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Technical Notes and Manuals 09/01 | 2009 1
A Basic Model of Performance-Based BudgetingMarc Robinson and Duncan Last
I. Objectives of the Note*
The primary objective of this technical note is to elaborate a basic model of performance-
based budgeting that could be considered for the following two categories of countries:
• thosethatwishtointroduceaperformance-basedbudgetingsystemwhileminimizingthe
complexitiesandcostsofdoingso;and
• thosewithlimitedresourcesandcapacity,includingappropriatelow-incomecountries(LICs).
Thenoteemphasizesnecessarypreconditions for any move to performance-based budgeting—
recognizingthatperformance-basedbudgeting,eveninitsbasicform,shouldnotbeconsidered
incountrieswithseriouslydysfunctionalpublicfinancialmanagement(PFM)andgovernance
systems.
Morecomplexperformance-basedbudgetingmodelsexist.Thisnotedescribesthese,and
outlinesreasonswhythesemodelsofperformance-basedbudgetingmaynotbeappropriatein
manycountries.
TECHNICAL NoTEs ANd MANUALs
* An earlier version of this note was previously issued as part of a series of technical notes on the IMF’s Public Financial Management Blog (http://blog-pfm.imf.org).
Marc Robinson was a Senior Economist in the Fiscal Affairs Department of the International Monetary Fund; Duncan Last is a Senior Economist in the Fiscal Affairs Department.
The sequencing or implementation planning for introducing a performance-based budgeting approach is not discussed here.
This technical note addresses the following main questions:
• What are the characteristics of a basic model of performance-based budgeting?
• How should low-income countries approach performance-based budgeting?
• What preconditions should exist before starting?
• What forms of performance-based budgeting should low income countries avoid?
2 Technical Notes and Manuals 09/01 | 2009
II. What Is Performance-Based Budgeting?
Performance-based budgeting aims to improve the efficiency and effectiveness of public
expenditure by linking the funding of public sector organizations to the results they
deliver, making systematic use of performance information.Thereareanumberofmodels
ofperformance-basedbudgetingthatusedifferentmechanismstolinkfundingtoresults.Some
haveverysophisticatedfeaturesandrequirethesupportofcorrespondinglysophisticatedpublic
managementsystems(seebelow),whileothersfocusmoreonthebasics.
Performance-based budgeting should not be seen as an isolated initiative.Itshouldbe
viewed,rather,aspartofasetofbroaderreforms—oftenreferredtoasmanaging-for-results—
designedtofocuspublicmanagementmoreonresultsdeliveredandlessoninternalprocesses.
Thesebroaderreformsincludecivilservicereformsdesignedtoincreasethemotivationand
incentivesofpublicemployees;organizationalrestructuringtoincreasethefocusonservice
deliveryandimprovecoordination(e.g.,creationofagenciesandreductionofthenumber
ofministries);andinstitutionalandoversightchangestostrengthenpublicaccountabilityfor
performance.Actionontheseandarangeofrelatedfrontsisnecessaryiftheefficiencyand
effectivenessofpublicexpenditureistobesubstantiallyimproved.
III. The Model
The most basic form of performance-based budgeting is that which aims to ensure that,
when formulating the government budget, key decision makers systematically take into
account the results to be achieved by expenditure.Thisiswhatissometimesreferredtoas
“performance-informedbudgeting.”
The essential requirements for this most basic form of performance-based budgeting are
• information about the objectives and results of government expenditure,intheformof
keyperformanceindicatorsandasimpleformofprogramevaluation;and
• a budget preparation process designed to facilitate the use of this information in
budget funding decisions,includingsimpleexpenditurereviewprocessesandspending
ministrybudgetdecisions.
A program classification of expenditure in the budget is also highly recommended.By
classifyingexpenditureintogroupsofsimilarserviceswithsimilarobjectives,aprogrambudget
helpsbudgetdecisionmakerscomparethecostsandbenefitsofexpenditureoptions.
