How to Move from Line-Item to Performance Budgeting?

The Case of Madagascar

Dr. Jean RazafindravononaAfCoP, Nairobi, May 23-25, 2011

Context

Globalization, population growth, role of new information technology

Standardization of development assistance requirements

Democratization with a view to improve the quality of public services

Era of new public-sector managementSince 2005, gradual transition from line item

public-sector financial management to performance-based budget management

Situation before 2005: Line Item Budgeting

1. Overall budget allocation2. Priority given to programming of inputs 3. Performance indicator: rate of credit

consumption and no sectoral indicators4. Single, limited budget stakeholder

expressing needs5. Disadvantage: Budget implementation

objectives lack visibility6. Budget with an almost purely accounting

structure7. Political will for change based on donor

conditions (PRSP and HIPC)

Process since 2005: Program-based Budgeting

Financial Legislation Organization Act (LOLF) passed in 2004 and enforced since 2005

Priority given to performance in driving public policy

Application of the spirit of program-based budgeting and a medium-term expenditure framework (MTEF)

Establishment of an integrated public-sector financial management system

Establishment of a monitoring and evaluation system and tools to carry out reforms

Training of stakeholders in the expenditure chain

Political WillBasic principles of the LOLF, 2004:• Performance-based management (obligation to

achieve results)• Diversification and accountability of stakeholders:

program coordinator (CdP), program managers (RdP), authorizing officers, activity managers, procurement officer, and so on

• Strengthening of control, especially by Parliament• Culture of accountability• Link between budget and performance indicators

Culture of performance

Multi-year strategies to implement planning or public policy (from PRSP to the Madagascar Action Plan, or MAP)

Administrative reform (decentralization, deconcentration, local services) and practice of meritocracy

Definition of result, outcome, and impact indicators Search for better quality service (in relation to

users), management efficiency (in relation to tax dollars), social and economic effectiveness (in relation to citizens’ rights), compliance with procedures, and effectiveness of services provided

Implementation of Program Budgeting

A long-term work in progress, in the case of Madagascar since 2004, and in France 5 years of planning

Establishment of stakeholders: program coordinator, program managers, authorizing officer, activity manager … flexible budget management and accountability

Priority given to allocating resources based on public policy steering strategy

Comparative, cost-effectiveness, economic and social cost-benefit analysis of public investment

Budget Framework

New budget structure: toward logic of performance Missions (50) Programs (132) OBJECTIVES (295) AND OBJECTIVE INDICATORS

(688) Breakdown by expenditure category (7)

Two Appropriation Act documents One performance document One budget document

MISSIONS

About fifty missions shape the key areas of government policy.Parliament appropriates the budget for each mission. This makes it possible to emphasize the objectives of the public policies pursued. A mission (appropriation unit) combines programs that may report to different ministries. Only an appropriation act may create a mission.

MISSIONS

MISSIONS

Program 1 Program 2 Program3 MISSION - Appropriation unit- Consistency of strategy

PROGRAM - Appropriation line- Marked by objectives with matching indicators

PROGRAMS

About 132 programs define responsibilities for policy implementation.Each program corresponds to a coherent set of activities entrusted to a program manager designated by each ministry concerned.Managers receive an overall resource envelope that enable them to choose the means best suited to achieve established objectives. Programs (appropriation lines) constitute specific resource envelopes.

Comparative Analysis of Budgeting Structures

Lin Item Budgeting Architecture Before 2005 Program-Based Budgeting Architecture Since 2004

A single document, the budget, in which the Millennium Development Goals (MDGs) were not clearly identified.

A single budget document limiting appropriations and defining performance criteria. MDG indicators are taken into account.

Appropriation→ 3.1.1.2. Overall budget of the directorate general responsible for reforming education: 350,456,230 FMG

Mission → 3. Transformation of education 350,456,230 FMGProgram → 3. 1. Basic education123,675,600 FMG Objectives → 3. 1. 1. ensure seven years of quality, universal primary educationIndicators → 3.1.1.1. Primary completion rate 75,432,190 FMG Program: One sub-objective with a managerUnder the same ministry

Groups appropriations by activity Specific objectives Expected results … … to be evaluated.

Alignment of Programming Structure and Administrative Structure

ADMINISTRATIVE STRUCTURE

PROGRAMMING STRUCTURE

MISSION SECRETARY GENERAL

PROGRAM COORDINATOR

PROGRAM DIRECTORATE GENERAL

PROGRAM MANAGER

PROGRAM MAPPING(Performance Document)

PROGRAM OBJECTIVE OBJECTIVE INDICATOR

PRINCIPAL ACTIVITIES

Increased Role of Parliament

In reviewing the draft Appropriation Act• Evaluation of the budget based on public policies defined

by the Government (general government policy, strategy paper, and so on)

• Mission appropriation (s. 48)• Ability to amend the distribution of appropriations among

programs (s. 49)

In controlling the actions of the executive (s. 57)• A culture of greater accountability (projects and annual

performance reports)• Instruments to evaluate results (indicators)

Monitoring/Evaluation System

Automation of budget proceduresEstablishment of statutory instruments

facilitating transparency, traceability, and control

Establishment of monitoring/evaluation tools integrating all government stakeholders, such as the national integrated monitoring/evaluation system (SNISE)

Platform for management dialogueTransparency and accountability

Limits of Performance-based Budgeting The document is not easy to understand and follow.Associating an appropriation with an indicator gives

the impression, for example, that with an appropriation or budget of 75,432,190 FMG, it is easy to achieve a given primary school completion rate.  This is somewhat unrealistic.

It is hard to implement a regular monitoring system. It should be noted that, via the Directorate of Budget Implementation and Summary, the Directorate General of the Budget carries out quarterly monitoring of budget execution with institutions and ministries.

It is difficult to choose indicators and target values.The relationship between the Government and

Parliament is not as fluid as it was believed to be.

Greater Flexibility and Next Steps 

2005 to 2007 (All levels budgeted for)

2008 to 2010 (Only two levels are budgeted for, and indicators are described in a performance document.)

1. Mission2. Program3. Objective4. Activity5. Indicators

1. Mission2. Program

Two documents and not just one: 1 appropriation document1 performance document