## Annex 1. International Experience with Spending Reviews

## Source details

**Canonical URL:** [Annex 1. International Experience with Spending Reviews](https://www.imf.org/-/media/files/publications/howtonotes/2022/english/htnea2022004.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/howtonotes/2022/english/htnea2022004.pdf.md)
- [Structured JSON version](/-/media/files/publications/howtonotes/2022/english/htnea2022004.pdf.json)

---

### Introduction
- Spending reviews: in-depth assessments of existing public expenditure to identify opportunities to reduce or redirect spending from low-priority, inefficient, or ineffective spending.
- Aims:
  - Ensure spending aligns with government policy priorities, is effective in achieving intended objectives, and is deployed efficiently.
  - Create fiscal space to fund new priorities, address emerging spending pressures, or reduce debt; improve quality of spending and fiscal outcomes.
- Prevalence:
  - More than three-quarters of OECD countries report they conduct spending reviews either annually or periodically.
  - Some middle-income and emerging market economies have adopted spending reviews, including South Africa and Ukraine.

### Objectives of Spending Reviews
- Flexible tool with multiple objectives:
  - Fiscal consolidation: identify saving measures that reduce the rate of growth or the level of public expenditure.
  - Creation of fiscal space for new priorities or emerging pressures.
  - Reprioritization: shift expenditures from low-priority/ineffective areas to higher priorities.
  - Better value for money: identify inefficient spending where similar outputs/outcomes can be achieved with fewer inputs.
- Support for long-term reforms:
  - Address long-term fiscal pressure from demographic change, meet UN Sustainable Development Goals, and respond to climate-related spending pressures.

### Scope and Typology of Spending Reviews
- Approaches:
  - Range from periodic comprehensive reviews to targeted (selective) reviews integrated into annual processes.
  - Annex presents case studies: United Kingdom, Denmark, The Netherlands, the Slovak Republic, and Ukraine.
- Comprehensive spending reviews:
  - Cover a large proportion of total government spending and are not limited to predefined topics.
  - Usually periodic (examples: United Kingdom and Ireland).
  - Allow assessment of trade-offs across full spending areas but require significant resources and government-wide commitment.
- Targeted (selective) spending reviews:
  - Limited to predefined categories; examples: Denmark, the Slovak Republic, and Ukraine.
  - May be vertical (one ministry/agency) or horizontal (a spending category or policy objective across government).
  - Vertical reviews: administratively simpler but limit cross-government prioritization.
  - Horizontal reviews: better at identifying duplicative activities but more cumbersome to manage.
- Four key review topic types (Box 1):
  - Program reviews: examine specific programs; strategic and/or efficiency savings.
  - Policy area reviews: examine specific policy topics across agencies to improve efficiency, effectiveness, and eliminate duplication.
  - Process reviews: scrutinize business processes across government (procurement, IT, HR); aim for efficiency savings.
  - Agency reviews: review an entire organization and cover programs and processes; generally aim for efficiency savings.
- Horizontal program/process reviews: examine related programs or business process domains across multiple agencies.

### Effectiveness and Evidence
- OECD monitoring outcomes:
  - about 80 percent reported they reduced spending when spending cuts were the main purpose of the review.
  - about 90 percent reported success with use of spending reviews for reprioritization.
- OECD figures categorize objectives met in full, substantially met, or largely unmet across outcomes such as spending cuts, program elimination, medium/long-term efficiency improvements, and reallocation to government priorities.

### Trade-offs and Design Considerations
- Comprehensive reviews: enable cross-cutting trade-off analysis but require broad political and administrative commitment and substantial resources.
- Targeted reviews: allow manageable annual cycles but require careful topic selection to ensure meaningful fiscal and policy impact.
- Vertical vs horizontal trade-offs:
  - Vertical: administrative simplicity.
  - Horizontal: better identification of duplication and cross-cutting savings.
- Scope definition is strategic and depends on political and institutional factors.

### Institutional Arrangements and Governance Models
- Common models:
  - Bottom-up: spending ministries examine spending and propose measures for central review.
  - Central-led: independent entities or central agencies (e.g., Ministry of Finance) lead and conduct reviews.
  - Joint reviews: spending ministries and ministries of finance jointly involved.
- Evidence on effectiveness:
  - Joint reviews with close involvement of all relevant entities tend to be most effective and deliver more realistic options.
- Key governance roles:
  - Decision-making body: approves scope, objectives, and policy proposals; sometimes at political level.
  - Steering committee: provides strategic guidance, resolves disputes, approves final outputs.
  - Secretariat / dedicated team: coordinates process and provides methodology guidance (examples: dedicated spending review departments in the Slovak Republic, The Netherlands; agencies in South Africa).
  - Spending review teams: undertake technical work, analysis, policy proposals, and drafting final reports; strong senior chairmanship often from Ministry of Finance or co/independent chairs (examples: Slovenia, Ukraine, The Netherlands).

### Conducting Spending Reviews: Stages and Responsibilities
- Stage 1 — Establish objectives and framework:
  - Objective: set scope, objectives, success criteria, and political mandate.
  - Key steps: establish objectives; select review areas; identify roles/responsibilities; set targets and timeline.
  - Responsibility: Ministers; Ministry of Finance; Ministries.
- Stage 2 — Identify policy options:
  - Objective: rigorous analytical work and impact assessment.
  - Key steps: collect data; benchmarking; assess effectiveness/efficiency; identify saving options; prepare report.
  - Responsibility: Review Teams; Ministry of Finance; Ministries; Experts.
- Stage 3 — Decision-making:
  - Objective: choose saving or efficiency measures to implement.
  - Key steps: present findings; minister-level decisions.
  - Responsibility: Ministers.
- Stage 4 — Implementation:
  - Objective: ensure decisions are implemented as anticipated.
  - Key steps: integrate into budget and medium-term frameworks; enact legislation; monitor implementation.
  - Responsibility: Ministries; Parliament; Ministry of Finance.

