A new way of government budgeting promises more impact and value for money
IN his Budget 2014 speech last month, Prime Minister Datuk Seri Najib Tun Razak used a term that wasn’t in our mainstream vocabulary – outcome-based budgeting (OBB). Okay, perhaps it will never be something that rolls off the tongue, but this new way of doing things may have a quiet but significant impact on how the country is governed.
“To improve budget management, OBB was introduced to ensure that allocation is based on outcomes; improve the efficiency of implementation; reduce redundancy as well as systematically evaluate performance of all government programmes and projects,” Najib said in the Dewan Rakyat on Oct 25.
“In 2014, three ministries, namely the Health Ministry, the International Trade and Industry Ministry and the Finance Ministry, will undergo performance evaluation based on OBB.”
He didn’t say more about the subject. That’s too bad, because some of us want to know more. Although budgeting methods are never likely to come up in coffee shop talk, OBB sounds like a topic that matters, particularly in light of the Government Transformation Programme and the need to narrow Malaysia’s fiscal deficit.
It may be unfamiliar and rarely discussed, but the Government’s shift to OBB is not a recent decision. In fact, the Prime Minister also talked about it in the Budget 2010 speech.
Back then, he was a little more descriptive: “The Government will improve the structure of budget allocation and expenditure to be more efficient and effective. Accordingly, the OBB system will be developed in 2010. This system will be implemented during the 10th Malaysia Plan period to replace the existing modified budgeting system.
“Under the OBB approach, emphasis will be given to the impact and effectiveness of projects and programmes, compared with expenditure and output. In addition, government expenditure will emphasise value for money as well as programmes and projects with high multiplier effect.”
For a better idea of what OBB is all about, a good place to start is KPMG’s 2011 case study pack on six nations (including Malaysia) that had made or were making the transition to OBB. According to the professional services firm, in OBB (also called performance-based budgeting or results-based budgeting), public sector spending is aligned behind an approved set of governmental priorities.
Examples of such priorities include reductions in crime and unemployment, and improved access to education and healthcare.
The report points out that a government’s budget, policy and appropriation processes are more complex than those in commerce because the former involved more administrative layers and approval steps.
“Instead, governments around the world often rely on line item and input-based budgeting. The narrower focus of this approach can lead to ad hoc spending, unclear oversight and disjointed results. Without a framework to cascade national priorities and calibrate appropriations, departments can be left to draft budgets from the bottom-up, based on forecast expenditures and prior-year spending,” says KPMG.
“A health ministry, for instance, might budget based on how many beds or staff a hospital has, rather than its ability to improve the cost of service or treatment results.
“In addition, the absence of a linked, cross-agency planning structure often contributes to departmental ‘silos’. Organisational cultures built around these principles tend to emphasise compliance, such as minimal variance in actual-to-planned spending, versus the specific return on investment from a citizen-centric point of view.”
It appears that a lot has happened on the OBB front in Malaysia in that four years between the two budget speeches.
Issued in June 2010, the 10th Malaysia Plan (10MP), covering 2011 to 2015, talked about the outcome-based approach as a new way for the Government to deliver.
“The focus on outcomes will allow for more effective resource management and therefore greater value for money in terms of public investments. As resources are finite, it is important that leadership, talent and funding are directed towards the delivery of outcomes for the nation’s priorities,” explains the 10MP.
On the adoption of OBB, the 10MP says: “This approach will take an integrated view of the financial requirements of the programme, including both development and operating costs.
“This will allow for more efficient management of resources, assist in eliminating redundancy of programmes and projects and ensure that the nation’s resources are allocated proportionately to its priorities.”
The Finance Ministry formed an OBB project team whose mission was to develop an OBB framework “that can be implemented smoothly and effectively supported by a competent human capital development and an integrated management information system”.
The magnitude of the task can be seen in the January 2012 Treasury circular on OBB. The document is 115 pages long and it calls for the setting up of four committees and two sub-committees to implement and monitor performance under OBB. Seven federal agencies have roles to play in the execution of OBB.
According to a June 2011 announcement by a listed company, a 10-month contract related to the OBB project was worth RM22.5mil. The Finance Ministry job was for the development of an online budget system.
That’s a lot of resources for a switch in the budgeting approach. However, it does seem to be a timely and worthwhile move. The big challenge lies in the fact that the expected benefits of migrating to OBB won’t flow overnight. As with many facets of government, it takes commitment and a long-term view to keep driving a programme like this despite whatever changes in leadership and policies.
Executive editor Errol Oh realises that it’s easy to forget that the public sector is far more than just frontline services, and the dispensing of approvals and sanctions. It’s a sprawling complex of systems and processes that touch our lives all the time, often in ways we don’t even know.
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