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October 17, 2007

Program and Performance Budgeting Enthusiasm in India -- IMF Training Course

Pune_2_4  An IMF training course in Pune for senior civil servants from India and around the region went into the varied experiences with this “second generation” budget reform. Making program and performance budgeting (PPB) work in the context of capacity constraints and politicians familiar only with traditional line item budgeting led to lively discussions with the 29 participants from India’s central and state governments, and invited representatives of other countries' ministries of finance.

The FAD's PFM 2 Division provided the training course in Pune from October 1-5, 2007. The team of presenters included Messrs. Holger van Eden and Justin Tyson (FAD), Mr. Jack Diamond (FAD panel of experts), and Mr. Aru Rassapan from the Center for Development & Research in Evaluation (CeDRE) in Malaysia. Mr. Sang Dae Choi (World Bank) provided a lecture through video-link on the Korean experience with introducing performance budgeting.

The 29 participants included three senior officials from India’s central government, 18 from state governments, as well as Ministry of Finance (MOF) staff from Pakistan, Bangladesh, Nepal, Sri Lanka, Maldives, Kenya and Tanzania. The course was organized jointly by the Joint India-IMF Training Program (ITP) in Pune, India and FAD. The ITP is a cooperative venture of the IMF and the Reserve Bank of India. Its facilities are brand new, fully compliant with the most modern training requirements, and able to house all participants in a very comfortable setting. Given the enthusiastic response, the course will be held again in Pune in July 2008. [Download Pune_Agenda.pdf]

Ever since the US President, Lyndon Johnson, announced the introduction of program budgeting in the US federal government in the 1960’s on national television as the next best thing since sliced bread, the expectations of this budgeting system have been very high. PPB would help politicians allocate resources to the most effective and efficient programs, and align with the political priorities of the government of the day. It would also help government managers use resources more efficiently and provide incentives to be flexible on how and with what human, capital and other resources to deliver desired societal outcomes.

Line item budgeting has been a tough adversary to vanquish, however. That is not only evident in developing world, but also in many OECD countries, where a performance orientation to budgeting has only been introduced with some success since the early 1990’s. Earlier attempts in the 1960s and ‘70s largely failed to undermine the incrementalism which is so enduring in government bureaucracies. For developing countries with problems running their cash-based line item budgets, the question is if taking the step towards PPB is really a first priority. The presenters argued that while countries need to make sure that the basics of good public financial management need to be in place, PPB can have important spin-offs. In many developing countries the rationale of using scarce resources efficiently is even more important than in the developed world. Moreover, important gains can be made by taking initial steps in introducing PPB. The introduction of a well-defined program classification can have important consequences for allocative efficiency at the macro-level, i.e. for letting Cabinet know for what purpose government resources are being spent.    

The lectures part of the course introduced basic concepts of program and performance budgeting (PPB) [ Download diamondoverview_of_performance_budgeting.pdf], such as program and program classification design, performance indicators and measurement systems, the use of evaluation systems and cost accounting under program budgeting, and the linkage of performance information with the budget process.

The course then turned to pre-conditions and sequencing of PPB implementation, including necessary institutional and cultural change to reap the full benefits of PPB. [Download van_eden_preconditions__prioritization_sequencing.pdf]

These lectures were combined with presentations on the performance budgeting systems in the UK, Malaysia, Singapore, and Korea. Presentations on the UK and Malaysia can be downloaded here.

Download tyson_uk_case_study_the_public_service_agreements_system.pdf

Download rasappan_implementation_strategies_lessons_malaysia.pdf

Exercises covered the topics of program design, program classification, performance indicators, and national (and state) implementation approaches.

Many of the participants indicated that the course was highly relevant for their work as the Indian central government has taken its first steps in developing PPB by requiring line ministries to present an “outcome budget”, in parallel to the traditional line item budget, as part of the budget planning process. This “outcome budget” does not really play a role yet in budgetary decision-making. State governments may follow the lead of central government in the coming years and a number of states as Kerala, Gujarat and Maharashtra are already taking independent initiatives. Participants from other countries aslo mentioned ongoing reflection on possible PPB reforms in thei home countries.

Posted by Holger van Eden

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Thanks, this was useful.

India state fiscal management reform initiatives supported by the United States Aid for International Development (USAID) since 2004 have addressed the budget reform issues in three of the Indian states-Karnataka, Uttarakhand and Jharkhand. The project has helped the three state governments in the preparation of ‘Program Performance Budgets’ (PPB). The project also undertook capacity building of the government officers in the piloted departments in the concepts, methodology of program performance budgeting. The state governments have been very keen on adopting the PPB. In the state of Karnataka eight administrative departments were helped in the preparation of PPB and the state government is currently in the process of extending it to all the departments and efforts to institutionalize these reform initiatives are on.

PPB in Jharkhand:
As a new born State , Jharkhand has a lot of scope of development in various segments. The Government of Jharkhand decided to work closely with the Jharkhand REFORM team to modernize and reform Fiscal Management.

As a part of the REFORM Project Program and Performance Budget (PPB) (also known as outcome budgeting) was introduced as part of the project thereby incepting reform in public expenditure management or budgetary aspects of the Government.
This was introduced to facilitate the government to transform its present budgetary system (Line Item Budget) into Program and Performance Budget (PPB) so that the Government of Jharkhand has a management tool for internal control that can serve as a self regulatory device at department, district and program levels. In the process, this will increase official accountability, effectiveness and transparency in daily departmental operations.

The other and most significant dimension of the REFORM initiative was of capacity building among the Government officials to make them self sufficient in drafting the PPB document and thus improving the fiscal health of the State.

The Government of Jharkhand (GOJH) has launched an initiative to ensure use of program and performance budgets (PPB) in all 24 of its district health offices. This initiative is being implemented by the Vistaar Project. The work plan calls for training secretariat-level National Rural Health Mission (NRHM) budget / program officers along with teams of 6-7 officers from each of the 24 NRHM district health resource centers. The PPB methodology will enable the Jharkhand NRHM program to improve its health service program delivery by enabling rational distribution of man power and work responsibilities across its various offices. PPB makes this possible as it allows for the monthly mapping and tracking of budget utilization by programs, subprograms, and schemes, which, in turn, helps managers to identify those programs and schemes experiencing time and cost delays in budget and work execution.

As of now the Project is working in five districts. Use of PPB will enable the districts to complete their inter-sect oral health plans for incorporation into the overall state health plan. At the state level, the PPB intervention will assist in tracking budget delivery against specific programs, sub-programs and outcome indicators.
USAID and the GOJH requested the Vistaar Project to continue support to the state of JH (starting with selected districts) in its adoption of a Program & Performance Budgeting (PPB) model within the Ministry of Health.
This activity follows up on the work begun by Project REFORM, a USAID project that ended in December 2008. The Project provides technical assistance to build capacity and support districts practicing this improved budgeting approach, which is endorsed and scheduled for scale up throughout various Ministries in the state and nationally.
The Project had Public Expenditure Reform as one of its segment. It dealt with the Budgetary Aspect of the State in which the Traditional Line Item Budget was to be transformed into Program and Performance Budget (PPB) also known as Outcome Budget.

PPB was initiated by training the departments’ officials and subsequently facilitating them in preparing the Performance Budget. The main target was to achieve good capacity building among the GOJ officials so that they extensively understand the Budget basics and can further train the GOJ officials on PPB.

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