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BUDGETING SYSTEM REFORMS: AN INDONESIA CONTEXT

BUDGETING SYSTEM REFORMS: AN INDONESIA CONTEXT. Presented for Singapore – Asian Development Bank Third Country Training Program in PERFORMANCE BASED BUDGETING IN GOVERNMENTS Singapore, Oct 6 – 17, 2008. Outline :. Reforms Background Progress in Reforms Analyses

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BUDGETING SYSTEM REFORMS: AN INDONESIA CONTEXT

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  1. BUDGETING SYSTEM REFORMS:ANINDONESIA CONTEXT Presented for Singapore – Asian Development Bank Third Country Training Program in PERFORMANCE BASED BUDGETING IN GOVERNMENTS Singapore, Oct 6 – 17, 2008

  2. Outline : • Reforms Background • Progress in Reforms • Analyses • Some Challenges & Strategic Issues.

  3. Reforms Background Lesson learnt from previous systems (dual budget and line item system) • Lack of Budget Discipline • Economic development sustainability in questions • Lack of Transparency • Inefficient • Lack of Accountability.

  4. Progress in Legal Framework • Law No. 17/2003 on State Finances • Law No. 1/2004 on State Treasury • Law No. 15/2004 on Audit of State Finance Accountability • Law No. 25/2004 on National Development Planning System • Government Regulation No. 20/2004 on Government Work Plan • Government Regulation No. 21/2004 on Line Ministries/Agencies Work Plan and Budgeting Formulation

  5. Progress in Budgeting System • Budget System Approaches • Budget Classifications • Budget Process • Budget Documentations • IT System

  6. a. Budget System Approaches • Unified Budget : • merged Routine and Development Budget; • Integrating : budget documents, program/activity within line ministry/agency, and standard chart of accounts. • Medium Term Expenditure Framework : • Setup planning and budgeting based on policy and its financial implication in multi-year perspective; • Develop fiscal discipline to ensure better allocation and operational efficiency. • Performance-Based Budget : • Clearly linkage between budget and output/outcome; • Increasing transparency and accountability of public service; • Flexibility and responsibility arrangement. Grand Design System

  7. Unified Budget Framework DEVELOPMENT ROUTINE BUDGET ROUTINE Sector Function Sector Sub sector Sub function Sub sector Program Program Program Budget Structure Activity Project Activity Chart of Accounts Type of Expenditure Type of Expenditure Spending Unit Project Unit Office

  8. MTEF Framework Long-term Dev. Planning 20 National Goals To achieve National Ministry/Agency MTEF Mid-term Plan Strategic Plan 5 Agency Budget President Vision Govt. Work Plan Work Plan State Budget 1 Program Activities Outputs Outcomes

  9. MTEF Framework To develop fiscal discipline  Fiscal Sustainability To strengthen linkage : policy, planning, and budgeting To encourage line ministry/agency performance in delivering public services MTEF Objectives To direct resources allocation more strategic and realistic To enhance planning unit in line ministry/agency becomes easier to prepare next year budget To increase public trust on Govt. services : more focus and efficient To ensure the sustainability of program/activity financing

  10. MTEF Illustration Budget implications: 2008 2009 2010 2007 Policy decided as baseline Forward Estimate Forward Estimate Budget MTEF

  11. PBB Framework National Outcomes Govt. Work Plan Program Program Program Program Outcome Outcome Program Outcome Program Outcome Outcome Ministry/Agency Outcome Echelon I Unit Echelon I Unit Echelon I Unit Output Output Program Program Output Program Act. Act. Act. Act. Act. Act. Spending Unit Office Spending Unit Act. Output Output Output Act. Act. Act. Act. Act. Act. SA SA SA

  12. b. Budget Classifications Based on Law No 17/2003 on State Finances: • Article 11, section (5) clearly stated: “State expenditures shall be detailed in accordance with organization, function, and type pf expenditure”. • Article 15, section (5) clearly stated: “The budget that is approved by House of Representatives shall give details of organizational units, functions, programs, activities, and types of expenditure”.

