Recent Performance-Based Budgeting Reforms in The Netherlands – Another Lap Around the Windmill!

Posted by Maarten de Jong[i]

An unknown person once noted that a cynical person is an idealist who, at some point, made the mistake of turning his ideals into his expectations. Looking at the increasing amount of critical studies on the impact of performance-based and program budgeting reforms, one could become a bit cynical towards this popular and ambitious type of budget reform. Not unlike the experience in other countries, the implementation of performance-based and program budgeting in the Netherlands over a decade ago has only partly lived up to its expectations.

There has not been much evidence that major reallocation of spending has taken place as a result of these reforms. In addition, the informational value of budgets and the administrative burden for line ministries have been continuous sources of debate.  Nevertheless, the concept of linking funding to results has proven its usefulness in agency management and does help the Ministry of Finance differentiate between a powerful claim and a powerful claimant in the budget process. Neither is anyone inclined to give up the benefits of increased transparency and enhanced managerial flexibility that resulted from introducing a program budget. Instead of becoming cynical or glorifying the "good old days" of input budgeting, the Netherlands Ministry of Finance accepted the fact that it may have had some unrealistic expectations and that some of the criticism on performance budgeting as implemented actually made sense and demanded a solution. This resulted in a major overhaul of the budget presentation and program structure in recent years called “Verantwoord Begroten” (translated as Accountable Budgeting).

New Budgetary Reforms in Austria: An Emphasis on Flexibility, Performance, and Gender

Posted by Ralph Schmitt-Nilson

Following up on a first set of reforms in 2010, the Austrian budget for 2013 introduces a new set of public financial management (PFM) reforms. Whereas the first stage focused on implementation of a medium-term expenditure framework, the second and latest stage of reform brings fundamental change in a range of fields. It signals three main aspects: more discretion for line ministries, a new performance-oriented budget structure, and a commitment to Gender Responsive Budgeting (GRB).

To improve flexibility for line ministries and big federal agencies, appropriations are shifted to a more aggregated level. The budget entities are given clearly structured duties and global budgets for flexible use. The stated rationale is that an increase in autonomy and responsibility leads to more motivated management and staff of institutions and more efficient use of funds. This builds upon positive experiences that Austria has with the introduction of more flexibility for line ministries since 2000. Line ministries also receive the authority to carry over a substantial part of the budget into the next year. The aim is to avoid spending sprees at the end of the fiscal year when departments often look for ways to use up the current budget. A carry-over facility gives them an incentive to remain frugal with their spending until the end of the year and to improve room for maneuver in the next year. Still, these developments could also be dangerous for yearly budget credibility. First, carry-over facilities make it harder to exactly plan expenditures for the fiscal year on an aggregate level. Second, high levels of carry-over can weaken the incentive for solid budget planning at the line ministry level.

Performance Budgeting: Facing Up to the Hard Questions

Posted by Dirk Kraan[1]

The IMF’s new resident advisor for South Eastern Europe, Dirk Kraan challenges the practicality of performance budgeting, one of the favourite innovations of New Public Management. Has performance information on a government program provided by a line ministry ever provided a critical assessment of its success? Are Ministries of Finance really interested in performance, let alone equipped to deal with it? Some of the hard questions that will be discussed in this post.....  

The history of performance budgeting now stretches over forty years. Arriving at the Dutch Ministry of Finance in 1980, I well remember how we tried to cope with the article of the Budget Code introduced in the early 1970s prescribing that the budget documentation had to provide “performance information”.  Around the same time  the ideas of the Planning,  Programming, Budgeting, System (PBBS) and Management by Objectives (MBO) had been blown over the ocean and been adapted to European conditions in the form of “Rationalisation des Choix Budgétaires” (France), Program Budgeting and Review (UK), and “Policy Analysis” (the Netherlands). The latest attempts to implement these reforms were still very much alive in 1980.

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.

For Legislating for Results: Research on the Legal Foundations of Performance-informed Budgeting Systems in the States

Posted by Yi Lu, Associate Professor, Department of Public Management, John Jay College of Criminal Justice

Legislating for results is a new emerging body of research on performance budgeting. This research places the legal foundations of performance-informed budgeting systems front and center. The legal foundations are important because a key question in this field is how to integrate performance information and budgeting. The answer is not about identifying more individual factors, instead, it lies in organizing and connecting the factors to have a holistic understanding of the integration dynamics. One way to address the holistic understanding is to study how well the legal foundations connect the various factors into a coherent framework.

Our research examined performance budgeting laws in the thirty-nine US states with relevant legislation on the books. The preliminary results indicate that states which scored as having strong performance budgeting systems are more likely to have laws in place that specify a wider array of performance measurement development, protocols, and oversight for application to budgetary decisions. In addition, these states are more likely to have law that dictates responsibilities for establishing a statewide strategic plan and a role or roles for citizens in the budgeting process.

How Should Success in Government Be Rewarded?

Posted by David Gentry

 
Much has been written about how best to consider program performance, or the results of expenditure programs, when allocating resources in the public sector.  Many writers are committed advocates of this seemingly common sense approach to budgeting, while others are deeply skeptical after looking at implementation issues. One way to contribute to this debate is to look at the experience in the private sector with a close conceptual cousin, Management by Objectives.

