A New Path to Improve FMIS Performance

Posted by Gerardo Uña[1]

In a previous blog article, I spelled out some of the reasons why the performance of FMIS systems in developing countries around the world has been generally disappointing. These reasons include the lack of well-crafted conceptual design, sufficiently strong leadership by the ministry of finance, financial and technical capacities within the government, secure financing, good project management, adequate testing of the systems before they are implemented, and a feasible maintenance strategy. In this second article, I consider the question of whether there is an alternative path for implementing FMIS that would be more cost-effective, and could lead to improved results.

Looking back historically, we can see that the implementation of FMIS went through two main phases. In the first phase, from about the early-1980s until the mid-1990s, the dominant approach was to implement a comprehensive IT system that supported core PFM business processes, including budget preparation and execution, cash management, accounting, and debt management. In addition, “peripheral” functions such as public procurement, payroll, and asset management also used the same technological platform. This approach broadly replicated the so-called Enterprise Resource Planning (ERP[2]) systems that were widely used in the private sector to support companies’ resource management business processes.

Sequencing of Performance-Based Budget Reforms

Posted by Maarten de Jong[1] and Alfred T. Ho[2]

Performance budgeting (PB) is increasingly viewed as challenging by countries with advanced PFM systems, but continues to be popular with many governments and development partners.  In response to its far from trouble-free history, attitudes towards PB reform have gone through a transformation during the last decade. Overrated expectations have been lowered and lessons are being learned. Today, PB is no longer considered as an effective tool to alter budget allocation but rather as a way to increase fiscal transparency, align government priorities with activities and spending, and foster organizational learning. As a result, the line between performance management and performance budgeting has become increasingly blurred. Two lessons in particular surface from recent academic studies. First, the degree to which performance information will actually be used by public sector organizations is key to the success of PB reforms. Second, the use of such information is highly dependent upon institutions such as power relationships, leadership and culture.

Apart from macro-factors such as the economic and political environment, specific institutional factors include acceptance by stakeholders, codification in laws and procedures, capacity (both people and systems), incentives and safeguards for employees to use performance logic, and power relationships between the center of government and other stakeholders. Culturally, specific barriers may stand in the way of embracing PB’s underlying assumptions of technical rationality, openness and transparency, especially in non-western cultures and political systems. Ignoring these factors may nullify a reform effort or make it vulnerable to window dressing.

Toward Next-Generation Performance Budgeting

Posted by Ivor Beazley[1] and Don Moynihan[2]

Performance budgeting (PB) has a deep and enduring appeal. What government would not want to allocate resources in a way that fosters efficiency, effectiveness, transparency, and accountability? However, such aspirations have proven poor predictors of how performance data are actually used. The potential benefits of identifying and tracking the goals of public spending are undeniable, but have often justified a default adoption of overly complex systems of questionable use. Faith in PB is sustained by a willingness to forget past negative experiences and assume that this time it will be different. Without a significant re-evaluation, PB’s history of disappointment seems likely also to be its future.

A next-generation approach to PB should acknowledge that not only are the transaction costs of such systems significant, they often result in a checklist mentality. A more targeted approach can both reduce administrative costs and make performance data more useful. It requires clear and realistic objectives for performance budgeting, and systematic differentiation between ministries and programs that merit a substantial performance focus, and those where a lighter regime is appropriate. Attention also needs to shift from creating a new set of rules and formats for performance budgeting to instilling routines whereby performance information is used regularly as part of program management, thus instilling a “performance culture” in government.

Public Investment – The Perils of Premature Election Commitments

Posted by Jason Harris[1]

Increasing public investment is one of the more common pieces of advice given to countries over recent years, particularly in the presence of economic slack and low interest rates. In these conditions the short-term boost from increased demand adds to long-term benefits from increasing productive capacity. 

But while increasing investment is relatively easy to recommend in aggregate terms and at the political level, when it comes to the nuts and bolts of project selection, approval and execution, problems abound.  This is particularly so when premature commitments are made before a full project assessment has been done, resulting in cost blowouts and implementation delays.

How to Check Integrity of Fiscal Data

Posted by Benoit Wiest and Pokar Khemani[1]

Why is integrity of fiscal data so important?  Fiscal data relates to the use of public funds and its accurate reporting is a high priority for governments and donors, as well as for the IMF in its work on surveillance and program monitoring. Comprehensive fiscal reporting in line with international standards such as the IMF’s Fiscal Transparency Code and the Government Finance Statistics Manual (GFSM 2014) provides reasonable assurance about a government’s fiscal position and the integrity of the underlying data. However, the accuracy and reliability of government accounts and fiscal data can still be an issue. In many cases, the data provided by the authorities for program monitoring and surveillance are characterized by significant and persistent statistical discrepancies between the fiscal balance (“above-the-line”) and net financing (“below-the line”). These discrepancies are usually an indication of underlying weaknesses in a country’s public financial management (PFM) system, as well as issues with the integrity of financial data, and processes for collecting and disseminating this information. Significant and persistent discrepancies in data may require an investigation, and the development of specific measures to deal with these issues.