  13. Budget Classifications By Function By Economic By Organization Personnel Function Others Ministry/Agency Goods Sub Function Grants Capital Echelon I Echelon I Program Subsidy Social Aid Office/SU Office Office Interest Activity Office

  14. Functional Classifications FUNCTION REFLECTS GOVERNMENT OBLIGATION TO THE PEOPLE SUBFUNCTION REFLECTS MINISTRY/ AGENCY OBLIGATION AS PART OF GOVT. PROGRAM 11 FUNCTIONS REFLECTS MAIN BUSSINES OF ECHELON I UNIT ACTIVITY SUB REFLECTS MAIN DUTIES OF SPENDING UNIT 79 SUB FUNCTIONS ACTIVITY SHOWS COMPONENT OF ACTIVITY, PRODUCE OUTPUT 221 PROGRAMS >1.500 ACTIVITIES

  15. Organization Classification ECHELON I UNIT LOCAL GOVT. UNIT MINISTRY/ AGENCY 73 PORTFOLIO ECHELON II UNIT NON VERTICAL OFFICES VERTICAL OFFICES TEMPORARYUNIT SPECIAL UNIT TOTAL SPENDING UNITS IN 2008 : 20.000

  16. Economic Classifications PERSONNEL GOODS & SERVICES CAPITAL SOCIAL AID GRANT SUBSIDY INTEREST OTHERS

  17. January - April - May - August - September - December - Pparliament ( 4 ) ( 8 ) ( 9 ) Pembahasan Pembahasan - Pemba hasan Pokok - pokok RAPBN UU APBN RKA - KL Kebijakan Fiskal & RKP ( 7 ) ( 11 ) Cabinet/ President Keppres Kebijakan Nota Keuangan tentang Umum & RAPBN dan Rincian Prioritas Lampiran RAPBN Anggaran Ministry of Planning Penelaahan Konsistensi dengan RKP SEB Prioritas Program dan Indikasi Pagu Ministry Of Finance ( 2 ) ( 6 ) (1 0 ) (1 3 ) Lampiran SE Pagu RAPBN Sementara (Himpun an Rancangan RKA - KL) Pengesa - Keppres han tentang Rincian ( 5 ) APBN Penelaahan Konsistensi dengan Prioritas Anggaran (1) ( 3 ) ( 12 ) (1 4 ) Line Ministry/ Agency Konsep Dokumen Rancangan Renstra RKA - KL Dokumen Pelaksanaan Renja KL KL Pelak - Anggaran sanaan Anggaran Local Govt c. Budget Process

  18. Budget Process : Jan - April National Development Planning Agency Cabinet Meeting • Setting priority • Exercise budget needed • Prepare draft RKP Planning Agency Ministry of Finance Indicative Ceiling Ministry of Finance • Set up macro economic assumption • Determine fiscal policy • Exercise resource envelopes Min. Min. Planning Agency National Forum Trilateral Meeting Min/ Agency Gov. Gub. Gov. Prepare Work Plan Department/ Agency Govt. Working Plan DG Budget MOF Govt. Working Plan President Parliament

  19. Budget Process : May - August PARLIAMENT • Govt. Priority & targets; • Macroeconomic assumptions; • Fiscal Policy. Ministry of Finance Govt. Working Plan Circular letter on Temporary Ceiling Planning Agency Ministry of Finance Department/ Agency Scrutiny & Validate Ministry of Finance Prepare WP&Budget Supporting documents *The Budget Bill; *Financial Notes; *President Speech; *Compilation of RKA-KL. RKA-KL President Commissions Planning Agency PARLIAMENT PARLIAMENT Scrutiny & Validate

  20. Budget Process : Sept - Dec PARLIAMENT Ministry of Finance Budget Bill Circular letter on Definitive Ceiling Commission Budget Committee Min/Agency Ministry of Finance Min/ Agency Adjust WP&Budget Supporting documents Min/ Agency Budget docs SAP-SK DG Budget of MOF Budget Docs Scrutiny & Validate DG Treasury of MOF Presidential Decree Scrutiny & Validate

  21. d. Budget Documents National • Government Work Plan • The Budget Bill • Financial Notes • President Speech • Compilation of Line Ministries/Agencies Working Plan and Budgeting documents Line Ministries/Agencies • Annual Working Plan • Working Plan and Budgeting Documents • Budget Implementation Document

  22. e. IT System Ministry of Planning/ National Dev Planning Agency Ministry of Finance DG Budget DG Treasury • Line Ministry/ Agency Working Plan; • Government Working Plan. * Budget Docs; * Payment; * Reporting and Accounting. • Indicative Ceiling; • Temporary Ceiling; • Definitive Ceiling; • WP&Budget • SAP-SK; • Presidential decree. Each system stands alone!!!

