Getting started on the PBB reform agenda in Indonesia a practical outline of the steps to be taken in setting up a framework

Presented by Pat McMahon Budget Advisor, Australian Department of Finance and Deregulation

Aims of this session:

Examine some practical examples of how PBB could be applied here at the implementation stage. This is only the setting up stage. This afternoon, after we have looked at MTEF, we shall start addressing the plan, and practicalities, involved in moving to a mature PBB

5 phases in developing a performance budgeting framework

1. The Set-up stage of defining: outcomes & programs selection of indicators/specifying targets & benchmarks 2. Financial management training 3. Introduce operational flexibilities 4. Introduce evaluation and monitoring 5. Review and refine frameworks

Phase 1 - Six steps in setting up a performance monitoring regime

There are six basic steps to setting up a performance monitoring regime: A. B. C. D. E. F. Defining outcomes and programs for measurement Selecting indicators Specifying targets, benchmarks and reference points Data collection Analysis & assessment Reporting

Step A. Defining outcomes, programs and activities Examples from DG Budgets

Outcomes & Program structure
Government objectives needs to be defined along with the means (programs/outputs) necessary to achieve those objectives.

Be clear who is to be held responsible for performance

Alignment of program responsibility with responsible officers on the organization chart

Distribution of expenditures
All expenses need to be distributed among the various program activities that make up the program

Step A. Outcomes, Programs, Activities and Responsibilities An Example

Management and Direction
DG- Budget
Secretary of DG Budget

Program Activities

2. Develop and implement budget system reform

Outcome/Objective:: To manage the state budget process to assure that the governments goals and priorities are translated into annual budgets

4. Prepare annual budget summaries

3. Establish and monitor non-tax policy and collection

1. Review of line ministry budgets

Program

Directorate of Budget I

Directorate of Budget II

Directorate of Budget III

Directorate of Budgeting System

Directorate of Non-Tax Revenue

Directorate of Budget Preparation

Budget Management and Reform

Australian example and some similarities

Figure: Outcome 1 contributing outputs

Distribution of all expenditures to programs

Current Main Programs (8 )and DGs 1. Revenue Increase and Fund Safeguarding DG Taxes DG Customs and Excises DG Assets Management Secretary General 2. State Expenditure Effectiveness DG Budget DG Treasury DG Central-Local Fiscal Balance 3. State Financial Accounting DG Treasury 4. Financial Institutions Development Capital Market and Financial Institutions Management Board Secretary General 5. Financial and Econmic Stabilization Fiscal Policy Board Capital Market and Financial Institutions Management Board 6. Debt Financing and Management DG Debt Management 7. Budget Systems Implementation and Improvement DG Budget DG Treasury 8. State Assets Management DG State Assets Management Supporting Programs (5) and DGs 9. State Apparatus Accountability 10. Manpower Management 11. State Apparatus Infrastructure 12. State and Government Leadership 13. In-Service Education Many DGs involved in each supporting program Proposed Programs (12) and DGs 1. Budget Management and Reform ( DG Budget) Non-tax Revenue Increase and Fund Safeguarding Budget System Implementation and Improvement State Expenditure Effectiveness 2. Debt Financing and Management (DG Debt) 3. Fiscal Policy and Macro-economic Analysis (Fiscal Policy Board) Finance and Economic Stabilization 4. Revenue Policy and Management (DG Tax) 5. Intergovernmental Fiscal Relations (DG Fiscal Balance) 6. Customs and Excises Management (DG Customs) 7. Capital Market and non-Bank Financial Institutions Regulation (Capital Markets Board) 8. Management of State Assets (DG Asset Management) 9. Treasury Affairs (DG Treasury) State Financial Accounting State Expenditure Effectiveness 10. Inspector General 11. Training and Continuing Profesional Education 12. Central Management and Direction Tax Court Secretary General Public Accounts and Appraisal Regulation Center for IT Finanical System Center for Policy Harmonization

Step B. Selecting performance indicators

Remember performance indicators demonstrate that the government's requirements are met. There are two types of indicators: Effectiveness indicators Effectiveness indicators reflect how effective the outputs are in achieving the outcome. Efficiency indicators Indicators of quantity, quality and cost reflect the efficiency of the departments performance in delivering its outputs.

