Strategic Advisory Approach on Results-Oriented...

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Strategic Advisory Approach on Results-Oriented Budgeting Experiences from developing countries

3 Table of Contents

Table of Contents

List of abbreviations 6

Executive summary 8

1 Introduction 10

1.1 Background of the study 10

1.2 Study objective 10

1.3 Conceptualisation of results-oriented budgeting 11

1.4 Structure of the report 12

2 Budget reform in Kenya 13

2.1 The budget reform in brief 13

2.2 Country background information 142.2.1 Macroeconomic developments 142.2.2 Government structure 152.2.3 PFM legal framework 15

2.3 Stakeholders in the reform process 162.3.1 Ministry of Finance 162.3.2 Parliament 172.3.3 Donors 182.3.4 Line ministries 192.3.5 Other stakeholders 20

2.4 Implementation of the reform 212.4.1 Management of the reform 212.4.2 Timing and sequencing of the reform 222.4.3 Financing of the reform 242.4.4 Capacity development 24

2.5 Technical building blocks of the reform 252.5.1 Budget preparation 252.5.2 Costing 282.5.3 Performance information 282.5.4 Information and reporting system 302.5.5 Internal control 302.5.6 External audit 31

2.6 Conclusions 31

4Table of Contents

3 Budget Reform in Cameroon 33

3.1 The budget reform in brief 33

3.2 Country background information 343.2.1 Macroeconomic developments 343.2.2 Government structure 343.2.3 PFM legal framework 35

3.3 Stakeholders in the reform process 353.3.1 Government 353.3.2 Parliament 363.3.3 Donors 373.3.4 Line ministries 383.3.5 Other stakeholders 39


3.5 Technical building blocks of the reform 433.5.1 Process of budget classification 433.5.2 Budget format 443.5.3 Costing 463.5.4 Performance information 473.5.5 Information and reporting system 483.5.6 Internal control 483.5.7 External audit 49

3.6 Conclusions 49

4 Budget reform in Peru 51

4.1 The reform in brief 51

4.2 Country background information 524.2.1 Macroeconomic developments 524.2.2 Government structure 524.2.3 PFM legal framework 534.2.4 Origins of results-oriented budgeting 53

4.3 Stakeholders in the reform process 544.3.1 Ministry of Economy and Finance 544.3.2 Congress 554.3.3 Donors 564.3.4 Line ministries 564.3.5 Other stakeholders 57

5 Table of Contents


4.5 Technical building blocks of the reform 614.5.1 Process of budget classification 614.5.2 Budget format 654.5.3 Costing 664.5.4 Performance information 664.5.5 Information and reporting system 674.5.6 Internal control 674.5.7 External audit 68

4.6 Conclusions 68

5 Conclusions 70

6 Bibliography 75

Case Study Kenya 75

Case Study Cameroon 75

Case Study Peru 76

7 Checklist 78

6List of abbreviations

List of abbreviations

ACBF African Capacity Building Foundation

AFRITAC

BC

East African Technical Assistance Centre

Budget Committee

BPS Budget Policy Statement

CAR Convenios de Administración por Resultados

CEPLAN Centro Nacional de Planeamiento Estratégico

CEMAC Economic and Monetary Community of Central African States

CGR Contraloría General de la República

CoA Chart of Accounts

CONSUPE

CSO

Supreme State Audit Office

Civil Society Organisation

DCGP Dirección de Calidad del Gasto Público

DGPP Dirección General de Presupuesto Público

FAAC

FC

Fiscal Analysis and Appropriations Committee

Finance Committee

FCFA Central African Franc

FMA Fiscal Management Act

GDC German Development Cooperation

GDP Gross Domestic Product

GESP Growth and Employment Strategy Paper

GIZ Gesellschaft für Internationale Zusammenarbeit

GFMA Government Financial Management Act

GFS(M) Government Financial Statistics (Manual)

HIPC Heavily Indebted Poor Countries

HRM Human resource management

IADB

IDASA

Inter-American Development Bank

Institute for Democracy in Africa

IEA Institute of Economic Affairs

IFMIS Integrated Financial Management System

IMF International Monetary Fund

INEI

ISODEC

Instituto Nacional de Estadística e Informática

Integrated Social Development Centre

KIHBS Kenya Integrated Household Budget Survey

KANU Kenya African National Union

KENAO Kenyan Audit Office

MCLCP Mesa de Concertación para la Lucha contra la Pobreza

MDA Ministries, Departments and Agencies

MoEF Ministry of Economy and Finance

MoF Ministry of Finance

MoH Ministry of Health

MINEPAT Ministry of Economy, Planning and Regional Development

7 List of abbreviations

MINFOF Ministry of Forestry and Wildlife

MINFOPRA Ministry of Public Service and Administrative Reform

MoF

MP

Ministries of Finance

Member of Parliament

MSPS Ministry of State for Public Service

MTEF Medium Term Expenditure Framework

MINCETUR Ministerio de Comercio Exterior y Turismo

NGO Non-governmental organisation

NFR New Fiscal Regime

OECD Organisation for Economic Cooperation and Development

ODA Official Development Aid

PBB Programme-based budget

PEFA Public Expenditure and Financial Accountability

PpR Presupuesto por Resultados

PEI Plan Estratégico Institucional

PESEM Plan Estratégico Sectorial Multianual

PFM Public Finance Management

PFMP Public Finance Modernisation Plan

PROMAGAR Results-oriented management approach in public administration

PRSP Poverty Reduction Strategy Paper

POI Plan Operativo Institucional

ROSC

SAI

Report on Observance of Standards and Codes

Supreme Audit Institution

SIAF Sistema Integrado de Administración Financiera

SIGA Sistema Integral de Gestión Administrativa

SPFMR Support to Public Finance Management Reforms

8Executive summary

Executive summary

This report reviews the introduction of a results-oriented budgeting approach in three partner countries of German Development Cooperation (GDC): Kenya, Cameroon and Peru. The purpose of the review is to use the country experiences to finalize a “strategic advisory approach for the intro duction of results-oriented budgeting”. The advisory approach, developed by GIZ on behalf of the German Federal Ministry of Economic Cooperation and Development (BMZ), aims at giving a guideline to GDC, including GIZ advisers that are dealing with budget reform, as well as to the partner institutions and any other provider of development cooperation.

The reforms in Kenya, Cameroon and Peru that were studied in this report all started around 2006/07 and are still in progress. The country case studies identify the main characteristics and developments in the reform process and draw conclusions on the strengths and weaknesses of the chosen approach.

The Kenyan budget reform started in around 2006-07 and has been driven by the Budgetary Supplies Department of the Ministry of Finance (MoF). The reform has been motivated by the general ambition of government to improve on public service delivery, albeit a number of other factors, such as IMF recommendations, also played a role for embracing the move towards results-oriented budgeting. The reform aims to classify the budget in terms of programmes, which are formulated on the basis of the organizational structure of the line ministries. So far, the Kenyan government has not yet introduced a programme classification in the legal budget which has remained to be based on line items. Instead, indicative Programme Based Budgets (PBB) that are used for illustrative purposes have been pre-pared for the fiscal years 2008/09 and 2009/10 and are in the final stages for the fiscal years 2010/11 and 2011/12. While the programme structure is referred to in the Fiscal Management Act 2009, it still remains to be seen to what extent the reform will be captured in the before-standing Public Finance Management Law. Although the implementation process has been pushed by the creation of a dedi-cated PBB Secretariat, the focus of the reform has been predominantly on budget preparation. With regard to budget execution and reporting, much pending issues could be identified, such as the Chart of Accounts and the monitoring of performance information. Finally, it is unclear how the reform will fit in the context of on-going decentralization reforms. There has been strong emphasis on capacity development and awareness raising that has to be regarded positively, yet capacity development is still much needed, in particular beyond the level of MoF and the budget and planning units in the line ministries.

The budget reform in Cameroon started in 2007 with the adoption of the Fiscal Regime Law. The reform was accompanied by other reforms aiming at introducing a results-oriented management approach in public administration in line with Cameroon’s Vision 2035 and the Growth and Emplo-yment Strategy Paper. A key feature of the approach in Cameroon is that the implementation of the reform was preceded by the adoption of a corresponding law that allowed for a five year transition period before entering into force as of 2013. Another pertinent feature of the Cameroonian case is the dual coordinating structure comprising the Ministry of Finance (responsible for the recurrent budget cycle) and Ministry of Economy and Planning (responsible for capital expenditures). Given the different perspectives of the two entities, the reform has been challenged by unclear guidance to line ministries which has slowed down their progress in preparing programme budgets. After the reform was introdu-ced in 2007, a public finance modernisation plan was elaborated in 2008 and its implementation started in 2009. In 2010 a pilot project regarding the implementation of PBB was carried out by the Ministry of Forestry and Wildlife. This Ministry, which was supported by the German Development Cooperation,

9 Executive summary

was selected because they already had a National Programme (Programme Sectoriel, Forêts et Environ-nement) including results-based planning tools. In 2011, the experimental phase was extended to all sector ministries which had already prepared Medium Term Expenditure Framework (MTEF) in 2010 and developed Priority Action Plans in 2011. With the approach of the 2013 deadline stipulated in the law, the majority of Cameroonian line ministries are presently in the process of drawing programme budgets, essentially giving the implementation approach a sort of “big-bang” status. There is a large number of issues with regard to performance information, as well as integration with other important public finance management (PFM) reforms such as MTEF and accounting reforms. Last but not least, the complicated audit system in Cameroon, with its dual structure, will also bear a critical role for the roll-out of the reform.

Also the budget reform in Peru, promoted by the Ministry of Economy and Finance (MoEF), started in 2007. Above all, it aimed at closing pending gaps between budgeting and strategic planning, which was widely regarded as malfunctioning. Therefore, a methodology for budgetary programmes based on results, which foresaw that different line ministries at different levels of government contribute within one programme and strategic goal, was introduced. The process built on an already existing formal pro-gramme classification in the budget and the reform was adopted first in the annual budget law in 2007 and then in the General Law of the National Budget System in 2009. The reform started with a pilot phase in 2007 and has been extended progressively, so that for the fiscal year 2012, budgetary programs based on results encompass 40 % of the Peruvian budget. The official budget documentation does not include information on performance, yet it represents a vital factor in the discussion between the MoEF and sectors and line ministries on sector ceilings and budgetary envelopes. This is expected to increase further as the reform matures. Significant aspect of the reform is the strong steering role of the MoEF which is the main driver of the reform process and is strongly involved in the formulation of budgeta-ry programmes in each line ministry through direct technical assistance. The decision of the MoEF to change the methodology in 2011, mainly due to considerations for transparency and ownership of the programmes, is currently causing a heated debate among the reform stakeholders.

Although it is recognised that reform experiences are country-specific and unique to the particular context,

a number of key success factors are derived from the reform experience of the three partner countries:

1. A well and narrowly defined objective of the reform that is agreed between the main stakeholders.

2. Allocation of the driver of the reform with a strong mandate and sufficient capacity.

3. A gradual implementation approach that includes an incentive structure for line ministries to participate.

4. A time planning that identifies milestones and that ensures that facilitative tools are timely available.

It is also concluded that the sequencing of PFM reform is a crucial issue. The relative more effective reform efforts in Peru are also explained by the higher preparedness of that country for a more advan-ced budget reform such as programme-based budgeting. While the Ministry of Finance in Kenya has been struggling with the introduction of a reliable and integrated financial management information system, progress in Cameroon has been held back by an inappropriate institutional structure for budget reform. For the development advisor, sequencing of PFM reform can not only be regarded from a tech-nocratic point of view. Development advisors will always be in tension between the ambitions of their partner country governments, who are frequently highly ambitious in their efforts to catch up with the OECD public finance practices, and the development aspirations of donors that may underestimate that sustainable PFM reform requires a long breath.

10Introduction

1 Introduction

1 1 Background of the study

Since the early 1990s, governments across the globe have reformed their budgeting methodology by introducing a certain degree of results-orientation. Starting from a number of Anglo-Saxon countries - most notably New Zealand, Canada and the United Kingdom - the trend of shifting the managerial focus from controlling inputs and resources towards more flexibility for achieving better performance and results has now established steady grounds across most OECD countries.

The trend towards results-oriented budgeting has also reached several partner countries of German Development Cooperation (GDC). From a Good Financial Governance (GFG) perspective, these partner countries are confronted with various technical, organisational and other types of challenges while introducing different budget tools for results-orientation.

A particular problem arises from the fact that usually the governments of less developed economies have to deal with serious resource constraints, which impede long-term strategic planning and thus allow only for a short-term focus of the budget. Furthermore, developing countries also have substan-tial setbacks in terms of knowledge and technical capacity, which is often inadequate, both for budget preparation and planning, as well as for execution and systematic monitoring of progress. The lack of reliable control systems can also contribute towards a development, in which a results-orientation in the budget might prove to be less effective in developing countries.

Consequently, for developing countries the decision to engage into a significant budget reform should be taken after a careful discussion on the reform objectives that a country wants to achieve with such reform. Furthermore, a precise examination of whether or not a set of basic pre-conditions is fulfilled, and some potentially beneficial factors are existent must be carried out. Once those issues are covered and a cost-benefit analysis can be conducted, the most appropriate design in the variety of results-based budgeting systems needs to be chosen.

1 2 Study objective

In order to provide adequate advice to these partner countries, GIZ, on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ), has initiated a project to develop an “advisory approach for the introduction of results-oriented budgeting”. The development of this advisory approach has been split into different phases. In a first step, the experience of OECD countries in introducing various kinds of results-oriented budgeting has been captured. The result of this first step is referred to as Study 1 and includes case studies of the United Kingdom and Germany and a draft checklist for development advisors and partner institutions highlighting key issues to be taken into consideration when introducing results-oriented budgeting.

11 Introduction

This report is part of Study 2 which foresees the review and modification of the checklist based on field-testing in selected partner countries of GDC with experience in results-oriented budgeting. The countries Kenya, Cameroon and Peru have been selected for this purpose. This report will provide detailed reports on the reform experience in these countries.

Based on the country experience, the report answers to the following key questions:

1. Is the on-going reform likely to succeed and/or has the reform carried out led to the intended results?

2. How can budget reform be designed to ensure effective implementation given the reform capacities of partner countries?

3. Is the whole reform package necessary or is there an alternative conceivable reform option requiring less capacity?

The case studies will furthermore provide inputs for the revision of the checklist. The revised checklist is presented as Annex 1.

1 3 Conceptualisation of results-oriented budgeting

The case studies are focused on the introduction of results-oriented budgeting. Results-oriented budget ing is an umbrella concept that links the performance of the government in terms of service delivery to the government’s budget cycle. Except for basic line item budgeting, the various budgeting methodologies as shown in Table 1 incorporate some degree of results-orientation. In the remainder of this report, it will be referred to this categorisation to characterize the budget reforms that were studied in the country case studies.

Table 1 Categories of results-oriented budgeting

Main approach Sub-category Features

Line item budgeting

BasicClassic economic classification in combination with administrative classification

AdvancedClassic economic classification in combination with administrative classification complemented with performance information for presentational purposes

Programme budgeting

Basic Change in budget classification from line-items to programmes

AdvancedInclusion of performance information per programme for presentati-onal purposes

Performance budgeting1 IndirectIndirect link between budget allocation and performance (informed by performance information)

Direct Direct link between performance and budget allocations

1 Note that the budget classification is not a defining feature of ‘performance budgeting’. Performance budgeting can be achieved within an economic classification as well as a programme classification (although a programme classification is definitely more suitable).

12Introduction

1 4 Structure of the report

This report is being structured on the basis of the three case studies. Chapter 2, 3 and 4 describe the budget reform processes in, respectively, Kenya, Cameroon and Peru.

Each case study is similarly structured Following a brief description of the budget reform and the country

background (in terms of reference to the macroeconomic development and governance

structures), four sections are differentiated:

� ‘Stakeholders in the reform process’ describing the roles of the various actors in the reform process;

� ‘Implementation of the budget reform’ to describe the practical arrangements and organisational structures that have been set up to implement the reform;

� ‘Technical building blocks of the reform’ describing the consequences of the reform on the various phases of the budget cycle (budgeting, execution, reporting and audit);

� Conclusions on the strengths and weaknesses of the reform approach observed in the country.

Finally, Chapter 5 concludes by answering the three key questions on the basis of the findings from the three case studies.

13 Budget reform in Kenya


2 1 The budget reform in brief

The Kenyan budget reform that started in around 2006 and 20072, and which is still on-going, can be categorised as a move away from ‘basic line item budgeting’ to ‘advanced programme budgeting’. The reform aims to classify the budget in terms of programmes and is referred to by the Kenyan stakehol-ders as the PBB reform (‘programme-based budgeting’). For each Ministry / Vote, the government is in the process of identifying programmes and sub-programmes including programme outcomes. In addition, for each sub-programme, key outputs and performance indicators need to be formulated.

So far, the Kenyan government has not yet introduced a programme classification in the legal bud-get. The legal budget is still based on line items. The programme-based budget is still classified as ‘indicative’. Based on the formal line item budget, the Ministry of Finance in coordination with the line ministries has reclassified the budget allocations into a programme structure. However, this programme- based budget has no formal status and is only used for illustrative purposes. So far, indi-cative programme budgets have been prepared for the fiscal years 2008/09 and 2009/10. At the time of the writing of this report (October 2011), the (indicative) programme-based budgets for the fiscal years 2010/11 and 2011/12 were in the phase of finalisation.

Inspired by international experiences and supported by the IMF and GIZ on behalf of BMZ, the re-form has been initiated by the Budget Supplies Department of the Ministry of Finance. The reform approach has been gradual and has been coordinated by a dedicated PBB Secretariat. There was no pre-determined strategy and/or action plan guiding the implementation. In the first years, most efforts have been devoted to sensitization of Parliament and line ministries. Although Parliament was initial-ly hesitant, it picked up on the reform and formalised the requirement to prepare programmes in the Budget Policy Statement by the Fiscal Management Act endorsed in 2009. In 2011, the Budget Com-mittee of Parliament considered progress in implementation of the reform too slow and required that for the fiscal year 2012/2013 a programme-based budget should be tabled. Although there is consensus on the general idea of moving to a programme-based budgeting among the main stakeholders (Mini-stry of Finance and Parliament), the lack of a fundamental discussion between them leaves the design on certain key elements of the reform, such as the level of appropriation and the role of performance information, unclear.

The reform has, so far, been exclusively focused on budget preparation. The implications of the reform for accounting and (performance) reporting have been largely neglected. As a consequence, the current reform will be unable to reap the benefits of the concept, such as increased accountability and trans-parency in budget execution, in the medium term. On the accounting side, programme-based reporting has not been given priority as the introduction of an integrated financial management and information system has been given more priority.

In principle, the emphasis on budget preparation alone could be regarded as a sensible first step in a larger step-by-step approach to the reform. However, in Kenya no implementation strategy explicating such a step-by-step approach has been formulated. The risk of limiting the reform to budget prepa-

2 No precise starting date was identified.

14Budget reform in Kenya

ration alone for too long is that it may be more difficult to keep the momentum for change and to maintain the commitment of key stakeholders as the practical value of the reform to the finance and planning staff remains limited.

In the case of Kenya, it is questionable whether programme-based budgeting can be given much more priority in the domain of accounting and reporting in the future. The planned devolution of govern-ment finance will draw substantial PFM capacity and resources to capacity development in the decen-tralised country governments leaving, most likely, less capacity for budget reform at central govern-ment.

2 2 Country background information

2.2.1 Macroeconomic developments

Kenya’s economy is nowadays market-based, with a few state-owned infrastructure enterprises, maintaining a liberalized external trade system. The main economic sectors are agriculture and tour-ism. The agricultural sector employs nearly 75 per cent of the country’s labour force and contributes around 24 per cent to the country’s GDP. About one-half of total agricultural output is non-marketed subsistence production. The principal cash crops are tea, horticultural produce, and coffee.

The largest contributor to Kenya’s gross domestic product (GDP) is the service sector which contributes about 63 per cent of GDP. The service sector is dominated by tourism which is the country’s principal source of foreign exchange. Other service sectors that contribute to GDP are financial services, trans-port and information and communication technologies.

The economy’s heavy dependence on agriculture and the tourism sector leaves it vulnerable to cycles of boom and bust. However, despite this vulnerability, Kenya has demonstrated a stable growth record in the last years underpinned by a strong record of macroeconomic policy, structural reforms, a new constitution and a dynamic private sector (World Bank, IMF).

Table 2 key economic indicators

2009/10 2010/2011 2011/2012

National accounts

Real GDP growth 4.1 5.4 5.7

Government Fiscal position

Primary budget balance -3.8 -3.4 -2.7

Total public debt (% of GDP) 44.8 46.9 46.8

Balance of payment

Exports value 25.5 27.8 28.4

Imports value 38.4 44.1 44.3

Overall balance (% of GDP) -5.7 -9.3 -8.3

Source: IMF (2011)

http://en.wikipedia.org/wiki/Kenya

http://en.wikipedia.org/wiki/Market-based

http://en.wikipedia.org/wiki/Tea

http://en.wikipedia.org/wiki/Coffee

http://en.wikipedia.org/wiki/Gross_domestic_product

http://en.wikipedia.org/wiki/Tourism

http://en.wikipedia.org/wiki/Agriculture

http://en.wikipedia.org/wiki/Tourism

http://en.wikipedia.org/wiki/Boom_and_bust


On the social side, the last population census in 2009 recorded Kenya’s population at 38.6 million demonstrating an increase of 35 % over the last decade. Nonetheless, the prevailing macro-economic conditions between 2003 and 2008 helped improve the welfare of Kenyans. Recent analysis of the data from the 2005 to 2006 Kenya Integrated Household Budget Survey (KIHBS) indicates that national absolute poverty declined from 52.3 % in 1997 to 46.1 % in 2005 to 2006. While this decline in poverty compares well with other Sub-Saharan African countries, it can still be considered high in comparison to neighbouring countries such as Tanzania (about 36 %) and Uganda (about 31 %). The country ranks 143 out of 187 countries in the UNDP 2011 Human Development Index.

2.2.2 Government structure

After a liberation struggle, Kenya gained independence in 1963. The country was a de facto one-party state from 1969 until 1982 as the ruling Kenya African National Union (KANU) was the sole legal party in Kenya. Elections in 1992 and 1997 were still marred by violence and fraud, but following fair and peaceful elections a change of power was achieved in December 2002. However, charges of vote rigging during the election in December 2007 unleashed two months of violence in which as many as 1,500 people died and 350,000 were internally displaced. On the basis of a power-sharing accord and follow-ing a referendum, Kenya adopted in August 2010 a new constitution that eliminates the role of the prime minister after the next presidential election to be held in the end of 2012. In addition, the new constitution divides Kenya into 47 counties as semi-autonomous units of governance and determines that at least 15 per cent of the national revenue is allocated to the counties beginning from the fiscal year 2012/2013.

2.2.3 PFM legal framework

The backbone of the legal framework for general public finance management rests with the Constitu-tion, the Government Financial Management Act (GFMA) and the Government Financial Regulations and Procedures. However, as noted by the IMF (2008), this legal framework has a very limited coverage of key areas of government financial management and does not take into account important reforms implemented in recent years.3

“ The Government Financial Management Act of 2004, which assigns responsibility for the Con

soli dated Fund and matters related to public financial management to the Minister of Finance, as

well as ‘Treasury’ responsibilities for public finance management procedures and powers to access

documentation. It assigns responsibilities to Accounting Officers for effective, efficient, economical

and transparent management of monies appropriated to them by Parliament, and establishes the

key offices of Accountant General, Budget Director and Internal Auditor General. The Act focuses on

withdrawals from the Consolidated Fund and payments, but does not cover budget formulation and

hardly covers budget execution processes. Regulations under this Act have not yet been issued and

compliance as well as application of sanctions remain weak” (IMF, 2008).

3 Such as the MTEF, new budgetary classifications, new approaches to internal control and internal audit, the introduction of Finance Officers, the design and on-going roll-out of computerized systems and the production of quarterly budget reports


Since 2008, the legal framework has been complemented with the Fiscal Management Act that was endorsed in 2009. The Act obliges the Government of Kenya to prepare an annual Budget Policy State-ment. In addition, it contains important provisions with regard to the reform towards results-oriented budgeting (see also section 2.4.1). In addition, since 2009, the Budget Circular includes a requirement to prepare an indicative programme-based budget, in addition to the line-item budget.

Guided by the Constitution (2010), the Government of Kenya is currently preparing a draft of a new Public Finance Management Law. It is expected that programme budgeting will to some extent be integrated in the Law.

2 3 Stakeholders in the reform process

2.3.1 Ministry of Finance

Within the Government of Kenya, the initiative for moving towards programme-based budgeting has resided with the Budgetary Supplies Department of the Ministry of Finance. A clear starting point for the reform has not been identified. Initial thoughts for moving towards a programme-based budget seem to have arisen in the year 2006. A number of elements have triggered the interest of the manage-ment of the Budgetary Supplies Department for the concept of programme-based budgeting.

First, staff members gained appreciation of new budgeting concepts during meetings/study visits to other African countries such as South Africa and Mauritius that had already gained experience with results-oriented budgeting.

Second, the reform was in line with previous reforms such as the introduction of the MTEF and the introduction of the GFS 2001 economic classification that were implemented in, respectively, 2001 and 2004.

Third, an IMF mission (Fiscal Affairs Department) reviewed current practices and recommended the move towards a programme-based budget. It laid out a strategy and action plan for the Budgetary Supplies Department to start implementing a programme budgeting approach over the next few years in August 2006.

Fourth, since the peaceful elections in 2002, Kenyan government has made attempts to modify the Constitution. Allegedly, one of the principles in a new Constitution was the recognition that govern-ment governs on behalf of the Kenyan citizens and that government should demonstrate its ‘value for money’. The rhetoric on demonstrating ‘value for money’ has been continued in the new Constitution in 2010.

Looking backwards, no dominant triggering factor can be isolated. It appears to be a mix of factors all pointing in the same direction which was recognized by the Budgetary Supplies Department of the Ministry of Finance. In planning for the implementation of the reform, the Department sought and found support from international donors. Especially, IMF and GIZ on behalf of BMZ supported the process of introducing results-orientation in the budget and have been main stakeholders in the reform process since 2007.


Importantly, although the ‘Strategy for the Revitalization of Public Financial Management System in Kenya’ for the period 2006/07 – 2010/11 makes reference to the introduction of programme and activity-based budgeting, the PBB reform was not driven by this strategic vision on public financial management. The introduction of PBB is mentioned among numerous other reforms in the PFM Reform Strategy. The role of the PFM Reform Secretariat of the Ministry of Finance has been negligible in the PBB reform.

