Investment in human capital needs bold financing actions: WB

WASHINGTON: Inclusive investments in health, early childhood development, learning and women’s economic empowerment can contribute to an inclusive, resilient and sustainable recovery.

This was the clear message, focusing on human capital, that the ministers of finance and planning of 81 Human Capital Project (HCP) countries sent at the last Ministerial Conclave.

School closures due to the Covid-19 pandemic and the increased likelihood of school dropout have eroded the knowledge and skills of the current generation of school children, especially those from poor and vulnerable households.

Learning poverty is expected to increase from 53 per cent to 63 per cent in the low- and middle-income countries. Worldwide, at least 24 million children, from pre-primary to tertiary level education might never return to school.

This, combined with deskilling due to prolonged unemployment and underemployment, will likely lower the future productivity and earnings. Further, the pandemic has exacerbated inequalities: women suffer disproportionately from joblessness, domestic care burdens, and gender-based violence, as well as from unintended pregnancies and maternal deaths.

Ensuring the adequacy, efficiency, and sustainability of public spending towards human capital outcomes has become most urgent. Unless addressed decisively, the scars of the Covid-19 shock on human capital and future productivity could become permanent.

The challenge is how to prioritise, translate money into better human capital outcomes and secure adequate resources.

The World Bank approach paper, “Investing in Human Capital for a Resilient Recovery: The Role of Public Finance”, which framed the conclave, seeks to provoke ideas and solutions. The human capital is a special theme of the World Bank’s IDA-20 replenishment drive to help the poorest countries mitigate the impacts of the pandemic and transition to a green, resilient and inclusive recovery.

Immediate investments are needed to reduce permanent losses and position human capital for economic recovery. Essential priorities are restoring health, protecting young children from malnutrition and other harm, bringing all-age children back to school and recovering learning losses, and supporting the labour income opportunities.

In the medium-term, sustained economic recovery hinges on further improvements in universal health coverage, early childhood development, learning and skills development, relevance of tertiary education to the labour market, adaptive social protection, and women economic empowerment.

The human capital outcomes need to be placed at the center of the budget process to prioritise expenditure that contributes to the human capital accumulation and utilisation.

Securing resources for the human capital priorities can involve finding space within the existing budgets and pursuing cost-effective reforms.

When fiscal adjustments are needed, countries can identify and protect specific budget lines that are critical for the continuation of services with long-term implications on growth, development, and human capital outcomes.

Domestic revenue mobilisation can also contribute to the goal. Six broad policies can help countries raise domestic revenues and create a fiscal space for public spending, including broadening the tax base; increasing the tax burden on high income and wealth taxpayers; earmarking and ringfencing some funding streams for human capital; introducing health taxes on harmful consumption; and using environmental taxes to generate health and climate co-benefits.

In addition, the increased devolution of education and health spending towards local governments highlights the importance of local finances, especially property taxation. Moving forward, debt restructuring, sustainability bonds, sovereign wealth funds, and private funding can be leveraged to support green investments and the required reskilling of the workforce.

The conclave shared inspiring examples of countries securing resources for the human capital priorities. Guyana, for example, has prioritised human capital investments as part of its Low Carbon Development Strategy.

To incentivise sub-national governments, India is subordinating the release of funds earmarked for local governments to specific human capital outcomes. Both India and Indonesia emphasised fiscal consolidation and revenue reform, as well as reprioritisation of expenditures towards human capital and climate change for a more sustainable and green recovery.

Improving governance and leveraging innovation and technology can help translate fiscal policies into human capital outcomes. The studies show that merely increasing spending in education or health does not necessarily translate to better outcomes. What is required is clear policy prioritisation based on evidence; a focus on outcomes and accountability for results, facilitated by digital technologies; and strong coordination across ministries, agencies, and jurisdictions.

Much can be learned from recent examples. Since the end of 2020, at least 10 education systems worldwide are participating in the “Accelerator Program” to accelerate learning poverty reduction.

Developed to demonstrate that strong political and financial commitment, sound policy design, and a relentless focus on learning outcomes can speed up countries’ progress in improving foundational learning, the Accelerator Program coordinates efforts across the partners to ensure that the countries in the programme are showing improvements in foundational skills at a scale over the next three to five years.

Initially, 10 countries or subnational entities are participating in the Accelerator Program: Brazil (the state of Ceará), Ecuador, Kenya, Morocco, Mozambique, Niger, Nigeria (Edo State), Pakistan, Rwanda, and Sierra Leone.

In the Republic of Korea, Singapore, and Taiwan, Province of China, crisis response units at the center of the government led a coordinated response, drawing on comprehensive real-time information. Such an approach will also be vital for the countries to manage the restoration of human capital and for a green and resilient recovery because combating climate change is a similar multi-sectoral and multi-jurisdictional challenge.

Investments must involve building resilient service delivery systems. Key areas include strengthening health systems for pandemic preparedness with the people-centered primary healthcare systems; improving education service delivery to ensure disadvantaged children are not left behind; and ensuring that the social protection and labour systems can adapt nimbly to the changing needs.

Kenya invested in ICT and digital infrastructure in schools to help students regain learning losses and promote youth employment opportunities.

With the vaccine rollout, Saudi Arabia leveraged digital registries to include high-risk segments of the population. Brazil created the integrated digital platform SineSaúde (National Employment System-Health) to promote and facilitate the hiring of professionals to improve health-service delivery during and following the pandemic (government of Brazil 2020).

By building digital infrastructure and strengthening institutions for improved service delivery, the countries can mitigate the impact of crises on human capital, facilitate an efficient fiscal response to crises, and drive a strong recovery.

It is reassuring to hear ministers of finance and planning discuss how investments towards the human capital accumulation and utilisation are productive and critical for a green, resilient and inclusive recovery.

The high level of political commitment represents a unique opportunity for consensus around mobilising and deploying more and better resources to invest in people and help them achieve their potential.

Let’s push the envelope of the possible technical solutions, including through analytical work, operations, leveraging technology and the proposed IDA-20 policy commitment on financing human capital.

Now is the time to raise the game in policy making, service delivery, fiscal planning, and preparedness, to protect and invest in people, and shape a brighter future.