linking policy, planning and budgeting : korean experience and challenges february 7, 2007
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Linking Policy, Planning and Budgeting : Korean Experience and Challenges February 7, 2007 Kang Ho Lee ( [email protected] ) Director, Growth Strategy Division Ministry of Planning and Budget Republic of Korea. 1. Background of Fiscal Reforms in Korea. - PowerPoint PPT PresentationTRANSCRIPT
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Linking Policy, Planning and Budgeting :Linking Policy, Planning and Budgeting :Korean Experience and ChallengesKorean Experience and Challenges
February 7, 2007February 7, 2007
Kang Ho Lee (Kang Ho Lee ([email protected]@mpb.go.kr) ) Director, Growth Strategy DivisionDirector, Growth Strategy DivisionMinistry of Planning and BudgetMinistry of Planning and Budget
Republic of KoreaRepublic of Korea
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1. Background of Fiscal 1. Background of Fiscal Reforms in KoreaReforms in Korea
Forecasting on Forecasting on additional spending additional spending in the futurein the future– Need extra resources, 1,100 trillion won for Need extra resources, 1,100 trillion won for vision 2030vision 2030
ReallocationReallocation of expenditure between economic and of expenditure between economic and social welfare resulted in aging and polarization social welfare resulted in aging and polarization problemsproblems– social welfare as % of total expenditure :social welfare as % of total expenditure : 9.9% (1980) → 25.2% (2005) 9.9% (1980) → 25.2% (2005) 40.0% (2030) 40.0% (2030)– % of the population over 65: 7.2% (2000) % of the population over 65: 7.2% (2000) 14.4%(2019) 14.4%(2019) 24.1%(2030) 24.1%(2030)
Increasing Increasing national debts national debts after 1997’s Korean financial after 1997’s Korean financial crisiscrisis– % of GDP : 12.3(1997) % of GDP : 12.3(1997) 23.0(2003) 23.0(2003) 33.4(2006) 33.4(2006)
Need to enhance the efficiency in public spendingNeed to enhance the efficiency in public spending
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2. Framework of Major Fiscal 2. Framework of Major Fiscal Reforms Reforms
Top-downBudgeting
System
Increasedefficiency
Enhanced linkage
Operation
Building an advanced Public Expenditure Management System
NationalFiscal Management
Plan
PerformanceManagement Legal
Frame-work
NationalFiscal
Act in 2006
Program Budget
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MaintainingGrowth
Momentum
UpgradingHuman
Resources
AdvancedSocial Welfare
System
New Social Capital
All-out Globalization
Overall Scheme
Innovative, vibrant Economy
Stable, posed Nation
Safe, equitableSociety
Korea: New Stride of Hope for New Opportunities
Institutional Reforms
ProactiveInvestment
VisionAction Plan
Vision
Goals
Strategy
Vehicles
Overall Scheme of Vision 2030
5202020102000199019800.0
10.0
20.0
30.0
40.0
50.0ratio of budget
20302005
Economy
welfare
The Change of Resource AllocationThe Change of Resource Allocationin Vision 2030in Vision 2030
• Increase of social welfare expenditure in the budget : 9.9% (1980) 25.2% (2005) 40.0% (2030)• Decrease of economic spending in the budget : 26.0% (1980) 19.9% (2005) 10.0% (2030)
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3. Linking Budget to Plans3. Linking Budget to Plans
Discordance of 2007 budget between ’06~’10 NFMP Discordance of 2007 budget between ’06~’10 NFMP and’04~’08 NFMPand’04~’08 NFMP
– Difference of total expenditures : 1.8%Difference of total expenditures : 1.8%– Difference of Revenue : 4.4%Difference of Revenue : 4.4%
3-1. NFMP(MTEP)3-1. NFMP(MTEP)
(unit : trillion won)
2007 Budget in NFMPs2007 Budget in NFMPs
’’04~’08(2004)04~’08(2004) ’’05~’09(2005)05~’09(2005) ’’06~’10(2006)06~’10(2006)
Expenditure 234.2 234.8 238.5
Revenue 263.0 253.6 251.8Managed fiscal balance
(Ratio of GDP, %) 0.3 1.1 1.5
National Debt(Ratio of GDP, %) 28.8 31.7 33.4
GDP growth rate 5% 4.9% 4.6%
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3-2. Performance Management 3-2. Performance Management SystemSystem
Establishment of an ex-post control system thatEstablishment of an ex-post control system that reflects the performance in budgetingreflects the performance in budgeting
– 1/3 of budgetary programs are evaluated and reflected1/3 of budgetary programs are evaluated and reflected
(unit : trillion won)
’’06 (555 projects)06 (555 projects) ’’07 (577 projects)07 (577 projects)
budgetbudget Change to the Change to the previous yearprevious year budgetbudget Change to the Change to the
previous yearprevious year
Total 34.2 -1.0 33.5 -1.7
Effective 2.0 0.5 0.93 0.04Mod effective 9.3 1.3 3.5 0.2
