1. 1 Case Study: Performance-oriented budgeting in Slovenia – Achievements so far and obstacles encountered Mateja Bizilj Ministry of Finance, Slovenia Tbilisi, June 28 2007

2. 2 Background The economic classification, harmonized with GFS 1986, was introduced in year 1999 for the state budget and local budgets. In year 2000, the unified economic classification was introduced for the whole general government sector. The basic unit of budget planning and execution was the budget item which presents a mix of economic and program classifications. The structure of budget was the following:

3. 3 BUDGET ITEM ECONOMIC CLASSIFICATION

4. 4 Introduction of program classification We started to establish program classification in 1999. First pilot ministry was Ministry of Economy. Starting point for design of program classification:  COFOG functional classification,  Swedish model (twinning with Swedish Ministry of Finance),  connection of program classification with committees in parliament.

5. 5 Before introduction of program classification we introduced groups of budget items. This approach was used only for year 2000. Groups of budget items: 1 – Management and administration 2 – Financing of public services 3 – Programs 4 – Public Debt Management, Interest, Reserves Each budget item was classified in one of these four groups of budget items.

6. 6 After half a year work with the Ministry of Economy, ministry lost interest in program budgeting and did not want to cooperate with Budget Department anymore. New initiative: January 2000 - we started again with the following pilot ministries:  Ministry of Education and Sport  Ministry of Transport and Communications  Ministry of Agriculture, Forestry and Food  Ministry of Environment and Spatial planning  Ministry of Finance We used bottom-up approach with pilot ministries.

7. 7 Planned approach: 1.Detailed examination of all activities and projects of the ministry 2.Classification of these activities according to functional classification 3.Establish the mission of the Ministry 4.Establish the set of programs that fit the mission of the ministry 5.Define the objectives of each program

8. 8 Planned Approach 6. Describe each program 7. Associate activities and projects to each program 8. Review all activities and projects which do not fit into one program 9. Establish target outputs for each activity and project 10. Establish inputs required for each activity and project (financial and physical 11. Prepare a draft budget layout for the agreed program structure

9. 9 We found out that this approach is too time consuming. Finally, MoF defined expenditure areas and main programs. Line ministries were obliged to define subprograms. The consequence of program classification was decreasing of number of line ministries. In May 2000, we issued a Decree on functional-program classification for the expenses of the state budget. Budget for 2001 was prepared using new classification.

10. 10 Characteristics of program classification: We defined 23 expenditure areas and 95 main programs. Expenditure areas and main programs were published in the Official Gazette. Subprograms were published in budget circular. Expenditure area and main program can be implemented by more line ministries (multi-ministerial). A subprogram can be implemented by only one line ministry. Administrative expenditures (salaries …) are gathered in administration subprograms.

11. 11 EXPENDITURE AREA MAIN PROGRAMS SUBPROGRAMS ACTIVITES PROJECTS Structure of program classification: Activities and projects were not (yet) introduced as part of program classification. Two-digit code Four-digit code Eight-digit code

12. 12 Example: 11 AGRICULTURE, FORESTRY AND FISHERIES 1102 Agriculture and food quality reform 11022301 Market stabilization Measures (market-price policy) 11022302 Agricultural-environment programs 11022303 Restructuring agriculture and food industry 11022304 Rural development

13. 13 14022103 – Business development stimulation Structure of subprogram: Expenditure area Main programLine ministry Serial number of subprogram

14. 14 Structure of budget: PROGRAM CLASSIFICATION BUDGET ITEM ECONOMIC CLASSIFICATION

15. 15 Problems at introducing program classification: Line ministries wanted to establish subprograms which would reflect economic and not program classification (for example: investments into hospitals etc.). Line ministries wanted the program classification by institutions (each line ministry would have its own main program or expenditure area). MoF wanted the Government to approve the list of coordinators (responsible for performance) of expenditure areas and main programs. This is important where more line ministries are implementing the program. The list of coordinators was never approved.

16. 16 EXPLANATION 2001EXPLANATION 2007 EXPENDITURE AREA Description of expenditure area, mission of line ministry Key targets of expenditure area (from the documents of long term development planning / Annual targets and indicators to measure the achievement of targets / Documents of long term development planning MAIN PROGRAM Description of main program Long term targets of main program Annual targets and indicators to measure the achievement of targets / List of subprograms and line ministries inside the main program Structure of explanation of the budget:

17. 17 EXPLANATION 2001EXPLANATION 2007 SUBPROGRAM Description of subprogram Long term targets of subprogramLong term targets of subprogram and indicators to measure the achievement of targets Legal basis Annual targets and indicators to measure the achievement of targets BUDGET ITEM Description of activities inside the budget item List of projects inside the budget item Starting-point for the proposal of appropriations PROJECT Purpose and targets of the project State of the project and planned development in next budgetary period Structure of explanation in final account is the same!

18. 18 Court of Audit From year 2003 on,the Court of Audit, in the framework of auditing the final account of the state budget, estimates planning and reporting on targets and indicators for selected subprograms. The findings of the Court of Auditors:  planned targets and indicators are not concrete or clearly defined,  indicators have no expected value,  hierarchy of targets is not comprehensive ( heterogeneous subprograms),  the most critical points of performance budgeting are definition of targets, measurement of targets and reporting about results.

19. 19 In 2004, Court of Audit made an estimation of the correctness and efficiency of implementation of 18 selected subprograms. The estimation was made in the following:  correct and efficient planning,  correct and efficient implementation,  correct, appropriate and sufficient reporting on achieved objectives and results. Source of data: Court of Audit, presentation by Mira Bitenc

20. 20 Development from year 2004 on In year 2005, the Government established working group for the development of performance budgeting, with defined tasks until the end of year 2008. MoF had discussions with Ministry of Education and Sport, Ministry of Labor, Family and Social Affairs, Ministry of Agriculture, Forestry and Food and Ministry of Environment and Spatial Planning, to improve performance information. Some changes in the program classification were made. MoF prepared new instructions for defining objectives and indicators. In year 2005, MoF organized brief training for line ministries. The program classification was introduced for local governments.

21. 21 Current situation Discussions with selected ministries stopped. Line ministries seem unwilling to cooperate in detailed discussions on how to strengthen the performance orientation. Sometimes program classification is not the best for classifying projects. We do not use the performance information in the budget preparation process at all. The work of working group stopped.

22. 22 Future direction Explicit engagement of the Cabinet in the continuation of the reform. To prepare a realistic action plan. To motivate the line ministries and MoF staff to strengthen work on performance budgeting. To develop the IT support needed for monitoring indicators.