Government is
committed to a comprehensive and ambitious structural reform program covering
fiscal consolidation, public sector management, labor market regulation,
investment promotion, economic opening and democratization and environment
sustainability. One of the pillars of the reform programme is fiscal consolidation and public sector
efficiency.
The Ministry of Finance and
Economic Development (MOFED) is organizing an interactive seminar next week, essentially among civil servants
and opinion leaders, on the budget and civil service reforms being carried out
to ensure better delivery of public services. To guide the reader through this analysis, in a permanent quest for
answers to a very complex and vast subject such as performance budgeting., we
will attempt to answer to these main questions: What are rationale for
the reform? What does implementation of a programmatic approach within a Medium
Term Expenditure Framework(MTEF) intend to accomplish? What are the accompanying
measures to improve performance budgeting and management? What are the
achievements of performance budgeting and management? What are the challenges ahead
?
Sound budget management has been critical for
Mauritius’ success in the past, and will continue to be a cornerstone of our success
in the future. However, Mauritius experienced some slippages in the recent
past. To secure fiscal discipline, government has initiated a growth-friendly fiscal
consolidation programme with emphasis on high-quality reduction in the deficit.
The key components of the medium-term fiscal adjustment programme are revenue
consolidation, expenditure reduction, restructuring and management, and the
adoption of a programme based budgeting embedded in a medium-term expenditure
framework.
Rationale for
reform
. The main
shortcomings of the earlier incremental budgetary system are that well-structured
interactions and thorough discussions on the prioritization of the competing
proposals of line ministries are not carried out; resource allocation decisions
do not clearly reflect the trade-offs between and within sectors; and, given
the focus on inputs rather than a programme of activities or outcomes aimed at
achieving government objectives, funding proposals are not made subject to
expected performance. These have contributed to a lack of effectiveness in
public expenditure projects. The budgetary system falls short on development
policy and sectoral programme design as well as monitoring and evaluation of
outcomes. It is particularly ill-equipped to engage in good strategic planning.
It does not allow government to effectively evaluate its earlier measures, rethink
its key policy objectives and prioritise expenditures in the best possible way.
The lack of cohesion in expenditure programmes, formulated on an ad hoc basis
and on insufficient analytical foundations, makes trade-offs between different
priorities difficult. It only encourages line ministries, as a convenient short
cut, to put forward a shopping list of projects, not necessarily in line with
their genuine needs. Most of the time,
ministries tend to regard the ceilings set by the MOFED not as firm envelopes
but simply as departure points for a bilateral budget negotiating exercise - an
adversarial contest between MOFED and spending Ministries and Departments in
which outcomes are determined more by influence than strategic importance. The
budgetary procedures for the allocation of resources do not allow for greater
contestability and transparency. The budget fails to some extent on the two core budgetary outcomes, namely allocative
efficiency and effective service delivery.
PBB within a Medium Term Expenditure Framework
The fundamental objective of the MTEF is to enable
government to prepare annual budgets within a sustainable fiscal strategy,
which extends over several years, and to facilitate a progressive reshaping of
budget allocations across and within sector portfolios, consistent with the
strategic goals of the reform programme. A PBB within MTEF is a central tool
for prioritising and allocating resources between sectors. The chief elements
of the top-down approach are the development of a macroeconomic framework,
medium-term fiscal targets, an aggregate expenditure limit, and sectoral
allocations. The framework discusses critical macroeconomic and fiscal issues
facing the economy, and incorporates likely and consistent medium-term
macroeconomic and fiscal frameworks for the budget. It also sets out the fiscal
policy trade-offs faced by the government and associated implementation issues.
The fiscal framework details targets for total revenue, spending and the
deficit for the forthcoming budget and successive framework years, based upon
the government’s current assessment of the development path of the economy and
its strategic intentions for fiscal policy. The medium term fiscal framework is
presented to Cabinet in February, four months before the presentation of the
budget, for discussion and endorsement ahead of the issue of a Budget Circular.
