Introduction to Program Budgeting

1. Introduction to Program Budgeting Katherine Barraclough Consultant, World Bank Fiscal Management Reform Workshop, Istanbul, Turkey, June 6-8, 2005

2. Outline • What is program budgeting and what is it good for? • Program budgeting in Korea: a case study of the Ministry of Environment • Some general considerations for successful implementation

3. What is program budgeting and what is it good for?

4. Defining Program Budgeting • Resource allocation based on priorities • Allocating budgetary resources according to government policy objectives and priorities • Focus on organizational objectives • Focus on outputs/outcomes • Allocate expenditure by program • Assess results based on objectives • Applicable for cost-benefit analysis “Programs are groupings of government activities in relation to specific government objectives” (IMF Manual for Fiscal Transparency)

5. Key Elements of Program Budgeting • Sets programs as the basis for budget appropriations • Focus shifts from line items to programs • Basis for facilitating a cost allocation system • Prompts line ministries to define objectives and match activities and resources to achieving them • Usually tied to their legal mandate • Tool for granting greater autonomy and responsibility • In line with transparency and accountability

6. Benefits of Program Budgeting • Basis for supporting enhanced fiscal discipline • Facilitates decision-making for resource allocation • Organizes budget around government policy priorities • Acts as a mechanism for focusing on operational efficiency and performance • Enhances transparency and is user friendly for legislature and general public • Enhances control and accountability for the CBO • Affords greater autonomy and flexibility to spending agencies

7. Program Budgeting in Korea A Case Study of the Ministry of Environment

8. MoE’s Organizational Structure

9. General Principles (1) • Align the budget classification with that of the NFMP • Integrate a mid-term perspective into the annual budget • Keep programs within the organizational structure • Clarify lines of accountability and program management • Combine all activities according to program objectives • Regardless of revenue source

10. General Principles (2) • Determine appropriate scope and number of programs • Reflect ministry’s role and areas of responsibility • Limit the number of activities • Keep at a level that allows for in-depth, policy oriented analysis • Simplify the object groupings • Facilitate discretion and limit excessive input details that impede focus on outputs/outcomes

11. New Budget Structure (1) • Reduces classification levels from 8  5 • Places ministerial classification outside the structure • But all groupings from sub-function down will be organized within ministerial units • Provides the basis for resource allocation decision-making • Links the budget structure to performance management

12. New Budget Structure (2)

13. Conceptual Framework

14. Suggested New Structure

15. Features of the New Structure • 1 function, 5 sub-functions, 16 programs • each sub-function has 2-5 programs • Offices and bureaus have separate programs • for clear lines of accountability and discretion • Programs include all revenue sources • number of activities per program at no more than about 10 • Environmental Administration is a separate program • due to costing difficulty of expenses

16. Sub-function (1) • Promoting environmental policies for sustainable development • Currently 116 activities

17. Sub-function (2) • Increase the amount and quality of safe water, and improve water quality in waterways and rivers • Currently 137 activities

18. Sub-function (3) • Provide clean and clear air quality • Currently 24 activities

19. Sub-function 4. Natural Environment Program 4.1 Ecosystem 4.2 National Parks Sub-function (4) • Preserve and restore the natural environment for a clean environment and improved quality of life • Currently 23 activities

20. Sub-function 5. Waste Program 5.1 Waste Management 5.2 Recycling Sub-function (5) • Safe and hygienic waste management and the promotion of recycling and reducing waste in society • Currently 19 activities

21. Implementation Issues for Korea • Co-operation between the CBO and spending agencies • Consensus and commitment at high level • At executive and legislative level and among key stakeholders • Detailed reform blueprint • Clarify PB in context of broader PEM reforms • Piecemeal approach • Gradual but steady • Development of a policy- and performance-oriented institutional culture • Identify need for reforms in institutional culture • Ensure spending agencies design their own program budget with cooperation from CBO

22. Considerations for Successful Implementation

23. Development Process • Changing form andbehaviour • Thinking differently about planning, managing and budget • Effective PB cannot be developed centrally • Sense of ownership on the part of line ministries • Line ministry staff must undertake the work • Creating ownership and changing organisational culture • Be cautious of other countries examples • Unique laws and institutions, policies and objectives • Establish stability in classification structure • Continuity and consistency • Generates demand for information and resources • Creates need for additional or new data collection, IT and data collection systems

24. Design Process • Programs need to be within ministries • Clearer linking of activities, funds, and objectives for increased managerial accountability • A program classification doesn’t obviate the need for other classifications • Classifications are added to meet new demands for new information and new roles for the budget process • Full costs need to be allocated to programs • Incomplete cost information impedes management and budget decision-making • Program concept should integrate recurrent and capital budgets • Account for all inputs leading to outputs or outcomes

25. Reform Management (1) • Don’t undertake as a budget cutting measure • prompts resistance from line ministries • Annual budget ceilings can help motivate ministries • impetus to rationalise and relate activities to objectives • Provide ample support to ministries • tools for developing program structure and to review spending priorities • “Logframe” – logical framework • Logic Model - Program Logic Model

26. Reform Management (2) • Program budget implementation will be an iterative process over several years • Trend lines or multiple data points allowing for questions of efficiency and effectiveness • Selling program budgeting • Matching expectations to reality of what can be achieved in the time given • High-level commitment over time • Utilisation of program structure by the central budget authority for decision-making