SELM2_wk3_Salmi

International Trends

in Financing Reforms

Jamil Salmi

Tertiary Education Coordinator

Marseille, 24 January 2011

2

key financing questions

• sustainable expansion strategy

• resource mobilization

• impact of the crisis

• resource allocation

• resource utilization

• equity in distribution of public resources

3

comparing East Asian countries

19%

89%

29%29%

41%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 0.5 1 1.5 2 2.5 3

S. Korea

Thailand

Philippines

China

Malaysia

Public Spending as a % of GDP

Tert

iary

En

rollm

en

t R

ate

4

comparing Brazil and Chile

38%

24%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9

En

roll

me

nt

ra

te

public spending as % of GDP

Chile

Brazil

5

expansion strategy

• not only money

• shape and configuration of the system

– degree of institutional differentiation

6

tertiary enrollment ratei = f [SGi, TFi, (∑Eij), PSi , SAi]

– high school graduation rate (SGi)

– funding for tertiary education (TFi)

– distribution of enrollment among various types

j of tertiary education institutions (Eij)

– proportion of private sector enrollment (PSi)

– student aid availability (SAi)

7

secondary school completion rate

33.7Brazil

59.0Chile

45.80LAC avg

0.0

10.0

20.0

30.0

40.0

50.0

60.0

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

en

rolm

en

t ra

te

secondary school completion rate (%)

secondary school completion rate vs. enrolment rate

1.0Brazil

1.7Chile

1.23LAC avg

0.0

10.0

20.0

30.0

40.0

50.0

60.0

0.0 0.5 1.0 1.5 2.0

en

rolm

en

t ra

te

public and private spending as percentage of GDP

public and private spending as % of GDP vs. enrolment rate

9

private enrolment

73.00Brazil

77.00Chile

33.00LAC avg

0.0

10.0

20.0

30.0

40.0

50.0

60.0

0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 80.00 90.00

en

rolm

en

t ra

te

private enrolment share, tertiary (%)

private enrolment share vs. enrolment rate

10

student aid

1.7Brazil

22.8Chile

0.0

10.0

20.0

30.0

40.0

50.0

60.0

0.0 5.0 10.0 15.0 20.0 25.0

en

rolm

en

t ra

te

public spending on student aid (grants and loans)

public spend on student aid vs. enrolment rate

11

enrollment in non-university institutions

8.0Brazil

40.0Chile

27.00LAC avg

0.0

10.0

20.0

30.0

40.0

50.0

60.0

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0

en

rolm

en

t ra

te

proportion of students studying at non-university institutions

proportion of students studying at non-university institutions vs. enrolment rate

comparing Jordan and Morocco

attainment rates

tertiary

secondary

primary or no schooling

Jordan Morocco

37.7

28.6

48.6

51.9

13.7

19.4

0 10 20 30 40 50 60

2000

2010

74.2

67.4

18.4

22.9

7.3

9.6

0 20 40 60 80

2000

2010

13


Jordan, 58.3

Morocco, 20.9

OECD AVG, 56.5

MENA AVG, 34.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

en

rolm

en

t ra

te


total spending (public + private)

Jordan, 3.2

Morocco, 1.0

OECD AVG, 1.4

MENA AVG, 1.5

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

en

rolm

en

t ra

te

public and private spending, tertiary as % of GDP

15

public spending on student aid

Morocco, 8.0

OECD AVG, 23.0

Jordan, 8.5

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

0.0 5.0 10.0 15.0 20.0 25.0

en

rolm

en

t ra

te

proportion of public spending on student aid (loans and grants)

16

private enrolment share (%)

Jordan, 31.0

Morocco, 11.0

OECD AVG, 27.4

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0

en

rolm

en

t ra

te

private enrolment share (%)

17

students at non-university institutions

Jordan, 11.1

Morocco, 21.2

OECD AVG, 15.9

MENA AVG, 16.4

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

0.0 5.0 10.0 15.0 20.0 25.0

en

rolm

en

t ra

te

proportion of students studying at non-university institutions

18




key features of this crisis

• deepest post-war recession

• most synchronized recession on record

• manufacturing has been particularly hard hit

• unemployment has risen

21

depth and synchronicity

22

23

resources flows

• reduced government funding for teaching,

research and student aid

• reduced resources for institutions as

demand falls (new domestic and foreign

students, dropouts)