Management by Objectives (MBO) was first promoted in the 1950’s. Peter Drucker is credited with coining the term and promoting the practice in his 1954 book entitled The Practice of Management.  The idea was further refined by George Odiorne in his influential 1965 book entitled Management by Objectives: A System of Managerial Leadership, and in a large number of publications by various authors over the years exploring the application of MBO.

Korea Hosts International Workshop on Fiscal Policy Issues

Posted by Ian Lienert

 
Against the backdrop of a severe fiscal crisis in some European countries, the Korean Institute of Public Finance (KIPF) hosted an International Fiscal Experts Forum in early December 2010. A major aim was to promote an exchange of views on fiscal policy issues, countries’ responses to the crisis, and relevant issues for Korea. The workshop brought together a number of prominent speakers, scholars, and practitioners from various countries. The topics covered included: fiscal policies after the crisis, budget performance management, accrual accounting, the impact of the crisis on subnational governments, and recent issues in legal frameworks for budget systems.

Results, Performance Budgeting and Trust in Government: Launch of New Publication

Posted by Pedro Arizti, Jim Brumby, Nick Manning, Theo Thomas and Roby Senderowistch (all World Bank)

We would like to draw your attention to the recent publication by the World Bank of the book Results, Performance Budgeting and Trust in Government that will be officially launched this Monday, October 4, 2010 at the World Bank in Washington, DC.

As the book Results, Performance Budgeting and Trust in Government highlights, there are many ways to consider strengthening results and improving performance in the public sector. This book looks through two lenses. The first is the adoption of budgeting arrangements that promote performance and high quality public services. Performance budgeting brings a focus on the results that are being delivered for resources provided, rather than just how much money is being spent, and aims to strengthen resource allocation, effectiveness, efficiency and accountability. The second lens is the relationship between the government's performance in delivering key services and the trust that citizens and firms have in government.

Performance Management in China – A Gradual Evolution

Posted by John P. Burns[1]

From at least the mid-1980s the Chinese government has implemented a performance management regime that has grown in complexity and sophistication. Emerging first at local government level, China’s 'objective responsibility system’ (ORS) involved setting objectives for subordinate government units and holding individual leaders responsible for their fulfillment. Initially voluntary and lacking unified guidelines, by the 1990s the system became increasingly institutionalized. Officials at all levels understood its utility for achieving control of policy implementation.

As it operates today, targets set in China’s five-year plans (we are now in the 11th Five-Year Plan), especially economic growth targets (GDP and GDP per capita) are cascaded down to provincial governments, which add their own targets such as budget revenue, total value of investment in fixed assets, total value of imports and exports, and so forth, which then become targets for larger cities (prefectural level). They then add additional targets such as total value of retail sales, and pass on the targets to the county level. At least initially, the system focused on meeting targets related to the economy.

Prioritizing PFM Reforms: A Robust and Functioning Accounting and Reporting System is a Prerequisite

Posted by Sanjay Vani, Lead Financial Management Specialist, World Bank

Much has been written about prioritizing and sequencing PFM Reforms, including Allen Schick’s often-quoted 1998 article, Why Most Developing Countries Should Not Try New Zealand's Reforms.  While working on the OECD-DAC Report on the Use of Country Systems in PFM a year or two ago, I was struck by how much more we know about what does not work than about what does work. For example, almost all PFM professionals would agree that introducing a medium-term budget formulation or performance budgeting in an environment of poor budget execution is not likely to be effective; and attempting performance audit without agreed performance benchmarks and proper systems to record and track performance is equally unlikely to be effective.

Here I would like to develop a hypothesis that, I am convinced, deserves serious attention from the community of PFM professionals. The hypothesis is this:  NO significant PFM reforms are likely to succeed unless a robust and functioning accounting and reporting system is in place.  In other words, a robust and functioning accounting and reporting system is a prerequisite to other PFM reforms.

Unit Costs and Performance Budgeting

Posted by Marc Robinson

It is often suggested that unit costs are the basic tool for performance budgeting. The proposition is that measuring the unit cost of public sector services (outputs) – or, according to some, activities – provides the best instrument for linking the funding provided to ministries to the results they are expected to achieve. In other words, unit costs are supposed to be used in budget preparation to calculate budget requirements as a function of the quantity of services to be delivered to the public. Monitoring budget execution then allegedly becomes as easy as seeing whether the planned quantities of outputs were actually delivered.

This exaggerated notion of the role of unit costs as the link between funding and performance is surprisingly widespread. I have in recent times visited two low-income countries which are attempting to base entire performance budgeting systems on unit cost calculations. We’ve seen this before, and not only in developing countries. Australia and New Zealand made exactly this mistake, on a spectacular scale, in the nineties.[1]

How to Initiate a Performance Framework in Budgeting

Posted by Pokar Khemani

A large number of countries over the last decade have reformed their budgeting process to enhance its performance orientation. Virtually all  countries have found enhancing the performance orientation of their budgeting process quite challenging, but lessons can be drawn from the now vast body of experience accumulated.
 
