## _cr15266 ## Source details **Canonical URL:** [_cr15266](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15266.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15266.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15266.pdf.json) --- ### Preface — mission, scope, and context - Technical assistance mission from the Fiscal Affairs Department (FAD) visited Malaysia during February 4–17. - Mission leader: Dr. Teresa Curristine; mission members: Ms. Mary Betley, Mr. Robert Clifton, Mr. Jonathan Sell. - Additional participants: Dr. Nowook Park (Korean Institute of Public Finance, one week) and Mr. Suhas Joshi (IMF public financial management regional adviser, one week). - Mission met with senior officials across MOF, NBO, EPU, PEMANDU, Prime Minister’s Department, spending ministries, National Audit Department, and Public Accounts Committee. - Mission response to request from Dr. Ismail Bin Hj. Bakar, National Budget Director, NBO, MOF; focus: strengthen Outcome Based Budgeting (OBB) introduced in 2012 with full implementation scheduled for 2016. ### Executive summary — key findings and progress - Malaysia undertaking reforms including: a Fiscal Policy Committee (FPC), a Medium Term Fiscal Framework (MTFF), accrual accounting, and Outcome Based Budgeting (OBB). - OBB builds on the Modified Budgeting System (MBS) and aims to align national and ministerial outcomes with programs and budget resources and to integrate planning, budgeting, and evaluation. - Progress to date: - NBO assisted nine pilot ministries to redesign their program structure to link to outcomes and plans to assist all ministries. - Increased awareness across government of the importance of outcomes. - Annual budget circular includes requests for outcome information. - An online IT platform (MyResults) allows ministries to submit annual budget and performance framework together. - Main implementation challenges: - Aligning programs to outcomes and overcoming institutional boundaries. - Using performance information (PI) in budgetary decision making. - Changing annual, incremental, input-focused budget processes to a medium-term, results focus. - Reform sequencing and timeframes: short term (2015–17) and medium term (2018–20). ### Four priority reform areas (core recommendations) - 1) Improving the strategic and medium term focus of budgeting and planning - Introduce a medium-term focus into the budget process, building on the MTFF. - Commence each budget round with a Fiscal Strategy Paper approved by the FPC and the Cabinet to form the basis of the budget circular. - MOF to set a combined ceiling for ministries’ operational (OE) and development (DE) expenditures in the budget circular: a firm ceiling for the current year and indicative ceilings for two years ahead. - Ministries required to submit projections for two years ahead with budget requests. - Merge OE and DE budgets and improve coordination among NBO, EPU, and PSD. - Strengthen budget credibility by limiting introduction of new and unplanned policies during the year. - 2) Improving alignment of outcomes, programs, and institutions - Strengthen top‑down processes and better link top‑down and bottom‑up planning. - Develop an overall sectoral framework (start with COFOG) to guide planning and budget processes. - Overcome constraints from institutional boundaries and reporting hierarchies to design results‑oriented programs and activities. - 3) Integrating performance information (PI) into budget processes and documents - Establish explicit mechanisms for feeding PI back into budget discussions. - Integrate program structure into budget documents with outcome indicators, merged OE and DE budgets, and three year budget projections. - NBO to design a spending review process and conduct initial reviews examining prioritization, personnel spending, program cost evaluation, and overlapping programs. - 4) Improving performance monitoring, reporting, and evaluation - Nine pilot OBB ministries to report performance in MyResults in 2015; other ministries to report once program structures are refined. - Streamline and improve linkages among agencies setting performance targets and reporting requirements. - Include OBB program outcome indicators in ministerial performance agreements with the Prime Minister. - Consider including performance data and systems in the Auditor‑General’s star rating compliance audit. - Report PI quarterly with financial reports, publish results online, and have MOF submit an annual report on ministries’ performance to the PAC. - NBO to develop central guidelines for program evaluations and enhance evaluation capacity. ### Strategic and medium-term budget focus — findings and recommendations - Current state and gaps: - Government has medium-term projections and an MTFF in preparation; the budget process remains largely annual and input-driven. - MTFF expected to be produced for a three-year period on a rolling basis and presented to the FPC but not to the Cabinet. - Fiscal Strategy Paper is recommended to communicate fiscal policy objectives, fiscal risks and scenarios, and debt sustainability analysis; Malaysia does not currently publish an equivalent guiding document. - Institutional responsibilities: - EPU: medium-term macro‑fiscal projections. - MOF Fiscal and Economics Division (FED): annual projections for coming budget. - Short-term recommendations (selected): - Produce a Fiscal Strategy paper approved by FPC and Cabinet at the start of each budget round. - Require ministries’ requests for new and one-off policies to include projections of medium-term costs, including personnel costs, and justification against national priorities. - Merge OE and DE budgets: single ceiling covering both OE and DE and present merged version in budget documents. - Establish committee on operational costs associated with development projects (NBO, EPU, PSD, ICU). - Medium-term recommendations (selected): - Prepare an expanded fiscal strategy paper to guide inter-sectoral priorities. - MOF to establish a firm ceiling for the budget year and indicative ceilings for two years ahead covering both OE and DE. - Instruct ministries to submit budgets within these ceilings and projections for two years ahead and provide training in medium-term estimates. - Strengthen budget credibility by encouraging the Auditor‑General to measure adherence to the original appropriated budget. - Improve public investment planning with more rigorous cost‑benefit analysis and independent evaluation of project costs. ### Aligning outcomes, programs, and institutions — barriers and proposed sectoral approach - Barriers identified: - Multiple overlapping priority sets (10th Malaysian Plan NKRAs, MKRAs, PEMANDU, MBS/OBB) hinder a single coherent set of outcome priorities. - Coordination difficulties among EPU, PEMANDU and MOF. - Institutional boundaries constrain program/activity design (risk of bottom‑up designs reflecting institutional reach rather than outcomes). - Proposed sectoral approach: - Use sector aggregation (COFOG as a starting point) to reconcile top‑down and bottom‑up planning and to map National Plan outcomes into sector outcomes and program subsectors. - Apply MECE (Mutually