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March 18, 2011

Asian Regional Seminar: Promoting Fiscal Sustainability through Improving the Efficiency and Effectiveness of Public Spending

Posted by Teresa Curristine

Budgetary institutions can help to promote sustainable public finances and improve the transparency and the performance of the public sector. In light of the economic and financial crisis, achieving these goals has never been as important as it is today. Countries, both in and outside of the Asian region are seeking to develop and implement fiscal exit strategies which will foster economic growth and fiscal sustainability over the medium and longer term. Improving public sector efficiency and effectiveness are important priorities for all countries, not only those facing fiscal consolidation, but also countries in the Asian region that are expanding public spending to achieve key policy objectives such as poverty reduction and enhancing infrastructure.

Earlier this month the Malaysian Ministry of Finance and the Fiscal Affairs Department (FAD) of the IMF jointly organized the Asian Regional Seminar on Promoting Fiscal Sustainability through improving the efficiency and effectiveness of public spending in Kuala Lumpur, Malaysia. More than 60 senior budget officials representing 22 countries attended the conference.

The central theme of this three-day seminar was how advanced budget reforms, such as medium-term expenditure frameworks, performance budgeting, and spending reviews, can promote fiscal sustainability through improving the efficiency and effectiveness of public spending. The seminar was not about reform models and theories but reform reality. Reform practitioners and implementers from Asian countries and a selection of OECD countries presented and discussed their experiences of developing and implementing these reform initiatives. The seminar promoted the exchange of experiences among governments in the region and between participating OECD and Asian countries.

Day 1 of the seminar was devoted to discussing the development of medium-term budgeting and expenditure frameworks. Days 2 and 3 addressed performance budgeting and management techniques and strategic and expenditure reviews (see attached agenda). Day 1 began with an opening presentation by Professor AllenSchick on promoting fiscal sustainability through improved budget institutions. This was followed by anoverview presentation by Holger van Eden (IMF-FAD) on extending budgeting to the medium term.Four countries – New Zealand, Malaysia, Korea and Thailand - presented their country’s varied experiences of implementing medium term frameworks.

Day 2 began with an overview presentation on performance budgeting and spending reviews by Teresa Curristine (IMF-FAD). This was followed on Day 2 and 3 by presentations from Malaysia, India, and the UK, on their experiences of implementing performance budgeting and management reforms. In addition, there were presentations from – Australia, Canada, Korea and the USA – on implementing strategic and expenditure reviews and performance budgeting.

These presentations (attached below) ignited some excellent discussions and lively debates. Although no consensus was reached; a number of important points and issues were raised.

Below are my views and thoughts on the ten most interesting issues and points emerging from the seminar. These are not in order of importance.  I hope they can be helpful to countries seeking to introduce reforms in the future.

Challenging conventional wisdom: The seminar successfully challenged some conventional views, it showed that OECD countries do not have it perfect and are facing some similar challenges and issues as middle income countries in implementing medium-term frameworks and performance budgeting and management reforms. Despite the perception that Asian countries are relative new comers to performance budgeting, some countries in the region, including Malaysia and Singapore, have had performance budgeting for many decades, in Malaysia’s case since the 1960s. It emerged that Malaysia, Korea and Singapore are highly advanced in the area of performance budgeting and are on a par, if not more advanced, than many OECD countries.

From paper to implementation and integration: Many countries have on paper some sort of medium-term budgeting initiative and the majority of countries have developed performance information albeit to different degrees. Major challenges for all countries adopting these reforms are to meaningfully implement the laws and initiatives and integrate the reforms with each other and with the budgeting and management systems. For example problems arise when medium-term frameworks are dealt with and conducted as separate exercises and are not related to or integrated with the budget. Another example of failure to fully implement and integrate is when performance information is generated but not linked to or used in budgeting or management decision making.

Understanding different stages and contexts: Asian countries are at different stages of designing and implementing these initiatives, from the highly advanced to those at the starting gate. Regardless of the stage of implementation, the seminar reconfirmed that context does matter and that reform paths need to be adapted to national capacities, political and economic circumstances, cultures, and policy priorities.

