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Thursday, December 3, 2009

Challenges in Implementing a Performance Framework

No single international model for performance budgeting

The Polish government experience with implementing a performance framework was described by Dr. Piotr Perczynski. Dr. Perczynski, the National Coordinator for Performance Budget, Ministry of Finance, Republic of Poland described the country economic situation. Poland has shown growth without a stimulus package. He described the debt situation and changes in public financial management of the Government of Poland.

Dr. Perczynski described the dangers and difficulties associated with performance based budgeting in government. He showed the linkage between performance budgeting, consolidation of the fiscal sector, multi-annual planning and fiscal rules in the Polish model. There is no single model of performance budget according to Dr. Perczynski.

Poland is moving away from traditional government budgeting. The classic budget requires that all money is spent. If it is not spent, will not get as much money next year. Performance budgeting is a different situation because it is based on goals that can be multi-year. In classic budgeting, there is a secret knowledge of where the money is going. Performance budgeting is easier to understand. This provides improved transparency, efficiency, and effectiveness.

The Government of Poland is moving from classic budgeting to performance budgeting in four phases across 7 years. This process began in 2006 and expected to be in full force by 2012. The 3rd stage started in February 2008.

Performance Budgeting in stage 1 was implemented at the Ministry of Science and Higher Education. This Ministry had more intuitive measurements. Nevertheless, the implementation team found resistance. 44% of the State budget was moved to performance budgeting in stage 2. The Government of Poland transferred implementation from the Prime Minister's Office to the Ministry of Finance. More budget discretion was provided. The 3rd stage was similar to the French model.

A survey of ICGFM participants found that finding indicators is more difficult than articulating objectives or determining evaluation criteria. Dr. Perczynski suggests that objectives are more difficult. Indicators are made easier if the objectives are properly set. Governments should not try to find an objective for which there are some good indicators. Objectives should come first. He suggested that objectives are often set at the wrong level. Objectives are often set at outputs rather than outcomes.

Dr. Perczynski identified four levels of objectives for performance based budgeting defined at the proper level in government:

  • Priority - as set by the Prime Minister at the functional level
  • Strategic - as set by Minister or Office Head at the task level
  • Operational - as set by Secretary/Undersecretary of State at the task and sub-task level
  • Administrative - as set by General Director at the task and sub-task level

Dr. Perczynski described the massive training at the Government of Poland to achieve effective performance based budgeting.

By 2012, 100% of the State budget expenditure will be in a performance budget structure. Traditional budgeting will operate simultaneously with performance budgets in Poland until 2013.

Benefits expected through performance budgeting in Poland include:

  • Rational use of resources
  • Planning cohesion
  • Improved efficiency and effectiveness
Countries which directly adopted foreign models had to adjust or reconstruct completely.

Dr. Perczynski described the three dangers in performance based budgeting:
  • Politics: Lack of political will will prevent adoption because it is more transparent
  • Technical: Evaluation and control technical systems are difficult to implement
  • People: Resistance as civil servants do operational job and performance based budgeting - often do not recognize the value of the initiative

Dr. Postula, Director, Ministry of Finance, Republic of Poland joined Dr. Perczynski for the question and answer session. Dr. Postula described the challenges of implementing PBB when 75% of the State budget is fixed by law and must be spent.

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