24

resource flows (II)

• fewer resources from private sector

(donations, contracts)

• fall in stock market values reduces value

of endowments and pension funds

25

differential effects

• scope of crisis

– country and type of institution

• business model and financing strategy

– how endowment funds are invested

– how endowment resources are used

– balance among various sources of income

26

response of

tertiary education institutions

• budget cutting measures

• revenue generation

27

budget cutting measures

• employment-related

• programs and academic organization

• students (number, teacher/student ratio)

• efficiency measures

28

revenue generation strategies

• demand-linked measures

• financial measures

29

scenarios for the tertiary education

sector

• graduate unemployment

• shifting demand (from long to shorter

duration programs, private to public,

foreign to domestic)

• increased inequality

• deteriorating quality (with fewer resources)

30

opportunities

• efficiency gains and no-frill options

• innovations and startups

• attracting foreign students

• fund-raising

– philanthropy

– reaching out

• strategic renewal

31

implementing structural reforms

• strategic focus

– areas of priority

– new academic model

– new business model

32

strengthening financial planning

and management

• information and monitoring

• fund-raising strategy and team

• investment strategy

• contingency planning

35

the way forward

• differential effects depending on

– country context

– strategic positioning

• short term reactions vs. long term

realignment

36





37

allocation mechanisms

from untied funding

to

performance-based funding

40

Negotiated

Allocations

Competitive

Mechanisms

Performance-

Based Criteria

No

Performance

Criteria

Funding Formulas (output-based) (I)

Performance Contracts (I)

Performance Set Asides (I)

Need-based Grants and

Scholarships* (S)

Student Loans* (S)

Universal Tuition Fees (I)

Donations (I)

Bank Loans (I)

Merit-based Grants and

Scholarships (S)

Merit-based Student Loans (S)

Merit-based Vouchers (S)

Dual-Track Tuition Fees (I)

Competitive Funds (I)

Sale of Products and Services (I)

Entitlements (I)

Earmarked Funds (I)

Funding Formulas (input-based) (I)

Vouchers (S)

Tax Benefits (F & I)

Savings Accounts (F)

Resource Allocation and Capitation Matrix: Dimensions of Performance and Competitiveness

I=Institutions; S=Students; F=Families

Q1 Q2

Q3 Q4

41

innovative allocation

mechanisms

• funding formula - output measures are used to determine all or a portion of funding formula

• performance contracts - governments enter into agreements with institutions which set mutual performance-based objectives

42

innovative allocation

mechanisms (II)

• competitive funds - support peer-reviewed proposals designed to achieve institutional improvement or national policy objectives

• demand-side vouchers - finance the recurrent expenses of institutions indirectly through vouchers provided to students who enroll in the university of their choice

43

formula funding

• formula linking amount of financing and

some measures of outputs

- number of graduates

- research productivity (publications,

patents, licenses, spin-offs)

• unit costs per level of studies / discipline

(actual, average, normative costs)

44

The Netherlands

• problem: weak internal efficiency (7.5

years to graduate vs. 4 in theory

• formula based on graduation rates- 4,5 x cost of 1 student-year for graduate

- 1,5 x cost of 1 student-year for dropouts

• risk: too lenient on grading - mitigation: rigorous inspection system

45

performance contracts

• institutional agreement to achieve

certain objectives

• additional funding based on meeting

agreed objectives

• examples: Chile, France, Denmark,

Austria, Finland, US (Colorado &

Virginia)

46

competitive funds

• earmarked for specific objectives

• competition on the basis of projects

• transparent rules & criteria

• peer review and selection

• independent monitoring committee

47

allocation mechanisms

from

direct funding

to

indirect funding

48

indirect funding

• grants and scholarships

• student loans

• vouchers

49

grants

• needs-based or merit-based (or both)

