the Grant scheme, managing technical assistance and, in collaboration with the NIE and its regional Marzes, follow up the implementation of quality assurance procedures and accreditation of teacher and principal professional development and training. At the Marz level, the education departments will be gradually empowered to adopt an active role in selecting the best proposals for providing schools with grants for professional development and school improvement, as well as for playing a role in monitoring and evaluation of implementation. At the local level, the school principals and staff will be managing the implementation of school-based project activities, as well as initiate professional development activities. Schools and teachers will set up teachers-networks at the cluster, regional or central levels. 22. The NIE will be responsible for (1) creating and maintaining the accreditation system as a part of the national professional development system for teachers, (2) leading content development activities and providing pedagogical guidance in the ongoing curriculum reform, and (3) supporting networking of schools and establishing the School Improvement Network, especially focusing on the remote regions of Armenia. The NIE should consolidate and manage the existing human resources selected and developed within the APL Iin all over Armenia. This approach will contribute to replacing the traditional ‘office- based’ educational consultant/instructor with one who is educator, mentor and researcher simultaneously. 23. A Steering Group that would have a twin role as advisor and monitor will be established. This group that should remain rather small will have representatives from MOES, NE, CEP, principals, teachers, parents, private sector and international NGO sector. Sub-component 3. Continuing support to the integration of ICT in teaching and learning process (US$3.72 million IDA financing). 24. APL I has made an extraordinary contribution in terms of the integration of ICTs in Armenian schools. In addition to ensuring affordable connectivity to approximately half of the schools in the country, a successful Computer Revolving Fund has created compater labs in 85 percent of the schools and a first generation of Armenian electronic materials has been disseminated to schools. More importantly, APL Isupported the creation of the National Center of Education Technology (NaCET), the agency that is now in charge of managing the overall Education and ICT policies and programs in Armenia. However, according to the results of a recently carried out small-scale evaluation study of the relevant APL Icomponent, both the levels of use and actual curriculum integration of ICT remain modest and the skills of teachers in terms of using ICTs for the teaching of their subject need to be dramatically beefed up. 33 25. The Government of Armenia is already committed to its Education and ICT program, and that shows very clearly in the National Budget for 2009, where important provisions have been made for further connectivity and hardware for schools. In addition, the Ministries of Education and of Economy are working together on a concept note, which would lead to an even more ambitious plan for the intensive use of ICTs in Armenian schools, also in the larger context of a national policy for the Information Society in Armenia. APL I1 should therefore fit into this major government initiative while at the same time help consolidate the progress made during APL I.The commitment of the government with the Education and ICT-related investments clearly suggests that the Computer Revolving Fund, as it has been working for almost five years, will not be needed in the future. Even more, APL I1 will no longer finance hardware for the school computer labs, and should rather focus on the development of high- quality and relevant electronic materials and on the training and capacity building of those who need to be ready to integrate them in the curriculum and in the classrooms of Armenian schools. 26. The first challenge under APL I1 will be to extend this technical infrastructure to schools not covered under APL I, enhance the reliability and speed of the existing networking, and finance the procurement and roll-out of basic hardware to all schools to support the computerization of basic administrative tasks, especially those related to data collection for the national education management information system (EMIS). Then, an even greater challenge will be to ensure the effective use of this technical infrastructure to support improved teaching and learning, building off activities under APL I related to teacher training and the development and dissemination of electronic learning materials via CD- ROM and the national education portal 27. Particularly with regard to the connectivity of the school network is concerned, it is envisaged that only 400 schools in remote areas will remain with no internet connection by the end of 2009, i.e., at the time APL I1 is expected to become effective. While it is hoped that the private sector will get involved in providing this connectivity, the Bank would be ready to contribute to the financing of this outstanding challenge in order to ensure that the whole school network in Armenia will be interactively connected through the Internet by no later than 201 1. The first activity under this sub-component, once the project becomes effective at the end of 2009, will be to develop a detailed and well-costed implementation plan based on information current at that time, taking into account any concrete private sector plans to roll-out more robust Internet infrastructure that might help connect rural and remote schools.

Sub-component Objective 28. The objective is to ensure that all schools in Armenia are equipped with up-to-date technologies, connected interactively through the Internet, and ready to use all these technologies effectively to deliver the curriculum and to enhance and facilitate student learning. Specific activities to be financed by this component include the following: Activities

0 Provide internet connectivity to about 400 most remote schools. 0 Provide schools with hardware for school management purposes. 0 Provide schools with electronic learning materials for all key school subjects. Train of teachers in subject-specific use of ICT. Support to the National Education Portal as the host of electronic materials, virtual communities of teachers and learners and dissemination tool for good practice. 0 Technical assistance on the use of ICTs for school management purposes. Institutional and Implementation Arrangements 29. The National Center of Education Technology (NaCET) will play the central role as the implementation agency for all these processes. Further development of the capacity of NaCET to lead and support initiatives related to ICT use in education will be required, and formal and informal links to similar organizations in other countries, especially in Europe will be important mechanisms to help achieve this, as will targeted technical assistance and the development and utilization of a set of quantitative and qualitative monitoring and evaluation indicators. NaCET will work together with other international donors (OS1 in particular) and with the existing providers of electronic materials. Given 34 what appears to be few domestic producers of educational content, and that the small size of the potential market for educational materials in the Armenian language, simply commissioning firms to supply such content may not alone be sufficient to meet the critical needs of the education system for useful, relevant content. NaCET will have to take the lead in exploring alternative methods of generating such content, such as through the development and promotion of a platform and set of incentives to enable user- generated open education resources (OER).

Sub-component 4. Supporting the implementation of the high-school reform (USSS, 99 million IDA financing) 30. The Government approved the upper secondary school reform strategy in 2008, which involves the final stage in the introduction of the 12-year general secondary education system and, more specifically, the creation of a renewed network of 3-year high schools offering a more diversified curriculum and enhanced learning opportunities to students. The Government has turned back on its initial plans to further consolidate schools as part of the high-school reforms. The decision now is to go ahead with the creation of the network of 150 high schools but keeping the new general “stream” in the schools of the 700 communities where there is no other general secondary school available. This was justified on the grounds of protecting equal access of rural students and also to avoid higher drop-out rates for those whose families could not afford the extra costs - transportation or otherwise - of getting enrolled in the new high schools. The flip side of this decision is of course that there will be students in rural areas who would have had a chance to go to the new high school streams - Math and Science or Humanities - and will now just stay in their local school with, in theory, a more constrained opportunity to learn in comparison to their urban counterparts. To deal with this situation, the Government has created a Mitigation Fund, with AMD 50 million (US$l65,000) already in the 2008 National Budget, transferred directly from the Ministry of Finance to the Marz Education departments. Thus, Marzes can apply and obtain funds to be spent in either providing transportation services to students (and teachers) or even in cash transfers to students themselves in order to cover transportation costs. Su b-corn ponent Objective 3 1. The objective of this sub-component is to support teachers and schools in the implementation of the 12-year general education system and the high school reform, so that school-leavers will be equipped with knowledge and skills comparable to those of 18 year-old in OECD countries. Benefits and target population 32. The beneficiaries and expected outcomes are as follows: Upper secondary students: Will be provided with new opportunities for more advanced study of Mathematics, Languages and Sciences thanks to the introduction of new streams in the curriculum. There will be a new learning environment with new technologies and modern laboratories, in the hands of better trained and more motivated teachers. The envisaged need- based grants will provide equity access to high school services in rural remote areas. Schools and teachers: These groups of beneficiaries will be affected through increased financing, new professional development and learning opportunities, encouraged networking with colleagues and other schools. The increased motivation of learners will create better conditions for the provision of high quality learning environment promoting teachers and schools cooperation and research work. Parentdfamilies: Since the quality of education in the new High Schools is expected to be higher than it was in regular secondary schools, the demand for private tutoring could fall and students would focus more on meaningful learning rather than memorizing facts. The successful implementation of need-based grants to rural students could be a serious support to families and would contribute to keeping a high enrollment rate in upper secondary education in Armenia. Tertiary education institutions: The enhanced quality of education in upper secondary level and in-depth study of subjects by choices would positively affect on early orientation of high school students for making the best possible decision on future specialization. Admission decisions on the part of universities could therefore be better informed 35 Activities

0 Establishment of resource centers in 100 high schools (libraries plus computer labs). 0 Training of 150 high school librarians. 0 Training of 2750 high school teachers. 0 Training of 150 principals for the new high schools. 0 Curriculum and syllabi design for each stream in the new high school, ensuring a better articulation between high school and tertiary education. 0 Capacity building for the staff of MES and of Marz Education departments who are directly in charge of the implementation of the high school reform 0 Technical assistance to help design a viable system of counseling and guidance services at the new high schools.

Institutional and Implementation Arrangements 33. The division of responsibilities will be as follows: 0 At the central level, the Ministry of Education and Science (MoES) will be responsible for the oversight of this subcomponent; 0 Marz Education Departments (MEDs) in collaboration with communities and schools should support MoES in the mapping of the new high school network, provide on-going monitoring and technical support to new HS, as well as support the “losing” schools to overcome the difficulties resulting.from the decline of student numbers. MEDs would also provide support to data collection and give feedback to the MoES on specific implementation issues related to the high school reform. MEDs would also take the lead in managing needs-based grants or scholarships for high school students from vulnerable and remote areas. 0 New established high schools will be the main implementation agency responsible for: building capacity, organizing educational processes, supporting students from remote areas to be able to access the new high school, transparent selection of high school teachers and support to them for obtaining advanced training, equipping laboratories and libraries, etc. 0 CEP will support HSs in the procurement of goods and services, as well as providing monitoring and technical assistance for the establishment of libraries, science and computer laboratories, the review of the curriculum and the training of teachers and school principals. The CEP will be in charge of the overall management of the sub-component activities. 0 NIE and its branches will be in charge of the design and development of the new high school curriculum, introducing the new formative assessment tools, providing teachers and schools with new teaching and learning materials and providing classroom-based support to teachers so that they can apply new methods and technologies. NIE can also participate in data collection, analyses and evaluation activities. 0 Yerevan State Pedagogical University, Yerevan State University and regional Pedagogical Universities will be in charge of providing training to high school teachers for their professional development. 34. Local short and middle-term technical assistance will be required while establishing the network of new high schools. At the national level, technical assistance wili be provided through the CEP, NIE, ATC, NaCET and other institutions for the various sub-activities. MEDs will provide on-going assistance to all schools and teachers in this transition period supporting ‘loosing’ and benefiting schools, as well as teachers who would have to move to the other schools or simply become redundant. MoES will coordinate all activities at the central level providing on-going monitoring and evaluation and supporting necessary changes in regulatory-normativeacts or to adopt new legislative documents.

35. Limited international technical assistance will be provided by the ICs in the context of establishment of new libraries, training of science, math and language teachers, introduction of formative assessment tools. Specific training will be provided on using new hand-held technologies.

36 Component 2. Supporting Tertiary Education Reforms in the Context of the Bologna Agenda (total estimated cost: US$7.53 million of which US$6.02 million are IDAfinancing)

36. This component consists of four sub-components, namely (i)the establishment and strengthening of the national Quality Assurance system, (ii) the development of an integrated Tertiary Education Management Information System, (iii) the formulation of a sustainable funding strategy for tertiary education, including the design and implementation of a student loan scheme, and (iv) the reform of pre- service teacher training at the higher education level. Direct beneficiaries of this component include the MoES policy makers, administrators and students of state and private universities through the improved quality of education, more efficient and effective management and administration and information systems, and a more equitable and efficient tertiary education financing strategy.

Sub-component 2.1: Establishment and Strengthening of the National Quality Assurance System (US2.4 7 million IDAfinancing)

37. Armenia joined the Bologna Process in 2005. By this act, it committed itself to overhauling its higher education system to comply with all the dimensions of the Bologna framework,8 with a view to becoming a full member of the European Higher Education Area when it is formalized in 2010. However, the Armenian Quality Assurance system is not yet in line with the established European practice. To overcome this situation, the government established the Armenian National Quality Assurance Agency (ANQA) in November 2008. MoES also established a Working Group on Quality Assurance, which will assist the establishment and consolidation of ANQA during the initial stage. This sub-component will support the establishment and strengthening of the capacity of the ANQA in advancing QA policies and practices to achieve the threshold standards and targets required by the Bologna Process and higher education institutions to organize and implement internal QA activities. It will also support universities to develop internal QA units. Some of the most urgent activities such as ANQA’s capacity building and awareness campaigns need to take place immediately after its establishment, which need to be financed by the government’s own budget and/or with other donor support before the proposed Project becomes effective.