Systematicconsiderationofresultsinthebudgetpreparationprocesshasthepotentialto
• improve expenditure prioritization(thecapacitytoallocatelimitedresourcestowherethey
willdothemostgood);and
Technical Notes and Manuals 09/01 | 2009 3
• encourage line ministries to spend more efficiently and effectivelybymakingthem
awarethattheirperformancewillinfluencetheirleveloffundingandbyreducingor
streamliningthecontrolsthatimpedegoodperformance.
If,forexample,certaingovernmentprogramsarenotdeliveringtheirintendedoutcomesorare
doingsoatanunreasonablyhighcost,focusingtheattentionofbudgetdecisionmakersonthis
factduringthebudgetpreparationprocesscanencouragethemtoconsiderwhethertheprogram
shouldbeabolished,scaled-down,orfundamentallyrestructured.
Basic performance-based budgeting can also improve aggregate fiscal discipline. Improving
expenditureprioritizationmeansanimprovedcapacitytomake“fiscalspace”fornewspending
initiativeswithoutcommensuratelyincreasingaggregateexpenditure.Italsofacilitatesfiscal
consolidationwhenthisisnecessarybyhelpinggovernmenttargetspendingcutsatitsleast
effectiveorleastsociallyimportantprograms.Andinsofarasperformance-basedbudgeting(and
managing-for-resultsgenerally)succeedsinimprovingtheefficiencyofgovernmentservices,it
enablesgovernmenttodo“morewithless”andhelpscontainthelong-termupwardpressureon
aggregatepublicexpenditure.
Performance-based budgeting fits naturally with a medium-term budget framework,
althoughthelattershouldnotbethoughtofasaprerequisitefortheformer.Likeperformance-
basedbudgeting,amedium-termbudgetframeworkaimstoimproveexpenditureprioritization
(althoughperformance-basedbudgetingismuchmorefocusedonmanagingtheefficiencyand
effectivenessofpublicexpenditure).Thebestwaytoimproveexpenditurepolicyformulationis
bothtomakemaximumuseofperformanceinformationandtoconsiderthemedium-termcost
implicationsofexpenditurechoices.
IV. Information on Objectives and Results
Systematic information about the efficiency and effectiveness of public expenditure is the
most fundamental tool of performance-based budgeting, and of managing-for-results more
generally.Onlyifreliableandtimelyinformationisavailableabouttheresultsbeingdeliveredby
governmentactionswillitbepossibletomakeperformance-informedbudgetdecisions.
Basicperformance-basedbudgetingcan,therefore,onlybesuccessfulifeveryspendingagencyis
requiredto
• explicitlydefinetheoutcomesthatitsservices(outputs)aimtodelivertothecommunity;
and
• providetotheministryoffinanceandkeypoliticaldecisionmakersduringthebudget
preparationprocesskeyperformanceindicatorstomeasuretheeffectivenessandefficiencyof
itsservices.
4 Technical Notes and Manuals 09/01 | 2009
The biggest challenge in the development of a basic model of performance-based budgeting
is keeping this performance information simple, affordable, and usable.Alltoooften,
newcomerstoperformance-basedbudgeting,includingLICs,havesetouttodevelopsophisticated
performanceinformationsystemsovershorttimeperiods(aslittleasayearortwo).Theyfailto
fullyrealizethatsuchinformationisexpensiveandrequiresskilledhumanresourceswhichmay
notbereadilyavailableoraffordable.ItisworthrememberingherethatsimilarsystemsinOECD
countriestookdecadestodevelop.
Realism and the recognition of financial and human resource constraints suggest that
countries should aim initially to develop only a handful of key performance indicators for
each ministry and subsequently for each program.
