Business

Monday August 3, 2009

Outcome-based budgeting

Policy Perspective - By Tan Sri Abdul Aziz Wan Abdullah


A well-formulated budget will ensure optimal allocation to meet policy targets

IN the public sector, budgeting is the key instrument to realise national policy objectives.

As such, a well-formulated budget will ensure optimal allocation of scarce resources to meet policy targets.

The annual budgets, therefore, are the building blocks towards achieving the National Mission and Vision 2020 of becoming a developed nation.

In line with the Government’s emphasis on outcomes rather than output, we are moving towards outcome-based budgeting (OBB) to ensure effective and efficient spending.

This will ensure maximum benefit to the rakyat as well as fulfil their rising expectations.

For instance, the focus on output will generally be on the number of graduates produced by universities or training institutes.

However, in the more holistic outcome-based approach, the emphasis is on quality and employability of the graduates, and ultimately, their contribution to nation building.

Similarly, it is not the number of entrepreneurs trained that matters, but rather how successful they are in their business ventures.

Budgeting in the public sector has evolved over the years.

After Independence, we started with line-item budgeting that focused on expenditure.

Under this approach, ministries and agencies were assessed on their ability to spend the approved allocation within a given year.

Moreover, it lacked coordinated planning, performance measurements and systematic evaluation.

Subsequently, a more results oriented Programme Performance Budgeting System was adopted in 1969, where the focus shifted to outputs, with resources allocated for specific programmes and activities based on priorities.

Systemic problems, however, continued to persist.

There was lack of accountability, while decision making was highly centralised.

To address these problems, the Programme Performance Budgeting System was improved and introduced as the Modified Budgeting System in 1990.

The system expounded the concept of “let managers manage” and held them accountable for their performance.

However, even under this system, the emphasis was still on output, with each ministry and agency focusing on delivering its programmes and projects.

This gave rise to duplication of efforts and resources across ministries.

It soon became apparent that there were weak linkages between policy formulation, budgeting process as well as project implementation and evaluation.

There was also little or no integration between operating and development budget.

More importantly, the system could not meet the dynamics of a rapidly changing economic environment.

For example, although tourism is under the purview of Ministry of Tourism, the promotion of tourism activities cuts across a number of ministries, including Health, Education, Transport as well as International Trade and Industry.

Thus, policies and resource allocation would have to be better coordinated to achieve broad macroeconomic goals.

There is even greater urgency now to adopt a budgeting system that better reflects costs and linkages with emphasis on shared outcomes, in line with the objective of becoming a competitive and high income nation.

Hence, the OBB will be introduced to integrate both development and operating expenditure towards achieving efficient allocation of resources and effective implementation of programmes.

This paves the way to link budget allocations with programme outcomes in an integrated manner.

In addition, programmes that involve more than one ministry or agency can now be strategically linked through the OBB process.

Shared outcomes are common in public sector programmes.

These outcomes will now be clearly identified through the alignment of a series of national key result areas (NKRAs), in line with the five thrusts of the National Mission.

The key result areas include crime prevention, reducing corruption, improving quality of education, upgrading low income households, expanding rural infrastructure and providing efficient public transportation.

Apart from these key result areas, emphasis will continue to be given to enhancing private investment, promoting niche growth areas, improving the business environment and public service delivery to achieve sustainable growth.

Outcomes will be measured against key performance indicators to evaluate the effectiveness of programmes and projects implemented by ministries and agencies.

Hence, the OBB approach will eliminate redundancies and ensure value-for-money, while providing flexibility to review programmes and projects that do not contribute to expected outcomes.

The emphasis, therefore, is on “doing the right thing and doing the thing right” to meet the expectations of the rakyat.

The implementation of OBB will help to realise the deliverables within set time frames and measurable performance targets announced by the Prime Minister to track progress in each of the key result areas.

Thus, the move towards OBB is timely and crucial to ensure optimal use of scarce resources to achieve national priorities and goals.

  • The writer is the secretary-general of Treasury, Ministry of Finance.

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