Chapter 6. Financing higher education in Kazakhstan

Increasing system effectiveness

A variety of approaches can help steer higher education towards more effectively meeting public policy objectives. These approaches will serve as a reference later in this chapter for the analysis of higher education in Kazakhstan.

Increasing system efficiency

Efficient financial policies will avoid waste, enhance cost-effectiveness and be responsive to changing needs. The next four criteria address these issues.

Levels of investment in higher education

Kazakhstan’s public spending for education stood at 3.6% of Gross Domestic Product (GDP) in 2014, with spending for higher education representing about one-tenth of this, or 0.3% of GDP. In absolute terms, public higher education spending stood at about KZT 133 billion, or roughly USD 400 million at mid-2016 exchange rates. These levels of investment as a percentage of GDP are substantially lower than in many peer countries and far below the average investment in OECD countries1 (OECD, 2015).

Private funds, which flow primarily through tuition fees, account for the largest share of financing for higher education in Kazakhstan. In particular, private funds are the predominant source of revenue for private institutions, where 88% of students are self-financed or supported from non-public sources. Even at public institutions, though, more than half the students (51.4%) are self-financed. Overall, private spending on higher education in Kazakhstan represents about 0.7% of GDP: the addition of private spending thus still does not bring the country up to levels anywhere near those of most of its peers or aspirational peers.

Public funding of higher education will be the prime focus of this chapter. The percentage of GDP allocated as public funding to education is a relevant indicator for the policy makers. However, absent an analysis of how money is spent or of how money might be spent more productively, it does not provide much policy guidance. Simply spending more is unlikely to advance national objectives.

In higher education Kazakhstan’s current allocation of public resources is concentrated on three objects (Figure 6.2):

• providing state tuition grants and stipends for students with high scores on the Unified National Test who enrol in selected academic programmes

• supporting international study through the Bolashak programme and other related institutional activities

• supporting student grants and other expenses at Nazarbayev University.

Figure 6.2. Overview of the public higher education budget in Kazakhstan in 2015

Sources: Ministry of Education and Science of the Republic of Kazakhstan, Statistics (2015).

Public funding finances capital improvements – primarily, but not exclusively at public institutions – and it is also the principal source of support for research and development. As noted in Chapter 5 of this review, funding for research and development in Kazakhstan, despite recent growth, remains quite small in comparison to most other countries.

The nation’s financial strategy for higher education has been focused on two over-riding objectives – internationalisation and financial support for the most academically able students. These objectives are clearly central to broad national goals for higher education, but they concentrate resources at the top of the system. It is unlikely that these kinds of targeted investments will by themselves yield the results needed for the nation as a whole. Additional priorities warrant attention and greater financial support.

Many areas of the instructional component of higher education could be strong candidates for additional public investment, but three stand out as priorities based on the OECD review team’s observations and on previous studies of education in Kazakhstan:

• Faculty compensation. According to the National Report on the State and Development of the Educational System of the Republic of Kazakhstan, salaries in education at every level, including higher education, fall below the national average (JSC Information-Analytic Center, 2015a). Because educational attainment is high among employees in the education sector, the salaries of educators are almost certainly below the compensation for workers with similar levels of knowledge and skill. Kazakhstan cannot achieve a world-class education system without attracting and retaining highly talented people as teachers and researchers. More competitive compensation is an essential step toward achieving national educational goals.

• Tools for assessing quality and improving instruction and student learning. In the 20th century, and especially in the United States, multiple-choice tests and measurements were used to identify students likely to be successful in higher education. While these instruments have become quite sophisticated in design, they are increasingly falling out of favour for a number or reasons, including their inability to assess problem-solving abilities, creativity, and critical thinking; the potential for some students to improve test scores through coaching on test-taking skills without actually achieving high levels of knowledge and skill; and their inadequacy for helping students and teachers improve student learning. Such assessments are also a weak basis for assuring the quality of instruction in colleges and universities. Accordingly, multiple-choice examinations are increasingly being abandoned or supplemented by assessments that emphasise the direct examination of student work in terms of more complex and authentic learning objectives.

