Spending Reviews in Bulgaria – Plans and Experience Emil Nurgaliev, senior expert, Ministry of Finance, Bulgaria

Spending Review To Be Conducted Request from Bulgaria’s Ministry of Finance (MoF) to provide key inputs to the World Bank for the preparation of a comprehensive spending review

Major Objectives And Task Improving efficiency and effectiveness of government spending Identifying sectors, programs and areas for potential savings Main task – identifying reforms that deliver efficiency in processes and resource utilization

Expected Results The same (or better) level of services with a reduced amount of inputs Lower costs for the resources needed to provide public services Additional outputs for the same level of inputs A change in the balance of different outputs to achieve a bigger overall output with the same inputs (allocative efficiency)

Expenditure Categories Comprehensive spending reviews cannot examine all public spending Therefore the task will focus on two expenditure types: Operational and maintenance spending – defined as intermediate consumption/spending on goods and services Compensation of employees

Compensation of Employees (I) Objective – identification of reforms that can yield fiscal savings Levels of/trends in compensation of employees as a share of GDP/as total spending and employment spending levels in 2015 relative to EU benchmark countries, across municipalities and across ministries Assessment of the:

Compensation of Employees (II) Compensation of employees by decomposing change (wage cuts, bonuses, allowances, severance payments, early retirement benefits, payment in kind, staff reductions) The structure of the public administration (number of management positions per staff, compensation for similar positions) Assessment of the:

Compensation of Employees (III) Analysis of existing performance management practices, gender payment gaps, salary adjustments for selected ministries Review of the legal framework for public employment compensation and comparison with best practices in benchmark countries Identification of efficient ways of wage bill reductions in selected ministries

Operational/maintenance costs Assessment of the levels of/trends in O&M spending (rent, communal payments, telecommunication, transport, office equipment, renovation of premises) relative to EU benchmark countries Development of a framework to assess the efficiency of O&M spending Application of the framework to selected ministries and municipalities

Scope Assessment of expenditures both on central and municipal level: 7 ministries, including their second-level spending units – for which the internal analysis of the MoF has shown sizable space for spending efficiency and effectiveness improvements 21 municipalities (including such in a procedure for financial recovery)

Specific working groups Process Management The political representation will ensure a strong commitment that the recommendations made will be addressed accordingly in the subsequent budgetary procedure Steering Committee – chaired by a deputy finance minister and comprising deputy ministers from all line ministries covered by the review Specific working groups

The main activities will include: Diagnostic Stage Conducting of an analysis of patterns of operational and maintenance spending and compensation of employees across time and benchmark countries (new EU member states and countries with similar per capita income Identification of potential areas of inefficient or ineffective spending in the chosen areas The main activities will include:

Reform Options Selection Steering committee – selection of two budgetary units/sectors/programs to be subject to an in-depth review (a detailed analysis of the specific options for savings/gains in efficiency and effectiveness with potential impact and timelines) WB team, MoF, working groups - conducting of an in-depth assessment of fiscal savings, reform options and expected impact on select sectors/programs

Reform Options Decision WB team, MoF, working groups – selection of at least three options for each budgetary unit, assessment of the impact and feasibility (potential savings, costs, impact for end-users, risks), preparation of a roadmap for implementation of the identified activities/policies (changes in legislation, procedures and organizations) Steering committee – decides on reform options based on the results of the in-depth assessments

Reform Options Implementation WB team, MoF – development of a monitoring and evaluation system Steering committee, MoF – tight monitoring of implementation and benefits, including evaluation of real savings and costs at the end of the implementation phase

Methodology of the analysis (I) Analysis of spending patterns and inefficiencies – assessment of trends/patterns of expenditures, employment numbers, payroll data, program outputs and outcomes Conceptual framework (with a standard set of questions) – in order to challenge the objectives and outcomes of government programs

Methodology of the analysis (II) Methodological guidelines – the aim is to ensure that potential savings are calculated consistently/the level of detail provided for the individual reform options is consistent with the government analysis of information Recommendations/supporting discussion – major findings have to be accessible to decision-makers

Experience with Spending Reviews Bulgaria – Public Expenditure Review for Agriculture and Rural Development: Prepared based on a World Bank mission to Bulgaria in February 2009 Published by the World Bank in June 2010

