PFM domains sequencing of reforms Module 2 3

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PFM domains & sequencing of reforms Module 2. 3 Programme/Performance budget 1

PFM domains & sequencing of reforms Module 2. 3 Programme/Performance budget 1

Day 2: Sub-systems of PFM and prioritising reforms • Module 2. 1. Expenditure Classification,

Day 2: Sub-systems of PFM and prioritising reforms • Module 2. 1. Expenditure Classification, budget Preparation and the MTEF • Module 2. 2. Expenditure Cycle and accounting • Module 2. 3. Programme/Performance budget • Module 2. 4. External control, legislature and regulatory framework and IT (information technology)issues 2

Module 2. 3. The performance/programme budget. Objectives • This module outlines a programme budget

Module 2. 3. The performance/programme budget. Objectives • This module outlines a programme budget approach • It identifies the difficulties and possible pitfalls • It presents an approach of gradual implementation 3

Module 2. 3 Outline • • • Budgetary approaches The programme Performance and budgeting

Module 2. 3 Outline • • • Budgetary approaches The programme Performance and budgeting The procedure for implementation Avoiding the pitfalls 4

Budgetary approaches 1. "Classical Budgeting”: input/resource oriented • Strong points • Basic processes are

Budgetary approaches 1. "Classical Budgeting”: input/resource oriented • Strong points • Basic processes are provided • Stimulates development of a discipline culture • Weak points: • In general terms, little or no concern for public policies & their outcomes • Often, bureaucratic procedures are cumbersome 5

Approaches to budgeting: Result oriented 2. “Result-oriented Budgeting” Orientation: Product/Efficiency & Result/ Effectiveness •

Approaches to budgeting: Result oriented 2. “Result-oriented Budgeting” Orientation: Product/Efficiency & Result/ Effectiveness • Strong Points: • Reflects true objective of budgeting • Weak Points: • Requires strong institutional arrangements • Their effectiveness depends greatly on the country context (the country context becomes extremely important) 6

Performance in the Budget ‘Traditional’ Aims to control money ‘programme/performance budget’ Aims to achieve

Performance in the Budget ‘Traditional’ Aims to control money ‘programme/performance budget’ Aims to achieve performance 7

Module 2. 3 Outline • • • Budgetary approaches The programme Performance and budgeting

Module 2. 3 Outline • • • Budgetary approaches The programme Performance and budgeting The procedure for implementation Avoiding the pitfalls 8

Basic concept of “performance” approach: The programme • A classification of expenditure programmes aimed

Basic concept of “performance” approach: The programme • A classification of expenditure programmes aimed at: • Better formulating and monitoring the fiscal policies • Providing a basis for effective management • Improving transparency • Ensuring accountability: reporting and accounting for results 9

‘Programme’ defined in context of performance/programme budget • France (LOLF): A programme includes appropriations

‘Programme’ defined in context of performance/programme budget • France (LOLF): A programme includes appropriations to implement an action or a coherent set of actions within same ministry & which are associated with specific objectives defined in terms of general interest objectives, expected results. . . " • Directive 06/2009/CM/UEMOA: ”Within ministries. . . A programme includes appropriations to implement an action or a coherent set of actions representing a clearly defined public policy in medium term. These programmes are associated with specific objectives. " • UN, 1965: “A division of an agency's activities, which produce product or service representing the purpose…" 10

Programmes are established by ministries • With few exceptions, countries that have adopted a

Programmes are established by ministries • With few exceptions, countries that have adopted a programming approach have established programmes by ministries o Ministers are accountable to Parliament; o Budget is implemented by ministries. • A programme should therefore take into account both public policy objectives & areas of responsibility • Interdepartmental aspects (sectoral) are to be taken into account in strategies & horizontal policies 11

‘Programme’: Some characteristics • Grouping of independent expenditures, nature of expenditure & funding sources

‘Programme’: Some characteristics • Grouping of independent expenditures, nature of expenditure & funding sources • All expenditures classified in only one programme. • Programme in general is a public policy: does not end with completion of specific activities. • This definition differs from that used in project management or by funders, where the programme is a group of projects • In a Programme budget approach, budget management is based on the programme: importance of programme manager 12