2.3.2 Parliament

The support of Parliament for the introduction of a programme classification in the budget was hesi-tant in the beginning, but, over time, the Parliament can be considered as one of the main drivers of the reform over the years. It needs to be recognised that Parliament is not a homogenous entity and the supportive role of Parliament is driven by a few members.

The hesitation of Parliament in the early years (2006 – 2008) is explained by a lack of knowledge on the content of the reform. The implications of the reform were not clear and among the Parliament members there was fear that the reform could reduce the budgetary powers of the Parliament versus the Executive branch of government.

During this period, the Ministry of Finance has invested time and resources in awareness raising activ-ities to Parliament to enhance its understanding of the reform. The relative slow progress in the early years of the reform (2006-2009) is explained by reference to the need to, first, gain commitment from the main stakeholders, such as Parliament.

Once Parliament understood that the move towards programme budgeting could be linked to the prin-ciple that ‘government should demonstrate its value for money’, the reform gained support from some members of Parliament. Parliament took the initiative for a new piece of legislation, the Fiscal Manage-ment Act (FMA) that was endorsed in 2009. The FMA requires the Government of Kenya to prepare a Budget Policy Statement (BPS) before the budget proposal is laid before Parliament. The BPS would inform the Parliament on the macro-economic fundamentals of the new budget and would present the main government priorities that would be reflected in the budget proposal. Importantly, the FMA prescribes that the government priorities should be formulated on the basis of programmes including objectives, indicators and targets. In this respect, the FMA represents the first legal basis for programme budgeting in Kenya. Article 7(d) states:

“ (the medium term estimates shall include) …the total resources to be allocated to individual

programmes within a sector of Ministry indicating the outputs expected from each such

programme ”.


Parliament has demonstrated its support to programme budgeting in a second and important way. The Budget Committee expressed its support to programme budgeting in its Report on the Budget 2011/2012. The Report noted the lack of progress in implementing the programme classification and it urged the Minister of Finance to present the Budget 2012/ 2013 in terms of programmes.4

It should be noted that for fiscal and budgetary matters the Parliament is supported by the Budget Office. The precise role of the Budget Office in determining the position of Parliament towards pro-gramme budgeting cannot be established. However, it is noteworthy that the Budget Office is headed by a former staff member of the Budget Supplies Department and known to be supportive of the programme-based budget.

Although the above findings indicate that support for the move towards programme-based budgeting is shared by the Ministry of Finance and Parliament, there has not been a good mutual understanding of the final objective of the reform. The lack of a documented government strategy that can rely on the formal Parliamentary approval allows for different interpretations of the reform. Among others, it remains unclear whether Parliament would support replacement of appropriation of line-items by an appropriation on programmes. Neither exists clarity on the perspective of Parliament on the need for performance information and its level (outputs of outcomes).

2.3.3 Donors

The implementation of the programme budget is supported by the main international donors through basket funding of the PFM reform. In addition, two donors – Germany (GIZ on behalf of the BMZ) and the IMF – have provided technical support.

GIZ

In the period 2007-2010, GIZ conducted the bilateral project Support to Public Finance Management Reforms (SPFMR). The overall goal of the support is “to make public finance management more perfor-mance oriented, efficient, transparent and reliable as a critical foundation for government accountabil-ity to the public”. The project focused on long-term advisory service on various aspects ranging from support to gender-based budgeting and the preparation of public expenditure reviews. In addition, the project has supported the conversion from an input-oriented to an output-oriented budget presen-tation. In 2011, the SPFMR was merged with a project to strengthen procurement into the Support to Public Finance Reform Programme (SPFRP) that is envisaged to run until 2016.

The support of GIZ to the conversion to an output-oriented budget is provided in three ways. First, members of the permanent GIZ staff in Kenya have provided direct long-term technical cooperation to the Budgetary Supplies Department. These advisors have played an important role in supporting the preparation of the indicative programme budgets. Second, GIZ has contracted external consultants to prepare building blocks in support of the reform. For example, consultants hired by GIZ have provided inputs to the development of a Chart of Accounts, the programme-based budgeting manual and the

4 At the time of the writing of this report (October 2011), it cannot be predicted whether the Minister will be able to present the Budget 2012-2013 in terms of programmes. However, the Budget Call Circular for the MTEF budget 2012/13 refers to the recommendations of the Budget Committee of Parliament. It notes that “Accounting Officers should note that with effect from FY 2012/13, PBB will be submitted to Parliament alongside the traditional itemized budgets.”


budget preparation software. Also, a GIZ-hired legal expert is advising the Ministry of Finance on the new Public Finance Management Law. Finally, GIZ provides financial contributions to allow the min-istry to conduct certain reform activities, such as trainings and workshops.

IMF

The IMF is advising the Ministry of Finance through its East AFRITAC (East African Technical Assistance Centre) centre based in Tanzania. The support to the PBB reform is less continuous than the GIZ support. However, the IMF has been important in triggering the reform. First, the IMF was driving the preceding reform to introduce the GFS 2001 economic budget classification. Secondly, it formulated an action plan to implement programme-based budgeting in the mission report of the Fiscal Affairs Department in 2006.

The East AFRITAC has paid for a number of trainings, it has given technical advice on a regular basis and it has contributed to the programme-based budgeting manual.

2.3.4 Line ministries

Line ministries in Kenya have participated in the process of preparing the indicative programme budgets, but they have not demonstrated an initiating role in the process. In the preparation of the programme budget, variations in the commitment of line ministries to this process have been observed with some ministries to be more supportive than others to the reform. Generally, line ministries have complied with the instructions of the Ministry of Finance. However, as line ministries gave priority to the development of the line item budget (due to the fact that this is what is legally required), the prepa-rations of the (indicative) programme budgets have faced significant delays.

Three aspects regarding the role of line ministries in the reform process need mentioning. First, within the line ministries, participation in the reform has been restricted to the budget and planning depart-ments. So far, the technical policy departments have not been involved. It is recognised by the Budget-ary Supplies Department that involvement of these departments is necessary in order to formulate programmes that are more strongly based on existing policies. Therefore, there are plans to extend the training programme in the coming year(s) to the technical departments.

Another observation is that the programme structure appears to be one to one related to the admin-istrative structure of the government. At government level, this observation has resulted from the conscious decision not to allow programmes that transcend the ministerial boundaries. It is rightly assumed that cross-ministerial programmes are more difficult to coordinate and should be avoided during the early phases of the reform.

However, within line ministries, it is also observed that each department of the ministry is represented in the programme budget by its own ‘programme’. There has been resistance against programmes that transcend individual departments within the same ministry. This resistance does not originate from a conscious attempt to minimize coordination costs. Instead, this conservative approach to the formu-lation of the programmes is allegedly related to feelings of fear among individual departments as they fear that their line item budget is at stake if they are not recognised by a separate programme in the programme budget.


A final issue to mention is that the preparation of the (indicative) programme budget besides the line item budget has been a ‘double’ effort for the line ministries. As the Ministry of Finance did not possess IT software to transform the line item budget into a programme based budget, the budgetary alloca-tions had to be calculated for each programme separately. Only in the course of 2011, the Ministry of Finance finalised the IT software that enables automatic transformation of the line item budget into a programme-based budget.

2.3.5 Other stakeholders

Other stakeholders in the reform are the Kenyan Audit Office (KENAO) and Civil Society. The role of these actors has been little pronounced. Each of them is following the developments, but neither of them is directly involved in the implementation of the reform.

Although KENAO has been invited to take part in the PBB Secretariat, KENAO has not participated in the meetings. Currently, KENAO is primarily focusing on its role as the financial auditor of the An-nual Report. The PBB reform has not been given priority by KENAO given that the reform has mostly focused on budget preparation. The last financial audit report of KENAO referred to the fiscal year 2009/2010 and was published in May 2011.

The most influential Kenyan non-governmental actor in the domain of public finance management is the Institute of Economic Affairs (IEA). IEA is a civic forum that seeks to promote pluralism of ideas through open, active and informed debate on public policy issues. One of IEA’s programmes aims to promote transparent and participatory engagement of key institutions in public finance management. The priority areas of IEA in this domain are (-) Parliamentary support; (-) Citizen/civil society support; (-) Support to the gender budgeting initiative; and (-) Local authorities support.

The most important role of the IEA in relation to the PBB reform is through the support it has given to Parliament. The IEA has supported Parliament in the preparation of the Fiscal Management Act (FMA). Also, IEA has provided training and support to the Fiscal Analysis and Appropriations Committee (FAAC) and the Budget Office, which is a secretariat that provides technical support to FAAC and other Parliamentary committees in the analysis of the budget. The important role of Parliament in stimula-ting the PBB reform is therefore partly explained by the sensitisation of the IEA to the Parliamentary committees.


2 4 Implementation of the reform

2.4.1 Management of the reform

PBB Secretariat

The reform is led by the PBB Secretariat which is chaired by the Head of the Budget Policy Unit and co-chaired by the Deputy Director Budget of the Ministry of Finance. Most members of the secretari-at are employed by the Budgetary Supplies Department of the Ministry of Finance such as the sector convenors. In addition, GIZ staff serve as advisors to the Secretariat and, therefore, participate in the meetings.

In interviews it was noted that the PBB Secretariat lacks capacity to be fully effective. Although a sufficient number of staff is represented in the Secretariat, capacity shortage occurs as members of the Secretariat need to combine their change management tasks with their existing line duties.

Membership of the PBB Secretariat has also been open to other stakeholders in the domain of Public Finance Management, such as the Treasury and KENAO. Although these institutions have allegedly been invited in the first years of the reform, they have not attended meetings of the secretariat. Related-ly, downstream aspects of PBB, such as monitoring of programme performance, accounting and repor-ting and auditing of performance information have been largely neglected in the process. The causality is not clear. Lack of involvement of both the Treasury and KENAO may explain the one-sided focus on the budget preparation. Vice-versa, it may also be argued that participation of Treasury and KENAO was not required as the focus of the reform has primarily been on budget preparation.

Implementation strategy

Kenya has not taken a ‘big bang’ approach. The PBB Secretariat has opted for a strategy of gradual im-plementation without a timeframe in place. Allegedly, a timeframe for the implementation of the PBB reform has been prepared in the early stages of the reform, but it has never gained formal status and it is widely recognised that it has not guided the implementation in practice.

Allegedly, the approach for implementing the reform was to focus in the first years on awareness raising and sensitisation of the main stakeholders such as Parliament and the line ministries. Ample ef-forts have been invested in trainings. Technical implementation was supposed to be introduced in later stages. Important ingredients of the reform such as the Chart of Accounts, budget preparation software and the programme based budgeting manual were to be all finalized in 2011, five years after the start of the process.

Another characteristic of the implementation strategy is the absence of legal reform at the start of the reform. Apart from the Fiscal Management Act and the Budget Circular, the need for programme bud-geting has not been included in any law or regulation. This choice has affected the commitment of the various stakeholders in the process. As the dominant culture in Kenyan public institutions is legalistic, reference to programme based budget in the law would have increased the status of the reform.

In the absence of a documented government strategy, the ambition of the Government of Kenya with programme-based budgeting is not defined. For example, it is not clear to what extent appropriation by programmes (replacing appropriation by line items) to reduce bureaucratic controls is envisaged in the near future of the reform.


Interaction with line ministries

In the implementation of the reform, line ministries have been required to transform their line item budget

into a programme budget Interaction with line ministries occurs in four ways:

� Sector Working Groups

The Sector Working Group comprises the sector convenor of the Ministry of Finance (usually an officer from the Budgetary Supplies Department) and the line ministries. The output of the Sector Working Groups is the Sector Report. The main elements of this report are: (-) sector objectives, (-) expected sector outputs, (-) programmes to achieve these outputs, (-) how resources will be spent against these programmes to achieve the expected sector outputs.

� Circulars

The requirement for line ministries to present their budget in terms of programmes has been commu-nicated in the Budget Circular. These circulars do also provide detailed guidance to the line ministries regarding the preparation of the PBB.

� Programme Based Budgeting Manual

In order to guide line ministries in preparing their (indicative) programme-based budget and to ensure a consistent approach among the ministries, the Ministry of Finance has prepared a ‘programme based budgeting manual’. The PBB manual was finalised in November 2011.

� Workshops & Trainings

The Ministry of Finance has organised various workshops and trainings for the line ministries to prepare the (indicative) programme-based budgets.

2.4.2 Timing and sequencing of the reform

As noted before, the PBB reform was not driven by this strategic vision on Public Financial Manage-ment. No clear priority is given to the strategy for the introduction of a results-orientation in bud-geting. Nevertheless, the ‘Strategy for the Revitalization of Public Financial Management System in Kenya’ for the period 2006/07 – 2010/11 makes reference to the introduction of programme budgeting. It should be noted that this strategy is formulated at a high level of PFM reform and does not comprise details on the implementation of PBB.

In terms of sequencing, it is important to note that the reform follows logically on two reforms that were

undertaken previously by the Ministry of Finance:

� Medium Term Expenditure Framework since 2001;

� Introduction of the GFS 2001 budget classification since 2005.

On the other hand, the Ministry of Finance engaged itself in the PBB reform while the introduction of the IFMIS system was not yet finalised.

Two other reforms that are crucial for the success of the PBB reform, namely modifying the Chart of Accounts and instalment of budget preparation software, were conducted as part of the PBB reform. The budget preparation software became operational in the end of 2011. At that time, the Chart of


Accounts was also prepared as a draft. Final approval and implementation of the modifications including training of the financial staff was still pending.

GFS 2001 budget classification

Advancing to a programme budget classification seems not logical under circumstances that the eco-nomic classification is not yet aligned to the universal GFS 2001 standard. In 2005, Kenya finalised the implementation of GFS 2001 and paved the way for further modifications in the budget classification.

Medium Term Expenditure Framework

As programmes have mostly a multi-annual nature, programme budgeting requires a medium term perspective to budget planning. Therefore, prior presence of a MTEF methodology in budget preparati-on strongly facilitates the adoption of a programme-based budgeting approach. Kenya already moved to a multi-year perspective in fiscal planning and expenditure policy both in central and line ministries on a sector-wide basis in 2001. Since 2008, the budgeting approach has encompassed the following instruments: Sector Working Groups, Treasury Circulars, Ministerial Expenditure Reviews; Budget Out-look Paper; Medium Term Budget Strategy Paper; and Quarterly Economic and Budgetary Review. In these documents, useful multi-year information is provided on fiscal forecasts, and functional alloca-tion of government resources for recurrent and development expenditures.

IFMIS and accounting

Programme budgeting needs to be complemented with programme reporting encompassing pro-gramme outputs and expenditures. An automated Integrated Financial Management and Information System (IFMIS) strongly facilitates accounting and reporting on the financial performance. In 2011, Kenya still faced significant problems in the implementation of its IFMIS. Despite having launched the development of an Integrated Financial Management System in 1998, the system plays no significant role in the Public Financial Management process within the Kenyan administration.

Triggered by a report of GIZ in 2010, the Government of Kenya has recognised the problems in the application of the IFMIS and has taken a lot of efforts to re-introduce IFMIS: a coordination unit at the Prime Minister’s Office, a dedicated department with an acting Director within the Ministry of Finance and additional allocation of funds for the reform.

Chart of Accounts

To allow reporting on the budget execution in terms of programmes, a Chart of Accounts compatible with the budget classification is required. The Ministry of Finance has presented a draft for the mo-dified Chart of Accounts by the end of 2011. However, its effective implementation, including incor-poration in the IFMIS and training of the accounting officers, is to take place in 2012. Assuming that implementation of the new CoA is successful, accounting information on programme execution can only be generated over the fiscal year 2013/2014.

Budget preparation software

Until 2011, the conversion of the budget allocations in a programme structure was conducted manu-ally. Such was a laborious task that required substantial efforts of line ministries. Since 2011, there is budget software that allows the Ministry of Finance to convert the line item budget allocations automatically into programme based budget allocations.


2.4.3 Financing of the reform

The PBB reform was not cost at the outset of the reform. As no implementation plan has been endorsed at the start of the PBB reform, costing of the reform was not possible. As the reform is being implemen-ted on a gradual basis, the financing of the reform is being considered on an annual basis. The main reform ingredients that require funding are trainings and external advice and have been supported by donor funds. No recurrent software costs have been incurred during the reform.

2.4.4 Capacity development

The approach to reform implementation has been to focus on awareness raising and capacity development in

the first years of the reform implementation Notwithstanding the emphasis on training and capacity develop-

ment in the early years of implementation, some bottlenecks are still outstanding:

� In interviews, it was noted that the PBB Secretariat lacks capacity to be fully effective. Although a sufficient number of staff is represented in the Secretariat, capacity shortage occurs as members of the Secretariat need to combine their change management tasks with their existing line duties. In addition, the meetings are not on a regular basis, but they take place on demand.

� Awareness raising and skills development in line ministries have focused on staff from the budget and planning departments. As mentioned earlier, the technical policy departments have so far not been involved. As technical departments are responsible for preparation of the policies, capacity development in the technical departments is necessary to ensure the link between policies and the programmes in the budget. The issue is recognised by the Budgetary Supplies Department and it has proposed plans to extend the training programme in the coming year(s) to the technical departments.

A significant challenge for capacity development is following out of the new constitution from August 2010. The new constitution divides Kenya into 47 counties as semi-autonomous units of governance. It has been decided that from fiscal year 2012/13, at least 15 per cent of the national revenue is supposed to be spent through the counties. The Ministry of Finance aims to have the County Treasuries managing the county budget on the basis of programmes in the same vein as national government. Although no concrete implementation plan has been prepared, this policy intention will require substantial capacity for capacity development at the level of local government. The risk is that it will divert attention away from the implementation of programme budgeting at national level.


2 5 Technical building blocks of the reform

2.5.1 Budget preparation

The key feature of the budget reform is the development of a programme classification. So far, the programme classification has only been piloted by means of indicative programme budgets. In line with the recommendations of the Budget Committee of Parliament, the programme-based budget will be submitted to Parliament alongside the traditional itemized budgets with effect from the fiscal year 2012/13.

The programme-based budget is presented on the basis of the following three tables. Table 3 shows the programme structure distinguishing main programmes and sub-programmes. The second table shows the programme budget in terms of the economic categories. The third table shows the non-financial information related to the programmes in terms of outputs, indicators and targets.


Table 3 Summary of expenditure by Programme

Programme Approved Estimates Estimates Projected Estimates

Programme 1 (state the name of the programme here)

Sub-programme 1

Sub-programme 2

… N

Total expenditure programme 2


Sub-programme 1

Sub-programme 2

… N

Total expenditure programme 2

Total expenditure of Vote

Table 4 Summary of expenditure by Programme and Economic Classification

Expenditure classification Approved Estimates Estimates Projected Estimates


Current expenditure

Compensation of Employees

Use of Goods and Services

Grants and Transfers

Other Recurrent

Capital Expenditure

Acquisition of Non-financial assets

Capital Transfers

Other Development

Total Expenditure Programme 5

Table 5 Summary of the Programmes, Key Outputs, and Performance Indicators

Programme Delivery Unit Key Outputs Key performance indicators

Target

Name of programme:

Outcome:

Sub-programme 1

Sub-programme 2

…

Sub-programme n

Box 1 shows the main guidelines for the preparation of the Performance Based Budget included in the Budget Call Circular for the 2012/13 – 2014/15 budget.


i

� MDAs are expected to define programmes with clear objectives (which usually refer to out-comes), and linked to outputs, performance indicators and targets. In designing programmes, the structure should match up to the main lines of service delivery in the MDAs. Programme performance indicators should mainly be indicators of programme outputs (services provi-ded) and outcomes (effectiveness),

� Programme performance targets should be specific, measurable, achievable, realistic, and time bound. Targets should be set only for those key performances which are considered reasonably controllable and for which baseline performance has been reliably measured.

� It is emphasized that each programme should be confined within a single MDA and all functions should fall within programmes.

� Within each MDA, internal organizational units (sub-heads) should also match up to specific sub-programmes and programmes, and not be split between them. To ensure there is no duplication of programmes across sectors and MDAs, Treasury will give final approval of programmes, which will thereafter be coded in the Standard Chart of Accounts.

� Accounting Officers should ensure that in designing progra mmes, each and every function or activity undertaken by the MDA is included in relevant programmes. In particular, care should be taken to ensure that:

i. There are no crosscutting activities or functions which are not assigned to respective programmes;

ii. Each programme has a distinctive name that reflects the overall objective of a programme; and

iii. There is no duplication of programme names used by other MDAs.

� In cases where MDAs have more than one programme, a third programme should be created to cater for management and administration overhead costs, which cannot be attributed to only one programme. Such a programme should be confined to common services such as general administration, financial services, accounting, internal audit, procurement, planning services, human resource management and ICT services, which are not programme-specific.

� In preparing the narrative justification portion of the programme budget (context for budget intervention), MDAs are required to include a description of the main services (outputs) provided by the programme, a statement of the programme’s overarching objective, a brief discussion of programme achievements to date, and a brief description of the achievements expected in the next year. A description of important issues, concerns, and summary of implementation plans should also be included.


From the guidelines and the interviews, a number of observations regarding the programme based budget

reform in Kenya can be made:

� Appropriation of the budget will continue to be focused on line items. The programme-based budget is presented alongside the itemized budget for the purpose of information and transparen-cy. The figures included in the first three programme-based budgets were manually retrieved from the line-item budget. It proved to be a laborious task to produce consistent figures between the two budget formats. Since 2011, the budget preparation software is installed to facilitate the transfor-mation from the line-item budget into the programme-based budget.

� The programme structure should remain in line with the existing administrative structure in terms of Ministries, Departments and Agencies (MDAs). In practice, this will avoid the difficulties in coordination among MDAs in programme execution. On the other hand, it narrows the definition of programmes. For example, in the Kenyan context health policy is divided between the Ministry of Public Health and the Ministry of Medical Services. The guidelines impede the formulation of an overall health programme.5

� The accountability of programme execution is primarily focused on the level of outputs. Outcomes are only referred to in the programme objective without any linkage to indicators and targets.

2.5.2 Costing

On paper, the need to cost the programmes is explicitly recognised in the guidelines. In the MTEF Manual, the Performance Based Budgeting Manual and the Budget Circular detailed instructions for costing programs are given.

In practice, budgeting occurs primarily on an incremental basis based on the itemized budget.

2.5.3 Performance information

Availability of performance information

Indicative programme-based budget has been prepared for the fiscal years 2008/09 and 2009/10. In line with the guidelines, for each vote the programmes and sub-programmes are specified in terms of objectives, key outputs and key performance indicators. In August 2011, a manual was published that provides detailed normative guidelines to develop performance information.

It is recognised that some ministries are more advanced in the specification of performance informati-on than other ministries. The following tables provide examples of the performance information pro-posed by the Ministry of Agriculture and the Ministry of Medical Services in the (indicative) programme based budget 2009/10. In line with the guidelines, only output indicators are included. The outcome objectives are not made ‘SMART’ by measurable indicators.6 The tables show that the output indicators proposed by the Ministry of Agriculture are more ‘SMART’ than those proposed by the Ministry of Medical Services. For example, it is not clear how the quality of service delivery by the Ministry of Medical Services will be measured.

5 It is noted that the new constitution requires that the number of ministries will be cut down to 22.6 SMART is acronym for ‘specific’, ‘measurable’, acceptable’, ‘realistic’ and ‘time-specific’ and is widely considered to reflect basic

requirements for the formulation of indicators and their targets.


Table 6 Performance indicators Ministry of Agriculture

Programme Key outputs Key performance indicators

Programme 1 Crop development and managementOutcome: Improved livelihood of the Kenyans through increased agricultural productivity

SP 1.3 Food security initiatives

Community groups funded

575 farmer groups funded to carry out various agricultural activities

48 schools funded to provide community based school meals

SP 1.4 Agricultural extension services

Technology packaged13 appropriate technologies packaged and promoted

Train farmers on new technologies

2.9 million farmers trained / reached

SP 1.5 Agricultural research

Release of crop varieties 2 crop varieties releases (maize and cowpeas)

Vaccines released 3 vaccines tested and released

Table 7 Performance indicators Ministry of Medical Services

Programme Key outputs Key performance indicators

Programme 1: Curative servicesOutcome: Access and Quality Curative and rehabilitative Healthcare

SP 1.2 Technical support

Quality of service delivery Improved quality of service delivery

Access to quality and efficient medical services

Increased proportion of pregnant women delivering in hospitals from 67 % to 75 %

SP 1.4 Standards, research and training services

Reviewed health act Compliance to standards by health care facilities increased

Number of paramedical personnel trained

Paramedical personnel trained

SP 1.5 Referral health services

Quality of service delivery Improved quality of service delivery

Use of Performance Information

The use of performance information is still limited. This is explained by the indicative status of the programme-based budgets and the lack of a programme based annual report that shows the performance of the government against their targets. However, two mechanisms can be identified that demonstrate potential use of the performance information.

The first mechanism runs via the sector working groups. The MTEF methodology refers to the decision on budget allocation to sector working groups as these groups are supposed to select the priority programmes for the sector. Interviewees indicate that sector ministries increasingly compete with each other on the basis of proven performance. The obligatory annual Public Expenditure Review could also be used to report on sector performance by means of the programme indicators. Allegedly, the performance indicators of the programme based budget are already increasingly used to demonstrate (lack of) performance.

The second potential mechanism to use the performance information runs via the Performance


Contracts that are increasingly applied to higher level civil servants by the Ministry of State for Public Service (MSPS). The Performance Contracting in the public service increases the need to objectively measure and account for the duties and responsibilities of Civil Servants at various levels. The perfor-mance indicators at programme level provide an opportunity to review the current Schemes of Service as tools to guide in describing the duties, responsibilities, and job requirements.

2.5.4 Information and reporting system

IFMIS

As described before, the existing IFMIS system contained serious flaws that need to be addressed in order to generate reliable financial information. In 2011, the Ministry of Finance has re-engineered and re-launched the IFMIS system to phase out the current system which was largely manual and disjoint-ed. In the coming years, the Ministry of Finance will need to pay ample attention to ensure that the re-launch will prove effective.

Chart of Accounts

The PBB reform has primarily focused on budget preparation. The downstream part of the budget cycle (budget execution, reporting and auditing) has been largely neglected. In 2011, first steps were taken to develop a Chart of Accounts that would allow the generation of accounting information on programme execution. A draft CoA has been presented. After final approval, the new CoA needs to be integrated in the IFMIS system followed by an extensive training scheme to acquaint accounting officers with the new CoA.

Performance reporting

The IFMIS and CoA are necessary to provide financial information on the execution of the programme budget. Full programme based budgeting requires that also performance information can be reported on an annual basis in line with the budget cycle. So far, the challenge to report on performance has not been addressed.

