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

2. 2 Outline 1. 1. What is program budgeting and what is it good for? 2. 2. Program budgeting in Korea: a case study of the Ministry of Environment 3. 3. Some general considerations for successful implementation

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

4. 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. 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. 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. 8 MoE’s Organizational Structure

9. 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. 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. 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. 13 Conceptual Framework

14. Suggested New Structure

15. 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. 16  Promoting environmental policies for sustainable development  Currently 116 activities Sub-function (1)

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

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

19. 19 Preserve and restore the natural environment for a clean environment and improved quality of life Currently 23 activities Sub-function Program 4. Natural Environment 4.1 Ecosystem 4.2 National Parks Sub-function (4)

20. 20 Safe and hygienic waste management and the promotion of recycling and reducing waste in society Currently 19 activities Sub-function Program 5. Waste 5.1 Waste Management 5.2 Recycling Sub-function (5)

21. 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. 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. 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. 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. 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