Characteristics of a programme budget A programme budget includes: • A classification of budget

Characteristics of a programme budget A programme budget includes: • A classification of budget expenditures by program (in addition to other classifications) • In the documents attached to the Finance Bill o Presentation of objectives o A description of activities o Performance indicators and targets • Usually includes multi-year expenditure projections (see MTEF)-years following budget year are indicative • Annual performance report reflects results • Programme manager drafts strategy, oversees its execution & is accountable for results 13

Executive degree of freedom • In programme budget approach, programme determines scope of parliamentary

Executive degree of freedom • In programme budget approach, programme determines scope of parliamentary authority • Unit for credits specialization, ownership • Transfers between programmes are limited • Within a programme, virement is possible, i. e. the executive may make transfers/reallocation - however, only under certain conditions, e. g. : § Cannot increase staff costs (France, WAEMU) § Cannot reduce capital (English-speaking countries, WAEMU) 14

Programme and Organisation • For reasons of accountability, programmes must be attached to a

Programme and Organisation • For reasons of accountability, programmes must be attached to a single ministry • Potential conflicts between administrators and programme managers need to be analysed when structuring the budget of a ministry programme 15

Performance and Budgeting (1) OECD defines performance budgeting as budgeting that links funds allocated

Performance and Budgeting (1) OECD defines performance budgeting as budgeting that links funds allocated to measurable results. There are three broad types: • Presentational performance budgeting • Performance-informed budgeting and • Direct performance budgeting OECD (2007), The performance-oriented budgeting in OECD countries 16

Module 2. 3 Outline • • • Budgetary approaches The programme Performance and budgeting

Module 2. 3 Outline • • • Budgetary approaches The programme Performance and budgeting The procedure for implementation Avoiding the pitfalls 17

Performance and budgeting (2) • Presentational performance budgeting: i. e. in budget or other

Performance and budgeting (2) • Presentational performance budgeting: i. e. in budget or other government documents. Information can refer to targets, results, or both, & is included as background information for accountability & dialogue with legislators & citizens on public policy issues. Not intended for decision making & not used so. • Performance-informed budgeting: resources indirectly related to future or past performance • Direct performance budgeting: resources allocated on results achieved: used in specific sectors in some OECD countries (e. g. number graduates with Master’s degree will determine following year’s funding) 18

Performance and budgeting - Precautions • Link between performance & budgeting is usually indirect

Performance and budgeting - Precautions • Link between performance & budgeting is usually indirect (“Presentational performance budgeting”, “Performance-informed budgeting”) • It does not punish an underperforming priority sector • Beware adverse effects! • Tunnel Vision • Data manipulation • Opportunistic behaviour, etc. • Avoid complex system of over-weighted indicators, poor monitoring, etc. 19

Negative experience in UK: Non-functional but detailed performance goals Target: Reduce waiting time for

Negative experience in UK: Non-functional but detailed performance goals Target: Reduce waiting time for health care in national system: strong political pressure. Results: • Chairs in hospital called ‘beds on wheels’ – reference to over-utilisation of non-substitute good • Corridors called ‘pre-admission wards’ – reference to high patient density in corridors • Objective of reducing waiting time for emergency treatment WAS achieved, BUT, were patients better off? (Presentation of M. Lundsgaard Rabat Avril 2007) 20

Module 2. 3 Outline • • • Budgetary approaches The programme Performance and budgeting

Module 2. 3 Outline • • • Budgetary approaches The programme Performance and budgeting The procedure for implementation Avoiding the pitfalls 21

The approach • Proceed step by step • In defining steps, must take into

The approach • Proceed step by step • In defining steps, must take into account: • Steps in line with MTEF (cf. module 2. 1) • Developments of a performance-based budgeting beginning with ‘Presentational performance budgeting’, direct budgets come at a later stage • First check that implementation of the programme budget does not ignore most urgent reforms, & is supported administratively and politically • 22

The stages 1. The programme is part of expenditure classification used to better analyse

