Innovative Financing for Inclusive Global Education Transformation

As education systems struggle with budgets and increasing inequality, the need for innovative financing is urgent. In this blogpost, which is part of NORRAG’s Financing Education blog series, Faith Ememodo explores how innovative financing can help bridge the massive education funding gap and ensure no child is left behind.

The global education sector is behind its commitment to Sustainable Development Goal 4 (SDG 4) to ensure inclusive, equitable and quality education for all by 2030. Even before COVID-19 disrupted learning for over 1.6 billion students, education systems particularly in low and middle- income countries (LMICs) were underfunded and unequal. Post pandemic, the crisis is more acute as the share of 10-year olds in LMICs unable to read and understand a simple sentence rose from 57% to 70%, a measure known as learning poverty. This learning crisis was never evenly distributed; it has always disproportionately affected the most vulnerable children. In low-income countries, learning poverty reached nearly 90%, compared to just 9% in high-income countries.

According to UNESCO’s Transforming Education Summit Action Track 5, the global education financing gap now exceeds $200 billion annually. The average annual cost of providing education to all refugee students in low, lower-middle and upper-middle-income host countries is estimated to represent $4.85 billion. Unless this issue is addressed with systematic action, generations of learners will be left behind.

Rethinking the Framework: From Reduced Funding To Ambition

Historically, education financing has relied heavily on domestic revenues, development aid, and concessional loans. However, these funding sources have proven to be insufficient. UNESCO reports that domestic resources account for 97% of education financing, yet in many countries, this remains below the recommended 4-6% of GDP or 15-20% of total public expenditure. Limited fiscal space, compounded by global economic constraints, has caused many governments to prioritize debt over investments in human capital.

The Transforming Education Summit’s Call to Action on Financing Education urges states to abandon reduced funding logic and treat education not as a cost, but as a strategic investment. Education generates significant long-term social and economic returns, including reduced poverty, increased productivity and better health outcomes. Yet these benefits are rarely accounted for in short-term budgetary cycles or macroeconomic frameworks shaped by institutions like the IMF.

The Promise of Innovative Financing

Innovative financing refers to mechanisms that generate new financial resources or increase the impact of existing ones. These are not replacements for domestic investment or aid, but tools that can fill funding gaps, create efficiencies, and drive targeted impact. Take for instance, the International Finance Facility for Education (IFFEd), designed to provide low-cost financing for education in middle-income countries. IFFED blends donor guarantees with multilateral development bank loans, unlocking up to $10 billion in new funds. As highlighted in the Transforming Education Summit discussion paper, this model is particularly suited for countries that struggle to access conventional Official Development Assistance (ODA) or face barriers to borrowing.

Equally promising are debt swaps for education, where creditor countries cancel or reduce debt in exchange for investments in local education systems. Côte d’Ivoire recently implemented a $400 million deal that freed up resources for national education programs while reducing its debt burden.

Making Finance Work for Equity

Mobilizing funds is only one side of the coin. How money is allocated and spent matters just as much. Both UNESCO and the Transforming Education Summit papers emphasize that education financing must be equitable, efficient, and accountable. Too often, public investment reinforces inequality. In many countries, public spending on students in the richest 20% of households is four times greater than on students in the poorest 20%. Meanwhile, private household spending including school fees, uniforms, and transport continues to rise, pushing the poorest further to the margins. Without robust public systems to level the playing field, education becomes a source of exclusion rather than opportunity. A progressive universalism model is recommended to prioritize early childhood education and foundational learning for the most disadvantaged, gradually scaling up to higher levels. Tools such as beneficiary incidence analysis and equity-sensitive funding formulas can help ensure resources reach those who need them most.

The Global Compact: a New Social Contract

The urgency of the education crisis calls for nothing less than a new global compact on education financing. As outlined in the UN Secretary-General’s “Our common Agenda”, this compact will link national-level reforms with international solidarity.

At the national-level, governments would:

• Expand fiscal space through progressive tax reforms, aiming for higher tax-to-GDP ratios.
• Commit to increasing public investment per learner, starting with the poorest and most vulnerable.
• Integrate education financing into Integrated National Financing Frameworks (INFFs) that align budgets with SDGs.
• Strengthen sector planning, especially for inclusive education for refugees, children with disabilities, and those in conflict zones.

Internationally, donor governments and financial institutions must:

• Fulfil the 0.7% of GNI target for ODA, with at least 15–20% earmarked for education.
• Scale up concessional loans and grants, particularly for low-income and crisis-affected countries.
• Reform global tax systems to curb illicit financial flows and tax avoidance, unlocking revenue that can be redirected to education.
• Remove public sector wage constraints that prevent the hiring of teachers in under-served areas.

Conclusion: From Commitment To Action

Innovative financing is not a silver bullet, but it offers a bridge a way to unlock untapped resources, restructure global commitments, and make education systems more just and inclusive. The cost of inaction is immense: trillions in lost productivity, broken social cohesion, and a future shaped by inequality. Now is the time to act. The world cannot afford to leave education underfunded, undervalued, unprotected and behind.

Author

Faith Ememodo is an EdD candidate at Oral Roberts University and a member of the NORRAG network.