In the wake of the global financial crisis, many OECD countries are looking to increase the role of evaluation as a tool to support good budgeting. In particular, evaluation is increasingly seen as an important part of the information base necessary to underpin an effective spending review process. Spending review aims to identify savings options which might be implemented on budget, and evaluation as an important role in helping to identify savings options. This raises the crucial question of the relationship between budgeting and evaluation, which is the subject of a paper of mine which has just been published by the World Bank, entitled Connecting Evaluation and Budgeting. Read the rest of this entry »
The idea that spending review should become a regular part of the budget preparation process is now widely accepted. Most budget professionals now accept that the systematic and ongoing scrutiny of “baseline” expenditure to identify savings options is an essential part of good expenditure prioritization. Without systematic spending review, finding adequate fiscal space for high priority new spending – while keeping proper control over aggregate expenditure – becomes extraordinarily difficult, if not impossible.
So far, so good. The problems start when decisions are made about how to design the spending review process. It seems to have become a widespread article of faith that spending review should be always “comprehensive” or, as some put it, “zero-based”. Read the rest of this entry »
Correct program classification – that is, defining programs appropriately – is one of the most fundamental elements of a good government-wide performance budgeting system. Yet it is also an area where governments often make serious mistakes. The World Bank has just published a guide entitled Program Classification for Performance-Based Budgeting designed to help governments to define programs appropriately and in a manner consistent with the key objectives of a sound performance budgeting system. Written by myself, this guide sets out a number of rules which should be followed in defining programs. Read the rest of this entry »
The introduction of automated financial management information systems (FMIS) has, in some developing countries, had a remarkable unintended negative effect – namely, to set in a concrete an excessively detailed level of central line-item control over spending ministry budgets. This is a major obstacle to a successful introduction of performance budgeting in those countries. It also prevents ministries from using their resources in an efficient way even under traditional budgeting systems, and contributes to under-execution of budgets. Read the rest of this entry »
Performance budgeting is an important instrument for improving expenditure prioritization, effectiveness and efficiency. Its relevance is greater than ever today given the tougher fiscal circumstances that face many countries. Reaping the benefits of performance budgeting requires that the performance budgeting systems be properly designed and that they are accompanied by the right types of complementary reforms.
But what sort of performance budgeting works best at the government-wide level? What, on the other hand, does not work? What implementation strategies are required? These questions are the main focus of a chapter I have written for the recently published International Handbook of Public Financial Management. Read the rest of this entry »
Chile may be a new OECD member country, but in the realm of public financial management and fiscal policy it has a few things to teach many existing OECD members. The OECD Journal on Budgeting has just published a review of Chilean budgeting practice prepared by an OECD mission comprised of myself and two OECD staff members Read the rest of this entry »
Top-down budgeting is today widely regarded as a key element of good budgeting practice, and with good reason. In its core sense, agreed by all, top-down budgeting calls for the budget preparation process to be framed by a hard aggregate expenditure ceiling – approximately speaking, a limit which applies to the totality of government expenditure. The aggregate ceiling should be set in a top-down manner, which means that it is set at the start of the budget preparation process prior to any consideration of “bottom-up” spending requests from spending ministries. It should also be hard in the sense that, once set, it is essentially not varied during the budget preparation process. Establishing and enforcing such an aggregate expenditure ceiling is today generally viewed as crucial to ensuring that aggregate expenditure does not grow faster than is consistent with government’s aggregate fiscal policy objectives, and in particular with deficits and debt discipline.
This pertains to aggregate expenditure ceilings. But what does it mean for the setting of ministry expenditure ceilings. This is where the consensus disappears. Read the rest of this entry »
In the years since the onset of the global financial crisis in 2007, spending review has come to be widely used by OECD governments, principally as a tool for reducing aggregate expenditure to achieve fiscal consolidation. Spending review is, however, much more than a tool for cutting aggregate expenditure. Properly viewed, it is a core instrument for ensuring good expenditure prioritization – more specifically, for expanding the fiscal space available for priority new spending in a context of firm aggregate expenditure restraint. Read the rest of this entry »
The manual Performance-Based Budgeting is now available in Russian and Bosnian-Serbo-Croat translations, thanks to PEMPAL, the organization of Eastern European budget officials. The manual, written by myself and originally published in 2010 by CLEAR/World Bank, is a primer on the key forms and elements of performance budgeting. It covers a wide range of topics including program budgeting, the performance information underpinnings of PB, and the relation of PB to other budgeting and accounting reforms. To access the manual, please go to the following links: English version; Russian version; Serbo-Croat version. It is anticipated that a Spanish translation will be prepared in the near future.
Now that the content of the European-wide balanced budget treaty has been finalized, how does it stack up? In my last blog, I noted out that any permanent balanced budget rule is inappropriate because, in the long-term, it implies zero public debt. This is inconsistent with the proposition that moderate levels of public debt have a legitimate role to play, particularly in the financing of infrastructure. In the final version of the treaty, we now have a provision which relaxes marginally the budget balance requirements for countries which have debt levels significantly below 60 percent. Does this then solve the problem? Read the rest of this entry »