Evaluation is important even in a basic modelbecauseindicatorsaloneareofteninsufficientto
judgeprogramperformance.However,itisimportanttoavoidtheallocationofexcessiveresources
toa“monitoringandevaluation”industryemployingcomplexevaluationmethodologies.Inabasic
modelofperformance-basedbudgeting,thefocuscould(atleastinitially)beprimarilyuponso-
called“desk”evaluations.1
V. Budget Processes to Use Performance Information
The availability of the right performance information is a necessary—but not a sufficient—
condition for the success of performance-based budgeting. The performance information
also has to be actually used in the budget process. Therehavebeenanumberofexamplesof
countriesthathavemadegreateffortstodevelopthenecessaryperformanceinformation—and
havealsoplacedthebudgetonaprogrambasis—buthavethenfailedtomakeanysignificantuse
ofthisinformationwhendecidingthebudget.
Experience shows that, in order for performance-based budgeting to work, reconsideration
of spending priorities and program performance need to be formally integrated into the
budget process.Theseroutinesneedtobedesignedsoastomakemaximumuseofavailable
informationonprogramperformance.Thepreciseformsuchroutinesshouldtakeshouldbe
country-specific,dependinginpartonnationalspecificssuchasthecharacteristicsofthepolitical
andadministrativesystems.However,somekeycommonelementsare
• a“strategicphase”earlyoninthebudgetcycle,whichincorporatesapreliminary
considerationofthegovernment’sbroadexpenditurepriorities;
1Theprimaryelementsofwhichareananalysisof(i)theimportanceoftheprogramobjective(istheprogramattemptingtodeliversomethingthatisreallyimportanttothesocietyandinlinewiththegovernment’sstatedpolicypriorities?);(ii)whatavailableperformanceinformationindicatesabouttheeffectivenessandefficiencywithwhichtheseobjectivesarebeingachieved;and(iii)theprogramlogic—whetherthestrategybywhichtheprogramattemptstoachieveitsintendedoutcomemakessense,andwhetherthereissufficientcoordinationamongdifferentactors(especiallyinthecontextofdecentralization),giventheexperienceofothercountriesandrelevanttheory.
Technical Notes and Manuals 09/01 | 2009 5
• anexpenditurereviewprocess—evenifaverysimpleone—thatisdesignedtokeep
underreviewtheappropriatenessandeffectivenessofexistingprogramsandthatcanuse
performanceinformationtohelpidentifythosethatcanbecutback,oreveneliminated,as
wellasthosethatmightbeexpanded;
• asystematicprocessforscrutinizingallproposednewspendinginitiatives;and
• arequirementthatallspendingministrybudgetsubmissionsbesupportedbyinformationon
theeffectivenessandefficiencyofitsexpenditure.
Expenditure review processes deserve special emphasis.Withoutsystematicspendingreview,
itbecomesmuchhardertomakefiscalspacefornewpriorities.Anditisintheassessmentof
existingexpenditureprogramsthatperformanceinformationismostuseful.
Performance-based budgeting does not necessarily require elaborate and formal national
planning processes.Medium-termsectoralplanning,particularlyintheservicedelivery
sectors,suchashealth,education,infrastructure,andeconomicactivities,canprovideessential
performanceinformationforlineministries.However,toensureeffectivesynergybetweensectoral
plansandperformancebudgets,theplanningprocesswillneedtobefullyintegratedintothe
budgetcycle.National-levelplanningprocessescanalsoprovideausefulmeanstocoordinate
andprioritizesectoralplansaroundkeynationalpriorities,suchaseconomicgrowthandpoverty
reduction,buttheseshouldremainlightandadaptable,andfullyintegratedwiththe“strategic
phase”ofthebudgetcyclementionedabove.
Where the planning process is institutionally separated from the budget process, the
introduction of a performance-based budgeting approach may not deliver the desired
results.Insomecountries,planningcommissions/ministriesformulatebulkyfive-orten-year
plansthatareintendedtoguidepublicexpenditure.Manyofthesecountriesexperiencechronic
difficultyinensuringthattheprioritiesidentifiedintheplanningprocessarereflectedinthe
allocationofresourcesintheannualbudget.Someinthesecountriesviewperformance-based
budgetingasthesolutiontothisproblem,inthebeliefthatimprovingplanningthroughtheuse
ofbetterperformanceinformationwillleadtogreaterrespectfortheplaninbudgetformulation.
