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Public Expenditure ManagementReview (PEM/R) in Thailand

Bureau of the Budget15 December 2006

2Last year, Thailand commenced our Public Expenditure Management Program.

Previous year presentation…

• Thai PEM Framework– Strategic Performance based Budget System– Decree on Good Governance and Government Administrative Plan– OECD Best Practices for Budget Transparency– IMF Code of Good Practices on Fiscal Transparency

• Thai PEM Main Focus– Linkage between national priorities and budgeting within the

framework of sustainability– Legal framework and Institutional arrangements for public spending

• PEM Review Implementation Plan– Mid term review in early 2006– Start with Fiscal Sustainability component

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• Three Principles– Maintaining aggregate fiscal discipline– Allocating public resources in accord with

strategic priorities– Promoting the efficient delivery of services

• Coverage– Formulation of policies– Planning– Allocation of resources– Implementation

Implementation of the Thai PEM Implementation of the Thai PEM abidesabides by the three fundamental by the three fundamental principles of Best Practiced PEM and principles of Best Practiced PEM and covers the whole process of covers the whole process of delivering public services.delivering public services.

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In the past year, Thailand has made In the past year, Thailand has made progress in the five main components progress in the five main components of PEM/R.of PEM/R.

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Critical tools have been identified in Critical tools have been identified in order to successfully reach each order to successfully reach each of the of the key PEM objectives.key PEM objectives.

PEM PEM ObjectivesObjectives

TOOLSTOOLS

Maintain Long-term Aggregate Fiscal Discipline

Maintain Long-term Aggregate Fiscal Discipline

Strengthen Strategic Allocation of Resources Strengthen Strategic

Allocation of Resources

Increase Operational Efficiency

Increase Operational Efficiency

Enhance Managerial Flexibility

and Accountability

Enhance Managerial Flexibility

and Accountability

Enhance Fiscal Transparency Enhance Fiscal Transparency

•National Strategic Target•Ministerial Strategic Plan & Budget Ceiling•Integrated agenda based Budget Plan

•MTEF Top Down/Bottom up•Fiscal rules•Budget Ceiling•Ratio of Capital/ Operating Budget•Mid-Term Review

•Service Delivery Targets & Public Service Agreement• Output Profile• Performance Indicators

•Increasing roles of front line manager•PPP & other Public financial innovations•Performance measurement Realignment of Program-Activities-Outputs

• GFMIS•Improve Performance and Financial Report • Improve the Format of Budget Documents • Improve Budget Information System

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Tools for each objective are under various stages Tools for each objective are under various stages of development; some key ones have been of development; some key ones have been implemented.implemented.

PEM Objectiv

esTOOLS

Progressive Status

Initiative

Design & Developmen

t

Pilot Testing

Use in

Budget Process

Refine &

Institutionali

ze

1. Maintain Long-term Aggregate Fiscal Discipline

1.1 MTEF Top Down / Bottom up

1.2 Fiscal Rules

1.3 Budget Ceiling

1.4 Ratio of Capital /Operating Budget

1.5 Mid – Term Review

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MEDIUM-TERM MEDIUM-TERM BUDGET BUDGET PLANNING PLANNING FRAMEWORKFRAMEWORK

National Economic and Social Development PlanNational Economic and

Social Development Plan

Government Administrative Plan

Government Administrative Plan

MTEF (Top-Down)MTEF (Top-Down)

MTEF (Bottom-Up)MTEF (Bottom-Up)

Government PolicyGovernment Policy National Investment Plan

National Investment Plan

Annual Budgeting CeilingAnnual Budgeting CeilingFiscal Policy FormulationFiscal Policy Formulation

Budget Allocation Strategy

Budget Allocation Strategy

ANNUAL ANNUAL BUDGET BUDGET PLANNING PLANNING FRAMEWORKFRAMEWORK Annual Budget

PreparationAnnual Budget

Preparation

Macro-economic Outlook

Macro-economic Outlook

Revenue ForecastRevenue Forecast

Public Debt and Fiscal Risks

Public Debt and Fiscal Risks

Fiscal RulesFiscal Rules

Demand of Funds Supply

of Funds

Tools for long-term Fiscal Discipline have been integrated into the Budget Process.

