PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: PIDA2711 Public Disclosure Copy Project Name Education Improvement Project (P130182) Region EUROPE AND CENTRAL ASIA Country Armenia GEF Focal Area Sector(s) General education sector (50%), Tertiary education (30%), Pre- primary education (20%) Theme(s) Education for the knowledge economy (70%), Education for all (30%) Lending Instrument Specific Investment Loan Project ID P130182 Borrower(s) Republic of Armenia Implementing Agency Center for Education Projects Environmental Category B-Partial Assessment Date PID Prepared/Updated 17-Dec-2013 Date PID Approved/Disclosed 19-Dec-2013 Estimated Date of Appraisal 13-Dec-2013 Completion Estimated Date of Board 13-Mar-2014 Public Disclosure Copy Approval Decision I. Project Context Country Context Armenia’s remarkable growth in the 2000s was followed by a severe downturn during the 2009 global financial crisis and a moderate recovery since then. The crisis revealed weaknesses in the growth model. Before the crisis, the Armenian economy grew by about 12 percent per annum on the basis of an economic model that proved to be unsustainable. Construction expanded 5.2 times in real terms between 2000 and 2008 and became the dominant sector of the economy with a 25- percent share of the GDP. The sector’s high level of informality (40 percent of its turnover and two- thirds of labor force), excessive dependence on external financing and inadequate taxation deepened the structural imbalances and aggravated pro-cyclical developments in the economy. During the same period, the share of manufacturing declined from 17 percent to 9 percent of GDP. Large remittance inflows and the appreciation of the national currency rendered domestic tradables uncompetitive and left the economy highly vulnerable to external shocks. As the global economy went into recession in 2009, the external financing of the domestic construction sector plummeted and the sector fell by 48 percent. This collapse contributed almost 11 percent of the total 14.1 Page 1 of 6 percent economic contraction in 2009. A sudden reduction in remittances combined with a drop in the external demand for metallic minerals deepened the current account deficit, which rose from 6.4 percent of GDP in 2007 to about 16 percent in 2009. During the same period, the fiscal deficit Public Disclosure Copy ballooned from less than 2 percent of GDP to 7.6 percent, increasing the external public debt from 16 percent to around 40 percent of GDP. The economy recovered after the 2009 contraction but started losing momentum in the first half of 2013. GDP grew by 2.2 percent in 2010, picking up to 4.7 percent in 2011 and 7.2 percent in 2012. Growth was driven by continuous double-digit growth rates in the mining sector (22.5 percent in 2011 and 14.5 percent in 2012). The expansion was supported by high prices for base metals and a strong recovery of the agriculture sector (after a 16 percent fall in 2010, it grew 14 percent in 2011 and 8 percent in 2012). The construction sector stabilized, growing by 0.5 percent in 2012 after declining by 12.5 percent in 2011. However, preliminary data show that growth is now expected to level at around 4.2 percent in 2013, with agriculture, trade, and services showing lower growth than in the previous year and construction again declining. Growth in industrial production and exports remains relatively strong. Poverty and inequality increased in the aftermath of the 2009 crisis. The incidence of poverty rose from 27.6 percent of the population in 2008 to 34.1 percent in 2009, 35.8 percent in 2010, and leveled off at 35 percent in 2011. The situation worsened in the rural areas where poverty increased from 27.5 percent in 2008 to 36 percent two years later, before decreasing to 34.5 percent in 2011. The share of those living in extreme poverty (that is, below the food poverty line) grew from 1.6 percent in 2008 to 3.7 percent in 2011. Poverty also became deeper and more severe, with a poverty gap of 7.9 percent in 2011 (versus 5.1 percent in 2008) and poverty severity of 2.4 percent (versus 1.4 percent in 2008). Inequality as measured by the Gini coefficient increased on the basis of both consumption (from 0.24 to 0.27) and income aggregates (from 0.34 to 0.37). In terms of shared prosperity, the bottom 40 percent in the income distribution of the population Public Disclosure Copy enjoyed strong consumption growth, but was affected by the 2008 global crisis. The Bank’s indicator of shared prosperity, i.e., the growth rate of consumption per capita of the bottom 40 percent, demonstrates that economic growth in Armenia benefitted the poor and vulnerable