2.5.5 Internal control

Full programme-based budgeting implies a shift of internal controls in budget execution from input controls to controls on outputs. In theory, program-based budgeting should allow virements to transfer funds across economic categories within the same programme more easily. By a reduction of detailed controls on the budget funds, the technical departments should have more flexibility to achieve on their outputs.

In the Kenyan reform, budget appropriation at programme level is (still) not envisaged.7 Appropria-tion continues to be based on the itemized budget and the internal controls on budget virements are maintained. As there is no implementation plan related to programme based budgeting, it is not clear whether appropriation on programme level is aspired by the Ministry of Finance and/ or the Kenyan Parliament.

7 Although, it might be mentioned in the new PFM Bill.


In its current phase of implementation, the PBB-reform has no implications for the internal control systems that are in place in the Kenyan administration and the internal audit units in the line minis-tries have so far not been involved in the reform.

2.5.6 External audit

Once the Government of Kenya will report on budget execution in both financial and performance terms, it should be considered to extend the mandate of KENAO to include also the audit of the per-formance information. Given the current focus of the PBB reform on budget preparation and that, so far, no attempts have been made to start to report on budget execution in terms of programmes, there has been no need to modify the mandate of KENAO as the Kenyan Supreme Audit Institution.8

2 6 Conclusions

The budget reform involving the introduction of a programme classification in the budget cycle reflects a number of strengths and weaknesses.

The reform reflects the following strengths:

� Clear support by the Parliament is demonstrated by the endorsement of the Fiscal Management Act and the Report on the Budget 2011/12 of the Budget Committee;

� By the establishment of a dedicated PBB Secretariat, clear responsibility is set for the coordination and implementation of the reform;

� The gradual implementation approach has ensured that the speed of implementation is in line with the available resources and capacity;

� The strong emphasis on capacity development and awareness raising has built commitment and understanding of the reform.

At the same time, the reform reflects the following weaknesses:

� The lack of a fundamental discussion and its reflection in an approved government strategy among the main stakeholders (Ministry of Finance and Parliament) has left the political commitment to the reform and its ultimate objectives unclear;

� The lack of pre-defined implementation plan and timeline with formal status did not push the reform forward and allowed for a relative slow reform pace;

� The focus on budget preparation and the neglect of the implications of the reform for accounting and (performance) reporting leaves the reform one-sided that is unable to reap the full benefits of the concept, such as increased accountability and transparency in budget execution, in the short to medium term;

� The introduction of the PBB reform in a context of weak capacity and significant weaknesses in basic elements of a proper public financial management system, such as the dysfunctional IFMIS system raises concerns on the prioritisation of the PBB reform. Partly due to unclear prioritisation, too little capacity has been devoted to the implementation of the PBB reform.

8 In discussions on the role of KENAO in a programme-based budgeting cycle, a frequent misunderstanding is that KENAO should get involved in ‘value for money’ (VfM) audit. However, rather than VfM audit which focuses on economy, efficiency and effectiveness, KENAO should get involved in the audit of performance information (AoPI).


Looking forward to further reform implementation, the following opportunities to advance the reform

have been observed:

� The link of the reform with the Sector Working Groups could be strengthened. The sector working groups seem to be well-placed to assess the formulation of the programmes and to evaluate the sector performance by means of the programmes’ performance indicators;

� The public sector reform to introduce performance contracting provides opportunities to link the programme objectives and indicators to the performance appraisal of the high level public sector managers.

However, several threats to further reform progress have also been observed:

� The lack of a legal basis undermines the commitment to the reform. Given the legalistic culture in Kenya, the upcoming PFM law will need to establish clear and detailed reference to programme based budgeting to ensure future commitment to the reform;

� The devolution of government finance will draw substantial capacity and resources to public financial management capacity development in the decentralised county governments leaving less capacity for budget reform at central government.

33 Budget Reform in Cameroon


3 1 The budget reform in brief

The embrace of a results-oriented budgeting approach in Cameroon should be placed in the context of a wider reform process that started in the beginning of the millennium. The budget reforms are part of a broader process to implement the Government’s long and medium term strategy for Cameroon, the Vision 2035. The Vision 2035 is the foundation for the Growth and Employment Strategy Paper (GESP) which is considered to be the successor of the Poverty Reduction Strategy Paper (PRSP).

In the development of the national strategic agenda, there was consensus among all stakeholders that implementation of the former PRSP failed as the budget insufficiently reflected policy priorities. To ensure a more effective implementation of the new strategies, Cameroon has embraced a move towards performance-based programme in newly generated policy documents that can be logically linked with the programme-based budget. The associated budget reform aims at introducing basic programme budgeting as a first step.

The ambitions for budget reform stemming from the strategic considerations coincided with the need to modernise the public finance laws of 1962 which had become outdated. In December 2007, after a period of extensive consultations with stakeholders from public and private sector and civil society, the National Assembly adopted Law no 2007/006 relating to the Fiscal Regime of the State which codified the reform. The law constitutes a complete overhaul of the 1962 Ordinance by giving more responsi-bilities to line ministries and by enhancing the role of the National Assembly in budget approval and monitoring and evaluation. A Public Finance Modernisation Plan (Plan de modernisation des finances publiques, PFMP) was drawn and adopted in November 2009 to implement the New Fiscal Regime (NFR). The PFMP is monitored by a steering committee, chaired by the Ministry of Finance, made up of all main stakeholders including the National Assembly, the Chamber of Accounts, civil society organisations and international partners.

The new law partially entered into force on 1st January 2008 and has a transition period of five years before it will enter into force in its entirety on 1 January 2013. The reform is officially referred to by its stakeholders as programme budgeting, emphasizing the requirement for line ministries to formu-late detailed programmes measured by performance indicators as the foundation for the justification of their budgetary needs. The five year transition period has not secured careful preparation of pro-gramme-based budgets by line ministries. With the exception of the Ministry of Forestry and Wildlife, which started implementing programme-based budgeting already in 2010 as part of a pilot project, the line ministries are preparing programme budgets for the first time in 2011. One reason for the slow implementation of the reform by line ministries is the dual coordinating structure for budget prepa-ration comprising the Ministry of Finance (responsible for the recurrent budget cycle) and Ministry of Economy and Planning (responsible for capital expenditures). Given the different perspectives of the two entities, the reform has been challenged by unclear guidance to line ministries.

With the approach of the 2013 deadline stipulated in the law, the majority of Cameroonian line ministries are presently in the process of drawing programme budgets, essentially giving the implementation approach a sort of “big-bang” status.

34Budget Reform in Cameroon



Cameroon has a population of about 20 million people and is classified as a lower middle-income coun-try, with average per capita income of 1,140 USD per person. Poverty is widespread with 40 % of the po-pulation living below the poverty line. Poverty is concentrated in rural areas where 55 % of households are poor, with large geographic and socio-economic disparities, compared to 12 % of urban households. The country ranks 150 out of 187 countries on the UNDP 2011 Human Development Index.

The macroeconomic situation is considered stable. Debt relief under the Heavily Indebted Poor Coun-tries (HIPC) Initiative and the Multilateral Debt Relief Initiative helped the country to reduce its debt burden to sustainable levels and thus contributed to stability. General performance, however, is weak and there has been no real growth per capita since 2003.

The economy is vulnerable to exogenous shocks as a result of its dependency to export of oil and oil products. The non-oil trade balance is structurally in deficit and non-oil exports are little diversified and limited to ten main products for several decades. As a result, fluctuations in prices on the oil mar-kets severely hit the macroeconomic performance and have large impacts on Government finances.

Inflation is low and is expected to remain under the regional convergence criterion of 3 per cent. Cameroon is member of the Economic and Monetary Community of Central African States (Com-munauté économique et monétaire des états de l’Afrique central CEMAC) and is obliged to respect a number of economic and monetary criteria with regard to its budget deficit, inflation rate, debt ratio and payment arrears as well as the CEMAC directives in the area of public finance9.


The Republic of Cameroon is a multiparty democracy headed by a President. The current president, Paul Biya, who came into power for the first time in 1982, was re-elected for another term of seven years in October 2011 with a majority of nearly 78 % of votes casted during direct universal suffrage. The president appoints the Prime Minister (Premier Ministre) and, on the proposal of the latter, the other members of Government (Gouvernement).

The legislative power is exercised by the Parliament which consists of two houses: the National Assem-bly and the Senate. The National Assembly comprises 180 members elected by direct and secret univer-sal suffrage for a five-year term of office. The Senate, which was included in the Constitution of 1996, is intended to represent regional and local authorities through a system of indirect universal suffrage and President’s appointments. However, the Senate was not put in place until today.

The 1996 Constitution, which amended the previous Constitution of 1972, equally laid down the principles of decentralisation as part of the political will to enhance regional autonomy. However, sub-sequent implementing legislation was only adopted in mid-2004 and effective implementation is still under way.

The administrative structure is highly fragmented with over 35 different ministries.

9 CEMAC, Directive n°01/11-UEAC-190-CM-22 relative aux Lois de finances dans les pays membres de la CEMAC. The new directives have been adopted on 19 December 2011.



Until 2007, the PFM legal framework was provided by Ordinance no 62/OF/4. The law establishes the principle of separation of the functions of authorising officer and public accountant and prescribes the appropriations and budget execution at the level of line items. The function of authorising officers was designated to the Minister of Finance. During the years the ordinance has been amended several times and completed by other laws such as the decree of 2004 relating to the Public Procurement Code (Code des marches publics).

In 2007 the National Assembly adopted Law no 2007/006 relating to the Fiscal Regime of the State. This law fundamentally revises and modernises the PFM legal framework. It changes the budgeting system from one input-based budget to a results-oriented budget based on the formulation on programme based budget. Besides payment authorisations the law introduces commitment authorisations allowing for commitments up to a period of three years. The function of the authorising officer is extended to heads of government departments. The law allows for transfers of appropriations within programmes, albeit to a limited extent. The accounting principles introduce the principles of financial accounting and costs accounting in addition to the existing budgetary accounting. Finally, the role of Parliament is significantly enhanced.

Given the complexity of the changes, the law provides for a transition period. Therefore, the ordinance of 1962 is still the basis of the PFM legal framework with a number of amendments made by the new law. The ordinance of 1962 will be repealed at 1 January 2013 when the new law will enter into force in its entirety.


3.3.1 Government

The motivation to embrace a results-oriented budgeting approach in Cameroon should be placed in the context of a wider reform process that started at the beginning of the millennium. The finance reforms are thus a part of a broader process to implement the government’s long and medium term strategy for Cameroon, the Vision 2035, which was finalised in 2009. Its general objective is to reverse the trend of slow growth that started in the middle of the 1980s and to catch up with newly emerging states. The Vision 2035 is the foundation for the subsequently formulated successor of the Poverty Reduction Strategy Paper (PRSP), the Growth and Employment Strategy Paper (Document de Stratégie pour la Croissance et l’Emploi GESP) which is the reference framework for government policy action over the period 2010-2020.

Among all stakeholders there is widely shared awareness that implementation of the former PRSP failed as the budget insufficiently reflected policy priorities. Policy objectives were not translated into the budget and responsible authorities were not made accountable for the results of their actions. Therefore specific attention is now paid to formulating performance-based programmes in the new generation of policy documents that can be logically linked with the programme-based budget. This sequence is in line with the Programme Budgeting Manual that states that “the Programme Budgets should reflect the objectives of public policies as defined in the Vision, the GESP and the sector and ministerial strategies.”10

10 MoF, Manuel Budget Programme, p. 27


Within the Government, the budget reform process is led by the Ministry of Finance (MoF) and the Ministry of Economy and Planning (Ministère de l’Economie, du Plan et de l’Aménagement du Terri-toire MINEPAT), the first being responsible for the budget cycle strictu sensu, while the latter coordi-nates planning and programming. The introduction of results-oriented budgeting brings the element of programming into the budget cycle with possible overlaps between the two leading ministries. This situation stems from the fact that the law entrusts the responsibility for the budget preparation and execution to the MoF, so that principally, it is this ministry that has the lead of the introduction of pro-gramme based budgeting. At the same time however, the Ministry of Economy and Planning (MINE-PAT) is responsible for the support to and monitoring of the GESP as well as the subsequent sector and ministerial development strategies. It also carries out the long and mid-term economic forecasts. The overall medium term expenditure framework (Cadre de dépenses à moyen terme MTEF) is made by MINEPAT and MoF together, with MINEPAT in the lead and giving technical support to the line minis-tries in preparing their ministerial MTEFs.

In the present situation MoF is responsible for the current budget and the budget synthesis, while MINEPAT is responsible for the investment budget. While budget programmes logically combine the two and the law allows for transfers of appropriations within programmes, this dichotomy may become troublesome. It may require a redefinition of the respective roles and responsibilities of both ministries but this question has not been addressed yet. At the moment coordination between the two ministries does not seem optimal with MINEPAT trying to defend its authority on the investment budget rather than striving for its integration within the PFM reform.

Another ministry that plays a role in the budgeting process is the Ministry of Public Service and Admin istrative Reform (Ministère de la Fonction Publique et de la Réforme Administrative MINFO-PRA). This ministry is responsible for human resource management (HRM) with regard to civil ser-vants. Costs of personnel should be a logical component of programme budgets and at least part of HRM should be entrusted to programme managers in order to enable them to effectively implement their programmes. At this stage, however, all personnel is included in the ministerial budget under the support function11 while HRM takes place at central level awaiting the outcome of the general reform of the public service.

The introduction of results-oriented budgeting is also part of a broader reform process that not only encloses public finance management but also includes modernisation of the administration and the civil services. Overall coordination is with the Performance Based Administration Modernisation Programme, PROMAGAR, which falls directly under the Prime Minister.

3.3.2 Parliament

The National Assembly fully endorses the reform. This support is logical since results-oriented budget-ing had its starting point in the legislation that was adopted by the National Assembly in 2007. What is more, the law enhances the prerogatives of Parliament significantly. The National Assembly also sup-ports the general GESP framework although it regrets not having been involved in its preparation until the final phase. Parliament equally supports the PFMP, and is involved in its implementation by the membership of the Chairperson of the Finance Commission (Commission des finances) in the PFMP Steering Committee (Comité de Pilotage).

11 MoF, Manuel Budget Programme, p. 58


First, the move towards results-oriented budgeting opens up the opportunity for the Parliament to discuss the budgetary programmes with the respective ministers during debates and thus enhances its amendment rights. Second, budget execution controls are strengthened both during and after the financial year. This is especially the case on the level of the Finance Commission in Parliament that has the right to designate a “general rapporteur for revenue and special rapporteurs in charge of public expenditure and the control of use of public funds, including the use of public development funds12”. These rapporteurs have extensive powers for conducting controls on the spot and organising of hearings.

The NFR does not foresee a direct role of Parliament in the definition of programmes, but the Parlia-ment would like to be more closely associated in the elaboration of the programme objectives. In this respect the NFR states “Voting of expenditure shall be per head, after consideration, in two stages: all the programmes on the one hand and the detailed means per section and per item on the other hand13”.

To fully play its role, Parliament needs qualitative and quantitative reinforcement. In November 2010, a conference was organised by the MoF, the Prime Minister’s Office PROMAGAR and GIZ on behalf of BMZ to familiarise the members of the Finance Commission of Parliament with PBB and to present the experience of the MINFOF in elaborating, as pilot project, programme budgets at MINFOF. At this occasion, the Commission declared the need for more and extended training of this type for members of Parliament as well as civil servants employed by the Finance Commission. It also noted the increase in its tasks where the NFR requires the appraisal of more voluminous documents in a very short time at the time of budget approval as well in the execution of its controlling tasks. In this regard, the Finance Commission re cruited a number of persons as specialised staff in charge of the PFM reform and PBB.

3.3.3 Donors

The dialogue between the Government and the international partners (IPs) takes place in the multi partner-committee, created in 2003 in view of the elaboration and implementation of the PRSP and the HIPC initiative. It rapidly changed in a general platform for dialogue and consultation between the Government and the IPs. Working groups exist on specific topics, such as the Public Finance Sector Committee.

In 2007, the Government created the Platform for Dialogue on Public Finances. Chaired by the Minister of Finance, the platform comprises representatives of the Government, IPs from the multi- donor committee and representatives of civil society. Initial tasks were to make an analysis of the finan-cial management of the state, the organisation of the PEFA and the elaboration of the global reform plan. Today the platform remains involved in donor coordination in the field of public finance, the dialogue with the Government and the monitoring and evaluation of the on-going reforms.

The IPs involved in public finances are GIZ, World Bank, African Development Bank, European Com-mission and IMF, as well as the French cooperation and African Capacity Building Foundation (ACBF). All partners stress the need of reform but they show some reserves as to the speed of implementation. The reforms are seen as positive but should be accompanied by an improvement of good governance.

12 NFR, Section 69.13 NFR, Section 43 (5)


In this domain several projects are on-going or planned, but progress is generally slow as lengthy procedures and decision making by Government and donor agencies cause important delays.

Support of IPs is not specifically aimed at results-oriented budgeting but concerns the broader reform process of which budgeting is an integrated part. In fact, only GIZ specifically assisted in the elaboration of first results-oriented budgeting through its technical cooperation to the Ministry of Forestry, while the European Union accompanied the MoF and MINEPAT regarding the elaboration of Programme Budget Guides and CDMT. This experience of MINFOF serves now as pilot for the present budgeting process, while the German technical cooperation was broadened from reinforcing the financial system of MINFOF to supporting the budget reform through assistance to MINEPAT.

The policy dialogue with the Government is open. In this dialogue the Government of Cameroon takes a strong position and demonstrates its independency. It does not always share the points of view of the IP, which have little power to impose themselves. Official Development Aid (ODA) cannot be used as le-verage in the discussions. In fact, Cameroon is little dependent on international aid with ODA amount-ing to less than 5 per cent of Government revenues and grants.


Line ministries seem to have been little involved in the implementation of the programme budgets until now except the Ministry of Forestry and Wildlife (MINFOF). In 2003, this ministry decided to opt for budget support and started to modernise its procedures and public finance management with the support of German technical cooperation. After having defined its sector programme, the Programme Sectoriel Forêts et Environnement, MINFOF progressed towards programme budgeting, so that in 2010 this ministry prepared as the first and sole ministry a full PBB to be included as an annex to the 2011 public finance law. This operation served as pilot for the introduction and lay out of PBB, which was further developed by the MoF in the course of 2011 and carried out within the ministries with the help of the PPBS (planning, programming, budgeting and monitoring and evaluation) Committees.

In spring 2011 all ministries have participated in updating their priority action plans under the gui-dance of MINEPAT. During these sessions they defined their programmes. In autumn 2011 all minis-tries were required to formulate programme budgets with support of MoF in addition to the regular budget. These programme budgets will be annexed to the 2012 budget as a test for the transition to programme budgeting, which will become effective with the 2013 budget.


On the technical level, the ministries seem supportive of the concept of programme budgeting and the principles of results-based management. Practical problems exist with the costing of programmes since there is limited know-how and experience in carrying out feasibility studies. Therefore many pro-grammes can be expected to show general ideas but to fall short in details and costing. The importance of having the political support of ministers was stressed by the staff, but many ministers had not yet clearly defined their position while the election process was still running.

Guidance from the steering ministries, MOF and MINEPAT, is appreciated, but many line ministries regularly report inconsistencies in the approach and between the different tools. In addition, the budget circular that only was issued in October, when budget preparations were already progressed, indicate substantially lower amounts for investments than foreseen by the MTEF. As a consequence many programme budgets had to be resized downwards.

Special problems were brought up by the Ministry of Health. With the help of UNICEF this ministry has put in place the method of marginal budgeting for bottlenecks. This method is also a results based planning and budgeting tool. The ministry would like to have its experience recognised and integrated in one consistent approach. It is the same for the Ministry of Basic Education and its Administrative Performance Project.


Court of Accounts and Supreme State Audit Office

The external control system in Cameroon displays a mix of the Napoleonic and Westminster models, which has effectively led to the parallel existence of two audit institutions. Similar to the situation with MOF and MINEPAT, tensions as regards responsibilities and oversight of results-oriented budgeting are also visible for those two control organs.

The Supreme Audit Institution is the Court of Accounts (Chambre des Comptes). It is not a fully inde-pendent organ but forms the third bench of the Supreme Court, which also comprises a judicial and an administrative wing. The Court of Accounts, which was established as such in 2006 and is in charge of the control and rule on public accounts, as well as on those of public and semi-public enterprises. Its powers are purely judicial. The Court of Accounts has no audit authority in the domain of manage-ment and performance, which the new financial laws entrust to “the relevant specialised services of the Executive”.14 While the Court of Accounts is fully supportive of the modernisation of the PFM system and participates in the Steering Committee, it sees its role in a different way and states in its 2009 Annual Report that the annual performance reports of the Administration should also be subject to a performance control by this body.

However, given the duality in the external control system, in reality audit functions related to results-oriented budgeting will be assumed by the Supreme State Audit Office (CONSUPE), which is the highest institution for public financial control. It is attached to the Office of the President of the Republic to whom it reports. The organisation controls consistency and performance and carries out audit missions of the management of public administration and public and para-public entities involved in public

14 NFR, section 73


finance management. Like the Court of Accounts, CONSUPE is member of the Steering Committee in charge of the PFM reforms. A revision of the texts relating to its role and functioning is foreseen under axis 7 of the PFMP.

Since the Court of Accounts does not have the mandate to carry out performance and management audits and the CONSUPE is part of the executive, the external control chain is incomplete. In this respect, the IMF Report on Observance of Standards and Codes (ROSC) of 2010 recommends to strengthen the internal and external oversight and to enlarge the mandate of the Court of Accounts to encompass performance audits in addition to its jurisdictional role15.

Civil society

Civil society organisations play an active role in public policy in Cameroon and have been also strongly involved in the process of results-oriented budgeting reforms. A number of them are part of Dyna-mique Citoyenne, a network of NGOs, associations, syndicates and religious organisations. The broad objective of Dynamique Citoyenne is to arrive at an effective implication of civil society in the public debate through the independent monitoring of public policies, cooperation strategies and budget execution. Since 2005 Dynamique Citoyenne elaborates an annual budget evaluation, which it presents and discusses with members of Parliament and the media. A dialogue platform on public finances for CSO with the Government has been established, but the secretariat is with MINEPAT and meetings are sporadic with little documentation. Civil society is thus actively involved in the PFM modernisation process including results-oriented budgeting and it is represented in the Steering Committee. There is a good relationship with the PFMP coordination. It contributed to the elaboration of the “White Book”, aiming at informing the broad public on the on-going reforms and the principles of PBB. Its publica-tion is scheduled later this year.

Some of the main criticism expressed by Dynamique Citoyenne with regard to current, still largely input-based budget, point to the fact that priorities laid down in the GESP are not taken into account and there are large discrepancies between the statements of the Government and their translation in budgetary terms. Thus the organization is supportive of the programme structure as it sees it as a tool to change the existing deficiencies. Specific attention is placed on the aspect of accountability. In this respect the enhanced role of the National Assembly and the Court of Accounts is positively appraised.



The PRM reform programme is managed by the PFM Reforms Steering Committee. It is chaired by the Minister of Finance and composed of representatives of the Offices of the President and the Prime Minister, the Court of Accounts, CONSUPE, a number of line ministries, the Finance Commission of the National Assembly and the operational divisions of MINEPAT.

Day to day management is done by the Technical Secretariat headed by a Coordinator. He falls under the authority of the General Directorate of Budget and gets assistance from the Reform Division. He is responsible for the coordination of the preparation, implementation and monitoring of the

15 IMF: Report on Observance of Standards and Codes (ROSC)-Fiscal Transparency Module.


implementation of the reforms and for helping the other government structures with the implementa-tion of the reforms.

To assure the coordination with the other on-going reforms, the coordination unit of PROMAGAR, the Technical Committee of monitoring of the Economic Programmes and the Permanent Secretary of the Administrative Reform are also represented in the Steering Committee.

Main responsibility for the implementation of the finance law has the Ministry of Finance. This should be done in close cooperation with the Ministry of Economy and Planning (MINEPAT) as both ministries have shared responsibilities in the budget process as mentioned before. In practice, there are sometimes inconsistencies in the approach of both ministries, as well as sometimes between different departments within the same ministry. Illustrative is the existence of the two different manuals for programme bud-geting and MTEF that are under the responsibility of two different ministries. PROMOGAR is currently developing a “Plan d’Action d’implémentation de la Gestion axée sur les Résultats” while MINEPAT and MOF are engaged in harmonising the different guides regarding the PPBS chain.

The PFMP for the implementation of the reforms was elaborated by the Steering Committee for the Reform of Public Finances, which is composed of the Presidency, the Prime Minister’s services, CON-SUPE, some line ministries, the Finance Commission of the National Assembly and the operational divisions of MOF and MINEPAT. The plan is comprised of a strategy spread over ten axes including a detailed time frame until 2012 with a number of activities planned for 2013 and beyond.

Coordination with other stakeholders takes place in the Steering Committee of the Dialogue Plat-form, a body for consultation between the Cameroonian Authorities, the international partners of the multi-partner committee and representatives of civil society. This committee was created on decision of the prime minster in 2007. It is chaired by the Minister of Finance and includes representatives of the Cameroonian authorities, the international partners from the multi-donor committee and representa-tives of civil society.


After a number of individual reforms between 1999 and 2005, the adoption of the New Financial Regime constituted a complete overhaul of the PFM system. The new law is intended as rupture with the old practice of input budgeting by orienting the PFM system towards public policies and results-oriented budgeting. As such, the introduction of a programme based structure in the budget is at the centre of the PFM reforms. It has to be underlined that unlike other countries, where PFM reforms led to subsequent modifications of the finance laws, the PFMP in Cameroon is part of the operationalisa-tion of the law.

The law on the New Fiscal Regime of the State entered into force partially on 1 January 2008. It stipu-lates a transitional period until 1 January 2013 for a number of elements among which the introduction of programme budgets. With regard to the latter the law foresees that the 2012 Finance Law would include an annex with the programme-based budget on an experimental basis.

The intention of the transitional period was to allow for a gradual introduction of the budget reform. In practice, drawing the PFMP, establishing its institutional set-up and preparing the necessary tools and capacity development activities used a large part of the time available in the transitional period. In fact,


only the Ministry of Forestry and Wildlife, with technical cooperation of GIZ, started effectively with its programme budget before the 2013 deadline and therefore served as a pilot for MOF and MINEPAT (see 3.3.4). As a consequence, the general obligation to come up with programme budget to be annexed to the regular 2012 budget law proposal got the character of a sort of big bang approach. This was recogni-sed during the interviews but not seen as a disadvantage. The big bang character of the global introduc-tion created momentum and a sense of urgency that permitted to concentrate the energy on effective implementation instead of endless discussions.