### Framework Design and Targeting
- Framework elements:
  - Clear objectives; defined scope; process, roles, responsibilities; implementation approach; defined outputs.
- Political endorsement:
  - Ideally endorsed at political/ministerial level (examples: United Kingdom, Ukraine, Slovak Republic, The Netherlands).
- Use of targets:
  - Top-down numerical targets can guide and incentivize agencies even when objective is value for money.
  - Example: The Netherlands requires spending review teams to develop a menu of options with at least one that involves a 20 percent reduction in spending over the four-year period ahead.
- Time horizon:
  - Objectives and targets should ideally look ahead three or four years to align with medium-term fiscal outlook and fiscal rules.

### Expenditure Analysis and Policy Option Development
- Analytical perspectives:
  - Appropriateness: alignment with government policy priorities.
  - Effectiveness: how well programs meet intended objectives.
  - Efficiency / cost-effectiveness: could similar outputs/outcomes be achieved with fewer inputs or different processes.
- Tools and benchmarking:
  - Quantitative and qualitative analysis; IMF Expenditure Assessment Tool (EAT) helps benchmark spending levels, composition, and outcomes against regional and income comparators.
- Denmark online education example (secondary schools, 2015):
  - Steps: survey student participation and costs; benchmark costs across nine schools; develop options for efficiency.
  - Cost per student ranged from DKr 111,000 to DKr 37,000, indicating potential for substantial efficiency gains through broader adoption of best practice.
  - Outcome: total savings identified amounted to 25 percent of the cost base.

### Country Example: South Africa Spending Review Methodology
- Institutional lead: Government Technical Advisor Center (GTAC) under the National Treasury.
- Implementation and scale:
  - Since 2013, about 40 large-scale spending reviews supported by external consultants and about 200 “pocket-problem” spending reviews by budget analysts.
- Standardized methodology stages:
  - Policy and institutional analysis; logical analysis; performance indicator analysis; expenditure analysis; cost modeling; report and action planning.
- Governance and timing:
  - Steering committee of Treasury and sector departments agrees methodology, analysis, and outcomes.
  - Time frames: large-scale reviews take six to eight months; pocket-problem reviews take about four to six months.
  - Recent practice: the most recent round performed in 2021 aligned with the budget preparation process to feed directly into budget decision-making.

### Developing Policy Options and Decision-Making
- Key tasks:
  - Develop a menu of policy options with consistent costing and impact analysis; bulk of time on robust proposals.
- Organizational considerations:
  - Joint recommendations may require agreement mechanisms (examples: Germany and The Netherlands no-veto principle; Ukraine allows separate opinions; Australia accepts different recommendations with Cabinet resolving disagreements).
- Assessment requirements:
  - Each proposal should include medium-term fiscal impact using a consistent costing methodology and adopt a medium-term perspective for reforms with up-front costs.
- Presentation to decision-makers should include rationale, stakeholder impacts (social, regional, economic), implementation requirements, and considerations for vulnerable groups.

### Templates, Reporting, and Costing
- Spending review reports should include:
  - Overview of spending area; recent spending trends and drivers; key findings from expenditure analysis; details of proposals with rationale; medium-term budget impact; impacts and implementation issues.
- Example template fields: ministry, program name, Budget Impact (millions), cost (–) / savings (+) by tt+1 t+2 t+2 Total, recommended option and reason, policy proposals A–C, total budget of program, policy description, policy rationale, affected groups, other implications, implementation requirements.

### Common Criteria for Identifying Saving Options
- Relevance: alignment with government priorities; continued need for activity.
- Effectiveness: activities achieving intended objectives; need to reconsider program design.
- Efficiency: deliver activities more cost-effectively without compromising outcomes.
- Equity: improve targeting; consider user charges where appropriate.
- Duplication: reduce duplication, merge shared services, consolidate overlapping programs.

### Example: International Benchmarking Findings for Slovenia
- Education:
  - Education spending fourth highest in the European Union, highest among CESEE comparators.
  - High spending reflected a high wage bill and goods and services; capital spending broadly in line with EU averages.
  - Education employment increased since 2000 despite declining student population.
  - Student-teacher ratios among the lowest in OECD countries; relatively low teaching contact hours.
  - Suggested potential to reduce staff levels and merge small schools without negatively affecting outcomes.
- Health:
  - Health spending relatively high compared with countries at similar income levels and projected to increase.
  - Health-adjusted life expectancy at 71—the highest of the CESEE comparators.
  - Health spending about 30 percent higher than in countries with similar life expectancies.
  - Number of healthy life years among the lowest in Europe.
  - Suggested reforms: strengthen primary health care, develop efficient provider payment for hospitals, appropriate use of copayments.