Activities: (i) Establishment of the External Quality Assurance (EQA) system 0 Establish mutual understanding of quality concept, QA basic principles and Bologna requirements on QA, with participation of stakeholders (ANQA, MoES, universities, students, and employers) Coordinate public awareness campaigns related to QA and Bologna process through workshops, public talks and mass media Develop capacities of EQA stakeholders (ANQA, MoES’s Higher Education and Licensing Departments, university representatives) 0 Develop EQA policy, standards, criteria, procedures and guidelines, including consultation with stakeholders 0 Plan and implement orientation and briefing sessions for external evaluators 0 Organize a study tour for learn activities of other EQA agencies 0 Pilot accreditation of selected universities and expand it to the remaining universities 0 Elaborate and disseminate outcomes and progresses of QA activities in Armenia and abroad

(ii)Development of the Internal Quality Assurance (IQA) system 0 Improve capacities of IQA stakeholders (university IQA Units, student representatives)

These include: Quality assurance; Degree structure (Adoption of a system essentially based on 2 main cycles); Promotion of mobility; Establishment of a system of credits; Recognition of degrees (Adoption of a system of easily readable and comparable degrees); Higher education institutions and students; Promotion of the European dimension in higher education; Promotion of the attractiveness of the European higher education area; Lifelong learning. 37 0 Develop approaches to IQA necessary policy, student assessment unified system, standards, procedures and guidelines and updating requirements for faculty qualifications 0 Provide grants to HEIs to develop IQA units and improve IQA system Specific grant scheme to promote good governance and transparency in HEIs

Institutional and implementation arrangements 38. The government established the Armenian National Quality Assurance Agency (ANQA) in November 2008. The ANQA is in the midst of appointing relevant staff (about 25 persons) and setting up necessary equipment and facilities. MoES has also established a Working Group on Quality Assurance, which will assist the establishment and consolidation of ANQA during the initial stage. ANQA, supported by WG, will be responsible for technical issues, while the PIU will assist them on procurement and financial management. Sub-component 2.2: Developing a Tertiary Education Management Information System (US$0.39 million IDAfinancing) 39. MoES currently does not have an effective management information system on tertiary education. This sub-component will provide technical assistance to establish an integrated Tertiary Education Management Information System (TEMIS) as an effective tool to support policy planning, management, monitoring and evaluation of performance of the sector both at the national and university levels. The National Center of Education Technology (NaCET) has been given the legal rights and responsibility to manage education data of all education levels, and will be the institutional home to carry out all the tasks related to the system development and day-to-day operations of TEMIS. It is crucial that the NaCET, supported by the Working Group on TEMIS, will first identify any legislative changes needed to make the data management and analysis more efficient and effective. 40. The NaCET will first assess information needs for tertiary education, and design TEMIS. TEMIS will first be piloted in a few public and private universities to observe and assess the operational feasibility and subsequently extended to all public and private universities. The modules will include: (i) Personnel management module (recruitment, legal and administrative decisions, salaries, pension, qualifications of lecturers, etc.); (ii)Academic management module (registration, curriculum, courses, research, examinations, classrooms, etc.); (iii) Student management module (student admissions, attendance, social affairs, continuing students and graduates, etc.); (iv) Financial management module (accounting, budgeting, payments, cash flow, cost analysis, etc.); and (v) Infrastructure management module (buildings, laboratories, workshops, equipment, etc.). A committee of users will be formed for each module, with representatives from universities and the NaCET. The role of these committees will be to propose areas of priority to the software developers and to facilitate the exchange of information and experiences among universities as the modules were prepared and gradually put in place in a number of institutions. Those universities not represented on the committees will be invited to contribute comments and requests through email or any other communication means. Throughout the development process, the NaCET will organize intensive training programs to support the participating universities in the introduction and adaptation of the modules and strengthen their capacity to use the new computerized management system in an effective manner. Efforts will be made to train non-specialized personnel with good communication skills in each university to act as change agents. 41. This sub-component will also provide technical assistance to the MoES and universities to develop information-based planning, monitoring and evaluation capacities. Once TEMIS becomes operational, the MoES will update the Higher Education Strategy. Each university will also produce an annual strategic plan and self-assessment reports using TEMIS data.

Institutional and implementation arrangements 42. MoES has formed a Working Group on TEMIS, consisting of representatives from MoES Departments, universities and the National Statistic Service. NaCET, supported by the WG, will be responsible for the technical matters, while the PIU will assist them on procurement and financial management,

38 Sub-component 2.3: Strengthening the Capacity to Implement a Sustainable Financing System (US$I.93 million IDAfinancing) 43. While the government has boosted public spending on general secondary education in the last several years, it has not increased spending on tertiary education. The lack of government funding has been mitigated by growth in tuition fees and the expansion of private sector tertiary education institutions. In 2006, the government financed only 15 percent of state universities’ total revenue, down from 47 percent in 1997. Today, public universities depend on tuition fees for 65 percent of their income, on average. As a result, tuition fees in public universities are extremely high, amounting to 30-40 percent of per capita income, as compared to, for instance, to 11 percent in the US or Japan. Private institutions enroll close to 25-30 percent of all students. The high reliance on private spending has limited access to higher education among the poor, raising an equity concern. It is estimated that students from the lowest quintile represent only 6 percent of those receiving a government merit-based scholarship, whereas students from the richest quintile make up 40 percent of all scholarship beneficiaries. Moreover, the existing budget allocation mechanism based on scholarships to selected specializations and stipends is not demand-driven or performance-based. The government needs not only to boost total higher education spending, but also to reform the financing mechanism to increase equitable access and set the right incentives and regulations that would allow tertiary institutions and programs to improve their quality and relevance and to become more accountable for their performance.’

44. MoES has established a Working Group on the sustainable higher education financing. This sub- component will support the government and WG in defining and putting in place a sustainable funding strategy for tertiary education. The first activity will be to design a student loan scheme to provide all needy students with financial aid to pay their tuition fees and living expenditures. The scheme will be tested on a pilot basis with a small group of students. Second, it will assist the government in setting up priority areas and viable procedures for the operation of a future competitive innovation fund (CIF) in support of quality improvement and innovations in tertiary education institutions. It is envisaged that once the CIF is designed under APL 11, the Bank’s next higher education project and/or other donors would provide funding to implement it. Third, it will review the existing resource allocation mechanisms for tertiary education and design and implement a more sustainable, equitable and efficient funding system. (0 Setting a student loan scheme 45. To ensure equal access to higher education for all socio-economic groups in a financially sustainable way, this sub-component will provide the government with technical assistance in designing and setting up a student loan system. It will provide a good understanding of various student loan models, technical knowledge about details in terms of appropriate subsidy and guarantee schemes, and experience to set up a system that helps students, protects the interests of the public budget and takes advantage of the mutual interest between commercial banks and the government. Activities: Conduct a survey on the demand for student loans among university and college students, and university leaders 0 Conduct a student tracer survey 0 Design a student loan scheme 0 Develop a monitoring and reporting mechanism 0 Training of the government officials and tertiary education institutions 0 Provision of TA to design the loan scheme and organize a study tour on student loan schemes abroad Pilot the model with a small number of students 0 Evaluate the model after implementing it for one academic year Based on the evaluation of the pilot model, redesign the student loan scheme for a larger scale expansion

9 Source: World Bank, 2008, Draft Armenia Public Expenditure Review Education Sector. 39 0 Establish a student loan oversight unit in the MOF and/or MOES (if it is decided to scale it up)

(iq Designing a competitive innovationfund 46. The current funding system in Armenia considers public universities as service providers and the government as a “client” purchasing a certain number of specialists in each area. The allocation is, however, independent of universities’ performance. The government has expressed its determination of moving towards a resource allocation system that would be based on performance. Indeed, Armenian universities are familiar with the concept of competitive fund through TEMPUS (Trans-European Mobility Program for University Studies), but the funding through TEMPUS has been quite limited and narrow in the range of themes eligible for financing. 47. This sub-component will provide technical assistance to the MoES to design a Competitive Innovation Fund (CIF) that will enable universities-both public and private-to develop and implement innovative plans for modernizing their curriculum and pedagogical methods, develop ECTS, build their fund-raising capacity, create linkages with industry, and engage in international cooperation activities. It is envisaged that once the CIF is designed under APL 11, the Bank’s next higher education project and/or other donors would provide funding to make it operational.

Activities: 0 Conduct a preliminary study on the models of CIF

0 Based on the study, define objectives of introducing a CIF in Armenia

0 Prepare a TOR and recruit international and local consultants to conduct a feasibility study and design a Competitive Innovation Fund

0 Conduct a feasibility study on a CIF

0 Design aCIF

(iii) Defining a sustainablefunding strategy 48. This sub-component will support the MoES in conducting a study aiming at defining a sustainable financing strategy for the development of the higher education system. The specific objectives of the study will be to: (i)identify ways of mobilizing additional public resources for tertiary education, (ii) define effective allocation mechanisms for the distribution of public resources (recurrent and research budgets) based on a funding formula with clear and transparent criteria, and (iii)explore ways to achieve a more efficient utilization of existing resources. Activities: 0 Prepare a TOR and recruit international and local consultants to design an overall funding strategy and prepare an implementation plan 0 Draft report on an overall funding strategy 0 Organize technical workshops to discuss the draft report Formulate policies and measures to implement the recommendations of the study. Prepare an implementation plan to operationalize the funding strategy Start implementing the strategy

Institutional and implementation arrangements 49. MoES has formed an inter-ministerial Working Group on the sustainable higher education financing, consisting of representatives from the MoES, MoF, commercial banks, and universities. The WG will be responsible for technical matters, while the PIU will assist them on procurement and financial management. The PIU will hire a group of consultants to administer the student loan pilot. The WG may need to create a sub-group for establishing a CIF and the development of a sustainable funding strategy. Sub-component 2.4: Reforming Pre-service Teacher Education (USV.22 million IDAfinancing) 50. After signing the Bologna Declaration, Armenia has to make fundamental rhythm change in it higher education reform. This applies also to teacher education. The challenge is to harmonize teacher education according to the National teacher Education Strategy in a way that there is now overlapping operations (teachers are trained in different Faculties for similar qualifications) and that all teacher