Exclusive, Collectively Exhaustive) methodology to avoid overlap and ensure comprehensive coverage of public expenditure. - Map institutional units to activities to identify overlap and attribution; assign a single senior ministry official (Secretary‑General or Deputy Secretary‑General level) as chiefly accountable where appropriate. - Sequencing: - MOF should lead sectoral design and mapping, embedded within sectoral spending reviews; begin with sectors already advanced (e.g., Ministry of Health). ### Integrating performance information (PI) into the budget process and documents - Current situation: - PI from MBS is not actively used to guide resource allocations; no explicit mechanism exists for feeding PI into budget review despite PI availability under MBS. - OBB/MyResults aims to integrate planning, budgeting, monitoring and reporting on a single IT platform; as of the report 9 out of 24 ministries have refined programs and related PI. - All ministries submit annual budgets along with planned performance in MyResults; only pilot ministries have OBB program structure and KPIs embedded. - Recommendations to operationalize PI use: - NBO Budget Review Officers (BROs) should require ministries to present trend analyses of selected KPIs during budget deliberations. - NBO should analyze OBB and MBS indicators and benchmark similar programs internationally. - Establish a spending review function in NBO to analyze spending and performance on a rolling basis. - Present OBB program detail in the Budget Book for the nine pilot ministries in the 2017 budget and roll out thereafter. - BROs to engage in more cost and performance analysis throughout the year; NBO to review institutional capacity given enlarged performance analysis demands. - Numeric/capacity details: - NBO employs 60-70 staff members. - There are 50 budget entities including 24 ministries. - 1,169 government companies have been established over time (noted as a source of potential duplication). - MOF reports 23 different agencies responsible for innovation and research. ### Budget Book, spending reviews, and budget credibility - Current Budget Book: - Format based on MBS; 50 supply heads including ministries, departments, agencies, commissions and charge heads. - Heads include totals for development and operational budgets, three‑year spending trends, objectives and strategies, and beneficiary information. - Output-based programs include activity-level output KPIs; program-level KPIs are generally absent. - Findings on execution and credibility: - Actual expenditures of line ministries exceed original appropriated budgets, notably for personal emoluments (PE); development budget tends to be underspent. - In 2013, supplementary authorizations increased approved operational expenditures compared to the original budget by 10.1%. - Parliament commonly passes two supplementary budgets each year (first supplementary in June or September; second supplementary in first six months after end of budget year). - Practice of ex post regularization undermines accountability and spending efficiency. - Spending reviews: - Proposed to identify options for reprioritization and spending reductions, drawing on program evaluations and efficiency reviews. - Should be managed in stages (decide aims; plan and conduct reviews; shape findings into resource allocation advice) and overseen by a coordinating team within MOF with political leadership. - Reviews can be annual as part of budget process or every three to four years; approaches include discretionary targeting or regular program review cycles. - Proposed Budget Book redesign: - Present OBB program structure, outcome KPI trends, merged OE/DE budgets and three-year projections; pilot presentation for nine ministries in 2017 and roll out to all ministries thereafter. ### Monitoring, reporting, evaluation and audit - Multiple performance frameworks in use with inconsistent monitoring: - PEMANDU (ETP/GTP/SRIs): extensive monitoring and reporting (357 KPIs reported weekly); annual report audited by independent firm. - 10th Malaysia Plan: custodian EPU; "No systematic monitoring or reporting of NKRA in the 10th has been undertaken." - MBS/MyResults: custodian MOF; reporting takes place in MyResults and selected information is included in the Budget Book. - OBB: custodian MOF; reporting expected to commence in 2016 for pilot ministries. - Auditor‑General and NAD: - Auditor‑General undertakes up to 200 performance audits annually. - Auditor‑General’s Dashboard (launched May 2013) end‑2013 status: 9 audit findings not addressed; 205 in process; 188 addressed. - Compliance Audit produces an Accountability Index resulting in a Star Rating across ten elements; recent ratings show 98% of audited entities receive the highest 4‑star “Excellent” rating. - Recommendations to strengthen PI quality and evaluation: - Auditor‑General should include an audit of OBB performance data and systems in its annual Compliance Audit. - NAD to support MOF’s effort to improve KPI reliability by assessing data management controls for selected KPIs. - NBO’s Performance and Evaluation Sector to introduce guidelines for ex post program evaluations and establish a Community of Practice (CoP) for monitoring/reporting staff. - MOF to annually publish a rolling three-year list of planned, ongoing and completed program evaluations. - Integrate selected OBB program KPIs into Prime Minister‑Minister performance agreements; BROs to produce bi‑annual trend analysis and publish results online; MOF to submit annual OBB performance report to the PAC. - Medium-term objective: - Ministries to submit annual performance reports to Parliament and the PAC (medium term). ### Civil service workforce, NBO role, and capacity building - Civil service workforce issues: - Personnel planning is highly centralized; recommendation to rebalance recruitment and resource planning towards delivery institutions. - Central control of key incentives (e.g., annual bonuses) reduces linkage of rewards to performance. - Quid pro quo for increased flexibility: ministries to develop evidence‑based medium-term manpower plans with personnel cost ceilings negotiated with NBO and PSD. - NBO capacity and strategic role: - NBO currently operationally focused with limited strategic leadership across government spending policy. - Small Performance Management and Evaluation team has had successes; mainstreaming required within sector budget teams. - Recommendations: - Conduct a Strategic Review of NBO to clarify role, functions and capabilities. - Review headcount and sector leadership after agreement on sector and program structure. - Reconsider NBO’s place within the Treasury; budget offices commonly have a dedicated deputy secretary general level leader. - Desired shift in NBO characteristics (from Table 7 summary): - From reactive annual budget management to strategic medium-term planning reconciling outcome priorities and fiscal constraints. - From transactional engagement with ministries to engagement aimed at achieving strategic priorities and reviewing impact. - From marginal role in performance management to key user of performance information and contributor to government performance culture. - Capacity building within ministries required to embed OBB (Box 4 highlights): - Strengthen strategic planning, cross-boundary working, evidence gathering and analysis, policy design using performance evidence, and program/project management. - Departments need flexibility to implement their own human resource plans to develop these capabilities. ### Reform sequencing, action plan highlights and timeframes - Reform phases and enabling reforms: 1. Review central capability and processes (NBO strategic review; secure high-level agreement for spending reviews). 