MTEF Implementation in Korea Ministry of Planning and Budget - Top-down Budgeting - Soo Min Park Ministry of Planning and Budget

1. The Starting Point of Reform 2. The Vision of MPB 3. What Lies Ahead

1. The Starting Point of Reform

Why did MPB look for a new resource allocation system? Fiscal Crisis No However “Earlier the better” Potential issues to be addressed ( populating ageing, unification costs… ) Efficiency of Public Expenditure Yes Stiff portfolio in macro & micro levels - economic sector : over 20% for 30 year - large spending but unsatisfactory improvement in some sectors Fiscal Transparency Yes 22 special accounts and 59 public funds “highly fragmented and compartmentalized” (OECD)

Weaknesses in the present fiscal system Bottom-up Oriented Budgeting Too much work load on MPB from reviewing individual programs ( 6,000 or more ) Little time for macro analysis Yearly Budget Lacks long-term perspectives, Incremental budgeting Little consideration on business cycle Central Fiscal Authority-led Insufficient role of line ministries, field expertise is not absorbed into the budgeting process Asymmetry of information on cost between MPB and line ministries

2. The Vision of MPB

Where do we want to go? Top-down Budgeting ( Strategic Resource Allocation based on Macro Analysis ) Bottom-up Oriented Budgeting Yearly Budget Med-Term Expenditure Framework Cooperation and Role Sharing between MPB and Line Ministries Central Fiscal Authority-led

The Korean Model (still evolving…) ( Mar~May ) (Jun~Aug) As is Line Ministries MPB Budget Requests ( by programs ) Budget Formulation ( program-oriented ) Y+1 (Jan~Apr) (Apr) (Apr~Jun) (Jun~Aug) To be MPB Line Ministries MPB Cabinet Meeting Medium- Term Plan  Total Ceiling  Sectoral Ceilings Budget Formulation Within Ceilings Consultation and Review Y+1 Y+5

Stage 1 : Establishing Medium-Term Plan ( National Fiscal Management Plan ) “ Supporting Strategic National Management ” Analyzes 5-year Fiscal Balance & Total Expenditure Levels - Gives way to Medium-term Budget Balance Sets National Policy Goals & Priorities for resource allocation Proposes Sectoral and Ministerial Ceilings & Major National Projects

Stage 2 : Cabinet Meeting “ Melting pot of Policies Making and Resource Allocation ” In-depth Discussions on Sectoral & Ministerial Ceilings 5-year fiscal targeting Resource allocation by national priorities Review Major Policies upon Future Resource Allocation Projection Based on MPB Proposal

Stage 3 : Line Ministries’ Budget Formulation “ Change of Role and Mindset ” Autonomous Resource Allocation within Ceilings Own priorities by sectors Using field expertise in budgeting Yearly  5 years MPB’s Stand Alone Decision-making → All the Line Ministries’ Decision-making Provides “ Budget Formulation Manual ”

Stage 4 : MPB’s Consultation & Review “ Player  Coordinator ” Reviews Spending Plans of Line Ministries Decisions from the Cabinet Meeting Conformity to the Formulation Manual Reflects Changes after Cabinet Meeting Macro Variables, unexpected issues …

3. What Lies Ahead

What are we expecting? Long-term Perspective ( The Starting Point ) Fiscal Soundness Long-term Perspective Symphony of Sustainability & Economic Stabilizing Efficiency of Public Expenditure Macro Analysis → Strategic Resource Allocation Role Sharing → Self Expenditure Restructuring Cost Information Sharing → Extinction of Excessive Budget Request ( 20∼190% Increase ) Fiscal Transparency A new Consolidated Structure over special accounts and public funds

The road ahead… Not enough long-term fiscal forecasting background Early stage of Performance Management System Potential difficulties in gaining consensus of the National Assembly

Our roadmap… Maintaining strong fiscal discipline 2003 2004 2008 Planning & Design Introduction Adjustment Full establishment Gradual introduction Maintaining strong fiscal discipline Surpassing global standards

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