With Less Education Aid Available, Should Donors Focus on Helping Governments Spend Better?

With donor priorities shifting and global crises competing for attention, the future of development aid—particularly for social sectors like education—has rarely been more uncertain. Given the dramatic reductions in US aid and impending cuts by other donors such as the UK, low- and middle-income countries (LMICs) may soon face shrinking pools of official development assistance (ODA) for education.

This uncertainty presents an opportunity to rethink the role of aid in education—can it act not just as a gap-filler, but as a catalyst for more efficient and equitable domestic education spending?

The reality is that most education funding in LMICs is already domestic. As of 2022, government budgets accounted for 61 percent of total education expenditure in the typical LMIC, while households contributed another 34 percent themselves.

In contrast, ODA plays a modest role. It accounts for up to 12 percent of total education spending in low-income countries and just 0.002 percent in upper-middle-income countries. We can see from this that while aid matters, it is not the primary driver of education systems. Its real potential lies in how it can complement and strengthen countries' own financing structures.

Education budgets in low-income countries are still far too small

Understanding how aid can support domestic efforts begins with a closer look at the structure and scale of education budgets across countries.

The disparity between how much high-income countries spend on each pupil and how much low-income countries spend is striking (see Figure 1). High-income country governments spend a huge 25 times more per student than low-income countries, even after adjusting for price differences. And lower-middle-income countries still spend about four times more per pupil than the poorest countries.

We can take from this that in many low-income settings, education budgets are simply too small. Aid can help bridge gaps temporarily, particularly to provide access to disadvantaged and vulnerable children in those countries. But any long-term progress will depend on more—and better-targeted—domestic spending. This means the role of aid may have to shift gradually to catalysing more public investment in education even in the poorest settings.

Figure 1: The level and composition of government spending on education per pupil by country income group (median values, in purchasing power parity)

Note: The data covers the period 2009-2022. Source: Education Finance Watch 2024 dataset.

Understanding how education budgets are spent points to where aid can add value

The composition of education spending reveals further disparities and gives us some insight into potential inefficiencies. The wage bill—primarily teacher salaries—accounts for 73 percent of all education budgets in the median country. But spending on other essentials varies widely. In low-income countries, just 7 cents is spent on infrastructure and buildings for every dollar spent on wages, compared to 16 cents in high-income countries (Figure 2). And lower-middle-income countries spend the least on other goods and services, like textbooks and supplies—only 13 cents per dollar spent on wages (Figure 2).

When so much of the education budget goes to teacher pay, there’s often little left to improve school infrastructure or provide support services—especially in countries where absolute spending levels are low. However, spending more does not guarantee better outcomes. Buildings, materials, or even hiring more teachers won't necessarily improve student learning unless there are effective and scalable strategies to facilitate the teaching-learning process.

This is where aid can play a catalytic role.

From an aid effectiveness perspective, and especially in a context of scarce resources, the best use of aid may not be to fund inputs directly, but to help governments get more from what they already spend. Aid can play a catalytic role by funding pilots of cost-effective interventions, problem-driven advisory services, and capacity-building efforts that help governments allocate education resources more effectively and maximize learning outcomes. This may include strengthening procurement systems and facilitating access to better technology to help governments optimize the non-wage portion of their education budgets.

Figure 2: Composition of education budgets relative to the wage bill by country income group (median values)

Some countries already make most of their limited budgets. But aid doesn’t appear to drive that efficiency

Countries take different approaches to making the most of constrained education budgets and get different outcomes as a result. Even among countries with similar spending levels, outcomes vary widely depending on system-level efficiency. One way to get a rough measure of this efficiency is by comparing “Learning-Adjusted Years of Schooling” (LAYS) to spending on key inputs like teacher pay, school infrastructure, and learning materials.

Figure 3 illustrates that income levels do not necessarily predict efficiency. Take Saudi Arabia and Burundi (circled in red): the former spends 137 times more per pupil, yet its LAYS is only 1.53 times higher than Burundi’s. This suggests the possibility of considerable inefficiency in some high-spending systems, and surprisingly strong outcomes in some low-spending ones.

Figure 3: The efficiency of government spending on education in increasing Learning Adjusted Years of Schooling

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Note: The education budget efficiency index is computed using Data Envelopment Analysis (DEA) technique. LAYS is the output whereas the average per-pupil spending on wages, capital expenditure and goods and services over the previous 5 years are entered as inputs. The analysis assumes “decreasing returns to scale” since there is usually a large portion of government spending in education budgets that is not directly linked to student outcomes. But the general pattern of the results remain the same under the alternative assumption of “constant returns to scale.”

The key question is whether foreign aid can be leveraged to improve the efficiency of existing government expenditure. Analysis of education ODA over the past decade shows little correlation between aid and the efficiency of domestic spending. This does not mean education aid has not been effective in improving outcomes at a project or program level: in fact, it’s likely that a large share of aid has been allocated to directly supplement government spending in one or more of the key inputs. But at the system level, the synergy between aid and domestic finance appears limited.

Smarter spending matters more than ever

In the years ahead, the conversation around value-for-money and localisation is likely to intensify. This makes it all the more important to consider aid in the context of what governments are already spending—and what they are achieving.

The goal should be to use aid strategically: to unlock reforms, strengthen accountability, and build more resilient, results-focused education systems. As ODA becomes more uncertain, this kind of efficiency-enhancing support will be more valuable than ever. For many governments, the central question may not be whether to spend more—but how to spend better, and where more spending is truly indispensable.