more than the overall population. During 2006-2008, mean real consumption per capita of the bottom 40 percent outpaced that of the population as a whole, 6.5 percent to 5.2 percent. The 2008 crisis eroded the growth in average consumption that had been enjoyed both by the bottom 40 percent and by the overall population. As a result, between 2006 and 2011, the consumption per capita of the bottom 40 percent grew at 0.4 percent per year while that of the population as a whole stagnated. Unemployment and lack of education prevailed among the poor and among the bottom 40 percent more generally. Those in the bottom 40 percent were more likely: (i) to be out of the labor force or unemployed; (ii) to have less education; (iii) to live in urban areas outside the capital; (iv) to have larger households with more children; and/or (v) to live in households headed by women. Their poverty profile showed a similar pattern. In 2011, households headed by individuals holding university degrees had, on average, consumption levels that were 24 percent above the consumption levels of households headed by individuals with less education. Households headed by women were more likely to be poor as compared to those headed by men (35.2 percent versus 34.3 percent). Women were also more likely to be unemployed than men, with unemployment rates of 22.3 percent compared to 17.5 percent for men in 2011. Only 55 percent of women aged 15+ were working, 24 percent less than for men. Page 2 of 6 Sectoral and institutional Context Public Disclosure Copy Education and research are crucial to strengthen competitiveness and foster economic growth. They play an indispensable role in developing skills that are at the core of improving individuals’ employability and productivity. Making the most effective use of workers—using all of them, and using them to their greatest productivity—is vital, especially in a country like Armenia where the average age is rapidly rising and the population is expected to shrink soon. The State Program of Education Development in the Republic of Armenia 2011-2015 (approved by the Government in July 2011) outlined the sector’s development strategy and analyzed its achievements and challenges. Over time, considerable progress has been made in improving access to preschool and general education. The number of 5-6 year-old children enrolled in the preschool program has increased to 65 percent for the school year 2012-2013. It is estimated that the enrollment rate will increase to about 75 percent by 2015. However, it is still far from reaching the Government's objective of 90 percent pre-school enrollment by 2017. In general education, Armenia has achieved nearly universal enrollment rates at the primary (grades 1-4) and lower secondary (5-9 grades) levels. In 2009, the net enrollment rates for primary education were 99 percent for the poorest tenth of the population (98.6 percent for rural areas); and for lower secondary education, 96.2 percent (99.4 percent in rural areas). A wide range of reforms aimed at improving quality and efficiency has also taken place in the general education sector, as outlined below. (i) Enhancing learning. The Government developed the National Curriculum Framework, standards and syllabi; it extended general education system from 10 to 12 years, and it introduced a network of high schools that offer specialized streams. Furthermore, there has been a concerted effort to Public Disclosure Copy provide all 1,431 schools in Armenia with computers and Internet access for all students and teachers. The Government is planning to develop more e-content to maximize the benefits of Internet access. (ii) Strengthening teacher management. The Government has introduced a teacher certification system under which teachers need to take mandatory training and be tested every five years. It is developing comprehensive professional development policies, including a ranking system and rank- based salary differentiations. In addition to in-service teacher training, the Government has begun investing in pre-service teacher training. (iii) Improving system efficiency and accountability. In the mid-2000s, the Government introduced a per-student financing mechanism. It resulted in substantial efficiency gains, including increased student-teacher ratios and stronger school autonomy. At the same time, it established the Assessment and Testing Center (ATC), which enhanced the capacity to measure student performance and introduced a transparent, unified entrance examination for universities and colleges. (iv) Strengthening Vocational Education. The extension of Armenia’s basic education (from 8years to 9 years) has