My presentation (copy attached) at the ICGFM Annual Winter Conference held at Inter-American Development Bank, Washington D.C. on December 4 focused on “How to Initiate a Performance Framework in Budgeting”; it lays out my views and shares my practical experience with public finance professionals from over 30 countries on how best to approach the introduction of a performance framework in budgeting. 

Performance-Based Budgeting in France: An Evaluation by Parliament

Posted by Franck Bessette.

 
  
  
In France, the parliament was the initiator and driver of performance-based budgeting, introduced by the organic by-law of  August 1, 2001 (the so-called Loi Organique sur les Finances Publiques -- LOLF) [for more details, see in particular this previous blogpost by Bill Dorotinsky  and its embedded PowerPoint presentation by Phillipe Debrose] and fully applied from January 1, 2006. This was a managerial “big bang” which reorganized completely the budget structure and public accounting (accrual based accounting was introduced), defined new players (program managers), new chains of decision, and for every program a series of objectives and indicators.

After three years of complete implementation, the Economic and Finance Committee of the National Assembly (Assemblée Nationale) has evaluated this performance-driven budgetary reform and made recommendations to further improve implementation. A general report followed by annexes for individual programs was recently published [click here for a copy of the report ]

Incorporating Budget Programs in the Government Accounting System - The case of Namibia

Posted by Dimitar Radev [1].

Many countries do not fully benefit from all the possibilities of program budgeting in terms of budget credibility, expenditure control and public resource allocations. One common reason is that while they prepare the budget based on programs, they do not organize their accounting and expenditure control systems on a program basis. There is little value for these countries in further developing program budgeting if spending cannot be accounted for, reported, and controlled according to programs.

Namibia presents a good example of how such an issue can be successfully addressed.

A New IMF Fiscal Affairs Department's Publication: the Technical Notes and Manuals

Posted by Michel Lazare and Richard Allen.

The IMF has just launched a new series called: Technical Notes and Manuals.The first three issues have been authored by the IMF's Fiscal Affairs Department.

They deal with:

1. A Basic Model of Performance-Based Budgeting by Marc Robinson and Duncan Last  Download FAD Technical Manual 1
2. Transition to Accrual Accounting by by Abdul Khan and Stephen Mayes                     Download FAD Technical Manual 2
3. Modernizing Cash Management by Ian Lienert                                                              Download FAD Technical Manual 3

Earlier versions of these Technical Notes and Manuals were previously issued as part of a series of technical notes on our PFM blog.

Future issues will include topics in revenue administration, tax and expenditure
policy, and public financial management. Other IMF departments may also contribute notes to these series.

These notes and manuals aim at raising awareness among practitioners,
officials and academics of contemporary fiscal topics; and improving the dissemination of
FAD's TA advice. In particular, they will allow us to disseminate to a broader audience the advice now included in our TA reports, or provided through other advisory services.

Moving Towards Outcome-Oriented Performance Measurement Systems

Posted by Tej Prakash.

 A recent research study on outcome-oriented performance measurement systems[1] points out that while it is easy to measure outputs, it is far more difficult to measure outcomes, especially as many public services are delivered a complex network of contracts, outsourcing, collaboration between private sector and NGOs.

The authors focus on community driven evaluation of programs that directly impact the communities. These are community indicator projects (CIP) which are housed by independent organization (NGO, etc.) and focus on high level community conditions that contribute to the quality of life rather than program specific functions. These are also unlike government performance measurement indicators which are data and indicator driven. The emphasis of CIP is on information sharing and establishing cross program links so as to get the broader picture. It recognizes that specific program may not control broader outcomes but can influence them.

Performance Budgeting Equals Soviet-style Central Planning?

Posted by Eivind Tandberg.

A common criticism of performance and program budgeting efforts is that they lead to budget planning systems that are mechanistic, overly complex, and overloaded with useless data; and that performance data have little or no impact on actual decisions. Many critics compare performance-oriented budget mechanisms to the planning models developed by Soviet central planners, and claim they are equally useful (or useless). Is there any truth to this claim? This blog provides a brief discussion of the claim in relation to three specific dimensions of performance budgeting: the historical roots, the concepts and the practical implementation of these concepts.

Accrual Budgeting and Fiscal Policy—The Swiss Model

Posted by Abdul Khan

The Federal Government adopted the accrual basis for budgeting and financial reporting with effect from the 2007 budget.  Known as the New Accounting Model, this framework emphasizes two main objectives, also referred to as the dual perspectives of NAM: fiscal policy management at the macro level and a focus on performance of government departments and offices. Enhancing transparency of the public finances through the adoption of internationally recognized accounting concepts and standards is also stated to be an objective of the NAM.

The fiscal policy objective is focused on controlling aggregate cash expenditure. It is expressed through the debt brake rule that requires revenue and expenditure to be balanced over the business cycle. This is essentially a cash concept and the financing and cash flow statement of the budgetary central government, derived from the income statement and balance sheet in accordance with internationally accepted accounting practice, is the reporting tool used to monitor compliance with the debt brake rule.

Accrual Budgeting: What Does it Mean for Fiscal Discipline?