Wherebudgetdecisionmakersdonottaketheprioritiesidentifiedintheplanseriously,however,
thismayleadtopossibleconflictbetweenplanningandbudgetingobjectives,andresultin
weakeninggovernmentpolicyprioritization.
VI. A Program Budget
A program budget classifies expenditure by types of service and objectives, rather than—as
in traditional budgeting—by types of inputs(salaries,supplies,equipment,etc.).Thisisa
powerfultoolforperformance-basedbudgetingbecauseitindicateshowmuchmoneyisbeing
directedatachievingparticularoutcomesforthecommunity.Thisenablesbudgetdecisionmakers
toassessthebenefitsandefficiencyofprogramsrelativetotheircosts.
6 Technical Notes and Manuals 09/01 | 2009
Program budgeting is, therefore, an element of performance-based budgeting that is highly
recommended for those countries that have the resources and capacity to introduce it.
However,forthosecountriesnotyetreadytomovetoaprogrambudget,thetwoelements
outlinedabove—betterperformanceinformationandbudgetprocessestousethatinformation—
canstilldeliversignificantbenefits.
A program budget requires the development and public presentation of key performance
and cost information about each program,including
• theprogram’sobjectivesandhowtheselinktonationalandsectoralpriorities;
• thekeyservices“outputs”thattheprogramdelivers;
• howtheprogramisintendedtoachieveitsstatedobjectives(e.g.,activities,projects,etc.);
• keyperformanceindicatorsandevaluationresultsbyprogram;and
• programcosts.
Under program budgeting, the budget preparation process should be program based. That
is,agenciesshouldpresentandjustifytheirbudgetsintermsofprogramswithsupportingcost
andperformanceinformation.Inaddition,theprogramperformanceinformationshouldbe
presentedtothelegislatureandpublicaspartofthebudgetdocumentation.
Program budgeting usually also involves legal appropriation of funds in the budget on a
program basis.2
Program classification is a demanding task that requires careful design and coordination.
Generalprogramclassificationprinciplesaretreatedelsewhere3andare,therefore,notcoveredin
detailinthisnote.However,afewkeypointsareworthnoting:
• Programs should be directly linked, to the maximum degree possible, to outcomes and
outputs.
• The program classification should comprehensively cover all government expenditure.
InmanyLICs,programclassificationshavebeenintroducedthathaveexcludedlarge
elementsofexpenditure—suchascivilserviceemploymentcostsorcapitalexpenditure.
Withsuchmajoromissions,programsbecomequestionableasabasisformakingjudgments
aboutexpenditurepriorities.
• A program budget requires that the accounting system be enhanced to record
expenditure on a continuing basis by program(aswellasbytheestablishedeconomicand
administrativeclassifications).
2Thereare,however,somecountrieswherebudgetpreparationtakesplaceonaprogrambasisbutparliamentappropriatesagencybudgetsonanaggregatedbasis.Ultimately,thisisaquestionoftheallocationofbudgetarypowerbetweentheexecutivegovernmentandthelegislature.If,asisusuallythecase,theprincipleisthatthelegislatureshouldhaveultimateauthorityovertheallocationofpublicfunds,thenthebudgetshouldbeappropriatedbyprogram.
3M.RobinsonandH.vanEden,“ProgramClassification”inM.Robinsoned.(2007),Performance Budgeting: Linking Funding and Results,PalgraveMacmillan,Basingstoke(hereafterreferredtoasPerformance Budgeting).
Technical Notes and Manuals 09/01 | 2009 7
Abasicmodelofperformance-basedbudgetingdoesnotrequirea“perfect”programclassification
ofexpenditure.Twopointsareparticularlyrelevanthere:
• It makes sense to use “administration” programs within line ministries to group
together the costs of support services (e.g., human resources and financial
management) and overhead management—i.e.,whataccountantsrefertoas“indirect”
costs.Inaperfectworld,bestpracticewouldbetoavoidsuchprogramsbecausetheyare
basedoninternalprocessratherthanresultsdeliveredtothecommunity.Ideally,these
costswouldbedistributedasoverheadstoservicedeliveryprograms.However,inorder
toavoidtheuseofadministrationprograms,oneneedsstrongmanagementaccounting
systemscapableofallocatingindirectcoststoministry“products”withareasonabledegree
ofaccuracy.Suchmanagementaccountingsystemsdonotexistinmanycountries(especially
LICs),andtheirdevelopmentcannot—giventhecostinvolved—begenerallyregardedasa
highpriority.
