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Budgeting For Results

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. Outline. Theme: Theory and practice of Performance Budgeting Structure: PB: What? PB: Why?

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Budgeting For Results

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

  3. Performance Budgeting: What?

  4. 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. Anwar Shah, World Bank

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

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

  7. Performance Budgeting Results Chain Application in Education Anwar Shah, World Bank

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

  9. Citizen-centered performance budgeting • Budget format to follow closely service delivery format and also to include a performance report and net worth assessment • Citizens charter and sunshine rights • 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 • Review and execution: Formal process for complaints • Post: Compliance and feedback reports. Anwar Shah, World Bank

  10. Performance Management Framework is a pre-requisite for the success of PB • 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 • Activity based costing, accrual accounting, capital charging • Subsidiarity principle • Competitive service delivery and benchmarking • Incentives for cost efficiency (including capital use) Anwar Shah, World Bank

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

  12. Performance Budgeting: Why?

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

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

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

  16. Anwar Shah, World Bank

  17. Tools for Results Oriented Management—external, citizen focus Anwar Shah, World Bank

  18. Performance Budgeting: How? International Experiences

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

  20. 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 New Public Management (Making Managers Manage, stronger competition, voice and choice, formal contracts or agreements ): New Zealand, Malaysia (?), Singapore (?) Anwar Shah, World Bank

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

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

  23. U.S. Experience with PB State Governments • line-item budget 27 states • program budget 10 states • Half-way to PB 10 states • PB Michigan & Texas Source: Hager, G. & Hobson, A. June 2001. Performance-Based Budgeting. Anwar Shah, World Bank

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

  25. 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. • 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. Anwar Shah, World Bank

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