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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)

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Contents

1. Sequencing and Pacing of PB Reforms in Korea

2. Issues and Lessons

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1. Sequencing and Pacing of PB Reforms in Korea

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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

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Characteristics of the Korean Approach (1)

Gradual Approach at the initial stage Experimenting with pilot project between 2000-

2002 Selected departments within selected ministries

are subject to the pilot project Annual performance plan and report are

developed by selected departments

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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

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Performance Budgeting

(Pilot Project)

Performance Goal Management

Self-Assessment of Budgetary Program

In-DepthEvaluation

•Developed Strategic

Goals, Performance

Objectives and

Performance

Indicators•Designed after

GPRA

•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

’00~’02

’00~’02

’03~’03~ ’05~’05~ ’06~ ’06~

Introduction of Performance Budgeting

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“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.

Enactment of National Finance Act

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Performance Monitoring “Management of Performance Objectives” Monitoring based on the performance indicators

Program Review “Self-Assessment of Budgetary Program” Review based on the checklist

Program Evaluation “Budgetary Program Evaluation” In-depth evaluation for selected programs

Framework for Performance-Based Budgeting In Korea

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The central budget authority reviews self-assessment 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

Description of “Self-Assessment of Budgetary Program”

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•Program purpose•Rationale for government spending•Duplication with other programs•Efficiency of program design•Relevance of performance objectives and indicators•Relevance of performance targets

Design and Planning

•Independent program evaluation•Results•Satisfaction of citizens•Utilization of evaluation results

Results and accountability

•Monitoring efforts•Obstacles of program implementation•Implementation as planned•Efficiency improvement or budget saving

Management

Contents of Checklist

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Evaluation results Quality of performance information has not improved much Programs are showing better results

Link between evaluation results and budget 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

Report on 2005-2007 Self Assessment of Budgetary Program

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  Total EffectiveModerately

EffectiveAdequate Ineffective

2005Number 555 28 100 340 87

(%) (100.0) (5.0) (18.0) (61.3) (15.7)

2006Number 577 30 94 388 65

(%) (100.0) (5.2) (16.3) (67.2) (11.3)

2007Number 584 66 139 348 31

(%) (100.0) (11.3) (23.8) (59.6) (5.3)

Evaluation Results by Rating

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TotalScore(100)

Planning(30)

Management(20)

Results(50)

 Sub total(30)

Design(15)

Performance Planning

(15)

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

Evaluation Results by Section

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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

Utilization of Evaluation Results

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-20

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695%

CI/F

itte

d v

alu

es/a

gencyuse

0 20 40 60 80 100perf

95% CI Fitted values

agencyuse

Use of Performance Information by Agencies (2005)

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-20

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695%

CI/F

itte

d v

alu

es/m

pbuse

0 20 40 60 80 100perf

95% CI Fitted values

mpbuse

Use of Performance Information by the Central Budget Authority (2005)

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Use of Performance Information by Legislature (2005)

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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%)

CVYear (B04-B03)/B03 (B05-B04)/B04 (B06-B05)/B05 (B07-B06)/B06 (B08-B07)/B07

2005 3.1 2.7 9.2

2006 2.7 2.7 -14.3

2007 2.5 3.1 3.9

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2. Issues and Lessons

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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

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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

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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

Changes in Consideration

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Thank You!