Experiencias en Paises de La OECD Holgervan Eden

7/28/2019 Experiencias en Paises de La OECD Holgervan Eden

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Experiences with ProgramBudgeting in OECD countries

- finally getting it right? -

International Monetary Fund

Fiscal Affairs Department

Seminar: Towards a result-oriented Budget in Peru

Lima, March 2007

Holger van Eden

Senior Economist

Public Expenditure Management Division II

Fiscal Affairs Department

E-mail: [email protected]


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Overview

1. Experiences with different PB models

2. Experiences with implementationstrategies


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1. Experiences with Different PB Models

Program BudgetingLinking Targets to BudgetPurchaser-Provider


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Performance Budgeting

{ Three elements in PB:

z Linkage of funding and resultsz Use of Performance Information

z Improving expenditure effectiveness and

efficiency{ Can be government-wide, or sectoral

{ Diversity of PB systems

z Different types of funding/results linkz Varying effectiveness/efficiency goals

z Different types of PI


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Performance Budgeting Models

3 Main models:

{ Program Budgetingz For better Expenditure Prioritization

z Classification of expenditure by objective

z

Info on program performance & cost{ Performance targets linked to budget

z Output/outcome targets

z Related to funding levels/budget process

{ Purchaser-provider systems

z Govt pays prices for outputs delivered


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Model 1: PB for Prioritization

{ Case Study 1: Australia: from 1980s

z Expenditure Review Committee of Cabinet{PM, MOF and key spending ministers

z Strong MOF support

z

Major reallocations of expenditure achieved{ Including mandatory spending

{ Case Study 2: UK Spending Reviews

z Context

z Biennial reviews/ occasionally comprehensive

z Treasury and prime minister

z In conjunction with PSA target-setting


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Lessons from Australian/UK success

{ Redesign of budget process was crucialz Explicit processes to review prioritiesz Failure where just budget classification

{ Involvement of political leadershipz Failures where exclusively bureaucratic

{ Key MOF rolez Spending review skillsz Doesnt work to leave to outsiders

{ Selectivity in spending review processz Cant review all programs every yearz Range of approaches to selectivity


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Further Lessons ...

{ Keeping analytic processes simple

z Early US PPBS experience bogged down inanalytic paperwork

z Information needs to be readily absorbable

{ Link with medium-term budgeting

z Not just single-year perspective on programcosts

z Forward estimates fundamental

z Multi-year appropriations optional


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Mixed Results in the US (1)

{ Paradox:

z

US invented PB, Federal Government Stateshave PB, but limited impact on budgetallocations;

{ PPBS -1960s

z Focused on multi-year planning andprioritization

z Excessive analytic paperwork

z Extensive use of evaluations

z Large international following, initiallyunsuccessful in many parts of the world andUS itself >>> too scientific!!!


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Mixed Results in the US (2)GPRA (Government Performance And Results Act)1990s

z Agencies were required to: develop 5-year strategic plans;

set annual program goals & development outputmeasures; measure performance

z Required explicit consultation between Executive &Legislative Branches on agency strategic plans

z Required agencies to link budget submissions with

performance measures/targets

z Process suffered from difficulties in measuring outcomes;allowed a range of output & non quantitative measures

z Was/is largely ignored by Congress, but not by theExecutive Branch

z Still weak linkage with budget allocations


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Mixed Results in the US (3)

PART (Program Assessment Rating Tool)- 2000s

z A formal program assessment tool, intended to becombined with GPRA information >>>Explicit rating of allprograms;

z Requires agency information on program purpose &

design, strategic planning, program management, &program results

z Partly a success, some influence on allocation; still notpopular with Congress

z Ineffective and politically unpopular programs get cut, justbeing ineffective is not enough!


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PB difficult in US Political System

{ No single set of priorities

z Presidents budget changed greatly; relatively weak

Executive vs Congress;{ Congress has made little use of PI

z Pork barreling

z Micro-management

z Blocks systematic program classification{ PART ratings have had some effect on opposition

programs (!)

{ Lesson: PB success depends on political system

{ Possible issue in LA: fragmentation of budgetary power,autonomous entities protected by legislation


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Model 2: Linking targets to budgets

UK Public Service Agreements System

reasonably successful High-level targets:

85% of children to level 4 literacy

Reductions in cancer and heart disease rates Political commitment to targets

Link with budget process gives targets added

weight, but has been difficult to realize;increased needs to link the spending reviews

Initially too many targets


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Issues in target-setting

{ Strength of targets/funding link?

z Pretty loose, particularly for outcomes

z Which way to adjust funding?

z Additional funding tougher targets

z Negotiation as part of budget process gives targets

muscle Danger of behavioral distortion

z Unmeasured aspects of performance sacrificed, i.e.quality of service delivery

z One manages what one measuresz Problem real, but exaggerated


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When targets dont work

Failed to have impact in most places used

...why? Arbitrary targets: picked at random

No relation to level of funding

Strategic planning unrelated to budget

No real political commitment

Huge number of targets


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Model 3: Purchaser-Provider Succes