Most interviewees were convinced that the deadline of presenting the first programme budget would be met. However, the process only accelerated with the deadline approaching but quality of proposals submitted by line ministries reportedly varied. In 2012 a lot of fine tuning will be necessary to enhance quality of the programme budgets to acceptable levels.

In the past, budget appropriations for investment programmes were made based on rough costs esti-mates with detailed budgeting being done once permission to execute was given. Detailed costing often was included in the tender dossiers. PBB requires another approach according to which detailed costing should be done prior to submission of the proposal. For the 2012 experimental budget this was not yet systematically done.


The PFMP is accompanied by a detailed budget of direct costs. However, there is no indication of funding sources and the plan does not make clear whether funding has been secured.

Activities aiming at the introduction of results-oriented budgeting are an integrated part of the overall PFM reforms and therefore their specific costs cannot be distinguished.

Total costs amount to 52.8 billion FCFA (80.4 million EURO) starting in 2009. The most expensive actions are related to information technology which accounts for 33 % of total costs (Axis 9 “Informa-tion systems”). However, given that other axes also include components for computerisation, the cost for computerisation and information systems exceeds 40 % of the total budget.

Adaptation of the institutional framework and capacity development (Axis 10 “Institutional framework and capacity-building”) only accounts for 5 % of the total costs, but several actions under other axis include capacity development elements ,such as the formulation of sector strategies and Priority Action Plans or the elaboration of manuals under axis 1.

The PFMP does not take into account costs for additional staffing needed in line ministries, the National Assembly or the Court of Accounts.



The PFMP takes capacity development into account in the seven thematic axes and the cross cutting axis on capacity development. At the level of the PFMP, costs of all actions have been estimated. From the documents it is not clear which part of funding is assured. Given the preparedness of the donors and the availability of donor funds it may be expected that most funding can be assured. However, additional funding may be necessary in line ministries or other institutions like the National Assembly, the Court of Accounts or CONSUPE.

Capacity in the line ministries needs to be strengthened, especially with regard to programme prepara-tion. In many ministries budgeting is done in the Directorate of General Affairs which is also in charge of budget execution. They do not always have special departments in charge of planning and pro-gramming. Planning and programming capacities are insufficient and should be enhanced including techniques and methodologies such as logical framework construction and cost-benefit analyses.

The reform process is in the stage of budget preparation including the definition of performance indicators. Neither monitoring and evaluation units for the budget and performance reporting nor the capacities to develop and use such systems are in place yet. There is also no overview of the feasibility of indicators measuring capacity development.

The changes needed to go well beyond the introduction and implementation of a number of technical tools. Results-based management implies more handling authority to enable staff to assume its respon-sibilities and a cultural change with other working attitudes and proper incentives to motivate staff in line with the new approach. Tasks and functions need to be adapted to the new programme based environment. However, considering the implications for the organisation and the distribution of tasks has not yet started in the line ministries.


3.5.1 Process of budget classification

The present budget classification was made in 2003 in line with international standards. It comprises of an economic, administrative and functional classification.

The NFR changes the budget classification by adding programmes and actions. Subsequently the fol-lowing classification is used: head, section, programme, action, item and sub-head16, the latter corre-sponding to the economic classification. Appropriations will be made by programme and will be broken down by actions, items and sub-heads. They will be provided according to items17.

16 Law no 2007/006 of 26 December 2007, section 9 (2)17 Ibidem, section 10


The law defines programmes and actions at the level of a ministry18. This facilitates the classification and the adaptation of the Chart of Accounts as the existing classification is not changed but simply extended by two new codes corresponding to the programme and actions. However, it does not address the possibility of interministerial programmes and actions and the Programme Budgeting Manual explicitly states that the law excludes the possibility of crosscutting programmes19.

The reclassification of the budget according to programmes and actions is done by the line ministries under the overall supervision of MOF and MINEPAT for the first time in 2012 and mainly consists of extending the existing classification with a code for programmes and actions respectively.

The budget classification should have its pendant in the Chart of Accounts. The department of public accounting is aware of this but declared that the necessary modifications, already foreseen in the frame work of IFMIS, were not yet being made. In fact, priority is given to the preparation of the finan-cial accounting relating to public assets, which is another new element in public accounting introduced by the NRF.

3.5.2 Budget format

The new budget will be based on programmes. According to section18 of the NFR, the finance law of the year will comprise two distinct parts.

Part I of the annual financial law will include:

� Authorisation for the collection of State resources and sundry taxes levied on corporate bodies other than the State;

� Provisions relating to State resources which impact budgetary balance;

� All provisions relating to the revenue allocations;

� The assessment of the budgetary resources;

� Ceilings of expenditures of the general budget and each annex budget as well as those of each category of special accounts;

� The general data of the budget, presented in table form;

� Authorisations relating to State loans and cash situation;

� Provision relating to the basis of assessment, rate and collection methods of sundry taxes.

Part II will include:

� The amounts of authorised commitments and payment appropriations for the general budget, the programmes that contribute to the attainment of the objectives, including the indicators;

� The amounts of authorised commitments and payment appropriations for the general budget per head and per sub-head;

� Per annex budget and per special account the amount of authorised commitments and payment appropriations provided of overdrafts authorised;

18 NFR, section 9 (1)19 Manuel Budget Programme, p.44


� The ceilings for carrying forward for the general budget, annex budgets and special accounts;

� Authorisation for granting of State guarantees and outline of their regimes;

� Authorisation for the State to assume third-party debts and to constitute any other commitment corresponding to a unilateral acknowledgement of debt.

Through the first bullet under Part II Parliament indirectly gets a say in the approval of programmes. To this effect the law enumerates a list of documents to be appended to the annual finance bill which includes, among others, (i) an appendix presenting State expenses by function, programme and objec-tive, with related performance indicators and (ii) an explanatory appendix developing for each head the investment expenditure and current expenditure for the two previous years, the current year and the year under consideration, by programme with functional sections and, for each of them, the state of consumptions of the commitment authorisation from the original of each programme and credit consumption projections for the current year and the year under consideration per budget sub-head20.

The terms of the law have been translated into the following instructions for the budget preparation. Expenditures have to be specified by programme and item:

Table 8: Investment and current expenditures by programme and item

Item TotalInvestment expenditures

Curent expenditures

Total item

CA PA CA PA CA PA CA PA

Function

Programme

Item

Total

Legend: CA = Commitment appropriations; PA -= Payment Appropriations

Further, the finance law should specify the programmes per objective and indicator, leading to the following format to be filled during budget preparations:

Table 9: State expenditures by function, programme and objective with performance indicators

Function and programme Objective Indicator CA PA

Function

Programme

Action

Total

20 NFR, section 36


The budget dichotomy raises a number of questions. At present the Ministry of Finance is responsible for the overall budget and for the current expenditure, while MINEPAT is responsible for the invest-ment budget. This distinction between a recurrent and an investment budget becomes less obvious in case of programme budgeting. Results-oriented budgeting should entail some degree of flexibility to programme managers to respond to changes in circumstances. The law indeed authorises ministries to transfer appropriations within programmes up to a certain ceiling (section 53). There is no restriction for categories of expenditures except for staff emoluments that may not be transferred. This implies that the present method of ex-ante controls by sub-head and expenditure category should be revised and should shift to the level of programmes. This work has not started yet and it seems that the main actors realise this consequence at the moment.

Until now the budget is mainly input based and incremental (with specific allocations calculated from the ones of the previous year). The first central MTEF was made in 2006; ministerial MTEFs followed in subsequent years. The MTEFs cover a period of three years and are not binding. Most ministries have a MTEF but quality and practicability vary. Major deficiencies mentioned in the MTEF manual are following: not taking into account budgetary constraints, exclusion of operational costs, introduction of immature project ideas and only rough costs estimate of programmes. These deficiencies negatively affect the role MTEFs play in budget preparation. Moreover, the two latter deficiencies have been men-tioned before as domains where capacity development is necessary.

The new programme budgets also have a time horizon of several years. On average a three-year period is assumed, being the period for which commitment authorisations can be made. Logically this should coincide with the MTEF. This is not yet the case and the method of elaboration is different. The MTEF is input-based and derived from the previous annual budget while the programme budget is based on cost estimates of programmes and the corresponding priority action plans. Since the MTEF is not yet broken down by programme and actions, comparisons are difficult.

Today, the different tools coexist and are not always consistent as explained in section 3.3.1. MOF, MINEPAT and PROMAGAR which is attached to the Prime Minister’s Office, are working on a con-solidated manual that should integrate the different budget planning tools in a consistent way.

3.5.3 Costing

Estimating the costs of the programmes is a difficult element of the new approach. The programmes being part of sector and ministerial strategies are accompanied by rough estimates but not at the level required for the programme based budgets. Several ministries indicated that there is little know-how or experience in carrying out feasibility studies or conceiving logical frameworks. There is a clear need to reinforce this expertise as it is required for the new budgeting approach. For the ministries it is also important because the quality of the programmes including its costs will affect the budget discussions between MOF and the line ministries.



Availability

According to the law all programmes should include indicators to measure the outcomes in the reali-sation of the objectives21. This is work in progress as programmes and their specification in objectives, outputs, and activities are still in preparation. The methodology chosen in the programme budgeting manual is the logical framework approach which determines the objectives, indicators, goals actions and activities resulting in output, outcomes and impact. In practice, many programmes were defined in terms of objectives mainly and ministerial staff struggled with translating them into actions and activi-ties as well as formulating the corresponding indicators.

To keep the programme budgets manageable and transparent, instructions are given as to the number of programmes, objectives and indicators. In this respect the manual limits the number of objectives to one or two, with one indicator per objective.

In principle the definition of programme indicators should be in line with the broad programmes and indicators as laid down in the GESP. The Action Plan 2012 includes reviewing all sector strategies in relation to the GESP and obtaining indicators linked to the GESP for all programmes. This has not yet been done everywhere and there are delays in the operationalization of the GESP in sector and subsec-tor strategies and plans that subsequently have their repercussions on the programme budgets.

The necessary monitoring and evaluation of the programme budgets and corresponding reporting systems are not yet in place and some ministries note a lack of capacities to use such a tool. The PFMP has planned sending a circular and elaborating a manual on the administrative and technical proce-dures of monitoring and evaluation in the year 2012. It is the intention to merge the monitoring of the GESP with the monitoring of programme budgets and the performance monitoring.

Use of Performance Information

Performance information will be used to assess progress in implementing programmes and achieving public policy objectives. Government services should prepare annual performance reports that will ac-company the draft budget review law. This law and its appendices are due not later than 30 September of the year following the financial year to which it is related. The law itself will “record the disparities in the implementation of programmes on the basis of the targets of corresponding indicators” (section 20 (2) (iv)).

The law does not establish a direct link between results and funding. It is a general feeling that degree or maturity of the programmes will play an important role in discussions with MOF and Parliament at the start, while in coming years actual performance may add to the arguments.

21 NFR, section 18 (3) (i)



Several financial management information systems coexist. To integrate the different systems a master plan is under preparation. It was scheduled to be published in December 2011.

The existing software of MOF has been adapted in the course of 2011 in line with the New Financial Regime and the budgets are being made using this new software. The line ministries got access to the new applications during the month of October 2011.

Reporting systems are to be developed yet. Adaptation of accounting instructions and manuals was planned in the PFMP to be done in 2011, but has been postponed as the emphasis was put on the bud-geting. This is the same as the review of the rules and legislation relating to the Court of Accounts and the CONSUPE.

The format of the review law and its appendices will also change according to the NFR. The PFMP plans the review of the format of the review law in 2012 and beyond. There is no format yet for the annual performance reports that will be part of the review.

In addition to the annual documentation, the law obliges the Government to submit to Parliament written information on the mid-term execution of the State budget at the latest at 30 September of the current year.


The modernisation of the PFM legal framework accomplished by the Law no 2007/006 relating to the Fiscal Regime of the State also alters the internal control structure in Cameroon. Besides introducing commitment controls (which are unrelated to the move towards programme budgeting), the law also allows for transfers of appropriations within programmes, albeit to a limited extent. The latter provi-sion, which is in line with the theory of programme-based budgeting, will provide more flexibility to ministries to achieve the outputs of their programmes. Full budget appropriation at programme level is (still) not envisaged.

Ex post internal controls consists of three layers: ministerial inspections, the Directorate of Control of Budgetary Operations (Direction du contrôle des opérations budgétaires DCOB) which depends on the Ministry of Finance and CONSUPE. The ministerial inspections, according to the PEFA report of 2008, generally do not have practical manuals or procedures and clear annual programmes. Their interven-tions are generally limited to ad hoc inspections, using the larger share of their means while reports are not disseminated and mainly addressed to the direct hierarchy.

DCOB and CONSUPE are more effective controlling bodies. DCOB reports to the General Director of Budget. Its interventions cover all ministerial departments. Management and performance audits are entrusted to CONSUPE that reports directly to the President of the Republic.



The Court of Accounts is in charge of external audits of the public accounts. For the moment, it is entitled to conformity audits only. It pleads for an enlargement of its role to management and per-formance audits but this is not the case until now. Control mechanisms have to be adapted as well. The new law makes it possible to base appropriations on programmes. As a consequence, the extensive ex ante control mechanisms should be revised to reflect this flexibility. The revision of the regulations of the Court of Accounts, and related to it those of CONSUPE, is planned but did not start yet. Since CONSUPE is part of the executive, provisions for external audit on the performance are not there.

Besides the Court of Accounts, the new law provides the Assembly National through its Finance Commission with extended powers to effectuate parliamentary control on the budget execution.

3 6 Conclusions

A number of strengths oregarding the reform process of implementing a results-oriented budgeting approach

can be identified in Cameroon:

� The new law marked a clear starting point for the PFM reform programme and provides the necessary legal framework;

� A comprehensive PFM reform programme is in place with a clear institutional set -up, including a Steering Committee composed of all key stakeholders;

� The law provided for a transitional period, with changes to be implemented gradually. The law also gave a clear timeframe for the completion of implementation;

� The budgeting reform is seen as a part of a holistic approach towards improving results-orientation and policy priority achievements throughout the Cameroonian Government.

At the same time, the reform also displays several weaknesses:

� The responsibility for budgeting is divided over, on the one hand, MOF for the recurrent budget and the programme based tool while, on the other hand, MINEPAT is responsible for the Invest-ment budget and the MTEF tool. This separation of the budget responsibility leads to frictions and inconsistencies in the implementation of the PBB reform;

� There is little sensitization and involvement of line ministries in the reform process;

� Although the law allowed for a gradual introduction, the first years of the transitional period were mainly used for defining the PFMP, putting in place the institutional context and preparing the necessary accompanying measures in the field of capacity development. This has greatly reduced actual implementation by line ministries;

� The reform focuses on budget preparation and gives very little attention to ‘downstream’ aspects of the budget cycle (execution, reporting and audit).


Considering the next steps with regard to reform implementation, following opportunities emerge:

� The approaching deadline for submission of program budgets and the involvement of all line ministries in the new process of programme budgeting for 2011 can offer a new momentum to the reform and speed up the process;

� There is a clear understanding of the role of Parliament for budget scrutiny, albeit some con-fusion persists on the functions of Parliament with regard to formulation of programmes. Fur-ther en hancement of the capacities of Parliament in relation to results-oriented budgeting could strengthen the reform.

However, several imminent threats to the on-going reform processes persist;dealing with them will be of cru-

cial importance for future implementation:

� Capacity development concentrates on planning and budgeting. There is little attention for organisational and cultural changes that will be necessary to make the reforms effective;

� Performance information for budgetary purposes are not always in line with broad programmes and indicators as laid down in the GESP. There are also delays in the operationalisation of the GESP in sector and subsector strategies. This leads to a weak link between broad strategic planning and the budgeting process.

51 Budget reform in Peru


4 1 The reform in brief

The results-oriented budgeting reform in Peru started in 2007. It builds on an existing programme classification in the budget, which is used for presentational purposes only. The reform is referred to by its main stakeholders as “Budgeting for Results” (Presupuesto por Resultados). It was initiated and driven by the Peruvian Ministry of Economy and Finance (MoEF) and also received viable impulses from the civil society and from the Peruvian Congress, which contributed towards the early adoption of the reform in the General Law on the National Budget System.

A few factors can be named as essential for the decision to move towards a results-oriented budgeting approach in Peru. Most importantly, the main aim of the reform was to close pending gaps between budget preparation and strategic planning which were leading to underachievement in poverty and inequality reduction despite continuous economic growth. Secondly, the reform was initiated after the change of government in 2006 and was perceived as a tool for the new ruling party to distinguish itself from its predecessors by making efforts towards achieving development goals more visible. On top of that, the reform was driven by a sort of avant-garde group within MoEF which was highly dedicated to the process. Finally, Peru had been experimenting with participatory budgeting approaches since the early 2000s. As a result, there was a strong position of civil society organizations, which were exercising pressure on government to better address core priority areas such as neo-maternal health and edu-cation.

The reform originally used a methodology for different public entities at different levels of government to cooperate within the framework of a single strategic budgetary programme. This meant that different actors had to coordinate their strategies with each other as they were contributing towards the same strategic goals at the national level. While this approach succeeded in bridging the gap bet-ween strategic planning and budget spending, it had implications for transparency, responsibility and ownership of the budgetary programmes. Therefore, notwithstanding substantial debates and resistance from some line ministries, the approach changed in 2011. Currently, the structure of pro-grams mimics the administrative structure of the Government of Peru so that each entity is responsible for its own budgetary programme, while in the same time the high-level outcomes of those can be the same for multiple public units. It has to be noted that the methodological change was also undertaken to extend the results-based budgeting approach to a larger number of public entities in the framework.

The reform is characterized by an incremental implementation approach. It started with a pilot phase that included five areas and was extended every year. Currently, budgetary programmes based on re-sults encompass 40 % of the Peruvian budget. While the official budget documentation does not include information on performance, and the Congress does not display much interest in exercising budget control on this basis, programme performance represents a vital factor in the discussion between the MoEF and sectoral line ministries on sector ceilings and budgetary envelopes. This is expected to increase further with the maturity of the reform and the growing improvement in the quality of per-formance information. Therefore, the reform process in Peru can be characterized as basic programme budgeting for the part of the budget which is not yet encompassed under the results-oriented frame-work, and as advanced programme budgeting for the rest, with some indications that with further progress and expansion, it may move towards basic performance budgeting in the future.

52Budget reform in Peru



Peru has experienced an impressive economic growth in the last decade, which averages at around 7 % annually, owing mainly to expansions in the construction and mining sectors. Growth remained posi-tive at 0.9 % of GDP even at the height of the global economic and financial crisis, recovering quickly to 10.4 % of GDP in 2010. Current forecasts of Peru’s National Bank for 2011 indicate an expected growth of 6.3 %, with slowdown explained mainly through the dependency of the Peruvian economy on market performance in the USA, as well as through some temporary averse reactions of business to the election of left-wing president Ollanta Humala in June 2011. Inflation has been low in the years 2002 – 2006 at about 2 % annually. In 2008, it reached a high of 6.7 % due to globally growing food and oil prices, and for 2011 annual inflation is predicted to reach 3.35 %22.

Social indicators have- to some extent- responded in line with the favourable macroeconomic con-ditions. The country ranks 80 on the Human Development Index for 2011, out of 187 countries. Abso lute poverty rate as measured by a poverty line of USD 2 a day was estimated to be 48.6 % of the total population in 2004. In the next five years, it declined by about 13 % to reach 34.8 % in 2009 and decreased further on to currently 31.3 % in 2010 (INEI). The Gini coefficient that measures inequality also shows a decline and is currently 0.49, which indicates an improvement of 4.6 percentage points between 1997 and 2009 in terms of income distribution (Lustig et. Al, 2011). However, inequality still remains very high in rural areas, and it is also characterized by gender disparities.


The head of Government in Peru is the President, who is being elected every five years and cannot run for re-election in two consecutive terms. As mentioned in the previous section, the latest elections were in June 2011, and led to the win of Ollanta Humala from Gana Peru, a left-wing political alliance around the Peruvian Nationalist Party, against his right-wing opponent Keiko Fujimori. In July, Humala succeeded on the post Alan Garcia from APRA, a centre-left party. The President appoints the Prime Minister, and upon his suggestion designates the remaining members of Cabinet. The legislative power is assumed by a one-cameral Congress, which consists of 120 members.

As of 2002, Peru has been having a decentralized governmental structure, with 25 regions, each having an elected sub-national government, headed by a president. They are responsible for regional develop-ment, public investment, as well as management of public property. Each region is divided into provin-ces and districts that form the local government level. In total, there are 1834 districts.

22 All data quoted from Peru National Statistical Institute- INEI.



The legal framework that regulates the Peruvian public finance management system is considered to be sound in that all vital aspects of the system such as taxation, public debt, procurement systems, budget process and oversight are covered by respective legal norms (PEFA 2009). The Law on the Framework for Public Sector Financial Management23 defines the basic norms, systems, organization and responsi-bilities within the public administration, which refer to financial management.

The budget process is regulated by the General Law on the National Budget System 200524, which represents the organic budget law of the country. As of 08.12.2009, a Chapter 4 has been included in General Law, which introduces the relevant regulations regarding results-based budgeting (Presupuesto por Resultados, PpR). Article 79 includes the overall dispositions regarding PpR, such as its objectives and approach. Progressively, Chapter 4 has been modified and extended and now includes five additional articles, which further specify PpR dispositions.

Art. 80 regulates the possibilities for changing allocation of resources to and between programmes in-cluded in the PpR. Art 81 establishes the monitoring and evaluation frameworks for PpR, while Art. 82 specifies the responsibilities of the Ministry of Economy and Finance (MEF) and the line ministries in the budget process as far as it is related to PpR, and also points out to the oversight role of the National Audit Office (Contraloría General, CG). Art. 83 regulates the budget execution process in particular with regard to in-year reporting of progress on the programs, while Art. 84 finally establishes the National Statistical Institute (Instituto Nacional de Estadística e Informática, INEI) as the responsible organ for generating such performance information on PpR, which cannot be produced by the involved entities themselves.

Since the inclusion of PpR in the General Law on the National Budget System, its emphasis in the Annual Budget Law varies as the annual Budget Laws have contained different dispositions regarding the PpR reform. This was part of the institutionalization strategy of the PpR reform.

4.2.4 Origins of results-oriented budgeting

Initial moves towards restructuring of the budget process towards greater visibility of actions and achievements can be traced back already to the early 2000s, with the introduction of the participative budgeting approach (Presupuesto Participativo, PP), as well as with the advancement of the decen-tralization process in the country. On its part, PP contributed to the identification of priority projects within policy areas of public interest. In the same time, in the course of the decentralization process, it was required from regional governments to coordinate in the elaboration of regional development plans, and the Annual Budget Law of 2003 explicitly referred to considerations and lessons learnt for the budget based on those plans.

An important step was undertaken in 2002 with the launch of the Administrative Agreements for Results (Convenios de Administración por Resultados, CAR), which represented an agreement between MoEF and the public entities for the achievement of specific results at the institutional level, the fulfillment of which led to the distribution of financial bonuses within the entity. However, the

23 Ley Marco de la Administración Financiera del Sector Público, Ley Nº 28112, 27.11.2003.24 Ley General del Sistema Nacional de Presupuesto, LEY Nº 28411, 01.01.2005.


experience made showed that targets were often set too low due to pending issues of asymmetric infor-mation provided to MoEF and to weak capacities to monitor actual achievement. In addition, there was an erosion in the amount of bonuses granted, which reduced incentives to cooperate. Therefore, CAR was terminated in 2006.

In 2006, a list of 11 priority activities in relation to early childhood and health was identified in a broad coordination process between the Government, the Congress and civil society organizations, in parti-cular the Round Table for Poverty Reduction (Mesa de Concertación para la Lucha contra la Pobreza- MCLCP). Those priority activities were also included in the 2006 Annual Budget Law, with a commit-ment to attribute higher supplementary budget appropriations for their achievement.


4.3.1 Ministry of Economy and Finance

The great impulse for the PpR reform was given with the change of Government in 2006. The initiative to move from input-based budgeting towards a more results-driven budget process can be clearly at-tributed to the MoEF. The new government wanted to highlight and improve the relationship between the on-going economic growth process and the increases in public spending on the one side, and the reduction of poverty rates in the country on the other side. Driven by a desire to demonstrate the effi-ciency and effectiveness of public spending and to establish clear criteria according to which to justify budget appropriations, MoEF (in particular the National Public Budget Directorate / Dirección Gene-ral de Presupuesto Publico (DGPP)), took the decision to embrace a move towards a more structured results-oriented budgeting approach25.

A crucial element behind the rationale of MoEF to introduce results-oriented budgeting was the need to address and overcome the substantial shortcomings in the medium- and long-term strate-gic planning process in Peru. There were several types of strategic planning instruments in place: the multi-annual sectoral strategic plans (PESEM), the institutional strategic plans (PEI) and the annual institutional operational plans (POI).26 Those documents all describe the vision and the mission of each public entity and include objectives, strategies, policy lines and specific activities, which on their side all relate to specific performance targets and indicators. However, it was recognised by the MoEF that those strategic plans were not adequately translated and reflected into the budget process. There was little relation between the strategic planning and the actual annual budget requests sent by the line ministries; they simply represented sources of reference rather than operational documents. This made the translation and integration of desired achievements into formulation of needed financial resources difficult. In sum, the link between planning and actual budget spending has been broadly perceived as being insufficient27.

25 MoEF’s structure includes two vice ministries- Economy and Treasury. Treasury is sub-divided into four directorates- Public Budget, Public Accounting, Debt and Treasury, and Public Resources. On its turn, the Public Budget Directorate has units on: Normative and legal issues; Budget planning and execution; Quality of Public Expenditures; Sectoral Budget; and Territorial Budget.

26 Planes Estrategicos Sectoriales Multiannuales, Planes Estrategicos Institucionales, Planes Operativos Institucionales. . 27 Those deficiencies are also perceived to be the cause of the limited operational activity of the National Planning Centre,

CEPLAN, which was established in 2004.


In addition, MoEF (2007) defines the weaknesses of the budget system and its motivation to introduce

results-oriented budgeting as follows:

i. Prevalence of a single principle of institutional budgetary allocation, without any real correspondence between citizens‘ demands (results) and supply of goods and services provided by the state (products);

ii. Historical allocation mechanism, by which public entities fund their actions without using information from evidence on the effectiveness of those actions;

iii. Procurement and contracting with little or no relation to actual services (products), key issues or priorities;

iv. Operational units and service providers, which do not have adequate mechanisms to estimate appropriate inputs structures and proportions to provide the products;

v. Population that does not necessarily go to service provision centres.

