Ukraine says goodbye to a Soviet era funding formula

Higher education institutions in Ukraine used to get public funding through an historic principle. Incremental budgeting changes for universities were contingent solely on the year-to-year variation in state-subsidised student numbers. The permissible student-faculty ratio per field of education, level and mode of study governed institutional staffing arrangements in line with respective state regulation.

This regulatory framework has long been blamed for irrational institutional behaviour and preventing universities from exercising autonomy over their staffing. For one thing, the financial incentives prompted universities to keep the student body growing regardless of their capacity or students’ academic performance.

According to the 2019 U-Multirank country note, Ukrainian universities are placed well above average when compared to their peers on student graduation rates. While low drop-out rates could be a consequence of student-centred strategies, they are more likely to result from the retention-orientated public funding mechanism.

The top-down policy with regard to academic recruitment has also had a negative impact. The obligation to have university appointments confirmed by the Ministry of Education and Science of Ukraine brought about a deterioration in institutional managerial efficiency.

The need to switch from maintaining the country’s extensive university network to rewarding quality education providers has brought a discussion about the introduction of performance-based funding to Ukrainian higher education policy.

Quality over quantity

The date 24 December 2019 marked the approval of the performance funding formula for higher education in Ukraine. The formula will allocate public funding to higher education institutions based on their teaching, research and international performance.

Following good practice for performance-based funding mechanisms, the formula is based on the three-pillar model. The stable funding pillar covers universities’ operational costs and allows them to function in a relatively safe environment. The performance component rewards higher education institutions’ actual achievements in their core activities. The third pillar acts as an emergency fund to support targeted institutional capacity building and cover unpredictable costs.

While the student body remains one element of the formula, its relative share is cut substantially, meaning it no longer holds sway over public funding allocation in Ukraine. Since last month state resources for higher education institutions have been allocated based on a number of output-oriented indicators. These include, among other factors, the amount of third-party research funding universities attract and their presence in international rankings.

Diversified institutional funds that come from international research projects, commercial contacts and scientific expertise will be treated as a valid proxy of the trust in which Ukrainian higher education is held.

Putting this measure into the new public funding set-up is also expected to facilitate university-business collaboration. As is evident from the recent Global University Engagement Monitor national report, the latter is positively perceived by higher education managers and knowledge transfer professionals.

Universities are likewise to be rewarded for getting into the Shanghai Jiao Tong University’s Academic Ranking of World Universities or reaching the top 1,000 positions in the QS World University Rankings or the Times Higher Education World University Rankings. Currently, six Ukrainian universities are high international performers and will, therefore, be incentivised in this way due to their exceptional quality.

These indicators will be supplemented by the institutional graduate employment indicator, following the launch of the graduate national tracking system later this year. Should university graduates be employed in positions that require a higher education qualification, their alma mater will get a bigger portion of public funding than those institutions whose educational programmes poorly correlate with labour market needs.

Common issues with performance-based funding

The unequal distribution of benefits to already privileged agents, known as the ‘Matthew effect’, is widely regarded to be a common challenge for performance-based mechanisms.

To prevent this and encourage the transition of universities to the new funding rules, regional data will be applied to higher education institutions located outside the capital city of Kyiv. Given the large-scale student migration over the last decade, this decision is crucial to relieve potential problems for regional universities.

Another measure introduced to establish a sound framework for higher education public funding in Ukraine is sanctioning information asymmetry. Providing invalid or unreliable institutional data by universities is to result in non-refundable cuts of their annual lump sums. In this way, higher education agents are expected to demonstrate integrity and steer clear of gaming results, which is another frequent problem in performance-oriented funding systems.

The performance funding formula has been under discussion for the last five years, bringing together the expertise of policy-makers, national researchers, academic managers and civil leaders. As with even the most carefully planned policies, the formula might well require certain amendments when we see what unfolds in practice.

There could be a need to revisit data used or indicators to make them more representative of the institutional landscape. Yet the change of higher education funding principles in Ukraine is a clear sign of the long-awaited move from centralised state regulation to an evidence-based strategy based on results.

Kateryna Suprun is a state expert in the Analytics, Funding and International Relations Expert Group of the Directorate of Higher and Adult Education, Ministry of Education and Science of Ukraine, and a current Ukrainian delegate to the Bologna Follow-Up Group. She received an MSc as part of the Erasmus Mundus Joint Masters Programme in Research and Innovation in Higher Education (MARIHE) from Osnabrück University of Applied Sciences in Germany and Danube University Krems in Austria.