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October 04, 2007

Making Performance Budgeting Work: New IMF Book

41m8or4rrxl_ss260_ Member countries will find valuable advice on how to reform their budgeting practices to improve the effectiveness and efficiency of public expenditure in a major new work on performance budgeting produced by the Fiscal Affairs Department. The book, Performance Budgeting: Linking Funding and Results (500pp), came off the presses of the top UK publisher Palgrave Macmillan in September.

Edited by FAD staff member Marc Robinson, the book contains a comprehensive treatment of contemporary performance budgeting practice and theory. In a series of thematic chapters and case studies, the book discusses:

  • The key forms of performance budgeting which have been implemented around the world—how they differ, and what they have in common points.
  • Lessons from the experience of governments around the world—ranging from OECD nations to developing, middle-income and transition countries—about what forms of performance budgeting work, under what circumstances, and with what implementation strategies.
  • How successful performance budgeting can improve aggregate fiscal discipline.
  • The information requirements of performance budgeting, and
  • The links between performance budgeting and other budgeting and public management reforms.

Many of the contributors to this work are leaders in performance budgeting implementation in their countries. Others are respected academics and technical experts from the International Monetary Fund and other international organizations. Countries covered in the case studies include the UK, USA, Australia, France, Chile, Spain, Russia, Colombia and Ethiopia.

One major focus of the book is performance budgeting as a tool for improved expenditure prioritization—that is, for helping to shift limited public resources to the services of greatest social benefit. A key finding is that this type of performance budgeting will only work if the budget process is fundamentally changed so that top politicians and bureaucrats systematically consider expenditure priorities when formulating the budget. This means more than just considering the priorities for new spending. It requires also having mechanisms to systematically review existing spending programs to identify what is ineffective and low priority and can, therefore, be cut. This is what countries such as the Chile and the United Kingdom have successfully done, and the United States is currently attempting to achieve with its Program Assessment Rating Tool instrument. Conversely, it is a mistake to believe that merely changing the budget classification and developing performance indicators will in itself improve the allocation of resources in the budget.

The book also focuses attention on recent performance budgeting models which have attempted to build an even stronger link between funding and results so as to put strong pressure on public sector organizations to deliver better results. These models include:

  • Budget-linked performance targets: the best example of which is in the UK, where tough performance targets (e.g. for improved student literacy and reduced rates of heart disease) are set as part of the budget process.
  • Purchaser-provider models where governments pay public sector agencies for services delivered as if they were businesses delivering a product under contract.

The book analyses these models not only by looking at their track record, but also through a systematic theoretical treatment of the relationship between results and resources. One conclusion of this analysis is that the purchaser-provider model is only appropriate for some types of public services (e.g. hospital services) and should not therefore by applied to the government budget as a whole. In respect to budget-linked peformance targets, experiences suggests that under the right circumstances—particularly, with real political commitment—these can work, and that fears about adverse effects on unmeasured aspects of performance may be somewhat exaggerated.

Another major focus of the book is the practical requirements for the successful implementation of performance budgeting. These include the information about the costs and benefits of delivering outputs and outcomes, preconditions ranging from basic good practice through to the quality of governance, and the best approaches to sequencing reform. Closely related to this is the question of what types of countries can be considered ready for the introduction of performance budgeting.

This important book is a direct response from FAD to the huge surge of demand it has seen over recent years from member countries for technical assistance in the design and implementation of performance budgeting.

Posted by Marc Robinson

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