1. Geoff Dixon February 2007 Performance Budgeting Overview

3. 1. Program budgeting (PB) PB applications tend to simply group budget lines into programs addressing particular government objectives PB applications tend to simply group budget lines into programs addressing particular government objectives While program results are identified there has often been a weak connection between budget preparation and achieving performance targets While program results are identified there has often been a weak connection between budget preparation and achieving performance targets PB often did not make budget preparation more results focused, and tended to parallel mainstream and persistent input based budget processes PB often did not make budget preparation more results focused, and tended to parallel mainstream and persistent input based budget processes PERs indicate that even where program classifications are in place much mainstream spending is poorly focused PERs indicate that even where program classifications are in place much mainstream spending is poorly focused

4. 2. Output budgeting (OB) Budget allocations are based on defined levels of output rather than inputs or programs Budget allocations are based on defined levels of output rather than inputs or programs This enables a stronger linking of results to budget preparation than under program budgeting This enables a stronger linking of results to budget preparation than under program budgeting However this is at the level of outputs rather than outcomes and links to outcomes and planning objectives is elusive However this is at the level of outputs rather than outcomes and links to outcomes and planning objectives is elusive

5. 3. Connected planning and budgeting (CPB) Targets are identified Targets are identified Performance indicators and reporting systems created Performance indicators and reporting systems created Performance against targets assessed Performance against targets assessed Gaps are prioritised and drive allocation of budget headroom in MTEF framework Gaps are prioritised and drive allocation of budget headroom in MTEF framework Ineffectively used funds are re-assigned Ineffectively used funds are re-assigned

6. Performance budgeting means more than 1. performance measurement under PB and 2. output based budget allocations under OB. It links budget allocations to effectiveness in achieving planning targets It links budget allocations to effectiveness in achieving planning targets This is the weak link in many countries This is the weak link in many countries Planning and budgeting tend to be separate processes Planning and budgeting tend to be separate processes

7. Two challenges for connecting planning and budgeting 1. At line ministry level improve ability to identify options 1. At line ministry level improve ability to identify options –options for achieving planning targets –options for reallocating from existing spending which is ‘target ineffective’ 2. At budget office level improve budget preparation process to encourage allocative flexibility 2. At budget office level improve budget preparation process to encourage allocative flexibility –include a policy ‘front end’ to budget preparation cycle –focus on spending and savings options from line ministries to link budget preparation with planning targets

8. 1. Need to build up the capacity of line ministries To identify initiatives to fill gaps against sector planning targets To identify initiatives to fill gaps against sector planning targets To identify entrenched spending which is cost ineffective or poorly targeted and contributes little to sector planning goals To identify entrenched spending which is cost ineffective or poorly targeted and contributes little to sector planning goals This empowers the government to make annual choices from a menu of proposals to improve the achievement of sector targets This empowers the government to make annual choices from a menu of proposals to improve the achievement of sector targets –the absence of options distinguishes input based systems from real performance budgeting

9. 2. Performance budgeting requires a changed relationship between budget office and line ministries No longer traditional adversaries No longer traditional adversaries Budget office must be proactive in developing good results based management in spending ministries Budget office must be proactive in developing good results based management in spending ministries –particular focus on cost ineffective spending –allocative flexibility is the aim Budget preparation should change from negotiating numbers to identifying and prioritising options for achieving planning targets Budget preparation should change from negotiating numbers to identifying and prioritising options for achieving planning targets