### Implementation and Monitoring
- Implementation through regular budget process and alignment with budget cycle.
- Finance ministries must ensure approved measures:
  - Are factored into ministries’ medium-term expenditure ceilings and next budget.
  - Are not subject to renegotiation for postponement or temporary exemption.
  - Are accompanied by practical implementation plans with clear milestones anticipating legislation, administration, IT, and resourcing needs.
- Monitoring process should:
  - Ensure measures are implemented and expected results achieved.
  - Incorporate decisions into medium-term expenditure ceilings to hold ministries accountable.
  - Provide regular reporting on progress to promote accountability.
- Transparency:
  - Spending review reports and government-adopted proposals can be made public (example: Slovak Republic publishes reports on a dedicated Ministry of Finance webpage).
- Independent fiscal bodies (fiscal councils or parliamentary budget offices) can assist in monitoring government progress.

### Institutionalizing Spending Reviews and Piloting
- Integration with regular budget process ensures allocation decisions are informed by program performance and value for money and that spending aligns with changing priorities.
- Examples of institutionalization:
  - Australia: strategic spending review outcomes considered by the budget Expenditure Review Committee as part of annual budget.
  - United Kingdom: periodic spending reviews used to formulate multiyear medium-term expenditure plans.
  - Ukraine amended its budget code in 2018 to require regular spending reviews.
- Piloting recommended:
  - Pilots test framework and assess capacity building needs; comprehensive reviews can take more than a year even with strong capacity.
  - Pilot selection principles: narrow scope; simplicity; strong political commitment; incentives for participation; strong within-ministry analytical capacity.
  - Countries piloting before full rollout include Belgium, the Slovak Republic, and Ukraine.

### Supporting PFM Reform and Building Capacity
- Spending reviews require analytical capability in finance ministries and spending agencies and sound PFM systems; absence of some elements does not preclude reviews but aspirations should match capacity.
- Key PFM supporting elements:
  - Credible annual budget process.
  - Medium-term budget framework.
  - Financial and nonfinancial performance information.
  - Analytical capacity.
  - Methodology for costing and accounting for savings.
  - Mechanisms for expenditure prioritization.
  - Time and resources to undertake analysis, develop options, and plan implementation.
- For low-capacity countries:
  - Consider streamlined processes focusing on largest expenditures and simplified benchmarking.
  - Begin high-level benchmarking or identify/monitor performance indicators in large spending areas.
  - Consider external expertise to guide process while maintaining government ownership.
- Institutionalizing spending reviews builds capacity for policy analysis and improves preparation of spending proposals in regular budgets.

### Conclusion — Key Lessons for Successful Spending Reviews
- Features associated with more successful reviews:
  - Government ownership and political commitment.
  - Clear strategic objectives and saving targets aligned with medium-term fiscal objectives.
  - Availability of review criteria, templates, and guidance for focused and comparable assessment.
  - Well-governed structure with defined responsibilities and decision-making.
  - Combination of internal knowledge and external challenge.
  - Medium-term perspective favoring enduring savings over short-term fixes.
  - Integration with the budget process so decisions are factored into medium-term expenditure ceilings.
  - Strong focus on implementation with realistic plans and monitoring.

### Annex — International Experience Highlights (selected examples)
- United Kingdom:
  - Periodic comprehensive spending reviews covering all departments to determine fixed departmental expenditure limits over a multiyear period.
  - Departments in the 2015 spending review were asked to model two scenarios to deliver a 25 and 40 percent saving in real terms over four years.
  - HM Treasury leads the process, issues guidance, coordinates options, invites independent expert analysis, and solicits public written representations.
  - Main departments publish Outcome Delivery Plans informed by spending review settlements.
- Denmark and The Netherlands:
  - Operate “special studies” on an annual cycle as part of budget preparation, usually vertical and using benchmarking with Ministry of Finance and line ministry officials, often with external consultants.
- UK Government Property Optimization 2010 — reported results since 2010:
  - Size of real estate holdings has fallen by more than 25 percent.
  - More than £1 billion in annual costs has been saved.
  - The GPU has overseen the collection of more than £3 billion in capital receipts from sale of surplus land and property.

### Case Study Data — UK Government Property Optimization (Box 6)
- Central Real Estate Costs (Billions of British pounds) — reported values by year label sequence:
  - 2.9
  - 3.0
  - 2.7
  - 2.5
  - 2.6
  - 2.3
  - 2.7
  - 2.6
  - 2.5
  - 2.4
  - 3.0
  - 2.9
  - 2.8
  - 3.1
- Utilization Rates (Sq.m per FTE) — reported values by year label sequence:
  - 10.7
  - 12.6
  - 10.4
  - 11.3
  - 10.4
  - 10.9
  - 11.2
  - 9.9
  - 9.5
  - 11.0
  - 10.5
  - 10.0
  - 12.5
  - 12.0
  - 11.5
  - 13.0
- Note: "Sq.m per FTE = square meter per full-time employee." JLL refers to Jones Lang Lasalle Limited.

*Source: IMF Fiscal Affairs Department HOW TO NOTES (September 2022).*

### Annex 1. International Experience with Spending Reviews ................................................17

### Annex 1. International Experience with Spending Reviews

### Introduction
- Spending reviews are in-depth assessments of existing public expenditure to identify opportunities to reduce or redirect spending from low-priority, inefficient, or ineffective spending (Robinson 2014; Vandierendonck 2014).
- They aim to ensure spending is aligned with the government’s policy priorities, effective in achieving intended objectives, and deployed efficiently.
- Spending reviews help create fiscal space to fund new priorities, address emerging spending pressures, or reduce debt, and improve the quality of spending and fiscal outcomes.
- More than three-quarters of Organisation for Economic Co-operation and Development (OECD) countries report that they conduct spending reviews either annually or periodically (Figure 1; OECD 2021a).
- Some middle-income and emerging market economies have adopted spending reviews, including South Africa and Ukraine.