2. Agree sector structure and review OBB integration with reporting/monitoring processes. 3. Improve integration of financial decision making across MOF, EPU, ICU and PSD; review personnel delegations to increase managerial flexibility. 4. Initiate spending reviews in advanced sectors and roll out across government. - Reform Action Plan (selected timeline mapping): - 2015–2017 (short term): introduce medium-term focus; merge OE/DE ceilings; require medium-term cost projections for new policies; establish spending review function; require nine pilot ministries to report in MyResults; publish OBB program detail in Budget Book for pilots in 2017. - 2018–2020 (medium term): prepare expanded Fiscal Strategy paper; establish firm and indicative ceilings for two years ahead; integrate spending review with budget process; Auditor‑General to include OBB audits; ministries to submit annual performance reports to Parliament/PAC. ### Appendices and country examples (selected) - Appendix highlights: - Appendix 2 lists Supply Acts and Supplementary Supply Acts fiscal years 2011–2015 with exact Act identifiers and dates (e.g., 2015 budget – original: A1469: Supply (2015) Act — 30 December 2014). - Appendix 3 summarizes spending review methodologies for South Africa and the United Kingdom with staged steps and evaluation focus questions. - Appendix 4 outlines the format of South Africa’s Estimates of National Expenditure Book with required sections 1–12. - Appendix 5 provides an illustrative SECTION 2 (Ministry of Health) structure with example KPI tables and budget lines; medium-term growth rates and annual increases cited in illustrative narrative (e.g., operational TB program growth average annual rate of 14.2 per cent; medical supplies projected increase average annual rate of 15.9 per cent). - Notable numeric facts cited: - Malaysia transformed with GDP growth rates averaging 6.5%. - 9 pilot ministries (Phase 1: 3 ministries; Phase 2: 6 ministries). - 24 ministries in total referenced. - NBO staff count: 60-70. - 50 supply heads in the budget. - 1,169 government companies established over time. - 23 different agencies responsible for innovation and research reported by MOF. - Auditor‑General star rating: 98% of those audited receive 4‑star “Excellent” in recent ratings. - 2013 supplementary authorizations increased approved operational expenditures compared to the original budget by 10.1%. *IMF Fiscal Affairs Department mission report to Malaysia (February 4–17), excerpts from _cr15266.* ### Preface___________________________________________________________________ 6 ### Preface ### Mission and participants - A technical assistance mission from the Fiscal Affairs Department (FAD) visited Malaysia during February 4–17. - Mission leader: Dr. Teresa Curristine. - Mission members: Ms. Mary Betley, Mr. Robert Clifton, Mr. Jonathan Sell (IMF experts). - Additional participants: Dr. Nowook Park (Korean Institute of Public Finance, one week) and Mr. Suhas Joshi (IMF public financial management regional adviser, one week). ### Meetings and counterpart institutions - Mission met with: Deputy Secretary-General of Treasury (Policy), Y. Bhg. Dato’ Mohd Nor Nawi; Y Bhg. Dato' Siti Zauyah Binti Md Desa, National Budget Director; Mr. Koshy Thomas, Deputy National Budget Director (Performance); Dato’ Zamzuri Bin Abdul Aziz; Mr. Chin Tuck Seng; other officials from the National Budget Office (NBO). - Met with: Dato' Haji Che Pee Samsudin, the Accountant General, and officials from his office; Dr. Khalid bin Abd Hamid, Mr. Lim Seng Gim, Dr. Mastura binti Abdul Karim, Mr. Mohd Esa bin Abdul Manaf and other officials from the Fiscal & Economics Division; Datuk K. Givananadam from the International Division of the Ministry of Finance. - Met with officials from the Prime Minister’s Department: Mr. Surendran C.K. Balan, Mrs. Nurulhuda binti Abdullah, Mr. Hamdan bin Hj. Puteh; officials from the Public Services Department; Datuk Chris Tan and Mr. Nishan MPR Veera Kumar (PEMANDU); Mr. Boniface Edwin Manung, Mr. Noor Ihsan Che Mat, Mrs. Noraini Ahmad, Mrs. Zakiah Jaafar and other officials from the Economic Planning Unit (EPU). - Spending ministry meetings included: Datouk' Dr. Chen Chaw Min and Mrs. Wong Foong Lai (Ministry of Health); Ms Vimala, Ms. Rita Elisha Mering, Ms. Chua Wan Ting (Ministry of International Trade and Industry); Dato' Jana Santhiran Muniayan, Ms. Mazrini Mohmad, Mr. Abdul Haris Lakar and other officials (Ministry of Transport). - Met with: Mrs. Aneeza Mohamad and Mrs. Mona Othman (National Audit Department); Hon. Datuk Nur Jazlan bin Mohamed and Hon. Dr. Tan Seng Giaw, Chair and Vice Chair, respectively, and other Honourable members of the Public Accounts Committee (PAC). ### Acknowledgements - The mission expressed gratitude to the Malaysian authorities for excellent cooperation and appreciation to Mr. Koshy Thomas, Ms. Genevieve Joanis, and Mr. Zulkhairil Amar Mohamad (Performance Management and Evaluation Sector, NBO) for invaluable assistance. ### Context and scope - The mission responded to a request from Dr. Ismail Bin Hj. Bakar, National Budget Director, National Budget Office, MOF. - The mission focused on strengthening Outcome Based Budgeting (OBB), introduced in 2012 with full implementation scheduled for 2016. ### Executive Summary — key findings - Malaysia is undertaking reforms to promote sound fiscal management and fiscal sustainability, including: a Fiscal Policy Committee (FPC), a Medium Term Fiscal Framework (MTFF), accrual accounting, and Outcome Based Budgeting (OBB). - OBB builds on the previous output based Modified Budgeting System (MBS), in place for over two decades. OBB aims to improve efficiency, performance, and prioritization by aligning national and ministerial outcomes with programs and budgetary resources and by integrating planning, budgeting, and evaluation. - Progress to date: - NBO assisted nine pilot ministries to redesign their program structure to link to outcomes and plans to assist all ministries. - Increased awareness across government of the importance of outcomes. - Annual budget circular includes requests for outcome information. - An online IT platform (MyResults) allows ministries to submit annual budget and performance framework together. - Implementation challenges: - Aligning programs to outcomes. - Using performance information (PI) in budgetary decision making. - Changing planning and budgeting systems to focus more on results. - Budget process remains largely annual, incremental, and input focused. - Reform sequencing and timeframes provided: short term (2015–17) and medium term (2018–20). ### Four priority