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.

Sri Lanka: Improving Transparency and Accountability in Budget Processes

Posted by Justin Tyson

A TV report posted on YouTube in September 2007 provides a short, but interesting, introduction to debates about improving the transparency and accountability of budget-making in Sri Lanka. Topics covered by the video include: the move away from incremental annual budgets towards Activity-Based Budgeting; the need to have more in depth review of expenditure purposes and outcomes; and, the role of parliament in scrutinizing the budget process.

Linking Performance and Budgeting—A Framework and Current Update for the U.S. National Government

By Philip Joyce

Governments exist to provide needed services as effectively as possible, given scarce resources.  It is hardly surprising that so called “performance-based budgeting”—a reform designed to better inform the allocation and management of resources with considerations of policy results—is in vogue all over the world.  It is usually presented as an alternative to traditional budget models, many of which tend to focus solely on the input side of the ledger, and where allocations are driven primarily by making marginal adjustments to last year’s input level. 

It is perhaps surprising that, in spite of all of this attention, there is still considerable controversy concerning whether such budget reforms are either desirable or possible.  Both of these objections stem from the same basic argument—that budgeting is political and therefore resistant to—perhaps antithetical to—efforts to make the process more “rational”.

Performance Budgeting in Australia

Lessons from two decades of effort

Posted by Lewis Hawke

The latest edition of the OECD Journal on Budgeting includes an article on Australian experience with performance budgeting. This is a reprint from the title, Performance Budgeting in OECD Countries (see the January 11, 2008 blog entry Does Performance Budgeting Perform?). It is interesting that the OECD has chosen to highlight this particular chapter. Why did they choose this one in particular? Well for one thing, it offers some useful insights into Australia's relatively long performance budgeting journey to date.

Does Performance Budgeting Perform?

Posted by Holger van Eden

“Performance Budgeting in OECD Countries,” a recent publication of the OECD’s Budgeting and Public Expenditures Division, reviews the experiences of eight OECD countries (Australia, Canada, Denmark, Korea, Netherlands, Sweden, United Kingdom, United States) that have introduced performance information in the budget process over the past decade. The book is available in hard-copy and e-book versions at the OECD Online Bookshop (click link above).

The main author of this publication, OECD senior economist Teresa Curristine, discusses extensively the question of whether 'performance budgeting performs,' and not surprisingly, the answer is not that clear. There are many approaches to introducing performance budgeting reforms, and many reasons for doing so. As with many complex public reforms, the results are usually rather nuanced.

The short and cynical answer by the casual reader is perhaps “No, it doesn’t”, or not “Not enough, given the effort”, or “Not yet, even after many, many years of implementation.” The many nuances in this book do clarify that performance-based reforms can work in certain circumstances, but do leave interested governments a bit in the dark on what road to take in their country in further developing performance budgeting.

Germany: Ministry of Finance's Task Force Recommends Introduction of Performance Budgeting and Accrual Accounting

Posted by Michel Lazare

A few days ago, our FAD colleague and PFM Blog author Marc Robinson published a short article in IMFSurvey Magazine titled "Major Reforms for German Budget System." Here is a summary of the key points; the full text of the article is accessible by clicking here.

The German Ministry of Finance's Budget and Accounting Reform Task Force, who was assisted by staff of FAD, recently recommended "the introduction of product budgets--often known elsewhere as programs. The intention is to focus greater attention in the budget formulation stage on choices about how much money is allocated to" various outputs.

"Under the task force's proposals, the product budgets would not in the first instance be used for parliamentary budget appropriations. The idea is that they would initially be used [...] in formulating the budget. The logical next step would, however, be to shift the annual budget law also onto programmatic basis."

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.

PFM Reforms and Public Expenditure Efficiency: Key PFM Reforms Playing a Role in Effectively Controlling Public Expenditure

Posted by Michel Lazare

There are seven key institutional arrangements for budgeting that play a key role in effectively controlling public expenditures in OECD countries.

