Overview A wide gap exists between available skills and market demand in Sri Lanka. Many of the country’s youth leave the formal school system without employable skills because their access to middle level skills training and entry-level skills programs is inadequate. This is compounded by the low market relevance of technical and vocational education and training (TVET) in the country. As a result, there is high unemployment rate among the youth (21.6%), particularly women (26.6%). Skilled labor is also wanting. The country already has the lowest labor participation in South Asia, and the shortage of skilled labor is aggravating the situation. Enhancing the quality and relevance of TVET can help solve the problem. The Skills Sector Enhancement Program, supported by the Asian Development Bank’s (ADB) results-based lending program, is helping provide the impetus to improve and ensure the effectiveness and efficiency of Sri Lanka’s sector-wide reforms. Project Information 42251-018 : Sri Lanka: Skills Sector Enhancement Program 42251-019 : Sri Lanka - Skills Sector Enhancement Program - Additional Financing Project Snapshot Dates March 2014 : Approval date December 2021 : Closing date Cost US$865.9 million : Total Project Cost US$520 million : Government of Sri Lanka (counterpart financing) US$203 million : Government of Sri Lanka (financing) US$15.40 million : Germany (financing) US$101.5 million : World Bank (financing) US$26 million : Export-Import Bank of Korea (financing) Institutions / Stakeholders Financing : Asian Development Bank Financing : Export-Import Bank of Korea Financing : Germany Financing : World Bank Executing agency : Ministry of Industry & Commerce, Resettlement of Protracted Displaced Persons, Co-operative Development and Vocational Training & Skills Development Challenges Every year, more than 320,000 students in Sri Lanka become available for skills training. They have either graduated or dropped out of school. TVET programs however could accept only half of the students because of limited personnel, facilities, and equipment. Students also find that the courses available do not reflect the real demands of the labor market. The quality of TVET courses leaves much to be desired. There are few middle-level skills training programs, and delivery options are limited. More qualified instructors are needed. Context Sri Lanka has high enrollment rates for both primary and secondary education, a high adult literacy rate, and gender parity in access to education. Yet, many graduates are not trained for the jobs available in the market. When the project started, the country was ranked 62nd out of 148 countries by the World Economic Forum in terms of the quality of higher education and training. But when it came to labor market efficiency, it was 135th. The Sri Lankan government is confronting these challenges head-on through its Skills Sector Development Program, its first sector-wide, medium-term development program. It envisions a TVET sector that is efficient and ready to meet rapidly evolving labor market demands by 2020. Solutions The TVET program is cofinanced by ADB, Export-Import Bank of Korea, Germany, and the World Bank through results-based lending where disbursements are linked to the achievement of results (project indicators or milestones) rather than to upfront expenditure. Focusing on results helps ensure that the objectives of the program are met, and that there is accountability. These traits are critically needed in far-reaching, sector-wide reforms to improve the TVET system in a sustainable manner. The program has four components. Improve the quality of TVET Sri Lanka improved the quality assurance mechanism of all public and private TVET providers by developing a centralized management information system (MIS). This system helped training centers manage training information from enrollment to graduation and deployment. It also automated their training administration and resource management. The implementation of a comprehensive vocational teacher development policy complemented the new MIS. This initiative upgraded instructors’ skills through industry exposure training. It provided performance management mechanisms, professional development, and allowances to retain and recruit qualified instructors. To ensure that courses offered meet industry standards, training program effectiveness was also reviewed. Moreover, the project revised the National Vocation Quality (NVQ) level descriptors to upgrade the country’s TVET standards to industry-recognized qualifications. These revisions were applied to all Tertiary and Vocational Education Commission-accredited programs and registered training providers. Improve access to TVET To widen access to TVET courses, the government established state-owned or university colleges and tapped the private sector to offer courses that provide skills in industries with shortage of manpower. It also developed a targeted stipend program to increase the participation of women and disadvantaged groups, alongside a voucher system for students from low-income families. The stipend was given to students who opt to enroll in courses where