40 qualifications correspond to those typically found in the forthcoming European Higher Education Area (EHEA). 5 1 Armenia State Pedagogical University (ASPU) in Yerevan is the key player in teacher education, and the majority of graduating teachers come from this university. The ASPU has begun to adjust its degrees, study programs and curricula to the requirements of the Bologna Declaration. However, the lack of resources, relevant contacts with international teacher education institutes and illusion that modernization of teacher education only requires technical revision have hindered visible improvements. Positive progress is the establishment of the Inter-institutional Consortium of pedagogical institutes in Armenia is about to enhance coordination between the six national pedagogical institutes and, if successfully managed, also assist each consortium member in moving ahead with required reforms. 52. Currently teacher education covers a significant proportion of all higher education students in Armenia. The total number of students in the six pedagogical institutes is about 30,000, half of them registered as part-time students. Teacher education is fragmented into narrow specializations which is a consequence of the organizational structure of these institutions. This complex programmatic and organizational structure makes any changes even more complicated due to a large number of units and individuals to be involved in the reform. Partly due to this reason the main focus of this project will be on bringing primary school teacher education closer to the international good practices and common Bologna guidelines. Sub-component Objectives and Beneficiaries 53. The objective of this sub-component is to support development of initial teacher education in the spirit of Bologna Process through (1) longer-term twinning arrangement between the Armenia State Pedagogical University, (and the Consortium of Pedagogical Institutes, together with Yerevan State University) and an international higher education institution, and (2) upgrading necessary teaching facilities and equipment in these institutes to support modernization of primary school teacher education. This requires technical assistance delivered by a selected international university that focuses on upgrading degrees and curricula, enhancing methods of teaching and studying, strengthening educational research capacities, modernizing management and governance, setting the norms of ethics, and establishing networks of field schools for practical parts of new teacher education. This sub-component will finance technical assistance, training activities, teaching and study facilities in laboratories and libraries, printing teaching and training materials and relevant software for teaching and studying. 54. The main beneficiaries of this sub-component will be the Armenia State Pedagogical University, Yerevan State University and members of the Inter-institutional Consortium and its staff. Teachers will have opportunities to further pedagogical training and researchers will be able to joint research projects and training with their international colleagues. This sub-component will have a particular focus on providing assistance to primary teacher education sections in these institutes. Therefore, these institutes and their staff will probably benefit the most of this project. Activities 55. The main activity within this sub-component will be the mentioned long-term twining arrangement. This twinning will be arranged for the duration of the entire APL-2 which will enable deeper cooperation, exchange and partnership between the institutions. The twinning and technical assistance provided through it will focus on revision of degrees and study programs, curriculum development, training on teaching and study methods, strengthening research capacities, and advancing practical training as part of teacher education. By its nature, this twinning arrangement will also offer both teachers and students more opportunities to internationalization and cooperation with their peers. 56. This sub-component also includes targeted internal training and professional development to the Consortium members by the staff (local training), provision of library materials and low-cost 1abo:atory equipment to the primary teacher education institutions (or their Faculties of Primary Teaching and Methodology), and support to the design and pilot of the practical training in field schools. 57. All activities regarding technical assistance will be channeled through a large contract to an international university or higher education institutions in the field of teacher education. Within this 41 twinning arrangement the ASPU and the contracted international partner sign a Memorandum of Cooperation that will stipulate the duties, division of labor and other responsibilities regarding the partnership. Only a limited amount of local technical assistance will be needed, mostly to those areas dealing with internal dissemination through in-house training and the needs arising from the further development of the field-school training system. Institutional and Implementation Arrangements 58. Most activities in this sub-component will be administrated by the hired foreign university or higher education institution. MOES and its Centre for Education Projects will sign a contract with the selected international partner. The coordination institution in Armenia will be ASPU that will make available relevant staff for that purpose (with experience with international projects and adequate language skills depending on the selected partner university). 59. At the central level, the MoES will be responsible for the overall management and oversight of this sub-component, supporting the twinning partners with necessary policy changes and adjustments for the required reforms. The CEP will support Armenia State Pedagogical University, Yerevan State University and other members of the consortium in the implementation activities providing them with technical assistance in procurement of goods and services, preparing and submitting of reports, as well as will provide monitoring and evaluation. 60. The NIE will be responsible for coordinating relevant content related issues, supporting with development of curriculum, training of trainers, and supporting to new teachers for smooth entrance into teaching career. A steering Group for advisory and follow-up purposes to the twinning will be established. This group should have representatives from all members of the Consortium, MoES, Academy of Sciences, NIE, schools, students, NGO sector and Armenian business community. Component 3. Project Management, Monitoring and Evaluation (total estimated cost: US$4.06 million of which US$3.25 million are IDA financing) 61, The CEP as the Project Implementation Unit of the Project will be responsible for implementation and management of the procurement process, disbursements and financial arrangements, project monitoring, and reporting. The Unit will work with the existing management and monitoring framework designed to coordinate, monitor and build the capacity of participating institutions. However, some adjustments will be made to the framework to ensure the gradual transfer of responsibilities from the CEP to the Ministry of Education related to policy, planning, monitoring and evaluation functions. This framework consists of (i) providing technical and management training; (ii) developing the strategies and business plans; (iii) managing working groups responsible for facilitating technical discussions, coordinating activities and carrying out rigorous monitoring and evaluation according to established programs and timetables; and (iv) carrying out a comprehensive public information and consultation campaign focusing on education quality and relevance of projects. One of the key roles of the CEP under the APL I1 will be to facilitate coordination and communication flows with participating institutions and partners. The Unit will provide administrative support to the newly created Armenian National Quality Assurance Agency (ANQA) and will work with the entity in the MoES responsible for policy planning, monitoring and evaluation, with the aim of mainstreaming these key responsibilities in the Ministry. 62. With regard to Monitoring and Evaluation, the CEP will work closely with and build the capacity of the entity in the MoES assigned with this function. The aim is to gradually transfer the following key responsibilities to this entity: a) quality reporting; b) internal and external evaluations, studies and assessments; c) monitoring and evaluating the project’s outcomes and results; and d) arranging regular meetings between the Minister and Deputy Ministers with working groups to discuss the status of project activities. The institutional set-up and functioning of the entity responsible for policy, planning, monitoring and evaluation in the MoES is reflected as an expected outcome. The status of this process will be assessed during supervision missions and will be part of the mid-term review.

42 Component Objectives, Activities and Outcomes 63. The key objectives of this component will be to: (i) provide continued support of mainstreamed arrangements for the management, administration and monitoring of project activities; and (ii) institutionalize key functions in the MoES covering policy planning, monitoring and evaluation.

Activities

0 Financing a Project ImplementationUnit with core staff hired as consultants. 0 Implementation and management of the procurement process, disbursements, and financial management, project monitoring, and reporting. 0 Acquisition of minor additionsheplacement of office furniture and equipment. 0 Financing associated with upgrading the PTU facilities. 0 Financing of local travel, utilities and publications, translations, office supplies, small office repair, fuel, internet service, bank commission charges, vehicle maintenance and repair. 0 Systematic maintenance of the Monitoring and Evaluation system with updates on key performance indicators, which will be carried out jointly between the NaCET, ATC, the entity responsible for policy planning, monitoring and evaluation in the MoES, and the CEP. 0 Participation fees of Armenia for TIMSS 201 1. 0 Financing of implementation and management of impact assessments and special studies planned. 0 Facilitate coordination, communication flows and dissemination of information with participating institutions. 0 Facilitate working group arrangements and the organization of seminars and workshops. 0 Support the NaCET in the usage and management of the EMIS. 0 Provide training to staff in the CEP in the areas covering procurement, disbursements, information technology, project management and other areas identified and proposed in the course of project implementation. The expected outcomes of this component will be:

0 The CEP staffed with adequate number and professional staff. Project financed goods, works, and services procured without delays in accordance with World Bank procurement guidelines. CEP prepares quarterly and annual progress reports and submits them to IDA on a timely basis. 0 Implementation and dissemination of the results of the planned assessments and evaluations. 0 Monitoring and Evaluation systems with updates on key performance indicators. The entity in the MoES assuming full responsibility for carrying out policy planning, monitoring and evaluation functions.

43 Annex 5: Project Costs ARMENIA: Second Education Quality and Relevance Project (APL 11)

Local Foreign Total (US$ million) (US$ million) (US$ million) Component 1 - General Education 11.70 6.44 18.13 Component 2 - Tertiary Education 5.1 1 1.77 6.88 Component 3 -Project Management 3 -90 0.00 3.90 Total Base Costs: 20.71 8.2 1 28.91 Physical contingencies 1.18 0.38 1.56 Price continnencies 0.59 0.19 0.78

Total Project Costs: 22.48 8.78 31.26 Total Financing Required: 22.48 8.78 31.26

Local Foreign Total (US$ million) (US$ million) (US$ million) Goods 6.00 5.16 11.16 Grants 8.09 0.00 8.09 Consultant services 4.15 3 -62 7.76 Training 3 -29 0.00 3 -29 Operating costs 0.96 0.00 0.96

Total Project Costs: 22.48 8.78 31.26 Total Financing Required: 22.48 8.78 31.26

Note: Identifiable taxes and duties are US$5.28 million, and the total project cost, net of taxes, is US$25.98 million. Therefore, the share of project cost net of taxes is 81 percent.

44 Annex 6: Implementation Arrangements ARMENIA: Second Education Quality and Relevance Project (APL 11)

1. Institutional set-up and Administrative Structure of the Second Education Quality and Relevance Project (APL 11). The Ministry of Education (MoES) of Armenia will be responsible for the implementation of the Project supported by the services of a Center for Education Projects (CEP) acting as the Project Implementation Unit. The structure of the MoES has been evolving; some further changes are under consideration by the Government in response to institutional needs for carrying out second- generation reforms aimed at enhancing the quality of secondary education and supporting tertiary education reforms. The Organizational Chart below outlines the proposed institutional set-up and administrative structure of the APL 11. As depicted in the chart, during the next phase there will be an increasing number of interrelated institutions participating under the project. Therefore, great efforts will need to be directed at clarifying and further defining the roles and functions of each participating entity, including coordination mechanisms and information flows, to ensure effective cross-agency collaboration.

2. Key Institutional Challenges Ahead. To ensure the quality and accountability of participating institutions, the process of mainstreaming management, coordination and monitoring activities into the Government structure will be continued under the APL 11. The success of this process will require the continuation of the CEP’s role in institutional capacity building and training on management and accountability mechanisms directed at beneficiary state institutions. In addition, greater efforts and specific steps (described below) will be needed to gradually build MoES capacity in the areas ofpolicy planning, monitoring and evaluation.

3. Under APL I, with the support of the CEP, some important organizational development interventions started which need to be further developed under the follow-up operation. One output under the APL I on which to build is the CEP’s promotion of quality and accountability among various institutional entities that benefited from both strengthened institutional structures and tested and applied administrative, coordinating and monitoring procedures. CEP supported the MoES in redefining and streamlining the roles, responsibilities and inter-relationships between key institutional entities as well as in building their capacity as implementing agencies. These institutional changes were gradually carried out in line with evolving reforms. The training on management and administrative planning initiated by the CEP has helped fill a critical gap in the Civil Service system. According to the 2008 USAID Report “Organizational and Performance Needs Assessment on the Education System Capacity,” under the current Civil Service system there is “no management, skills training provided, required or credited to individuals.” Thus, the continuation of the CEP’s role in institutional capacity building and training on management and accountability mechanisms directed at beneficiary state institutions described in this annex will be critical.

4. Institutionalizing Policy, Planning, Monitoring and Evaluation. Greater efforts and specific steps will need to gradually build the capacity within the MoES in the areas of policy planning, monitoring and evaluation. These areas of responsibilities have largely been assumed by the CEP, which has contributed to education reforms over the past 10 years. These key areas of management need to be mainstreamed and institutionalized in the MoES. There is an already existing structure in the Ministry, the Information Analysis and Development Programs Department, which, according to the description of its functions, is involved in some aspects of policy planning and monitoring. This entity could be strengthened through capacity building, training and technical assistance to assume a stronger role in management and coordinating functions associated with policy, planning, monitoring and evaluation, 5. To mitigate the risk of having the task of policy, planning and monitoring remain under the management of the CEP, at the start of project implementation it will be essential to have the CEP build the capacity of a designated entity in the MoES that will take on these responsibilities. As a first step, a review of the current structure in the Ministry will need to be carried out to decide which entity would be responsible for these key areas, followed by the development of specific roles and functions of the entity. The CEP will work closely with the entity responsible for these key tasks, building the capacity of, and 45 gradually transferring these responsibilities to, this entity. The entity in the MoES assuming full responsibility for carrying out policy planning, monitoring and evaluation functions is an expected outcome under Component 3. The status of this process will be assessed during supervision missions and will be part of the integral review of the mid-term review. 6. The organizational chart highlights the evolving structure of the MoES and the new institutional challenges. The CEP will work within the existing organizational structure of the MoES supporting state management institutions (Technical Departments in the MoES, Marz Education Departments, the State Inspectorate of Education), as well as beneficiary state institutions such as the National Institute of Education (NIE), the National Center for Education Technology (NaCET), and School Centers, which served as key implementing entities under the APL I. It will also work with institutional entities related to tertiary education such as the newly established Armenian National Quality Assurance Agency (ANQA) and higher education institutions. It will coordinate with pre-schools and high schools, the other institutions proposed to be targeted under the APL 11. Working groups have been created for the implementation of the proposed component on tertiary education, which will coordinate with other participating institutions and partners including: (i) key stakeholders such as parents, teachers, and principals; (ii) NGOs, individual consultants and firms (including private enterprises) who compete for technical assistance and training activities advertised under the project; and (iii) key donors such as UNICEF and the Open Society Institute (OSI), implementing projects in education, including pre-schools and tertiary education. 7. State Management Institutions. The Minister of Education will assume the overall leadership for the education reform process and project implementation. He will also ensure that envisaged government counterpart financing for the proposed operation is provided by the Government on a timely basis and that the Government fulfills its obligations with regard to the financing of recurrent costs of the three key beneficiary state institutions: the NaCET, the NIE, and the ANQA, to be included in the annual State Budgets. The Ministry of Finance will be responsible for ensuring the proper flow of funds, the timely provision of counterpart funding, financial monitoring of project activities, and the replenishment of the special Account and allocation of funds for project activities. The Deputy Minister of Education will be responsible for the policy dialogue related to general education (including pre-school and high school) and tertiary education. He will also interface with the technical departments in the Ministry, the Marz Education Departments, the State Inspectorate of Education (which started functioning again in early 2007), the technical working groups, as well as educational state institutions described below. The Technical Departments in the MoES include the General Education Department, the Education Policy and Planning Department, the Information, Analysis and Development Programs Department and the Higher Education department. These departments would coordinate their relevant areas of work with the state institutions and technical working groups described below. At the Marz level, the Education Departments will be gradually empowered to adopt an active role in the selection process of school grants for professional development and school improvement, including the monitoring and evaluation of implementation.