Evolve to survive: The descriptions of the evolution of New Zealand’s medium-term framework from 1989 to the present day and UK’s performance budgeting and management initiatives from 1998 to now demonstrated how reforms evolve overtime and adjust as countries learn from their experiences of what works and what does not. In many countries, adjusting reforms becomes necessary as key actors –for example line ministries– learn to game the system or the reforms overtime lose momentum and become paper or compliance exercises. The challenge is to know when to make the changes and what to change.

New political administrations – new initiatives: The change in political administrations in the UK and the USA have resulted in the removal of some familiar aspects of performance budget and management reforms and the introduction of new initiatives. In the UK, Public Service Agreements have been abolished. They have been replaced by a Public Sector Transparency Framework and Departmental Business Plans which include input, impact and efficiency indicators. There is now monthly reporting on progress against these plans. In the US, the international renowned PART exercise is no longer. It has been replaced by a number of initiatives which focus on improving performance management and accountability for results. The Government Performance and Modernization Act became law in January 2011. This act requires the President to set priority cross cutting outcome goals for the federal government one year after taking office. It also requires agency heads to set 2-year priority goals. There is quarterly reporting and review of federal agency progress towards achieving these goals and annual reports to Congress on unmet goals.

Prepare for and adapt to changing economic circumstances: Professor Schick highlighted that that the test of a budget system is in good times. It is essential for rules and frameworks to promote fiscal prudence during periods of strong economic growth. Budget in good times to ease the bad times, although commentators noted that in practice this can be challenging as in good times there is always political pressure to spend the money and even when frameworks are in place to revise spending caps upwards.

Bad times appear to increase governments’ and Ministries of Finance’s interest in performance information and tools. Many countries with performance tools are adapting them to address the challenges of economic downturns and fiscal consolidation. A number of countries are placing greater emphasis on expenditure reviews – for example Australia and New Zealand. In the US, the new law requires agencies to identify low-priority program activity. The governments in Canada and the UK are placing more emphasis on having itemized information on inputs and activities as a means of driving government efficiency. In addition, there is an increased interest among countries seeking to reform  in the Canadian experiences with strategic reviews and the Korean experience with program review and evaluation.

Leadership is essential: Nearly all participants agreed on the importance of political leadership to push the introduction and implementation of medium-term frameworks and performance budgeting and management initiatives. Leadership is also needed within the organization to drive the reforms forward and show that change is not only desirable but necessary. Some commentators advocated the need for high level reform champions and to demonstrate quick wins to maintain reform momentum. It is important to find ways to engage politicians and senior organizational leaders and to make performance and management issues visible to them and the general public.

Pilots schemes for reforms? There was a lively debate on the role of pilots in reform implementation. Some commentators argued that pilots doom reforms and serve to delay implement until the momentum for reform is gone. They argued it is better for governments that have a clear idea of what they want to achieve to go ahead with reform and mobilize the resources and managerial and political capital as opposed to waiting for the feedback from pilots. Other commentators felt that pilots had worked for their country and had allowed them to foresee issues and adjust the reforms to avoid problems in full implementation.

Hold name individuals to account: Several countries are placing increased emphasis on holding named individuals accountable for achieving results. This is either internally within government through performance agreements or performance statements or externally to the legislature. In the UK, named Secretaries of State and Departmental Boards were held responsible for their achieving their organization’s goals and targets and among government officials there was a senior responsible officer. In the US, agency heads are held accountable for the achievement of high level priority goals, in addition senior goal leaders are also identified. In India, Secretaries of Departments are also being held accountable for departmental performance and achieving agreed upon targets via Result Based Frameworks.

Do not forget the people: Often in public financial management reforms the concentration is on the technical, institutional, and organization aspect of reform and the people are forgotten. It is important not to lose sight of human resources and that civil servants are needed to make reform work, without their support change can be blocked. Training is essential but it has to be connected to the reforms and it should contain not just technical aspects but also motivational. Training is not a substitute for reform.

Download Agenda

Download Opening Session_USA_Schick

Download Session 1_USA_van Eden

Download Session 2_New Zealand_Janssen

Download Session 2_Thailand_Reungsri

Download Session 4_USA_Curristine

Download Session 5_India_Trivedi

Download Session 5_Malaysia_Thomas

Download Session 5_UK_Shostak

Download Session 6_Australia_Saunders

Download Session 6_Canada_Stacey

Download Session 6_Korea_Park

Download Session 6_USA_Brown_Revised

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

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