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PERFORMANCE BUDGETING IN THAILAND

GEOFF DIXON

FORMER CONSULTANT, THAI BUREAU OF THE BUDGET

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Thai budgeting has been very centralized

very detailed budget categories

cash allotments within each budget year

pre-audit of spending transactions (soft)

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This results in

strong control of the budget bottom line

but

weak control of budget composition and efficiency

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The challenge is to improve the TRADE-OFF between

macro fiscal control, and

compositional and operational efficiency

How? By introducing performance budgeting

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PERFORMANCE BUDGETING MEANS

1. Output driven budgeting

identifying agency outputs

costing those outputs

basing budget allocations on this information

In the Thai case this meant identifying and costing output classes

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providing a predictable funding environment

internalizing control of inputs

In the Thai case this meant broader budget categories & MTEF

PERFORMANCE BUDGETING MEANS

2. Empowering program agencies to manage

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PERFORMANCE BUDGETING MEANS

3. Replacing external control over inputs with external control over outputs

reporting budget-year outputs against budget preparation assumptions

introducing broader performance indicators for policy management

In the Thai case this meant sector experts helping develop performance indicators

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External control

Internal control

Input control

Output control

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Internal versus external control

(agency autonomy)

Output versus input control

(performance focus)

Thailand

Cambodia

Aust pre ’90s

New Zealand

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Transitioning to performance budgeting

1. How to manage change in program agencies?

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agency skills are in obtaining resources rather than internally allocating them

The chicken/egg problem in moving program agencies from external to internal control

the Budget Bureau argues that reducing its controls is therefore dangerous

The result: HIATUS

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    budget planning

    output costing

    procurement management

    budget/funds control

    financial and performance reporting

    asset management

    internal audit

The 7 hurdles attempted to break the impasse by making BOB concessions to an agency conditional on hurdle standards in 7 areas

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a memorandum of understanding with BOB at the start of the reform process

a resource agreement with BOB when the seven hurdles are met

The reform process is formalized for each of six pilot agencies by

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Transitioning to performance budgeting

2. How to manage change in the budget agency?

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The focus of BOB control should shift FROM

whether actual spending is consistent with very detailed pre-specified categories and conditions TO

whether agencies’ use of budget funds in a freer operating environment is effective

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The challenge for the Bureau of the Budget

refocus from agency control to agency analysis

refocus from amounts of inputs to amounts of outputs and input- output links

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The Bureau of the Budget must change from

an enforcer of rules to

an evaluator of performance

It is already familiar with this role in budget preparation

The role will need to extend through to budget execution

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Transitioning to performance budgeting

3. Is the hurdle approach ‘migratable’?

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There are two approaches to managing budget reform in change resistant environments

sequence the STAGES OF REFORM - output identification/perf. indicators/devolution /MTEF

sequence the AGENCIES TO BE REFORMED, with multi-stage package for each agency upon meeting hurdle standards

The Thais adopted the second approach

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This reflected the Budget Bureau’s difficulty in quickly providing technical leadership

spearhead for reform was six reform focused agencies

each had an integrated package of reform

budgetary freedoms would be granted by BOB conditional on meeting 7 hurdles

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The hurdle approach is well suited to Thailand

progress is possible in program agencies even though progress is slow in BOB

hurdle approach is failsafe for BOB and more likely to win its acceptance

there is a stronger incentive package for individual agencies to reform due to hurdle conditionality

it provides an integrating framework for different reforms required in budget and program agencies

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In countries in which the budget bureau itself has achieved critical reform momentum the alternative of

sequencing by reform stages (each stage simultaneously introduced across all agencies) rather than

reform agencies (each of which is offered a multi-stage reform package when hurdles are met)

should be considered