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CURRENT BUDGET PLANNING PROCESS

TASK Cabinet MOF NESDB BOT BOB LineMinistry

1. Macro Fiscal Framework

Prepare baseline economic forecast P/R L P/R P/R

Prepare baseline revenue estimates L P P P/R

Project MTEF and future commitments S L S

Prepare aggregate fiscal targets A L S S

2. Budget Allocation Policy

Develop Gov’t Adm Plan and set policy themes

A S L P I/ S

Define spending priorities A L P

Set public debt, fiscal risk projections, and identification of capital projects

A L S P/R

3. Budget Ceilings

Set ministry spending limits A L P

Set departmental spending limits A L P

A=Approve L=Lead P= Participate I=Initiate R= Review S=Support

All key agencies are involved to some degree in the utilization of various tools to ensure fiscal sustainability in the budget planning process.

MOF = Ministry of Finance, NESDB = National Economics and Social Development Board, BOT = Bank of Thailand, BOB = Bureau of the Budget

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1. Ratio of Public Debts to GDP not more than 50%

2. Debt service not exceeding 15%

3. Budget Deficit not more than 2% of GDP

4. Annual borrowing not more than 20% of total

annual budget plus not more than 80% of the

principle repayment budget

5. Capital expenditure no less than 25% of total

budget

The Thai Government has abided by a set of publicly announced Fiscal Rules, and the rules are consistent with the Sufficiency Economy policy principle

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Thai PER will be conducted every two years, at the beginning and mid-term of the government cycle.

Year 1 Year 4Year 2 Year 3

GOVERNMENT CYCLE

PERCycle Starts

PERMid-Term

PERCycle Ends

• to ensure the effectiveness of the review

• to maximize the use of information in policy & implementation adjustment.

Previous Year

Hypothesis

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Results of the first Mid-term review is useful, but the process is interrupted by unforeseen circumstances.

• Macro economics assumptions must be scrutinized to ensure solid foundations.

• Assumptions of major government policies must be realistic.

• Report on Public Debts do not cover all existing risks.• Fiscal decentralization needs to be reviewed urgently.• Financing for Mega Projects must be well-planned.• Some key issues will increase fiscal pressure

– Income Contingent Loan for education– Demographic trend of an aging population– Capitation Rate for healthcare

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Holistic structure of plans and targets have been installed from national level down to operational level.

PEM Objectiv

esTOOLS

Progressive Status

Initiative

Design & Developmen

t

Pilot Testing

Use in

Budget Process

Refine &

Institutionali

ze

2.Strengthen Strategic Allocation of Resources

2.1 National Strategic Target

2.2 Ministerial Strategic Plan & Budget ceiling

2.3 Integrated agenda based Budget Plan

13Public policies are run in three dimensions Public policies are run in three dimensions simultaneously to effectively drive key policies, provide simultaneously to effectively drive key policies, provide public services, and enhance area specific competitive public services, and enhance area specific competitive advantages.advantages. National Economic and

Social Development PlanNational Economic and

Social Development Plan

Government Administrative Plan

Government Administrative PlanGovernment PolicyGovernment Policy

Ministry StrategyMinistry Strategy

Line Agency StrategyLine Agency Strategy

4-year Operational Plan4-year Operational Plan

Annual Operational PlanAnnual Operational Plan

4-year Operational Plan4-year Operational Plan

Annual Operational PlanAnnual Operational Plan

Function Based

Provincial Cluster StrategyProvincial Cluster Strategy4-year Operational Plan4-year Operational Plan

Annual Operational PlanAnnual Operational Plan

Provincial StrategyProvincial Strategy4-year Operational Plan4-year Operational Plan

Annual Operational PlanAnnual Operational Plan

Area Based

Government AgendaGovernment Agenda

Agenda Based

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Performance indicators become the focus of the dialogue in budget scrutiny process.

PEM Objectiv

esTOOLS

Progressive Status

Initiative

Design & Developmen

t

Pilot Testing

Use in

Budget Process

Refine &

Institutionali

ze

3. Increase Operational Efficiency

3.1 Service Delivery Target & Public Service Agreement

3.2 Output Profile

3.3 Performance Indicators

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Public Service Agreements between Ministry and Agency have been signed, but currently they are not fully enforced.