### Objectives of Spending Reviews
- Spending reviews are a flexible tool designed to meet multiple objectives:
  - Fiscal consolidation by identifying saving measures that reduce the rate of growth or the level of public expenditure
  - Creation of fiscal space to accommodate new policy priorities or to meet emerging fiscal pressures
  - Reprioritization of existing expenditures from low-priority, ineffective areas to higher priorities
  - Achievement of better value for money by identifying areas of inefficient spending, where similar outputs and outcomes can be achieved with fewer inputs
- Spending reviews support long-term economic and fiscal reforms, including addressing long-term fiscal pressure from demographic change and meeting UN Sustainable Development Goals, and can help respond to spending pressures associated with climate change.

### Scope and Typology of Spending Reviews
- Approaches vary widely from periodic comprehensive spending reviews to targeted (selective) reviews as part of an annual process.
- Annex 1 presents case studies of five countries that have conducted spending reviews: the United Kingdom, Denmark, The Netherlands, the Slovak Republic, and Ukraine.
- Comprehensive spending reviews:
  - Cover a large proportion of total government spending and are not limited to predefined topics.
  - Are usually periodic (examples: United Kingdom and Ireland).
  - Allow assessment of trade-offs across the full area of spending reviewed but require significant resources and government-wide commitment.
- Targeted (selective) spending reviews:
  - Limited to predefined categories of spending; examples include Denmark, the Slovak Republic, and Ukraine.
  - May be vertical (all or part of one ministry/agency) or horizontal (a spending category or policy objective across the entire government).
  - Vertical reviews can be administratively simpler but limit cross-government prioritization.
  - Horizontal reviews can better identify duplicative activities but are more cumbersome to manage.
- Four key types of review topics (Box 1):
  - Program reviews: examine specific programs; may deliver strategic savings (eliminate or cut back programs) and/or efficiency savings (lower cost of delivery); typically focus on a single administration or agency.
  - Policy area reviews: examine a specific policy topic (for example, social benefits, higher education, climate-related policies); can cut across multiple agencies and aim to improve efficiency, effectiveness, and eliminate duplication.
  - Process reviews: scrutinize specific business processes across government (for example, procurement processes, IT systems, human resources practices); aim to achieve efficiency savings rather than strategic savings.
  - Agency reviews: review an entire government organization (ministry or other agency) and may cover all of the agency’s programs and processes; generally aim to achieve efficiency savings.
- Program or process reviews may be agency-specific or horizontal; horizontal program reviews examine related programs delivered by two or more agencies, and horizontal process reviews examine a business process domain across several (or all) government agencies.

### Effectiveness and Evidence
- Among OECD countries that monitored the results of spending reviews:
  - about 80 percent reported that they reduced spending when spending cuts were the main purpose of the review (OECD 2019a).
  - about 90 percent reported success with use of spending reviews for reprioritization (OECD 2019a).
- Figure references in the source highlight:
  - "Spending Reviews in OECD Countries (2011–20)" (Figure 1).
  - "Effectiveness of Spending Reviews: Evidence from OECD Country Survey" (Figure 2), which categorizes objectives met in full, substantially met, or largely unmet across policy outcomes such as spending cuts, program elimination, improvements in efficiency in medium/long term, and reallocation of spending to match government priorities.

### Trade-offs and Design Considerations
- Comprehensive reviews enable cross-cutting trade-off analysis but require broad political and administrative commitment and substantial resources.
- Targeted reviews allow manageable annual cycles but require careful selection of topics to ensure meaningful fiscal and policy impact.
- The choice between vertical and horizontal reviews involves trade-offs between administrative simplicity and the ability to identify duplication and cross-cutting savings.
- Defining the scope of reviews is strategic and depends on political and institutional considerations.

*htnea2022004 - Annex 1. International Experience with Spending Reviews*

### Box 1. Targeted Spending Reviews: Types of Review Topics

### Box 1. Targeted Spending Reviews: Types of Review Topics

### Types of Spending Reviews and Use Cases
- Comprehensive reviews vs targeted reviews:
  - Comprehensive reviews have often been adopted where fiscal consolidation needs are pressing (examples cited: The Netherlands in 2009; United Kingdom in 2010 and 2015).
  - Targeted reviews are increasingly common where objectives focus on improving value for money and quality of government services (example cited: Denmark’s ongoing program of targeted reviews focused on identifying the least efficient and effective activities to make room for investment in new priorities).
- Hybrid approaches:
  - Countries such as Canada and The Netherlands have combined various types of spending reviews to achieve different objectives (example: The Netherlands combines an ongoing annual targeted review process with occasional comprehensive reviews in 1981 and 2009).

### Institutional Arrangements and Governance Models
- Common institutional models:
  - Bottom-up reviews: spending ministries examine spending and propose measures for central review.
  - Central-led reviews: independent entities or central agencies (for example, the Ministry of Finance) lead and even conduct the review.
  - Joint reviews: spending ministries and ministries of finance jointly involved in the review process.
- Evidence on effectiveness:
  - Joint reviews in which all relevant government entities are closely involved tend to be most effective and deliver more realistic options.
- Key governance elements and roles:
  - Decision-making body: approves scope, objectives, and policy proposals; sometimes established at political level (e.g., committee or subcommittee of the Cabinet).
  - Steering committee: provides strategic guidance, resolves disputes, approves final outputs; may be combined with the decision-making committee in smaller bureaucracies.
  - Secretariat / dedicated team: coordinates process and provides methodology guidance; examples include dedicated spending review departments in ministries of finance (Slovak Republic, The Netherlands) or agencies (South Africa).
  - Spending review teams: undertake technical work, analysis, policy proposals, and drafting final reports; strong senior chairmanship helps maintain focus (chairs often from Ministry of Finance; alternatives include co-chairs or independent chairs—examples: Slovenia, Ukraine, The Netherlands).