reform areas and core recommendations 1) Improving the strategic and medium term focus of budgeting and planning - Introduce a medium-term focus into the budget process, building on the MTFF. - Commence each budget round by producing a Fiscal Strategy Paper approved by the FPC and the Cabinet to form the basis of the budget circular. - MOF to set a combined ceiling for ministries’ operational and development expenditures in the budget circular: a firm ceiling for the current year and indicative ceilings for two years ahead. - Ministries required to submit projections for two years ahead with budget requests. - Merge operational (OE) and development (DE) budgets and improve coordination among NBO, EPU, and PSD in annual budget discussions. - Strengthen budget credibility by limiting introduction of new and unplanned policies during the year. 2) Improving alignment of outcomes, programs, and institutions - Strengthen top-down processes and better link top-down and bottom-up planning. - Develop an overall sectoral framework to guide planning and budget processes. - Overcome constraints from institutional boundaries and reporting hierarchies to design results-oriented programs and activities. 3) Integrating performance information (PI) into budget processes and documents - Establish explicit mechanisms for feeding PI back into budget discussions to signal that performance is taken seriously. - Integrate the new program structure into budget documents with outcome indicators, merged OE and DE budgets, and three year budget projections. - NBO to design a spending review process and conduct initial reviews examining: prioritization of expenditure, spending on personnel, program cost evaluation, and overlapping programs. 4) Improving performance monitoring, reporting, and evaluation - Nine pilot OBB ministries to report performance in MyResults in 2015; other ministries to report once their program structures are refined. - Streamline and improve linkages among agencies setting performance targets and reporting requirements. - Include OBB program outcome indicators in ministerial performance agreements with the Prime Minister. - Consider including performance data and systems in the Auditor-General’s star rating compliance audit. - Report PI quarterly with financial reports, publish results online, and have MOF submit an annual report on ministries’ performance to the PAC. Eventually ministries could present annual performance reports to Parliament. - NBO to develop central guidelines for program evaluations and enhance evaluation capacity at central and ministry levels. ### Key change management and incentive points - Generate incentives for ministries to engage by incorporating PI in budget discussions and ministerial performance agreements and by making results public. - Ministries currently have extensive flexibility to reallocate expenditures except in personnel; enhancing flexibility to transfer staff positions and reorganize within expenditure ceilings could improve capacity to achieve results. - To reach a PFM system consistent with an advanced economy by 2020, a reform strategy and capacity-building for the NBO are essential. The report includes recommendations and a reform action plan for the next phase of OBB reform. ### Summary of recommendations (selected highlights and timing) - Short Term = 1-2 years; Medium Term = 3-5 years. Selected entries from Table 1: - Introduce a medium-term focus into the budget process; produce a Fiscal Strategy paper approved by the FPC and the Cabinet. (Short Term: X) - Require ministries’ requests for new and one-off policies to include projections of medium-term costs, including personnel costs, and justification against national priorities. (Short Term: X) - Merge operational (OE) and development (DE) budgets; have a single ceiling for OE and DE and present merged version in budget documents. (Short Term: X) - Introduce a medium term budget framework: prepare an expanded fiscal strategy paper; establish a firm ceiling for the budget year and indicative ceilings for two years ahead; instruct ministries to submit budgets within these ceilings and provide training in medium-term estimates. (Medium Term: X) - Strengthen budget credibility by encouraging the Auditor-General to measure adherence to the original appropriated budget and discourage in-year, unfunded policy measures. (Medium Term: X) - Use a sector categorization (starting with COFOG) to improve alignment of outcomes, programs, and activities. (Short Term: X) - Require the nine pilot ministries to start reporting on performance results through MyResults in 2015; others to follow once program structures are refined. (Short Term: X) - Establish a Spending Review function and integrate Spending Reviews with the budget process. (Short Term: X; Medium Term: X) - Include selected OBB program KPIs in the performance agreements between the Prime Minister and ministers and submit an annual OBB performance report on ministries’ performance to the PAC. (Short Term: X; Medium Term: X) - NBO to lead guidelines on program evaluations, establish a Community of Practice for monitoring/reporting staff, and publish an annual rolling three-year list of program evaluations on the MOF website. (Short Term: X; Medium Term: X) *IMF Fiscal Affairs Department mission report to Malaysia (February 4–17), Preface and Executive Summary.* ### 1. Malaysia’s economy has performed strongly since independence, with GDP ### 1. Malaysia’s economy has performed strongly since independence, with GDP growth rates averaging 6.5% ### Overview and strategic objectives - Malaysia transformed into a middle-income industrialized market economy with GDP growth rates averaging 6.5%. - Key national objectives for 2020: becoming a high-income economy and balancing the budget. - National planning framework: - 10th Malaysian Five Year National Plan 2011 – 2015 focused on national outcomes, efficiency and effectiveness of public spending, and fiscal sustainability. - The plan set out five key strategic thrust areas and 24 key results areas. - A framework of four (4) national pillars: 1Malaysia, People First, Performance Now philosophy; Government Transformation Program (GTP); and Economic Transformation Program (ETP). - The 11th Five-Year Malaysia National Plan covering 2016-2020 will be launched in May 2015. ### Fiscal management and reform initiatives - Government strategy goals: optimal utilization of public funds, high-quality services, stable fiscal position resilient to macro shocks, long-term fiscal sustainability, and improved efficiency and effectiveness of public spending. - Reform initiatives undertaken: - Creation of a FPC in 2013 for high-level strategic decision-making on public finance policies. - Adoption of outcome-based budgeting (OBB). - Introduction of a Goods and Services Tax (GST) in April 2015. - Introduction of accrual accounting practices. - Increasing the role of the National Audit Department. - External vulnerability example: reduction in oil prices during the last six months of 2014 led to the Prime Minister announcing a 4% reduction in the 2015 budget at the beginning of the fiscal year. ### Fiscal pressures and expenditure