  23. Current Condition Implementation of Unified Budget : • Unifying Routine and Development Budget; • Unifying budget documents (planning) • Unifying budget documents (implementation) • Unifying implementing unit: project unit/office to spending unit; • Improving type of expenditure classification • Introducing chart of accounts based on GFS Great success

  24. Implementation of MTEF: • Setup macro economic assumptions to perform medium term fiscal framework (MTFF); • Setup tax ratio, deficit target, revenue target, expenditure limit to formulate medium term budget framework (MTBF); • Put the figures produced in Financial Notes since 2008 budget. Still away from targets

  25. ANALYSES • Concepts, Regulations ok • Implementation ?: • Lack of agency leadership commitments • Lack of coordination among agencies, since agencies vary in comprehension • Fiscal policy, in some extent, was not linked to agency budget • Cabinet is ready, some agencies are not

  26. Some Challenges: Medium Term Expenditure Framework: • Setup baseline; • Determine the parameters; • Formulate 3-year forward estimates; • Forward estimates adjustment; • Strategic review of Policy/Program.

  27. Performance-Based Budget : • Restructure the programs; • Determine the outcomes and outputs; • Formulate measurements (performance indicators for programs and outputs); • Develop costing methodology (model); • Simplify the operational/running cost components; • Define standard cost or indexation; • Flexibility arrangements; • Performance Review technique.

  28. Strategic Issues: • Level of agency autonomy is to be improved • Budget Documents are to be simplified • Legislative & Executives imbalance • Huge amounts of units (both central & local)

  29. Let start!! a. MTEF Context : • Continued; • Terminating; • Lapsing. Existing Govt. Policies Review • Continued; • Lapsing; • New Policy. Decide Re-priorities • Existing Policy : Actual, trend analysis, adjustment; • New Policy : Assessment. Evaluate & Assess Costing Process Total = Existing + New Set-up Baseline Take into account Parameter Index : 2010, 2011, 2012 Set-up Parameters Determine Forward Estimate Apply per Program Set-up 3-year FE 2011 2012 2010

  30. Reformulate!!! b. PBB Context : Min/ Agency Vision & Missions Outcomes State Define O-1 O-2 O-3 Directly support Reflects part of mission • KPI based on : • Efficiency focused; • Customer focused; • Customer, employee and outcome focused; • Efficiency and effectiveness focused; • Effectiveness and customer focused; • Outcome focused; Echelon I Unit Program Formulate Reformulate Program v Core business & function Directly support Echelon II/ Spending Unit Activity • Indicators: • Quantity; • Quality; • Price. Design v Task & function

  31. PROGRAM Activity 4 Activity 1 Activity 2 Activity 3 National Priority Personnel expenses Operational, Maintenance, and Travel expenses Min/Agency Priority Simplify Costing • Criteria : • database emplyee • table salary & allowance • Criteria : • output specific • directly support national outcome • Criteria : • output specific • reflects unit function • basic service delivery • Criteria : • index per employee • table benchmark Running cost Administered Flexibility – managed by Manager Controlled by Parliament & MOF

  32. PROGRAM Activity 4 Activity 1 Activity 2 Activity 3 National Priority Personnel expenses Operational, Maintenance, and Travel expenses Min/Agency Priority Budget Allocation Process • Criteria : • database employee • table salary & allowance • Criteria : • output specific • directly support national outcome • Criteria : • output specific • reflects unit function • basic service delivery • Criteria : • index per employee • table benchmark Allocated by Planning Agency Allocated by MOF

  33. THANK YOU !!!

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