• In Kazakhstan, multiple-choice examinations are being used as a high-stakes basis for university admission and eligibility for state grants, and as a quality assurance indicator of the attainment for graduating students (see Chapter 3 for more detail). These examinations do not attain the level of quality of the multiple-choice tests traditionally used for these purposes in other countries – and in any event, highly respected institutions around the world tend not to rely solely on such tests for important decisions. Better assessments of student learning (including better standardised tests) are needed in Kazakhstan to improve learning and enable more robust quality assurance. The costs that would be involved in this are comparatively low, and public investments would pay substantial dividends in terms of national goals.

• The net price of higher education. Tuition and fees at public and private universities in Kazakhstan represent a substantially higher fraction of per capita GDP than in most countries. Current policies now provide free higher education for approximately 30 000 students through state grants, but this represents only about one-quarter of the cohort of students who complete the 11th grade. Thus, most students in higher education must pay both living expenses and tuition and fees. As Chapter 3 outlines, there is a lack of financial assistance to help students meet these expenses. It was reported to the OECD review team that private costs undoubtedly prevent qualified low- and moderate-income students from enrolling; they are likely also a factor causing many who enrol to drop out without completing a credential.

Reducing the net price of higher education for those who face affordability challenges is not the same as reducing posted tuition fees. Rather, it implies targeted investments that can achieve real incremental gains – helping students who could not otherwise attend higher education.

Resource allocation mechanisms: support for instruction and access to higher education

The principal governmental mechanism for supporting higher instruction is through “state grants” that are awarded to a set number of students and are allocated among academic programmes throughout the country. Students receiving a state grant receive full tuition payment plus a stipend to cover their living expenses.

While the procedure for system-wide grant allocation was not completely transparent to the OECD review team, interview evidence suggests that institutions bid on new state-funded spots, and that state and national institutions currently control the majority of these spots. Some private institutions reported to the team that they “did not participate” in the state grant system. At any rate, while students at both public and private institutions are in receipt of state grants, a much larger percentage of students attending private institutions pay their own fees. These students (like students at private institutions overall) are often concentrated in areas where state grants are comparatively rare (e.g. social sciences and law).

Students can obtain a state grant based on their score on the Unified National Test (UNT) or the Complex Test (CT), and on their willingness to pursue a degree in a field to which a specified number of state grants is allocated. The use of competition for the allocation of resources is a common feature of budgeting in Kazakhstan. The provision of state grants to students with the highest scores on the UNT who apply to specific programmes of study is the most prominent and significant of these competitions. Research grants are also awarded on a competitive basis. The competitive allocation of research funding has been consistently encouraged as an effective budgetary strategy, but recent reviews have questioned the state grant system as it exists in Kazakhstan (OECD, 2007; Nazarbayev University Graduate School of Education, 2014). It is useful to explore the reasons for such conflicting advice.

Employing a competitive peer review process for awarding research grants is widely considered to be an effective way of allocating limited resources. Normally the proposed research is unlikely to be pursued without financial support. The effort of preparing a proposal builds the research capabilities of those applying, even if they are not awarded a grant in the current round. The judges of the competition can also assess the potential value of the research as well as the capabilities and motivations of those preparing the proposal.

The Kazakhstan programme of state grants has some similar characteristics, but there are offsetting considerations. This programme provides very generous support to students with high scores on the UNT and who apply to academic programmes for which state grants have been allocated. The use of an objective test reduces the risk of favouritism and the appearance (though perhaps not the reality – see Chapter 3) of unfair advantage. The programme may induce some students to stay in the country for higher education who might otherwise go elsewhere – although it was reported to the OECD review team that families which have sufficient means often prefer to send their children to study abroad. The programme also steers students toward fields that are deemed a state priority. Inefficiencies, opportunity costs and in some cases perverse incentives may be offsetting the value of these two outcomes.

