This technical note addresses the following main questions:
What are the characteristics of a basic model of performance-based budgeting?
How should low-income countries approach performance-based budgeting?
What preconditions should exist before starting?
What forms of performance-based budgeting should low income countries avoid?
APPENDIX I. Case Studies
Among the useful case studies for countries to evaluate are the following four countries, which have introduced or are moving toward performance-based budgeting:
An earlier version of this note was previously issued as part of a series of technical notes on the IMF’s Public Financial Management Blog (http://blog-pfm.imf.org).
Marc Robinson was a Senior Economist in the Fiscal Affairs Department of the International Monetary Fund; Duncan Last is a Senior Economist in the Fiscal Affairs Department.
The sequencing or implementation planning for introducing a performance-based budgeting approach is not discussed here.
The primary elements of which are an analysis of (i) the importance of the program objective (is the program attempting to deliver something that is really important to the society and in line with the government’s stated policy priorities?); (ii) what available performance information indicates about the effectiveness and efficiency with which these objectives are being achieved; and (iii) the program logic—whether the strategy by which the program attempts to achieve its intended outcome makes sense, and whether there is sufficient coordination among different actors (especially in the context of decentralization), given the experience of other countries and relevant theory.
There are, however, some countries where budget preparation takes place on a program basis but parliament appropriates agency budgets on an aggregated basis. Ultimately, this is a question of the allocation of budgetary power between the executive government and the legislature. If, as is usually the case, the principle is that the legislature should have ultimate authority over the allocation of public funds, then the budget should be appropriated by program.
M. Robinson and H. van Eden, “Program Classification” in M. Robinson ed. (2007), Performance Budgeting: Linking Funding and Results, Palgrave Macmillan, Basingstoke (hereafter referred to as Performance Budgeting).
See M. Robinson “Cost Information” (in Performance Budgeting). Note in particular that while it is true that cash information ignores the costs associated with the utilization of the capital stock—which in an accrual system is measured by depreciation—it is also true that much of this cost is a “sunk” cost that is irrelevant to short-term decisions about the level of program funding.
In principle, a performance-based budgeting approach could be introduced in a highly centralized environment, where all resource allocation decisions are taken centrally by the MoF or the Presidency. However, since budget implementation inevitably involves technical ministries, who may not necessarily share the centrally defined priorities, enhanced efficiency and effectiveness in the use of budget resources, the prime objective of performance-based budgeting, is unlikely to be achieved.
See P. Smith, “Performance Budgeting in England: Public Service Agreements,” (in Performance Budgeting).
In the absence of this, targets will tend to be arbitrary. Setting arbitrary targets tends to be worse than setting no targets at all, because unreasonably demanding targets demotivate, while targets that are set too low become an excuse for continued poor performance.
Purchaser-Provider Systems have been highly successful in the hospital sector in many countries in the form of the so-called “diagnostic related group” funding system. See M. Robinson, “Purchaser-Provider Systems” (in Performance Budgeting).
See P. Smith, “Formula Funding and Performance Budgeting” (in Performance Budgeting).