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January 19, 2022

Evaluating Pakistan’s Performance Based Budget

Jan 17

Posted by Muhammad Afnan Alam [1]

 

In Pakistan, performance budgeting has the potential to significantly improve the poor quality of public service delivery and the overall allocation of resources, in what has traditionally been viewed as a rigid and unresponsive budget system. To contribute to better budgeting, Pakistan's Ministry of Finance announced in June 2021 a Medium-Term Performance-Based Budget for the next three fiscal years.

The new framework creates several potential benefits for stakeholders. Performance budgeting should allow the government to better match budget allocation decisions with policy priorities, increasing the likelihood of meeting crucial commitments. It should help the country’s parliament better understand the high-level objectives of spending and what goods and services they will receive in return for their votes, while also holding government officials accountable for results. It will provide new data and tools to hold line ministries accountable for spending effectiveness and efficiency. Nevertheless, obstacles and challenges face government reformers in implementing the new approach.

First, evidence suggests that the poor quality of performance indicators and their lack of relevance to national and sectoral policy objectives remain significant obstacles. Lack of consistency with international data standards in Pakistan is another challenge. The use of indicators and measurement standards that are defined by international institutions, such as the OECD and the United Nations, facilitates benchmarking and other good practices.

A second challenge is that a lot of high-level outcomes statements published by the government, and the objectives they derive from, are based on historical precedents but are of limited practical value for performance management and budgeting. For example, the performance indicators used by the Federal Government’s Commerce Ministry include the total annual export of goods (in US$ billion), the increase in meat and meat processing exports, and the increase in the percentage share of light engineering exports. The resources-results link in these examples is weak because outputs often derive from multiple causes, including external demand for the products concerned, some of which are beyond government control.

Similarly, agencies responsible for education and training services have proposed a “league table” approach to providing information on services such as schools, vocational programs, and the development of the national curriculum. These league tables make interesting reading but do not explain the underlying causes of good or poor performance.

Third, in some cases the relationship between the indicators selected and the outputs and outcomes of services delivered may be intuitively clear but incapable of attribution or measurement. For instance, one of the federal Ministry of Finance’s major outcome indicators is the “Reduction in Commodity Prices through Subsidies to Public and Private Corporations”. It is not clear, however, how the Ministry will measure its success in achieving this objective. The Ministry, for example, has limited control over provincial governments’ agricultural and fiscal policies and exercises little influence over fixing commodity input prices.

Similarly unclear is how the outputs of the finance ministry on the Management of Public Finances, the Payment of Pensions and the Repayment of Principal on Loans are linked with its high-level outcomes such as Reforms and Improvement in Public Sector Enterprises and the Reduction of Poverty. It would be beneficial for the ministry to consider how it contributes to economic success, how it defines its economic objectives and outcome statements, how it proposes to use this information to take decisions on the services it should deliver, and how it intends to utilize data on the volume and quality of these services in measuring the ministry’s performance.

Fourth, the COVID-19 pandemic has brought a tailspin to the country’s public finances. The uncertainty that is inherent in budget preparation for FY2021-22 and years beyond is much higher than usual because of increased volatility in revenues and hugely uncertain expenditure needs. The finance ministry’s medium-term budget framework document currently provides little insight into the government’s plans and programs in the post-pandemic phase to trigger economic recovery, or how these plans fit into the new performance management framework.

Despite these challenges, the potential benefits of using performance data in the budgeting process appear substantial. The focus on results supports a greater emphasis on the transparent setting of objectives in planning, as well as information on what works and what does not. Citizens (and the legislators that represent them) will continue to demand material evidence that positive results have been achieved for the taxes they pay.

The process of shifting away from a complete reliance on input budgeting and toward an approach that demands an analysis of performance is an important but challenging step in many countries. In this sense, it is recognized that the utilization of performance data is a continuous process or journey, not a destination. Pakistan's budget system will continue to adapt as circumstances change, but no country has ever returned to input budgeting, despite all of the problems involved in implementing performance budgeting.

 


[1] Muhammad Afnan Alam is a career civil servant from Pakistan and holds an MPA from the LSE, UK. His interests include innovating public sector budgets to improve service delivery and exploring avenues to digitize public finance in Pakistan. He can be accessed at: afnanalam@gmail.com

 

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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