### Lessons from Country Experience
- Factors associated with more successful spending reviews:
  - Strong political commitment: objectives, mandate, and terms of reference ideally authorized by Cabinet or Council of Ministers.
  - Strong leadership from the Ministry of Finance: coordinates the process, issues methodology, defines timetable, and reviews outputs.
  - Review teams that engage a range of stakeholders: ensures sectoral knowledge, data, and ownership of implementation; evidence cited from a 2017 survey of EU member states (European Commission 2018).
  - Combining external expertise with internal knowledge: external consultants, academia, independent research institutions, and fiscal councils can add analytic capacity but exclusive reliance on external experts risks impractical reforms or reduced government ownership; solutions include external advisory groups or integrating experts into review teams.

### Organizational Structure (Illustrative)
- Typical architecture and responsibilities (roles listed):
  - Spending Review Committee / Cabinet of Ministers: decides scope and objectives; approves terms of reference; decides on spending proposals.
  - Steering Committee / Finance & Relevant Line Ministers: provides strategic guidance; reviews progress and proposals; resolves disputes within review teams; approves final proposals and report.
  - Secretariat / Ministry of Finance (plus independent experts or external stakeholders): coordinates the process; issues methodology and templates.
  - Review Teams: conduct the analysis; develop policy proposals; prepare the spending review report.

### Conducting Spending Reviews: Stages and Responsibilities
- Stage 1: Establish the objectives and framework
  - Objective: establish scope, objectives, success criteria, and political mandate to promote ownership and participation.
  - Key steps: establish overall objectives; select review areas; identify roles and responsibilities; establish review targets; set review timeline.
  - Responsibility: Ministers; Ministry of Finance; Ministries.
- Stage 2: Identify policy options
  - Objective: rigorous analytical work to identify saving options and carry out impact assessment.
  - Key steps: collect data; undertake benchmarking and analysis; assess effectiveness and efficiency of existing spending; identify saving options; prepare spending review report.
  - Responsibility: Review Teams; Ministry of Finance; Ministries; Experts.
- Stage 3: Decision-making
  - Objective: determine which saving options or efficiency measures should be implemented.
  - Key steps: present findings and recommendations; make decisions at minister level.
  - Responsibility: Ministers.
- Stage 4: Implementation
  - Objective: ensure decisions are implemented as anticipated.
  - Key steps: integrate into budget and medium-term frameworks; enact legislation; monitor implementation of decisions.
  - Responsibility: Ministries; Parliament; Ministry of Finance.

### Framework Design and Targeting
- Framework elements:
  - Provide clear objectives; determine scope; define process, roles, responsibilities, and implementation approach; define outputs.
- Political endorsement:
  - Ideally the framework is endorsed at the political or ministerial level (examples: United Kingdom establishes a framework at the start of each round; Ukraine approves annual spending reviews through a government resolution; Slovak Republic and The Netherlands prepare detailed government-approved terms of reference).
- Use of targets:
  - Top-down numerical targets can guide and incentivize spending agencies; targets can also set the level of ambition even when the objective is value for money rather than aggregate cuts.
  - Example framework requirement: The Netherlands requires spending review teams to develop a menu of options with at least one that involves a 20 percent reduction in spending over the four-year period ahead.
- Time horizon:
  - Objectives and targets should ideally look ahead three or four years to align with the medium-term fiscal outlook and fiscal rules.

### Expenditure Analysis and Policy Option Development
- Analytical perspectives for expenditure assessment:
  - Appropriateness: alignment with government policy priorities.
  - Effectiveness: how well programs meet intended objectives.
  - Efficiency / cost-effectiveness: whether similar outputs/outcomes could be achieved with fewer inputs or different processes.
- Tools and benchmarking:
  - Both quantitative and qualitative analysis; IMF Expenditure Assessment Tool (EAT) helps benchmark spending levels, composition, and outcomes against regional and income country comparators.
- Example: Denmark online education spending review (secondary schools, 2015)
  - Context: prior subsidy for online education equaled subsidy for traditional education despite potential greater efficiency of online provision.
  - Analysis steps:
    - (1) Survey the number of students: desk review of schools supplying online education and a survey of student participation and associated costs.
    - (2) Analyze and benchmark cost of providing online education: survey and case studies of nine schools; cost per student ranged from DKr 111,000 to DKr 37,000, indicating potential for substantial efficiency gains through broader adoption of best practice.
    - (3) Develop options for increased efficiency: identified opportunities in procurement and development of educational materials, planning and conducting online lessons and examinations, and administrative support functions (example: reducing the number of educational materials developed at each school and buying them from publishers instead).
  - Outcome: total savings identified amounted to 25 percent of the cost base.