Posted by Mr. Marc Robinson

 

Is accrual budgeting a good idea? This is an highly controversial question in budgeting circles today. Many budgeting experts agree that accrual accounting for fiscal reporting is a good idea, at least for those countries which can afford the costs of running a more sophisticated accounting system. But on the question of whether the budget itself should be moved onto an accrual basis, there is absolutely no consensus. On one side of the boxing ring, there are those who think that the real benefits of accruals can only be realized by putting the budget on an accrual basis. They believe for example, that unless the full costs of programs and inputs are charged to ministry budgets, decisions about program priorities, the input mix and investment vs. maintenance will always be seriously distorted because under cash budgeting they are always based on the wrong “price signals”. Opponents of accrual budgeting, on the other hand, argue that it is unduly complex, confusing, potentially risky to fiscal discipline. They also argue that the efficiency benefits of accrual budgeting have been greatly exaggerated, and point – for example – to the abandonment by countries like Australia and the UK of the “capital charging” regimes as a recent example of the failure of the much-heralded benefits of accrual budgeting systems to become reality.

PEFA Secretariat Report on CAPE conference on "Reforming for Results: Can Public Financial Management Uplift Government Performance?"

By Peter Fairman, Senior Public Sector Specialist, PEFA Secretariat

1. Introduction

I represented the PEFA Secretariat at the annual conference (November 12-13, 2008) hosted by Centre for Aid and Public Expenditure (CAPE), based in Overseas Development Institute in London.  The theme of the conference was “Reforming for Results: Can PFM Reform Uplift Government Performance?”, with particular focus on service delivery.  Attendance was close to 100 participants from overseas governments, aid agencies, academia and consulting companies.  The presentations and list of participants are available on the ODI website (www.odi.org.uk).

Issues directly and indirectly concerning the PEFA program were addressed in many of the presentations; the main messages from some of these are presented below (references to PEFA indicators are mine). 

Latest GTZ Newsletter: Focus on Results-Orientation in Public Management

Posted by Christian Schiller

The Public Finance Team (headed by Matthias Witt) of the German development agency GTZ (Gesellschaft fuer Technische Zusammenarbeit) just published its December 2008 newsletter (Download en-newsletter-public-finance-reform-no14.pdf .) The GTZ newsletters are always stimulating and fun to read as they cover a broad range of public finance topics. The December 2008 issue focuses on results-orientation in public management.

The newsletter points out that success in moving towards more results-orientation in public management does not only depend on appropriate changes in the budgetary system and procedures, but cultural changes may be equally important. The newsletter highlights this by reporting on the work the GTZ is doing in Peru, which was discussed at an expert talk on “Backbone of State Modernization and Public Policy—Performance Based Budgeting in Peru” (organized by GTZ in November 2008). One of the key messages of the meeting was that a change in the mindset of the people in the public administration is a critical factor in moving towards more results-orientation in the public sector in Peru

OECD-MENA conference of Senior Budget Officials in Cairo

Posted by Mr. Dimitar Radev.

The first meeting of the OECD-MENA network of Senior Budget Officials took place in Cairo, Egypt on 24-25 November 2008. The meeting’s main focus was on implementing performance budgeting, this subject being, as specified in the distributed agenda, the top priority selected by MENA-SBO delegates.

Such a choice might be somewhat surprising for the outside observers, having in mind the region’s mixed results in budget modernization. However, it clearly indicates the interest of increasing number of countries in introducing advanced budget reforms, a process that needs to be properly managed, because of its complexity and associated risks.

Performance Budgeting Seminar in Sao Paulo Discusses Experiences Worldwide

Posted by Mario Pessoa

The government of the State of Sao Paulo, Brazil, promoted a seminar on performance budgeting in partnership with the IMF and the Interamerican Development Bank, from December 1 to 3, 2008. Experiences in Latin America and OECD countries, in the Brazilian States of Sao Paulo and Minas Gerais, and in the City of Curitiba, were discussed. The main conclusion is there is no unique approach and it is essential to consider local circumstances. Additionally, to implement a performance budgeting approach it is necessary to count on high-level political support, clear leadership to implement the methodology selected, good information systems, realism in the targets, define few and very clear performance indicators, have a good communication strategy, and have a long-term perspective. To be more effective, it is also important to establish incentives, such as flexibility to remunerate personnel and manage budgetary resources and eliminate disincentives such as a set of formalistic compliance regulations that used to be present in many parts of developing countries. The presentations (some of them available only in Portuguese or Spanish) can be assessed by cliking on this link.

Performance Management – The Chilean Experience

Posted by Theo Thomas

Chile has been on the cutting edge of performance budget and public management reforms for many years. Having started to introduce performance indicators back in 1993, a system of program evaluations in 1997 and a ‘Management Improvement Program' (PMG) in 1998, Chile’s experience provides some useful lessons for the many countries across the world that are trying to implement similar kinds of reforms.

At the end of October Heidi Berner, Head of the Management Control Division within the Budget Office of the Chile Ministry of Finance, shared her extensive experience of Chile’s reforms with a packed audience at the World Bank. The high level of interest, from staff working in all regions, reflects the level of interest both in Chile’s experience and the subjects’ status as the new ‘megatrend’ in budgeting and public management.  A copy of her presentation can be found here: Download PerformanceBudgeting-Chile_oct2008.ppt

Activity-Based Costing: Is it Applicable in Governments?