It should be noted that the idea for shifting towards a results-oriented budgeting approach was very much driven by a core group of people within the DGPP of MoEF. Many of the members of this core group of reform leaders had studied and worked abroad and were aware of the overall trend of laun-ching such reforms in Latin America (in countries like Chile and Mexico) and worldwide. Also, political support was ensured at the highest levels through the newly elected President, as well as through the Minister of Economy and Finance.

Consequently, PpR was included in Chapter 4 of the 2007 Annual Budget Law. The law defined basic principles of the PpR approach and identified five priority areas related to childhood– health, nutri tion, education, national identity and basic infrastructure, which were to be translated into pilot cross-ministerial priority strategic programmes (programas presupuestales estrategicos).They were to submit a programme-based budget for 2008 to be elaborated under the methodological guidance and leader-ship of MoEF. The programmes were chosen on the basis of the institutional development of the main entity in charge, and the budgets needed to be submitted in parallel to the ordinary line-item budgets. The 2007 Annual Budget Law also repeated the commitment towards the 11 priority areas, albeit in a less explicit form than the year before. The regulations of this chapter later served as the basis for the inclusion of PpR in the General Budget Law in 2009.

4.3.2 Congress

Parallel to MoEF, the Congress also provided vital impulses at the start of the PpR reform, and is consi-dered by some to have co-ownership of the reform. In particular at the start of the reform, it demons-trated substantial support for the incorporation of the articles regulation PpR in the General Budget Law. It is important to note that Congress did not see any threat of losing control over the budget process through the shift towards results, but rather embraced the reform as a useful tool to improve accountability of public expenditures.

The process of sensitization towards the legislative body in Peru had already started early. In 2007 there was a working group (a sub-commission) within Congress to advise the parliamentarians on PpR issues. Parallel to this, there was a donor-funded project to improve technical capacities of the congressional staff members. This project led to the creation of the Technical Secretariat, which, although fairly limited in its capacities, provides technical assistance to the Budget Commission in Congress.


While at the beginning of the PpR process there has been much involvement of the Congress, it has diminished over time during the implementation process. The Budget Commission concludes that there is no real interest among the parliamentarians towards PpR, mainly due to insufficient sensiti-zation and realization of the benefits of PpR with regard to budget and policy scrutiny.

4.3.3 Donors

Donor coordination mechanisms in the field of PFM were only established after the publication of the 2009 PEFA exercise on Peru, which recommended better coordination and cooperation between the vari ous donors involved in the country. In practice however, PFM coordination has not been very intense or effective.

Undoubtedly, the donor community played a role in the initiation of the PpR process in Peru. Some views are present that in particular the World Bank and IADB tried to advocate a ready-made approach on performance budgeting replicating the Chilean and Mexican reforms. However, this approach met the resistance of MoEF. In their view, the realization of weaknesses in the strategic planning process called for a broader- and somewhat different- methodological approach in results-oriented budgeting. Engagement of the European Union is organized through budget support, especially for the “flagship” strategic programme for Nutrition, EUROPAN. The experience of EUROPAN was crucial for the pilot phase of the PpR reform. Bilateral donors, Germany (GIZ on behalf of BMZ) and Switzerland provided vital technical support throughout the process.


At the beginning of the reform, there were substantial differences in the way line ministries perceived the proposed change.

Among the ministries involved in the first pilot phase, the Ministry of Health (MoH) clearly emerged as forerunner in the implementation. With the MoEFs support, it had made advances in the formulation of its participating strategic programme (Programa Estrategico Articulado Nutricional, PAN), which received the financial support of the European Union (through sector budget support), as well as in the formulation of indicators for the monitoring and evaluation of the PAN (on request of the European Union). Nonetheless, the strong involvement of MoEF at the beginning of the process was considered by some people within MoH as difficult in terms of ownership and continuity of the process, and there were some notions of discontent that the health sector was used as a “guinea pig” for the PpR process.

At the same time, the Ministry of Education (MoE), which had no previous experience in formulating strategic budgetary programmes, showed little initial interest in the reform and perceived the very centralized approach of MoEF in the design of the strategic programme as an intervention into core programmatic and thematic functions of MoE. As a consequence, there were many tensions between MoEF and MoE in the process of designing programmes and their objectives, indicators and targets.

While the reform was initially perceived as an imposition by Congress and the MoEF forcing some sec-tors to design strategic programs, during the second year this issue began to attract the interest of more sectors, who despite not being included in the Annual Budget Law, took the initiative to design their strategic programs and to request technical assistance from the MoEF in the process. That demand was increasing year to year, created a thematic dispersion and MoEF had difficulties managing the different


requests of methodological support coming from the different sectors. That›s one of the reasons why the methodology has been changed, in order to give the sectors more power for them to take over the totality of the program designs and for the MoEF to limit itself to the methodological filter.


Supreme Audit Institution

The Peruvian Supreme Audit Institution is the Contraloria General de la Republica (CG). Although initially involved in the discussions over PpR, its role as a driver of the reform has been rather marginal, and its lack of sensitization and involvement at the beginning and throughout the process contributed substantially to the current challenges in the PpR. Both the Congress and MoEF perceive the collabo-ration with the CG at the beginning of the PpR process as insufficient. In the same time, from the point of view of the CG, MoEF only prioritized those stakeholders, who had an immediate role in the process, such as the line ministries, and did not make enough efforts to involve the CG. This lack of sensitization and involvement of the CG by the MoEF can be partly explained by the limited resources and capacities with DGPP.

It has to be noted that the CG is currently undergoing a reform process and is advancing in its efforts to develop a stronger relation of its activities to the PpR. These developments will be explained in more detail at a later stage of this report.

Civil Society

The civil society in Peru has played an important role for the initiation and ongoing implementation of the PpR reform in the country. In particular the Round Table for Poverty Reduction (Mesa de Concerta-ción para la Lucha contra la Pobreza- MCLCP), which represents a broad platform for coordination bet-ween civil society organizations and government entities, has been one of the key drivers of the reform. Especially, by initiating the participatory budgeting process and the identification of eleven priority policy areas, MCLCP has an important role in terms of conveying the implications of PpR to the public and in terms of monitoring the results achieved by program budgets at regional level in the health and education sectors (via the “Seguimiento Concertado”).

National Institute of Statistics (INEI)

INEI emerged as an important support actor in the process, as it carried the main responsibility for generation and provision of performance information. As such, it has signed specific agreements with MoEF as to institutionalize its role in the PpR process.




Ministry of Economy and Finance

The MoEF is the clear driver of the PpR reform. Within its structures, there has also been higher politi-cal support for the PpR reforms from the minister of finance, as well as from the late director of DGPP, who was regarded by many of the interviewed stakeholders as the most prominent defender of the reform. A further sign for the importance of MoEF and the recognition for the PpR reform is the recent election of the director of the Directorate for Budget Quality Improvement (Dirrección de Calidad del Gasto, DCG), Mr. Juan Pablo Silva, for a vice-minister for social policy and evaluation in the newly esta-blished Ministry of Social Development.

Within MoEF, the DGPP underwent a restructuring in 2009, which came into force in April 2010. One of the main motivations for this reorganization was to institutionalize the PpR process and to give it a central place within the ministry. As a result, a designated methodological unit, the DCG was establis-hed with the mandate to develop and master the methodologies and procedures related to the budget-ing process and to PpR, as well as to carry out the independent evaluations and to ensure capacitation within line ministries and lower levels of government. One noticeable issue relates to the recent change in government, which also had implications for the staffing within MoEF and DCG. While many of the current members of DCG were not involved from the beginning in the process, a high level of commit-ment and professionalism to the reform is visible.

There was an implementation strategy for the PpR process in 2007 elaborated by DGPP upon request of the Congress, which needed this in order to include PpR in the law. It outlines the motivation for introducing PpR and elaborates in broad terms the main steps to be undertaken throughout the imple-mentation with regard to (1) planning and programming; (2) normative framework; (3) execution and evaluation; (4) institutional capacity building; (5) transparency and access to information to improve accountability of the budget system. The implementation plan further outlines principal and comple-mentary instruments, as well as strategies for the achievement of the different components, and gives a timeframe for the completion per component. It was foreseen that implementation would be complete by the second half of 2011. In reality, the implementation plan was regarded by many of the stakehol-ders as a pro-forma strategic document that was too general and therefore without much significance for the actual practical reform process.

Line ministries

Within the ministries of education and health, which participated in the PpR process since its pilot phase, many tensions were noticeable with regard to the centralistic role assumed by MoEF for the overall management of the PpR reform and in particular for the elaboration of strategic budgetary programmes. Both ministries further disagreed with the logic of the new methodology, which was introduced in 2011 with the aim of simplifying the PpR process and extending the scope of the reform. They pointed towards the fact that it is MoEF that decides who will be the responsible for the process within line ministries which they perceived as a factor for eroding ownership and motivation among sectoral staff. In addition, the MoE feared that the logical framework does not respond to the necessi-ties of sectoral planning.


MINCETUR, the Ministry of External Trade and Tourism, is one of the ministries that only started with the formulation of results-oriented budgeting programmes in 2011 for the 2012 budget, thus based on the new methodology. It indicates that the timeframe given to them for elaboration of the programme by MoEF was very short. The actual process took between six and seven weeks, starting in February, and with official approval of the programmes in June. MINCETUR acknowledged assistance and capacita-ting efforts of MoEF in particular with relation to formulation of the programme, as well as technical aspects related to inputting information in SIGA and SIAF. However, it also noted that there was much unclarity with regard to division of responsibilities. They observed that there is a clash between the ob-jectives of MoEF to steer the process and in the same time to allow for more internal discretion within the ministry.

In the same time, it appears that line ministries often feel insufficiently prepared, and that in such cases the support of MoEF is highly appreciated. All ministries indicated that they understand PpR as a long-term process. Over time, a change in the mind-set and the way sectoral staff perceives budgeting responsibilities and tasks has become visible. Also, they noted that this will be reinforced by the incre-asing importance of PpR at sub-national levels, where it will primarily be the role of budget officers within line ministries to capacitate regional and local government levels.

It was only in September 2010 that a communication strategy was developed with the assistance of GIZ. It includes a detailed working plan for the entire 2011, with responsible units within MoEF identified in relation to concrete steps. One noticeable element is the central position of communication actions targeted towards lower levels of government. However, this strategy has not been totally implemented so far.


In general, MoEF underlined that it had opted for a gradual, learning-by-doing approach, instead of a one-time large scale reform, as this would also allow for them to coordinate better within the broad PFM framework.

Since its launch, PpR has been a central reform within MoEF, aiming at bridging the gap between plan-ning and budgeting. As such, it has potential close links with the establishment of a central planning agency, CEPLAN, which was another step towards strengthening the strategic planning deficiencies in Peru. Given the problematic functioning of CEPLAN, PpR emerged as the central instrument in this respect. At the same time, there has been insufficient coordination between PpR and a further major reform in the PFM domain- decentralization. Several stakeholders have highlighted that there is a lack of a clear vision within MoEF on how PpR will span towards the regional and local levels of govern-ment. Finally, the on-going reform of the integrated financial management system, SIAF, towards SIAF II, emerged as an important related reform measure, and it appears that the integration of PpR specifics into SIAF II has received much required attention.



No estimates could be given on the costs of the reform so far. It has to be noted that many components are supported by different donors. For instance, GIZ on behalf of BMZ is supporting methodological development of PpR and works closely with DGPP on all related components and instruments of the reform. MoEF has also received substantial technical assistance from the IADB and the World Bank. GIZ has also recently engaged in the reform of the National Audit Office, CG, in order to adapt its work to the PpR requirements. USAID is specifically involved in the decentralization process, while the Euro-pean Union engages in budget support for the EUROPAN programme. IADB had previously supported the Congress. Stakeholders found it difficult to judge on the most expensive components, although it appears that training is more often put in relation with financial need than IT systems.


Capacities within MoEF and in particular within DGPP and DCG appear to be sufficient to coordinate the implementation process of PpR and to provide methodological guidance for the design of the stra-tegic budgetary programmes. Besides the DCG, there are also responsible persons within the Sectoral Budget Department of DGPP at sectoral level, which work closely with the budget departments of line ministries. However, know-how at sectoral level in MoEF varies, and this has been pointed out as an explanatory factor for the problems in the implementation of PpR in the education sector.

The recent change in government, which also brought changes in the personnel within MoEF and DCG, does not appear to have impacted motivation and dedication to the PpR reform within the ministry. The change in methodology, albeit a source of concern for line ministries and other stakeholders, can also be seen as an attempt within the new DCG staff to improve their ownership of the reform. One issue highlighted by some stakeholders is that medium-term macroeconomic planning lies within the vice-ministry of economy, which contributes to the detachment of the two elements.

As noted previously, line ministries still experience severe capacity issues and indicate that they have often been overburdened with the design of budgetary programmes based on results and indicators. The recent change in methodology seems to contribute to this feeling, although as declared by DCG, it is exactly the simplification of procedures and processes that the new methodology intends to de-liver. Capacity problems within line ministries tend to get even more pronounced in relation to the decentralization process, as there is unclarity on how would line ministries at central level succeed in capacitating and sensitizing staff at the regional and especially at the local level, which is perceived to be largely detached and not particularly informed or interested in the PpR reform.

While there is training offered by MoEF and supported by donors, in particular by GIZ, USAID and IADB, trainings are perceived to be often too general and broad, therefore inappropriate to capture specific problems. Some of the donors supporting PpR implementation particularly point out towards the lack of a clear integrated strategy with regard to capacity development.



4.5.1 Process of budget classification

The traditional budget classification in Peru, as regulated in the General Budget Law of 2005, entails administrative, economic, and functional-programmatic allocations. While initially the functional-programmatic classification included 16 different categories, there was a severe incompatibility and alignment issue between that budget classification and the Chart of Accounts, which effectively led to deficiencies in the budget reporting (IADB 2010).

In 2009 Peru underwent a cumbersome re-classification process to include 25 programmatic categories in the budget classification, consistent with the 2001 GFSM standard of the IMF and harmonized with the Chart of Accounts. By the end of 2010, the majority of public entities were able to implement the new classification system. Based on this structure, specific programme codes were developed in order to allow for records on a programme basis. Given current expansion of PpR to cover 40 % of the total nation al budget, and with the recent change in the methodology, which allows for a better match bet-ween institutional and organizational structure and programmes a new process of re-coding is current-ly on its way.

Throughout 2007, MoEF worked on the elaboration of the methodological approach for developing the strategic budget programmes that were to be prepared under the PpR framework for 2008. In 2008, the PpR reform included five strategic programmes, encompassing 6 % of the public budget. In 2009, their number was increased to nine (8 %), and in 2010 to 15 programmes (13.2 %). 2011 saw the formulation of a total of 27 budgetary programmes based on results that corresponded to 16 % of the budget, and the current budget under preparation for 2012 already includes 58 %, which in total cover 40 % of the entire public budget.

Before examining the way PpR is streamlined in the budget reform process, it is important to outline this methodology, in particular as in 2011 there was a major change in it, which stirred and is still causing a heated debate among the stakeholders in the PpR process.


The original methodology: A logical model (Modelo lógico)

In the years 2008-2011, the strategic budget programmes (programas presupuestales estrategicos) were elaborated by MoEF in collaboration with the line ministries on the basis of a logical model framework. Figure 1 represents schematically the logical model.

Figure 1 : Steps in the logical model

Inputs ImmediateOutcomes

IntermediateOutcomes

FinalOutcome

OutputsActivities

Products

Results

Source: Own diagram

The logical model is built on the premise that the design of strategic budget programmes will be guided by the identification of a final outcome, which should correspond to the goals formulated in the other strategic documents such as the PESEM plans. Therefore the starting point of the design process is the formulation of results, which include immediate, intermediate and final outcomes. Once the out comes are laid down, specific outputs are formulated. For the achievement of those, specific actions, are de-fined, and inputs for those actions are foreseen.

The logical model framework has one particularly important implication for the results-oriented budgeting process. It uses a top-down approach, in which first outcomes (results) in line with broader strategic priorities are identified, and then those are distilled into different stages and actions (pro-ducts). However, the model assumes that different levels of government, as well as different public entities, can simultaneously contribute towards achievement of results of a strategic programme, thus the programmes do not correspond to the institutional structure. For instance, the strategic budget programme on nutrition, EUROPAN, is simultaneously carried out by MoH, the National Health In-stitute, the National Insurance Institute (Seguro Integral de Salud), the Ministry of Women and Social Development, as well the regional governments, with all of those contributing to a set of intermediate outcomes. In the same time, performance indicators are formulated at the level of intermediate and final outcomes, making it difficult to attribute contribution of different entities to the achievement of performance.


This methodology was changed in 2011, to be effective for the 2012 budget year, mainly due to consi-derations that the logical model approach diffuses responsibility and ownership among institutions and poses difficulties to trace the link between performance and budget spending. On the other hand, many stakeholders, and in particular the line ministries, perceive this change as a setback as regards the objective of PpR to address deficiencies in strategic planning. The main argument is that in practice, the logic model represented a replacement of the non-functioning strategic plans and forced institutions to cooperate and pursue unanimous policies.

The new methodology: A logical framework (Marco logico)

The new methodology that will be applied to all strategic programmes except for EUROPAN as of 2012, is based on a strictly institutional approach, in which each entity chooses its final strategic outcomes based on a pre-defined list of 44 strategic final outcomes and then defines specific outcomes to support it based on its particular mandate. This approach aims at capturing the institutional and functional structure of each entity and adopts a simplified framework for identification of intermediate outcomes and activities. This approach is depicted in Figure 2:

Figure 2 : Steps in the logical framework

Inputs Speci�cOutcomes

FinalOutcome

OutputsActivities

Source: Own diagram


Here, specific outcomes are defined as a quantifiable desired change, which can be observed in the target population within a certain specified period of time. The 2011 guide for the identification and design of strategic budget programmes within the PpR framework gives following example:

Level Example Indicator Sources of Information

Efficiency

Performance dimension

Effe

ctiv

enes

s

Qua

lity

Cost

Final Outcome

Improvement of public safety

% of population victim of crime in last 12 months

INEI,

Public Opinion Surveys

X

Specific Outcomes

Improved prevention of occurrence of actions that impact public safety

% of population that has confidence in the institutions involved in public safety

INEI

Public Opinion Surveys

X

Improved investigation and control of criminal acts

INEI

Criminal registries

Police reports

X

Outputs

Integrated community patrolsNumber of realized patrols

Patrol registries

X

Citizens organized in committees against crime

Number of elaborated action plans

Citizen committee records

X

Reclaimed public spaces

% of population that considers improvement in insecure areas in its neighbourhood

INEI X

Activities

Output 1Motorized patrols NO

Walking patrols

Output 2Capacitation of leaders in risk zones

Output 3Population informed through mass media

Inputs (per activity)

Personnel, Uniforms, Office costs etc.

Besides the fact that programme structure follows the administrative structure much closer, the logical framework approach also foresees that performance is tracked on the level of final outcome, specific outcomes, and outputs, and that targets are set for a three-year timeframe. In addition, the new me-thodology is conceptualized to involve much closer the line ministries and to restrict the role of MoEF in the elaboration of the programmes. Finally, the logical framework approach aims at encompassing better the local level of government, which in practice was not a part of the PpR process under the 2008 – 11 logical model.


Some stakeholders, for example the MoH, see the implications of the new methodology as rather nega-tive. In particular, although it is recognized that the logical model did not allow for sufficient attribu-tion of responsibility to specific entities, it still allowed for identification of responsible entities at the level of outputs. At the same time, the new concept is seen to be too restrictive, as it identifies specific persons within responsible units to be held accountable. Furthermore, the logical framework approach is conceived to diminish the link between broad strategic priorities and activities carried out within programs and to be less citizen-centred than its predecessor.

In sum, the clash between the two methodological approaches demonstrates how difficult it might be to address different objectives through the same budgeting concept. While originally PpR was seen as a tool to improve strategic planning, MoEF is progressively shifting the focus towards institutional accountability for results.

4.5.2 Budget format

The format of the budget is defined by Art 21 of the General Law on the National Budget System It determines

the contents of the Public Sector Budget Bill, which needs to be sent to Congress, should entail following

information:

� Explanatory Recitals section, including a statement of fiscal policy objectives and macro-economic assumptions

� Annex on subsidies for legal entities

� Details of installments payable to international organizations

� Appropriations of institutional expenditure at the regional level

� Appropriations at the level of Budget Implementation Agency, Functions, Programs, Activities, Projects, Generic Expenditure Groups and Financing Sources.

The specific information on appropriations for the strategic programmes that participate in the PpR is included in an annex (usually Annex 6, but for 2012 Annex 8) of the budget presented to Congress. It shows resources per each strategic programme, per participating institution and per activity (whereby the activities as defined in the budget document refer to intermediate outputs defined per strategic budgetary programme), as well as at the regional level. No performance information on targets per programme or their achievement is included in this annex.

At the same time, the budget includes information for appropriations at institutional level, broken down by functional programme, projects/ outputs (products) and activities. Those correspond to a large extent to the structure used within strategic budgetary programmes.

There is no medium-term expenditure framework in Peru. Multi-annual planning is done within the multi-annual macroeconomic framework (Marco Macroeconómico Multianual, MMM), however this does not include a breakdown of projected expenditures per budgetary programme, although the document itself recognizes the growing importance of PpR for the planning process.


4.5.3 Costing

MEF provides specific costing instructions to line ministries on how to calculate needed resources per budgetary programme based on results. Costing is done at the level of inputs per activity, and in the case that inputs can be attributed to more than one activity; they are registered under the most significant one. However, costing capacities within line ministries are widely regarded as insufficient and costing is perceived as an ad-hoc indicative activity that gives a general estimation rather than precise information on resources needed. At the same time, MoH indicated that the new methodology makes it easier to estimate costs and attribute them to different programme elements. This approach is supported by the on-going implementation of the administrative information system SIGA (see below p. 4.5.5), which includes identification of costs per each input that builds towards actions and outcomes of budgetary programmes based on results.


Availability

According to the methodology used in 2008-11, performance information should be provided per pro-gramme at the level of intermediate and final outcomes. This is about to change as of 2012, when per-formance indicators will be formulated per final outcome, specific outcome and outputs, and measure-ment will span over a three-year time frame. Line ministries reportedly experienced many problems with the formulation not only of programmes per se, but also of appropriate indicators, and to a certain extent the important steering role that MoEF played in this process has been perceived negatively as an interference in the core thematic functions of the line ministries.

In the same time, one of the ministries that have only started formulating budgetary programmes in 2011, the Ministry of Foreign Trade and Tourism (MINCETUR), specifically indicated that when design-ing its indicators, they had received very clear guidance from MoEF that special attention has to be paid to the fact that reliable data sources (e.g. INEI, administrative records etc.) are either already available or data collection through specific questionnaires and surveys can be organized in a short period of time in order to allow for correct estimation of achieved performance. MoEF reports that in previous years, during internal evaluations, they have concluded substantial shortcomings in the quality of performance information delivered by line ministries and that further incentives are needed in order to ensure coherence in the degree of sophistication of performance information.

Some of the performance assessments of some of the budgetary programmes based on results - such as baseline studies- are publically available, and it is the intention of MoEF to disclose all performance information.

Use

While performance information per budgetary programme based on results is available, there is no established direct link between achievement towards results and funding decisions. However, perfor-mance information is extensively used in the discussions between MoEF and line ministries during the determination of the budget envelopes and underachievement on programmes is considered. This has been a gradual process, and MoEF is clear on the fact that the more the PpR approach matures and the quality of performance information improves, the more important performance information will


get for the budget discussion, yet there is no intention to establish a more formalized link between performance and appropriations. There have been remarks on the behalf of line ministries that the new methodology implies a drastic increase in the number of indicators, which might overburden the presentation and evaluation of policy achievements.

Performance information is not considered by the Congress, and there is no discussion during the budget hearings on the basis of programmes and results. The main reason for this, according to the Congress, is lack of manpower and technical capacities to absorb such information.


Peru is in the process of integrating the current PpR software SIGA (Sistema Integral de Gestion Admin-istrativa) with the integrated financial management system, SIAF II, which is currently being finalized. In its nature, SIGA is an integrated administrative management system that covers the programming processes and management of goods, services, and fixed assets, but it also includes a specific module for PpR. This module allows for registration and tracking down of budget information per budgetary pro-gramme; programmes; functions; sub-programme; activity/project; components; outputs and inputs per indicator. For 2012, SIAF II already includes a budget module that allows for input and modification of financial information related to the budgetary programmes based on results. Reports are download-able and perceived as easy to produce.


Budget appropriations in Peru are still made at the level of items, which are then combined under the framework of a budgetary programme based on results. In essence, this means that there are no implications for loss of internal control possibilities on the side of MoEF. In particular, control is carried out on the basis of the information from SIAF and SIGA, which contains the expenditures per line item, which can then be combined within a program.

As far as internal audit are concerned, according to Art. 81 of the General Law on the National Budget System, MoEF has a responsibility for carrying out internal evaluations of the budget execution of line ministries within the results-oriented budgeting framework. MoEF assumes this role through the com-missioning of independent evaluations. In 2008, MoEF issued a Directive on Independent Evaluations and worked on methodologies and guidelines on how those should be carried out. The idea to commis-sion evaluations to external experts was explicitly decided in order to avoid further perceptions within line ministries of excessive control function and interference on behalf of MoEF.

There are two types of independent evaluations- Performance Evaluations, which have a limited time-frame focus on design and execution issues taking into account performance, and impact evaluations, which were started in 2010 and span over the entire period of existence of the budgetary programme based on results. In addition, MoEF also undertakes institutional evaluations, which look into perfor-mance within a specific public entity. The results and recommendations of internal evaluations are used extensively by MoEF during the budget negotiations with the involved entities. However, MoEF notes that not much is being done within internal control of the quality of submitted information, and the focus is rather on the results and the appropriateness of the interventions within a programme.



External audit lies within the responsibility of the Auditor General, the Contraloria General de la Repu-blica (CG). As noted earlier, while the CG was initially involved in the discussions around the introduc-tion and implementation modalities of PpR, it then became detached from the process, which led to a lack of suitable instruments to audit results-oriented budgetary programmes. The fact that there was no clear signal from the Congress that such information is needed contributed additionally to the weak position of the external audit function.