Step B. Australian example of performance indicators for Budget outputs

In choosing output group indicators and targets, agencies should aim to answer yes to all of the following questions:
1.

2. 3.

Is it possible to demonstrate the relationship between the indicators and the outcomes the Government wants? Are the indicators easily understood by non-technical stakeholders? Are the indicators and targets:
Specific clear, concise and precise; Measurable quantified; Achievable practical and reasonable; Relevant to stakeholders (including Government, Parliament, customers, beneficiaries); and e Time bound related to a period of time or time limit? a b c d

In choosing output group indicators and targets, agencies should aim to answer yes to all of the following questions (continued):
4. Do the indicators provide sufficient and balanced representation of actions taken, and goods and services delivered by the program/activity/service? 5. Do the indicators adequately capture the intended relationship between Government programs/services and outcomes (or, if not, is there a robust means of monitoring and evaluating the contribution of Government programs/services to the outcome)? 6. Will the results of measuring programs/services be available for evaluation and reporting in an appropriate form when needed for a reasonable cost? 7. Is there a mechanism for review and revision of program/services measurement to ensure that it remains appropriate and sufficient for agency and Government needs?

Step B. Testing some early Performance Indicators defined for Budget Management & Reform
Outcome/Objective: To manage the state budget process to assure that the governments goals and priorities are translated into annual budgets

Activity 1. Review of line ministry budgets 1. Parliament adopts line ministry budgets with only minor changes Activity 2. Develop and Implement budget system reforms 1. PBB implementation (no. of line ministries) / 2. MTEF implementation (no. of line ministries) / 3. PBB and MTEF guidelines issued and training provided to line ministries Activity 3. Establish & monitor non-tax policy and revenue collection 1. Actual non-tax revenues as a % of projections Activity 4. Prepare annual budget summaries 1. Quality I accounts are produced in a timely manner

Step B. Performance indicators for DG Treasury activities indicators serve different purposes: accountability, analysis and decision-making
Activity 1. Budget execution 1. Annual number of disbursements made/ 2.Annual number of budget execution documents processed Activity 3. Financial management of public service institutions 1. Number of public service institutions managed Activity 7. Financial accounting and reporting 1. Annual number of financial accounting reports issued

Step C. Specifying targets, benchmarks & reference points Examples from Australian Customs
Output 2: Trade facilitation and revenue collection

Step C. Specifying targets, benchmarks & reference points Testing of other earlier prepared indicators not endorsed by DG Customs
Outcome/objective: To execute state laws and regulations on imports and exports and to collect taxes
Activity 1. Development of customs technical procedures 1. Number of technical procedures revised and issued/Number of new technical procedures issued Activity 2. Management and operation of customs facilities 1. Number of individual facilities maintained and operated/Total square metres of facilities maintained and operated/Square metre cost of maintaining and operating Activity 3. Excise policy and procedures 1. Number of new or revised procedures issued

Step C. Specifying targets, benchmarks & reference points testing of indicators continued
Activity 4. Enforcement and investigations 1. Number of investigations initiated / 2. Number of investigations completed/ 3. Average cost per completed investigations Activity5. Conduct of audits 1. Number of audits initiated/ 2. Number of audits completed/ 3. Average cost per completed audits/ 4. Average number of completed audits per auditor Activity 6. coordination with international agencies 1. Number of agreements concluded Activity 7. Preparation of customs and excise regulations 1. Number of new and amended regulations issued

Step F. Reporting
Internal reporting for Agency Management Managements requirements ideally issued through the Chief Executive Officer of the Agency External reporting for Parliament Governments requirements ideally issued through Minister for Finance

More this afternoon - Planning the introduction of

operating cost flexibilities and revised accountability arrangements
Defining outcomes, programs and performance indicators is only the start.
Performance will be limited unless there is proper planning of operating cost flexibilities. The preliminaries before any reforms in this area must include: Training Defining running costs (where operational flexibilities are introduced) and non running costs (related to expenditures over which the Government has total control and where operational flexibilities cannot be applied) Grouping costs within running cost to groups where flexibilities could be granted and planning the staging the degree of flexibility granted Planning the audit, review and evaluation mechanisms to be used