The state grant is inefficient to the extent it spends public money with limited influence on student behaviour. The grant is certainly not the only factor motivating academic achievement, which has many intrinsic and extrinsic rewards on its own account. In many countries, nearly all high-achieving students whose families are able to pay for higher education enrol and pay their own way without state support: the financial and social rewards of a higher education credential are sufficient motivation for enrolment. High-achieving students often do receive scholarships and grants to recognise their academic merit, but unless they can demonstrate financial need they rarely have their full tuition and living costs paid.

Kazakhstan’s approach to funding students is inefficient because it forfeits the opportunity to encourage the higher education enrolment of academically able, lower-income students who have lower UNT scores. Every able student who fails to enrol in higher education or drops out because he or she cannot afford to pay for it is a loss to the nation. Both the weaknesses of the UNT as a measure of academic potential, and the sharp distinction it makes between students just above and just below the cut scores for state grants, contribute to these opportunity costs.

Finally, some of the employers interviewed by the review team suggested that students choose academic majors based on the probability of receiving a state grant, rather than on the basis of their interests. These students then become unmotivated workers in internships associated with their academic programme, but they cannot transfer programmes without losing their grant. The “steering” of students toward fields of study that may not be intrinsically of interest to them is unlikely to be productive in the long run. It is more likely to produce a waste of instructional resources and of the student’s time, and may contribute to non-completion.

In summary, Kazakhstan’s decision-makers should review five central issues concerning state grants:

• The number of grants may be smaller than justified by the nation’s education needs.

• Although there are some set-asides for vulnerable groups and low-income students, grants are typically provided without any consideration of financial need. An appreciable number of lower-income students without grants, but who would be able to succeed in higher education, are likely not enrolling in academic programmes.

• The amount of the grants, full-tuition and fees plus a stipend, is almost certainly higher than what is needed to motivate the enrolment of higher-income students, and it is expensive for the state.

• Tying the grants to a specific academic programme may cause students to choose fields of study for financial reasons rather than their actual interests, and it locks them into a choice that might not persist as they cannot easily change.

• Scores on the Unified National Test may not be the best, fairest predictor of academic ability and postsecondary success.

These issues involve judgments about financial need; the ability to benefit from higher education; the fairness of the current system; the likely influence of the current state grant policies and practices on student behaviour; and about whether it is truly feasible to anticipate future labour market needs and meet them by allocating places in a higher education system. Other countries have addressed these issues in a variety of ways – some with income-based loan repayment systems, some with a combination of merit-based and need-based grant aid, some with combinations of loan and grant programmes (OECD, 2008; Johnstone and Marcucci, 2010).

Most countries have found that student responses to real signals in the labour market work as well or better than central planning or heavy-handed incentives that seek to match labour market supply and demand. Fairness of access, fairness in pricing, support for academic ability and affordability are all clearly relevant issues for this policy discussion. Of course, no country has found a perfect solution to these complex issues. Continuing evaluation of the effectiveness of the current institutional funding system in Kazakhstan, and a willingness to explore improvements, should thus be important priorities for policy makers.

Functional and dysfunctional uses of formulas

The Government of Kazakhstan, like most governments, takes both formulaic and non-formulaic approaches to allocating higher education funding. They include, for instance, decisions about whether to build facilities or whether to change the status of a higher education institution. It is evident that many decisions about allocations within the system are made by formula, predetermined by policy, or governed by law. The OECD review team met some institutional leaders who argued that particular laws or formulaic policies are impractical, unfair, or unworkable. The team also met many more, though, who simply accepted the law and rules as they exist, and emphasised that the rules were being faithfully observed. Eventually, such non-critical compliance can work against systemic effectiveness.