• Usable estimates of program costs do not require accrual accounting or budgeting.
Accrualaccountingisdemanding,bothintermsofskilledstaffandthefinancialcostsof
operatingthenecessarysystemsandmaynotbeappropriateinmanycountries.Accrual
budgetingisevenmoredemanding.Itistruethataccrualsgivemoreaccurateinformation
onprogramcosts.However,theinformationonprogramcostsgeneratedbya“cash”
budgetingsystemis,forthemostpart,sufficientlyclosetothemarktosupportconsiderable
improvementsinbudgetdecisionmaking.4
VII. Managerial Freedom
Theintroductionofperformance-basedbudgetingwillideallyrequiregreater flexibility for
spending ministries and program managers,whoareexpectedtobecomemoreaccountablefor
results.5Inparticular,performance-basedbudgetingrequires
• Increased input flexibility: line managers should be givengreaterflexibilitytochoose
theinputmixthatcanmostefficientlydeliverservices.Thisrequiresareductionofthe
largenumberofdistinctlimitsimposeduponexpenditurebyeconomicclassification(“line
item”)intraditionalbudgeting.However,inthecaseofLICs,thereductionofinputcontrols
shouldnotingeneralproceedasfarashasbeenthecaseinsomeOECDcountries.Itwill
often,forexample,beappropriatetomaintainseparatespendinglimitsonexpenditureitems
4SeeM.Robinson“CostInformation”(inPerformance Budgeting).Noteinparticularthatwhileitistruethatcashinformationignoresthecostsassociatedwiththeutilizationofthecapitalstock—whichinanaccrualsystemismeasuredbydepreciation—itisalsotruethatmuchofthiscostisa“sunk”costthatisirrelevanttoshort-termdecisionsaboutthelevelofprogramfunding.
5Inprinciple,aperformance-basedbudgetingapproachcouldbeintroducedinahighlycentralizedenvironment,whereallresourceallocationdecisionsaretakencentrallybytheMoForthePresidency.However,sincebudgetimplementationinevitablyinvolvestechnicalministries,whomaynotnecessarilysharethecentrallydefinedpriorities,enhancedefficiencyandeffectivenessintheuseofbudgetresources,theprimeobjectiveofperformance-basedbudgeting,isunlikelytobeachieved.
8 Technical Notes and Manuals 09/01 | 2009
particularlysusceptibletocorruptionandabuse(entertainment,travel,consultancy,etc.).
Insofarascivilserviceemploymentregimesremainrigid—inthesensethat,oncehired,civil
servantscannotbefired—itmaybeappropriatenotonlytomaintainline-itemcontrolsover
employmentcosts,butalsoquantitativelimitsonministryemploymentlevels.Andasin
mostdevelopedcountries,line-itemcontrolsovercapitalexpenditureandtransferpayments
shouldbemaintained.
• Administrative process flexibility:ifexpenditureprioritizationistobeimproved,itis
crucialthatgovernmentshavethecapacitytoreducecivilserviceemploymentinlow-
priorityorineffectiveprogramareas.Yet,inmanycountries,governmentsarenotableto
evenredeploystaffasneedsarise.Greatercivilserviceemploymentflexibilityis,therefore,an
importantelementtothesuccessofperformance-basedbudgetingandmanaging-for-results
moregenerally.However,theappropriatedegreeandpaceofcivilservicereformwillvary
fromcountrytocountrydepending,amongotherthings,uponthequalityofgovernance.
Furthermore,inmanyLICs,suchchangesinthecivilservicewillrequiresignificant
retrainingandcapacity-buildingefforts.