patterns - Since the early 2000s, real GDP growth rates of around 6 percent annually (with the exception of the 2009 global crisis) have been accompanied by expansion of the public sector. - The public sector balance has been in deficit since 2008, although it has been decreasing as a percentage of GDP. - Operational expenditures have been increasing at the expense of development expenditures, potentially squeezing fiscal space for public investment. ### Focus of this report - The report focuses on strengthening OBB and is structured into chapters: current status of OBB; strengthening building blocks for strategic and medium-term budgeting and planning; improving alignment of outcomes, programs, and institutions; integrating performance information into the budget process and budget documents; improving performance monitoring, reporting, and evaluations; and OBB–the way forward–strategy and sequencing of reforms. ### Table: Linking National and Ministerial Level Outcomes (as set out in the report) - National level (National Results Framework per 10th MP) - National Strategic Thrusts - National Key Results Area - National Outcome - Key Performance Indicator - National Program - Ministry level (Ministry Executive Summary) - Ministry’s Outcome - Key Performance Indicator - Budget Program - Program level (Program Performance Management Framework) - Program Outcome - Key Performance Indicator - Budget Activity (i.e., sub-program) - Activity level (Activity Performance Management Framework) - Activity Outcome - Key Performance Indicator - Activity Output - Key Performance Indicator ### OBB: current status and implementation progress - Historical background: - Performance budgeting reforms date to the 1960s. - 1990: introduction of the Modified Budgeting System (MBS), an output based performance budgeting system. - MBS emphasized output indicators and annual targets and delegated significant virement authority to managers. - MBS benefits and weaknesses: - Benefits: greater delegated authority to ministries and improved development of performance information (PI). - Weaknesses over time: focus on inputs and outputs at expense of outcomes; lack of strategic focus; weakened linkages between policies, planning, and budget resources; weak expenditure control; poor management information systems; and PI not systematically used. - Transition to OBB: - 2010: government announced reform to introduce OBB to address MBS weaknesses and better align with the 10th MP. - OBB implementation began in 2012 and is being phased in over a number of years. - OBB differs from MBS by focusing on outcomes and integrating strategic planning and performance management with budgeting. - Institutional arrangements supporting OBB: - High-level buy-in within MOF including MOF Secretary General and National Budget Director. - Supporting bodies: NBO’s Performance Management and Evaluation Sector team, Ministry’s OBB Implementation Committee (MOIC), Program Performance Management Committee (PPMC), Activity Performance Management Committee (APMC). - MyResults online IT system established for ministries to submit budgets and performance indicators to the NBO; ministries have yet to report results through it (as of the report). - Pilot implementation and guidance: - A MOF team designed the OBB framework, worked with nine pilot ministries, and published formal guidance on OBB principles and technical parameters. - Footnote detail: 9 pilot ministries introduced in two phases. Phase 1 (3 ministries): the Ministry of International Trade and Industry; the Ministry of Health; and the Ministry of Finance. Phase 2 (6 ministries): the Ministry for Agriculture; the Ministry of Works; the Ministry of Science Technology and Innovation; the Ministry of Energy, Green Technology and Water; the Ministry for Human Resources; and the Ministry for Federal Territories. - Notable progress to date: - A well-informed and highly motivated OBB team providing advice and guidance and running workshops; nine pilots moved to outcome-based program structures and lessons captured. - Where piloted, rationalization of outcomes, programs, and activities and increased focus on priorities (variation across ministries). - High level of awareness of OBB across ministries and within Parliament; ministries, the National Audit Department, and the Public Accounts Committee have a good general understanding of OBB’s objectives. - Shift from output-based program model under MBS towards outcome-based program structure; outcome KPIs identified across ministries. - Centralized performance information system (MyResults) in place and compatible with OBB structural changes; pilot ministries have OBB program structure and KPIs embedded within MyResults. - All ministries submit their annual budgets along with planned performance in MyResults. - OBB requirements formally issued via MOF OBB Circular (NT 1.1 (2013)) and integrated into the annual budget circular. - Primary outcomes of the 10th Malaysian national plan have been mapped against ministry program areas. - Implementation timeline and targets: - Government aims for pilot ministries to report performance in MyResults in 2015 and to include performance outcomes in the budget book for 2017. - Following staggered implementation, the government aims for other ministries to do the same by 2018. - Authorities requested examination of how OBB and PI can be better integrated into budgeting and planning; how to improve strategic and medium-term focus; and how to improve monitoring, reporting on performance, and its presentation in the budget book. ### Implementation challenges (technical and institutional) - Main implementation challenges identified: - Strengthening the performance culture in ministries and effectively linking performance to resources. - Understanding the program-based approach and refining programs to link to sector priorities rather than institutional structure. - Aligning outcomes, programs, and activities. - Introduction of meaningful outcome indicators at the program level. - Establishing clear accountability for outcomes, particularly for programs. - Managing shared (cross-cutting) outcomes. - Introducing OBB presentation into the Budget Book. - Improving the quality of performance data, particularly to ensure consistency. - Developing evaluation processes for OBB ministries. - Elapsed timing and risk of reform fatigue: risk that time to bring remaining ministries into the process will reduce pilots’ commitment. - Need to show results quickly given phased implementation. - Institutional and contextual challenges: - OBB requires behavior change and wider systems reform in planning and budgeting to promote focus on results and use of PI. - Challenges include: - Enhancing processes and institutions to improve integration of planning and budget. - Merging operational and development budgets. - Introducing a more medium-term focus in expenditure management. - Improving institutional coordination between NBO, the Economic Policy Unit (EPU), the Prime Minister’s Performance Management and Delivery Unit (PEMANDU), and the Implementation Coordination Unit (ICU) in the Prime Minister’s office, in setting, monitoring, and reporting on