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November 28, 2007

More on IMF Annual Meetings Performance Budgeting Seminar

Posted by Marc Robinson

The Fiscal Affairs Department organized a seminar on performance budgeting at the IMF/World Bank Annual Meetings. The seminar, on 20 October, focused on international experience with performance budgeting, including the key features and variants of performance budgeting, key success factors and preconditions, and its appropriateness for countries at various stages of development. It was chaired by Teresa Ter-Minassian, FAD Director. Speakers were Sri Mulyani Indrawati, Minister of Finance, Indonesia; Robert J. Shea, Associate Director for Management, Office of Management and Budget, USA; and Marc Robinson, FAD Senior Economist. 

This Blog posted a summary of remarks by Sri Mulyani Indrawati, Minister of Finance, Indonesia, on November 9, 2007. This posting summarizes other portions of th seminar.

In opening the seminar, Mrs. Ter-Minassian stressed the potential benefits of performance budgeting not only in improving expenditure effiency, but also in indirectly contributing to improved fiscal discipline. She noted that there has been a massive wave of international interest in performance budgeting over recent years – something of which FAD has been very aware because of the number of requests from member countries for technical assistance and collaboration in the area.

Overview

Marc Robinson, editor of the new FAD book Performance Budgeting: Linking Funding and Results, discussed some of the key issues which face countries considering the possibility of introducing performance budgeting. These include: Is the time ripe for such a move? What type of performance budgeting to adopt? How to ensure that performance budgeting actually works to improve expenditure efficiency? What type of implementation strategy is needed?

On the question of the type of performance budgeting, Marc pointed out that there were a range of models. The most basic is program budgeting, the key aim of which is improved expenditure prioritization. Other models of performance budgeting aim to create an even tighter link between funding and results, in order to pressure agencies to boost their performance. An example of this is the setting of performance targets linked to the budget, as in the UK Public Service Agreements. Another example is the “purchaser-provider” model under which government pays its agencies “prices” for the outputs they deliver. The program budgeting model is somewhat less difficult and demanding than the other versions of performance budgeting. Moreover, some of the more “advanced” models have limited applicability. For example, the purchaser-provider model works well in certain sectors (e.g. as a model for funding public hospitals), but does not provide an effective basis for linking funding to results in the government budget as a whole.

Although program budgeting is the least demanding form of performance budgeting, it is still  not easy to make it work. Programs must be defined and costed properly, and the right type of information about program performance developed. Beyond that, experience demonstrates that only with major accompanying changes to the budget process will information about the costs and benefits of programs be actually used to improve expenditure prioritization. Requirements include:

  • creating specific “strategic” processes during budget preparation to set expenditure priorities;
  • routinely review the effectiveness and efficiency of existing (“base”) expenditure; and,
  • changing the role of the finance ministry to ensure that it has a policy analysis capacity as well as an accounting and economic analysis capacity.

Political commitment – and a real political interest in the effectiveness of expenditure – is crucial. It is also essential to relax other expenditure rigidities which might otherwise make it impossible to use program budgeting to shift limited public resources from low to high priority areas. In particular, civil service employment rigidities which make it impossible to reduce government employment in areas of ineffective or low priority expenditure need to be addressed.

Performance budgeting is not for everyone. Before countries decide to introduce it, they need to be sure that other budgeting basics are in place. There is, for example, no point attempting to introduce performance budgeting in a country where the government and ministry of finance exercises only weak control over the level of spending of line ministries. The other key issue, implementation strategy, is one of the many questions addressed in the FAD book, referenced above.

Marc described FAD’s extensive role in delivering technical assistance and working in collaboration with countries across the world – ranging from OECD nations to middle and even some low income countries – on performance budgeting issues. Often this takes the form of short missions of IMF experts. Sometimes, a series of visits by current or former finance ministry officials with extensive experience in this area are arranged. Enquiries from ministry of finance officials in interested countries about the possibility of such collaboration are welcomed (and can be addressed informally in the first instance to either Thanos Catsambas – tcatsmabas@imf.org – or Michel Lazare – mlazare@imf.org).

US Program Assessment Rating Tool

Robert Shea, Deputy Director of the U.S. Office of Management and Budget, described the most recent major US performance budgeting experiment, the Program Assessment Rating Tool (PART), which he leads. PART is a systematic methodology whereby the performance of all US federal government programs has been rated, assigning ratings of “Effective”, “Moderately Effective”, “Adequate”, “Ineffective” or “Results not Demonstrated”. (The last of these ratings is used when there is not enough information to make a judgment about program performance.) PART was introduced at the start of the Bush presidency, as part of the President’s Management Agenda. From 2002, when the rating process was kicked off, approximately 20 percent of programs have been rated each year.

PART comprises a set of 25 questions covering matters such as:

• Is the program’s purpose clearly and is it well designed to achieve its purpose?
• Is the program well managed?
• Does it achieve its goals?

The PART assessments are carried out by officials of the US finance ministry (the Office of Management and Budget). When carrying out assessments, they make full use of all available performance information, including performance indicactors and program evaluations. PART therefore builds upon, and relies upon, the long US history in the development of performance information.

PART is expressely intended to inform the allocation of resources between competing programs in the budget which the president recommends to Congress. PART was also intended to give more ‘bite’ to the performance-oriented management requirements which had been mandated in the Government Performance and Results Act of 1993. However, a problem has been the limited buy-in of Congress.

PART program ratings are made public, and can be found on a website (ExpectMore.gov). They demonstrate a clear tendency to improved performance over the six years to date. Particularly interesting is the large drop in the percentage of programs receiving the “Results Not Demonstrated” rating. This is because PART has put pressure on agencies to substantially improve their performance indicators and program evaluation.

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