Strategic Planning Systems and Budgeting Innovation Martus Tavares

Strategic Planning Systems and Budgeting Innovation Martus Tavares Nora Berretta Report prepared for the Inter-American Development Bank (PRODEV) Regional Policy Dialogue April 2006

Presentation l The causality relationship among l l l government strategic priorities, budgetary fund allocation, and results …is extremely fragile. l The purpose of this report is to discuss the possibilities of making progress in coordinating government strategic programming through the allocation and implementation of public budgetary resources, taking into consideration some experiences in Brazil, Colombia, Guatemala, Mexico and Uruguay.

Budgeting is a stressful instance The Budget Rules of the Game Defenders of the programs Treasury Guardians Executive Branch · Ministry of Finance (MF) ·Office of Planning (OP) The actors • Executive Branch • The Legislature • Public Servants • Pressure Groups (holdings, unions, NGOs) Agency political and technical heads (some of them supporting the Government, others opposing).

The innovations introduced in budgeting systems can be classified in three different types l Innovations at the macro level: medium-term expenditure framework fiscal accountability rules integral budgeting. l Innovations at the meso level/strategic budgetary allocation: Allocation flexibility Strategic objectives are chosen based on political, rather than technical criteria. Management results are expected to have an impact. l Innovations at the micro level / inherent to budget and its expected outcome, efficiency, effectiveness and quality of management: Budget is to provide information on quantity, quality and actual cost of the products and services offered to citizens. Citizens will, in turn, evaluate the administration’s performance based on the public services they are offered. l

How are the government plan and the budget integrated? - 1 l All countries show progress in achieving greater links between the budget and the plan. l An enhanced strategic clarity has resulted in improved dynamics between the State’s management and its results. l Links have been greater in number during budgeting than during budget execution. l Accordingly, result-based budgeting: l l l has no impact on the following year’s budgetary allocation. has no impact on agencies, their directors or their officials. does not cause the Congress to use information extensively.

How are the government plan and the budget integrated? - 2 l The largest value management systems currently bear is that they disseminate administrations’ successful policies. l Weak links are evidenced by the fact that systems are oriented to disclosing goal achievements (coverage indicators), rather than goal cost, quality of service or impact. l The significance of the existence and implementation of a common denominator may not be disregarded.

TABLE 1 General Features Brazil Colombia Guatemala Mexico Uruguay Are there any fiscal accountability standards in place? Yes Fiscal Accountability Law Budgetary Directives Law Yes Fiscal Accountability and Transparency Law No Yes. Chapter II of the Federal Budget and Fiscal Responsibility Law 2006 Yes. In the budget. Is there a common denominator for all the organizations included in the budget? Yes Yes, at federal level. Yes Is there a common denominator for all Yes the public agencies? NO SI Yes, at a federal level, except for Banco NO de México. NO Under implementation. Yes Integral Public Expenditure and Revenue Information System. Is there an integrated system that supports reporting on public SI expenditures in its entirety? NO NO

TABLE 2 Characteristics of the strategic plans in the five countries Colombia Brazil Guatemala Mexico Uruguay Planning system Planning and Budgeting System Multiannual Plans (PPA) Government Goals System (SIGOB) National Development Plan (PND) Presidential Goals System (SIGOB) Presidential Goals System National Development Plan and National Development Financing Program (PRONAFIDE) Management Evaluation System and Strategic System Management Plans SEV - PEG Managing agency Ministry of Planning, Budgeting and Management National Planning Department SINERGIA Planning and Budgeting Secretariat. President’s Office for Government Innovation. President’s Office for Planning and Budgeting Are management goal costs quantified? No, only when they depend on an investment project. Yes, PND estimated value is quantified. A multiannual budget that links the plan to the budget will be implemented as of 2006. Fund allocation occurs at institutional activity level, rather than at related objectives, goals and indicators level. Budgeting considered the cost of 100 goals. The resulting estimated value will be compared against the execution cost later. Outcome Evaluation and Rating Yes. PPA per project, agency and sector evaluation system. NO Yes Partial. Only concerning innovation and quality Partial. Only at one executing unit. Management outcome implications Information published on the agencies with successful performance Not explicitly. The President addresses outcome owners directly. Only if provided under Performance Agreements. Rewards and Acknowledgement to Quality and Innovation in Public Management. Individual rewards by local IRS to goal achievement by executing unit.