Adequate 20.3 -1.3 28.6 -1.3Ineffective 2.6 -1.5 0.5 -0.6
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Program budget is a critical “building block” to link Program budget is a critical “building block” to link NFMP, Top-down budgeting, and PMS in a wholeNFMP, Top-down budgeting, and PMS in a whole ProcessProcess
– For NFMP: provide program initiatives toFor NFMP: provide program initiatives to represent medium-term national prioritiesrepresent medium-term national priorities
– For Top-down Budgeting: provide theFor Top-down Budgeting: provide the consultative bases to decide expenditureconsultative bases to decide expenditure ceilings between line ministries and MPBceilings between line ministries and MPB
– For Performance Management System:For Performance Management System: provide the units to link resources and resultsprovide the units to link resources and results
3-3. Program Budgeting3-3. Program Budgeting
Top-DownBudget PMS
NFMP(MTEF)
ProgramBudget
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3-4. Top-down Budgeting(1)3-4. Top-down Budgeting(1)
Budget Range
• Bottom-up : expenditure of program A goes to T, and spending of program B goes to TR
• Top-down : expenditures of program A and B go to 2 times ß
 ̄
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Basic HypothesisBasic Hypothesis
– Cost functionCost function
– Utility function of line ministryUtility function of line ministry
– Scale of budgetScale of budget
– Net valueNet value
– Total ValueTotal Value
eegeC )(),(
)(etU
CtT
))(1( etSV
)())(1( etetSUVW UeeS )}(){1(
<Attach1> Theoretical background <Attach1> Theoretical background of Top-down budgeting(1)of Top-down budgeting(1)
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Incentive compatibility(IC) and Individual rationality(IR)Incentive compatibility(IC) and Individual rationality(IR)
Maximized conditionMaximized condition
Optimized budgetOptimized budget
<Attach2> Theoretical background <Attach2> Theoretical background of Top-down budgeting(2)of Top-down budgeting(2)
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253 254
132
253
154
60
188154
60
0
50
100
150
200
250
300
2004 budget 2005 budget 2006 budget
(100M Won)
Line bureau Line Ministry MPB draft budget
3-4. Top-down Budgeting(2)3-4. Top-down Budgeting(2)
• Enhancing accountability of line ministries Actual case of Bottom-up → Top-down : Ministry of Maritime Affairs and Fishery
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Low incentives from performance evaluationLow incentives from performance evaluation
Too focused on the adequate category Too focused on the adequate category (85% of 2007 budget)(85% of 2007 budget)
Difference between evaluating year and reflecting yearDifference between evaluating year and reflecting year
Difficulties in building effective evaluation indexDifficulties in building effective evaluation index
4. Challenges to Performance 4. Challenges to Performance Management System(1) Management System(1)
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Align the annual budget classification with the Align the annual budget classification with the classification in the NFMPclassification in the NFMP
Keep programs within the organizational structureKeep programs within the organizational structure
Combine all activities according to program objectives Combine all activities according to program objectives regardless of revenue sourcesregardless of revenue sources
Simplify the grouping of object levelsSimplify the grouping of object levels
4. Challenges to Program Budget 4. Challenges to Program Budget (2)(2)
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Time constraint on the MTEFTime constraint on the MTEF
How to meet expenditure ceilings How to meet expenditure ceilings
Mainly focused on the next year budgetMainly focused on the next year budget
Unit in setting expenditure ceilings : Unit in setting expenditure ceilings :
program or subsectionprogram or subsection
How to harmonize the top-down budget and How to harmonize the top-down budget and deliberation process deliberation process
4. Challenges to MTEF and4. Challenges to MTEF andTop-down Budget (3)Top-down Budget (3)
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206
41 5345 41 5340
45
131
102 10585 80
105115112
0
50
100
150
200
250
2004 2005 2006 2007
Prog
ram
A(10
0M W
on
020406080100120140
Prog
ram
B(10
0M W
on)
Line M Bgt of A MPB Bgt of A Line Bgt of B MPB Bgt of B
Top-downBottom-up
Ex) Behavior Changes in RequestingEx) Behavior Changes in RequestingBudget from Line Ministries Budget from Line Ministries
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Thank YouThank You