There is no designated unit within CG which deals with results-oriented budgeting, yet there is a ge-neral budgetary entity, and more recently there have been working groups within it tackling the topic of PpR. Since 2009, CG has been active towards improving its approach and know-how on PpR and has started carrying out performance audits of institutions, yet according to their own estimations, 90 % of CG’s work still focuses on legal audits. In the same time, there is growing realization within CG that they have a specific mandate in the matter of budgetary programmes based on results, especially given the increase in their number and proportion of the budget. As a result, currently a pilot audit of an entire programme is taking place. Some of the preliminary findings of this audit point towards lack of adequate indicators, which are detached from strategic objectives (and on their turn, strategic plans are weak) and also suffer from low quality of data, as well as issues of tracing the information in SIAF. In addition, CG notes that the pilot is based on the previous logical model methodology, and is uncertain on how the new methodology will impact results from the pilot, which might turn into a stand-alone exercise. CG also remarks that a further unclarity as regards a possible audit framework for PpR would be that it would need to be adapted to all levels of government, which would require a very flexible approach. Finally, CG points out that not all budgetary programs are being set up with an appropriate baseline evaluation, which will inevitably impact on the quality of audit.

4 6 Conclusions

The PpR reform in Peru has a number of strengths that need to be highlighted:

� There was clear prioritization given to the reform. The creation of a unit within DGPP with a speci-fic mandate to implement the reform confirms the importance of implementing a results-oriented approach at the central level;

� The good know-how within MoEF, as well as the continued support for the reform despite changes in government and also personnel changes in the Ministry can also be considered positively;

� The elaboration of an implementation strategy, albeit not been used much in practice, is also a positive step, as it helped outline an initial overview of the needed steps for the implementation process, including a broad timeframe;

� The choice of an incremental implementation approach ensured more time for refinement and adaptation of technical details. Since its launch with the 2008 budget, PpR has been progressively expanding and developing, and currently budgetary programmes based on results cover 40 % of the entire budget;

� The PpR reform was codified in the budget reform early on and this step was crucial to ensure compliance with the changes in budgeting;

� There was substantial improvement in the strategic planning and coordination process;


� As concerns performance information, while there are some issues pending in terms of quality and of its incorporation in information and management systems, in general those appear to be suffi-ciently developed and paid attention to;

� The PpR has contributed to greater visibility and transparency of the budget process and to a better understanding within line ministries that budget appropriations need to have a link (indirect) with results.

At the same time, the following weaknesses of the reform can be pointed out:

� Much criticism has been exercised towards MoEF for its centralized top-down approach, in which line ministries often felt disregarded;

� It also appears that while capacities are well-developed in MoEF, this is not always the case within line ministries, and there are definitely severe capacity deficiencies at the regional and local level;

� Furthermore, some stakeholders feel that MoEF lacks a holistic approach to integrate PpR in an overall state reform strategy to manage for results. Thus, there is a perception that PpR has become an objective in itself, rather than a means towards achieving the goal of improved planning and, ultimately, a more efficient and effective service delivery;

� There have been remarks that MoEF is paying much too much attention to methodological issues, which obscures the concrete direction of the reform.

Some opportunities that could further strengthen the reform process can be identified:

� Current efforts on behalf of the CG to get more involved in the PpR process are to be noted, al-though this is still work in progress. External audit is crucial for deepening the impact of the PpR reform, as the recommendations of the CG are of obligatory nature;

� The new methodology (logical framework) is intended at clarifying and better assigning respon-sibility among line ministries, as well as increasing ownership within those for the PpR reform;

� While the majority of interviewed stakeholders did point out to the fact that there is a need to con-centrate on the budget execution and evaluation part of the PpR reform, they also recognized that it is a gradual “learning-by-doing” process, and that the focus is shifting further from the budget planning components towards this direction;

� There is recognized need and intention towards further developing incentive structures;

� The articulation of the PpR reform in administrative and information systems, which contributes towards the development of a broader management towards results reform.

Finally, some potential threats for the further implementation of the PpR reform should be noted:

� There is little clarity and understanding within lower levels of government on how and what to do with PpR, so that in sum the reform has insufficient linkage to decentralization;

� The new methodology for the design of budgetary programmes based on results, while less com-plex and allowing for a better assignation of responsibility within an institution, is perceived by some as a potential threat to the achievements in closing the gap between strategic planning and budget process;

� The noticeable lack of interest and attention for PpR on behalf of the Congress poses a challenge for the establishment and recognition of the reform.

70Conclusions

5 Conclusions

This report provides a detailed account of the experience of three partner countries of German Devel-opment Cooperation (GDC) in budget reform. The aim is to draw lessons for GDC, including GIZ ad visors that want to support partner countries in enhancing the results-orientation in the budget process, as well as for partner institutions and any other provider of development cooperation.

In drawing lessons, it is recognised that certain reform experiences are country-specific and are unique to the particular context. Also, it is evident that on the basis of only three case studies it is not possible to put forward strong generalizations on budget reform.

Nevertheless, this conclusion endeavours to draw general conclusions guided by three pertinent questions:

� Is on-going reform likely to succeed and/or has the reform carried out led to the intended results?

� How can budget reform be designed to ensure effective implementation given the reform capacities of partner countries?

� Is the whole reform package necessary or is there an alternative conceivable reform option requiring less capacity?

In response to the first question, the Peruvian approach stands out as the most successful in achieving its intended results. The overall goal of the Peruvian reform is to establish a better link between the strategic planning and the budget process which is to be achieved by the incorporation of a programme classification in the budget and by the use of the performance information to inform budget allocation. Since its launch in 2007, the reform has been progressively expanding and currently strategic budgetary programmes cover 40 % of the entire budget. Although there are still pending issues regarding quality and its use, significant progress has been made in the development of performance information as well.

Two elements are considered to be key success factors supporting the reform. A first element is the priority given to the reform by the Ministry of Economy and Finance which is reflected in the establish-ment of a dedicated methodological unit within the budget department of the Ministry that possessed over the necessary qualifications, mandate and vision to ‘drive’ the reform forward.

A second factor is the combination of ‘sticks’ and ‘carrots’ to obtain the involvement of the line minis-tries to engage in programme budgeting. The Ministry of Finance did not only push the reform forward by means of regulations and circulars, it also made use of the budget envelope to reward line ministries that demonstrate a better link between their programmes and the government priorities. The choice of an incremental implementation approach ensured more time for refinement and adjustment of technical details.

Other factors that contributed positively to the implementation of the reform are the elaboration of an implementation strategy that outlined the necessary initial steps in a set timeframe. Also the early codification of the budget reform in the law was crucial to ensure compliance with the changes in budgeting.

It has to be noted that the budget reform in Peru was restricted in scope. First of all, the reform ob-jective was limited to budget preparation and did not require reforming the downstream side of the budget cycle (budget execution, reporting and auditing). Also, the reform was limited to the executive body of government and did not extend to external audit and the Parliament. This limitation in the

71 Conclusions

reform scope has reduced the complexity of the reform. As a drawback of this approach, the budget re-form in Peru does not yet reap all the potential benefits of the results orientation in the budget process resulting from increased accountability. However, current efforts to involve the external auditor and Parliament in the process have been observed and a further shift in this direction is expected.

The budget reform in Kenya has so far been only partly effective. The higher level goal of the Kenyan government has been to enhance the value for the public money which has been operationalised by the Ministry of Finance (MoF) into the lower level objective of introducing a programme-based budget (PBB) including non-financial performance information. The reform has resulted in the preparation of a budget based on a programme classification for all line ministries. Although, so far, it has been pre-pared only on an indicative basis next to the legally binding line-item budget, it is expected that in the next years, the PBB will get a more firm legal status.

In this way, the Kenyan government has significantly increased the transparency of the budget docu-ment. The success of the reform effort is explained by the support of the Parliament as demonstrated by the endorsement of the Fiscal Management Act and the reports of the Budget Committee. The establishment of a dedicated PBB Secretariat steering and coordinating the reform among the line ministries has also proven to be important for reform implementation. Finally, the gradual change management approach including the preparation of ‘indicative’ programme-based budgets and the strong emphasis on capacity development and awareness raising has positively contributed. However, the implementation of the reform may have been more effective in the presence of a pre-determined Action Plan that would have recognised the need for the timely preparation of important facilitating tools such as a programme budgeting manual and adequate budget software.

Notwithstanding the noted progress in budget preparation, the objective of the reform has only been partly achieved. In order to enhance value for money, it is also required that accountability is strength-ened by reporting on budget execution on the basis of programmes including non-financial informa-tion on policy performance. So far, little progress has been achieved in these parts of the reform. Two factors explain the lack of progress. A first factor is that the mandate of the Budget Supplies Depart-ment of the MoF, which has acted as the main driver of the reform within the Kenyan Government, is limited to budget preparation. Second, other stakeholders, such as the Treasury and the Auditor General, have not given priority to the programme-based budget reform and have focused on other reform priorities. Especially, the on-going reform to introduce an integrated financial management information system has inhibited the Kenyan Treasury to be more involved in the programme-based budget reform.

In Cameroon,, like in Peru the overall objective was to enhance the link between the government stra-tegy and the budget process through the use of programme-budgeting. The objective was formalised by law in 2007 which allowed for a gradual implementation period until the deadline of 2013.

However, during the transition period, line ministries have made little progress in the formulation of programmes. Only in 2011, the final year before the deadline, attempts to prepare a programme-based budget have been intensified. Certain success factors that were observed in Peru and Kenya were absent in Cameroon and can possibly explain the relative lack of progress. Foremost, the introduction of a programme-based budget was not a clearly articulated reform priority, but it was part of wider public finance management (PFM) reform plan. The mandate of the Steering Committee included the entire PFM reform and was not focused on the programme-based budget alone. Also, the budget department of the Ministry of Finance could not act as powerful driver of the reform as the responsibility for

72Conclusions

budget preparation is divided over the Ministry of Finance for the recurrent budget and the Ministry of Economy and Planning for the investment budget. This separation of the budget responsibility has led to frictions and inconsistencies of the approach that has made line ministries passive.

Although the legal deadline for submission of programme-budgets has provided a new momentum for the reform and the involvement of line ministries has increased in the last year, prospects for the effectiveness of the reform seem to be dim. The current big bang approach does not allow for careful preparation of the programme-based budget and, as such, the reform is not likely to contribute to the original objectives to create a link between broad strategic planning and the budgeting process.

In response to the second question, a number of key success factors can be derived from the reform

experience of the three Partner Countries

1 A well and narrowly defined objective of the reform that is agreed between the main stakeholders

It is crucial that the reform is initiated by a clearly defined objective of the reform and that the reform objective is agreed by the main stakeholders. A narrow definition of the objective is not necessarily required, but it certainly facilitates finding consensus. Peru embodies a case in which a clear, narrow objective has supported the achievement. In Kenya, it is observed that the broader objective is less well-defined and has been differently interpreted among the main stakeholders being the Ministry of Finance and the Parliament.

2 Allocation of the driver of the reform with a strong mandate and sufficient capacity

The driver of the reform should have a strong mandate and sufficient capacity to coordinate the reform and to gain the commitment of line ministries. In Cameroon, the delay in the reform im-plementation can be attributed to the absence of a clear driver of reform. As a consequence of two competing ministries as well as the line ministries remain passive lacking clear guidance. In Kenya, the driver of the reform was clearly appointed as the PBB Secretariat. However, the effectiveness of the Secretariat was reduced by lack of capacity and an insufficient mandate in the domain of budget execution and reporting.

3 A gradual implementation approach that includes an incentive structure for line ministries to participate

All cases have opted for a gradual implementation strategy that allowed time for sensitization, learning and adjustment. The delay in Kenya and Cameroon cannot be blamed on the gradual implementation strategy. Both the approaches in Kenya that makes use of ‘indicative programme-based budgets’ and in Cameroon with a pilot ministry seem to be appropriate. Delays in implemen-tation in these countries seem to be caused by insufficient priority given to the reform and lack of incentives for line ministries to get involved. Also in Peru, the reform approach included piloting in the high-significance ministries (Health and Education). However, in addition the prospect of a higher budget envelope stimulated line ministries to develop adequate programmes that were linked to the overall government strategy.

73 Conclusions

4 A time planning that identifies milestones and that ensures that facilitative tools are timely available

Implementation in both Cameroon and Kenya has been hampered by the lack of formally approved action plan or strategy paper allowing for the preparation of facilitative tools and that provides gui-dance during the implementation period. In both countries, the available plans and strategies were only formulated at a high and abstract level of PFM-reform. No detailed planning schedules for the implementation of programme-based budgeting alone were elaborated. In the absence of such detailed plans, the line ministries in Cameroon have been insufficiently activated during the first years of the reform. Also in Kenya, supportive tools such as the PBB-manual and adequate budget preparation software became only available after four years of implementation. Only in Peru, an implementation strategy was elaborated in the beginning of the reform. Although adherence to the time plan could have been stricter, the strategy helped in identifying the main steps to be taken.

A final issue that is important to consider for a reform process is the design of the reform package and whether alternative reform options are to be preferred.

As discussed above, an important part of the explanation of the more effective reform implementation in Peru is the stronger priority given to the reform by the government than in respectively Kenya and Cameroon. Different factors may explain this observation. One explanation may be that the reform in Peru had more government ownership than in Kenya and Cameroon where the reform appears to be relatively more donor-driven. Another explanation recognises that Peruvian government has started the reform from a higher PFM base than Kenya and Cameroon. Related with the lower PFM-base is the formulation of ambitious and broad PFM reform plans in both Kenya and Cameroon that required substantial efforts of the government in various domains and may have distracted their attention from the budget reform.

In Kenya, especially the introduction of an Integrated Financial Management System has been rightly given more priority by the higher management layers of the Kenyan government than the develop-ment of a programme-based budget. An alternative reform package in these circumstances could have been more focused on the basics of PFM such as the establishment of a reliable and functioning integrated financial management and reporting system before moving forward with programme bud-geting.

The presence of a similar broad PFM reform agenda reflecting the lower PFM base of the country has inhibited clear priority to programme budgeting in Cameroon. In addition, the divided responsibili-ty for the recurrent and capital budget between two ministries constituted another main obstacle to achieve progress in programme budgeting. It can be conceived that the institutional structure was not ready for a more ambitious budget reform such as the introduction of programme-based budgeting. In these circumstances, it may have been recommendable to precede the budget reform by an institu-tional reform integrating the budget responsibility within the Ministry of Finance (or streamlining the budget preparation methodologies of both ministries).

74Conclusions

In all three cases examined, it was striking that priority was given to the budget preparation side and that the downstream-side of the budget cycle (budget execution, reporting, auditing) was not taken into account yet. In Peru, the reform objective was limited to budget preparation and did not require reforming the downstream side of the budget cycle. In Kenya, the programme budget is only presented for illustrative reasons so far while the budget execution is still based on the line-item budget. While this can be considered a meaningful first step for a reform process, partner countries seem to lack the necessary capacities and instruments such as appropriate accounting, reporting and auditing systems to fully implement the reform on the downstream and reforms tend to get stock. Clearly, the full be-nefit of results-oriented budget reforms can only be achieved if it is implemented in the whole budget cycle. However, if the countries’ capacities are not yet sufficient, the introduction of results-orientation in budget preparation already has some advantages. If the programme-budget is only prepared for illustrative reasons, it can serve the planning and thinking towards results. It also strengthens the trans-parency since it better reflects the government’s priorities and thereby offers a better basis for Parlia-ment to scrutinize the allocation of resources. Thus, as an interim solution the introduction of results-orientation in budget preparation only has a certain value-added.

Alternative reform options refer therefore to issues of sequencing. The sequencing of PFM reform is, however, a much debated topic that lacks consensus. Guidelines on sequencing are frequently based on a technocratic approach. Development advisors will always be in tension between the ambitions of the partner country governments, who are frequently highly ambitious in their efforts to catch up to public finance practices in OECD countries, and the development aspirations of donors that may under-estimate that sustainable PFM reform requires a long breath.

75 Bibliography

6 Bibliography

Case Study Kenya

� Fiscal Management Act 2009, published in: Kenya Gazette Supplement, 19.06.2009

� GIZ/ Ministry of Finance (2010): Review of the Government of Kenya’s Integrated Financial Management System and Development of a Strategic Plan for its Operationalization

� Government of Kenya/ Ministry of Finance (2009): Budget Preparation Guidelines For The Medium Term Expenditure Framework (MTEF) Period 2010/11 – 2012/13, Treasury Circular No. 17/2009

� Government of Kenya/ Ministry of Finance (2011): Draft PFM Reforms Strategy 2011-2016, Fourth Draft August 2011

� IMF (2008): Kenya: Report on Observance of Standards and Codes—Fiscal Transparency Module, Kenya Country Report No. 08/99, March 2008

� PEFA Performance Assessment Report for Kenya, March 2009

� Public Finance Notes Kenya (2011): Reforms in Public Finance Management, Issue July 2011

� Wajibika – Magazine of the Public Finance Management Reforms, 4th Edition May-July 2010

Case Study Cameroon

� Banque africaine de développement, Un espace budgétaire renforcé pour la croissance et la réduction de la pauvreté. Etude économique pays. BAD, décembre 2008

� Bernhard, Regina, Jana Leutner and David Franzreb: Moving towards a Strategic Advisory Approach on the Introduction of Result-Oriented Budgeting. What can development cooperation learn from OECD experiences ? GIZ, Eschborn, 2011

� Cabinet 2AC : Evaluation des finances publiques selon la méthodologie PEFA. 2AC, Yaoundé/Paris, janvier 2008

� CEMAC : Directive relative aux lois de finances. Note de présentation. CEMAC, 2011

� Chambre des Comptes de la Cour Suprême : Rapport Annuel 2009. Chambre de Comptes, Yaoundé, août 2010

� Comité chargé du pilotage des réformes des finances publiques : Plan de modernisation des Finances Publiques. Secrétariat Technique des Réformes, Yaoundé, novembre 2009

� DFC : Evaluation du dispositif de préparation et de suivi des budgets sectoriels au Ministère de la Santé Publique. DFC, Yaoundé, juillet 2009

� Henseler, Joana, Meike Janosch and Jannick Saegert : Prüfung verstärkter Beratungsleistungen des PAEDP im Bereich öffentlicher Finanzen. GTZ, Eschborn, décembre 2010

� IMF: Cameroon: Report on the Observance of Standards and Codes—Fiscal Transparency Module. IMF, Washington D.C., August 2010

� Ministère de l’Economie, de la Planification et de l’Aménagement du Territoire : Elaboration des Plans d’Actions Prioritaires (PAP) 2012-2015 des administrations publiques. Yaoundé, MINEPAT, Juin 2011

76Bibliography

� Ministère des Finances : Manuel Budget Programme. Yaoundé, Ministère des Finances/DGB, Décembre 2010

� Ministère des Finances : Circulaire No0000005/MINFI/DGI/LC/L du 31 décembre 2010 Précisant les modalités d’application des dispositions fiscales de la loi no 2010/015 du 21 Décembre 2010 portant Loi de Finances de la République du Cameroun pour l’exercice 2011. Yaoundé, décembre 2010

� Republic of Cameroon : Growth and Employment Strategy Paper. Reference for Government Action over the period 2010-2020. Yaoundé, August 2009

� République du Cameroun : Document de Stratégie pour la Croissance et l’Emploi. Yaoundé, 2009

� République de Cameroun : Loi no 2010/015 du 21 Décembre 2010 portant Loi de Finances de la République du Cameroun pour l’exercice 2011. Yaoundé, décembre 2010

� République de Cameroun : Loi no 2009/018 du 15 Décembre 2009 portant Loi de Finances de la République du Cameroun pour l’exercice 2010. Yaoundé, décembre 2009

� République du Cameroun : Loi no 2007/006 du 26 Décembre 2007 portant Régime Financier de l’Etat. Yaoundé, décembre 2007

� UNDP: Human Development Report 2011. Sustainability and Equity: A Better Future for All. UNDP, New York, November 2011

� World Bank : Towards better service delivery. An economic update on Cameroon with a focus on fiscal decentralization. Poverty reduction and Economic management Unit Africa Region. World Bank, Washington D.C., July 2011

Case Study Peru

� Betty Alvarado/ Eduardo Morón (2008): Perú, hacia un presupuesto por resultados: afianzando la transparencia y rendición de cuentas, Centro de Investigación de la Universidad del Pacífico DD/08/11

� GIZ (2011): Avances al 2010. Reporte de Progreso en la obtención de Resultados de los Programas Estratégicos iniciados en el 2008

� GIZ (2010): Informe Técnico Sustentatorio Del Proyecto De Modificación Del Reglamento De Organización Y Funciones De La Dirección Nacional Del Presupuesto Público

� Ley General del Sistema Nacional de Presupuesto, LEY Nº 28411, 01.01.2005.

� Ley Marco de la Administración Financiera del Sector Público, Ley Nº 28112, 27.11.2003.

� Luis Corvera Gálvez/ GIZ (2010), Estrategia de comunicación para el enfoque de Presupuesto por Resultados

� MEF (2008): Guía Metodológica para la Programación Presupuestaria Estratégica, Dirección General del Presupuesto Público, Octubre 2008

� MEF (2008): Plan De Trabajo, Implementación Del Presupuesto Por Resultados

� MEF (2010): De las Instituciones al Ciudadano: La Reforma del Presupuesto por Resultados en el Perú. Dirección General del Presupuesto Público, Documento del Trabajo

� MEF (2011): Programa de Mejoramiento Continuo de Gestión de Finanzas Públicas 2011-2015,

77 Bibliography

� Fortalecimiento de la Gestión de las Finanzas Públicas, Vice Ministerio de Hacienda

� Nelson Schack Yalta/ Herless Porras Rodríguez (2011): Algunas ideas para avanzar hacia la consolidación del Presupuesto Participativo en el Perú, Gestion Publica y Desarollo 09/2011

� USAID (2010): Reforming Budget Systems. A Practical Guide. June 2010

78Checklist

7 Checklist

Table of Contents

Preface 80

1 Background of the reform 82

1.1 Why? 82

1.2 What? 83

1.3 How? 84

2 Drivers of the reform 85

2.1 General questions 85

2.2 Government (Cabinet/ Ministry of Finance) 86

2.3 Line ministries 87

2.4 Parliament: Budget/ Finance Committee, Public Accounts Committee 88

2.5 Supreme Audit Institution (SAI) 90

2.6 Civil Society and Media 91

2.7 Donors 92

3 Overall PFM framework, sequencing and alignment with other PFM reforms 93

3.1 Legal requirements 93

3.2 Sequencing and timing of the reform 94

3.3 Pre-conditions and preferential features 96

4 Management and financing of the reform 98

4.1 Management of the reform 984.1.1 Senior Management Level and Inter-ministerial Coordination 984.1.2 Middle Management Level 99

4.2 Financing 100

4.3 Capacity development 101

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5 Technical building blocks of the reform 102

5.1 Budget preparation 1025.1.1 Budget Classification 1025.1.2 Budget Preparation, including Formulation of Performance Information 104

5.2 Budget execution 1065.2.1 Information and reporting system 1065.2.2 Use and measurement of performance information 1075.2.3 Internal control 1085.2.4 Internal audit 109

5.3 External oversight 110

80Checklist

Preface

The checklist provides a strategic instrument for development advisors and partner countries reform managers. The checklist offers the complete range of relevant questions, findings and recommen-dations extracted from the experiences of OECD countries and developing countries for each stage of the budget reform process.

The checklist can be used to discuss fundamental strategic decisions in the beginning of the reform process. In this case, the checklist serves as guidance for developing a reform strategy on the intro-duction of results-oriented budgeting. However, it can also be used to strengthen the steering of an ongoing reform process if all strategic decisions have been taken before.

The structure of the checklist is:

� Background of the reform

� Drivers of the reform

� Overall PFM framework, sequencing and alignment with other PFM reforms

� Management and Financing of the reform

� Technical Building Blocks of the reform

While the first three chapters mainly address issues for the advisory service to the political level, chapters 4 and 5 are targeted at the implementation level of the budget reform. The success of budget reforms depends on certain political and technical considerations such as institutional, organizational and legal preconditions which ought to be discussed before creating facts. It is especially important to have a discussion process on the scope of the reform. The study at hand illustrates that it is not necessa-ry to introduce the whole reform package but to rather focus on the reform features that serve best the country’s needs.

Further, it has been shown that reform processes like the introduction of results-orientation in budget-ing are rather ongoing processes than prone to fast results and successes. In the development context, it is important to ensure that the implementing institutions have the capacities and resources to create a sustainable results-oriented budget system. These issues need to be discussed at the political level of decision-making before the process is started.

The concept of the checklist as a whole is based on the assumption that the reform has not been started yet and that the advisor will have the opportunity to discuss with the partner country basic questions like objectives and scope of reform. Chapters 1 – 3 address fundamental strategic issues like objectives, drivers and preconditions of reform and the financing strategy. In practice, the advisor will often step in a context where many of these decisions have been made already. In this case, chapters 1-3 can serve as a retrospective orientation on whether there is clarity on the fundamental questions at the current point. Beyond that, questions of managing the reform process as well as technical questions, capacity development needs and control and audit might be more important at this stage (chapters 4-5).

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Please keep in mind that recommendations may sometimes not be relevant for every partner country’s specific context. While this checklist makes an attempt to generalize certain key questions, findings and recommendations, it has to be checked for the advisory service to a specific partner country whether or not the issues at hand are relevant.

The checklist contains key questions (Q) on each reform aspect, as well as corresponding findings (F) from the literature and the case studies. Based on those, recommendations (R) are given for each chapter.

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1 Background of the reform

Background of the reform

1 1 Why?

Q: What is the rationale behind the introduction of results-oriented budgeting in the specific country context? What are the expected results/benefits from the reform? What are the country’s objectives (i.e. improved planning or decision making, impro-ved efficiency and public service delivery, improved accountability, saving)?

Q: What has been agreed upon in the political dialogue a) with the donor coordination group, b) with German Development Cooperation? What commitments have

been made so far?

Q: Is results-oriented budgeting a part of a broader PFM reform, and, if yes, what implications does this have? Have a strategy and indicators for the PFM reform been set? Are they connected to results-oriented budgeting?

F: The expected results/benefits of reform are impor-tant for the design of the reform process. Objectives of reform can vary between context and between stakeholders (e.g. Ministry of Finance, Parliament, and Supreme Audit Institution).

F: Expected results may vary from ‘achieving better value for money’ to ‘strengthening the link between budgeting and strategic planning’. While the former objective requires that the entire budget cycle (pre-paration, implementation and reporting) needs to be ‘results-based’, the latter objective can be achieved by focusing on budget preparation alone.

F: Donor’s involvement at the start of the process can be uncoordinated and of a rather ad-hoc nature. In the cases studied governments have been determining the direction of the reform themselves without ma-king specific commitments. Depending on the needs articulated by the partner Government there may be different ways in which GIZ can support the process. This is important with regard to promoting ownership of the reform process.

F: The inclusion of results-oriented budgeting in a broad PFM reform agenda may reduce the priority and attention given to the reform. Introducing the reform as a central stand-alone reform could increase owner-ship and priority from the Government.

