Performance Budgeting

September 11, 2013

The Philippines Leads Its Peers in Performance Budgeting

Posted by Sandeep Saxena

The Government of the Philippines’ (GoP) budget proposals for the year 2014, presented to the Congress in July, contain important performance information for every government program. For the first time, government departments and agencies have spelt out their vision, mission, target outputs that they will produce from the resources sought, and the expected performance standards in service delivery. For instance, one of the Bureau of Fire Protection’s targets is to respond within five to seven minutes to 87 percent of the more than 5,000 distress calls the Bureau expects to receive in the year. The National Police promises a minimum of 629,258 crime investigations and a 25 percent increase in the number of foot and mobile patrols. The Department of Education aims to deliver a pass rate of 84 percent in the National Achievement Test that will be taken by 12.56 million secondary school students; and the Department of Social Welfare undertakes to serve meals to more than 2.5 million schoolchildren.

This move by the Department of Budget and Management (DBM) is being hailed in the country as “the single most important budgeting innovation in years”. According to media reports, the legislators are “pleasantly amused” at the detailing of information on what an agency must deliver with the use of public resources. They expect the budget scrutiny to be lengthier and the discussion on the floor of the Congress to be more meaningful. With this reform, the government has taken an important step forward in its commitment to promoting and developing a people-centric and results-based public administration.

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January 22, 2013

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).

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October 23, 2012

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.

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September 04, 2012

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.

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March 07, 2012

Improving the Quality of Governance in Poland Through Performance Based Budgeting

Posted by Lukasz Hardt1 and Maarten de Jong2

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

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

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November 28, 2011

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.

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May 16, 2011

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.

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December 21, 2010

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.

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October 04, 2010

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.

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September 07, 2010

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.

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May 26, 2010

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.

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April 12, 2010

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]

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February 08, 2010

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. 

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December 05, 2007

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."

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November 28, 2007

More on IMF Annual Meetings Performance Budgeting Seminar

Posted by Marc Robinson

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

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

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November 26, 2007

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.

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November 23, 2007

IMF Fiscal Affairs Department: an Update of Activities in 2007

Snap1_2 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.

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November 21, 2007

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

Posted by Bill Dorotinsky

Lineitem2_3 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.

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November 09, 2007

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

Posted by Ian Lienert

Small_flag_of_indonesia 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.

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October 23, 2007

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."

October 17, 2007

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

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

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October 04, 2007

Making Performance Budgeting Work: New IMF Book

41m8or4rrxl_ss260_ Member countries will find valuable advice on how to reform their budgeting practices to improve the effectiveness and efficiency of public expenditure in a major new work on performance budgeting produced by the Fiscal Affairs Department. The book, Performance Budgeting: Linking Funding and Results (500pp), came off the presses of the top UK publisher Palgrave Macmillan in September.

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