TABLE 3 Investment projects and their outcomes Brazil Colombia Guatemala Mexico Uruguay Investment project information systems Planning and Management Information System (SIG Plan) Investment Project Follow-up (SPI) National Public Investment System (SNIP) Investment Program and Project Portfolio (PPI) Investment information and follow-up system (SISI) Managing agency Ministry of Planning, Budgeting and Management National Planning Department SINERGIA President’s Office Planning and Budgeting Secretariat Investment Department of the Ministry of Finance and Public Credit President’s Office for Planning and Budgeting Information Organisms, sectors, regions Organisms, sectors, regions Evaluation Yes, material progress Output and outcome efficiency and effectiveness Efficiency Ex Post cost/benefit ratio Effectiveness Material progress Evaluation results Success highlighted Annual budget plan and focus redefinition NO

TABLE 4 Operational Budget Brazil Guatemala Colombia Mexico Uruguay Organization(s) that prepare and lead budget formulation and execution Ministry of Planning, Budget and Management, through the Secretariat of Federal Budge. Ministry of Public Finance Ministry of Finance and Public Credit – (Debt performance and service) and the National Planning Department, DNP (investment) Ministry of Finance and Public Credit (SHCP) through the viceministry of expenditures (SSE) Ministry of Economy and Finance (MEF) and Planning and Budget Office (OPP) Instances for joint analysis of the information on public management and expenditure At least not formally There is an internal evaluation by the central government (coordinated by the president). At least not formally Instances where the information on management results is used for altering the budget Results fuel annual budget, but the instances are not formal At least not formally

Major innovations in the five countries - 1 Brazil and Mexico have successfully included all public agencies in their budgets; hence, they have managed to disclose execution of the public expenditure in its entirety on a timely basis. Brazil has succeeded in preparing a national development plan linked to the budget through investment projects. Guatemala and Colombia have improved coordination among the agencies in charge of planning and budgeting. In Brazil, Mexico and Colombia, the investment project monitoring and evaluation systems play a major role in strategic planning, thus fostering public management sectoral and regional analysis.

Major innovations in the five countries – 2 Reforms aimed at causing the implementation of performance -based budgeting have occurred in Guatemala and Uruguay (Allen Shick). This type of budget offers information on the number of outputs (and activities) generated by the various offices and the cost thereof: Guatemala through SIAF (Integrated System of Financial Administration) Uruguay through SDG (Expenditure Distribution System). Management results are going to be used in Uruguay to reward a executing agency’s officials’ performance.

Do changes in agencies play a decisive role ? Which is the preferred model? Centralized planning agency (Brazil). Jointly-coordinated agencies (Guatemala, Colombia). Investment in the planning agency (Colombia). Budget based on products, activities and services (Guatemala and Uruguay).

The role of international agencies - 2 l Over the past few years, international agencies have fostered the adoption of medium-term fiscal regulations and State reform programs. l They have boosted the development of integrated budgeting systems and strategic management systems aimed at assessing both results and impact. l Nevertheless, sometimes, countries need to meet some pre -conditions before implanting a management system. ->

The role of international agencies - 2 International agencies might help generate those pre-conditions by: l Supporting the implementation of systems to monitor the quantity, cost and quality of the services offered to citizens. l Supporting the improvement of systems to: l monitor investment projects, based on their effect at a regional level and the impact of partnering with the private sector. l recruit, promote and train human resources. l foster systems of incentives associated to management results. l Supporting the strengthening of the agencies in charge of planning and budgeting.

Wrap-up l The reforms that bring about real effects are those that succeed in changing people’s behavior and agencies’ culture. l If organizational outcomes have no impact on the expenditure allocation, little change will be brought to public culture, changes will be heavily ritualistic and even a drawback may occur. l Paying attention to institutions and incentives implies that interventions to the budget reforms are required in order to secure compliance with certain rules determining that evaluations will generate implications.