VIII. Readiness to Introduce Performance-Based Budgeting
Performance-based budgeting is not, as noted above, an initiative that is appropriate for all
countries.Adecisionaboutwhethertointroducesuchasysteminanyspecificcountryshouldbe
basedonsoberconsiderationofthegovernanceconditions,thestateofthebasicpublicfinancial
management(PFM)systems,andtheavailablehumanandfinancialresources.
Technical improvements like performance-based budgeting cannot be expected to succeed
in improving the efficiency and effectiveness of public expenditure in countries with very
poor governance.If,forexample,thepoliticalandbureaucraticleadershipishighlycorrupt
andrent-seeking,withlittleinterestinimprovingpublicsectorperformance,performance-based
budgetingandother“managing-for-resultsinitiatives”willbeawasteofeffort.
There are also a number of PFM prerequisites that should be met before any consideration
is given to “second generation” initiatives such as performance-based budgeting,themost
importantofwhicharethefollowing:
• The existence of soundmacrofiscal policy management,sothatspendingministry
budgetsdonotsuffermassiveuncertaintyaboutthefundingtheywillreceiveduringthe
budgetyear;and
• An ability to enforce the execution of budgets as planned.This requiresrespect of
budgetary rules and proceduresandthecapacitytoapply(andpolice)theminexecution.It
alsorequiresgoodaccountingandauditingprocedures.
The existence of adequate staff capacity to address the informational requirements of
performance-based budgeting is the main institutional prerequisite.The“scaleddown”form
Technical Notes and Manuals 09/01 | 2009 9
ofperformance-basedbudgetingoutlinedinthisnoteis,quitedeliberately,onethatrequiresa
reducedsetofperformanceinformation.However,eventhedevelopmentofsuchareducedset
ofperformanceinformationisdemanding,andforthoseLICswithseriouscapacitylimitations,
itmaynotmakesensetoembarkontheintroductionofeventhesimplestformofperformance-
basedbudgetinguntilsuchcapacityconstraintsareovercome.
IX. “Advanced” Forms of Performance Budgeting
Anumberof“cuttingedge”performance-budgetingmechanismsthathavebeenadoptedbysome
OECDcountriesarenotpartofthebasicmodelproposedinthispaperandshouldbetreatedwith
greatcautionbyLICsandmanyothercountries.Theseinclude
• Budget-linked performance targets:thisapproachtoperformancebudgetinginvolvessetting
performancetargetsforalllineministriesaspartofthebudgetprocess.Themostsuccessful
exampleofthisapproachistheU.K.“PublicServiceAgreement”system.6Thisapproachis
difficulttoapplyinLICsbecauseitrequires
—awell-developedperformancemeasurementsystem;and
—asolidinformationbaseontherelationshipbetweenfundinglevelsandtheresultswhich
theministrycanbeexpectedtoachieve.7
However,whilecomprehensivetargetsettingwouldgenerallybeinappropriateforLICs,
selectivetargetsettingmaybehighlydesirable(e.g.,targetsforvaccinationratesorliteracy
levels).
• The production of summary program performance ratings for all programs for use
in the budget preparation process.Themostadvancedexampleofsuchasystemisthe
U.S.ProgramAssessmentRatingTool,underwhichtheperformanceofeachandeveryU.S.
federalprogramwasrated(as“effective,”“moderatelyeffective,”“adequate,”“ineffective,”
or“resultsnotdemonstrated”)overafive-yearperiod.Whilethissystemappearstooperate
verywellintheU.S.,thisisonlybecausethesummaryprogramperformanceratingsdraw
onamassofestablishedperformanceindicatorsandprogramevaluations.Thereareveryfew
countriesintheworldthathave,orcouldexpecttodevelopintheshortormediumterms,a
sufficientlystrongperformanceinformationsystemtomakethisapproachwork.