46 W E 8 8

Y Y 4 4 8. State Institutions. Under the APL I, the CEP worked closely with beneficiary state institutions such as the ATC, the NaCET, the NIE, the National Employment Service (NES), the Social Insurance State Fund (SISF), and School Centers. The APL I1 will benefit from the new state institutions such as the NaCET and the ATC established and trained under the APL Iproject. The CEP took the leadership role in developing the legal framework for the establishment of the ATC, created on April 14, 2004, and the NaCET created on March 1 1, 2004. It was also responsible for initiating, managing and coordinating the process to ensure the institutional and financial sustainability of these key entities responsible for student assessments and educational technologies respectively. Although the ATC will not be a beneficiary institution under the APL 11, it will be a participating entity involved in monitoring and evaluation activities which are directly related to the Results Framework of the Project. 9. The Project will also benefit from institutional arrangements already in place in support of teacher training activities. This arrangement consists of close collaboration between the Marz Education Departments, the NIE as the existing institution, which together with its eleven regional offices is in charge of leading the development of a sustainable system of teacher training, and the network of 52 School Centers responsible for training teachers under a cluster-type arrangement. This arrangement will be strengthened in support of the APL 11’s focus on further improvements in teacher training and professional development. It will also include the Armenian State Pedagogical University (ASPU), as a new institutional partner that will be a key player in pre-service teacher training activities. In support of project activities related to tertiary education, the Armenian National Quality Assurance Agency (ANQA) was established in November 2008 with a mandate to: (i)develop and implement QA criteria and procedures required by the Bologna Process, and (ii)assist higher education institutions in establishing and strengthening the internal QA unit with the respective universities. This center will be supported by the newly established working groups described in the following section. The ANQA will manage the implementation of activities related to the proposed Sub-Component 2.1 : Establishment and Strengthening of the National Quality Assurance System. At the local level, school principals and staff will manage the implementation of school-based project activities, as well as initiate professional development activities. Schools and teachers will set-up teachers-network at the cluster, regional and central levels. 10. Project Management and Coordination. The Project will benefit from the existing Project Management Unit known as the Center for Education Projects (CEP), which was established by the MoES in 1996. Since its creation, it has gained significant strengths in project management through the implementation of the Bank-funded Education Financing and Management Reform Project, the Education Quality and Relevance Project and several other Bank-funded small-scale projects. In the absence of a centralized management and operational framework in the MoES for administering, coordinating and monitoring donor-financed projects, the establishment of the CEP with the proper structure, systems and procedures was essential to ensure the effective implementation of project activities. The CEP has a Steering Committee which is the governing body of the CEP responsible for overseeing and supervising the implementation of projects. The CEP under the current APL IProject has been very effective in filling this institutional gap in the Ministry and, more importantly, has provided support for institutional capacity for managing reforms and project activities. 11. Institutional Structure of the CEP. Under the follow-up operation, the CEP will continue its activities related to general administration, coordination, implementation, monitoring and evaluation, as well as facilitating the decision-makingprocess. It will comprise a core group of technical, administrative, and support staff. The technical staff will comprise 5 componenthb-component heads supported by a group of 12 technical specialists. The component /sub-component heads include: the Higher Education Component Head, the Pre-School Sub-Component Head, the Teacher Training Sub-component Head, the ICT Sub-component Head, and the High School Sub-Component Head. The specialists include: (2) Pre- school specialists, (3) Teacher Training Specialists, (1) ICT Integration Specialist, (1) Network Specialist, (2) High School Specialists, (1) Higher Education Governance Specialist, (1) Higher Education Financing Specialist, and (1) Higher Education Quality Assurance Specialist. The CEP will also work with a number of working groups. The Quality Group for Teacher Education and Professional Development Strategy which was established under the APL I will remain functional under the APL 11. Three new

48 working groups related to tertiary education were established in December 2008, these include: the Working group on Quality Assurance, the Working Group on Tertiary Education Management Information System (TEMIS), and the Working Group on Sustainable Higher Education Financing. The two EMIS specialists formerly located in the CEP have been relocated to the NaCET, the agency now responsible for managing the EMIS. The CEP will also be supported by a Lawyer, a Chief Accountant, two Accountants, two Procurement specialists, an Office Manager, and Assistant and a Translator. The hiring of the Component and Sub-Component Heads will be a condition of disbursement. 12. Key Responsibilities of the CEP. The CEP as the Project ImplementationUnit will be responsible for implementation and management of the procurement process, disbursements and financial arrangements, project monitoring, and reporting. The Unit will work with the existing management and monitoring framework designed to coordinate, monitor and build the capacity of participating institutions. However, some adjustments will be made to the framework to ensure the gradual transfer of responsibilities from the CEP to the Ministry of Education related to policy, planning, monitoring and evaluation functions. This framework consists of (i)providing technical and management training; (ii) developing the strategies and business plans; (iii) managing working groups responsible for facilitating technical discussions, coordinating activities and carrying out rigorous monitoring and evaluation according to established programs and timetables; and (iv) carrying out a comprehensive public information and consultation campaign focusing on education quality and relevance of projects. One of the key roles of the CEP under the APL I1will be to facilitate coordination and communication flows with participating institutions and partners. The Unit will provide administrative support to the newly created Armenian National Quality Assurance Agency and will work with the institutional entity in the MoES responsible for policy planning, monitoring and evaluation with the aim of mainstreaming these key responsibilities in the Ministry. 13. With regard to Monitoring and Evaluation, the CEP will work closely with and build the capacity of the entity in the MoES assigned with this function. The aim is to gradually transfer the following key responsibilities to this entity: a) quality reporting; b) internal and external evaluations, studies and assessments; c) monitoring and evaluating the project’s outcomes and results; and d) arranging regular meetings between the Minister and Deputy Ministers with working groups to discuss the status of project activities and issues. 14. Implementation Arrangements. Implementation arrangements under the proposed APL I1 will be governed by the guidelines and procedures set out in the Operational Manual (OM). The CEP will develop the OM, drawing from the lessons learned and experiences gained in the implementation of the APL I, and reflecting financial management, procurement and reporting arrangements planned for the APL 11. The approval by the Ministry of Education of an Operational Manual which is satisfactory to the Association is a condition of EfSectiveness. 1 5. Partnership Arrangements. The proposed APL I1 Project will continue effective working relationships established under the APL Iwith UNICEF and OSI, its key donor partners. Under the APL I, the Bank, UNICEF, the US State Department and OS1 successfully collaborated on the implementation of a number of priority reforms covering education curriculum development, educational software development, and teacher professional development. Under the APL 11, the proposed training of preschool teachers and administrative staff would benefit from the ongoing collaboration with UNICEF and Step- by-Step. It is expected that a memorandum ofUnderstanding (MOU) will be signed between the Ministry of Education-CEP, UNICEF, Step-by-step, and the World Bank setting out the specific details of this partnership. UNICEF will be expected to finance the provision of adequate training for approximately 300 ECD staff (2 per beneficiary community); Step-by-step will be expected to deliver the proposed training modules. In addition, collaboration with the OS1 will support the project’s focus on integration of ICT in teaching and learning process.

49 Annex 7: Financial Management and Disbursement Arrangements ARMENIA: Second Education Quality and Relevance Project (APL 11) 1. Country Issues. According to the latest Doing Business Survey 2009, Armenia was the top-rated CIS country and scored well vis-&vis many other developed and developing countries (44th out of 181). At the same time, in the latest Business Environment and Enterprise Performance Survey (BEEPS) report, about 30 percent of businesses have indicated that corruption is a problem in doing business. A Country Procurement Assessment Review (CPAR) done in 2004 also concluded that based on the analysis of the legislative framework, procurement practices, institutional capacity and the opportunity for corruption, the environment for conducting public procurement in Armenia was one of high risk at that time. 2. The 2005 Country Financial Accountability Assessment (CFAA) report concluded that the overall fiduciary risk" in Armenia is significant. The key reasons are: (i)inadequate capacity of core control and supervisory agencies performing the audits within the public sector; (ii) although most of the basic laws are in place with respect to various entities' (private sector and public enterprises, including state non-commercial organizations) financial reporting, the compliance remains a problem and authorities need to improve the quality of auditing, monitoring and supervision. 3. The PEFA assessment report published in October 2008 also demonstrates that several critical Public Financial Management (PFM) elements including internal controls, internal and external audit, and financial reporting are still weak. 4. Based on the above assessments of the country's present PFM system, no elements of the country FM systems are planned to be used under the project. The use of the country PFM systems for the project implementation will be considered, as the government progresses with the PFM reforms in internal and external audits, internal control framework, accounting standards, treasury and budgeting systems. 5. However, the fiduciary risk of the stand-alone FM arrangements for Bank-financed investment projects in Armenia is considered low. Specific procedures are developed by the project to secure proper financial accountability of this project and to minimize project FM risks. Additional FM arrangements in the project will include the audit of project financial statements by independent auditor and on the term of reference acceptable to the Bank. 6. As the banking arrangements with a local commercial bank (HSBC Bank Armenia) have been found satisfactory under active projects, they will remain in place during EQRP2 project implementation, unless other banks in Armenia or the State Treasury become acceptable for opening designated accounts. The country risk is significant and the residual risk is assessed to be moderate.

7. Risk Assessment and Mitigation. The overall financial management risk for the project before mitigation measures is moderate and after mitigation measures, the risk is low. Although the project will be implemented in an environment of high perceived corruption, adequate mitigation measures are in place to ensure that the residual risk is acceptable. The table below summarizes the financial management assessment and risk ratings of this project:

Risk Mitigating Measures FM Risk Residual Risk INHERENT RISKS

Country level Weak PFM institutions (additional S The CEP is to maintain independent M information are included in country issues financial management system, use of in the previous section) private auditors and use of commercial banks for designated

10 Risk of illegal, irregular or unjustified transactions not being detected, measured on a four point scale according to the CFAA Guidelines (low, moderate, significant or high). 50 Risk Mitigating Measures FM Risk Residual Risk Entitv level Risk of political interference in entity’s M Board composition and structure of M management the CEP will provide for independence of the entity. I Proiect level Project is small sized, with local M Implementation arrangements that L commercial banks used by the Treasury allow close monitoring of activities for flow of Government Counterpart under the project (including flow of funds, with some risk of delays in funds funds) by the Bank. re uests processing bj the MOF. ?0 VER4 L L 1.VHERE.j.TRISK M M I ’. CONTROL RISKS Budgeting L No additional mitigation measure L Good Budgeting system. required Budget is prepared in much detail which is necessary for monitoring the project Accounting. L No additional mitigation measure L The CEP has adequate accounting required staffing. The CEP recently procured and installed new accounting software for APLII. Internal Controls M CEP has developed a separate L The CEP has overall adequate internal Financial Management Manual control system in place. Since current (FMM) for the project to reflect the (implemented under APLI) and new grant specific activities of the Project. schemes will be implemented under The FMM will need to be strictly APLII as well, the CEP should develop followed by the staff. and utilize the payment supporting The detailed control mechanism documentation review process (for over find flows of the grants has expenditures made by beneficiaries from been developed separately, agreed grant proceeds) on a sample-basis. with the Bank and will be included into the new grants’ Operational Manuals once the manuals are developed. Funds flow M No additional mitigation measure M Government and IDA funds will flow required, while it remains at through commercial bank designated moderate risk reflecting the scale of accounts. the financial crises affecting the I commercial banks involved. Financial Reporting L No additional mitigation measure L No significant issues have arisen in the required audits of the EQRP (APLI) project regarding financial reporting. Auditing M No additional mitigation measure M The audit will be carried out by required independent auditors acceptable to the Bank.

OVERALL CONTROL RISK M L

OVERALL FMRISK M L

H - High S - Substantial M-N lerate L - Low

51 8. Strengths. The significant strengths that provide a basis for reliance on the project financial management system include: (i) FM arrangements similar to EQRP (APLI) project being implemented by CEP and found to be adequate; (ii) the CEP procured and installed adequate accounting software; and (iii) no significant issues arisen in the audits of the active project being implemented by CEP.

9. Weaknesses and Action Plan. There are no major weaknesses at the CEP. For capacity building purposes the following actions have been agreed with and implemented by CEP:

Actions Agreed Responsible Completion Implementation Status Date 1. Update the Financial Management Manual CEP Prior to Implemented. CEP has (FMM) to reflect the specific activities of negotiation developed a separate the Project. Financial Management Manual (FMM) for APLII to reflect the specific activities ofthe Project 2. Develop detailed control mechanism over CEP Prior to Implemented. The fund flows of the grants and describe it in negotiation detailed control the grants Operational Manuals. mechanism over fund flows of the grants has been developed, agreed with the Bank, and will be included into the new grants’ Operational Manuals once the manuals are developed.

