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

Bill Dorotinsky

November 21, 2007

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.

The book was prepared to help guide the introduction of program budgeting in the RoK and to capture lessons of program budgeting that would benefit any country taking this path, and therefore includes both RoK specific and more general lessons on program budgeting. For example, Chapter 2, entitled 'Paths Toward Successful Introduction of Program Budgeting in Korea,' by Dr. Allen Schick, Bill Dorotinsky, Dong Kim, Feridoun Sarraf, discusses

Chapter 3 is a more detailed discussion of introducing program budgeting in Korea, with a case study of the Korean Ministry of Environment. Chapter 4 goes into much practical detail on budget classification, and how program classifications fit with other types of budget classification (e.g. economic, functional, administrative). Though most of the book is in English, there is a final Annex in Korean.

In addition to practical guidance on program design and classification, the book includes practical advice on the process of introducing program budgets for maximum impact. Some of the key points, while perhaps obvious to some, are drawn from mistakes made in many countries over many years, and include:

The book should be a useful reference for countries embarking on program budgeting, with practical guidance on how to design and implement it, as well as for students of PFM generally and of Korea's PFM system and reforms.