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March 07, 2012

Improving the Quality of Governance in Poland Through Performance Based Budgeting

Posted by Lukasz Hardt1 and Maarten de Jong2

An interesting report on Performance Based Budgeting (PBB) in Poland was recently published by Lukasz Hardt (University of Warsaw) and Maarten de Jong (Erasmus University Rotterdam). The authors put emphasis on analyzing de facto mechanisms of PBB implementation rather than focusing only on de jure ones. In other words, they use sociological and politological approaches combined with some insights from recent studies on good governance. Therefore, instead of only studying the legal basis for PBB, they interviewed many key actors responsible for PBB implementation in-depth and sent web based questionnaires to civil servants in the Polish central government. The research was done not only in Poland but also in the Netherlands, since the authors claim that many lessons from the process of PBB utilization in that country can be used in Poland.

The authors make use also of many insights from institutional economics literature where there is a widespread consensus that institutions do matter for the efficient functioning of the socioeconomic system. Therefore, numerous authors claim that the fundamental factors for long-run economic growth are: a democratic and transparent state, an accountable public administration, inclusive society, and an efficient government. These principles form the basic premise of good governance. In the post-transition countries, like Poland, an efficient market system has been created together with the main elements of the civil society. Various state institutions are, however, still lacking or underdeveloped. One of the missing parts is efficient, result-oriented public management. This is confirmed by the meager position of Poland in governance quality rankings. Therefore, Polish public management should be geared towards fundamental change.

The authors of the study show that a desired change in public administration is to improve the quality of state governance by relying more explicitly on a managing-by-results approach. This may be achieved through the implementation of performance-based budgeting. The report treats PBB not just as an advanced budgetary procedure but as a prospective mechanism that can be used pragmatically in managing public administration. Therefore, PBB should not be considered as a budget format only (as it is used now in Poland) but as a continuous process of monitoring and evaluating public administration’s results and efficiency. Although Poland has made significant progress, in recent years, towards implementation of a performance-based budget, still there is much to be done. In particular, PBB should become more integrated in the everyday work of the public service. Simply speaking, after generating performance information, the data should be used as an important analytical tool for implementing various government strategies. Thus, the budgetary thinking should be intertwined with the strategic efforts of the government.

In order to increase the capacity of PBB as a management tool of public administration, the report proposes a change in the way it is utilized in the functioning of central government. First, the PBB process should be coupled with strategic thinking in the government. This can be achieved through strengthening the role of the centre of government in the PBB process. The authors propose the creation of strong ties between: the Ministry of Finance (MOF- as owner of the budgetary process); the Chancellery of the Prime Minister (the coordinating body also responsible for the strategic goals of government); and the Ministry of Regional Development (the ministry responsible for crafting EU Summary funded programs). Therefore, although technical issues of PBB should definitely stay in the MOF, the main goal-setting role for PBB’s functions and tasks should be realized by the center of government. Second, there is a need for a stronger political support for PBB. Here the authors propose an annual performance accountability debate in the Parliament during which the Prime Minister would present the state of realization of a number of the government’s key objectives by issuing a letter to the parliament. Last but not least, the authors suggest a set of pragmatic tools for making the civil society interested in PBB as well as for making the PBB efforts part of a broader reform agenda (to develop a more result oriented culture within government organizations). In the recommendation section of the report a list of changes for the PBB-oriented reforms is presented.

Apart from proposing various changes in the PBB process, the authors formulate some detailed insights on how these refinements can be delivered. First, the year 2012 is a good time for changes, since a new strategic framework for EU-funded programs is being prepared. Second, many on-going processes in the public administration, e.g., the better regulation (BR) agenda, can help in promoting a PBB approach. Third, external pressure from the EU on making spending EU money more result-oriented should prove PBB’s usefulness. Fourth, the report identifies the actors and stakeholders that are vital for PBB to become a management tool in public administration. In that respect the authors see a profound role for the Parliament as well as the Supreme Audit Office. Finally, in the era of Great Recession in the global economy PBB offers the potential for substantiating necessary spending cuts, adding measured performance as leverage in the public debate. The report’s recommendations are based on an extensive investigation into the main barriers the current PBB process in Poland is facing, as well as on case studies they undertook in the Netherlands and (to a lesser extent) in the US - where PBB is used extensively in public administration. Therefore, the authors were able to identify the implementation barriers rather than just de jure ones as in the majority of the existing studies on the PBB in Poland. This is particularly important since for the successful implementation of PBB not only the legal framework matters, but also the informal codes of conducts (norms of behaviour deeply embedded in administrative tradition) and various informal institutions in general. The report’s approach was able to identify such issues.

The report consists of four parts. First, a theory of good governance and performance based budgeting is presented. Then the authors describe in details the PBB as it is used in the Netherlands together with a set of cases describing how PBB is there applied in practice. Next they give a detailed diagnosis of the current state of PBB in Poland. Finally, the report offers a list of pragmatic recommendations of how to make PBB more efficient and thus increasing its contribution to better governance.

The report was financed by a research grant from Ernst&Young Better Government Programme. 

1 Assistant Professor at the Department of Economics, University of Warsaw, Poland (corresponding author; lhardt [at] wne.uw.edu.pl).

2 Researcher at the Erasmus University Rotterdam, the Netherlands.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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Comments

Interesting. See also the OECD report 'Performance Budgeting in Poland' (http://www.oecd.org/dataoecd/27/37/49071034.pdf) which was approved at last year's meeting of the OECD Network on Performance and Results.

Abstract:
Poland currently has a traditional budget system that is primarily based on
organisational units and control of inputs. But Poland is in the process of introducing a new budget system, the performance-based budgeting system, in order to improve public finance management and strengthen allocative and operational efficiency, multi-year budgeting, and transparency and accountability. Poland faces hard choices on how to harness the advantages of performance management while minimising the costs in terms of organisational capacity and funding. This article assesses the reform process to date, examines cross-cutting institutional, technical, and strategic issues, and provides a series of recommendations for each stage of the budget process: budget preparation, approval and execution, and reporting, accounting and audit.

We cite your interesting study in our report. Regards, Lukasz Hardt

While Legislative intervention remains a predominant factor to bring in political commitment and accountability for PBB at the national level, the efficiency and effectiveness of this initiative is critically dependent on engagement of the key stakeholders at all levels, including the Civil Society. The study rightly emphasizes the need to improve fiscal discipline through Good Governance. It is important to create a political ecosystem which is responsive to calls for prudent and hard decisions, howsoever unpopular they may appear, e.g. reigning in crippling subsidies and populist policies aimed only at the potential vote bank, etc. The Supreme Audit Office has a major responsibility to enforce accountability in public expenditure. But the present situation in Europe demands timely corrective action to iron the anomalies in public financial management. This may be possible only through leveraging of technology to capture real time data from expenditure points, analysis of the data for decision support and finally, its dissemination to the citizens. The Civil Society will be an effective watch dog for performance measure at the ground level, only if it has access to reliable information on the public policies and finances. Information can be a true enabler to improve governance and eventually PBB. Citizens deserve transparency and accountability in public expenditure through Government portals similar to "recovery.gov" operationalised by the Obama administration in the US.

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