Posted by Ian Lienert

One of the principal objectives of a performance-oriented budgeting system is to link the results and the funding of budget programs. In order to make well-informed allocative choices in the national budget, it is important to obtain the best possible information on program costs. However, it is costly to obtain detailed and accurate program costing information. Compromises need to be made when choosing between simple methods of costing and more sophisticated models.

Activity-Based Costing (ABC) is an accounting technique initially developed for use in the private sector. With the push for program budgeting, ABC has also been used in the public sector of some countries. Proponents argue that ABC provides full cost information and also addresses the problem of allocating indirect (or "overhead") costs of government programs. However, if recent experience in the United Kingdom’s police service is to be taken as a guide, ABC is too expensive and demanding to be generalized for use in government budget programs.

Poland Pushes Ahead With Performance Budgeting

By Marc Robinson

Poland is on the path towards performance budgeting (PB). This was the key message to emerge from a conference on Performance Budgeting—Prospects for Poland which was held by the Polish Ministry of Finance in Krakow on 2-3 October. The conference was attended by hundred of delegates from Polish ministries. They were joined by international guests who outlined developments in France, the USA, Canada and Denmark. I represented the IMF, and made a presentation (Download M.Robinson.pdf) on the relationship between PB, medium-term budgeting and strategic planning.

Forward Estimates: the Most Fundamental Tool of Medium-Term Budgeting

Posted by Marc Robinson

CABRI has just published the proceedings (Download cabri 2007.pdf) of a seminar on medium-term budgeting held in Ghana last December, under the title Are We Asking the Right Questions? Embedding a Medium-Term Perspective in Budgeting (Download cabri_2007_ch1.pdf) . It’s an interesting read.

I was particularly struck by comments in the overview paper—by Alta Fölscher from South Africa—on the fundamental importance of good forward estimates for successful medium-term budgeting. Alta stresses that a fundamental obstacle to the success of MT budgeting in African countries has been that:

the quality of forward estimates is poor. They consist far too frequently of the proposed budget for the first year of a multi-year framework, followed by inflation adjusted projections of cost for the outer year ...they pay little attention to, for example, the likely phasing of policy implementation, changes in demand that will effect spending unevenly or the impact of once-off capital spending on the base-year estimates. ...A key aspect of embedding a medium-term perspective therefore is deciding what the rules are for rolling over and adjusting and determining the forward estimates.

She is spot on – as I’m sure that anyone who has looked at a representative sample of MTEFs from around the world can attest.

Does Public Sector Efficiency Matter to Growth? Some New Evidence

Posted by Francois Michel

In a recent paper published in Public Choice, Konstantinos Angelopoulos, Apostolis Philippopoulos and Efthymios Tsionas provide a welcome addition to the empirical growth literature by enlarging the traditional focus on fiscal size to introduce measures of public sector efficiency. Two such measures of public sector efficiency are used.

The first one follows the “output-to-input” (or, as it might be more appropriately denominated, outcome-to-input) approach used by Afonso, Schuknecht, and Tanzi in two famous papers ("Public sector efficiency: an international comparison," Public Choice Volume 123, Number 3-4, June 2005; and "Public Sector Efficiency: evidence from new EU members states and emerging markets," ECB Working Papers number 581, January 2006) governements’ socio-economic outcomes are related to resources used, proxied by public sector spending, for major functions—limited by data availability, in the article’s case, to four basic roles of administration, education, infrastructures, and economic stabilization. The sample consists of 64 developed and non developed countries during four five-year periods between 1980 and 2000.

The second measure of government efficiency to which the model is applied is obtained by applying a stochastic production frontier approach as discussed in Lovell and Kumbhakar’s book (2000). The sample consists here of yearly data between 1995 and 2000 for 52 countries.

Medium-Term Expenditure Ceilings: are they an Essential Part of Medium-Term Budgeting?

Posted by Marc Robinson

We often hear it said that medium-term expenditure ceilings for ministries or sectors are an essential part of good medium-term budgeting. Spending ministries, it is said, know what budget funding they will receive not only this year, but next year and the year after. The funding certainty this will give them will improve their planning and management, thereby boosting service delivery. Such increased funding certainty, the line runs, is the #1 objective of medium-term budgeting.

This is, with respect, wrong. Multi-year funding certainty for spending ministries is something which only the most advanced countries can aspire to. And while reduced funding uncertainty is a goal of medium-term budgeting, it is not the most fundamental goal.

Measuring Performance In Public Administration

Latvian 4th International Public Management Summer Institute

Posted by Bill Dorotinsky

The Latvian Government held its 4th annual International Public Management Summer Institute from August 25-29, 2008, in Tukums, Latvia. The theme of this year's Institute was "Measuring Performance in Public Administration." The Institute was attended by Latvian Government staff from line ministries and central agencies, as well as staff from various agencies of seven regional governments (Bosnia-Herzegovina, Georgia, Lithuania, Macedonia, Poland, Turkey, and Ukraine). The Institute was supported with financing and experts by the World Bank, OECD, Latvian Ministry of Foreign Affairs, Embassy of The Netherlands, Corporate & Management Consulting Group, The Soros Foundation, and Embassy of Ireland.