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1. Government Strategic Target (Government Administrative Plan)

2. Strategic Target (Government Administrative Plan) Agenda/Function/Area

3. Ministry Service Delivery Target (Expected Result)(4-year Operational Plan)

4. Agency Service Delivery Target (4-year Operational Plan, Annual Operational Plan)

5. Agency Mission (4-year Operational Plan, Annual Operational Plan)

6. Outputs & Performance Indicators in each level including main responsible person and supporting responsible person

- Ultimate Outcome – Key Success Factors

- Intermediate Outcome & KPIs - Immediate Outcome & KPIs - Output

(Quantity,Quality,Timeliness,Cost) 7. Output/Service Delivery Process

(Operational plan/Budget Management Plan)

- Output Target (Agenda, Function, Area)

- Primary/Secondary/Support Activities

- Budget

Output Profile Output Profile 8. Budgeting Management

- Budget Planning- Budget Allocation Plan- Budget Execution

9. Output Costing 10. Efficient Resource Management

- Key Success Factor and Constraints- Organization Management System

(Operation Expense)- Organizational Structure and Human

Resource Management (HR Expense)

- Facilities and Investment Management

- Risk Management11. Performance Reporting in each

level- Performance and budget used

compared to what’s indicated in the plan

- Monitoring- Evaluation- Problems, Obstacles, and

Recommendation

Output Profile has been designed to improve the Output Profile has been designed to improve the information structure in the budget process.information structure in the budget process.

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Performance indicators are attached to each agenda, strategy, tactic, and activities in the budget documents.

• National level: Achieve knowledge-based society for people with solid ethical values and good morals

• Ministry level: People receive education and lifelong learning with quality assurance– Quantity measurement:

• Years of education of the population• Educational institutions with support for strengthening

– Quality measurement: • Target students with compulsory and higher education• External students with ability to apply their knowledge

• Agency level– Quantity: number of students/researches in each field– Quality: quality of standardized tests, employment, ability

to continue education

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The trend to increase managerial flexibility and accountability continues in the past year; PPP is being tested.

PEM Objectiv

esTOOLS

Progressive Status

Initiative

Design & Developmen

t

Pilot Testing

Use in

Budget Process

Refine &

Institutionali

ze

4.Enhance Managerial Flexibility and Accountability

4.1 Increasing roles of front line manager

4.2 PPP & other Public Financial Innovations

4.3 Performance Assessment Performance Assessment Rating ToolRating Tool

4.4 Realignment of Program-Activities-Outputs

19Front line managers have been given more authority on operation planning and budget matters.

• New Draft Budget Procedures Act – Strategic performance based budget process– De-concentration: Empowering ministries and departments– Comprehensive coverage & Good governance

• New Budget regulations– Flexibility

• Transfer within Budget Plan• Spending within budget category• Spending of left-over budget

– Conditions• Achievement of objectives• No multi-year commitment• No new government employment• No land acquisitions• Constructions of not more than 10 million baht• Equipment of not more than 1 million baht

– Reporting

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PPP has provided lessons learned, and it is now encouraged for projects that can generate sufficient cash flow.

• Key issues must be addressed– Prioritization and preparation of good projects– True improved value for money– Well thought of risk/benefits assessment & transfer– Actual acceleration of delivery– Transparent off-budget treatment

• Issues under considerations– Clear legislation

• Legality to enter contract• Dispute settlement

– Government institutional capability– Development of Key Processes

• project viability assessment• private sector pricing• Realistic government support

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Performance Assessment Rating Tool (PART) Performance Assessment Rating Tool (PART) is used to ascertain the capabilities of public is used to ascertain the capabilities of public agencies.agencies.

• Pre evaluation (before budget spending)

• Interim evaluation (during operations)

• Post evaluation (after implementation)

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Fiscal transparency is enhanced by improved budget information system on a more integrated platform.

PEM Objectiv

esTOOLS

Progressive Status

Initiative

Design & Developmen

t

Pilot Testing

Use in

Budget Process

Refine &

Institutionali

ze

5. Enhance Fiscal Transparency

51. GFMIS

5.2 Improved Budget Information System

5.3 Improved the Format of Budget Document

5.4 Improved Performance and Financial Reporting

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BOB e-Budgeting

BIS(Budget Information System)

EIS(Executive Information System)

BBOC (BB Operating Center)

BBOA (BB Office Automation)

Planning

Preparation

Evaluation

GFMIS

Prime Minister Operation Center

www.bb.go.th

BOB ICT’s integration with the public sector platform enhances accessibility for users and increase transparency overall.

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• Increase fiscal inter-relationship among government agencies in all levels

• Increase roles of government agencies concerning Public Expenditure Management Review

• Refine design & structure of all PEM Components and move forward with the operational plan for each PEM component

• Emphasize the Integration of Fiscal Sustainability Framework and MTEF in Budget Planning process

• Capacity Building and System Support Program

The Next Step is to ascertain that PEM The Next Step is to ascertain that PEM become standard operating procedure in become standard operating procedure in the Thai Budgetary Process, and Thai PEM the Thai Budgetary Process, and Thai PEM must continue to be improved.must continue to be improved.