{ DRG (Diagnosis Related Groups) System in

Hospital Sector{ Payment for output types

z $x for treatment of a hip fracture patient

{

Losses if cost higher than pricez Powerful incentive for efficiency

z Stronger if price based on efficient hospitals

z Helped to tackle steady cost increases in healthsectors in OECD

{ Some discussion on adverse incentives

z Cream-skimming, quality erosion


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Purchaser-Provider Failure

{ Accrual Output Budgeting

z NZ and Australiaz Attempt to apply to whole budget

{ Agencies like arms-length suppliers

z Paid prices for outputs by government

zDemanding purchaser

z Aimed to base on efficient, not actual, cost

z Promote competition from external suppliers

z Link with accrual accounting{ Purchaser vs. ownership distinction


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Why AOB Failed

{ Cant apply PP across whole budget

{

Heterogeneity problemz Tailoring of services depending upon

case/client characteristics

z Unit cost may unpredictably vary

{ Contingent capacity services{ Determination of efficient cost

z Benchmarking, market testing difficult

{ Meaningless profit/loss figures{ Concern re outcomes/quality


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Lessons for Purchaser-Provider

{ Application only for some sectors

z

Not the basis for whole government budget{ Relatively standardized services

z Service provided to each client fairly similar

{ Large volume services

{ Demanding information requirements

z Costing of individual products

z Costs of more efficient producers


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Overall lessons

{ Start with program budgeting system

z Most fundamental form of PB

{ Couple with budget process revision

z Dont just treat as a technical exercise

{ Leave more sophisticated PB systems until

better information developed


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2. Experiences with Implementation

Strategies

Which PB ModelInformation NeedsPreconditionsManaging for results context

Change management


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Choice of PB Model

{ Differing information requirements

{ Program budgeting is least demandingz Although in no sense easy

{ Requires program costing

z But doesnt have to be perfect from start{ Also program performance information

z Can work even if limited indicators at start

z Analysis of program logic useful in isolationz Therefore no need to wait until info available


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More Sophisticated Systems?

{ Much more demanding of information

{

Purchaser-provider:z Need to cost individual services

z Getting an idea of efficient cost ofproduction

{ Target-settingz Need for reliable measure of target variable

z Careful selection of target variable

{So as to avoid perverse effectsz What constitutes an appropriate target?

{ Such systems not the starting point


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Information: Budget Classification

{ Be aware of cost/benefits trade off solid information base{ Program costing must be acceptable to auditors; at least

unified/transparent approach; capacity for accounting andmonitoring of programs needs to be developed

{ Indirect cost treatment:z Start with overhead cost programsz And only later allocate as much costs as possible

{ Definition of programsz Collaborative between MoF and line ministries

{ Accrual accounting?z Very demanding exercise

z Not essential for good program budgetingz Advanced countries introduced PB without it


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Information: Results

{ When building PI systems

z Choose small set of indicators to measure

z Initial focus more on activities and outputs

z Migrate later to outcomes/output quality

z Start with simple version of evaluation

{ MoF must be involved

z Dont just leave to line agencies

{ Takes a long time

z Decades to build systems in UK etc.


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Preconditions for PB

{ Political commitment

z To improved effectiveness/ efficiencyz Not if politicians are indifferent

z Political motivations always present

{

Existing effective expenditure controlz Clear aggregate expenditure target

z Clear budgets for each line agency

z

Enforcement of agency budget limitsz Adequate internal control within agencies


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PB & Medium-Term Budgeting

{ Programs are defined over medium-term

{ Decision-making over programs should reflectthis

{ MOF and line ministries should developcapacity for forward expenditure estimates

z On a program basisz MOF should develop and communicate

uniform costing methodology

z

Program costing should in principle be tolowest level of program classification >>>initially difficult


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Managerial Freedom/ Decontrol?{ Input decontrol philosophy of PB

z Produce outputs in most efficient manner

{ Extent and speed of decontrol?

{ Dont compromise fiscal control

z Prevent excessive employment commitments

z Maintain some aggregate line-item control,staff ceilings, etc.

{ Protecting capital expenditure

{ Other controls necessary for some time?z Expenditure items which can be abused

z Adequacy of civil service culture/disciplines?


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Managing for Results Context

{ PB cant be pursued in isolationz Broader managing for results reforms

{ Make civil service more results-orientedz More planning for resultsz Greater accountability for results

z Of agencies, teams and individualsz Less of a compliance culture

{ Performance pay?z Base pay and PSM may be more importantz Limited role in due course

{ Policy analysis and development skills


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MOF Implementation Management

{ MOF reform team to manage process

{ Guidance material for line ministriesz Outcome and otput specification

z Program classification

z Program costing{ Marketing/ educational program

z MOF managed training program initially

z Targeted at senior managers and thenmiddle managers; dont forgetpoliticians!


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Incentives for Ministries and Agencies

{ Sell the advantages

z More autonomyz More capacity to pursue mission and

objectives

{

Need to be sanctions for agencies which dragtheir heels

z Budget bids likely to suffer

z Particularly tough treatment of newspending proposals

z Sanctions against agency head


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Change Process Tips

1. Lots of attention on communicating new

methodology to line ministries2. Plan timeline and decision-points for system

change

3. Provide adequate resources/incentives

4. Use a trial period and continue improvement afterintroduction

5. Monitor and report on progress to parliament

6. Ultimate responsibility for methodology with MOF,but ensure ownership of line ministries for

budget structure and indicators7. Use performance indicators with restraint

8. Do not use change process to reorganize (initially)


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Conclusions on Implementation

{ Ensure preconditions met

{ Start with program budgetingz Leave other systems for later

{ Gradualism on information

z Approximate program costing to startz Very limited set of indicators initially

{ Part of broader results-oriented reform

{ MOF leadership and political commitment


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Thank You - Gracias!

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