Introduction to Program Budgeting

1
Introduction to Program Budgeting
Katherine Barraclough Consultant, World Bank
Fiscal Management Reform Workshop, Istanbul,
Turkey, June 6-8, 2005
2
Outline

1. What is program budgeting and what is it good
   for?
2. Program budgeting in Korea a case study of the
   Ministry of Environment
3. Some general considerations for successful
   implementation

3
What is program budgeting and what is it good for?
4
Defining Program Budgeting

• Resource allocation based on priorities
• Allocating budgetary resources according to
  government policy objectives and priorities
• Focus on organizational objectives
• Focus on outputs/outcomes
• Allocate expenditure by program
• Assess results based on objectives
• Applicable for cost-benefit analysis

Programs are groupings of government activities
in relation to specific government objectives
(IMF Manual for Fiscal Transparency)
5
Key Elements of Program Budgeting

• Sets programs as the basis for budget
  appropriations
• Focus shifts from line items to programs
• Basis for facilitating a cost allocation system
• Prompts line ministries to define objectives and
  match activities and resources to achieving them
• Usually tied to their legal mandate
• Tool for granting greater autonomy and
  responsibility
• In line with transparency and accountability

6
Benefits of Program Budgeting

• Basis for supporting enhanced fiscal discipline
• Facilitates decision-making for resource
  allocation
• Organizes budget around government policy
  priorities
• Acts as a mechanism for focusing on operational
  efficiency and performance
• Enhances transparency and is user friendly for
  legislature and general public
• Enhances control and accountability for the CBO
• Affords greater autonomy and flexibility to
  spending agencies

7
Program Budgeting in Korea

• A Case Study of the Ministry of Environment

8
MoEs Organizational Structure
9
General Principles (1)

• Align the budget classification with that of the
  NFMP
• Integrate a mid-term perspective into the annual
  budget
• Keep programs within the organizational structure
• Clarify lines of accountability and program
  management
• Combine all activities according to program
  objectives
• Regardless of revenue source

10
General Principles (2)

• Determine appropriate scope and number of
  programs
• Reflect ministrys role and areas of
  responsibility
• Limit the number of activities
• Keep at a level that allows for in-depth, policy
  oriented analysis
• Simplify the object groupings
• Facilitate discretion and limit excessive input
  details that impede focus on outputs/outcomes

11
New Budget Structure (1)

• Reduces classification levels from 8 ? 5
• Places ministerial classification outside the
  structure
• But all groupings from sub-function down will be
  organized within ministerial units
• Provides the basis for resource allocation
  decision-making
• Links the budget structure to performance
  management

12
New Budget Structure (2)
13
Conceptual Framework
14
Suggested New Structure
15
Features of the New Structure

• 1 function, 5 sub-functions, 16 programs
• each sub-function has 2-5 programs
• Offices and bureaus have separate programs
• for clear lines of accountability and discretion
• Programs include all revenue sources
• number of activities per program at no more than
  about 10
• Environmental Administration is a separate
  program
• due to costing difficulty of expenses

16
Sub-function (1)

• Promoting environmental policies for sustainable
  development
• Currently 116 activities

17
Sub-function (2)

• Increase the amount and quality of safe water,
  and improve water quality in waterways and rivers
• Currently 137 activities

18
Sub-function (3)

• Provide clean and clear air quality
• Currently 24 activities

19
Sub-function (4)

• Preserve and restore the natural environment for
  a clean environment and improved quality of life
• Currently 23 activities

20
Sub-function (5)

• Safe and hygienic waste management and the
  promotion of recycling and reducing waste in
  society
• Currently 19 activities

21
Implementation Issues for Korea

• Co-operation between the CBO and spending
  agencies
• Consensus and commitment at high level
• At executive and legislative level and among key
  stakeholders
• Detailed reform blueprint
• Clarify PB in context of broader PEM reforms
• Piecemeal approach
• Gradual but steady
• Development of a policy- and performance-oriented
  institutional culture
• Identify need for reforms in institutional
  culture
• Ensure spending agencies design their own program
  budget with cooperation from CBO

22
Considerations for Successful Implementation
23
Development Process

• Changing form and behaviour
• Thinking differently about planning, managing and
  budget
• Effective PB cannot be developed centrally
• Sense of ownership on the part of line ministries
  
• Line ministry staff must undertake the work
• Creating ownership and changing organisational
  culture
• Be cautious of other countries examples
• Unique laws and institutions, policies and
  objectives
• Establish stability in classification structure
• Continuity and consistency
• Generates demand for information and resources
• Creates need for additional or new data
  collection, IT and data collection systems

24
Design Process

• Programs need to be within ministries
• Clearer linking of activities, funds, and
  objectives for increased managerial
  accountability
• A program classification doesnt obviate the need
  for other classifications
• Classifications are added to meet new demands for
  new information and new roles for the budget
  process
• Full costs need to be allocated to programs
• Incomplete cost information impedes management
  and budget decision-making
• Program concept should integrate recurrent and
  capital budgets
• Account for all inputs leading to outputs or
  outcomes

25
Reform Management (1)

• Dont undertake as a budget cutting measure
• prompts resistance from line ministries
• Annual budget ceilings can help motivate
  ministries
• impetus to rationalise and relate activities to
  objectives
• Provide ample support to ministries
• tools for developing program structure and to
  review spending priorities
• Logframe logical framework
• Logic Model - Program Logic Model

26
Reform Management (2)

• Program budget implementation will be an
  iterative process over several years
• Trend lines or multiple data points allowing for
  questions of efficiency and effectiveness
• Selling program budgeting
• Matching expectations to reality of what can be
  achieved in the time given
• High-level commitment over time
• Utilisation of program structure by the central
  budget authority for decision-making