The process of setting budgetary ceilings involves assessment of the macroeconomic
forecasts, agreement on overall expenditures, and allocation of resources
between ministries according to priorities. As part of this process, lower
priority projects are dropped from the budget. The ceilings are consolidated in
a Cabinet report, which outlines the overall macroeconomic situation, targets,
and broad issues for reallocation of resources between sectors. The ceilings
are then issued to all ministries in the Budget Circular, which sets out
overall government objectives and macroeconomic targets .The Budget Circular
process entails the conveying of ceilings to line ministries for the following
three fiscal years. These ceilings are consistent with the aggregate fiscal
framework. The purpose of the medium-term ceilings is to give ministries an
indication of the level of funding they may reasonably expect to receive for
existing programmes and policies in the outer years. The expectation, however,
would be that ministries frame their spending proposals, both recurrent and
capital, within these medium-term resource envelopes.
This is complimented by the bottom-up process of
policy design and implementation, programme monitoring and costing. It requires
that line ministries are staffed both by administrators and accountants, and by
a multi-disciplinary team comprising policy specialists and economists, who not
only formulate polices according to medium-term budget availability but also monitor
outputs and outcomes that feed into the annual budget exercise. This would help
line ministry managers to ensure that resources are used to achieve the
intended outcomes. The bottom-up budgetary process would also enable government
to better gauge progress in implementation and allow activities to be linked to
performance indicators. Such a performance focus, or increased emphasis on
service delivery, would increase the transparency of government and strengthen democratic
accountability. Finally, ministries would estimate the costs of implementing
policy and achieving agreed outputs through the preparation of 3-year,
integrated, programme based budgets, and provide this information to MOFED and
Cabinet, so that adjustments in the allocations between sectors and ministries
are based on the costs of implementing priority policies and programmes.
The challenges
The introduction of the PBB within MTEF is an attempt
to move away from conventional incremental budgeting, where current budgets are
increased by some margin for the following year, to a budgeting system based on
the actual cost of service delivery. The emphasis is placed on aligning the
objectives of programmes with outputs, and increasing results-accountability,
than on improving cost-effectiveness. We believe that for a genuine bottom-up
approach, the causal links between activities and outputs and between outputs
and policy outcomes have to be well established. Moreover, objectives and
targets have to be properly disaggregated and cascaded down to operating units.
Implementation decisions should be devolved to the lowest feasible level in the
hierarchy. The determination of priorities becomes precise and realistic during
the preparation of the budget. Thus, it is important that there should be
mechanisms within the budget process that encourage the re-evaluation of
policies and priorities and that facilitate the generation of policy
alternatives. A coherent framework for MTEF/PBB preparation, training needs and
implementation from the MOFED, which would serve as a foundation, is crucial
for generating sufficient commitment and ownership. For an MTEF to perform its
strategic allocation function, the top echelons of government need to have
ownership of the medium-term inter-sectoral allocations. Ultimately, the
allocation function remains the privilege and responsibility of the political
leadership. Equally important is the reconfiguration of the ministries and institutions
to support the implementation of MTEF/PBB. This will also necessitate that the
MOFED is redesigned to effectively co-ordinate MTEF/PBB, review sectoral
policies and help to formulate 3-year programmes; line ministries are
restructured to meet the demands of programme based budgeting; strategic
planning and analytical capabilities for assessing and appraising public
spending are reinforced in line ministries and departments; And of course, the
political will to carry forward the budget reform programme must be sustained.
(Some notes: Performance Budgeting ;An agency or
authority proficiency to acquire resources economically; and use those
resources efficiently (input-output) and effectively (output-outcome) to achieve
performance targets; Outputs: the goods or services (usually the latter)
which government agencies provide for citizens.Outputs are potentially
largely controllable by government agencies and measurable either quantitatively
or qualitatively. Thus outputs can be used for performance management more
easily than outcomes.Inputs: the resources used by government to produce
outputs. Inputs include the labor (the range of skills, expertise and
knowledge of employees), capital assets (including land and buildings, motor
vehicles and computer networks), financial assets, and intangible assets (such
as intellectual property) which are used in delivering outputs. Outcomes:
the effects on society of outputs from governmental entities .Outcomes –
whether intended or unintended – are not usually completely controllable by
governments. The degree of control depends on the influence of extraneous
factors on the goal in question, the effectiveness of implementation and the
quality of the policies for reaching the goal.)