• Purchaser-provider systems:thisapproachtreatslineministrieslikecommercialbusinesses
thatarepaid“prices”bythegovernmentfortheservicestheydelivertothecommunity.The
problemwiththisapproachisthat
6SeeP.Smith,“PerformanceBudgetinginEngland:PublicServiceAgreements,”(inPerformance Budgeting).
7Intheabsenceofthis,targetswilltendtobearbitrary.Settingarbitrarytargetstendstobeworsethansettingnotargetsatall,becauseunreasonablydemandingtargetsdemotivate,whiletargetsthataresettoolowbecomeanexcuseforcontinuedpoorperformance.
10 Technical Notes and Manuals 09/01 | 2009
—ithasbeenunsuccessfulwhenappliedonagovernment-widebasis,eveninOECD
countries,andhasbeensuccessfulonlywhenappliedselectivelytothefundingof
specificsectorsorspecificinstitutions(e.g.,hospitals);8and
—itisextremelydemandingofperformanceandcostinformation.
Oneperformancebudgetingtoolthatcanbeuseful,ifappliedonaselectivebasisincertainsectors
inLICs,istheuseofinformationaboutthecostperunitofoutputs(or,morerarely,outcomes)
inbudgetplanningorinformulafundingmoregenerally.9However,additionalcapacityand
expertiseisrequiredtocollectandmaintainunitcostdata,whichmaynotbejustifiableorfeasible
formanyLICs.
Elements of a scaled-down performance-based budgeting model
Advanced features to be treated with great caution
A “strategic” priority setting phase early in the budget cycle
Budget-linked performance targets
An expenditure review process Production of summary program performance ratings
Systematic scrutiny of new spending proposals Purchaser-provider systems
Information on efficiency and effectiveness to support budget submissions
Introduction of program budget structure
Increased managerial flexibility
X. Conclusion
Ithasbeensuggestedthatperformancebudgetingisentirelyinappropriateforawiderangeof
countries,includingallormostLICs.Thisnotesuggeststhatthisistoosimplisticaview.A“scaled-
down”modelofperformance-basedbudgeting—whichaimstomakethebudgetpreparationprocess
more“performance-informed”—canbeimplementedinsomeLICsandcouldbeofsignificantbenefit
toacountry’sdevelopment.However,thisshouldonlybeattemptedinthosecountrieswheresound
macrofiscalpolicyhasbeenestablished,PFMsystemsandproceduresensurethatbudgetsareexecuted
asplanned,informationsystemsareabletoprovidetimelyandreliablebudgetarydata,andenhanced
capacitiesareavailabletohandlethemoredemandinganalysisthatperformance-basedbudgeting
requires.Finally,countrieswithseriousgovernanceproblemsareunlikelytobenefitmuchfrom
performance-basedbudgeting.
8Purchaser-ProviderSystemshavebeenhighlysuccessfulinthehospitalsectorinmanycountriesintheformoftheso-called“diagnosticrelatedgroup”fundingsystem.SeeM.Robinson,“Purchaser-ProviderSystems”(inPerformance Budgeting).
9SeeP.Smith,“FormulaFundingandPerformanceBudgeting”(inPerformance Budgeting).
Technical Notes and Manuals 09/01 | 2009 11
APPENDIX I. Case Studies
Amongtheusefulcasestudiesforcountriestoevaluatearethefollowingfourcountries,which
haveintroducedoraremovingtowardperformance-basedbudgeting:
Case 1: Mali
ThepressuretoinitiatethedevelopmentofprogrambudgetinginMalicamefromtheNational
Assemblywhich,in1995,urgedthegovernmentto“adoptabudgetingsystemandabudget
presentationwhichwouldallowthemnotonlytocheckandevaluatetheconsistencyand
coherenceofbudgetaryproposalswithexistingnationalprogramsorplansbutalsotomonitor
progressofthegovernmentingeneral,andthelineministriesinparticular,towardthe
achievementoftheobjectivessetinthoseprogramsandplans.”Theministryoffinancestarted
aphasedapproachtointroducingprogrambudgetingstartingwithafewministriesin1997and
completingallministriesafewyearslater.Theresultingprogrambudgetsaresenttoparliament
butinaseparateannextothemainbudget.Programsareidentifiedwithineachministryandare
alignedtothevariousmissionsthattheministryisgivenwithinthegovernment.Supportforthis
budgetimprovementprocessinMali,otherthaninparliament,hascomefromhavingachampion
inthepersonofthebudgetdirectorandsubsequentministeroffinance,whotookcaretobuild
thetechnicalcapacitywithintheministrytoguidethenewapproach.Whilethedevelopment
ofprogrambudgetinginMalihasfollowedaclassicroute,ithasyettobecomethebasisofthe
approvedbudget,whichhassofarlimiteditsusefulnessasabudgetarymanagementtool.