0. Implementing Entity. The residual risk associated with the CEP is moderate with low probability of external intervention to modify the structure and staff of the organization. Same structure and arrangements with the implementing entity as it was under EQRP (APLI).

1 1. Budgeting and Planning. The CEP is capable of preparing relevant budgets. The annual budget is prepared in much detail, which is necessary for monitoring of the project. It is classified by categories, components and sub-components, sources of funds. The risk associated with planning and budgeting is assessed as low.

12. Accounting Staffing, Financial Department in the CEP consists of a financial manager, a chief accountant, and two accountants. The direct responsibility of the financial manager includes the nrenrirritinn nf reviilrir rennrts finrliidinv TFRdFMRsI Withdrriwnl Annlirritinn rind the nrniert’s rinniiril maget. ine cnier accountant IS responsime for tne general accounting or me project as well as tne maintenance of the accounting software in the local currency (AMD). One of the accountants is responsible for invoice processing and payments, and reviews the progress on current contracts implementation. The other is responsible for bank transactions processing, bank account reconciliation and statutory reporting. The former was hired recently and has experience in financial management at another PlU implementing WB financed projects and worked previously as an auditor in an audit company. The FM staff of CEP participated in the regional joint FM and Disbursement workshop organized by WB in June 2007 in Yerevan. The risk associated with staffing is assessed as low.

13. Information Systems. The CEP utilizes 1C accounting software, which automatically generates FMRs. However, produced FMRs are incomplete and therefore require a finalization in Excel spreadsheets. For APLII the CEP has procured and installed new, enhanced accounting software as the previous accounting software had several drawbacks, which the current vendor was unable to fix. Particularly, in the old software the accounting for AMD and USD is maintained in separate databases, which results in double posting and duplicate processing of the accounting data. In addition, the 52 accounting software is inaccurate in USD reporting of the local currency transactions and needs to be upgraded or replaced. The CEP will continue conducting accounting of the current project (closing in November 2009) in the old software. The new software will be utilized for APLII. The risk associated with information systems is assessed as low.

14. Accounting Policies and Procedures. The CEP financial reporting is based on IFRS. The accounting basis of the CEP is accrual. It has been agreed to adopt accrual basis for EQRP2 project as well. The current chart of accounts will be adapted to EQRP2 project’s requirements, and the Financial Management Manual updated. The risk associated with accounting policies and procedures is considered as low.

15. Internal Controls and Internal Audit. The CEP has adequate internal control system in place, which was assessed to be capable of providing reliable and timely information and reporting on the projects. The latest update of the Financial Management Manual (FMM) was done in March 2009 to reflect the specific activities of the new project. Office manager is responsible for purchases made based on the requests submitted for office supplies, which are approved by the financial manager and authorized by the director. No petty cash box is maintained at the CEP. Payments, including salary payments, are made via bank transfers. The CEP has no representation expenses. The fixed assets register is maintained in the accounting software. All fixed assets of the CEP are allocated to the personnel who are formally responsible for their condition and existence. Under APLI the CEP provides grants to local community institutions (preschools) and to school centers (SC). The guidelines for the provision of the grants are described in the grants’ Operational Manuals. The grants implementation is monitored by the CEP through review of regular reports submitted by the beneficiaries and via on-site visits. Since the current and new grant schemes will be implemented under APLII as well, the CEP will utilize the payment supporting documentation review process (for expenditures made by beneficiaries from the grant proceeds) on a sample-basis. The detailed control mechanism has been developed, agreed with the Bank, and will be included into the new grants’ Operational Manuals once the manuals are developed. Considering the small size of the CEP, no internal audit function is required neither exists. The risk associated with internal controls is considered as low.

16. Financial Reporting. Project management-oriented Interim Un-audited Financial Reports (IFRs) - previously known as Financial Monitoring Reports (FMRs) - will be prepared under EQRP2 project. The CEP will produce a full set of IFRs every calendar quarter throughout the life of the project. The format of IFRs has been agreed during the assessment which includes: (a) Project Sources and Uses of Funds, (b) Uses of Funds by Project Activity, (c) Project Balance Sheet, (d) Designated Account Statements, and (e) SOE Withdrawal Schedule. These financial reports will be submitted to IDA within 45 days of the end of each quarter. The first quarterly IFRs will be submitted after the end of the first full quarter following the initial disbursement. Those requirements and IFRs formats are incorporated in the FMM. The risk associated with reporting is low.

17. External Audit. The audit of EQRP2 project will be conducted (i) by independent private auditors acceptable to the Bank, on terms of reference (TOR) acceptable to the Bank, and procured by the CEP, and (ii)according to the International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants (IFAC). The CEP’s previous auditing arrangements are satisfactory to the Bank, and it has thus been agreed that similar audit arrangements will be adopted for EQRP2 project, to include the project financial statements, SOEs and Designated Account Statement. The sample terms of reference acceptable to the WB and to be used for the project audit was provided to the CEP. The annual audited project financial statements will be provided to the Bank within six months of the end of each fiscal year and also at the closing of the project. The contract for the audit awarded during the first year of project implementation may be extended from year-to-year with the same auditor, subject to satisfactory performance. The cost of the audit will be financed from the proceeds of the project. The following table identifies the audit reports that will be required to be submitted by the CEP together with the due date for submission.

53 Audit Report Due Date Continuing Entip-financial statements NIA Project financial statements (PFS). Within six months of the end of each fiscal year The PFS include Project Balance Sheet, Sources and Uses and also at the closing of the project of Funds, Uses of Funds by Project Activity, SOE Withdrawal Schedule, Designated Account Statement, and Notes to the financial statements, and Reconciliation Statement.

18. In addition, the Armenian Chamber of Control, the country’s supreme audit institution, performs ad hoc external auditshspections of CEP and projects under its implementation. The risk associated with external audit is considered moderate.

19. Funds Flow and Disbursement Arrangements. The total project estimate of US$ 3 1.26 million will be financed with IDA Credit US$ 25 million and counterpart funds of US$ 6.26 million. The Recipient is the Republic of Armenia, represented by the Ministry of Finance (MOF), with the Ministry of Education as the beneficiary.

20. The Country Financing Parameters for the Republic of Armenia, will be applied to determine the level of IDA financing. 2 1, Terms of the Credit: Funds will be provided on standard IDA Credit terms - 20 years to maturity with 10 years grace, to be disbursed through transaction-based disbursement methods that include: advances deposited into a segregated Designated Account to finance project expenditures as they occur, reimbursements of project expenditures pre-financed by the Recipient, payments against Special Commitments and direct payments to third parties. A service charge will be levied at the rate of 0.75 percent per annum on the principal amount withdrawn and outstanding. Commitment charge applicable on the undisbursed amount of the Credit has been waived and is, therefore, set to zero. 22. Designated Account. To facilitate project implementation, a Designated Account for the IDA Credit for a ceiling of US$1.5 million will be opened in a commercial bank, on terms and conditions acceptable to the Bank. The Designated Account will be documented on a quarterly basis and audited in conjunction with the annual audit of the project financial statements. Details on the minimum application will be provided in the Disbursement Letter. Disbursements will be made against full documentation for contracts for (i) goods costing greater than US$200,000; (ii) consulting firms costing greater than US$lOO,OOO; and (iii) individual consultants costing greater than US$50,000. Expenditures relating to contracts below these limits and for training, grants, student loans, and incremental costs will be based on Statement of Expenditures. Documentation in support of the SOE will be retained in the CEP for at least two years after the project closing date. This information will be available for review by Bank missions during the project supervision and by the project’s auditors. SOEs will be audited in conjunction with the annual audit of the project. 23. Government Contribution. Government contributions of US$5.86 million will be disbursed from budgetary allocations expended through the Treasury Systems to a Project Account, opened for the project to finance eligible project expenditures as they are incurred.

54 Amount of the Percentage of Credit Expenditures Category Allocated to be Financed (Expressed in SDR) ( 1 ) Works, goods, consultants’ services, including audit, 17,000,000 80% training, incremental operating costs under the Project, and Grants, including Student Loans, under Parts A. 1 and 2 and Parts B. 1 and 3 of the Project

TOTAL AMOUNT 17.000,OOO

24. The risk associated with funds flow and disbursement is considered as moderate. 25. Supervision Plan. As part of its project supervision missions, IDA will conduct risk-based financial management supervisions, at appropriate intervals (first supervision will be conducted within a year). During project implementation, the Bank will supervise the project’s financial management arrangements in the following ways: (a) review the project’s quarterly IFRs as well as the project’s annual audited financial statements and auditor’s management letter and remedial actions recommended in the auditor’s Management Letters; and (b) during the Bank’s on-site supervision missions, review the following key areas (i) project accounting and internal control systems; (ii) budgeting and financial planning arrangements; (iii) disbursement management and financial flows, including counterpart funds, as applicable; and (iv) any incidences of corrupt practices involving project resources. As required, a Bank-accreditedFinancial Management Specialist will assist in the supervision process.

55 Annex 8: Procurement Arrangements ARMENIA: Second Education Quality and Relevance Project (APL 11)

A. General 1. Procurement for the Armenia Second Education Quality and Relevance Project will be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004 and revised in October 2006 (Procurement Guidelines); and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers" dated May 2004 and revised in October 2006 (Consultant Guidelines) and the provisions stipulated in the Financing Agreement (FA). The various procurement actions under different expenditure categories are described in general below. For each contract to be financed under the FA, the various procurement or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame have been agreed between the Borrower and the Bank in the Procurement Plan (PP). The PP will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. A General Procurement Notice (GPN) will be published in January 2010 in UNDB on-line and in its printed version as well as in dgMarket online. Specific Procurement Notices (SPN) will be published for all ICB procurement and Consulting contracts per Guidelines as the corresponding bidding documents and RFPs become available. B. Assessment of the agency's capacity to implement procurement 2. Country Procurement Assessment Review (CPAR) for the Republic of Armenia was carried out in 2003 and finalized in 2004. Updated Country Procurement Assessment on the basis of World BanWDAC-OECD methodology is planned this year to be submitted to the Government by July 2009. The CPAR emphasized that although there is a very good framework for public procurement and certain progress has been made, procurement reform needs further streamlining and improvements. Armenia adopted a Public Procurement Law (PPL) in June 2000 compatible with UNCITRAL model. CPAR found that single source procurement is widely used for reasons of urgent and unforeseen need and recommended to improve budget planning and execution. CPAR stressed the importance of fostering the culture of compliance through better transparency and dissemination as well as institutional capacity building including through e-procurement. Current Public Procurement Law in Armenia came into force on January 1, 2005 and number and value of sole source contracts has been gradually reduced. The CPAR concluded that Armenia should be rated as a high risk country in this respect. 3. Assessment of the Capacity of the Implementing Agency to conduct procurement actions for the project has been updated in December 2008 by the Procurement Accredited Specialist (PAS) assigned to the project and it is available in the project files. The assessment reviewed the organizational structure for implementing the project and the interaction between the project's staff responsible for procurement and the Ministry's relevant central units, including for administration and finance. The key issues and risks concerning procurement for project implementation have been identified and the corrective measures have been recommended. These included maintaining adequate prior review thresholds particularly for the first contracts for each method to ensure proper use of the procedures. Prior review thresholds will be indicated in the Procurement Plan. C. Procurement Risk Assessment 4. The overall project risk for procurement is Moderate after mitigation measures and should be reviewed during the mid term review. The risks associated with procurement and the mitigation measures were identified in the capacity assessment to conduct procurement of Center for Education Project in December 2008, They included risks and measures associated with procurement experience at CEP level and its ability to handle multiple packages as well as coordination of procurement activities with beneficiaries and procurement experience of beneficiaries itself. Conclusion is that Residual risk after mitigation measures in all three types of risks is M (moderate).