There were many lessons of experience and practical guidance arising from the seminar, too numerous to summarize here. The presentations and country cases are available below, and the readers can draw their own conclusions. The Institute program can be downloaded here Download Preliminary_program_2008.doc

Over-all, the Summer Institute was well planned and executed. The Institute was a good opportunity to get an overview of where participant countries are in terms of performance reforms. Some are only just beginning to wrestle with introducing performance measurement/management reforms (Bosnia), while new EU Member States are trying to make the performance reforms meaningful. The new member states are very much in the same position as most OECD countries, where performance measurement systems are in place and generating large amounts of data, but there is very little information of use in decision-making.

France’s Announces Details of its First Multi-Year Budget

Posted by Richard Hughes

Last month saw French Budget Minister Eric Woerth confirm his government’s plan to press ahead with the biggest reform to French fiscal policy-making since the adoption of the LOLF (Loi Organique Relative aux Lois de Finances) in 2001 - the introduction of the country’s first multi-year budget (budget pluriannuel).

Speaking at the opening of the National Assembly’s Budget Orientation Debate on the 15th of July, Woerth announced that the government will be introducing a new “expenditure planning law” (loi de programmation) that will set out in detail the French government’s spending plans for the year 2009, 2010 and 2011. Following some initial questions about its constitutionality, the legal path for this multi-year expenditure planning law was subsequently cleared as part of a series of revisions to France’s 1958 Constitution ratified by both houses of Parliament on 23 July. The stage is therefore set for the publication of France’s first multi-year budget in the autumn.

An Apparent Paradox? What the Political Economy Literature on Fiscal Institutions Could Say about Second Generation PFM Reforms

Posted by Francois Michel

Research on the political economy of fiscal institutions has made considerable progress in the past two decades, with numerous contributions from major economists including, among others, Douglas North, Alberto Alesina, Allan Drazen, Andres Velasco, Mark Hallerberg, Gian Milesi-Ferreti, Roberto Perroti, Torsten Persson, James Poterba, Guido Tabellini, and Jürgen von Hagen.

The political economy of fiscal institutions

This progress is related to the more general, progressive emergence of comparative political economy, which in turn benefited from advances in econometric techniques, as a major field of economics. A good example is Persson and Tabellini's classic book on The Economic Effects of Constitutions, in which the authors seek to establish some causality between two constitutional choices (majoritarian or proportional representation; presidential or parliamentary form of government) and economic outcomes.

Another example is Mark Hallerberg and Guntram Wolff's recent article on Fiscal institutions, fiscal policy and sovereign risk premia in EMU (Public Choice, Volume 136, Numbers 3-4 / September, 2008). These authors attempt to take stock of Daron Acemoglu's remarks that endogeneity issues make the assessment of causal effects of institutions and constitution particularly difficult by showing that budget institutions influence the perception of countries' default risks by financial markets (less subject to endogeneity problems).

Canada Strengthening Strategic Reviews of Spending

Posted by Bill Dorotinsky, World Bank

In a July 21, 2008, post, Ian Lienert blogged about Canada's recent establishment of a Parliamentary Budget Office. We'll, there are broader reforms of Canadian public financial management (PFM) underway. PFM Blog has run across a February 2008 presentation by Ivan Blake, Executive Director of Management Accountability with the Canadian Treasury Board Secretariat, on Management Reform in the Canadian Public Service. The presentation was delivered at the Tenth Annual Government Performance Summit 2008, held in Arlington, Virginia. PFM Blog has asked the Treasury Board Secretariat to itself prepare a blog on the reform, but pending more detail, we thought it useful to bring this interesting development to our readers attention.

Exploring Performance-Based Budgeting in Poland

Posted by Bill Dorotinsky

Performance-based budgeting is a reform we see a great deal of interest in across the globe, from low-income through middle and upper-income countries. Approaches differ by country, and it is hard to say the public financial management profession has yet reached a stage of agreeing on 'good practice.' But active lesson-learning is underway. In a July 2, 2008, blog post, we highlighted an international conference in Mexico City (see Performance Budgeting Reforms Gather Pace in Latin America) and in a July 16, 2008, blog post, "Performance Information for Performance Budgeting," we shared a presentation from that conference.

A reader brought to our attention a performance-budgeting conference hosted in Poland last November (2007), and we thought this worth sharing. A summary of the conference can be found at the World Bank's website, including the agenda and links to presentations.

The conference included valuable country case study presentations, including Poland, Slovakia, The Netherlands, Chile, Canada, the United States, New Zealand, France, Latvia, Turkey, and Bulgaria (most presentations are available on the website link above). A valuable wrap-up session by our own Marc Robinson highlighted issues for "Making Program Budgeting Work."

Peformance Information for Performance Budgeting

Posted by Marc Robinson

Performance information (PI) is the foundation stone of performance budgeting. But what type of PI is most useful? Putting the question differently, what type of PI is of the greatest potential value for key budget decision-makers? 

This post summarizes some key points from a recent Powerpoint presentation at the June 9-10, 2008, Mexico performance budgeting conference (see my July 2, 2008, blog post).

