3	Financial Requirements and Resources for the Future AKU
	3.1	General Observations and Prospects
	3.1.1	The longer-term development of AKU has been projected in Section VII above without much regard to likely financial constraints. We have envisaged AKU growing into new fields and activities without stunting the growth of what it already has. It will, on our projections to 2020 or 2030, be a much larger university than it is now, and with budgets that, even without allowing for inflation, would seem forbiddingly large in 1994. We have throughout our deliberations, however, given thought to the prospective costs of a worthwhile enterprise in each of the components we have proposed, and the likely resources that could be set over against these costs. In some cases we can foresee the possibility that the scale of a component could grow very far beyond the minimal scale of a worthwhile enterprise. Such a growth, say, e.g., in contracted services from a future IED, would in many respects be welcome, though it might raise questions of appropriate balance in the University. It is notorious that some parts of universities can be "money makers". We keep such possibilities in mind but our basic concern has been to project minimal requirements beneath which a component would not be viable or worthwhile. As we consider each component in subsequent paragraphs we will try to project what we think to be feasible scales and we shall give some attention to start-up requirements versus longer term needs.
	3.1.2	Projecting financial requirements over a period of two or three decades is a very uncertain undertaking. Our basic procedure has been to estimate the numbers of staff that would be essential to a viable and worthwhile enterprise, divide those numbers into locally and internationally recruited fractions, estimate personnel costs from these figures and augment these costs by fractions based on experience in different locations to provide for other costs of recurrent operations and capital costs. We are grateful for assistance from staff in Karachi in making some of these estimates. An effort to allow for inflation would have greatly increased uncertainties and we have eschewed doing so. We do note, however, that the "Baumol" principle, that costs of higher education tend to rise faster than general price levels, probably applies in developing countries as well as in rich ones, if quality is to be maintained.
	3.1.3	We have considered the likely resources that can be foreseen for each part of the future AKU, and most of the following exposition deals with the parts successively. But there are some general questions of availability and policy that deserve noting. We have already noted that some parts of the future AKU will be easier to finance than others. There will be parts that are relatively inexpensive; ones that can attract gifts and grants better than others; or that have better sources of income from services, contracts, licensings, or student fees. The governance of the University will need to ensure that the mission of the University is not distorted by the uneven availability of financial resources; even for components that may be largely funded from external sources some basic financial commitment from the University will be needed. Some broad principles of financial policy will need to be developed, dealing with such basic questions as : should the familiar principle of "each tub on its own bottom" be followed ? Or should some parts of the University be subsidised from central or other resources for longish periods ? Which parts of the University should be strongly endowed and with what priority ? What safeguards are needed against undue dependence on fees, service earnings, or quasi-commercial activities ? Under what circumstances can funding from a host government be accepted, while preserving AKU's autonomy ?
	3.1.4	In projecting the future design of AKU we have endowed it with certain general characteristics - in the uses of modern information technology, in superior educational methods, and in commitment to the advancement of women. We do not find it easy to estimate what these features of AKU may cost in the coming years but we will try to give some rough estimates after we have dealt with estimated costs and resources for the various components we have included in the future AKU.
	3.2	Requirements and Resources for Component Parts of the Future AKU
	3.2.1	The Faculty of Health Sciences
		As we have argued in Section VII C. 1, we expect the Faculty of Health Sciences to remain a very large part of AKU over the next quarter century, indeed probably the largest part of AKU by a considerable measure over the next quarter century. It is our view that the Faculty cannot afford to stand still while new parts of the University start but must continue to grow, and hence to pose financial challenges.
		The Commission has not undertaken to repeat the detailed financial projections for tliv Faculty that were a major part of the Medical Centre Committee's report. But we have tried to :
	(1)	make rough estimates of the scale of the health science enterprise in AKU over tbe coming decades;
	(2)	estimate the effects on both costs and income of the additional programmes that tilt. Commission is recommending in research, in health policy and management, and for broadening, the education of the students passing through tile Faculty; and
	(3)	anticipate the various sorts od' financial resources that may become available.
	3.2.1(A)	Future Requirements of Existing Programmes
		The Faculty of Health Sciences is no"' an enterprise with a recurrent budget of roughly $ 7 + million per annum, while the total budget of the Medical Centre, including the hospital, is roughly $ 30 million per annum. The Medical Centre Committee has projected some expansion in the hospital's services to the turn of the century, and we would think it likely that continued pressure toward becoming a broadly equipped tertiary care institution -and one in complex relations with the Aga Khan Health Services and other institutions - will continue in the opening decades of the new millennium. We have also concluded that there will not be a reduction in the teaching programmes in the Medical College or the School of Nursing; indeed there may be some expansion, though for reasons to be set forth below, we do not think this can or should be a large expansion. The future of the existing enterprise at AKUMC, even without additional programmes of the sort we are recommending, will evidently require additional resources that may be substantial. This general conclusion is reinforced by the conclusions of MCC.
