a basic model of performance-based budgeting€¢ what forms of performance-based budgeting should...

TNM/09/01

International Monetary FundFiscal Affairs Department700 19th Street NWWashington, DC 20431USATel: 1-202-623-8554Fax: 1-202-623-6073

A Basic Model of Performance-Based Budgeting

Marc Robinson and Duncan Last

Fiscal Affairs Department

I N T e r N A T I o N A l M o N e T A r y F U N D

T e c h n i c a l n o T e s a n d M a n u a l s

INTerNATIoNAl MoNeTAry FUND



Prepared by Marc robinson and Duncan last

Authorized for distribution by Carlo Cottarelli

September 2009

DISCLAIMER: The views expressed in this technical note are those of the authors and should not be attributed to the IMF, its Executive Board, or its management.

JEL Classification Numbers: D61, D73, H61, H83

Keywords: performance budgeting, expenditure prioritization, managing-for-results, program budgeting, expenditure review, program classification

Author’s E-mail Address: [email protected]; [email protected]

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


• 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.


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.


• 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.


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).


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.


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


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.


—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).


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.


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.

INTerNATIoNAl MoNeTAry FUND



Prepared by Marc robinson and Duncan last

Authorized for distribution by Carlo Cottarelli

September 2009

DISCLAIMER: The views expressed in this technical note are those of the authors and should not be attributed to the IMF, its Executive Board, or its management.

JEL Classification Numbers: D61, D73, H61, H83

Keywords: performance budgeting, expenditure prioritization, managing-for-results, program budgeting, expenditure review, program classification

Author’s E-mail Address: [email protected]; [email protected]

TNM/09/01

International Monetary FundFiscal Affairs Department700 19th Street NWWashington, DC 20431USATel: 1-202-623-8554Fax: 1-202-623-6073


Marc Robinson and Duncan Last


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