Thailand's Public Expenditure Management Review (PEM/R)

1. Public Expenditure Management Review (PEM/R) in Thailand Bureau of the Budget 15 December 2006

2. Last year, Thailand commenced our Public Expenditure Management Program. Previous year presentation… • Thai PEM Framework • Strategic Performance based Budget System • Decree on Good Governance and Government Administrative Plan • OECD Best Practices for Budget Transparency • IMF Code of Good Practices on Fiscal Transparency • Thai PEM Main Focus • Linkage between national priorities and budgeting within the framework of sustainability • Legal framework and Institutional arrangements for public spending • PEM Review Implementation Plan • Mid term review in early 2006 • Start with Fiscal Sustainability component

3. Implementation of the Thai PEM abides by the three fundamental principles of Best Practiced PEM and covers the whole process of delivering public services. • Three Principles • Maintaining aggregate fiscal discipline • Allocating public resources in accord with strategic priorities • Promoting the efficient delivery of services • Coverage • Formulation of policies • Planning • Allocation of resources • Implementation

4. In the past year, Thailand has made progress in the five main components of PEM/R.

5. MTEF Top Down/Bottom up • Fiscal rules • Budget Ceiling • Ratio of Capital/ Operating Budget • Mid-Term Review • National Strategic Target • Ministerial Strategic Plan & Budget Ceiling • Integrated agenda based Budget Plan • Service Delivery Targets & Public Service Agreement • Output Profile • Performance Indicators • Increasing roles of front line manager • PPP & other Public financial innovations • Performance measurement Realignment of Program-Activities-Outputs • GFMIS • Improve Performance and Financial Report • Improve the Format of Budget Documents • Improve Budget Information System Critical tools have been identified in order to successfully reach each of the key PEM objectives. PEM Objectives TOOLS Maintain Long-term Aggregate Fiscal Discipline Strengthen Strategic Allocation of Resources Increase Operational Efficiency Enhance Managerial Flexibility and Accountability Enhance Fiscal Transparency

6. Tools for each objective are under various stages of development; some key ones have been implemented.

7. MEDIUM-TERM BUDGET PLANNING FRAMEWORK National Economic and Social Development Plan Government Policy Government Administrative Plan National Investment Plan Tools for long-term Fiscal Discipline have been integrated into the Budget Process. MTEF (Top-Down) MTEF (Bottom-Up) Demand of Funds Supply of Funds Fiscal Policy Formulation Fiscal Rules Annual Budgeting Ceiling Macro-economic Outlook ANNUAL BUDGET PLANNING FRAMEWORK Budget Allocation Strategy Revenue Forecast Public Debt and Fiscal Risks Annual Budget Preparation

8. All key agencies are involved to some degree in the utilization of various tools to ensure fiscal sustainability in the budget planning process. A=Approve L=Lead P= Participate I=Initiate R= Review S=Support MOF = Ministry of Finance, NESDB = National Economics and Social Development Board, BOT = Bank of Thailand, BOB = Bureau of the Budget

9. The Thai Government has abided by a set of publicly announced Fiscal Rules, and the rules are consistent with the Sufficiency Economy policy principle • Ratio of Public Debts to GDP not more than 50% • Debt service not exceeding 15% • Budget Deficit not more than 2% of GDP • Annual borrowing not more than 20% of total annual budget plus not more than 80% of the principle repayment budget • Capital expenditure no less than 25% of total budget

10. Thai PER will be conducted every two years, at the beginning and mid-term of the government cycle. • to ensure the effectiveness of the review • to maximize the use of information in policy & implementation adjustment. GOVERNMENT CYCLE Previous Year Hypothesis Year 1 Year 2 Year 3 Year 4 PER Cycle Starts PER Mid-Term PER Cycle Ends

11. Results of the first Mid-term review is useful, but the process is interrupted by unforeseen circumstances. • Macro economics assumptions must be scrutinized to ensure solid foundations. • Assumptions of major government policies must be realistic. • Report on Public Debts do not cover all existing risks. • Fiscal decentralization needs to be reviewed urgently. • Financing for Mega Projects must be well-planned. • Some key issues will increase fiscal pressure • Income Contingent Loan for education • Demographic trend of an aging population • Capitation Rate for healthcare