performance targets. - OBB is part of broader fiscal reform and results-based management including personnel performance, monitoring and evaluation, and management information systems. - Critical success factors identified by the government: - Top management involvement and leadership (political will). - Performance information must be demand driven. - Availability of appropriate skills, including data analysis and business intelligence. - The need for extensive “Change management.” - Mission agreement: - Successful introduction will require sustained political support and leadership, dedicated resources, and an extensive sensitization program for policy makers; policy makers, in particular Cabinet, need to understand objectives, benefits, and links to other reforms. ### Strengthening the strategic and medium-term focus of budgeting and planning - Current status: - OBB and the 10th Malaysia plan focus on outcomes over the medium term; government recognizes need for medium-term strategic focus to the budget process and improved spending efficiency, particularly amid fiscal consolidation measures. - Progress made: establishment of medium-term projections for fiscal aggregates; formation of a high-level FPC chaired by the Prime Minister to oversee fiscal deficit reduction; inclusion of three-year budget parameters in NBO’s online budget preparation system. Development budget process remains framed by a medium-term national plan. - Gaps and needed improvements: - Budget process remains largely annual and input-driven; not guided by an overall sectoral strategic framework. - The government is developing its first MTFF; to date budgets have not been explicitly guided by a framework that sets out fiscal aggregates over the medium term, the available fiscal space for new policies, and the government’s overall fiscal strategy (including fiscal rules). - Budget guidance documents are not medium-term or not produced on a rolling basis: National Plan parameters cover a fixed five-year period; Call Circular parameters focus on the coming budget year. - Institutional responsibilities: - EPU: medium-term macro-fiscal projections. - Fiscal and Economics Division (FED) in MOF: annual projections for the coming budget. - National plans: EPU provides macroeconomic and broad fiscal projections for five years, rolled over each year. - MTFF specifics: - MOF’s FED has initiated preparation of a Medium-Term Fiscal Framework (MTFF). - MTFF aggregates come from the Fiscal Policy Office in consultation with EPU and are submitted to the Fiscal Policy Committee. - MTFF expected to be produced for a three-year period on a rolling basis and presented to the FPC but not to the Cabinet. - External technical support is being provided to strengthen and operationalize the MTFF. - Transparency practices: parameters in the MFF and scenarios for annual budget preparation are not published. - Inter-sectoral priorities: - Not clearly established at the beginning of the budget process (e.g., via a budget policy paper). - Cabinet sets broad priorities via national key results areas, but these are not translated into relative priorities for sectors or ministries over the medium term. - Spending limits provided to ministries at the start of the budget process are not explicitly linked to government priorities across sectors and cover only recurrent expenditure. - Process and interaction deficits: - No iterative interaction between top-down strategic guidance and bottom-up costing/allocation process. - Limited opportunities for inter-sectoral and intra-sectoral discussions to guide efficient use of money and reduce overlapping programs. - Cabinet does not have an active role in setting policy parameters at the beginning of the budget process and is not involved in approving ministry-specific ceilings for operational or development expenditures. - The FPC is expected to strengthen high-level oversight of fiscal parameters and to provide somewhat independent forecasts and assessments of revenue, expenditure, and tax policy changes. - Use of time in the budget cycle: - Despite budget process beginning early (Call Circular issued in February, eight months before Budget submission to Parliament), ministries do not systematically produce cost estimates for new policies or assess effectiveness/efficiency of existing ones; these cost estimates are not systematically fed into decision-making. - Fiscal Strategy Paper discussion: - A Fiscal Strategy Paper communicating fiscal policy objectives is commonly used in other countries to present projected fiscal aggregates, analyze fiscal risks and scenarios, and address debt sustainability. Malaysia does not currently have an equivalent published document guiding medium-term budget priorities in the same way. *Source: _cr15266 - 1. Malaysia’s economy has performed strongly since independence, with GDP* ### Box 1. New Zealand: Medium-term Fiscal Strategy Documents ### Box 1. New Zealand: Medium-term Fiscal Strategy Documents ### Overview of reporting and communication - The New Zealand Government publishes its Fiscal Policy Report (FPR) in May and its’ Budget Policy Statement (BPS) in December of each year (the financial year runs from 1 July-30 June). - The FPR: - announces the government ́s goals, - communicates the fiscal parameters, - explains the economic context and the fiscal priorities, - presents past fiscal performance, - provides fiscal forecasts and projections. - The BPS: - announces the government’s plans and the budget goals and priorities, - includes fiscal forecasts and projections. - Both reports: - share an analysis of the short-term fiscal intentions and the long-run fiscal objectives, - compare short-term fiscal intentions against the previous cycle (FPR compares with previous BPS; BPS compares with previous FPR). - Purpose: this communication strategy aims to provide continuity, firmer anchoring during the year of fiscal announcements, and underline government commitment. *Source: IMF Staff* ### Strategic and medium-term budget focus — findings - Improving the strategic and medium-term focus of the budget process would facilitate greater alignment of budget allocations with government priorities and the national outcomes being developed as part of the new 11th National Plan. - Fiscal consolidation measures require more attention to how efficiently budget resources are spent and to ensure they are targeted at the highest priority policy areas. - The government has made recent progress in strengthening co-ordination of planning and budgeting processes (e.g., a single Circular now covers both operational expenditures (OE) and development expenditure (DE), and an IT system used by MOF includes budget information for both OE and DE). ### Institutional separation and coordination problems - The planning process is formally driven by the 5-year national development plan, currently the 10th Malaysian Plan; multiple development plans also exist (e.g., Government Transformation Program (GTP), Economic Transformation Program (ETP)), potentially complicating coordination. - Budget preparation remains institutionally split: - OE prepared by budget sections of line ministries and mediated by the NBO. - DE