helped vocational students build stronger basic skills before they start receiving vocational training. This is in line with good international practices. To date, Government’s efforts Page 3 of 6 aim to strengthen the vocational education and training system through the National Center for the Development of Vocational Education and Training, which was established in May 2008, and has been supported by UNDP and the European Training Foundation (ETF), among others. Public Disclosure Copy (v) Enhancing the quality and relevance of higher education. In higher education, the comprehensive set of reforms began in 2005, when Armenia joined the Bologna Process. A notable development was the establishment of an independent quality monitoring agency, the National Center for Professional Education Quality Assurance (ANQA) in 2009. In addition, the Government adopted a higher-education financing strategy in 2011 that addressed the weaknesses in the current system. Based on the strategy, the Government plans to make changes to the existing financing system, including introduction of a Competitive Innovation Fund to support demand- driven projects that enhance market relevance of the academic programs. II. Project Development Objective(s) / Global Environmental Objective(s) A. Project Development Objective(s) The Project Development Objectives (PDO) are to improve school readiness of children entering primary education, improve physical conditions and the availability of educational resources in upper secondary schools, and support improved quality and relevance in higher education institutions in Armenia. III. Project Description Component Name Component 1. Enhancing the Quality of General Education Comments (optional) The objective of this component is to support the Government's efforts to increase preschool Public Disclosure Copy enrollment, support the rehabilitation of selected facilities and improve NACET capacity to monitor. Component Name Component 2. Mainstreaming of the Competitive Innovation Fund (CIF) for Higher Education Institutions (HEI) into full implementation Comments (optional) The objective of this component is to support the roll-out of the competitive grant program for HEIs that was developed and piloted under the EQRP2 (P107772). Component Name Project Management, Monitoring and Evaluation Comments (optional) The key objective of this component is to provide continued support for the management and monitoring of project implementation activities and outcomes. IV. Financing (in USD Million) Total Project Cost: 30.00 Total Bank Financing: 30.00 Financing Gap: 0.00 For Loans/Credits/Others Amount Page 4 of 6 BORROWER/RECIPIENT 0.00 International Bank for Reconstruction and Development 15.00 Public Disclosure Copy International Development Association (IDA) 15.00 Total 30.00 V. Implementation The Ministry of Education and Science will be responsible for the implementation of the Project supported by the services of the Center for Education Project (CEP) acting as the Project Implementation Unit. CEP is a project management unit operating within the ministry. It was created in 1996 and it has gained significant strength in project management experience through the implementation of Bank-funded education projects, including the two past education projects. CEP will continue its activities of administering, coordinating, implementing, monitoring and evaluating the proposed project activities, as well facilitating the decision-making process for the proposed project. CEP will be also responsible for the procurement and financial management functions, flow of funds, budgeting, accounting, and reporting. CEP comprises a core group of technical, administrative and support staff. VI. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 ✖ Natural Habitats OP/BP 4.04 ✖ Forests OP/BP 4.36 ✖ Pest Management OP 4.09 ✖ Physical Cultural Resources OP/BP 4.11 ✖ Indigenous Peoples OP/BP 4.10 ✖ Involuntary Resettlement OP/BP 4.12 ✖ Public Disclosure Copy Safety of Dams OP/BP 4.37 ✖ Projects on International Waterways OP/BP 7.50 ✖ Projects in Disputed Areas OP/BP 7.60 ✖ Comments (optional) VII. Contact point World Bank Contact: Mario Cristian Aedo Inost Title: Sr Education Econ. Tel: 473-2527 Email: caedo@worldbank.org Borrower/Client/Recipient Name: Republic of Armenia Contact: Armen Harutyunyan Title: Adviser to the Minister Tel: 374-10-235-468 Email: armenharut@gmail.com Page 5 of 6 Implementing Agencies Name: Center for Education Projects Contact: Public Disclosure Copy Title: Tel: 37410 575690 Email: cfep@arminco.com VIII. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop Public Disclosure Copy Page 6 of 6