Introduction to
Program Budgeting
Katherine Barraclough
Consultant, World Bank
Fiscal Management Reform Workshop, Istanbul, Turkey, June 6-8, 2005
Outline
1.
What is program budgeting and what
is it good for?
2.
Program budgeting in Korea: a case
study of the Ministry of Environment
3.
Some general considerations for
successful implementation
2
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)
4
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
5
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
6
Program Budgeting in
Korea
A Case Study of the Ministry of
Environment
8 Regional Offices
Waste Management and
Recycling Bureau
Water Supply and Sewerage
Bureau
Office of the Inspector-General
Water Quality Management
Bureau
Air Quality Management
Bureau
Natural Conservation Bureau
Environmental Policy Office
Planning and Management
Office
General Service Division
MoE’s Organizational Structure
MINISTER
Public Information Office
VICE MINISTER
International Cooperation Office
8
General Principles (1)

Align the budget classification with that of
the NFMP


Keep programs within the organizational
structure


Integrate a mid-term perspective into the annual
budget
Clarify lines of accountability and program
management
Combine all activities according to program
objectives

Regardless of revenue source
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General Principles (2)

Determine appropriate scope and number of
programs

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Limit the number of activities

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Reflect ministry’s role and areas of responsibility
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
10
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
11
New Budget Structure (2)
Structure
Example
Function
Environmental Protection
Subfunction
Air
Program
Air Quality of the Capital Area
Activity
Natural Gas Bus
Object
Personnel Expense
Conceptual Framework
Function
Mission
Sub-function
Strategic
Objective
Mid/long – term
Target
Program
Performance
Objective
Indicators
(AccountFund)
Resource
Allocation
Activity
Strategic
Priority
Object
13
Suggested New Structure
Features of the New Structure

1 function, 5 sub-functions, 16 programs


Offices and bureaus have separate
programs

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for clear lines of accountability and discretion
Programs include all revenue sources


each sub-function has 2-5 programs
number of activities per program at no more
than about 10
Environmental Administration is a separate
program

due to costing difficulty of expenses
15
Sub-function (1)
Sub-function
1. Environmental Policy
1.1
Environmental Administration
1.2
Basic Environmental Protection
1.3
Chemical & Hazardous Material Mgt.
1.4
International Cooperation
Program

Promoting environmental policies for sustainable
development

Currently 116 activities
16
Sub-function (2)
Sub-function
2. Water
2.1
Water Supply
2.2
Soil & Underground Water
2.3
Sewage.
2.4
Industrial Waterwaste
2.5
Water Quality of the 4 Major Rivers
Program

Increase the amount and quality of safe water, and
improve water quality in waterways and rivers

Currently 137 activities
17
Sub-function (3)
Sub-function
3. Air
3.1
Air Conservation
3.2
Air Quality of the Capital Area
3.3
Everyday Pollution
Program

Provide clean and clear air quality

Currently 24 activities
18
Sub-function (4)
Sub-function
4. Natural Environment
4.1 Ecosystem
Program
4.2 National Parks

Preserve and restore the natural environment for a
clean environment and improved quality of life

Currently 23 activities
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Sub-function (5)
Sub-function
5. Waste
5.1 Waste Management
Program
5.2
Recycling

Safe and hygienic waste management and the
promotion of recycling and reducing waste in society

Currently 19 activities
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Implementation Issues for Korea

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Co-operation between the CBO and spending
agencies
Consensus and commitment at high level

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Detailed reform blueprint

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Gradual but steady
Development of a policy- and performance-oriented
institutional culture
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Clarify PB in context of broader PEM reforms
Piecemeal approach

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At executive and legislative level and among key
stakeholders
Identify need for reforms in institutional culture
Ensure spending agencies design their own
program budget with cooperation from CBO
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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
23
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
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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
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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
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