More is not better. It is certainly not the case that the more information, the better. Experience shows that dumping thousand of performance indicators on the political leadership, parliaments and finance ministries is likely to result in them all being ignored. To be useful, information has to be selective, focused and relevant.

Emerging themes in public sector financial reporting

Posted by Abdul Khan

Let us face it. Government accounts are usually pretty boring documents, mainly focused on compliance with budgetary spending limits, and presented in a form designed to discourage all but the most determined readers. Some countries have gone a step further and adopted what are referred to as generally accepted accounting principles and are generating accounts that provide a more complete view of the government finances by providing information about not just cash flows, but also about revenues earned and expenses incurred, and assets and liabilities. Despite these improvements, government accounts have mainly been backward-looking documents – they focus on the past year’s transactions and their impact on the balance sheet. They also mainly provide financial information without relating it to services delivered or objectives achieved.

All this may change. The International Public Sector Accounting Standards Board is considering a major redefinition of the scope of government accounts. The Board is working on a conceptual framework for public sector financial reporting.

From Diagnosis to Action: Sequencing and Politics in PFM Reform

World Bank PFM Reform Workshop

Posted by Sanjay Vani

On March 21, 2008, the World Bank hosted a workshop on sequencing of PFM reform, focusing on case studies and experiences from practitioners. The workshop was intended to evoke debate among practitioners on sequencing and prioritization in PFM reforms and the importance of political economy in PFM reforms. The topics selected for this workshop did not easily lend themselves to one simple universal approach and divergent views were expected. It was not the intention to provide a “toolkit” or “best practice” learning to the participants but to provide an opportunity to participate and contribute in the evolving debate at the workshop thereby generally enriching the discussion on important topics confronting PFM professionals.

Each session was moderated by an experienced PFM professional comprising three speakers each having a strong personality and a strong views on the subject so as to present two divergent views on the same topic, which led to lively debate amongst the practitioners. The agenda for the workshop can be downloaded here  Download pfm_workshop_march_08_final.doc

Consistent with the unfiltered views of the workshop, the materials are provided here without attempting to summarize the points, letting each presentation speak for itself.

Performance Budgeting Reforms Gather Pace in Latin America

Posted by Marc Robinson

Performance budgeting reforms are being pursued with impressive vigour in Latin America today. This was made very clear to the thousand or so participants from 41 countries who attended an International Conference on Performance Budgeting held Mexico City on June 9-10, 2008. The conference heard in detail about developments in Mexico, Colombia, Brazil, as well as in various OECD countries outside the region.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges (Video 3)

Posted by Michel Lazare

You liked Bill Dorotinsky's post of June 27 "Public Financial Management Reform -- Trends and Challenges"?

Well, you'll then love the video of this presentation delivered at the ICGFM meeting. Here is the third part of this YouTube video; parts 1 and 2 appear in other posts published today.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges ( Video 2)

Posted by Michel Lazare

You liked Bill Dorotinsky's post of June 27 "Public Financial Management Reform -- Trends and Challenges"?

Well, you'll then love the video of this presentation delivered at the ICGFM meeting. Here is the second part of this YouTube video; parts 1 and 3 appear in other posts published today.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges (Video 1)

Posted by Michel Lazare

You liked Bill Dorotinsky's post of June 27 "Public Financial Management Reform -- Trends and Challenges"?

Well, you'll then love the video of this presentation delivered at the ICGFM meeting. Here is the first part of this YouTube video; parts 2 and 3 appear in other posts published today.

Public Financial Management Reform -- Trends and Challenges

Posted by Bill Dorotinsky

On June 18, 2008, I spoke on Public Financial Management Reform: Trends at the the International Consortium on Government Financial Management (ICGFM) monthly speaker series in Washington, D.C.

I took the opportunity to share my personal views on current trends and challenges in public financial management (PFM) reform, drawing on my experience across the globe and multiple institutions. (As I noted, these are not the views of the IMF, or any other institutions with which I have been associated.)

The presentation covered three broad areas:

1. Common PFM reform recommendations, seen across all donors, consultants, etc.
2. Information on what reforms countries have been implementing in recent years
3. Challenges ahead for improving PFM

The PowerPoint can be downloaded here Download public_financial_reform_trends_icgfm_June_2008.ppt

The ICGFM Blog also posted a summary and video of the presentation on their Blog (CLICK HERE).

Do Legislatures Matter in Budgetary Reform?

Posted by Ian Lienert

In many countries, the budget powers of the legislature is weak. One exception is the United States, where Congress has particularly strong budgetary powers. This does not necessarily mean that the U.S. Congress will implement budget reforms, even if it adopts a law requiring important changes to be made in the budget system. Performance-oriented budgeting is a prominent example. Implementation of budgetary reforms may fail if the legislature is not sufficiently engaged at the outset. More generally, implementation of budget reforms is affected by differing legislative institutional arrangements, as well as the general political environment.

Empirical research in this area is limited. However, in a study published in Public Budgeting & Finance (Vol. 26 Issue 1) in March 2006, Carolyn Bourdeaux of Georgia State University shows that higher levels of legislative responsibility for budgeting and more extensive legislative engagement in oversight of performance information are significantly associated with increased use of performance measures in making budgetary decisions, both at the legislative and agency levels. This study was based on a survey of 212 budget officials and legislators in 22 States of the United States.