### Country Example: South Africa Spending Review Methodology (Box 2)
- Institutional lead:
  - Government Technical Advisor Center (GTAC) under the National Treasury responsible for the spending review framework.
- Implementation and scale:
  - Since 2013, about 40 large-scale spending reviews supported by external consultants and about 200 “pocket-problem” spending reviews conducted by budget analysts evaluating targeted areas of spending.
- Standardized methodology stages:
  - Policy and institutional analysis: overview of linkages among policy, design, implementation, and stakeholders.
  - Logical analysis: identify improvements to program design and implementation modality.
  - Performance indicator analysis: examine quantifiable indicators and identify gaps.
  - Expenditure analysis: assess spending trends, cost drivers, performance indicators, and benchmarking to identify opportunities for savings and efficiency improvements.
  - Cost modeling: explain fiscal implications and trade-offs of policy choices.
  - Report and action planning: prepare final report and action plan for decision-making.
- Governance and timing:
  - Reviews overseen by a steering committee comprising staff from the Treasury and sector departments; committee agrees on methodology, analysis, and final outcomes.
  - Time frames: large-scale reviews take six to eight months; pocket-problem reviews take about four to six months.
  - Recent timing practice: the most recent round performed in 2021 was aligned with the budget preparation process to feed directly into budget decision-making.

*Source: IMF Fiscal Affairs Department HOW TO NOTES (September 2022).*

### Box 3. Spending Review of Online Education in Denmark

### Box 3. Spending Review of Online Education in Denmark

### Types of expenditure analysis
- Analysis of budget expenditure baselines:
  - Baseline spending projections show the cost of maintaining existing policies into the future.
  - Baselines provide a benchmark to identify saving needs and drivers of future spending pressures.
  - Baseline analysis helps review teams understand mandatory legislative expenditure commitments and opportunities to reform them or reduce overlapping commitments.
- Analysis of spending inputs and trends:
  - Review spending inputs, composition, trends over time, and expected future pressures and cost drivers.
  - Perspectives include economic classification (for example, the share of the wage bill, recurrent or capital spending), by function (for example, social function), or by types of services provided.
  - Insight into how changes in the input mix may reduce waste or improve outcomes.
- Evaluating spending efficiency or effectiveness:
  - Compare unit costs of service delivery across delivery forms, jurisdictions, or via cross-country comparisons.
  - Examine relationships between inputs and outputs (the production function) to identify input components responsible for inefficient spending outcomes.
  - Program logic analysis is an alternative tool to assess expenditure performance.
- International benchmarking of data:
  - Use benchmarks to compare costs of delivering a given expenditure program with costs or levels of spending in other countries.
  - Select comparator countries appropriately considering contextual factors (level of development, geographic proximity, institutional arrangements, geography, demographics).
  - Type of analysis should match the spending review’s objectives and available technical capacity and information.

### Developing policy options
- Key tasks:
  - Develop a menu of policy options and their cost, drawing on in-depth expenditure analysis.
  - Provide technical advice on impact and cost; political trade-offs are for ministers.
  - Bulk of review time should be spent on developing robust proposals.
- Organizational considerations:
  - Joint recommendations may require mechanisms for agreement (examples: Germany and The Netherlands have a no-veto principle; Ukraine allows separate opinions; Australia accepts different recommendations with Cabinet resolving disagreements).
- Assessment requirements:
  - Each proposal should include an assessment of its medium-term fiscal impact using a consistent costing methodology.
  - Adopt a medium-term perspective to consider longer-term reforms that may have up-front costs but yield large savings over time.
  - Scrutinize proposals that involve investing, divesting, and rationalization of assets to protect long-term public value (IMF 2018).
- Presentation details to support decision-making:
  - Rationale for the proposal.
  - Impact on affected stakeholders and citizens, including social, regional, and economic consequences.
  - Implementation details such as need for legislation or consultation with external stakeholders.
  - Consider disproportionate pandemic impacts on groups such as women, low-income households, and other vulnerable groups (IMF 2021).

### Decision-making stage
- Process characteristics:
  - Decision-making body considers and agrees on policy proposals to incorporate into the budget and medium-term expenditure framework.
  - Allow sufficient time; decision-makers may request additional information or amendments.
  - This stage could be as long as two to three months, depending on scope.
  - Strong case for final decisions at Cabinet level or by the budget decision-making body.
- Policy proposals should:
  - Set out rationale, medium-term fiscal costs (and longer-term costs if the saving profile differs), and actions required for implementation.
  - Offer multiple options where relevant (for example, different means-test income levels, tapering rates, or grandfathering arrangements for targeting social benefits).

### Template and reporting expectations
- A well-structured spending review report should include:
  - Brief overview of the spending area reviewed.
  - Summary of recent spending trends, key drivers, and future spending pressures.
  - Key findings and implications of the expenditure analysis.
  - Details of spending review proposals, including rationale; medium-term budget impact; economic, social, sectoral, or other impacts; and implementation issues.
- Example budget-impact template fields (as presented):
  - MINISTRY – PROGRAM NAME
  - Budget Impact (millions)
  - cost (–) / savings (+) resulting from policy change
  - tt+1t+2t+2TotalRecommended Option and Reason
  - Policy Proposal A – Summary of policy change
  - Policy Proposal B – Summary of policy change
  - Policy Proposal C – Summary of policy change
  - Total budget of program (based on current policy)
  - Policy description: Description of the policy proposal
  - Policy rationale: Explanation of the rationale for the policy proposal (informed by the spending analysis undertaken by the team)
  - Affected groups: Details on the impact of the policy change on stakeholders:
    - Who will be affected by the policy change? How many will be affected?
    - What is the financial impact/cost for those affected?
    - What are the social/economic consequences?
  - Other implications:
    - Does the profile of longer-term savings differ?
    - Are there specific regional or sectoral considerations?
    - Are there spillovers or consequences for other programs?
    - Is the policy consistent with coalition or other agreements?
  - Implementation:
    - Is legislative change required? What is the deadline for approval?
    - Are there institutional changes that need to be made?
    - Is consultation or negotiation with third parties required prior to implementation?
    - Are there impacts on departmental resourcing?
    - How much time is needed for implementation?

