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Source: Palestinian Authority
31 August 2002


26337
Palestinian Higher Education Financing Strategy

Prepared by the
Ministry of Higher Education and Scientific Research
Palestinian National Authority


With financial and technical assistance provided by
The World Bank


August 2002



Table of Contents
Preface - v
Abbreviations and Acronyms - vi
Executive Summary - vii
Introduction - 1
Preamble - 3
Chapter 1. Palestinian Higher Education: Main Challenges
1.1 Meeting Increasing Demand - 6
1.2 Achieving Financial Sustainability - 7
1.3 Improving Internal Efficiency - 12
I.4 Raising External Efficiency - 12
1.5 Improving Equity - 15
1.6 Enhancing Management - 16
1.7 The Consequences of Not Addressing the Challenges - 17
Chapter 2. Developing a Financing Strategy
2.1 The Importance of Developing a Financing Strategy - 20
2.2 Principles of the Financing Strategy - 20
2.3 Main Feature of the Financing Strategy - 21
Chapter 3. Assessing the Financing Strategy
3.1 The Budget Tradeoff Model - 30
3.2 Using the Budget Tradeoff Model - 32
3.3 Building Scenarios - 33
Chapter 4. Implementing the Financing Strategy
4.1 Administrative/Regulatory Measures - 49
4.2 Taking the Next Steps: Implementation of the Strategy - 50
4.3 Financing the Implementation of the Strategy - 51

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Executive Summary

Higher education (HE) has developed very quickly in Palestine over the last three decades and faces expansion problems induced by pressing demand from a quickly increasing number of high school graduates, efficiency and quality issues related to its very development, and financing problems resulting from the aftermath of the Gulf War in 1990, with the cut-off of Arab financial support to the Palestinian Liberation Organization (PLO), which negatively affected the financing of Palestinian colleges and universities. The outbreak of the second Intifada in September 2000 further aggravated the situation because of the imposition of tight closure by Israel. In a context of severe fiscal constraints, Palestinian National Authorization’s (PNA) contribution towards higher education has declined substantially, raising further concerns about the financial sustainability of the sub-sector.

In response to the challenges facing the Palestinian HE sub-sector, the Palestinian Ministry of Higher Education and Scientific Research has developed an overall higher education strategy1 and is now proposing a more specific financing strategy for the sector as a whole. The main purpose of the strategy is to create a more effective, accessible, efficient, sustainable and accountable higher education system.
__________
1 Proposed Direction for Palestinian Higher Education: A Vision for the Future (October 1999)

In developing the strategy, a fundamental reality was acknowledged, namely, that the level of public financial support for Palestinian higher education is not currently, nor likely to be in the foreseeable future, sufficient to ensure the financial sustainability of the system as it currently exists. Therefore, major reforms are being proposed so that public funds are targeted in ways to improve what will remain a largely public not-for-profit higher education system.

Those principles mean that the global philosophy of the strategy is incentive-based rather than regulatory.

The Council of Higher Education (COHE) and the relevant ministries and stakeholders will be responsible for establishing high priority Human Resources Develpment (HRD) needs. They will elaborate a long term human resources development strategy, and will identify short and medium term priority needs using information on graduate employment and recent trends on labor markets. Priorities will be adjusted at intervals on the basis of new evidence on labor markets.

In priority fields of study, fees will be subsidized through vouchers funded by the PNA, granted to all students fulfilling specific income and achievement criteria, and cashed by the institution they select. Fees and vouchers will be set in relation to normative economic costs including recurrent and annualized capital costs. All students will be entitled to apply for a loan to help them finance their fee. Loan beneficiaries will be selected on the basis of achievement and income. A limited rate of interest covering administrative and insurance for repayment costs will be charged. Repayment will start only after graduates get a job and the repayment period will be such that no graduate will be charged more than 10 percent of his/her income. The student loan scheme, which might grant new loans in the order of US$4 to 5 million in 2005/06 and US$7 to 8 million in 2010/11, should be funded through grants and soft loans, and the PNA will contribute to it to a limited extent.

The PNA will promote quality improvement and capacity expansion, especially in priority fields, by partially funding competitive institution projects responding to specific criteria. The PNA will also promote research in key areas related to national development by partially funding competitive research projects responding to specific criteria.

In order to strengthen institutional management, MOHER will develop a plan including the establishment of a HE management information system, incentives to attract qualified staff, as well as in-service training of existing staff.

A Budget Tradeoff Model has been designed to assess the consequences of alternative options concerning admissions, staff, premises and equipment needs, priority areas, fees and vouchers levels, and student loans characteristics, on:
• PNA total contribution and its distribution by main component; and
• HE institutions’ financial balance.

Various scenarios have been built to test the sensitivity of PNA’s contribution and HE institutions financial balance to changes in the main parameters. A ‘Base Scenario’ showing what might be the main policy options and corresponding financing structure of HE in Palestine in 2005/06 and 2010/11 has been identified and is proposed for policy dialogue.

The following conclusions may be drawn from the various scenarios: Those conclusions suggest the following lines of action: A series of administrative and regulatory measures are needed to support and implement the policies outlined above. They include:
MOHER will take into account that the pace of implementing this strategy might need a transitional period to shift from the traditional financing mechanism. However, it is important that a series of concrete steps be taken in 2002 to demonstrate the viability of the strategy. Six steps are required to accomplish such a demonstration: Since the reform of higher education implied by the strategy will have significant consequences on HE internal and external efficiency, quality, financial sustainability and equity, it is urgent to start implementing it as soon as possible. In the present context of financial strains, however, implementing the strategy requires external resources which should be earmarked to components vital for its success, such as:


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