This is at least the view presented in 2005 by Jon Blondal (the then Acting Head of the Budgeting and Management Division of the OECD) on the occasion of the 7th Banca d'Italia Workshop on Public Finance. In Jon Blöndal's view, there are three major determinants of the fiscal outcomes of OECD member countries: (1) the general performance of the economy (which is the main driver), (2) the political commitment to fiscal discipline, and (3) the institutional arrangements for budgeting. The presence of the two first factors being insufficient to experience a successful fiscal outcome.

IMF Fiscal Affairs Department: an Update of Activities in 2007

Posted by Michel Lazare

For a long time you have suffered from a burning desire to know what the IMF's Fiscal Affairs Department (FAD) is up to. You never dared to ask? Well...this posting is made for you!

Already, our PFM Blog's "about" tag on top of this page contains some general information about what is FAD's role.

The attached 4-page flyer (Download fad_flyer1.pdf), which was prepared to provide an update of FAD's activities in 2007 to the participants to the 2007 Annual Meeting of the IMF in October contains an overview of FAD key responsibilities and outputs.

From Line-item to Program Budgeting - Opening the 'black-box' of spending

Posted by Bill Dorotinsky

A perennial question of annual public budgeting for Ministries of Finance and legislatures, and the general public, is "What are we getting for the money?" It is the proverbial "black box" of annual spending, where funds are allocated by traditional line-item budgets to agencies, but there is no sense of what the money actually achieves. While under line-item budgeting, budget offices know what inputs are being purchased, there is no clear indication of what activities, purposes, or objectives -- or ultimately outputs or outcomes -- are being purchased, or how government policies translate into spending. A common first step for many countries towards opening the black box of spending is to adopt a program classification of spending, and introduce program budgeting. A program classification is often thought of as a first step in introducing a performance orientation into the budget process.

While sounding like a very dry, technical exercise, the reality of successful introduction of program budgeting is more complex, involving elements of change management across government. Various governments across the globe have been introducing program budgets over many decades, including within the past decade in Russia, Brazil, and more recently, the Republic of Korea (RoK). A recent book by the Korean Institute of Public Finance and the World Bank, From Line-item to Program Budgeting (John Kim, Editor; Seoul, 2007), summarizes some key lessons from the global experience, and offers practical advice to countries embarking on this journey.

Indonesia – The Challenges of Implementing a Performance-based Budget System

Posted by Ian Lienert

At the 2007 Annual Meeting of the IMF and World Bank, while some delegates were escaping from the high-security barriers and benefiting from a walk during the wonderful October weather of Washington, D.C., other delegates were spending their Saturday afternoon crammed into a conference room to learn more of the challenges of implementing a Performance-based Budget System (PBS).

Mrs. Sri Mulyani Indrawati, Indonesia's Minister of Finance, had kindly taken time from her hectic schedule to accept an invitation from the IMF to participate in a seminar, brief delegates of the progress so far in changing budget practices in her country and outline the challenges ahead for implementing a PBS.

Budget practices and procedures --- everything you'd want to know about OECD countries

Posted by Bill Dorotinsky

Ever lay sleepless at night, wondering how far in advance of the new fiscal year OECD country legislatures receive the budget from the executive? Or if ministers in OECD countries are allowed to reallocate/vire funds between line items within their responsibility? For PFM specialists and country PFM officials, these can be important guideposts for reform directions.

Well, wonder no more, and sleep peacefully. The OECD just released publicly their Budget Process and Procedures database for 2007, featuring 30 OECD and 8 non-OECD countries. As the OECD web page itself says: "The purpose ... is to provide budget practitioners and academics the opportunity to compare and contrast national budgeting and financial management practices with a view to share experiences and best practices. It is a unique, comprehensive and free resource that covers the entire budget cycle: preparation, approval, execution, accounting and audit, and performance information."

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

  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.