56 D. Procurement implementation and arrangements 5. Procurement activities will be carried out by the Center for Educational Projects (CFEP) located under the Ministry of Education (MoES) of Armenia that will ensure overall leadership for the reform process, including project coordination. The CFEP has two full time procurement specialists in place. It is considered prudent to hire an additional procurement staff/assistant (1 person) to support procurement activities for MoES once the implementation is facilitated. The staff received training specifically related to World Bank-funded projects. The existing capacity can, therefore, be considered to be satisfactory. Series of workshops, initiated by the procurement post reviews under the previous APL I project and a Project Launch workshop scheduled around project effectiveness will be the continuation vehicle for informal training of staff at the MoES, who will be charged with the coordination of all activities, including Technical Specifications for the project. The country NCB standard bidding documents for goods and works are reviewed and found acceptable to the Bank under APL Iand will continue to be used under APL I1 with necessary updates to comply with current Guidelines. The acceptable NCB bidding document can be found in the Project Operations Manual (POM) and project file. Domestic preference in accordance with clause 2.55 and Appendix 2 of the guidelines will apply to goods contracts”. 6. Procurement of Works: Since the focus of this Project is on the quality and relevance of the general education system, there are no major civil works contract planned to be awarded during the implementation of this Project. Some minor works such as refurbishment of existing classrooms so that they can be used as preschool classes or, in the case of high schools, as libraries, could be envisaged under the project.

7. Procurement of Goods: Goods contracts procured under this project may include: (i) information technology-related and other office equipment; (ii) printing and dissemination costs, (iii) vehicles; (iv) office furniture and equipment; and (v) mass media time and space. The procurement will be done using the Bank’s SBD for all ICB and National SBD agreed with or satisfactory to the Bank, software, database management system shall follow the Bank’s SBD “Supply and Installation of Information Systems.” Goods of small values of less than $100,000 equivalent can be procured under Shopping procedures. Goods, including training and printing materials and publications will be grouped to the extent possible to encourage competitive bidding. 8. Selection of Consultants: Contracts for Consulting Services will be packaged to combine related skills and services in order to make them attractive for competition and reduce the number of contracts to be administered taking into consideration the size and limited capacity of the CEP to administer a large number of contracts. To the extent practical, training activities will be incorporated with consulting services contracts. Consultant services consist of short-and long-term assignments to be contracted to firms and/or individuals (national and/or foreign or jointly) depending on the nature and duration of the assignments. Selection procedures will generally be managed through competition among qualified shortlisted consultants. The shortlists for consultant services contracts with firms shall comprise six firms with a wide geographical spread, and with no more than two firms from any one eligible country and at least one firm from a developing country, unless qualified firms from developing countries are not identified. The procurement of consultant services contracts financed under the Credit will be in accordance with the provisions of the Consultant Guidelines. 9. Shortlists comprising: entirelv National Consultants. Consultants’ services for contracts estimated to be less than US$lOO,OOO or equivalent may have a Short List composed entirely of national consultants. It is also expected that consulting offices associated with local universities may be included in the shortlists. University-basedconsultants will not be given preference over other private consultants.

10. Hiring: of Government-Owned Universities and Research Institutes. Under APL Iproject the procurement eligibility waiver has been obtained for hiring of the otherwise ineligible Government- owned Centre for Education Reform (CER) (renamed thereafter as National Institute of Education (NIE)) which would have unique qualifications and experience in the country for the assignments to be carried out under the Credit. Under APL I1 such waiver is not needed for NIE due to the fact that no activities are planned to be contracted with NIE. However, a similar waiver has been obtained for the Armenian State Pedagogical University (ASPU) and other regional universities involved in training such as Yerevan State

57 University, Gavar State University, Goris State University, Gyumri State Pedagogical Institute, and Vanadzor State Pedagogical Institute, which all have unique qualifications and experience in the country for planned higher education component training assignments and due to lack of private sector alternatives. Additionally, participation of Armenian National Quality Assurance Agency (ANQA), established in November 2008 could be considered for assignment of pilot evaluation and accreditation of universities by ANQA at a later stage of project implementation to strengthen ANQA role and capacity. Respective eligibility waiver, if needed, will have to be obtained prior to undertaking this assignment once the Bank affirms that the Center has the necessary capacity. 1 1. Hirinp of Government Officials, Civil Servants, University Professors and Scientists from Research Institutes. Civil servants may be hired as individual consultants or as members of a team with financing under the Credit, provided they are on leave of absence without pay and they have not been working for any of the Beneficiary Agencies immediately prior to taking leave of absence. University professors or scientists from research institutes can be contracted individually under Bank financing. 12. Training: Training is an integral element of the project’s capacity building objective. The Credit will finance training programs, including training workshops, study tours, and local training. Such training programs, particularly study tours, will be included in larger TA contracts with firms to reduce administrative burden on the CEP. The CEP will be responsible for administration of a small number of local workshops (including project launch, mid term and completion workshops). Expenditures related to such training activities shall be described in the Project Operations Manual. Design of the training courses and study tours will be done by the specialists contracted as short term consultants under relevant QCBS, CQ and/or IC procedures depending on the value of the assignment as described in this Annex. The CEP is expected to prepare a training plan and agree on its update with the Bank every year. 13. Operatinv Cost: These expenditures would cover equipment and vehicle maintenance, cost for fuel, office utilities, minor office repair and equipment costs, supplies, literature, field trips, meetings and in local and international travel costs related to Project, student participation fee for TIMSS, communication costs, reasonable banking charges, media advertisement, and other reasonable costs as approved by the Association. Procurement of operating expenditure items would be financed by the project per annual budget approved by the Bank and would be procured using the implementing agency’s administrative procedures which were reviewed and found acceptable to the Bank. Operating cost will not include salaries of civil servants. 14. Procurement Plan: The CEP at appraisal developed an initial Procurement Plan (PP) for the entire project scope consistent with the implementation plan, which provides information on procurement packages, methods and Bank review method. Since this would cover the entire project completion period it will be tentative. However, a firm procurement plan for first 18 months of the project should be prepared and this plan will be agreed upon between the Borrower and the Bank project team at negotiations, and will be available at the implementing agency’s project database and on the Bank’s external website. The PP will be updated in agreement with the Bank project team annually or as required to reflect the actual project implementation needs and improvements in the Implementing Agency institutional capacity. 15. Freauencv of Procurement Supervision: In addition to the prior review supervision to be carried out by the Bank team, the capacity assessment of the Implementing Agency recommends post reviews to be carried on at least 20 percent of the contracts subject to post review. It is expected that a supervision mission in the field will be conducted every six months during which post reviews will be conducted. As a minimum one post review report which will include physical inspection of sample contracts including those subject to prior review will be prepared each year. Not less than 10% of the contracts will be physically inspected. 16. Additional Provisions for National Competitive Biddinp: In order to ensure economy, efficiency, transparency and broad consistency with the provisions of Section I of the Guidelines, the criteria specified in the procurement capacity assessment shall be followed in procurement under National Competitive Bidding procedures. Such clarifications are required for compliance with the provisions of the “Guidelines for Procurement under IBRD Loans and IDA Credits” (the Guidelines).

58 1 7. Anti Corruption Measures: Procurement capacity assessment included seventeen measures/recommendations on strengthening procurement including on the anti-corruption aspects of project implementation. These included such measures as review of Anti-Corruption guidelines, signing of “Declaration of Impartiality” letters by evaluation Committee members, etc.

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13 E -0 - 0 "I c c Annex 9: Economic and Financial Analysis ARMENIA: Second Education Quality and Relevance Project (APL 11)

I. Economic Analysis I. This economic analysis examines (i) cost-effectiveness of investing in preschool education (sub- component 1. l), (ii) cost-effectiveness of investing in ICT network and its integration in the teaching and learning process (sub-component 1.3), and (iii) cost-efficiency and quality improvement of high school reforms (sub-component 1.4). Benefits of investing in preschool education (Sub-component 1.1) 2. International evidence indicates” that the lack of access to preschool is as detrimental to the school readiness of children, Le., their capacity to learn in Grade 1 and beyond, to transition successfully from one grade to another, to complete their education and to eventually become fully contributing and productive members of society. In Armenia, while it is true that official statistics show a relatively low level of school repetitions and dropouts, the number of dropouts has sharply increased in the recent past (at an average annual growth rate of 250 percent), and there is evidence of significant school wastage, particularly in relation to absenteeism and automatic promotion without any form of remedial education.’* Poor and falling access to preschool education is likely to be a cause of this deterioration. 3. Enrollments in preschool education (2 to 6 year-old) dropped sharply in the late 1990s and have gradually improved since 2000, but with wider regional and socio-economic gaps. The transfer of management responsibility for preschool education from the central to local governments in 1996 was a reason for the widening gaps. Between 1996 and 2000, the net enrollment rate (NER) for preschool dropped from 22.3 to 17.9 percent in urban areas and from 12.8 to 5.0 percent in rural areas.I3The urban- rural gap widened from 12.9 percent point in 2000 to 19.5 percent point in 2005 with 29.1 percent in urban areas (higher than the 1996 level) and 9.6 percent in rural (lower than the 1996 level). The wide regional and socio-economic gaps are also illustrated in terms of the per enrolled-child spending and the gross enrollment rate (GER) in 2005: the spending gap between AMD 113,000 (US$248) per enrolled- child in Kotayk and AMD 31,000 (US$68) in Aragatzotn; the urban-rural gaps between 38.3 percent in Yerevan, 23.5 percent in other towns and 9.3 percent in villages; the regional gaps between 6.9 percent in Tavush and 38.3 percent in Yerevan; and the household gaps between 18.5 percent among the poorest quintile and 33.7 percent among the richest q~inti1e.I~ 4. In response to this critical situation, a recently approved preschool strategy aimed to increase the enrollment rates of preschool age children (ages 4 to 6) up to 90 percent by 2015. Under APL I, the government is piloting a preschool project that provides grants to 22 communities in Lori and Shirak Marzs to establish a preschool section in existing schools or independent kindergartens. The preliminary assessment has observed: grants spent as intended to refurbish/enhance classrooms and procure furniture, goods and equipment; children attending preschool regularly; preschool teachers better trained; and parents actively participating often beyond the initial expectation. On the other hand, contributions from communities have been less than expected on average, although some do better than others.’’ Under APL 11, 140 poor and disadvantaged communities with no preschool will be provided grants to create a preschool section in the existing local school. In cumulative, approximately 8,750 5 to 6 year-old children in these communities will benefit from the program. The total beneficiaries will account for

I1 For instance, Cunha, F., Heckman, J., Lochner, L. & Masterov, D. (2005) Interpreting the evidence on life cycle skill formation (North Holland, Amsterdam). 12 Haiyan Hua et al. (2008): School wastage study focusing on student absenteeism in Armenia. l3 National Statistical Service of Republic of Armenia, Statistical Yearbook of Armenia, various years. l4 Estimated based on the Integrated Survey of Living Standards (ISLS) 2005. 15 Conducted by the Bank team during the preparation mission in September 2008. An independent evaluation of the pilot project, including the number of children enrolled and attended, the number of teachers trained, community and parent’s involvement, and level of satisfaction among various stakeholders, will be conducted at the end of the current academic year. 68 about 6 percent of the total target enrollments or 4 percent of the age group in 2012, most of whom are unlikely to enroll in preschool without the project. The project’s investment will cover only a small portion of the preschool enrollment targets, but will play a vital catalytic role to demonstrate the importance of preschool education for the overall educational and human development of children. 5. Based on various lessons from the pilot project, the proposed project is designed to maximize the benefits of investment. First, it will target rural communities which demonstrate clear demand for preschool education but have no access to preschool service without the project (equity), and commit their community budget and parental contributions to cover recurrent expenses (sustainability). Second, the project will primarily renovate and convert the existing spaces available in most rural schools as the preschool section rather than establishing new kindergartens. This approach will not only minimize the initial investment costs, but also maximizes sustainability of the investment because: (i)operational costs of the preschool section will be much lower than independent kindergartens; (ii) rural schools usually have part-time teachers who could be trained as preschool teachers relatively inexpensively; and (iii) school principals can closely see the benefits of enrolling better-ready children in grade 1 (cost- effectiveness). Third, the project will organize an awareness campaign to induce long-term participation of communities and parents in the provision of preschool education (sustainability). In some pilot communities, parents have already seen the benefits of preschool education offered in the school premises. Hence, the project investment in preschool education could generate stronger demand for early childhood development among parents and may result in mobilization of necessary funds at the community level (demand-driven). Fourth, while in APL Ithe CEP signed the grant agreement only with schools, in APL I1 both communities and schools will sign the agreement and collectively become responsible for ensuring financial and in-kind contributions. Quality improvement through the high school reforms (Sub-component 1.4) 6. The high school reform strategy, approved in 2008, aims to create high quality learning environment for all students in upper secondary education in a cost-efficient manner. Of approximately 1,400 schools, 700 schools will be reorganized into 150 high schools (grades 10-12) and 550 basic schools (grades 1-9) by 201 1. The new high schools will have specialized streams in mathhcience, humanities, and arts with well-equipped laboratories, libraries, advanced teaching and learning materials, and better trained teachers. The remaining 700 schools that are the only general secondary school in a village will ensure access to upper secondary education for rural students. Not only to improve cost efficiency of the school network but also to provide better quality education for all upper secondary students in better-equipped high schools, the government may want to further reorganize the school network in the future. 7. The government is fully committed to finance renovation works and other investment needed for the high school reforms; APLs support the government’s initiative by reinforcing the quality enhancement side of the reforms. In 2008, the government allocated AMD 2 billion (US$6.6 million) to renovate 30 high schools and AMD 456 million (US$1.5 million) to equip them with computers, laboratory equipment, books and teaching materials for libraries, and furniture. APL I added AMD 176 million (US$0.6 million) to the equipment and teacher training. In 2009, the government will invest AMD 2.1 billion (US$6.6 million) to renovate 21 high schools, AMD 392 million (US$l.3 million) for equipment, and AMD 300 million (US$1 million) for textbooks from its own budget. APL I will finance teacher training activities in 2009. In 2010 and 201 1, while the government is expected to renovate 50 schools each year and provide part of equipment,I6 APL I1 will be complementary to the government’s investment primarily in infrastructure by focusing on the “quality improvement” side of the reform. The project will invest in laboratory equipment, books and teaching materials for libraries, and furniture as well as training of principals, teachers and librarians, curriculum and syllabi development, and revision of the examination and assessment system, totaling in US$5.9 million. 8. The reorganization may potentially result in negative impacts on access, but the government already has financial schemes to assure all students of access to upper secondary education in their