The current budgetary system in Kazakhstan has a number of explicit categories that distinguish funding for different purposes, but these differences sometimes appear to be based on coarse-grained decision rules that are applied in a mechanical way. For example, the pay for faculty and all staff at national universities is 1.7 times the pay for faculty and staff at state universities in similar job classifications. Although legitimate justifications for differential salaries may exist, it seems unlikely that every position of every kind in a national university is worth 70% more than similar positions in a state university. As a result of this policy, substantially different amounts of funding are provided for undergraduate and master-level instruction at national universities compared to other universities. The basis for these differences appears not to be well understood among universities, and it is difficult to believe that they actually reflect differences that would emerge if salaries were negotiated in an open market for each university. These differences thus represent an inefficient allocation of resources.

Allocating resources to priorities and assessing effectiveness

At the national level, Kazakhstan’s budgeting for higher education has demonstrated both a commitment to innovation and a vision for a better future. The creation of the Bolashak programme and Nazarbayev University are bold initiatives to leverage the resources and expertise of the international community to improve higher education in Kazakhstan. Ongoing efforts to enhance the quality of research, to integrate research and teaching in national universities, to expand early childhood education and improve secondary education, to encourage students to study in regions where there are employment needs, and to reduce the cost of vocational education are likewise indicators of responsive budgeting to meet national priorities.

Thus far it appears that the principal financial strategy for improving and expanding higher education has been to undertake new initiatives, largely as additions to the existing system. These include promoting the development of the private education sector and the creation of the Bolashak programme, Nazarbayev Intellectual Schools, Nazarbayev University, etc. Adding new initiatives is a natural strategy for a system of education seeking rapid improvement.

Careful evaluation of new initiatives can lead to a refocusing that generates improvements over time. This has been occurring in Kazakhstan, and it is likely to become increasingly necessary as the nation seeks to diversify its natural resource based economy. Examples include the “optimisation” of the private sector, and the refocusing of Bolashak scholarships to emphasise graduate education after the creation of Nazarbayev University.

Kazakhstan could further improve the effectiveness of the higher education sector by continuing the careful evaluation and refinement of new initiatives, and by probing more deeply into the effectiveness and efficiency of long-standing practices. For instance, while it is widely hoped that the contributions of Nazarbayev University will significantly benefit the entire educational system, it is also clearly acknowledged that its financial model cannot be replicated in other places. Furthermore, the OECD review team had trouble identifying concrete instances of how the Nazarbayev University model has been used to make substantial improvements at other universities in Kazakhstan. This calls into question whether the significant investments that are being made in the new university are generating the benefits that might be expected of them.

The National Report on the State and Development of Educational System in the Republic of Kazakhstan (JSC Information-analytic center, 2015b) offers another example of a practice that would benefit from evaluation and possible reconsideration. The report employs an elaborate rating of educational performance in each region of the country based on a number of factors. While it produces rankings from year to year, it is not evident from the report why performance varied from year to year. Nor does the report provide much analysis explaining the differences in performance among regions. It would be necessary to explore the underlying causes of these differences in order to use data to improve the performance of institutions and the system as a whole. Measuring performance to develop rankings is not enough to improve performance, especially when the validity of the measures and the causes underlying them are not fully understood.

Finally, the extent of centralised control over higher education in Kazakhstan is a damper on initiative and creativity at the institutional level. At the national level, goal setting and a spirit of experimentation have resulted in significant actions to improve the system. The OECD review team observed a similar level of energy and initiative at a few institutions and among some faculty, but it was not widespread. Frequently when asked about certain institutional practices, the response was “we follow the law.” Providing space for priority setting and reallocation at the level of schools and colleges should lead to system improvements.

Building the capacity of the system

Kazakhstan’s recent initiatives, especially the Bolashak programme and the creation of Nazarbayev University as a comparatively autonomous institution, are investments in developing the capabilities of education professionals. The Bolashak programme sends some of the very strongest students in Kazakhstan abroad for their education. Nazarbayev University provides in-country higher education for strong students; it draws on advice from internationally respected universities and employs faculty from abroad. Nevertheless, realising the nation’s educational aspirations will require an intentional strategy to develop a much higher-level of administrative and professorial capability throughout the higher education system.

