Area 4 - Costing, budgeting, financing and funding

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VET financing is distinct from other VET-related policy domains in that it is both a general condition for, and a specific area of, VET reform. Taken as a set of processes, mechanisms and instruments for the mobilisation and allocation of resources, as well as for the overall management of the financing chain, VET financing is a multilevel governance issue. Its functions are fulfilled by a range of stakeholders from the public and private sectors. It is anchored in national priorities and objectives. An effective financing system relies on governance principles, such as transparency, accountability and efficiency, translated into rules, procedures and mechanisms. All of this must be supported by robust data gathering, including information about costs, and a rigorous approach to budgeting.

Competition for public funds puts pressure on stakeholders to justify the role of the state in running and financing the VET system. This creates a need to directly involve beneficiaries in the governance of the system, as advocates for the value it creates and as partners with whom the cost of service VET can be shared. ETF partner countries are calling for innovative financing tools which will support their efforts to increase efficiency, demonstrate accountability and guarantee equitable access to high-quality VET for individuals and companies. Confronted with the complexity of these financing challenges, the ETF provides a strategic framework for VET finance reform, as well as a range of methodological tools to support VET finance related to policy and dialogue.

The methodology for skills vision building based on Foresight already provides some specific elements of the analysis of financing, mainly through the budget planning lens. The vision-building process also includes the development of a roadmap describing the measures needed to implement a comprehensive programme for VET reform, along with estimates of the budget and resources required for this to happen. The RIA tool, intended to verify the institutional capacity of actors entrusted with the implementation of the roadmap, devotes significant effort to an assessment of budget-planning capacity, based on the use of an MTEF or Medium-Term Expenditure Framework. But VET finance transcends this and requires a larger set of dedicated governance tools. More holistic and more reform-oriented in nature, the ETF VET Financing Prism is a framework methodology that enables partner countries to move from a systemic analysis of their VET financing system to policy dialogue on needed reforms involving public and private stakeholders. The approach is based on three main elements – resource mobilisation, resource allocation and management of the financing chain – all underpinned by strong capabilities in costing and data. This avoids the temptation of addressing financing as a purely technical issue when it should be considered as a tool for steering policies. Using this approach, reflection about specific financing measures is seen from a policy perspective that takes account of the key policy goals of the VET sector. A series of detailed policy guidance notes on instruments such as formula funding, company incentives and training levies complements this approach by supporting the decision-making process of policy makers with respect to each of these options. Other analytical tools provide alternative insights on financing. The analytical framework developed in the context of the cross-country GEMM project, helps to map VET finance systems against the main functions and actors involved at different levels of governance. The cost and financing analysis guide proposes a method, based on simulation models, to approach the costs of different (mainly initial) VET reform scenarios as a key factor in informed decision making.

The application of the VET financing Prism and the use of other finance-related governance tools are illustrated by case studies on ETF partner countries such as Kazakhstan, Georgia, Egypt and Ukraine, where there is a need to take a comprehensive and highly structured approach to VET finance reform, involving dialogue with a wide range of stakeholders and social partners, considering all available policy options and managing reforms that will introduce processes and practices to support multi-source financing, the use of training levies, social partnerships and PPPs.