16 AMD 25.6 billion (US$84 million) in 2010 and AMD 21.2 billion (US$69 million) in 201 1 for renovation, and AMD 610 million (US$2 million) for equipment each year (Source: MTEF). 69 preferred subject stream, which MOES and marzes must take advantage of. Potential negative impacts of the reorganization include: (i) rural students may be deprived of an easy access to specialized streams which will be available only in high schools in urban areas; and (ii)students whose school has become a basic school may have difficulties in commuting to a high school farther away. These impacts could be mitigated relatively easily because under the existing budgetary scheme, marzes are entitled to request the Ministry of Finance for budget to provide transportation for students and teachers at all levels of education, or to grant subsidies to students and teachers to arrange transportation on their own.l7 The MOES will monitor whether marzes will request the additional funds to meet the new transportation needs and actually arrange them. Cost-effectiveness of investing in ICT network and its integration in the teaching and learning process (Sub-component 1.3) 9. The government is committed to integrate ICTs in education, which is clearly reflected in the 2009 State Budget, including AMD 714 million (US$2.3 million) for the Internet connectivity and maintenance and AMD 500 million (US$1.7 million) for computer equipments for all general education schools currently without computers. Furthermore, the government plans to continue investing in ICT- US$3.1 million in 2010 and US$3.7 million in 2011.’8 APL I1 will complement the government’s initiatives to integrate ICTs in the teaching and learning process and seek to extend and capitalize on investments begun under APL I, by i) extending the Internet connectivity to remote schools, ii) developing high-quality and relevant electronic materials, and iii) providing computer equipments to be exclusively used for EMIS-related school administration. 10. The proposed project reflects findings from international experience in its design and maximizes synergy with the government’s ICT strategy. First, the provision of Internet connectivity is an important component of a long-term vision to accelerate and sustain the growth of the ICT industry in Armenia and, more broadly, “to position Armenia in the knowledge-based global ec~nomy.”’~Extending connectivity to the remote schools in Armenia will help the government meet this goal, in addition to fulfilling pledges to provide equal access to information. Second, the positive impact of ICT use in education on student achievement is more likely to be observed when ICTs are used appropriately to complement a teacher’s adoption of active methodologies.*’ The proposed investments in content development and teacher training will ensure that the means (Le., ICTs) will be effectively used for higher quality education. Third, the proposed EMIS-related investments will contribute to the foundation of e-government infrastructure for improved government services within Armenia, and that more accurate and timely data collection will improve the prospects for evidence-based decision-making in the education sector. Fourth, international evidence suggests that school principals’ support for ICTs-who could be strong obstacles to the introduction of ICTs, especially in remote areas-is crucial to promote the effective use of ICTs in school. By providing a computer for the EMIS and administrative purposes and relevant training, the project is likely to succeed in gaining their support and give them an opportunity to appreciate the effectiveness of ICTs. 11. Financial Analysis Public education expenditure and impact of the project investment 1 1. The government has boosted public expenditure on education in the recent years, and is committed to further increase it in the next decade. In the first Poverty Reduction Strategy Paper (PRSP) in 2003, the government planned to boost public education spending to 4.0 percent of GDP by 2015, as an important pillar of its poverty reduction strategy. In particular, the government has made a concerted effort to allocate more to general secondary education in order to improve access to and quality of education at this level. The second PRSP, prepared in 2008, aimed to raise education spending further up

~~

” The Government has created a Mitigation Fund, with AMD 50 million (US$l65,000) already in the 2008 National Budget, transferred directly from the Ministry of Finance to the Marz Education departments. 18 Medium Term Expenditure Framework (MTEF) 2009-1 1. l9 One of the two main goals of the government’s ZCT Muster Strategy. 20 Trucano, Michael. 2005. Knowledge Maps: ICTs in Education. Washington, DC: infoDev / World Bank. 70 to 4.5 percent of GDP by 2021.2’ However, despite its strong commitment to education, the global economic crisis might force the government to slow down the overall spending increase and be more selective as to where to invest more. For instance, instead of raising the salary level for every teacher, the government could introduce differentiated salary scales based on performance. The expected demographic transition (declining numbers of school-age (6- 17 year-olds) population) over the next five years or so may require the government to adjust staffing more flexibly. These savings in recurrent spending would be necessary to pursue planned capital investment such as high school reforms and ICT in teaching and learning, to increase non-salary recurrent spending for quality improvement in general secondary education, and also to increase total spending on the other underfunded sub-sectors, Le., preschool and tertiary education. 12. The project investment will have a visible, but not overpowering impact on the total public education expenditure in Armenia. The investment through APL I1 will be US$25 million over five years, or US$5 million on average per year. The government budgeted AMD 127 billion (US$413 million)’* for education in 2009. If the economy were to grow as steadily as projected in the next 6-7 years,23and if the government continues increasing the total public education expenditure as planned in the PRSP, the total education spending is expected to grow to AMD 232 billion (US$761 million) in 2013. Assuming that about 20 percent of the total education budget is spent on capital investment, the APL I1 investment will be around 4-8 percent of the capital spending per year. Given that a large part of the project is invested in institutional capacity building which is a short-term need, and one-time investment such as high school and preschool renovations, the project investment is very unlikely to create government’s dependency on Bank-funding in the long term.

Sustainability of project impact The role of central and local governments in financing preschool education 13. Recurrent costs. The APL I experience suggests that a more prudent analysis of financial capacity and willingness of communities and parents in the selection process will be crucial to sustain the benefts of the investment. The communities and parents are expected to contribute to the operation and management of the enhanced kindergartens or new preschool classrooms. Unless communities can commit the payments for teacher salaries, it is unlikely that the provision of preschool education can be sustained. As long as the responsibility for operational costs lies with the communities, regardless of their financial capacities, the project needs to target only those that are capable and willing to contribute necessary recurrent expenditure. However, given the economic crisis, this requirement for community contributions may result in discriminating against poorer communities to the extent that equity concern could be undermined. Hence, it is necessary to take into account the impact of economic crisis on the community’s financial capacity, when selecting beneficiary communities. At the same time, even though the government subsidizes the communities with low tax revenues through the financial equalization mechanism, it will need to analyze the financial capacity of each community after the equalization and may need to further subsidize very poor communities that cannot afford preschools in order to achieve the enrollment rate target of 90 percent by 201 5. 14. Capital investment costs. To achieve the preschool enrollment rate target at 90percent by 2015, the government will need a substantial amount of capital investment. As discussed above, there is a large gap between the current preschool enrollment level and the government’s enrollment rate target for 90 percent by 2015. Capital investment needs to achieve this goal vary under different scenarios. The average cost to renovate and equip a preschool section within an existing school was about US$lO,OOO under the pilot project. However, a preliminary review of the project suggests that the amount should be higher. Together with inflation, thus, the unit cost could be as high as US$15,000 or even US$20,000. Even with the lowest cost scenario (US$lO,OOO per school), it is estimated that the government will need

’’The Government of Armenia, 2008, Program for Sustainable Development (revised version of PRSP-2). ** Assuming the exchange rate at AMD 305 = US$l, 23 As of mid 2009, the government assumed the real GDP growth of 9.4 percent in 2008, 8.3 percent in 2009, 7.0 percent in 2010, 6.5 between 201 1 and 2013, and 6.0 percent in 2014. Under the recent international economic crisis, these figures may need to be revised downward. 71 to invest US$3-6 million per year until 2015 to meet the target. In addition, initial training of preschool teachers is estimated to cost about US$400 per teacher. For instance, it will cost US$80,000 to train 200 teachers for 100 preschools (two teachers per school). In addition to the initial training, preschool teachers will also need to be regularly trained like general school teachers. The MOES will need to institutionalize training programs currently offered by UNICEF and Step by Step. Capital investment and recurrent costs of high school reforms 15. The government will need to find a way to finance higher unit costs to maintain the equipment and facilities of new high schools. The newly established high schools will be well-equipped with high quality laboratory and other equipment, books and teaching materials. This will require higher unit costs for operation and maintenance, compared to general secondary schools. For instance, the initial investment in three laboratories (physics, chemistry and biology) costs AMD 10.1 million (US$33,000) per school. Assuming that the operation and maintenance of the laboratories cost 10 percent of the capital investment, each school needs an additional US$3,300 just to keep these laboratories running, or US$0.5 million for 150 high schools in total. However, the current school financing formula does not differentiate per student allocation according to the differences in actual needs. The formula needs to be adjusted to better accommodate these additional costs thus maintaining the benefits of the investment made under the high school reforms. Synergy between government and Bank’s investments Sub-component 1.3: Integration of ICTs in the teaching and learning process 16. The climate for Internet connectivity has changed greatly in Armenia in recent years, and it is expected that the private sector will continue to lead the expansion of greater access to the Internet at higher speeds and lower costs throughout the country. However, it is currently unclear whether this will happen quickly enough to provide the necessary technical infrastructure to connect all Armenian schools, which is seen as an important policy goal of the government. Therefore, the proposed project includes investment in the Internet connectivity for the remaining unconnected schools at the time of project appraisal with the following condition: As soon as the project becomes effective, the NaCET, with the support of the CEP, will develop a detailed and well-costed implementation plan based on information current at that time, taking into account any concrete private sector plans to roll-out more robust Internet infrastructure that might help connect rural and remote schools. This will prevent any potential duplication or crowding out of other private investment.

72 Annex 10: Safeguard Policy Issues ARMENIA: Second Education Quality and Relevance Project (APL 11)

Not applicable.