prepared by planning sections of line ministries and mediated by EPU. - High priority projects overseen by PEMANDU often receive priority in resource allocation. - Despite a single Call Circular, OE and DE processes are largely separate in practice; Parliamentary approval is separate: - Appropriations Bill (Supply Bill) legislatively approved only for OE. - DE is funded from a Trust Fund (a sub-fund of the Consolidated Fund) and approved by a “Motion” passed by the lower House. - The annual budget process begins in February with distribution of the call circular by MOF. - Expenditure targets (ET) for spending heads cover operational spending on existing policies, new policies approved in the previous year’s budget, a percentage increase for personal emoluments, and a deduction factor representing efficiency savings. - The ET calculation is formula-driven; the formula used to be explicit in the Call Circular but recent Circulars omit the explicit formula while the approach still guides preparation in practice. - The amount for new and one-off policies is not based on detailed costings of programs; in practice the ET is driven by the personal emoluments increment. - Ministries prepare operational budgets on a line-item basis and commonly add an increment to the previous year’s budget for each activity, producing a mechanistic process that can encourage gaming (e.g., under-budgeting personal emoluments to create space for new policies). - Budget presentation continues to be based on the MBS structure from the early 1990s despite OBB. ### Development budget process and project appraisal - EPU sets baseline ceilings for DE for each ministry; ceilings are based on the aggregate medium-term ceiling for DE and broad government priorities in the National Plan. - Under earlier plans (e.g., the 9th National Plan) ceilings were fixed for five-year periods. The 10th MP adopted the rolling plan method towards the end. For the 11th National Plan the ceilings will be rolling and cover two years. - Ministries prepare a pipeline of development projects to EPU; submissions are often well above ministry ceilings (one estimate suggested some were as high as three times their ceiling amount). - Project selection criteria include readiness, consistency with national policies, urgency, financial viability, and implementation capacity. Once approved, projects are expected to be funded; EPU can set ceilings for each project and ministries may move funds across projects within ceilings and above ceilings with EPU approval. - Technical screening and appraisal are limited: - Cost-benefit analyses are not carried out systematically and are not used as the basis for selecting projects. - Cost estimates have not been subject to external review, and economic benefits are not calculated. - A Value Management Section in EPU examines projects over RM50 million for functionality, quality, and costs to ensure value for money, but effectiveness is limited because many projects below RM50 million are not mandated to have a value-for-money assessment. - For the 11th National Plan a new score-based index for selecting development projects is being prepared. - Emphasis on fitting with the National Plan may crowd out routine public service provision not explicitly linked to the National Plan. ### Integration of operational and development budgets — issues - The dual budget structure undermines efficient resource allocation and effective public service delivery; integrated budgets promote balanced allocations between recurrent (operational) and capital. - Costing of new policies is carried out for OE and DE separately without regard for interaction; since new policies typically become existing policies in the next year, the separation becomes systematized in future allocations. - Neither OE nor DE for existing policies are reviewed systemically year-to-year due to lack of spending reviews and systematic project evaluations. - Ex post evaluations for development projects are not carried out systematically or not fed back into future projects. - Future recurrent costs associated with development projects are not systematically factored into budget plans or discussed with ministries or NBO staff; while Call Circular requests estimates of on-going operational expenditures, these estimates do not appear to be reviewed or taken into account by EPU or MOF. - The Budget Speech proposals are funded from a designated (non-ministerial) fund for the coming year, but ongoing funds required in future years must be accommodated in relevant ministry budgets, potentially displacing funding for ongoing services. ### Financial performance, execution, and credibility — findings - Actual expenditures of line ministries exceed original appropriated budgets, notably for personal emoluments (PE); the development budget tends to be underspent. - In recent years, higher-than-planned operational expenditures have been concentrated in social sectors (health and education), central agencies (Treasury and PSD) and Statutory Funds. - In 2013, supplementary authorizations resulted in increases in approved operational expenditures compared to the original budget of 10.1%. - Weaknesses in expenditure controls on PE likely contribute to under-budgeting of PE by line ministries; introduction of new policies within the budget year without identifying how costs will be met can lead to inappropriate use of the contingency provision. - Line ministries adjust to unplanned requirements by requesting additional funds from MOF, additional posts from PSD, or reallocating resources within existing budgets, potentially affecting efficiency or effectiveness. - It has become common practice for Parliament to pass two supplementary budgets each year (an improvement from previous years when the number was higher): - First supplementary: occurs in either June or September in the budget year; amounts primarily for bonuses announced during the Budget Speech, fuel subsidies, and in-year policy changes. - Second supplementary: takes place during the first six months (e.g., March or May) after the end of the budget year and represents ex post authority provision for spending that happened during the previous budget year; usually approved after the Accountant-General prepares the annual financial statement and submits it to the Auditor-General for audit, usually by the end of February. - Practice of ex post regularization undermines accountability and spending efficiency. - Increasing trend in OE potentially crowds out funding of development projects and makes it more difficult for the government to achieve development goals and targets for economic growth; the rise in PE is driven by the ever-increasing size of the public service. - Budgets not implemented as planned undermine spending efficiency and ministries’ accountability; introduction of new and unplanned policies during the year reduces ministries’ authority to achieve planned performance. - Improvement in budget credibility requires high-level focus on adherence to appropriated budgets and consequences for over-spending, including: - Cabinet endorsement of spending limits at the beginning of the budget process, - a change in the Auditor-General’s