Case 2: Ethiopia
ThepressuretointroduceaprogramstructuretothebudgetinEthiopiacamefromtheprime
minister,whowantedamechanismtoevaluateperformanceofministries,particularlyin
thecontextofcivilservicereformssuchasstrategicplanningandmanagementandservice
deliveryimprovement.InEthiopia,thecivilservicereformswentaheadwithoutappropriate
improvementsinthebudgetaryprocess,i.e.,ministrieswereundergoingmajorchangeswithout
anycorrespondingimprovementsinthewaytheirbudgetswerebeingpreparedorexecuted.In
2005,theministryoffinance,attherequestoftheprimeminister,initiatedworkonintroducing
programbudgetingonapilotbasisinthreeministries.Thenumberofministriescoveredhasbeen
progressivelyexpandedsincethen.Thedesignofprogramsbuildsontheworkalreadycarried
outonstrategicplansfortheseministries,withtheintentionofaligningresourceallocationwith
thenewdirectionsbeingimplementedunderthoseplans.Themainchampionintheministryof
financehasbeentheminister,althoughthepressureforchangehascomefromtheprimeminister.
Therehas,sofar,beenonlylimitedinvolvementofparliament.Thedevelopmentofprogram
budgetinginEthiopiaisstillinearlydays.
12 Technical Notes and Manuals 09/01 | 2009
Case 3: South Africa
WhileSouthAfricaisnotanLIC,theintroductionofprogrambudgetingtheremakesforan
interestingcasestudy.Pressuretoimprovethebudgetarysystemcameinthelate1990sonthe
backofbroaderdemocraticreforms.IthasbeenfullycombinedwiththeintroductionofanMTEF,
andhasbeenaccompaniedbymovesontheauditsidetoperformanceaudit.Thepresentation
ofthebudgethasnowbeenfullyconvertedtoapresentationbyprograms,withdescriptions,
objectives,andexpectedoutputsandindicators,alongwiththefinancialestimates.Thisbudgetary
approachhasbeenimplementedatthecentralandregionalgovernmentlevelsandisconsidered
oneofthebetterimplementationsofprogrambudgeting.
Case 4: Slovenia
Thiscasestudy,whilealsonotofanLIC,illustratestheprosandconsofgradualversusthe
“BigBang”’approachtointroducingprogrambudgeting.Anissuethatoftenariseswithsucha
initiativeishowtohandletheinterimperiodbetweenthepilotphaseandthefullintroduction
inallministries,particularlyhowtoreflectthenewapproachinbudgetdocuments.Slovenia
isonecasewherethe“BigBang”worked,butitwasafortunateconvergenceofcircumstances
thatmadeitpossible:imminentEUaccession,bothministerandbudgetdirectoraschampions,
andresidentadvisorsupportfromIMF.Asaresult,afterjustoneyearofpilotwork,theminister
decidedtoestablishaprogramstructureforthewholegovernmentandreflecttheminthebudget
documents,therebyavoidinganyproblemswithhowtohandletheinterimperiod.Thedownside,
however,isthatsomeaspectsofthenewapproachhaveyettobecomefullyentrenchedinline
ministries,especiallythosethatsawthisinitiativeasatop-downexercise.Thecircumstancesthat
permita“BigBang”approacharenotoftenreplicated,however,especiallyinLICs.
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