73 Annex 11: Project Preparation and Supervision ARMENIA: Second Education Quality and Relevance Project (APL 11)

Planned Actual PCN review 0711 7/08 0711 7/08 Initial PID to PIC 0713 1/08 0713 1/08 Initial ISDS to PIC 0 8/0 8/0 8 08/04/08 Appraisal 02/02/ 09 02/09/09 Negotiations 03/23/09 03/24/09 BoardIRVP approval 051 12/09 Planned date of effectiveness 11/12/09 Planned date of mid-term review 11/12/12 Planned closing date 11/30/14

Key institutions responsible for preparation of the project:

Bank staff and consultants who worked on the project included: Name Title Unit Juan Manuel Moreno Olmedilla Sr. Education Spec., Task Team Leader ECSHD Caroline Mascarell Sr. Social Protection Specialist ECSHD Maria Gracheva Sr. Operations Officer ECSHD Carmen F. Laurente Sr. Program Assistant ECSHD Junko Funahashi Sr. Counsel LEGEM Anarkan Akerova Counsel LEGEM Karina Mostipan Sr. Procurement Specialist ECSPS Aleksan Hovhannisyan E T Consultant ECSHD Sophie Naudeau Human Development Specialist HDNCY Sachiko Kataoka E T Consultant ECSHD Jamil Salmi Lead Education Specialist HDNED Arman Vatyan Sr. Financial Management Specialist ECSPS Michael Trucano Sr. Education and ICT Specialist HDNED Pasi J. E. Sahlberg Consultant/ Lead Education Specialist ETF

Bank funds expended to date on project preparation: 1. Bank resources: US$23 1,529 2. Trust funds: US$ 8,273 3. Total: US$239,802

Estimated Approval and Supervision costs: Remaining costs to approval: US$14 1,000 Estimated annual supervision cost: US$ 95,000

74 Annex 12: Documents in the Project File ARMENIA: Second Education Quality and Relevance Project (APL 11)

Government of Armenia. 2004. National Curriculum Framework. Yerevan Government of Armenia. 2003. Poverty Reduction Strategy Paper. Yerevan Government of Armenia. 2008. Sustainable Development Program (PRSP-2). Yerevan Government of Armenia. 2007. Medium-Term Public Expenditure Framework (2009-2011). Yerevan Government of Armenia. 2005. Proposal for Millennium Challenge Account (MCA) Assistance. Yerevan Government of Armenia. 2008. Strategic Program on Preschool Education Reforms in RA for 2008- 2015. Yerevan. Government of Armenia. 2008. State Program for Establishment of High School System. Yerevan. Government of Armenia. 2003. Higher Education Reform Strategy. Yerevan OECD. 2008. Improving School Leadership, Volume I: Policy and Practice. OECD. 2008. Education at a Glance. OSI. 2007. Towards European Higher Education Area through Bologna Process. Current State, Development Trends and Problems of the Bologna Process in EHEA and Armenia: Yerevan Republic of Armenia. 2004. Law on Higher and Post-Graduate Professional Education. Yerevan Republic of Armenia. 2005. Law on Preschool Education. Yerevan Republic of Armenia. 2008. Law on RA State Budget for 2009. Yerevan Transparency International Armenia. 2007. Corruption Perception in Armenia. Yerevan UNICEF and World Bank. 2006. Rapid evaluation of Supplemental Preschool Models and Financing in the Republic of Armenia. Draft Paper UNDP. 2006. National Human development Report on Educational Transformations in Armenia. Yerevan. UNDP World Bank. 2008. Programmatic Public Expenditure, Armenia. ECA Region. Washington DC. World Bank. 2008. Armenia: Choices in development Policy 2008-2012. Volume I.Washington DC. World Bank. 2008. Armenia: Thematic Analyses 2008-2012. Volume 11. ECA Region. Washington DC. World Bank. 2008. Armenia: Joint IDA-IMF advisory note on the Poverty Reduction Strategy Paper: Second Progress report. ECA Region. Washington DC. World Bank. 2007. Early Childhood development: From Measurement to Action. Washington DC. World Bank. 2008. Quality Assurance in Higher Education in Republic of Armenia: Analyses and Recommendations. (Draft paper) World Bank. 2008. Formulating the Financial Principles and Exploring Alternative Financing Mechanisms for Armenian Tertiary Education. (Draft Paper).

75 Annex 13: Statement of Loans and Credits ARMENIA: Second Education Quality and Relevance Project (APL 11)

Difference between expected and actual Original Amount in US$ Millions disbursements Project FY Purpose IBRD IDA SF GEF Cancel Undisb Orig Frm Rev’d ID PI 04467 2007 HLTH SYS MOD (APL2) 000 2200 000 000 000 21 04 179 0 00 PO99630 2007 Judicial Reform Project 2 0 00 22.50 000 000 0.00 16 95 -4 96 0 00 PO94225 2007 SIF 3 0 00 25.00 000 000 0.00 9 77 -6 26 0 00 PO99832 2006 AVIAN FLU - AM 0 00 6.25 000 000 0.00 3 50 2 48 0 00 PO87011 2006 RUR ENT & AGRlC DEVT 0 00 20.00 000 000 0.00 6 54 -1 56 0 00 PO83352 2006 RENEW ENERGY 0 00 5.00 000 000 0.00 2 43 0 27 0 00 PO57880 2006 URBAN HEAT 0 00 15.00 000 000 0.00 3 66 -1 43 0 00 PO87641 2005 YEREVAN WATERWW 0 00 20.00 000 000 0.00 12 69 12 72 0 00 SERVS PO60786 2004 PUB SECT MOD 0 00 10.15 000 000 0.00 5 37 4.48 0.00 PO63398 2004 MUN WATER & WW 0 00 23.00 000 000 0.00 0 79 -0.74 0.00 PO88499 2004 IRRlG DAM SAFETY 2 0 00 6.75 000 000 0.00 2 98 1.60 0 00 PO87620 2004 SOC PROT ADMIN 0 00 5.15 000 000 0.00 122 0.76 0 76 PO74503 2004 EDUC QUAL & 0 00 19.00 000 000 0.00 4 77 3.52 -0.77 RELEVANCE (AF’L #I) PO73974 2004 HEALTH SYS MOD (APL #I) 0 00 19.00 000 000 0.00 4 06 3 33 2 30 PO57847 2002 NAT RES MGMT 0 00 8.30 000 000 0.00 1 13 -0 76 0 00 PO55022 2002 IRRIG DEVT 0 00 24.86 000 000 0.00 2 40 -5 49 -3 94 PO64879 1999 IRRIG DAM SAFETY 0 00 26.60 000 000 0.00 3 65 2 65 2 74 Total: 0.00 278.56 0.00 0.00 0.00 102.95 12.40 I.09

ARMENIA STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars Com m itted Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2002 ACBA Leasing 2.00 0.27 0.00 0.00 2.00 0.27 0.00 0.00 2004 Armeconombank 2.00 0.00 0.00 0.00 2.00 0.00 0.00 0.00 2000 Hotel Armenia 0.00 0.00 3.57 0.00 0.00 0.00 3.57 0.00 2004 Hotel Armenia 0.00 0.00 1.25 0.00 0.00 0.00 1.25 0.00 2006 lnecobank 3.00 1.30 0.00 0.00 3.00 0.00 0.00 0.00 2006 NAREK 5.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total portfolio: 12.20 1.57 4.82 0.00 7.00 0.27 4.82 0.00

Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic

Total pending commitment: 0.00 0.00 0.00 0.00 Annex 14: Country at a Glance ARMENIA: Second Education Quality and Relevance Project (APL 11) Europe L Lower. POVERTY and SOCIAL Central mlddle- 3evelopment diamond' Armenia ~siaincome 2007 P 0 pulatio n m id-year (millions) 30 445 3 437 Life expectancy GNlpercapita (Atlas method US$) 2 640 6,052 1887 GNI (Alias method US% billions) 79 2,694 6 485 T Average annual growth, 2001-07 Population (%j -0 4 00 11 GNI Gross Labor force (%) -0 3 05 15 per + primary Most recent estimate (latest year available, 2001.07) capita -enro llment Poverty 1% o fpopulalio n below nalio nalpo vertylinej 51 Urban population (%of totalpopulation) 64 64 42 Life expectancyat birth (years) 72 69 69 1 Infant mortality (per 1000 live births) 21 23 41 Child malnutrition (%ofchildren under5) 4 25 Access to improved water source Access to animprovedwatersource (Mofpopulalion) 98 95 88 Literacy (%ofpopulation age 15t) 99 97 89

Gross primary enrollment [%of school-age population) 98 97 111 _1 ~ Armenia M ale 96 98 1P - -- Lo wer-middle-income group Female %IO 96 109

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1987 1997 2006 2007 Economic ratios' GDP (US% billions) 16 64 92 Gross capital formationlGDP 191 6 317 33 Trade Exports of goods and serviceslGDP 20 3 22 0 190 Gross domestic SavingslGDP -18 9 192 s9 Gross national savingslGDP 03 316 29 1 Current account balance1GDP -18 7 -3 8 187 Domestic jl' Capital Interest paym ents/GD P 08 03 savings fo rmation Total debtIGDP 38 9 32 5 Total debt servicelexports 51 70 Present value of debt/GDP 23 0 Present value of debtlexports 619 Indebtedness 1987-97 1997-07 2006 2007 2007-11 (average annualgrowthj GDP -69 M7 133 13 7 76 "_A rm enia GDP percapita -5 1 112 13 6 140 76 Lo wer-m iddle-inco m e gro up Exports of goods and services -284 165 -43 91 a3

STRUCTURE of the ECONOMY

1987 1997 2006 2007 Growth of capital and GDP (Oh) (%ofGDP) Agriculture 32 0 19 6 183 40 T Industry 33 2 43 6 43 6 M anufacturing 24 4 E8 15 1 Services 34 8 36 8 38 1 Ho useho Id final consum ption expenditure 107 7 69 5 13 8 General gov t finalconsumption expenditure 11 2 11 3 92 Imports of goods and services 58 3 36 5 33 8

1987-97 1997.07 2007 2006 Growth of exports and Imports (%) [average annualgrowth) Agriculture -13 62 04 25 lndus try -159 137 18 5 11 8 M anufacturing -8 9 65 -1 1 30 Services 73 11 7 19 4 24 3 HOusehold final consum ption expenditure -3 9 68 141 154 General gov't final cansumption expenditure -2 0 87 19 8 174 Gross capital formation -98 I78 25 0 96 -~-, Exports -Imports Imports of goods and services -19 8 96 67 17 1 I I

Note 2007 data are preliminary estimates This table was produced from the Development Economics LDB database *The diamonds showfourkeyindicators in thecountry(in bo1d)compared with its income-groupaverage If data aremissing Ihediamond will be incomplete

77 Armenia

PRICES and GOVERNMENT FINANCE 19 a 7 1997 2006 2007 Domestic prices (%change) Cons um er prices tl0 29 34 Implicit GDP deflator 177 46 39 Government finance (%of GDP includes current grants) Current revenue 197 60 183 02 03 04 05 0% 07 Current budget balance -1 7 26 24 GDP deflator -cPl Overall surplusideficit -5 8 -15 -2 0

TRADE 1987 1997 2006 2007 Export and Import levels (US$ mill.) (US$ millions) Totalexports (fob) 232 985 1253 3.000 T Gold jewelry andotherprecious stones 55 301 M achinery and mechanical equipment 32 21 2.000 M anufactures wo 3x) 349 Totalimports (cif) 892 2,192 2 449 Food 273 34 1 1 000 Fuel and energy 208 351 Capital goods 118 501 647 0 01 02 03 04 05 06 07 Export price index (ZOOO=WO) x)4 16 Import price index (ZOOO=WOj a2 13 5 ia Exports Imports Terms of trade (?OOO=WO) 65 86 I

BALANCE of PAYMENTS 19 a 7 1997 2006 2007 Current account balance to GDP (Oh) (US$ millions) Exports of goods and services 330 1407 1700 30 7 imports of goods and services 953 2 328 3 032 Resource balance -622 -921 792 20

Net income 99 99 104 10 Net current transfers 217 580 822 0 Current account balance -307 -242 1719 Financing items (net) 354 6tl -1,4x3 .10 Changes in net reserves -47 -372 -306 -20 Memo: Reserves including gold (US% millions) 239 1072 1,365 Conversion rate (DEC local/US%j 490 6 415 0 342 1

EXTERNAL DEBT and RESOURCE FLOWS 1987 1997 2006 2007 Composition of 2006 debt (US$ mill.) (US$ millions) Totaldebt outstanding and disbursed 636 2,073 IBRD x) 6 5 IDA 240 841 965 I 0 288 A Total debt service 24 157 IB R D 1 1 1 IDA 1 a 14 E 841 Composition of net resource flows Official grants 34 56 F Official creditors x)O 66 576 Private creditors 0 x)8 Foreign direct investment (net inflows) 52 343 Portfolio equity (net inflows) 1 1 E 131 C 164 World Bank program D 57 C o m m itm ents 407 57 96 A - IBRD E. Bilateral Disbursements 77 64 93 B . IDA D .Other multilateral F . Private Principal repayments 0 7 8 C-IMF G - Short-terr Net flows 77 57 85 Interest payments 2 7 7 Net transfers 76 50 78

Note This table was produced from the Development Economics LDB database 9124108

78

SEPTEMBER 2004 SEPTEMBER

N 41

°

N 40 ° 43 ° E

43 ° E

endorsement or acceptance of such boundaries. Group, any judgment on the legal status of territory, or shown on this map do not imply, the part of The World Bank The boundaries, colors, denominations and any other information This map was produced by the Map Design Unit of The World Bank. ARMENIA TURKEY

INTERNATIONAL BOUNDARIES PROVINCE (MARZ) BOUNDARIES RAILROADS MAIN ROADS RIVERS NATIONAL CAPITAL PROVINCE (MARZ) CAPITALS SELECTED CITIES AND TOWNS Aras GEORGIA

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r

p Kars

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s s s

s s s

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r r r

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n n

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u u u

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39°N

40°N 41°N IBRD 33364 IBRD