skills are in demand. Improve relevance of TVET The project helped the government review training programs where employment, enrollment, and completion rates are low. Skills gaps analyses were conducted in three priority sectors—construction, information and communication technology, and manufacturing. These informed the strategies the government took to improve and diversify the courses offered in TVET programs and to ensure that they meet the demands of the labor market. Where shortages in skills were found, the government outsourced training services to centers that can offer the needed courses. It then linked the course to a private company that need more workers. Basically, this process, which is formalized through an employment-linked training agreement, outsources training and employment services to private companies. This approach ensures that courses are relevant to market demands and that jobs are waiting for students when they graduate. Focus on the targets A critical part of the solution is the financing modality used for this program. Reforms of this scale and duration tend to be unwieldy, thus keeping an eye on the goal is imperative. Results-based lending kept the project on course since disbursements are linked to achieved targets. This method is particularly suited to this project since the program is introducing a paradigm shift in the skills sector. Instead of investing on institutions or a specific aspect of TVET to improve labor skills and employment, it involved several institutions as well as the private sector. The reforms aim to help the country meet labor demand, so it linked disbursements to specific and measurable targets, such as increase in enrollment, employability of TVET graduates, service quality, and private sector participation. Results The number of TVET centers with a quality management system has increased to 15% in October 2017 from less than 1% in 2013. The share of NVQ-accredited training programs also grew from only 13% in 2012 to 66% in 2016. There are more TVET instructors in the country. Vacancy ratio fell to 30% in 2019 from 44% in 2014. Cadre positions in TVET increased to 4,213 in 2017 from 3,418 in 2014. This is projected to grow more as the government further intensifies its recruitment efforts. The project successfully established eight university colleges. Together with the private sector, these colleges offer diploma-level training programs in construction, health sciences, and information technology. Along with the stipend program, these colleges widened access to TVET and has helped increased enrollment and completion rates in the country. In 2017, student enrollment in TVET programs reached 214,295 from 23,002 in 2011. At the end of 2016, 68% of students completed their training. All these results have helped increase employment in the country, with a growing number of TVET graduates being hired even before the project was completed. From 50% in 2012, employment rate increased to 57% in 2015. Latest data also showed that within 6 months of graduation, 69.6% of NVQ course graduates landed jobs. Additional financing was provided to help Sri Lanka continue the program through 2020. Lessons A significant achievement of the project is how it helped stakeholders to stay focused on results. This results-based orientation, as opposed to a transaction-based one, has incentivized stakeholders to overcome barriers in reaching their targets. It has allowed them to be creative in meeting labor demand. This is illustrated by how they linked up the courses to companies that need the skills that the courses provide and how they prioritized courses to offer according to what the labor market really needs. Aside from upgrading TVET services, the program also created a performance allowance scheme for instructors and a performance-based financing mechanism for selected training centers. These schemes help ensure that TVET reforms will be continuous and sustainable.  Data from expert. Resources Asian Development Bank (ADB). Sri Lanka: Skills Sector Enhancement Program. ADB. 2014. Reports and Recommendations of the President: Proposed Results-Based Loans to the Democratic Socialist Republic of Sri Lanka for the Skills Sector Enhancement Program. Manila. ADB. Sri Lanka: Skills Sector Enhancement Program—Additional Financing. ADB. 2018. Reports and Recommendations of the President: Proposed Results-Based Loans and Administration of Grant for Additional Financing to the Democratic Socialist Republic of Sri Lanka for the Skills Sector Enhancement Program. Manila. Ask the Experts Sudarshana Anojan Jayasundara Social Development and Gender Specialist, South Asia Department, Asian Development Bank Mr. Sudarshana is social development and gender specialist at ADB’s Sri Lanka Resident Mission. He has more than 10 years of development experience, working for World Vision, Australian Aid, and Australia Awards program in South Asia. He has a master’s degree in Development Practice, postgraduate diploma in International Relations, bachelor’s degree in Philosophy and Humanities, and a diploma in Project Management. 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