The Bolashak programme appears to be infusing an international perspective into higher education and other sectors of Kazakhstan; people to whom the OECD review team spoke generally considered it successful. For the future, the challenge will be to create the conditions necessary to retain the Bolashak grant recipients after the completion of their mandatory service and to integrate these talented and well-trained individuals into leadership roles in the country – including in the higher education sector.

For its part, Nazarbayev University is clearly too expensive to be a scalable model for other universities in Kazakhstan. Moreover, given the limitations on the current public education budget, the university generates significant opportunity costs for the rest of the system. It is too early to know whether the lessons learned from developing this university will successfully benefit other universities in ways that are financially feasible. Without question, though, additional resources will be required in other parts of the higher education system in order to meet national goals.

Kazakhstan clearly has the resources and potential to achieve its educational goals: many talented individuals work in the system. Promising seeds have been planted and the potential for them to grow is evident. The maturing of the system, however, will take time and call for some risk-taking. It will require that policy makers give faculty and staff the freedom to do things differently. The maturing of the system will also require professional development opportunities and changes to provide more discretionary authority at the campus level. Further delegation of the responsibilities previously or currently held by the MESRK to institutions and boards of trustees is likely to advance progress.

A rapid, dramatic transformation of Kazakhstan’s higher education system is neither desirable nor possible, but the inertia present in all organisations will slow or even prevent positive changes unless concrete, deliberate actions are taken to achieve them. Changes in financial policy as well as in the governance framework will help build capabilities of the people in the system.

Achieving efficiency and assuring integrity

Achieving efficiency and assuring integrity are two facets of a fundamental purpose – the desire to use resources well and avoid their deliberate or unintentional misuse.

The role of the private sector

The creation of many private higher education institutions in the post-independence period was initially part of a strategy to rapidly increase higher education opportunities and reduce youth unemployment. Most of the revenues of these institutions were, and continue to be, provided through self-paid student tuition and fees. By 2005, private institutions accounted for 61.4% of the institutions in Kazakhstan, and 46.3% of postsecondary enrolment (OECD/World Bank, 2007).

Over the past ten years, there has been a sharp decline in the number of institutions in Kazakhstan. This stems in part from an effort “to improve quality and efficiency and assure diversity” in the system of higher education (Nazarbayev University Graduate School of Education, 2014). The reduction occurred almost entirely in the private sector where the number of institutions fell from 130 in 2004 to 77 in 2014 (JSC Information-Analytic Center, 2015a). It was reported to the OECD review team, though, that the reduction in the number of private institutions is more apparent than real: much of it stemmed from institutional mergers, not closures. The share of students studying in private institutions has not fallen. In fact, it has increased.

Although most OECD countries rely primarily on public institutions to provide higher education, the private sector plays the predominant role in Japan and Korea. It also plays a significant role in the United States, where approximately 30% of enrolments are at private institutions. In the past quarter century, Kazakhstan has gone from a higher education system that was small but virtually entirely publicly owned and operated to one where most institutions and slightly more than half the enrolments are in the private sector. Without question, the growth of the private sector has created educational opportunities that would otherwise not be present. Private institutions are contributing significantly to the human capital of the nation. It is difficult to imagine the future of higher education in Kazakhstan without a significant role for the private sector, but how that future unfolds is an important question.

Policy deliberations on the future will need to consider the respective roles, responsibilities, and privileges of public and private institutions. Are their responsibilities parallel and similar or somewhat different and distinctive? Is the national interest served by these sectors playing complementary or competitive roles? If the former, in what ways and along what dimensions should they be distinctive and complementary? If the latter, in what areas should they compete and what should be the ground rules for competition?

From the point of view of finance, the following questions arise: what should be the role of the state in financing public and private institutions? Should there be different criteria for public and private institutions? Should the state provide more assistance to students attending institutions with higher costs, be they public or private? Should different kinds of assistance be provided to students attending different institutions?

It is evident from the review team’s visits to public and private institutions that these questions are very much on the mind of educational leaders in both sectors. The seeds of a vigorous, competitive public debate between the sectors have been planted.