1. 1 Session 1. Sequencing and Pacing of Performance Budgeting Reforms: Observations and Lessons from Korea Nowook Park Center for Performance Evaluation & Management Korea Institute of Public Finance (KIPF)

2. 2 Contents 1. Sequencing and Pacing of PB Reforms in Korea 2. Issues and Lessons

3. 3 1. Sequencing and Pacing of PB Reforms in Korea

4. 4 Building Blocks of PB Program budgeting Restructure budget structure to accommodate program goals Accounting System Appropriate distribution of overhead to each program is necessary to have relevant cost information Accrual Accounting Medium term expenditure framework Performance Information and IT investment Managerial & Financial Flexibility Top down budgeting Multiyear budgeting Discretionary room for carry-over

5. 5 Characteristics of the Korean Approach (1) Gradual Approach at the initial stage Experimenting with pilot project between 2000- 2002 Selected departments within selected ministries are subject to the pilot project Annual performance plan and report are developed by selected departments

6. 6 Characteristics of the Korean Approach (2) Big bang approach with other fiscal reforms since 2003 Medium term fiscal plan (2003*, 2005**) Top down budgeting (2003*, 2004**) Performance budgeting (2000*, 2005**) Digital budget and accounting system Program budgeting (2006**) Accrual accounting (planned in 2009*) IT system (2007**) (Note) *: pilot project, **: comprehensive implementation

7. 7 Performance Budgeting (Pilot Project) Performance Goal Management Self-Assessment of Budgetary Program In-Depth Evaluation Developed Strategic Goals, Performance Objectives and Performance Indicators Designed after GPRA 1/3 of major budgetary programs are evaluated every year Designed after PART Selected programs are subject to program evaluation Expanded “Performance Budgeting” to 26 Ministries/agencies Annual performance plan and report are required ’00~’02’00~’02 ’00~’02’00~’02 ’03~’03~ ’03~’03~ ’05~’05~ ’05~’05~ ’06~ Introduction of Performance Budgeting

8. 8 “National Finance Act” was enacted in December, 2006 To provide a legal basis for 4 major fiscal reforms Contains articles on performance-based budgeting Annual Performance Plan and Report become legal requirements for line ministries/agencies. SABP and In-depth Evaluation are stipulated. It gives stability and continuity which may be a problem of performance management system. Government has less incentives to maintain and improve performance management system than to introduce it, because efforts to improve the system are less visible to the public. Enactment of National Finance Act

9. 9 Performance Monitoring “Management of Performance Objectives” Monitoring based on the performance indicators Program Review “Self-Assessment of Budgetary Program” Review based on the checklist Program Evaluation “Budgetary Program Evaluation” In-depth evaluation for selected programs Framework for Performance-Based Budgeting In Korea

10. 10 The central budget authority reviews self- assessment of programs done by line ministries/agencies The budgetary authority provides a standardized checklist for reporting self-assessment The checklist contains questions on design, performance management system, implementation, and actual performance About 1/3 programs are reviewed each year Description of “Self-Assessment of Budgetary Program”

11. 11 Program purpose Rationale for government spending Duplication with other programs Efficiency of program design Relevance of performance objectives and indicators Relevance of performance targets Design and Planning Independent program evaluation Results Satisfaction of citizens Utilization of evaluation results Results and accountability Monitoring efforts Obstacles of program implementation Implementation as planned Efficiency improvement or budget saving Management Contents of Checklist

12. 12 Evaluation results Quality of performance information has not improved much Programs are showing better results Link between evaluation results and budget Evaluation results are utilized at every stage of budget process Moving away from incremental budgeting Evaluated programs are subject to bigger budget change compared to other programs Report on 2005-2007 Self Assessment of Budgetary Program

13. 13 TotalEffective Moderately Effective AdequateIneffective 2005 Number5552810034087 (%)(100.0)(5.0)(18.0)(61.3)(15.7) 2006 Number577309438865 (%)(100.0)(5.2)(16.3)(67.2)(11.3) 2007 Number5846613934831 (%)(100.0)(11.3)(23.8)(59.6)(5.3) Evaluation Results by Rating

14. 14 Total Score (100) Planning(30) Management (20) Results (50) Sub total (30) Design (15) Performance Planning (15) 200560.123.113.89.315.121.9 200659.922.914.38.614.722.3 200766.023.414.29.215.527.1 Evaluation Results by Section

15. 15 The central budget authority encouraged ministries/agencies to use the results in reshuffling budget allocation The central budget authority announced at least 10% budget-cut would be done to “ineffective” programs, in principle The central budget authority submitted evaluation results to the National Assembly upon their request Evaluation results have been open to public since 2006 Utilization of Evaluation Results

16. 16 Use of Performance Information by Agencies (2005)

17. 17 Use of Performance Information by the Central Budget Authority (2005)

18. 18 Use of Performance Information by Legislature (2005)

19. 19 Moving Away from Incremental Budgeting Programs have been subject to larger budget change after evaluation Coefficient of Variation in Funding Change (Excluding Programs of which funding change is greater than 200%) CV Year (B 04 -B 03 )/B 03 (B 05 -B 04 )/B 04 (B 06 -B 05 )/B 05 (B 07 -B 06 )/B 06 (B 08 -B 07 )/B 07 20053.12.79.2 20062.7 -14.3 20072.53.13.9

20. 20 2. Issues and Lessons

21. 21 Issues and Lessons –Sequencing and pacing of PB (1) Program budgeting needs to be in place before performance budgeting There are some inconsistencies between program structure and annual performance plan because different units are responsible for each task If program structure had been in place before performance budgeting, costs of trial and error would have been avoided. Top down budgeting was introduced to give more autonomy to line ministries but, in reality, it has not been realized

22. 22 Issues and Lessons –Sequencing and pacing of PB (2) Sound cost accounting needs to be in place before performance budgeting Overhead costs have not been properly distributed to each program, yet Efficiency indicator has not been widely utilized but its use is encouraged from 2008 Medium term fiscal plan and performance budgeting need to be linked to enhance decision making at macro-level budget allocation

23. 23 Change of evaluation process is in consideration Give more autonomy to line ministries to relieve the burden of evaluation from central budget authority For example, instead of central budget authority’s evaluating every program, line ministries will have more autonomy in producing evaluation results. Use of efficiency information is encouraged even though sound cost accounting is not in place yet Changes in Consideration

24. 24 Thank You!