• well-targeted

• eligibility of all accredited institutions

51

student aid options

from

mortgage loans for students

to

income-contingent loans for graduates

52

vouchers: the economists’

ultimate solution

– demand side

• power to the consumer

• transparency

– value of the voucher

– eligibility criteria

– supply side

• choice drives competition

– contains costs

– drives up quality

– ultimate form of accountability: the markets rules

53

recent experiences

• Colorado (US), Chile, Kazakhstan, Lithuania, Azerbaijan

54

Kazakhstan experience

• 20% best qualified secondary school graduates

• choose university

– $1,200 for public university

– up to $4,000 for private university

• must maintain top academic grades

55

Kazakhstan experience (II)

• increased competition generally

• some private institutions have been able

to attract a growing number of voucher

beneficiaries

• but insufficient resources to finance all

students

56

new voucher system in

Azerbaijan (2010)

• 45% of students receive voucher

• both public and private institutions

– share of top students choosing private institution from 1.9% in 2009 to 9% in 2010

• limitations

– rigid quota system by discipline

– insufficient amount of voucher

57

Brazil ProUni

• State purchases seats in private universities

• offered to top students from low-income families who don’t get a seat in a public university

• no actual payment to the university, but tax exemption

58

Colombia (Antioquia)

“access with equity”

• partnership among local government, private firms and private universities

• low-income students who don’t get a seat in a public university get financial aid to enter a private university

• 75% scholarship and 25% subsidized loan

59

other performance-based

schemes

• salary of VC/rector/president (rankings)

• salary of researchers (Mexico, Australia,

Norway)

• students (scholarships, tuition, loans,

vouchers, reward)

60





• equity in distribution of public resources

61

free is fair

• is it indeed?

• Canada: average undergraduate tuition

fees:

– in Quebec: $1,862

– in Ontario: $4,923

University Participation at Age 19

(2003)

62

63

free is fair

• Brazil: University of São Paulo

– no tuition fees

– 84% candidates from public high schools

– 30% of new students

– in medicine, only 3 out of 180 new entrants

66

tertiary coverage in Chile

16.3

38

0

10

20

30

40

50

60

70

80

1990 2006

67

enrollment rate by income quintiles

4

8

11.5

21

40

16.3

19.5

25.5

32.5

47

67.5

38

0

10

20

30

40

50

60

70

80

I II III IV V Total

1990 2006

68

benefits incidence analysis

• share of public resources received by each quintile

– if ≤ 20%, regressive instrument

– if ≥ 20%, progressive instrument

69

benefits incidence analysis:

the case of Chile

Q1 Q2 Q3 Q4 Q5

Share of

Public

Subsidies15.3% 17.2% 19.0% 22.8% 25.7%

Share of

Enrollment 8.2% 12.9% 18.5% 26.7% 33.8%

70

Benefits Incidence Analysis of Public Investment in Higher

Education

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Q1 Q2 Q3 Q4 Q5

Income-level

% o

f b

en

efi

cia

res

Institutional Funding

(AFD)

"Voucher scheme for the

best" (AFI)

Scholarships

Subsidized student loan

scheme (FSCU)

Guaranteed student loan

scheme (INGRESA)

Competitive Fund

(MECESUP/FDI)

Research funding

(CONICYT)

72Mourad Ezzine

73

principal challenge

quantitative

expansion

quality &

relevance

financial sustainability

74

protection from crisis

• national level: multiple sources of funding

• institutional level: contingency planning

75

which allocation mechanism

is more effective?

76

Alice in Wonderland

Lewis Carroll

Alice

Would you please tell me which way I

ought to go from here?

Cheshire Cat

That depends on where you want to get to.

77

policy objectives pursued

• improving access and equity

• improving quality and external efficiency

• improving internal efficiency and

sustainability

78

principles of an appropriate

allocation instrument

• linked to performance / policy objectives

• transparent (objective criteria, openness)

• significant amounts

• stability in time

• compatibility

79

political economy

dimensions

• financing reforms can be controversial

• dealing with the politics (winners and

losers)

• not an excuse to avoid reforms

SELM2_wk3_Salmi

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