How to Move from Line-Item to Performance Budgeting? The Case of Madagascar Dr. Jean Razafindravonona AfCoP, Nairobi, May 23-25, 2011

Context Globalization, population growth, role of new information technology Standardization of development assistance requirements Democratization with a view to improve the quality of public services Era of new public-sector management Since 2005, gradual transition from line item public- sector financial management to performance-based budget management

Situation before 2005: Line Item Budgeting 1. Overall budget allocation 2. Priority given to programming of inputs 3. Performance indicator: rate of credit consumption and no sectoral indicators 4. Single, limited budget stakeholder expressing needs 5. Disadvantage: Budget implementation objectives lack visibility 6. Budget with an almost purely accounting structure 7. Political will for change based on donor conditions (PRSP and HIPC)

Process since 2005: Program-based Budgeting Financial Legislation Organization Act (LOLF) passed in 2004 and enforced since 2005 Priority given to performance in driving public policy Application of the spirit of program-based budgeting and a medium-term expenditure framework (MTEF) Establishment of an integrated public-sector financial management system Establishment of a monitoring and evaluation system and tools to carry out reforms Training of stakeholders in the expenditure chain

Political Will Basic principles of the LOLF, 2004: Performance-based management (obligation to achieve results) Diversification and accountability of stakeholders: program coordinator (CdP), program managers (RdP), authorizing officers, activity managers, procurement officer, and so on Strengthening of control, especially by Parliament Culture of accountability Link between budget and performance indicators

Culture of performance Multi-year strategies to implement planning or public policy (from PRSP to the Madagascar Action Plan, or MAP) Administrative reform (decentralization, deconcentration, local services) and practice of meritocracy Definition of result, outcome, and impact indicators Search for better quality service (in relation to users), management efficiency (in relation to tax dollars), social and economic effectiveness (in relation to citizens’ rights), compliance with procedures, and effectiveness of services provided

Implementation of Program Budgeting A long-term work in progress, in the case of Madagascar since 2004, and in France 5 years of planning Establishment of stakeholders: program coordinator, program managers, authorizing officer, activity manager … flexible budget management and accountability Priority given to allocating resources based on public policy steering strategy Comparative, cost-effectiveness, economic and social cost- benefit analysis of public investment

Budget Framework New budget structure: toward logic of performance  Missions (50)  Programs (132)  OBJECTIVES (295) AND OBJECTIVE INDICATORS (688)  Breakdown by expenditure category (7) Two Appropriation Act documents  One performance document  One budget document

MISSIONS About fifty missions shape the key areas of government policy. Parliament appropriates the budget for each mission. This makes it possible to emphasize the objectives of the public policies pursued. A mission (appropriation unit) combines programs that may report to different ministries. Only an appropriation act may create a mission.

MISSIONS Program 1Program 2Program3MISSION- Appropriation unit - Consistency of strategy PROGRAM- Appropriation line - Marked by objectives with matching indicators

PROGRAMS About 132 programs define responsibilities for policy implementation. Each program corresponds to a coherent set of activities entrusted to a program manager designated by each ministry concerned. Managers receive an overall resource envelope that enable them to choose the means best suited to achieve established objectives. Programs (appropriation lines) constitute specific resource envelopes.

Comparative Analysis of Budgeting Structures Lin Item Budgeting Architecture Before 2005Program-Based Budgeting Architecture Since 2004 A single document, the budget, in which the Millennium Development Goals (MDGs) were not clearly identified. A single budget document limiting appropriations and defining performance criteria. MDG indicators are taken into account. Appropriation→ Overall budget of the directorate general responsible for reforming education: 350,456,230 FMG Mission → 3. Transformation of education 350,456,230 FMG Program → Basic education 123,675,600 FMG Objectives → ensure seven years of quality, universal primary education Indicators → Primary completion rate 75,432,190 FMG Program: One sub-objective with a manager Under the same ministry  Groups appropriations by activity  Specific objectives  Expected results …  … to be evaluated.

Alignment of Programming Structure and Administrative Structure ADMINISTRATIVE STRUCTURE PROGRAMMING STRUCTURE MISSIONSECRETARY GENERALPROGRAM COORDINATOR PROGRAMDIRECTORATE GENERAL PROGRAM MANAGER PROGRAM MAPPING (Performance Document) PROGRAMOBJECTIVEOBJECTIVE INDICATOR PRINCIPAL ACTIVITIES

Increased Role of Parliament  In reviewing the draft Appropriation Act Evaluation of the budget based on public policies defined by the Government (general government policy, strategy paper, and so on) Mission appropriation (s. 48) Ability to amend the distribution of appropriations among programs (s. 49)  In controlling the actions of the executive (s. 57) A culture of greater accountability (projects and annual performance reports) Instruments to evaluate results (indicators)

Monitoring/Evaluation System Automation of budget procedures Establishment of statutory instruments facilitating transparency, traceability, and control Establishment of monitoring/evaluation tools integrating all government stakeholders, such as the national integrated monitoring/evaluation system (SNISE) Platform for management dialogue Transparency and accountability

Limits of Performance-based Budgeting The document is not easy to understand and follow. Associating an appropriation with an indicator gives the impression, for example, that with an appropriation or budget of 75,432,190 FMG, it is easy to achieve a given primary school completion rate. This is somewhat unrealistic. It is hard to implement a regular monitoring system. It should be noted that, via the Directorate of Budget Implementation and Summary, the Directorate General of the Budget carries out quarterly monitoring of budget execution with institutions and ministries. It is difficult to choose indicators and target values. The relationship between the Government and Parliament is not as fluid as it was believed to be.

Greater Flexibility and Next Steps 2005 to 2007 (All levels budgeted for) 2008 to 2010 (Only two levels are budgeted for, and indicators are described in a performance document.) 1.Mission 2.Program 3.Objective 4.Activity 5.Indicators 1.Mission 2.Program Two documents and not just one: 1 appropriation document 1 performance document