1. Module 2.2: Budget planning & performance INTRODUCTION TO PUBLIC FINANCE MANAGEMENT

2. Module outline  The move towards performance in the Budget  What do performance systems entail?  Types of Budget systems in use

3. Performance in the Budget What does it mean for the government? In the traditional or ‘bureaucratic’ approach, performance meant: ensuring compliance with set rules and regulations; controlling inputs; adhering to the public sector ‘ethos’.  This worked well for several decades when governments had relatively less complex tasks to perform.

4. Performance in the Budget What does it mean for the government? In the ‘new public management’ approach, there are calls, among other things, for:  Ascertaining the relation of budgetary inputs with what they are meant to achieve;  Determining efficiency and effectiveness of public spending – and accountability thereafter;  Reducing bureaucracy and enhance managerial discretion – managing for results.

5. Performance in the Budget... it is important to keep in mind... ‘Performance is a deceptively simple idea: simple because it is easy to express key concepts and objectives; deceptive because it is hard to apply these ideas in government’. Allen Schick, the Performing State (2003)

6. Traditional budgetingPerformance oriented budgeting Input-orientedResults-oriented Good for aggregate fiscal discipline Facilitates efficiency, effectiveness, accountability Central control (MoF) Devolved control, discretion to spending units Easy, UnderstandableComplex, sophisticated Performance in the Budget

7. “ Traditional budgeting” Focus: economic transaction items (inputs) Strengths: The basic processes are ensured Develop a discipline culture Weaknesses: Difficult to reflect policy and performance Frequently, cumbersome bureaucratic procedures Performance in the Budget

8. Ministry X Budget Appropriation € Salaries and pension contribution5,200,000 Goods & Services100,000 Transfers3,000,000 Capital expenditure1,000,000 Total9,300,000 A Traditional Budget would look like this...

9. “Performance oriented budgeting” Focus: programme, output, outcome(?) Strengths: Enhanced information framework for making decisions in budgeting Weaknesses: Need strong institutional arrangements and considerable technical and human capacity The higher the sophistication, the more expensive it gets Performance in the Budget

10. Important to note... There are no clear cut or ‘off-the-shelf’ performance budgeting systems. A ‘continuum’... systems that simply present performance information in the budget (programme-type budgeting) to systems that integrate performance in the budget by determining budget appropriations through costed units of performance (output-type budgeting). Performance in the Budget

11. Ministry X Budget Appropriation € Programme XX Salaries and pension contribution5,200,000 Goods & Services100,000 Transfers3,000,000 Capital expenditure1,000,000 Total9,300,000 A Programme-type Budget would look like this...

12. Performance in the Budget Ministry X Budget Appropriation € OutlayCostUnits Output 11,500,00056,500,000 Output 22,500,0001 Output 3150,0002300,000 Total9,300,000 An Output-type Budget may look like this...

13. Performance-oriented budgeting: MoF control at higher level Traditional budgeting: detailed external control by MoF

14. Module outline  The move towards performance in the Budget  What do performance systems entail?  Types of Budget systems in use

15. Inputs Outputs Outcome Impact Finance Buying books, building schools, hiring teachers Enrolment, Transition Literacy rate, socio- economic benefits Activities Transformation of inputs into outputs Performance in the Budget

16. Important definitions... Output: the goods and/or services produced by using inputs, usually measured in absolute quantities; Outcome: the results arising from using outputs, usually measured in relative terms i.e. percentage (%) change. − Efficiency = output/input − Effectiveness = % of achievement of the outcome Performance in the Budget

17. Important definitions cont... Outcome-type indicators concern broader developmental issues that would depend on a number of variables not all possible to predict/control; Output-type indicators are time-bound and under the full control of Govt action; Performance in the Budget Clearly defined... S.M.A.R.T SPECIFIC – MEASURABLE – ACHIEVABLE – RELIABLE – TIMEBOUND

18. FeaturesOutputOutcome What is measured? Goods and/or services delivered to target beneficiaries/areas Improved service delivery (quality) What is the level of Government control? Government has primary control Affected also by factors outside the control of the Government What is the time-frame? Short-termMedium and Long-term Important definitions cont... Performance in the Budget

19. OutputOutcome IndicatorTargetIndicatorTarget Environment Modernisation of waste management infrastructure no of units produced Stabilisation of emission pollutants and greenhouse emissions % decrease in emissions Improvement of public access to environmental info no of access points & publications Improvement of the surface water quality % decrease in water pollutants Transport Elimination of bottlenecks on routs of international corridors no of speed limit sections Increase of foreign trade cargo traffic by sea % increase in cargo traffic Examples of output and outcome indicators... Performance in the Budget

21. Module outline  The move towards performance in the Budget  What do performance systems entail?  Types of Budget systems in use

22. Presentational and Performance-informed systems: presents performance information as part of the budget documentation but not used for resource allocation. The appropriations are not integrated with performance targets; NB: Many of the ‘programme budgeting’ reforms in transition and developing countries of the last decade often reflected this approach. Types of Budget systems

23. Performance-based system (or output-type budgeting) where performance information plays an important role for resource allocation. The performance targets (outputs) are costed and determine the budget appropriations. OECD, Performance Budgeting in OECD Countries, 2007 Types of Budget systems

24. Important to note: the line between presenting and using performance information can be quite thin… Does a given performance budgeting reform aim at transforming budgeting or provide a better foundation for informing budgetary decisions?

25. ANNUAL REPORT Q-1 MONITORING Q-3 MONITORING Q-2 MONITORING BUDGET Financial information Performance information Types of Budget systems

26. CASE STUDY The Budgets of: Armenia, Kosovo, Singapore, and New Zealand. Review the Budget excerpts in your participant’s pack. What type of Budget system does each of the four countries have? Types of Budget systems

27. Issues in introducing/sequencing Budget reform... Control inputs before controlling outputs Implement an annual budget good before moving to multi-annual budgeting Establish external controls before introducing internal controls Establish internal control before introducing managerial accountability Key Messages

28. Issues in introducing/sequencing Budget reform... Budget for work done before budgeting for results to be achieved Adopt and implement predictable budgets before insisting efficient use of resources by managers Enforce normal contracts in the market sector before introducing performance contracts in the public sector Key Messages

29.  Traditional vs performance budgeting is not an "either-or" situation (there are many cases in between…);  Getting the right reform sequencing is paramount. Key Messages