### Common criteria for identifying saving options (Table 2)
- Relevance:
  - Is the policy activity aligned with the government’s stated priorities?
  - Is there still a need for the activity?
- Effectiveness:
  - Are activities achieving their intended objectives or outcomes? Is there a need to reconsider the program design?
- Efficiency:
  - Are activities being delivered in a cost-effective way, or can they be provided at reduced cost without compromising outcomes (for example, through changes in service delivery or simplified administrative arrangements)?
- Equity:
  - Can the activity be better targeted to meet its intended objectives?
  - Is there room for larger contributions from individuals who benefit (e.g., user charges)?
- Duplication:
  - Is there a way to reduce duplication, merge shared services, or consolidate overlapping programs across government that target similar objectives?

### Example: International benchmarking findings for Slovenia (IMF exercise)
- Education:
  - Education spending was found to be the fourth highest in the European Union, and the highest among central, eastern, and southeastern European (CESEE) comparators (Box Figure 4.1).
  - High spending reflected a high wage bill and, to a lesser extent, goods and services.
  - Capital spending was broadly in line with EU averages, suggesting an oversize sector in terms of employment.
  - Education employment had been increasing since 2000 despite a declining student population.
  - Student-teacher ratios were among the lowest in Organisation for Economic Co-operation and Development countries.
  - Slovenia had relatively low teaching contact hours (Box Figure 4.2).
  - These trends suggested room to reduce staff levels and to merge small schools without negatively affecting education outcomes.
- Health:
  - Health spending in Slovenia was relatively high in relation to countries at similar levels of income (Box Figure 4.3) and is projected to increase over coming decades.
  - Health-adjusted life expectancy, at 71, was the highest of the CESEE comparators.
  - Health spending was about 30 percent higher than in countries with similar life expectancies.
  - The number of healthy life years was among the lowest in Europe (Box Figure 4.4).
  - Suggested areas for potential reform included strengthening primary health care, developing an efficient provider payment system for hospitals, and appropriate use of copayments.

*Source: IMF (September 2022).*

### Box 5. Sample Template for Costing out Policy Proposals

### Box 5. Sample Template for Costing out Policy Proposals

### Implementation and monitoring
- Spending review outcomes should be implemented through the regular budget process and aligned with the regular budget cycle.
- Ultimate responsibility for implementing spending review decisions lies with the respective spending ministries; finance ministries must ensure that approved measures:
  - Have been factored into the ministries’ medium-term expenditure ceilings and the next budget
  - Are not subject to renegotiation for the purpose of postponement or temporary exemption
  - Are accompanied by practical implementation plans, with clear milestones, that anticipate required changes in legislation, administration, IT systems, and departmental resourcing—communication plans can also help smooth the rollout of policy changes
- A process for monitoring implementation should:
  - Ensure identified measures are implemented
  - Assess whether expected results are achieved
  - Incorporate spending review decisions into medium-term expenditure ceilings to hold spending ministries accountable
  - Provide regular reporting on progress to promote accountability
- Transparency measures:
  - Spending review reports and government-adopted proposals can be made available to the public (example: the Slovak Republic publishes spending review reports on a dedicated Ministry of Finance webpage)
- Independent fiscal bodies (fiscal councils or parliamentary budget offices) can play a role in monitoring government progress.

### Institutionalizing the spending review framework
- Integrating spending reviews with the regular budget process ensures budget allocation decisions are informed by program performance and value for money, and that spending remains aligned with changing priorities.
- Integration helps ensure spending review objectives are consistent with medium-term fiscal objectives and that decisions are incorporated into medium-term expenditure ceilings and agency budgets.
- Examples of institutionalization:
  - Australia: outcomes of strategic spending reviews considered by the budget Expenditure Review Committee as part of the annual budget process.
  - United Kingdom: periodic spending reviews used as the basis for formulating medium-term expenditure plans over a multiyear period.
- Including a requirement for regular spending reviews in public financial management (PFM) legislation can institutionalize the process (example: Ukraine amended its budget code in 2018 to require regular spending reviews).
- Formalizing procedures through secondary regulations or guidelines supports conduct of spending reviews; clear criteria facilitate comparable identification and assessment of saving options.
- Several countries (Bulgaria, the Slovak Republic, South Africa) have established spending review methodologies outlining the framework, techniques, and templates for submissions and output reports.

### Piloting spending reviews
- Piloting is advisable because comprehensive spending reviews are demanding; they can take more than a year even with strong analytical capacity.
- Pilots allow testing of the framework and assessment of capacity building and training needs.
- Principles for selecting pilot areas:
  - A narrow and well-defined scope—focus on a limited number of promising areas (selected ministries or policy areas)
  - Simplicity—focus on policy areas with a single responsible ministry rather than cross-cutting issues
  - Strong political commitment—the relevant minister should support identifying inefficiencies and provide strategic guidance during decision-making
  - Incentives for participation—consider allowing ministries to retain any or a portion of realized savings for reallocation within the ministry or policy sector
  - Strong within-ministry analytical capacity—select pilot ministries with a reasonable information base to support in-depth analysis
- Countries that piloted before full implementation include Belgium, the Slovak Republic, and Ukraine.

