1. Introduction to Program Budgeting
Katherine Barraclough
Consultant, World Bank
Fiscal Management Reform Workshop, Istanbul, Turkey, June 6-8, 2005

2. Outline What is program budgeting and what is it good for?
Program budgeting in Korea: a case study of the Ministry of Environment
Some general considerations for successful implementation

3. What is program budgeting and what is it good for?

4. Defining Program Budgeting
Resource allocation based on priorities
Allocating budgetary resources according to government policy objectives and priorities
Focus on organizational objectives
Focus on outputs/outcomes
Allocate expenditure by program
Assess results based on objectives
Applicable for cost-benefit analysis
“Programs are groupings of government activities in relation to specific government objectives”
(IMF Manual for Fiscal Transparency)

5. Key Elements of Program Budgeting
Sets programs as the basis for budget appropriations
Focus shifts from line items to programs
Basis for facilitating a cost allocation system
Prompts line ministries to define objectives and match activities and resources to achieving them
Usually tied to their legal mandate
Tool for granting greater autonomy and responsibility
In line with transparency and accountability

6. Benefits of Program Budgeting
Basis for supporting enhanced fiscal discipline
Facilitates decision-making for resource allocation
Organizes budget around government policy priorities
Acts as a mechanism for focusing on operational efficiency and performance
Enhances transparency and is user friendly for legislature and general public
Enhances control and accountability for the CBO
Affords greater autonomy and flexibility to spending agencies

7. Program Budgeting in Korea
A Case Study of the Ministry of Environment

8. MoE’s Organizational Structure

9. General Principles (1)
Align the budget classification with that of the NFMP
Integrate a mid-term perspective into the annual budget
Keep programs within the organizational structure
Clarify lines of accountability and program management
Combine all activities according to program objectives
Regardless of revenue source

10. General Principles (2)
Determine appropriate scope and number of programs
Reflect ministry’s role and areas of responsibility
Limit the number of activities
Keep at a level that allows for in-depth, policy oriented analysis
Simplify the object groupings
Facilitate discretion and limit excessive input details that impede focus on outputs/outcomes

11. New Budget Structure (1)
Reduces classification levels from 8  5
Places ministerial classification outside the structure
But all groupings from sub-function down will be organized within ministerial units
Provides the basis for resource allocation decision-making
Links the budget structure to performance management

12. New Budget Structure (2)

13. Conceptual Framework

14. Suggested New Structure

15. Features of the New Structure
1 function, 5 sub-functions, 16 programs
each sub-function has 2-5 programs
Offices and bureaus have separate programs
for clear lines of accountability and discretion
Programs include all revenue sources
number of activities per program at no more than about 10
Environmental Administration is a separate program
due to costing difficulty of expenses

16. Sub-function (1)
Promoting environmental policies for sustainable development
Currently 116 activities

17. Sub-function (2)
Increase the amount and quality of safe water, and improve water quality in waterways and rivers
Currently 137 activities

18. Sub-function (3) Provide clean and clear air quality
Currently 24 activities

19. Sub-function (4)
Sub-function
Program
4. Natural Environment
Ecosystem
National Parks
Preserve and restore the natural environment for a clean environment and improved quality of life
Currently 23 activities

20. Sub-function (5)
Sub-function
Program
5. Waste
Waste Management
Recycling
Safe and hygienic waste management and the promotion of recycling and reducing waste in society
Currently 19 activities

21. Implementation Issues for Korea
Co-operation between the CBO and spending agencies
Consensus and commitment at high level
At executive and legislative level and among key stakeholders
Detailed reform blueprint
Clarify PB in context of broader PEM reforms
Piecemeal approach
Gradual but steady
Development of a policy- and performance-oriented institutional culture
Identify need for reforms in institutional culture
Ensure spending agencies design their own program budget with cooperation from CBO

22. Considerations for Successful Implementation

23. Development Process Changing form and behaviour
Thinking differently about planning, managing and budget
Effective PB cannot be developed centrally
Sense of ownership on the part of line ministries
Line ministry staff must undertake the work
Creating ownership and changing organisational culture
Be cautious of other countries examples
Unique laws and institutions, policies and objectives
Establish stability in classification structure
Continuity and consistency
Generates demand for information and resources
Creates need for additional or new data collection, IT and data collection systems

24. Design Process Programs need to be within ministries
Clearer linking of activities, funds, and objectives for increased managerial accountability
A program classification doesn’t obviate the need for other classifications
Classifications are added to meet new demands for new information and new roles for the budget process
Full costs need to be allocated to programs
Incomplete cost information impedes management and budget decision-making
Program concept should integrate recurrent and capital budgets
Account for all inputs leading to outputs or outcomes

25. Reform Management (1) Don’t undertake as a budget cutting measure
prompts resistance from line ministries
Annual budget ceilings can help motivate ministries
impetus to rationalise and relate activities to objectives
Provide ample support to ministries
tools for developing program structure and to review spending priorities
“Logframe” – logical framework
Logic Model - Program Logic Model

26. Reform Management (2)
Program budget implementation will be an iterative process over several years
Trend lines or multiple data points allowing for questions of efficiency and effectiveness
Selling program budgeting
Matching expectations to reality of what can be achieved in the time given
High-level commitment over time
Utilisation of program structure by the central budget authority for decision-making