How to Link SDGs to the Budget

Posted by Suren Poghosyan[1]

The Millennium Development Goals (MDGs) were critical in presenting a global policy agenda with country-specific targets. MDG processes, however, were not well coordinated with countries’ national policies and budget processes. Ministries of finance were detached from the core dialog on MDGs, and there was a mismatch between the MDGs and budget classification systems. The 17 Sustainable Development Goals (SDGs) have replaced the MDGs with a more comprehensive policy agenda that now covers all countries. Developing countries, however, will face challenges in effectively transforming the SDGs into national policies and budgets. How therefore to build a stronger bridge between the SDGs and countries’ budget processes?

Even if development goals are effectively transformed into sector strategies, budget decisions are based on their own set of processes and parameters. Some reports suggest that the UN’s functional classification system (COFOG) has been used to bridge budget allocations with the MDGs, but COFOG was never designed to serve that purpose. In some countries, civil society organizations (CSOs) have monitored the impact of selected MDGs on the budget. However, in most cases, finance ministries have continued their routine budget planning and execution processes with only occasional reflections on the MDG targets.

Implementing the PFM Directives in WAEMU

Posted by Jérôme Bonherbe[2]

Directives[3] issued by the West African Economic and Monetary Union (WAEMU) contain many provisions on public financial management (PFM). These provisions include better access to budget information, multiyear budgeting, results-oriented management, decentralized budget execution, and a new accounting and financial monitoring framework. Most of the provisions relating to public information and budget formulation came into effect in 2012. The deadline for implementing the remaining provisions, mainly on budget execution and controls, is set for 2017.

The WAEMU Commission recently carried out a self-assessment of the PFM reforms required by the Directives. This exercise used a tool prepared by the Commission that includes a range of objective, evidence-based indicators for each of the six Directives. A similar approach and tool are being employed by the CEMAC Commission for its countries[4].

Going Digital: Improving the Disclosure of Fiscal Information

Posted by Paolo de Renzio, Jorge Romero Leon, Diego de la Mora and Liliana Ruiz[1]

Some 20 years ago, putting budget information in the public domain often meant printing and carrying thick reams of paper for distribution to parliamentarians, the press and other interested actors. Nowadays, strong arms and large amounts of paper are no longer a prerequisite for budget transparency and accountability. Government finance officials simply upload information onto their ministry’s website, while journalists and civil society activists sit at their desks and access the information through their computers. Governments have also started making detailed budget information available through “transparency portals,” where large datasets are made available in searchable and downloadable formats. How are governments setting themselves up for fiscal transparency in the digital age? And how do these changes actually affect fiscal transparency and accountability? Recent research[2] carried out by the International Budget Partnership (IBP) and Fundar attempts to answer these questions.

Official Launch of PEFA 2016

Posted by Lewis Hawke [1] and Urška Zrinski [2]

After four years of development, consultation and testing the PEFA 2016 Framework was released on February 1, 2016. [3]   

What is so special about PEFA 2016? What do users think of it? How can it make a difference in understanding and improving public financial management?

These are just some of the questions that will be explored during the PEFA conference and training event in Budapest, Hungary, from April 26-29, 2016. Over 250 delegates from around 50 countries will participate in the event.

Projecting Expenditure Baselines in Barcelona

Posted by Jordi Baños-Rovira[1]

In recent years, Barcelona City Council has introduced a range of budget reforms to improve the efficiency of resource allocation and operational management[2]. In particular, a performance-based budgeting system (called the “Executive Budget’) has been developed, linked to the goals set in the Government’s Development Plan[3].

A key element of this new budget preparation process is the development of baseline projections of expenditure, which estimate the spending required to maintain current policies (or levels of service) for the next year, and to comply with already approved multi-year commitments. Budget requests by departments thus comprise two elements: the spending baselines, and additional resources required to finance new projects and services, and other policy changes.

Making More Efficient Use of Performance Information

 

Posted by Benoit Chevauchez[1]                                                                      

The role of performance information (PI) in budget management has grown hugely in advanced economies and is likely to increase in the future. PI is quantitative data on the actual or expected results of government policies and programs, associated with information on incurred costs.PI on activities, results, outputs or outcomes are non-financial data, while PI on inputs and costs are mostly financial data. Non-financial PI may take different forms such as indicators, benchmarks, ratings, rankings, league tables or scores.Such information allows the effectiveness and efficiency of public policies to be assessed, and may be used in a vast array of budget or non-budget environments.More than 80 percent of OECD countries are now using PI to support budget management. This rapid growth has gone hand in hand with the development of program and multiyear budgeting as well as with public policy evaluations and spending reviews. The present worldwide focus on fiscal consolidation, with shrinking fiscal space, demands a larger use of PI in order to strengthen the allocation process.  

Performance Budgeting in the States of the United States 1/

By Celeste Kubasta

In developing PFM reforms it makes sense to look at other countries for best practices. Often people forget, however, that in the larger countries of this world the most exciting reforms often take place at the state or provincial level. Examples of states being more innovative than central or federal government can be found in countries as diverse as China, India or the US. The fifty states in the US provide a broad spectrum of PFM reform experiences, especially in the area of performance budgeting. The National Association of State Budget Officers recently prepared a report, “Investing in Results: Using Performance Data to Inform State Budgeting”. The range of methodologies described within this report is sure to provide country officials with useful insights for their reform efforts.

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.

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).

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.

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.

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.

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.

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.

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.

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.

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.

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.

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]

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. 

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.

Making Performance Budgeting Work: New IMF Book

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.