### Supporting PFM reform and building capacity for spending reviews
- Spending reviews require high analytical capability in finance ministries and spending agencies, and sound PFM systems, though absence of elements does not preclude undertaking reviews—aspirations must be tailored to country capacity.
- Key supporting elements of a PFM system (as outlined in Table 3) and why they are helpful:
  - Credible annual budget process: Budget is largely implemented as planned, within respective ceilings for ministries and/or programs
  - Medium-term budget framework: Helps frame spending review objectives, provides a medium-term focus, facilitates policy trade-offs, and allows results of reviews to be factored into multiyear ceilings or forward estimates
  - Financial and nonfinancial performance information: Provides solid information basis against which to compare trends in expenditure and assess efficiency and effectiveness using inputs, outputs, and outcome indicators
  - Analytical capacity: Enables identification of areas of inefficiency and development of reform proposals
  - Methodology for costing and accounting for savings: Ensures that savings are costed out consistently and identified separately
  - Mechanisms for expenditure prioritization: Makes it possible to move resources from lower- to higher-priority areas
  - Time and resources: Allows sufficient time to undertake analysis, develop reform options and integrate them into budgets, and plan implementation
- For low-capacity countries:
  - Consider streamlined processes focused on largest expenditures, trends, consistent over- or underexecution, and simplified cross-country benchmarking
  - Adopt elements such as high-level benchmarking or begin identifying and monitoring performance indicators in large spending areas
  - Consider external expertise to guide the process without undermining government ownership
- Institutionalizing spending reviews can build capacity across spending ministries and ministries of finance for policy analysis, improving preparation of spending proposals in the regular budget process.

### Conclusion — key lessons for successful spending reviews
- Spending reviews with more success typically feature:
  - Government ownership and political commitment to align objectives, incentivize participation, and provide an avenue for outcomes to be decided
  - Clear strategic objectives and saving targets set at the start to align with medium-term fiscal objectives and deliver tangible results
  - Availability of review criteria, templates, and guidance to ensure focus and comparable assessment of options
  - A well-governed structure defining responsibilities, deliverables, and decision-making mechanisms
  - Combination of internal knowledge and external challenge—bringing together spending ministries, finance ministries, and external experts
  - A medium-term perspective to consider full financial impacts and favor enduring saving options over short-term fixes with higher long-term costs
  - Integration with the budget process so decisions are factored into medium-term expenditure ceilings and agencies are held accountable
  - Focus on implementation, including realistic implementation plans and monitoring of progress

### Annex — international experience highlights (selected examples)
- United Kingdom:
  - Conducts periodic comprehensive spending reviews covering all government departments to determine fixed departmental expenditure limits over a multiyear period.
  - Departments were asked in the 2015 spending review to model two scenarios to deliver a 25 and 40 percent saving in real terms over four years.
  - Departments consider contribution to government objectives, feasibility, spending implications and value for money, macroeconomic implications, legislative and operational requirements, sectoral and distributional impacts, and administrative and compliance costs.
  - HM Treasury leads the process, issues guidance, works with departments on options, coordinates, invites independent expert analysis, and solicits public written representations.
  - Once complete, main departments publish Outcome Delivery Plans informed by spending review settlements.
- Denmark and the Netherlands:
  - Both operate “special studies” on an annual cycle as part of the budget preparation process, typically initiated in connection with early budget discussions and involving working groups of Ministry of Finance and line ministry officials, often with external consultants.
  - Reviews are often vertical (agency- or program-focused) and use benchmarking to identify best practices and potential savings.
- United Kingdom Spending Review 2010 — property management results reported since 2010:
  - The size of real estate holdings has fallen by more than 25 percent.
  - More than £1 billion in annual costs has been saved.
  - The GPU has overseen the collection of more than £3 billion in capital receipts from the sale of surplus land and property.

*Source: HOW TO DESIGN AND INSTITUTIONALIZE SPENDING REVIEWS, International Monetary Fund | September 2022.*

### Box 6. Case Study: UK Government Property Optimization 2010

### Box 6. Case Study: UK Government Property Optimization 2010

### Central Real Estate Costs (Billions of British pounds)
- Source: IMF (2019).
- Box Figure 6.1. UK Government Central Real Estate Costs, 2012–13 through 2016–17
- Reported values by year label sequence (as presented):
  - 2.9
  - 3.0
  - 2.7
  - 2.5
  - 2.6
  - 2.3
  - 2.7
  - 2.6
  - 2.5
  - 2.4
  - 3.0
  - 2.9
  - 2.8
  - 3.1

### Utilization Rates (Space per Employee)
- Note: Sq.m per FTE = square meter per full-time employee; JLL = Jones Lang Lasalle Limited (commercial real estate company).
- Box Figure 6.2. Utilization Rates (Space per Employee), Government Nonspecialized Real Estate vis-à-vis Private Sector
- Benchmarked real estate (Government nonspecialized) and JLL private sector comparisons — reported Sq.m per FTE values (by year label sequence as presented):
  - 10.7
  - 12.6
  - 10.4
  - 11.3
  - 10.4
  - 10.9
  - 11.2
  - 9.9
  - 9.5
  - 11.0
  - 10.5
  - 10.0
  - 12.5
  - 12.0
  - 11.5
  - 13.0

### Notes and Metadata from the Box
- Figures sourced to IMF (2019).
- JLL refers to Jones Lang Lasalle Limited (commercial real estate company).
- Sq.m per FTE metric explicitly defined in the box: "Sq.m per FTE = square meter per full-time employee."

*International Monetary Fund (IMF) (source material).*

---


_Source: https://www.imf.org/-/media/files/publications/howtonotes/2022/english/htnea2022004.pdf_