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

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

What is program budgeting and what is it good for?

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)

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

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

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

MoE’s Organizational Structure

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

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

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

New Budget Structure (2)

Conceptual Framework

Suggested New Structure

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

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

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

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

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

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

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

Considerations for Successful Implementation

Development Process Changing form and behaviour 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

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

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

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