Main Objective and Major Steps Main objective - ensuring long-term growth of the agricultural sector It should be achieved by encouraging investment instead of simple income support Major steps: Termination of existing state aid programs under EU rules Tailoring the implementation of the EU common agricultural policy to meet the needs of the country Acquiring adequate administrative capacity

Major Challenges Major challenges: Significant fragmentation of land ownership – it is a significant barrier to long-term investments Aging labor force Relatively few young farm-holders Low educational attainment of the employed Low labor productivity due to outdated technologies Poor access to credit for small and medium-sized producers Major challenges:

EU Common Agricultural Policy EU Common Agricultural Policy – two principal areas of intervention: Pillar 1 – income support to EU farmers through direct area payments Pillar 2 – a comprehensive set of rural development programs Sources of funding: European Agricultural Guarantee Fund (EU fund outside of the national budget) European Agricultural Fund for Rural Development (EU structural fund through the national budget) Domestic resources – from the budgets of the Ministry of Agriculture and the State Fund Agriculture

Summary of Recommendations Application of EU Common Agricultural Policy: Short-term – limit application of country national direct payments to 30% of EU15 average Medium-term – shift of released financial resources to investment priorities facilitating integration into the EU single market National programs: Short-term – functional reviews Medium-term – strategies to support voluntary land consolidation, investments in hydro-amelioration, climate change problems

Proposals for Improving Performance Based Budgeting (I) Recommendation - Unit within the Ministry of Agriculture responsible for development and assessment of performance information (relative cost-effectiveness of different programs, program design/management challenges, prioritization and limiting the number of performance indicators sent to MoF and Parliament) Action – Internal development and assessment of performance information is done by Program Councils in the ministries External assessment functions are given to the constantly acting Sub Commission on Accountability of the Public Sector to the Budget and Finance Commission of the National Assembly which may require from first-level spending units reports on the implementation of definite budgetary programs after which an assessment report is prepared and submitted to the National Assembly

Proposals for Improving Performance Based Budgeting (II) Recommendation - Selection in cooperation with MoF of 4-6 high-level outcome-oriented indicators to be tracked and reported to the Parliament on the overall development of the sector Action – These indicators are part of the program format of budget of the Ministry of Agriculture submitted to Parliament When reviewing the draft state budget act, the National Assembly shall hear reports of the line ministers responsible for the policies in the relevant sectors (Art. 86, para 1 of the PFL) First-level spending units that apply a program budget format submit a detailed report on a six-month and year-end basis, to the MoF, the National Assembly, and the National Audit Office (Art. 133, para 3 of the PFL)

Proposals for Improving Performance Based Budgeting (III) Recommendation - Proposal by the MoF of amendments to the Organic Budget Law to reduce the number and scope of amendments that can be made to the annual budget for new policy measures Action - Changes in indicators according to the economic classification are restricted/limited due to the lower level of detailization which provides for a higher degree of flexibility (with the exception of personnel expenditures) According to the Public Finance Law in force since January 1st, 2014: Internally compensated changes to the established expenditures per policy areas require approval by the Council of Ministers, and between budget programs within a given policy area are done by the Minister of Finance (Art. 109 and 110 of the PFL)

Proposals for Improving Performance Based Budgeting (IV) Recommendation - Assigning responsibility to individuals for managing resources at program level and delivering program outputs (manager for each program with authority to allocate resources) Action - Directors responsible for the implementation of budgetary programs have to deliver outputs but do not allocate resources (conceptual framework of program budgeting in the country) In order to ensure sustainability of the budget process the latest amendments of the Public Finance Law regulate a classification of policy areas and budget programs of the first-level spending units adopted by the Council of Ministers for the mandate of the government which can be amended only in case of organizational or legislative changes

Proposals for Improving Performance Based Budgeting (V) Recommendation - Improving implementation reports (assessment of the factors affecting performance, future plans, fewer performance indicators but more information on their impact) Action - Widening the scope of institutions applying program format of budgeting (not only the Ministry of Agriculture but also the State Fund Agriculture), the program budgets including both national funds and EU funds accounts Continuing efforts to increase the quality of budget documents

Thank you!