The stages 1. The programme is part of expenditure classification used to better analyse policy In budget or separate document (MTEF / budget programme / project performance) 2. The budget managed on basis of programme Programme manager appointed Gradual implementation 3. Management tools based on performance are developed gradually Linked with introduction of accrual accounting (? ) Used in pilot experiences, generally in short/medium term, mainly steps 1 & 2 considered 23

Step 1 (“Presentational performance budgeting”) • Classification of expenditures by programme: either: Directly introduced

Step 1 (“Presentational performance budgeting”) • Classification of expenditures by programme: either: Directly introduced in budget; Or in separate document (often annual or multi-annual - MTEF) § Advantages: easy to implement, can be gradual (e. g. with steering ministries) § Disadvantage: supporting documents are not always consistent with budget • Information on the expected performance in budget & related documents • Reports on results 24

Step 2 (“Performance-informed budgeting”) • Programme classification is introduced in budget • Programme manager

Step 2 (“Performance-informed budgeting”) • Programme classification is introduced in budget • Programme manager appointed • Under supervision of Minister & PS, strategy is chosen, programme budget is established, results reported • Degree of flexibility to allocate resources within programme • Performance indicators discussed along with requests for budget allocation 25

Module 2. 3 Outline • • • Budgetary approaches The programme Performance and budgeting

Module 2. 3 Outline • • • Budgetary approaches The programme Performance and budgeting The procedure for implementation Avoiding the pitfalls 26

Budget and strategic objectives The strategies must be reflected in the budget, but: •

Budget and strategic objectives The strategies must be reflected in the budget, but: • It is often not appropriate to organize budget along the axes of a strategy • Certain strategic aspects are cross cutting, e. g. Good Governance • Spectrum of strategies will not necessarily cover all state activities • Strategy & budget are different documents, with different purposes • Management responsibilities must be reflected in structure of budget 27

Who knows how to allocate all the expenses of Ministry of Education by respective

Who knows how to allocate all the expenses of Ministry of Education by respective objectives? • Objective 1: Access • Objective 2: Quality • Objective 3: Enrollment of Girls Minister’s Car 50 Academic Textbooks: 200 Constuction of schools: 1000 Teacher Salaries: 5000 Electricity 50 28

Budget by activities (1) • Literally interpreted, would involve cost accounting methods, & require

Budget by activities (1) • Literally interpreted, would involve cost accounting methods, & require allocation of Personnel expenses; Overheads; the cost of investment, etc. – e. g. by activity based costing) • In practice, operation often covers only direct expenditures on goods & services & excludes overheads – perhaps only 10 -50% of full cost of activity 29

Budget by activities (2) • Taking into account the limitations, it is futile to

Budget by activities (2) • Taking into account the limitations, it is futile to conduct excessively detailed exercises • Well targeted assessment field • For operations: the activity must often correspond to the administrative unit (e. g. management) – except for separate accounts for specific activities • For investment: the activity must be project or a component of the project 30

Allocating budget based on activities? Who is responsible for the accounts? • District A

Allocating budget based on activities? Who is responsible for the accounts? • District A Primary inspection activities: • • School visits and inspection Organisation of exams Parents-Teacher meeting Distribution of study material Salaries 300 Paper 30 Fuel 100 Electricity 50 31

Avoiding failure • Programmes by ministries • Programme = sub-function (ex. : Primary education,

Avoiding failure • Programmes by ministries • Programme = sub-function (ex. : Primary education, etc. . ) = All services + Project • No cost accounting • Not too many programmes • Not too detailed: Activity= Service+Investment Project • Conflicts between admin & programme managers • Review basics of personal data • Relationship with local centres: vertical nature of programme! 32

Key Messages • The establishment of a budget programme aims to strengthen link between

Key Messages • The establishment of a budget programme aims to strengthen link between budget & policies & performance in the provision of public services • It requires a number of precautions such as clarifying roles of programme manager, nomenclature programs adapted to fiscal management • The development of a performance-oriented approach takes time & must be gradual: can only be considered if the "basics" are present 33