R: It has to be worked out carefully why the country is aiming at reforming the budget system. In the advisory context it is important to discuss the reform objective with the partner. Based on the objective, it can be decided which parts of the budget process need to be involved in the reform.

R: It has to be considered which agreements on PFM reform exist with different donors since this might limit the room for choice of reform options.

R: It is important to consider from the beginning the ownership of the reform within the Government. A move towards results-orientation in budgeting is a complex reform that requires a high priority of the partner Government. Inclu-sion in a broad and overloaded PFM reform does not necessarily imply that priority is given to the reform.

R: If the results-oriented budgeting reform is part of a broad package of PFM reforms, it should be ensured that it receives sufficient exposure in the strategy and is not overshadowed by other reforms.

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1 2 What?

Q: Which terms does the partner country use (pro-gramme budgeting, performance budgeting, results-oriented budgeting…)? Is the understanding of the terms consistent with your own understanding?

Q: What exactly does the partner country want to introduce? What is the scope of the reform? Are the objectives set realistic?

F: Partner countries may use different terminology, such as “programme-based budgeting”, “programme budgeting”, and “budgeting for results”.

F: The scope of reform should be discussed in the begin-ning. Certain features of results-oriented budgeting serve certain objectives. Programme budgeting can be successfully used to improve planning towards deve-lopment objectives without necessarily measuring and accounting for actual performance (see the Peruvian case). A programme-based budget can also be used to provide more transparency on the budget allocation without the need to remove the line-item budget which can still be used for controlling expenditures. The programmes can then be presented as an annex

to the line-item budget (see the case in Kenya).

F: While in most cases the generation of performance information is part of the reform, a clear understan-ding on the way performance is to be monitored and on how the information is to be used, is often lacking.

R: Make sure you and your partner talk about the same thing. A common understanding is important to guard against misunderstandings and is more important than exact correctness of used terminology.

R: Try to identify the slimmest reform package possible that is targeted towards achieving the country’s objectives. Only advise on introducing advanced forms of results-oriented budgeting if the partner country’s institutions have sufficient capacities to implement it.

R: When both the introduction of programme budgeting and performance information is required to meet the objec-tives, other ways of reducing complexity of reform should be considered. For example, a reduction of programmes and related indicators can be a way to decrease the workload of the administration.

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1 3 How?

Q: Which variation/ building block of results-oriented budgeting can best serve for fulfilling the objectives? Which building block suits best the country’s needs?

Q: Is this whole reform package necessary to achieve the country’s objectives for improving its public financial management (PFM) system? What are the risks/ the challenges? Could the same advantages be achieved in an easier, less complex way?

Q: Is there a reform strategy and an implementation plan for the reform?

F: In practice, little attention is being paid to the specific match between reform objectives and reform building blocks.

F: For various reasons (underestimation of reforms, over-ambitious Government or pressure from external forces) partner countries may tend to consider implementing a too ambitious reform package. Over-ambition can be re-flected in doing too many different reforms at the same time: developing a results-orientation in the budget, introducing a medium term perspective, implementing IFMIS. Or, over-ambition can be reflected in adopting a too advanced methodology of results-orientated budge-ting. For achieving partner country’s objectives it is not always necessary to introduce all elements of results-oriented budgeting. In Kenya, the PBB reform still runs in parallel to the input-based budget, and performance information is not included in the official budget docu-mentation in Peru.

F: There is an inherent trade-off between the potenti-al advantages of reform (strengthening of planning, accountability, and efficiency) and the complexity of the reform. For example, in Kenya, the results-oriented budgeting reform was driven by an ambitious desire to enhance ‘value for money’ of public spending. Such objective requires that the reform cannot be focused on budget preparation alone but should also consider the downstream budget cycle (execution, reporting and audit). In Kenya, such broad scope appeared difficult to achieve in practice and a more limited ambition would have been more feasible.

F: An implementation plan has shown to be important for the speed and the direction of the reform process, although usually it is either too broad, or is not followed strictly.

R: Technical cooperation should support the creation of a tailor-made reform approach that best suits the needs of the country. Only absolutely necessary reform features should be introduced not to overburden the country’s reform capacities. Technical cooperation should particularly focus on clarifying the implications in terms of reform effort and complexity for the reform planned.

R: There is the need to discuss the trade-off between reform benefits, reform complexity and capacity with the partner and to make sure that the partner is aware of the trade-off and the risks to reform implementation.

R: The scope of the reform programme should be discussed with all stakeholders involved – partner country’s Govern-ment, Ministry of Finance, line ministries, Parliament, donors – in order to create as much ownership as possible.

R: Make use of analytical tools from international organizations like the PEFA assessment or the OECD’s budget review to assess strengths and weaknesses of the country’s budget system and to decide if priority should be given to intro-ducing a results-orientation in the budget process.

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2 Drivers of the reform

Drivers of the reform

2 1 General questions

Q: Who initiated the reform? Are there external forces behind the process (donors, IMF, World Bank, OECD etc.)?

Q: What interests does that initiating group/unit have? Are there any con-flicting interests that might be an ob-stacle to the process (i.e. Parliament’s fear to lose input control, hesitation of administration to accept changes)?

Q: Top-Down or Bottom-Up pro-cess? Top-Down: Government and Ministries are steering the reform. Bottom-Up: individual agencies are key actors (Anderson 2008:5). Which one is more likely to succeed?

Q: Is there public interest in the reform?

F: Different actors can play a role in initiating the reform towards results-oriented budgeting. The ‘driver’ is most often the Budget Department of the Ministry of Finance (MoF) who has been exposed to new practices by their international peers. In the cases studied, the donor influence at the stage of reform introduction has not been very pronounced, although donors have tried to push the reform in certain directions. Civil society might also be a demand factor, especially if there is a tradition for participatory budgeting and civil vigilance on the budget.

F: Despite a common understanding on broad reform objectives, actors may have differing interests on what they want to get out of the re-form in detail. Such tensions can exist between Finance and Planning Ministry with a divided responsibility for respectively the recurrent and the capital budget (e.g. Cameroon). Such tensions can also exist bet-ween the MoF and the Parliament. These tensions can be an obstacle to the reform.

F: Top-Down processes showed to be more effective for the implemen-tation than Bottom-Up. While progress made at individual ministries (e.g. Ministry of Forestry in Cameroon or Ministry of Health in Peru) is instrumental, it cannot drive the reform forward across Government.

F: Praxis in Germany showed little public awareness concerning the reform process. As the introduction of results-oriented budgeting is a very complex process, it may be difficult to start a comprehensive participation process, especially if civil society is not organized.

F: The degree of public participation in the process showed to be higher whenever the reform objective is to improve achievement of strategic policy priorities, such as in the cases of both Cameroon and Peru.

R: In some partner countries, international financial institutions and donors put pressure on the country to introduce the whole reform package. In this case, a discussion should be initiated on the potential benefits of the reform and on which objectives the partner country wants to pursue. This is important to assure ownership for the reform process.

R: Understand the interests of the different actors involved in the reform process and deal with them. Look for poli-tical and high management commitment (Top-Down) and strong leadership but also make sure that possible veto powers (e.g. Parliament) are not tended to block the reform.

R: While a Top-Down approach has showed to be more effective for reform implementation and would add value in most country contexts, caution is prescribed with a too centralistic approach as it may not sufficiently incorporate the experiences of line ministries.

R: Importance should be given to sensitize and involve Parliament as an elected representative body as well as civil society representatives.

R: Broad political commitment and high-level administrative support need to be ensured, especially in cases of partner countries characterized by frequent government changes and high staff turnover.

R: In cases where the reform builds on a longer process of PFM and broader policy reforms, it is important to bring the stakeholders to a common understanding on a holistic vision on the reform goals, objectives and impacts.

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2 2 Government (Cabinet/ Ministry of Finance)

Q: Is there political ownership and leadership for the budget reform (President, Prime Minister, Minister of Finance)?

Q: Within MoF: are higher levels of hierarchy supporting the reform?

Q: How can it be assured that the reform process keeps going if higher levels of decision-making are chan-ging/are replaced?

F: A reform is more likely to succeed if there is the backing by the Government/ Prime Minister/ Minister of Finance.

F: MoF is never a homogenous body as it consists of dif-ferent departments and units with their own interests. Some of the units and their management may be more supportive to the reform than others since a major budgeting reform usually leads to major changes inside the ministry i.e. re-organization of units, performance targets for staff). In the cases studied, the reform de-pends on the support of the budget department of MoF. The support of MoF leadership often depends on the strength of the budget department within MoF.

F: In some countries (e.g. Cameroon), there is also a strong Planning Ministry, which looks at capital budget issues. In that case, the complexity of budget reform increases significantly as well as the risk of failure in case of poor coordination between MoF and the Planning Ministry.

F: Changes in politics tend to lead to shift of interests. Commitment for reform might disappear.

F: If a country experienced a change in Government during the implementation process, this might bear conse-quences for the staff involved in the reform and can have implications for the reform elements and direction. This change may not be necessarily negative, especially if the reform is at a more advanced stage and is codified in the organic budget law.

R: Follow a multi-level approach to generate ownership at all levels of government. However, the most important stake-holder is MoF. Do not start the reform without commitment from that ministry at the highest level.

R: In case the responsibility for the capital and the recurrent budget is split over different ministries, the implications of that institutional set up should be discussed beforehand.

R: Political dialogue could be used to increase political support, i.e. through policy dialogue on bilateral cooperation and/or multi-donor budget support.

R: Institutionalization of reform (e.g. by adopting a corresponding law) makes sustainability of reform more likely.

R: A steering group could be set up with the aim to discuss the design and the progress of reform as well as potential pilot ministries. The composition of the steering group should depend on the scope and the objectives of the reform. It should consist of the drivers of reform within MoF (budget department or reform unit) and large line ministries and, depending on the scope, Parliament and the Supreme Audit Institution (SAI). High-ranking representatives are required for ownership and progress of the process.

R: The inclusion of civil society organisations (CSOs) and representatives may be especially beneficial for ensuring access and understanding within line ministries, in particular in the social sectors.

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2 3 Line ministries

Q: How do line ministries perceive this reform? Is there sufficient support from their side? Are they aware of the benefits/ of the rationale behind the reform? If not, how could they be convinced?

Q: Are the individual (programme) managers in ministries on board? Are they aware of their tasks and the ad-vantages of the reform?

F: The line ministries’ disposition to support the reform process and to undertake major reform steps varies a lot. Tensions between line ministries and MoF are often the case. One cause of such tensions can be the lack of sufficient sensitization and involvement of line minis-tries at the conceptual stage of the reform.

F: Awareness in line ministries is often restricted to the planning and budgetary unit. However, the link between results and the budget also requires the involvement of the policy units in the line ministries.

F: The commitment of line ministries is best gained by a combination of sticks and carrots. The sticks include laws, regulations and circulars. The carrot can be a high-er budget envelope for a well-prepared budget bid.

F: Commitment of line ministries can also be gained by a piloting approach, linked to certain (key) ministries (e.g. Peru and Cameroon) that can implement the new methodology more easily. Another way to address commitment of line ministries is to engage them in the preparation of an indicative programme-based budget which is only supplemental to the actual budget (e.g. Kenya).

F: In case that line ministries feel that non-achievement of pre-determined performance objectives and targets can have reciprocal impact on them, they have a clear incen-tive not to be transparent on their actual performance.

F: Line ministries’ commitment can potentially be stimula-ted by linking the budget reform to a broader approach on implementing results-based management in public administration.

R: Line ministries with a greater commitment for reform should be chosen as pilots. They can act as role-models for other ministries. Pilot ministries should provide advice to other ministries in the roll-out phase to ensure cross- ministerial exchange and learning.

R: Early consideration should be paid to installing incentive mechanisms to encourage compliance by line ministries with the reform. Avoid punishing line ministries for not achieving pre-determined targets, but emphasize the learning potential that can be derived from such performance information.

R: It is important to have managers on board. They provide the basis of reform and can support continuation when high level personal changes occur. Every reform is about changing the mind-set of people and requires a change manage-ment plan. Sensitization workshops for all ministries staff and a participation process could help generate support and compliance. Further supporting measures could be: performance targets for each staff member in order to change the way of thinking and integrating the reform into a wider concept for administration modernization.

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2 4 Parliament: Budget/ Finance Committee, Public Accounts Committee

Q: Who are the relevant actors within Parliament?

Q: Does Parliament have to approve the introduction of results-oriented budgeting? Is it aware of the advan-tages/disadvantages the reform might have for it?

Q: Is approval of the results-oriented budget and adequate control of performance possible without a budget office?

Q: How can budget approval be linked to audit scrutiny?

F: In many countries, there is one committee in charge of scrutiny of the budget estimates prior to approval (bud-get/finance committee – BC or FC) and one committee in charge of budget oversight (Westminster model: Public Accounts Committee - PAC). In some legislatures, the budget/finance committee is also tasked with consi-dering audit reports, sometimes via a subcommittee (i.e. Germany: Rechnungsprüfungsausschuss). In any case, these two functions have to be distinguished.

F: Reforms are less likely to succeed if the Parliament does not support it. There is a potential risk that Parliament might perceive the introduction of results-oriented budgeting asdisadvantageous, especially in the approv-alphase. Such risks include:

� a. loss of input control since parliament is voting on a far broader budget than in input-oriented budgeting and has less possibilities to shift expenditure items;

� b. disadvantages in election campaigns since input-oriented line items provide moreinformation regarding allocation of resources to constituencies;

� c. power shifts to other committees since BC may be dependent upon the sector committee’s programme assessment.

F: The potential for audit scrutiny to inform and enhance the budget approval function is underutilised in almost all legislatures (Wehner 2011).

F: Parliaments without a budget office tend to be less effective with adequate control of Government’s figures since they might not be able to analyse/ control the provided figures.

F: Capacities of all studied partner countries’ budget committees in Parliament tend to be particularly weak, which leads to a lack of interest for reform achievement and progress.

F: Requirements for financial reporting change with the introduction of results-oriented budgeting– more in-depth control on performance is necessary. Useful, timely interim reporting is necessary for effective legis-lative oversight.

F: Parliament may be wrongfully considering that its involvement is finished as soon as the reform is codified in the law.

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R: Ensuring the involvement of Parliament, especially BC /FC at an early stage in the process supports the success of the reform. Awareness raising campaigns on the benefits/advantages of reform could be helpful.

R: Think about ways to minimize power loss of Parliament and how MPs can sell the advantages of results-oriented budgeting to their constituencies.

R: In relation to the risk of Parliament to act as a veto player (depends on country context), an assured control over line items in Parliament can raise acceptance.

R: The subcommittee model (oversight function attributed to a subcommittee of BC) is suitable to maximize the potential for audit findings to feed into budgetary decisions (Wehner, 2011).

R: In many countries, it would be advisable to strengthen audit scrutiny by Parliament. Without profound ex-post control of results, strengthening of the accountability by results-oriented budgeting is limited.

R: In case the objective of the reform includes ‘increasing accountability’, performance information needs to be reported to Parliament. In order to allow Parliament to conduct its monitoring powers, the audit of performance information included in the government’s annual report is required to facilitate the Parliamentary debate.

R: A technical support unit (e.g. budget office) to the Budget Committee might strengthen the ability of Parliament to better assess the impact of programmes and the achievement of performance indicators and be less dependent upon other committees.

R: Early awareness-raising and sensitization to Parliament and SAI can increase success chances of the reform and ensure sufficient attention paid to aspects of budget execution and evaluation from early on.

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2 5 Supreme Audit Institution (SAI)

Q: Is the SAI involved? If not, how can it be involved? If yes, which role does it take?Q: With the introduction of performance budgeting, what is the implication for the role of the SAI? Does it mean a shift in the type of auditing it performs; from traditional auditing to performance auditing? If the role of the SAI is changing, does that require a constitutional amendment to expand the scope of its mandate?

Q: Does the country’s SAI have the financial and ope-rational capabilities to take up the new mandate? Is it financially independent; does it have a regular and predictable inflow of funds? Operationally, does it have the capacity in terms of staffing and professional competence to meet the demands of performance budgeting? Or would the introduction of the reform overburden the institution’s financial and operational capacity?

F: The involvement of the SAI depends on the available capacity in the SAI. In OECD countries, SAIs appear to be more involved at higher conceptual levels (e.g. in the UK and Hessen, the SAI served as an advisor on the elaboration of programmes or performance indicators). In partner countries, the SAI is often still not fully equipped to conduct its financial and compliance audits and its role in results-oriented budgeting reforms remains marginal.

F: In case the results-oriented budget reform focuses on budget preparation alone and does not extend to the reporting function of Government, there is no obvious role of the SAI.

F: There is unclarity in the distinction between the audit of performance information and value for money audits. Audit of performance information focuses on the reli-ability of the reported performance information. Value for money audit focuses on economy, efficiency and effectiveness.

F: In case the Government aims to be accountable for results and reports on its performance, the audit of performance information by the SAI is necessary. In that case, the SAI should be given the legal mandate to carry out such audits.

F: In practice, SAIs in partner countries showed to be already overburdened with their traditional tasks and were limited in their possibilities to adapt to the impli-cations of the reform.

R: Sensitize and provide training to the SAI on the potential benefits of results-oriented budgeting.

R: Discuss with the SAI the difference between value for money auditing and the audit of performance information. In an advanced form of results-oriented budgeting, the SAI should be facilitated to conduct the latter type of audit.

R: Assess the financial and operational capacities of the SAI to ensure that the introduction of the audit of performance information does not overburden it.

R: It may be helpful to strengthen the role of the SAI as an advisor to MoF and to Parliament.

R: If performance information is included in the annual report of the SAI, Parliament and SAI can be brought together so that they can discuss a common approach with regard to scrutiny.

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2 6 Civil Society and Media

Q: Where is room within the reform process for the participation of CSOs and media?

Q: What role can CSOs take in support of the reform program?

Q: Are CSOs and media in the partner country already mobilized, or capable of mobilizing and making objective and analytical contributions?

Q: What may be some of the possible barriers to the active participation of the CSOs and the media? How easy is the access to information on the reform?

F: In some countries, there are CSOs specialized in budget monitoring which are already actively involved in the budget process of the country; like IDASA in South Africa and ISODEC in Ghana. In Peru, the MCLCP has not only been a vital counterpart in the reform process, but actually counts among the initiators of the results-oriented budgeting approach there.

F: CSOs involved in independent budgetary monitoring can provide useful technical support to Parliament on budget scrutiny. Whenever the reform objective is linked to achievement of strategic policy priorities (e.g. Peru, Cameroon), the influence and engagement of CSOs has proved to be higher.

F: As the case of Peru suggests, CSOs may be very influen-tial for the initiation of reform and for ensuring public awareness and visibility for this objectives.

R: Try to ensure the participation of CSOs and media in the whole reform process, since their involvement increases awareness of the reform process among citizenry. It also helps to initiate and foster public debates, which could lead to valuable input from the public. Involvement, however, depends on the degree of mobilization of civil society in a country. If it is less mobilized, then find out how it can be supported to participate.

R: Direct support could take the form of helping to increase CSO’s involvement through training, capacity building and funding.

R: Indirectly: discuss with the partner how it would engage with CSOs. For instance discuss how the reform process could be open and transparent, making information easily accessible for the CSOs and the media to use.

R: If there are well-organized CSOs engaged in the budget process, they can be made instrumental for sensitization of other stakeholders, such as Parliament.

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2 7 Donors

Q: What is the role of the donors?

Q: Do they engage via Technical Cooperation or via Budget Support?

Q: To what extent is there a coordination in the donor efforts and initiatives?

F: In the context of partner countries, there are often different donor constellations. Depending on the dependency of the country on foreign assistance, donors may be influential in the reform process.

F: Budget support operations can be made instrumental through specific conditionalities to induce partner Governments to speed up budget reforms. Technical cooperation can be helpful for on-going policy and implementation support throughout the process.

F: Donor coordination is important as to ensure that donors agree on the direction of the changes and sup-port different elements so as to avoid duplications in their efforts.

R: Examine the donor constellations in the country carefully and map out potential opportunities and pitfalls that might result from those. In the absence of established donor coordination mechanisms, the reform may serve as an occasion for more structured dialogue.

R: Support the partner Government through a balanced mix of technical cooperation and budget support operations in coordination with other donors.

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3 Overall PFM framework, sequencing and alignment with other PFM reforms

Overall PFM framework, sequencing and alignment with other PFM reforms

3 1 Legal requirements

Q: Is the regulatory framework adequatefor reform?

Q: In the context of introducing results-oriented budgeting, is there a plan to change the organic budget law? Would this be supportive for the implementationof the reform?

Q: Does Parliament embrace a possible change in the PFM law to accommodate the reform?

Q: Does the reform implementation plan need to be approved and is it legally binding?

F: Institutionalization of new budget rules is helpful to have a sound foundation for reform and to support compliance with it. This also strengthens the position of MoF vis-à-vis the line ministries since participation in the process does not depend on voluntary contributions.

F: The codification of the reform in budget law proved to be an important factor for the speed of the implemen-tation process, as well as for continuity and political support throughout the process.

F: Although Parliament can express verbal support for the reform, in case the reform is not codified in the organic budget law, there is room for interpretation and diffe-rent perspectives.

F: Governments may have other options how to codify the reform other than a change in the organic budget law. One such option is that the reform implementation plan receives a legal status per Government Decree. Another option is the case of Peru, where Parliament demanded an implementation plan before actual adoption of the reform in the legal framework.

R: Make sure that new rules are institutionalized, if the old ones impede or hinder the implementation of results-orient-ed budgeting. Reform/change of budget law should accompany the reform process in order to foster compliance and to strengthen the position of MoF.

R: Success chances and pace of the reform can be seriously threatened if there are no clear prospects that it will be institutionalized in an appropriate way.

R: In the absence of adoption in the budget law, a legally binding implementation plan may be a sufficient guarantee for institutionalization of the process.

R: Ensure that in the beginning of the reform process, an implementation plan that draws on support from Parliament is prepared.

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3 2 Sequencing and timing of the reform

Q: What other reforms have to go or are going along with the introduction of results-oriented budgeting? In how far are they intertwined?

Q: Are the basic PFM processes working? What are the priorities of PFM reform? What has to be reformed most urgently?

Q: What non-technical factors (i.e. political economy) might influence the sequencing and/or timing? Are they considered in the reform approach of the country?

Q: Is there a given timeframe in which the country wants to implement the reform? Is it realistic?

Q: Is a step-by-step approach wanted or a “big-bang” introduction? What advantages/ risks might each approach have?

Q: Is there an implementation strategy with clear reform milestones?

F: The reform’s objectives and scope need to be critically examined in the context of other on-going initiatives, such as decentralization, accounting and planning reforms.

F: There is a rich body of literature dealing with appropri-ate sequencing of PFM reforms. Agreement exists that the basics of the budgeting system should be in place before starting major reform processes. Allen Schick’s widely recognized approach on “Getting the basics right” suggests a certain ordering that can be used as a guideline (see recommendations in box).

F: In the case studies (e.g Kenya and Cameroon) pro-gramme-based budgeting has been adopted as a reform priority even though significant weaknesses existed in the financial accounting and reporting system under-mining the reliability of the financial information.

F: There are two stages of advising towards ordering of reform. At a higher level of decision making: getting the overall reform priorities correctly ordered - reform pri-orities are decided by what the PFM system is designed to deliver. At a lower more technical level of decision making, sequencing consists of ordering reform actions to achieve this priority of deliverables (probably more detailed) (Diamond 2010).

F: Reform experiences in several countries show that the reform process might take up to 15 years (Anderson 2008:5).

F: Timing will be country specific, it is not likely to be possible to generalize across countries about the overall reform timeframe. It is not only a PFM technical matter outside each country’s political economy reform. Timing depends a) on the expected results/objectives and b) on the political context.

F: Many countries decide for a step-by-step approach. The advantage is that more time is given for awareness and commitment building. The main disadvantage is that if the reform is too gradual, the momentum for change can be lost.

F: In cases where there is no, or just a pro-forma imple-mentation strategy, and where deadlines are unclear, the process has shown to be much slower and rather ad-hoc.

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R: Formulate a clear implementation strategy including a timeline for reform implementation and ensure high level approval, preferably by Parliament.

R: A gradual implementation approach is to be preferred above a ‘big-bang’ approach so that commitment of stake-holders can be ensured and so that procedural, technical and administrative issues can be streamlined during the implementation period.

R: Consider the “Getting the basics right” approach (Allen Schick, 1998)

� The government should foster an environment that supports and demands performance before introducing performance or outcome budgeting.

� Control inputs before seeking to control outputs.

� Account for cash before accounting for accruals.

� Establish external controls before introducing internal control.

� Establish internal control before introducing managerial accountability.

� Operate a reliable accounting system before installing an integrated financial management system.

� Budget for work to be done before budgeting for results to be achieved.

� Enforce formal contract in the market sector before introducing performance contracts in the public sector.

� Have effective financial auditing before moving to performance auditing. Adopt and implement predictable budgets before insisting that managers efficiently use the resources entrusted to them.

Source: Public Expenditure Management Handbook, IBRD, 1998.

R: Consider the two stage process of ordering (Jack Diamond 2010)

Stage 1: Advising higher levels of decision making:

� Define reform priorities and put them into a hierarchy. Try to reduce reform complexity to the minimum possible.

� Identify weak link in PFM system (use of PEFA assessment is recommended). Discuss whether it should be addressed first - it might impose risk to reform actions.

Stage 2: Advising lower level of decision making:

� Discuss choice of scope of reform actions, their order and the timing.

� Discuss necessity of other reforms in conjunction with the introduction of results-oriented budgeting (i.e. accrual accounting, medium term financial planning).

� Whether a partner country should be advised to introduce accrual accounting in conjunction with the introduc-tion of programmes depends on an analysis of that country’s capacity to simultaneously manage two complicated reform steps, as well as on the outcome of a cost-benefit analysis.

� Consider carefully whether simultaneous introduction of medium term financial planning and results-oriented budgeting could overburden the country’s capacity to manage the reform process.

� Programme budgeting might be an appropriate reform step before moving to performance budgeting.

� Discuss Pros and Cons of the step-by-step approach vs. big-bang.

� Discuss trade-off: the more is programmed, the longer the time-frame.

� Discuss whether timing is appropriate in terms of the complexity of the single reform activity.Adapt sequencing to the specific country context. Consider political factors that might cause delays (e.g. elections).

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3 3 Pre-conditions and preferential features

Q: What are the pre-conditions and what are the preferential features for introducing the reform?

