Transcript Session 1. Sequencing and Pacing of Performance Budgeting Reforms: Observations and Lessons from Korea Nowook Park Center for Performance Evaluation & Management Korea Institute of Public Finance.

Session 1. Sequencing and
Pacing of Performance
Budgeting Reforms:
Observations and Lessons
from Korea
Nowook Park
Center for Performance Evaluation & Management
Korea Institute of Public Finance (KIPF)
1
Contents
1.
2.
Sequencing and Pacing of PB Reforms in Korea
Issues and Lessons
2
1. Sequencing and Pacing of
PB Reforms in Korea
3
Building Blocks of PB





Program budgeting
 Restructure budget structure to accommodate program goals
Accounting System
 Appropriate distribution of overhead to each program is
necessary to have relevant cost information
 Accrual Accounting
Medium term expenditure framework
Performance Information and IT investment
Managerial & Financial Flexibility
 Top down budgeting
 Multiyear budgeting
 Discretionary room for carry-over
4
Characteristics of the Korean
Approach (1)

Gradual Approach at the initial stage



Experimenting with pilot project between 20002002
Selected departments within selected ministries
are subject to the pilot project
Annual performance plan and report are
developed by selected departments
5
Characteristics of the Korean
Approach (2)

Big bang approach with other fiscal reforms
since 2003




Medium term fiscal plan (2003*, 2005**)
Top down budgeting (2003*, 2004**)
Performance budgeting (2000*, 2005**)
Digital budget and accounting system
Program budgeting (2006**)
 Accrual accounting (planned in 2009*)
 IT system (2007**)
(Note) *: pilot project, **: comprehensive implementation

6
Introduction of Performance Budgeting
’00~
’02
Performance
Budgeting
(Pilot Project)
•Developed Strategic
Goals, Performance
Objectives and
Performance
Indicators
•Designed after
GPRA
’03~
’05~
’06~
Performance Goal
Management
Self-Assessment of
Budgetary Program
In-Depth
Evaluation
•1/3 of major
budgetary programs
are evaluated every
year
•Designed after PART
•Selected programs
are subject to
program evaluation
•Expanded
“Performance
Budgeting” to 26
Ministries/agencies
•Annual performance
plan and report are
required
7
Enactment of National Finance Act



“National Finance Act” was enacted in December,
2006
 To provide a legal basis for 4 major fiscal reforms
Contains articles on performance-based budgeting
 Annual Performance Plan and Report become legal
requirements for line ministries/agencies.
 SABP and In-depth Evaluation are stipulated.
It gives stability and continuity which may be a
problem of performance management system.
 Government has less incentives to maintain and
improve performance management system than to
introduce it, because efforts to improve the system
are less visible to the public.
8
Framework for Performance-Based Budgeting
In Korea

Performance Monitoring



Program Review



“Management of Performance Objectives”
Monitoring based on the performance indicators
“Self-Assessment of Budgetary Program”
Review based on the checklist
Program Evaluation


“Budgetary Program Evaluation”
In-depth evaluation for selected programs
9
Description of “Self-Assessment of
Budgetary Program”




The central budget authority reviews selfassessment of programs done by line
ministries/agencies
The budgetary authority provides a standardized
checklist for reporting self-assessment
The checklist contains questions on design,
performance management system,
implementation, and actual performance
About 1/3 programs are reviewed each year
10
Contents of Checklist
Design and
Planning
Management
Results and
accountability
•Program purpose
•Rationale for government spending
•Duplication with other programs
•Efficiency of program design
•Relevance of performance objectives and
indicators
•Relevance of performance targets
•Monitoring efforts
•Obstacles of program implementation
•Implementation as planned
•Efficiency improvement or budget saving
•Independent program evaluation
•Results
•Satisfaction of citizens
•Utilization of evaluation results
11
Report on 2005-2007 Self Assessment of
Budgetary Program

Evaluation results



Link between evaluation results and budget


Quality of performance information has not improved much
Programs are showing better results
Evaluation results are utilized at every stage of budget
process
Moving away from incremental budgeting

Evaluated programs are subject to bigger budget change
compared to other programs
12
Evaluation Results by Rating
Total
Effective
Moderately
Effective
Adequate
Ineffective
Number
555
28
100
340
87
(%)
(100.0)
(5.0)
(18.0)
(61.3)
(15.7)
Number
577
30
94
388
65
(%)
(100.0)
(5.2)
(16.3)
(67.2)
(11.3)
Number
584
66
139
348
31
(%)
(100.0)
(11.3)
(23.8)
(59.6)
(5.3)
2005
2006
2007
13
Evaluation Results by Section
Planning(30)
Total
Score
(100)
Sub
total
(30)
Design
(15)
Performance
Planning
(15)
Management
(20)
Results
(50)
2005
60.1
23.1
13.8
9.3
15.1
21.9
2006
59.9
22.9
14.3
8.6
14.7
22.3
2007
66.0
23.4
14.2
9.2
15.5
27.1
14
Utilization of Evaluation Results




The central budget authority encouraged
ministries/agencies to use the results in
reshuffling budget allocation
The central budget authority announced at least
10% budget-cut would be done to “ineffective”
programs, in principle
The central budget authority submitted evaluation
results to the National Assembly upon their
request
Evaluation results have been open to public
since 2006
15
-2
0
2
4
6
Use of Performance Information
by Agencies (2005)
0
20
40
60
80
perf
95% CI
agencyuse
Fitted values
16
100
-2
0
2
4
6
Use of Performance Information
by the Central Budget Authority (2005)
0
20
40
60
80
perf
95% CI
mpbuse
Fitted values
17
100
Use of Performance Information
by Legislature (2005)
18
Moving Away from Incremental Budgeting
Programs have been subject to larger budget change after
evaluation
Coefficient of Variation in Funding Change
(Excluding Programs of which funding change is greater than 200%)
CV
Year
2005
2006
(B04-B03)/B03
(B05-B04)/B04
(B06-B05)/B05
3.1
2.7
9.2
2.7
2.7
-14.3
2.5
3.1
2007
19
(B07-B06)/B06
(B08-B07)/B07
3.9
2. Issues and Lessons
20
Issues and Lessons –Sequencing
and pacing of PB (1)

Program budgeting needs to be in place before
performance budgeting



There are some inconsistencies between program
structure and annual performance plan because different
units are responsible for each task
If program structure had been in place before performance
budgeting, costs of trial and error would have been avoided.
Top down budgeting was introduced to give more
autonomy to line ministries but, in reality, it has not
been realized
21
Issues and Lessons –Sequencing
and pacing of PB (2)

Sound cost accounting needs to be in place
before performance budgeting



Overhead costs have not been properly
distributed to each program, yet
Efficiency indicator has not been widely utilized
but its use is encouraged from 2008
Medium term fiscal plan and performance
budgeting need to be linked to enhance
decision making at macro-level budget
allocation
22
Changes in Consideration

Change of evaluation process is in
consideration

Give more autonomy to line ministries to relieve the
burden of evaluation from central budget authority


For example, instead of central budget authority’s evaluating
every program, line ministries will have more autonomy in
producing evaluation results.
Use of efficiency information is encouraged even
though sound cost accounting is not in place yet
23
Thank You!
24