1. Budgeting For Results An idea whose time may be here? Anwar Shah, World Bank CEPAL Regional Seminar on Fiscal Policy Santiago, Chile January 24-27, 2005

2. Anwar Shah, World Bank Outline Theme: Theory and practice of Performance Budgeting Structure: PB: What? PB: What? PB: Why? PB: Why? PB: How? -- International Experience PB: How? -- International Experience Some Conclusions Some Conclusions

3. Performance Budgeting: What?

4. Anwar Shah, World Bank Performance Budgeting: What? A system of budgeting that presents the purpose and objectives for which funds are required, the costs of the programs proposed for achieving these objectives, and outputs to be produced or services to be rendered under each program. Strict Definition: A system of budgeting that explicitly links each increment in allocated resources to an increment in outputs and outcomes.

5. Anwar Shah, World Bank A comparative perspective on the two budgeting approaches Focus on Results Increased Managerial Discretion and less control Managers are accountable for what they achieve. PB Focus on Control No Managerial Discretion Managers are accountable for what and how they spend on inputs. Line-Item

6. Anwar Shah, World Bank Performance Budgeting Paradigm Mission Strategic Goals (Medium Term) Program Objectives & Costs (Annually) P1P2P3 Activities Targets & Costs P1 P2 P3 A1 A2 A3 A1 A2 A1 A2 A3 A4 Performance Measurement Impact Outcomes Outputs Cluster Outputs Budget Bottom-up

7. Anwar Shah, World Bank Performance Budgeting Results Chain Application in Education Program objectives Inputs Intermediate inputs Improve quantity, quality, and access to education services Educational spending by age, sex, urban/rural; spending by level; teachers, staff, facilities, tools, books, regulations Enrollments, student- teacher ratio, class size Outputs Outcomes Impact Reach Achievement scores, graduation rates, drop-out rates Literacy rates, supply of skilled professionals Informed citizenry, civic engagement, enhanced international competitiveness Winners and losers from government programs

8. Anwar Shah, World Bank Performance Measures Used in Performance Budgeting Cost: Inputs/resources used to produce outputs Cost: Inputs/resources used to produce outputs Output: Quantity and quality of goods and services produces. Output: Quantity and quality of goods and services produces. Outcome: Progress in achieving program objectives Outcome: Progress in achieving program objectives Impact: Program goals Impact: Program goals Reach: People who benefit or are hurt by a program Reach: People who benefit or are hurt by a program Quality: Measure of service such as timeliness, accessibility, courtesy, accuracy Quality: Measure of service such as timeliness, accessibility, courtesy, accuracy Productivity: Output by work hour Productivity: Output by work hour Efficiency: Cost per unit of output Efficiency: Cost per unit of output Satisfaction: Rating of services by users Satisfaction: Rating of services by users

9. Anwar Shah, World Bank Citizen-centered performance budgeting Budget format to follow closely service delivery format and also to include a performance report and net worth assessment Budget format to follow closely service delivery format and also to include a performance report and net worth assessment Citizens charter and sunshine rights Citizens charter and sunshine rights Citizen inputs in budget process to be formalized at all stages Citizen inputs in budget process to be formalized at all stages Formulation: Town Hall meeting on the previous year’s performance and new proposals. Comments on Porto Allegre and Belo Horizonte, Bolivia Formulation: Town Hall meeting on the previous year’s performance and new proposals. Comments on Porto Allegre and Belo Horizonte, Bolivia Review and execution: Formal process for complaints Review and execution: Formal process for complaints Post: Compliance and feedback reports. Post: Compliance and feedback reports.

10. Anwar Shah, World Bank Performance Management Framework is a pre-requisite for the success of PB Letting managers manage: operational flexibility and freedom – few rules more discretion Letting managers manage: operational flexibility and freedom – few rules more discretion Making managers manage. Accountability for results. Contracts/work program agreements based upon pre-specified output and performance targets and budgetary allocations  new civil service framework Making managers manage. Accountability for results. Contracts/work program agreements based upon pre-specified output and performance targets and budgetary allocations  new civil service framework Activity based costing, accrual accounting, capital charging Activity based costing, accrual accounting, capital charging Subsidiarity principle Subsidiarity principle Competitive service delivery and benchmarking Competitive service delivery and benchmarking Incentives for cost efficiency (including capital use) Incentives for cost efficiency (including capital use)