12. Holistic structure of plans and targets have been installed from national level down to operational level.

13. Public policies are run in three dimensions simultaneously to effectively drive key policies, provide public services, and enhance area specific competitive advantages. National Economic and Social Development Plan Government Policy Government Administrative Plan Ministry Strategy Provincial Cluster Strategy Government Agenda 4-year Operational Plan 4-year Operational Plan Agenda Based Annual Operational Plan Annual Operational Plan Line Agency Strategy Provincial Strategy 4-year Operational Plan 4-year Operational Plan Annual Operational Plan Annual Operational Plan Function Based Area Based

14. Performance indicators become the focus of the dialogue in budget scrutiny process.

15. Public Service Agreements between Ministry and Agency have been signed, but currently they are not fully enforced.

16. Output Profile has been designed to improve the information structure in the budget process. Output Profile • Government Strategic Target (Government Administrative Plan) • Strategic Target (Government Administrative Plan) Agenda/Function/Area • Ministry Service Delivery Target (Expected Result)(4-year Operational Plan) • Agency Service Delivery Target (4-year Operational Plan, Annual Operational Plan) • Agency Mission (4-year Operational Plan, Annual Operational Plan) • Outputs & Performance Indicators in each level including main responsible person and supporting responsible person • - Ultimate Outcome – Key Success Factors • - Intermediate Outcome & KPIs • - Immediate Outcome & KPIs • - Output (Quantity,Quality,Timeliness,Cost) • Output/Service Delivery Process (Operational plan/Budget Management Plan) • - Output Target (Agenda, Function, Area) • - Primary/Secondary/Support Activities • - Budget • 8. Budgeting Management • - Budget Planning • - Budget Allocation Plan • - Budget Execution • 9. Output Costing • 10. Efficient Resource Management • - Key Success Factor and Constraints • - Organization Management System (Operation Expense) • - Organizational Structure and Human Resource Management (HR Expense) • - Facilities and Investment Management • - Risk Management • 11. Performance Reporting in each level • - Performance and budget used compared to what’s indicated in the plan • - Monitoring • - Evaluation • - Problems, Obstacles, and Recommendation

17. Performance indicators are attached to each agenda, strategy, tactic, and activities in the budget documents. • National level: Achieve knowledge-based society for people with solid ethical values and good morals • Ministry level: People receive education and lifelong learning with quality assurance • Quantity measurement: • Years of education of the population • Educational institutions with support for strengthening • Quality measurement: • Target students with compulsory and higher education • External students with ability to apply their knowledge • Agency level • Quantity: number of students/researches in each field • Quality: quality of standardized tests, employment, ability to continue education

18. The trend to increase managerial flexibility and accountability continues in the past year; PPP is being tested.

19. Front line managers have been given more authority on operation planning and budget matters. • New Draft Budget Procedures Act • Strategic performance based budget process • De-concentration: Empowering ministries and departments • Comprehensive coverage & Good governance • New Budget regulations • Flexibility • Transfer within Budget Plan • Spending within budget category • Spending of left-over budget • Conditions • Achievement of objectives • No multi-year commitment • No new government employment • No land acquisitions • Constructions of not more than 10 million baht • Equipment of not more than 1 million baht • Reporting

20. PPP has provided lessons learned, and it is now encouraged for projects that can generate sufficient cash flow. • Key issues must be addressed • Prioritization and preparation of good projects • True improved value for money • Well thought of risk/benefits assessment & transfer • Actual acceleration of delivery • Transparent off-budget treatment • Issues under considerations • Clear legislation • Legality to enter contract • Dispute settlement • Government institutional capability • Development of Key Processes • project viability assessment • private sector pricing • Realistic government support

21. Performance Assessment Rating Tool (PART) is used to ascertain the capabilities of public agencies. • Pre evaluation (before budget spending) • Interim evaluation (during operations) • Post evaluation (after implementation)

22. Fiscal transparency is enhanced by improved budget information system on a more integrated platform.

23. BOB ICT’s integration with the public sector platform enhances accessibility for users and increase transparency overall. Prime Minister Operation Center GFMIS BOB e-Budgeting www.bb.go.th BIS (Budget Information System) EIS (Executive Information System) Planning BBOC (BB Operating Center) Preparation Evaluation BBOA (BB Office Automation)

24. The Next Step is to ascertain that PEM become standard operating procedure in the Thai Budgetary Process, and Thai PEM must continue to be improved. • Increase fiscal inter-relationship among government agencies in all levels • Increase roles of government agencies concerning Public Expenditure Management Review • Refine design & structure of all PEM Components and move forward with the operational plan for each PEM component • Emphasize the Integration of Fiscal Sustainability Framework and MTEF in Budget Planning process • Capacity Building and System Support Program