� Orderly and transparent budget process

� Integrated responsibility for the capital and recurrent budget

� A functioning accounting system that allows timely and reliable reporting

� Accrual accounting

� Internal control and internal audit

� Medium term financial planning

� Basic programme budgeting as a predecessor of performance bud-geting

F: In cases that the process of preparing the line-item budget still reflects deficiencies (e.g. not timely, inadequate involvement of line ministries), the probability that the implementation of a more advanced budget format can be successful is low.

F: In case that the institutional responsibility for investment and capital budget is split, the formulation of clear reform guidelines has been more difficult inhibiting the reform implementation process.

F: In cases that the objective of the reform extends to activities in the downstream budget cycle (accounting, reporting), a functional accoun-ting system (whether accrual or cash accounting) showed to be a precon-dition for the introduction of results-oriented budgeting. Limitations in the accounting system and in the operationalization of an IFMIS system proved to be significantly hampering the implementation process.

F: Accrual accounting provides more information about the costs of government’s activities and can better link costs to performance. However, reliable cost information can also be produced in a cash-based environment. Accrual accounting is therefore no prerequisite for intro-ducing results-oriented budgeting. In contrast, given the complexity of a reform towards accrual accounting, such a reform significantly reduces the resources available for reform towards results-orientation.

F: Although internal control and internal audit play an important role in any public financial management system, they are no reform pre-conditions and can be addressed during implementation. Most important implication for the internal control function is the shift from input to output- based controls, especially in the case that the reform gives more flexibility for shifting appropriations within a programme. Internal audit reforms related to results-oriented budgeting follow on the new output-based controls and can take the form of performance evaluations and the audit of performance information.

F: In general, medium-term financial planning is not a requirement for results-oriented budgeting, but its infrastructure might be very helpful for setting it up.

F: While linkage between programmes and medium-term finan cial plan-ning is logical, medium term planning is not a precondition. Reclassifi-cation of the budget in line with programmes in itself also adds value to the planning process. If programmes are planned to last longer than a budget year commitment appropriations serve to assure financial dowment.

F: Basic programme budgeting already strengthens certain budget functions like planning even without the measurement and monitoring of performance information. However, accountability of programme managers without the formulation of performance indicators is limited. Introducing basic programme budgeting first might be an adequate solution to not overburden the country’s reform capacities.

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R: In line with Allen Schick’s ‘getting the basics right’, the priority in reform should focus on ‘managing inputs’ before ‘managing outputs’.

R: Deficiencies in the budget preparation process need to be addressed before introduction of a more advanced budget format.

R: In case that the institutional responsibility for investment and capital budget is split, ensure that both responsible parties have the same perception of the reform and its implementation, in order for the programmes to include both investment and capital budgets.

R: Align the programme budgeting methodology with the MTEF methodology.

R: In case the objective of the reform includes enhancing accountability and value for money, the reform should extend to the reporting function of government. In that case, the reform should not focus only on budget preparation, but should pay equal attention to the implications of programme budgeting on the ‘downstream’ part of the budget cycle (execution, reporting and audit).

R: Keep in mind the important role of an internal control and audit system as a risk management tool for reform processes.

R: Keep in mind the important role of a functioning accounting system, but keep it as simple as possible to not overburden existing capacities.

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4 Management and financing of the reform

Management and financing of the reform

4 1 Management of the reform

4.1.1 Senior Management Level and Inter-ministerial Coordination

Q: Who is taking the lead in steering the reform? Is a higher political level directly involved or interested? Is there sufficient communication with the actors at the higher political level?

Q: Within MoF – who will coordinate the reform? Is there a plan to establish a budget reform unit? If yes, what are the tasks and where is it placed within MoF? Does it have enough power/political backing to coordinate the process?

Q: How to coordinate the process bet-ween MoF and line ministries? Is the division of labor between MoF and the line ministries clearly defined? Are the responsible managers defined?

F: Many countries have established a budget reform unit to coordinate the reform process. Here, the relation to other divisions is a major issue. While it is generally supportive for a reform unit to report directly to senior management levels (i.e. directly to the state secretary), those units are often placed at a normal unit level within a department. The difficulty is that the unit coordinating the reform depends on the instructions of the department which has to be reformed.

F: In some cases it can be helpful for the reform process to ally closely with reform-friendly line ministries and integrate them into the plan-ning process. Volunteering ministries can be used as pilots for the rollout and triggers of reform.

F: In many partner countries, dedicated units within MoF are tasked or established in the framework of the reform. The effectiveness of the unit depends on its capacity, mandate and composition.

F: There are various ways to coordinate between MoF and line ministries ranging from ‘strong’ instruments such as ‘legislation and regulations’ to less strong instruments ‘circulars, manuals, and trainings’. The use of strong instruments can result in resistance from strong line ministries (e.g. Peru). The use of only soft instruments can result in lower efforts of less committed ministries (e.g. Kenya).

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4.1.2 Middle Management Level

Q: Do managers comply with the reform?

Q: Is the responsibility of the managers clearly defined? What is their role in budget formulation, execution, reporting, staff, information and com-munication technology, auditing etc.? How much flexibility for managers of programmes is wanted?

Q: What are the (spending unit) mana-gers accountable for: financial results, non-financial performance, following appropriate rules, procedures, have authority and flexibility to make resource decisions (within limits) to achieve results?

Q: How are they being held accountable (managerial accountability)?

F: It is essential to bring people on board. To foster ownership for reform, managers who finally have to implement the reform need to be con-vinced of the benefits. A reform/change process is mostly about chang-ing the mind-set among managers.

F: The introduction of results-oriented budgeting is not always seen in a larger reform context aiming at improving the overall performance of the administration.

F: It is difficult to hold managers to account if (Dorotinski 2011):

� There is an unclear organizational structure, mandate

� Managers are not involved in budget setting, planning, target setting

� Performance targets change annually

� Managers do not actually receive approved budget levels; no predictability in funds available

� Managers have no influence over procurement processes for their work

� Managers have no influence or human resource management for their office (positions or employment)

� Managers do not receive continuous or regular spending reports for their units

� There is no regular management or performance and output reports

� Managers have no flexibility or discretion in resource allocation

� Managers are selected for technical skills, not management ability

� Auditing focuses on compliance, which legislature and chief executive focus on performance results.

F: In order to hold managers accountable, it is important to have a sound financial management control system in place involving regular reporting, clear budgetary rules, system of hard and soft controls also programmed in IT-systems (Laar, 2011).

F: The manager should not only be able to apply the reform, but also to explain the reform and its advantages. Communicational skills are important.

F: Middle managers feel threatened by a budget based on programmes in case that their department is no longer ‘one to one’ visible in the programme budget (which could be the case as programmes are larger than units).

F: A relation between programme budgeting and performance contracts may support the introduction of results-oriented budgeting.

F: The focus in the line ministries is largely on the planning and budget departments, while less attention is given to technical departments.

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R: If a budget reform unit is established, it should be equipped with sufficient personnel and financial resources in order to be able to steer the reform process. It should be given sufficient power (reporting to state secretary) to steer the process.

R: Setting-up a cross-ministerial steering committee is recommendable in order to steer the reform process and to invol-ve spending agencies in it.

R: Identify managers within MoF and spending agencies and their roles and make sure they are on board. Sensitize.

R: Discuss whether the reform objective extends to giving managers more authority and flexibility to make resource decisions (within limits) to achieve results. If that is the case, the managerial accountability needs to be increased to allow managers to make their own choices within the approved budgets and according to the budgetary principles and rules (Laar, 2011). Such higher degree of managerial accountability requires both behavioural change and modification of the internal control systems.

R: Establish certain control points involving regular reporting, clear budgetary rules, system of hard and soft controls also programmed in IT-systems. To change the mind-set of people, foster self-conception as a public service delivery agency, and citizen-orientation.

R: Do not focus entirely on budget and planning staff, but involve also technical units in the sensitization and training programmes, as they should be responsible for formulating and implementing programmes.

R: If possible, incorporate the budget reform in a wider administrative reform that focuses on the promotion of a performance culture that may include performance contracts, behavioural aspects and more flexibility for implement activities.


4 2 Financing

Q: Is there an estimate as to the costs of reform? If not, are safeguards provided to make sure that costs will be estimated at a later stage?

Q: What reform activity will be most cost- expensive? Is there a potential to save or to reduce reform activities to the absolute minimum?

Q: Is financing secured? If not, what are possible sources for financing (mobilization of own resources, donors)?

F: Clear cost estimates of the reform are usually not available.

F: In most of the cases studied, countries reported that the biggest costs of reform were IT licenses and related IT training. IT software and IT training can refer to budget submission software and the use of the programme classification in the Chart of Accounts. Costs related to IT software for accrual accounting is not considered necessary to implement a results-oriented budgeting approach.

F: Experience shows that the introduction of IT based reforms does not only require a single amount of costs but include running costs to maintain the system set in place.

F: Next to IT costs, the other important cost item is related to training, sensitization, communication and workshops for the implementation of the reform.

R: Advice the partner country to prepare a medium term cost estimate of the reform.

R: Discuss the costs of reform and potential sources of financing with the partner country. Make sure the partner is aware of the total costs (including advisor fees, technical equipment, additional staff needed, promotion costs…).

R: Bring the issue of financing of the reform in the donor-dialogue. Make sure other donors are supporting the reform as well.

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4 3 Capacity development

Q: Does MoF have sufficient capacities to coordinate the implementation process of results-oriented budgeting in the MoF itself and in the line ministries? What can be done to increase its capacities?

Q: In case a budget reform unit exists: does it have en-ough capacities to coordinate the process (personnel, resources, skills, etc)?

Q: What are the capacities of the involved managers in line ministries like – not only to implement the reform but also to keep the system running afterwards?

Q: What skills are necessary to implement the reform (e.g. good knowledge of programme base)? What training do they need in order to approve these skills?

Q: What is being done to change the mind-set of the people involved (more service-delivery orientation, thinking towards results, citizens = clients, recognizing the need to use the resource available more efficiently)?

Q: Are there mechanisms in place to foster cross-organi-zational cooperation and learning?

Q: What can be learned from other countries’ expe-riences (study visits, etc.)?

Q: Is there a change management strategy?

Q: How is the retention of key people ensured?

F: Capacities of ministerial staff vary from country to country. Main challenges usually are under-staffing, weak education levels and staff fluctuation.

F: Most trainings are (co-)financed by donors.

F: Training and capacity development is given a lot of attention in most countries that are reforming their public finance systems. However, a lack of a compre-hensive training programme was noted.

F: Training and capacity development tends to focus on financial planning staff and do not extend to the technical units.

F: Training tends to focus on the technical aspects rather than the cultural aspects focusing on the promul-gation of a performance oriented attitude among the public administration.

F: Study visits of higher management are crucial to show the horizon and increase commitment to the reform

R: Capacity Assessments (GIZ tool) could be used to analyze the initial situation of existing capacities and their gaps. This tool identified four interacting dimensions of capacity development to strengthen the change process: human resource development, organizational development, network development and system development in the policy field. GIZ offers a variety of technical cooperation instruments for budget reform processes, such as:

� Organizational, management and technical advice;

� Organizational advice on the organization of design and process in the ministry of finance for preparing, steering and controlling the budget process (formalization of processes and definition of roles);

� Process advice for coordination between ministry of finance and line ministries in the budget process;

� Training for qualified personnel and management personnel.

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5 Technical building blocks of the reform

Technical building blocks of the reform

5 1 Budget preparation

5.1.1 Budget Classification

Q: Which budget format suits best the results to be achieved? Is there a programme structure in place?

Q: Who reclassifies the budget from input-oriented line items to programmes? Is the person in charge prepared to do so? Is there the awareness that the programmes have to be linked to national policy strategies (i.e. development strategies)?

Q: Shall the institutional organization in line ministries be arranged according to the structure of pro-grammes or vice versa?

F: The categorisation of different methodologies of results-oriented budgeting demonstrates that it is possi-ble to use performance information even if the budget is still using a line-item classification. However, a line-item format makes it more difficult than a programme format to link the performance information with the budget allocation.

F: There are two kinds of budget classifications (OECD Kraan 2007:3):

� Used for analytical purposes;

� Used for authorization of the budget in appropriations laws and defines the line items of the budget.

F: A country can adopt a programme structure for analyti-cal purposes while preserving the line items classifica-tion for appropriation (e.g. Kenya).

F: In the cases studied, the reclassification has been done by line ministries. Line ministries often lacked the capa-cities for reclassifying the budget and were dependent upon guidance by MoF.

F: MoF has an important role in the preparation of the guidance. Delay in preparing the guidance and incon-sistencies in the guidance negatively affect the reform implementation (e.g. Kenya and Cameroon).

F: Although most policy knowledge is available in the technical units, in most cases, only budget and planning staff are involved in the definition of the programmes.

F: Budget reclassification to programmes can lead to overlapping responsibilities between different ministries which inevitably lead to problems. Thus, budget reform can lead to a reflexion on the organizational structure of ministries and the division of tasks between ministries (OECD Kraan 2007:5).

F: In Peru, two methodologies were used to define pro-grammes. One methodology started from the intended results aspired by government and reasoned backwards to identify the instruments and programmes. The second methodology started from the administrative structure. The advantage of the first methodology is the alignment with the Government strategy. The advantage of the second methodology is the clear accountability structure.

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R: While results-orientation can be achieved within a line item classification, the more common way is a programme classification.

R: In case a country’s budget execution and reporting system is not prepared for programme budgeting, a programme classification can be used for analytical purposes while preserving the line item classification as the basis for appro-priation. In this way, the transparency of the budget documents will be increased.

R: Generally, programmes should be designed in line with the administrative classification / structure among ministries to minimize the time and effort needed for the reform. Within ministries, the programmes can surpass departmental boundaries; re-organization of the line spending agencies should be avoided because this could fundamentally slow down the reform process. This implies that MoF accepts that the line ministries have the responsibility to organize the ministry as they see fit (OECD Kraan 2007:5, 6, also Diamond 2003:14, 15).

R: Especially in countries with weak administrative capacities, it may be easier to design the programmes in a way in which they fit the administrative structure among ministries. Within ministries, the programmes can surpass depart-mental boundaries depending on the rationality of the organisational chart in the ministry.

R: The reclassification of the budget according to programmes has to be done by the spending agencies (line ministries) that are implementing the programmes since MoF does not have the needed information to do so. Within line minis-tries, technical units should be involved along together with staff of the budget departments.

R: Implementation guidelines for spending agencies should be issued by MoF. Such guidance to support line ministries should be drafted before the reform is rolled out to the line ministries. Therefore, a clear timeline in planning the reform is required.

R: Two basic approaches to designing programmes (Diamond 2003:14 - 17):

1) to make the programme structure agency specific – take the spending agency and design the programme only within that ministry’s activities;

2) designate broad policy areas, identifying the programmes on this basis so that individual institutions could end up con-tributing to only one part of a programme. A useful starting point in determining the policy framework in programme design is to use the functional classification of government expenditures.

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5 1 Budget preparation

5.1.2 Budget Preparation, including Formulation of Performance Information

Q: Is there an adequate costing system in place? Does ministerial staff have the capacities to cost?

Q: What performance information should be in-cluded in the budget documentation? Would it focus on programmes only or would it also include sub-programmes? At what level should the information focus: on outputs or on outcomes?

Q: What has to be done to integrate perfor-mance information into the budget process?

Q: In how far is the link with MTEF planning ensured?

F: For the programme structure to be implementable, there must be adequate mechanisms to fully cost programmes, so that the outputs of programmes can be related to their budgetary costs, and then ultimately to their benefits in order to judge pro-gramme performance (Diamond 2003:19).

F: In all cases studied, MoF has developed detailed instruction to cost programmes. In practice, these manuals are disregarded as line ministries do not have the capacity to apply the costing me-thodology. Incremental budgeting is often the preferred method to determine the budget allocation per programme.

F: The main problems with the formulation of performance indica-tors are finding clear objectives, obtaining sufficient data of high quality, and designing measures for specific activities. The fact that countries continue to struggle with these challenges after the first five years reflects that it takes time to develop meaning-ful measures and to collect relevant data of sufficient quality.

F: Designing adequate and accepted indicators (in quantity and in quality) can take years (e.g. Germany: Berlin). There is a prefe-rence in the beginning of the reform process to formulate input and process oriented targets as they are easier to measure. However, they may not be as relevant and useful for decision-making as output and outcome indicators.

F: Established criteria on good quality performance data and on their measurement by MoF can give guidance to the spending agencies and increases transparency on the expectations.

F: In most cases, programmes (outcomes) and sub-programmes (outputs) are distinguished. However, the formulation of useful performance information in the partner countries is yet not much advanced as the focus of the reform has been on the introduction of the programme classification in the budget.

F: Line ministries are more prepared to focus on outputs and activi-ties rather than outcomes, as outcomes cannot be fully control-led by the ministry. However, Parliament is more interested in performance information at the level of outcomes.

F: Usually, the MTEF reform has preceded the reform towards programme-based budgeting. Harmonization of results-oriented budgeting with the MTEF planning process has the potential to strengthen the benefits of the reform. However, in most studied cases the budget allocation is done on incremental basis and there is no link between budget allocation and multi-annual performance targets.

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R: The capacity in partner countries to fully cost programmes is often severely insufficient. Therefore, it may be useful to start the practice of costing with a few high priority programmes and to develop a group of costing experts within the government that can assist the costing of other programmes in subsequent years. For detailed recommendations on costing, see ‘Basic Steps of a Program-Based Costing System’ (Diamond 2003:22).

R: If the country has the capacities to do so, it makes sense to integrate performance information in the budget process. It has the potential to change the budget process towards decision-making based on outputs and outcomes.

R: Add only performance information in the budget documentation if it is relevant for the decision-making process. Otherwise, the budget document is overloaded with data that is not relevant and not used. More information does not necessarily mean more transparency.

R: Think of ways to reduce complexity, e.g. by reducing programmes and related indicators. Include only performance indicators for which monitoring data is available or can be easily collected (e.g. by means of a survey).

R: It is recommendable for MoF to formulate a set of criteria for good quality performance indicators, see i.e. the UK HM Treasury, Choosing the Right FABRIC.

R: Integrate the programme-based budget in the MTEF structure. However, budget allocation decisions in the MTEF should only be informed by performance information in case that the actual performance can be adequately monitored.

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5 2 Budget execution


Q: Is the exchange of information between the stake-holders involved secured? How to establish effective information systems that communicate with each other – automation of information exchange? Are the-re plans to link the results-oriented budgeting with IFMIS or other IT information systems?

Q: Has the Chart of Accounts (CoA) been modified in line with budget classification?

Q: How can the legibility of data be improved?

F: Many partner countries still face substantial problems with reporting reliable financial information by a well-functioning IFMIS. Such problems need to be resolved before the system can be expanded to include other functionalities.

F: A compatible CoA is required to report on the execution of the programme budget. In the absence of a modified CoA, the reforms in budget preparation may not achieve the full added-value because there is no reporting on the programmes.

F: Improved accountability is dependent on adequate information to judge performance (Diamond 2003:19).

F: A special budget office in Parliament can be helpful to analyze the data from the financial reports (e.g. in Germany, state of Hessia).

R: The design of programmes should take into account the practicality of constructing a comprehensive and regular information and reporting system to provide relevant data in a timely manner.

R: Ensure first the presence of a well-functioning information and reporting system for financial information.

R: In case the objective of the reform is to enhance accountability of the government on performance, start the reform towards results-orientation in budgeting only after a compatible CoA can be integrated in a functioning IFMIS system.

R: Examine how to enhance the legibility of data, e.g. through a special budget office in Parliament.

107 Checklist



5.2.2 Use and measurement of performance information

Q: How is the performance information being used by different users, e.g. Parliament? Is it used to justify allocations within sector budget ceilings, if such exist? Is there a plan to eventually use performance infor-mation for budget appropriations?

Q: How can the presentation and reporting of perfor-mance information be introduced or improved?

Q: Has the availability and quality of performance data been considered? And are there established defini-tions of performance measure?

Q: What incentives can be set to make spending agencies respect performance indicators?

Q: How much information is necessary? How to limit the information that is generated? How to secure the readability of the information (e.g. for parliament)?

F: The revising and updating of performance measures is a continuous process because needs and priorities are constantly evolving (OECD Curristine 2005:97).

F: There is always the danger that linking results to financial resources can create incentives to distort and cheat in presenting performance information (OECD Curristine 2005:111).

F: Many countries reported from their reform experience that the actual problem is the generation of too much information (e.g. Sweden, USA). In these countries, Parliament complained about difficulties in handling the amount of information produced leading to decreasing transparency and thereby accountability.

F: Performance information can also be measured by a survey which can be organised in a short time and does not need much investment.

R: It is not recommendable to link performance results and expenditure mechanically, resulting in automatic cuts for poor performance (technical limitations, wrong incentives) (see OECD 2005:111). If results-orientation aims to motivate line ministries to improve performance, it is important that the performance information is not used for punishment. Rather, the potential to learn from past performance needs to be emphasized at all levels (leadership of line ministry, the MoF, Parliament, SAI).

R: It is important to understand how to create the right incentives when performance information is used for manage-ment and budgeting purposes. Failure to gain the support of key agents can lead to problems with perverse incentives and gaming. Solutions include consulting with staff at the front line of service delivery (OECD Noman 2008:11).

R: Indicators should not change too much over the years; otherwise it is difficult to reconstruct the outcome over the years which could lead to a lack of transparency.

R: Tailor the information in the budget documents on the information needs of Parliament: more information is not necessarily better (if Parliament cannot handle the information, this leads to decreases in transparency and accounta-bility).

R: It is important to institutionalize the use of performance evaluation and performance measurement in the budget process so that the information can be used in budget allocation decisions.

R: Develop a manual describing the criteria to which the performance measurement system should comply. The set of criteria for good quality performance indicators (see under 5.1. Budget Preparation) may also be used for the measure-ment of them. This is also useful for guiding the role of the (supreme) audit institutions in their audit of the quality of the performance information.

R: Start with the measurement and reporting of a limited set of high priority indicators per ministry rather than to include performance information across the entire range of government activities.

R: Design indicators for which data can be realistically collected rather than use theoretical indicators. Emphasize that data can be collected by various methods (e.g. surveys) and does not always need an expansive and time-consuming automated system.

108Checklist




Q: Is there supervision by MoF on line ministries’ budget execution?

Q: What incentives and sanction mechanisms can be set in place in order to ensure compliance with the process?

F: In theory, spending unit managers should be account-able for financial results and non-financial performance, following appropriate rules, procedures, have authority and flexibility to make resource decisions (within limits) to achieve results (Dorotinski, 2011).

F: With regard to internal controls on financial trans-actions, in none of the studied partner countries there is a shift from appropriations by line items to programmes, nor is there a shift from input to output controls.

F: Although in most cases, input controls are still in place, new output controls have been added. The most impor-tant output control is the use of performance measure-ment and performance evaluations.

F: MoF tends to have a less active role in evaluations than in the case of performance measures. In relation to eva-luations, the main responsibilities of the MoF are (OECD Curristine 2005:116):

� Review the progress of spending ministries in commis-sioning /conducting evaluations.

� Provide general policy advice and guidance to spend-ing ministries.

� Recommend that spending ministries use evaluations in their budget process

F: Evaluations are much more widely used by spending ministries. They tend to be used not so much as part of the budget formulation process, but rather for strategy development and for target setting (OECD Curristine 2005:121).

F: Performance evaluations are also introduced in partner countries.

R: Consider the pros and cons of appropriation at programme level rather than at item level. Do not advance to appropria tion at programme level before there are sufficient internal controls to prevent misuse of budget funds. In the same vein, do not shift from input to output controls (and from appropriation by line item to appropriation by programme) before output controls can be credibly implemented.

R: If evaluation reports are taken seriously, it is important to monitor and follow-up to see if accepted recommendations are implemented.

R: Make as much as possible use of existing monitoring mechanisms, such as sector working groups, to evaluate the performance at programme level.

R: Conduct the performance evaluations by independent experts to minimize bias.

109 Checklist



5.2.4 Internal audit

Q: Is there an internal audit system in place, both in MoF and in line ministries? Are there internal rules for bud-getary discipline? Is there regular consultation based on the results of internal control?

F: In partner countries studied, programme budgeting has not yet advanced to the stage of budget execution. The issue of internal audit of performance information is therefore not yet an issue.

R: Train the internal audit units on the new rules and regulation of the results-oriented budgeting system and encourage them to make it part of their annual audit program.

R: Provide internal audit units with the mandate to audit the performance information to support its reliability and relevance.

110Checklist


5 3 External oversight

Q: Does external audit take place? Are the results being published?

Q: Is there any cooperation between internal audit services and external audit (SAIs) (exchange of ideas and knowledge)?

Q: Are there any possibilities for civil society to make use of its control function (e.g. whistle-blowing system)?

Q: After the results of the monitoring are public: does the introduction of results-oriented budgeting lead to the changes aimed for? Is administration really more accountable for its results? Is there better service deli-very to people? What are the implications?

Q: Does the country’s SAI have the financial and ope-rational capacities to take up the new mandate? Is it financially independent; does it have a regular and predictable inflow of funds? Operationally, does it have the capacity in terms of staffing and professional competence to meet the demands of performance budgeting? Or would the introduction of the reform overburden the institutions’ financial and operational capacity?

Q: Is there a Public Accounts Committee in Parliament which debates the report of the SAI? Does it have the capacity to understand the audit reports on results-oriented budgeting?

F: While in the examined OECD countries, the SAI has a vital role, this is not the case in the three case studies from partner countries. This is partly related to the lack of capacity and resources on part of the SAI. Moreover, the focus on budget preparation also inhibits an involve-ment of the SAI. As long as there is no reporting on per-formance, there is no role of the SAI. Also, the SAIs in partner countries need to devote a relatively large part of their capacity to the audit of financial information as the financial systems in use are less advanced.

F: Some SAIs have experience in value for money audits focusing on ‘economy, efficiency and effectiveness’. There is less experience among SAIs in the ‘audit of performance information’ which focuses on the quality of the performance measurement.

F: If there is a special budget office in Parliament (like i.e. in Hessia, Germany), it can support the Public Accounts Committee in analyzing the SAI’s reports. .

R: In case that the reform objective extends to increasing the accountability in the budget process, then do not focus the reform entirely on budget preparation, but apply the reform also to downstream activities such as reporting to Parliament and external audit.

R: See the recommendations in chapter 2 on Parliament and Supreme Audit Institution. Most importantly:

� Ensure that the SAI gets a legal mandate and the capacity to audit the quality of the performance information that is included in the Annual Report of the Government;

� Advice Parliament to use the performance information in their debate with Government. One way to achieve this is by getting Parliament involved in deciding what type of performance information they expect to be reported on. For example, do they expect input, output or outcome information? Do they expect performance information on all Government’s activities or only on a limited number of priority areas?

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