11. Anwar Shah, World Bank Output Accountability vs. Outcome Accountability

12. Performance Budgeting: Why?

13. Anwar Shah, World Bank Public Sector Reform Goals Responsive Governance or Doing the Right Things Responsive Governance or Doing the Right Things Matching public services with citizens’ preferences Matching public services with citizens’ preferences Responsible Governance or Doing it Right Responsible Governance or Doing it Right Prudent management of fiscal resources. Prudent management of fiscal resources. Earning trust Earning trust Working better and costing less Working better and costing less Managing fiscal and social risks Managing fiscal and social risks - Improving the quality, quantity and access of public services

14. Anwar Shah, World Bank Public Sector Reform Goals …. Accountable Governance: Accountable Governance: Accountable for all actions to citizens Accountable for all actions to citizens Public Integrity, safeguards Public Integrity, safeguards Citizens charter Citizens charter

15. Anwar Shah, World Bank A Framework for Improving Government Performance Mandate Authorizing Environment Operational Capacity Outputs, Results, Outcomes

16. Anwar Shah, World Bank

17. Tools for Results Oriented Management—external, citizen focus

18. Performance Budgeting: How? International Experiences

19. Anwar Shah, World Bank Theory to Reality Diversification in Implementation

20. Anwar Shah, World Bank Alternate approaches PB with Fuzzy New Public Management (Letting Managers Manage, competition, voice and choice, informal agreements): USA, Netherlands, Australia, Uganda, Mongolia, South Africa (small steps towards PB). PB with Fuzzy New Public Management (Letting Managers Manage, competition, voice and choice, informal agreements): USA, Netherlands, Australia, Uganda, Mongolia, South Africa (small steps towards PB). PB with New Public Management (Making Managers Manage, stronger competition, voice and choice, formal contracts or agreements ): New Zealand, Malaysia (?), Singapore (?) PB with New Public Management (Making Managers Manage, stronger competition, voice and choice, formal contracts or agreements ): New Zealand, Malaysia (?), Singapore (?)

21. Anwar Shah, World Bank Output Orientation under the Malaysian and NZ Models Program agreements monitored for achievement in outputs and impacts Program agreements monitored for achievement in outputs and impacts Output budgeting Output budgeting Activity based costing Activity based costing capital charging capital charging Accrual accounting Accrual accounting Monitoring government’s net worth Monitoring government’s net worth

22. Anwar Shah, World Bank Singapore: PB Framework Government departments managed as Autonomous Agencies Government departments managed as Autonomous Agencies Macro Incremental Factor Macro Incremental Factor Targets and output plans Targets and output plans Funding linked to output levels Funding linked to output levels Operational and financial autonomy Operational and financial autonomy Capital charging including office use, interdepartmental charging Capital charging including office use, interdepartmental charging 3-year development block vote 3-year development block vote New Civil Service Framework New Civil Service Framework

23. Anwar Shah, World Bank U.S. Experience with PB State Governments line-item budget27 states line-item budget27 states program budget10 states program budget10 states Half-way to PB10 states Half-way to PB10 states PBMichigan & Texas PBMichigan & Texas Source: Hager, G. & Hobson, A. June 2001. Performance-Based Budgeting.

24. Anwar Shah, World Bank U.S. Experience with PB – Montgomery Country, Maryland Source: Office of Management and Budget, Montgomery Country. Montgomery Measures Up! For the Year 2002

25. Anwar Shah, World Bank Conclusions Performance budgeting must be an integral element of a broader reform package to bring about performance culture. In the absence of an incentive environment for better performance and accountability for results, the introduction of performance budgeting will not lead to better performance. Performance budgeting must be an integral element of a broader reform package to bring about performance culture. In the absence of an incentive environment for better performance and accountability for results, the introduction of performance budgeting will not lead to better performance. Managerial accountability must be on outputs and not on outcomes as the latter are influenced by external factors. Outcomes however should be monitored. Managerial accountability must be on outputs and not on outcomes as the latter are influenced by external factors. Outcomes however should be monitored. Transparency of the budget and citizens’ evaluation of outputs helpful in improving budgetary outcomes. Transparency of the budget and citizens’ evaluation of outputs helpful in improving budgetary outcomes.