Any Problems with Programs?

Posted by François Michel

“Program budgeting as a platform for performance-based budgeting has been approached entirely from the standpoint of strategic planning; however, programs interact with a host of other “structures,” including the structures of control associated with appropriation bills, accounting systems, and organizational structures.” This is the beginning of the conclusion of the illuminating article that Carolyn Bourdeaux, from Georgia State University, dedicates to the State of Georgia’s effort to develop a program-based budget (Public Budgeting and Finance, Summer 2008).

Ms. Bourdeaux leads us to adopt successively the different perspectives of the legislature, agencies, and the executive office of the Governor on how programs should be structured. In the program design process, each body strives to maximize its powers in that principal/agent chain that goes from the legislature (principal), the executive (agent of the legislature, but principal of agencies), to agencies (agents). Ms. Bourdeaux vividly shows that up to the point where they acknowledge that too strict controls discourage entrepreneurialism and may be challenging to manage (e.g. a large budget bill), principals favor disaggregated program structures (or, more generally, budget classifications); in contrast, agents want large, fungible programs. Logically, the analysis then turns to the State’s budget control framework.

Contracts, Budgeting, and Transparency: Lessons from Municipal Budgets in the United States

Posted by François Michel

In a relatively recent survey of how five major US cities handle contracts in their budget (Public Budgeting & Finance Review, March 2006 - Vol. 26 Issue 1), Professor Irene Rubin from Northern Illinois University makes a convincing call for increasing contract reporting standards.

The survey’s results are a hard pill to swallow for budget savvy citizens or other interested taxpayers: even in municipalities with the most developed and transparent budgets, complex contracts remain practically unreadable in budget documents and are thus barely subject to any external scrutiny. This lack of transparency prevents any credible assessments of contract performance or comparison between in-house and external provision of public services. It also allows easy—and potentially manipulated—claims of costs savings by government officials. In response, Dr. Rubin recommends that each individual contract be systematically reported on an individual basis, with its scope, duration, cost, and performance requirements. Contract theory adepts would add that performance specifications should cover quantity, quality, cost and timeliness.

Performance, the Upper Level in Management as Part of an MTEF

"Our work will be judged on the access and quality of education services" – "performance is not only about more resources, it s is about their effective use"

Posted by Mr Genc Pollo, Albania Minister of Education and Science

Since the introduction of an MTEF in Albania, the Ministry of Education and Science (MoECS) has linked budget resources to its policy priorities through a three-year, rolling programme review process.

France’s Révision Générale des Politiques Publiques (RGPP)

Posted by François Michel

President Sarkozy’s Révision Générale des Politiques Publiques (RGPP) (General Review of Public Policies) undoubtedly marks France’s most comprehensive, structured and spelled out effort to modernize its public management and deliver the structural reforms needed for a long-lasting fiscal adjustment. The objective of the year-old initiative is not so much to yield short-term budgetary savings than it is to review underlying government policies, coverage of activities by the public sector, and delivery modes of public services.

The Importance of Transparency and Accountability in Public Management

Posted by Michel Lazare

Fiscal policy makers, academia, and public financial management practitioners in general agree on the positive impact of transparency and accountability on economic performance and on public confidence and trust in government. Proving this positive impact to the general public in a convincing and accessible manner is, however, often a challenge--a challenge that Maurice P. McTigue, Vice President of the Mercatus Center at George Mason University and former Minister in New Zealand in the early 1990s, seems to successfully meet. Two speeches he pronounced in Louisiana over the last few months attest of his success in this area.

United Kingdom Concludes Its Fifth Multi-Annual Spending Round

2007 Comprehensive Spending Review

Posted By Richard Hughes

In October of last year, the UK Treasury published the conclusions of its latest multi-annual expenditure planning exercise.  The 2007 Comprehensive Spending Review (CSR07) set out how the UK Government plans to spend its £600bn (US$1.2 trillion) annual budget over the years 2008-09, 2009-10 and 2010-11 and the key outcomes it is looking to buy with taxpayers’ money over the period. 

While the UK’s fiscal and budgetary architecture has been stable for over a decade and biennial Spending Reviews have become a routine feature of the British political calendar, there were are number of noteworthy developments and innovations in this fifth multi-year spending round.  In particular, CSR07:

• took place within a more challenging macro-fiscal context than previous spending rounds and was a test of the capacity of the UK’s Spending Review process to deliver an expenditure-based fiscal consolidation;
• saw a major expansion in the length, breadth and depth of budgetary certainty that the UK system provides to frontline managers; and
• included a major streamlining of the UK’s performance management regime for public services.

Practical Advice on Public Management

IBM Center for The Business of Government Web Site

Posted by Bill Dorotinsky

The volume of material on the Internet can be daunting to wade through, and finding quality, reliable information of practical use is nearly impossible. For the public management practitioners, more applied, pragmatic material is sought. One valuable site for practitioners found by PFM Blog is the IBM Center for The Business of Government. The Center, founded in 1998, "connects public management research with practice." The Centers reports cover a range of public management topics to "improve public sector effectiveness," and most are available for free on the site.