		MCC made projections in which increased income from the hospital's services would make the hospital a net contributor to AKUMC's budget of as much as $ 1 or 2 million/ annum by the end of the century. We understand the policy to be to manage the hospital so that it maintains a net positive income from current operations. We also understand. however, that insufficient provision is now being made for replacement costs of buildings and other capital equipment and it was not clear from the MCC report when sufficient income would be available to make such provision. The projections of MCC showed new gifts and grants of the order of 62 million becoming available to AKUMC by the turn of the next century. These new funds would come from a 1994-96 capital campaign with the Ismaili community, targeted at $ 43 million, some $ 5 million from other donors and an estimated $ 14 million from international aid agencies over the period 1993-94. These funds would be needed : to reduce deficits in current operations in the Faculty of Health Sciences; to reduce the excessive use of endowment income, which is currently leaving insufficient provision for capital erosion by inflation; and to provide for capital expenditures that were required to sustain current operations or to provide for new activities recommended or approved by MCC. In the end MCC concluded that if proper provisions were made for protecting the endowment and providing for capital replacement, a gap between AKUMC's income and its expenditures would persist beyond the turn of the century.
		The implications we draw from these rather severely constraining prospects are that : AKUMC will need increased income in the near future and it will compete with other parts of the University both for new current income and endowment for the foreseeable future.
		We do not feel well-equipped to make serious projections of the financial requirements of the whole AKUMC over the next quarter century. Though we recognise the inescapable interdependence of the finances of the hospital and the Faculty of Health Sciences, we concentrate our attention on the latter. The largest item in the Faculty's budget is for personnel costs. In 1992 these amounted to 66% of the budget and were thought "likely to increase over the years, because of the need to retain and attract the highest quality faculty and staff." To observers from elsewhere, this fraction seems already unusually high, at least for general higher education costs as distinguished from those for health sciences; leading universities and colleges in the United States would show figures below 50%, with rich universities like Harvard and Princeton that provide large amounts of student aid, falling under 40%. The relatively low costs for facilities, supplies, and other costs in Karachi undoubtedly represent a benefit from a Third World location (though they may also reflect the insufficient provision for replacement costs that MCC noted). We think it obviously essential that the Faculty of Health Sciences maintain salaries and benefits that will attract a highly qualified and internationally diversified staff. Even if the predicted increase in the fraction of total costs does not occur, this would seem likely to imply rising costs per student in the future. If these and other cost increases amounted to 'a 2% per annuin increase, this would increase the present $ 7+ million budget to nearly $ 12 million over a twenty five year period, with no increase in the number of students. A modest, say 10%, increase in the student body would raise the total to $ 13 million per annum.
		Income for the Faculty in 1992 came from : (1) endowment income and gifts, 63%; (2) research and other grants, 21%; (3) tuition income, 12%, and (4) other sources, 4%. The Faculty is thus heavily dependent on endowment and gift income at the present time and there is apparent caution about the possibilities of raising the fractions of the budget that can be drawn from other sources. The Faculty may benefit in future decades from surpluses in the hospital's operations, but prudent judgements are that these will not be large in any case. Such dependency on income generated by the hospital might also be inimical to serving the multiple missions the Faculty has espoused. The possibility that income from research grants can be substantially increased is discussed at some length below; suffice to say here, that it will not be easy to raise the fraction of total income they presently contribute. The possibility of increased income from student fees is clearly present in the Medical School. Any institution that can admit only one in thirty five or forty applicants is in a strong position to charge much higher fees than it currently does. We believe fees ought gradually to rise over the coming years, with parallel efforts to raise funds for fellowships for talented students from poor backgrounds. The number of first degree medical students will remain small and hence the gains from increased fees from them will be limited. Furthermore, if graduate studies expand in the Faculty as we recommend and anticipate, they will probably represent a net loss; and, of course, we would expect that the fee income in the School of Nursing will not become important even if BScN and MScN programmes grow in attractiveness.
		The upshot of these observations is that the costs of the Faculty's existing programmes will grow over the next twenty five years in constant 1994 dollars to something approaching double their present level, say to $ 13 million per annum; and that sources of income other than endowment and gifts will contribute little more than a third of the needed increase. In rough estimate, endowment and gift income available for these purposes will thus have to double from its present level.

Page 1 2 3 4

[Previous] [Next]