focus on scrutiny of expenditure control relative to the appropriated budget, - a more explicit policy of controlling payroll costs, - curtailing the practice of introducing unfunded mandates through in-year policy changes. ### Recommendations — Short term - Introduce a medium-term focus into the budget process, building on the MTFF, and present it in a Fiscal Strategy paper, which should be approved by the FPC and Cabinet at the beginning of the budget preparation process. Once the MTFF is more developed it should be published. - Require ministries’ requests for new and one-off policies to be accompanied by projections of medium-term costs, including personnel costs. Each proposal should be justified in terms of how it supports national priorities and affects existing spending priorities. Require ministries to provide information on planned performance. - Require detailed analysis of the medium term fiscal implications of spending initiatives announced in the Budget Speech and during the course of the year. - Consider examining approaches to contain overall personnel expenditures. - Merge operational and development budgets by: - having a single ceiling covering both OE and DE, - presenting a merged version in the budget documents, - improving process co-ordination. - Ministries should submit budget proposals for both OE and DE to MOF; budget discussions should include MOF, EPU, PSD, and spending ministries. - Establish a committee on operational costs associated with development projects comprising representatives from NBO, EPU, PSD and the Implementation Co-ordination Unit (ICU) to discuss operational costs and implications for the current year and medium term. ### Recommendations — Medium term - Introduce a medium term budget framework. - Prepare an expanded fiscal strategy paper which incorporates budget priorities and launches the budget process; use it to guide inter-sectoral priorities in line with national and sectoral objectives. - On this basis, MOF should establish a firm ceiling for ministries and agencies for the proposed budget year and an indicative ceiling for two years ahead, covering both OE and DE. - Ministries should be instructed to submit budgets to NBO within these ceilings for the proposed budget year and projections for two years ahead; provide training to ministry budget staff in making meaningful medium-term estimates. - Strengthen budget credibility by encouraging the Auditor-General to measure adherence to the original appropriated budget. - Introduce measures to strengthen budget planning, including ensuring adequate space in ministry budgets for all likely spending for the budget year and discouraging in-year introduction of unfunded policy measures. - Improve planning of public investment by: - making project selection more rigorous with cost-benefit analysis and economic impact analysis, - introducing independent evaluation of proposed project costs, - making relative weights for scoring criteria more explicit for project selection, - making scoring sheets for individual projects available for external scrutiny. *Source: IMF Staff* ### 73. OBB seeks to reform the MBS output based program structure to a new ### _cr15266 - 73. OBB seeks to reform the MBS output based program structure to a new ### Reform objective and overarching progress - OBB seeks to reform the MBS output based program structure to a new program budgeting structure based on outcomes. - Adoption of OBB has already achieved notable impact on improving the focus on outcome led programs across government. ### Key barriers to aligning outcomes, programs, and institutions - Multiple, overlapping priority sets hinder a single coherent set of outcome priorities for OBB: - 10th Malaysian Development Plan with its National Key Results Areas, National Outcomes and National Programs - Ministerial Key Results Areas (MKRAs) - PEMANDU initiatives - Outcome and output objectives already contained within MBS and OBB - Coordination difficulties among central actors: EPU, PEMANDU and the MOF. - Existing national outcome priorities: - Are not comprehensive of public expenditure. - Include significant overlap, limiting usefulness as an organizing structure for OBB. - Transitional approach: ministries initially allowed to retain MBS activity structures explicitly tied to administrative structures; these activities will be remapped to refined OBB programs. - Risk of institutional boundaries constraining program/activity design: - Over reliance on bottom-up planning can produce structures bound by institutional reach rather than outcome/output groups. - Example: 17 bodies responsible for investment promotion. - OBB does not yet provide a means for identifying overlap, duplication, or clarifying attribution among public institutions. - No clearly defined process yet for identifying priorities and budgeting in a coordinated way across institutions contributing to common outcomes. ### Performance reporting environment and complexity - Multiple performance reporting systems exist and create potential duplication: - MyResults information collected by MOF under MBS. - MKRAs reporting managed by ministry delivery units. - PEMANDU monitors National Key Results Areas (NKRAs) and key initiatives; combines with MKRAs to create Cabinet progress reports. - ICU monitors progress on implementation of capital projects agreed through the budget process. - Ministries (e.g., Ministry of Health) maintain advanced internal tracking and reporting systems, including reporting to external bodies such as the World Health Organization. - These systems were designed for different purposes and audiences, making MOF alignment with OBB difficult. - Strengthening reporting requirements for OBB risks adding monitoring burdens on departments, some of which are still early in developing performance management behaviors and systems. ### Activity (sub-program) level limitations - Current focus on outcomes at all OBB levels limits finding workable activity-level structures; outcomes are often too broad for activity-level prioritization and measurement. - Input groupings at activity level may provide a more useful model for measurement and prioritization. - Specific implementation challenge: aligning institutions with activities remains problematic (e.g., Ministry of Transport activity definitions constrained by institutional boundaries and reporting structures). ### International experience of program budgeting (summary) - In 2012, 22 out of 34 OECD countries had a standard performance budgeting framework applied uniformly across all ministries. - Cross-country PBB design differences include: - Comprehensiveness of outcomes (e.g., France vs. U.K.). - Level of appropriation (program level vs. ministry level). - Inclusion and frequency of spending reviews. - Extent to which performance information is presented in the Budget book. - Governance, monitoring and reporting systems for ongoing performance management. - Table 3 compared Malaysia with France, U.K., South Africa, South Korea, Canada: - Malaysia: Comprehensive Outcomes = No; Central or split Budget Authority = Central but decision making split in practice.; Level of Appropriation = Ministry.; Inclusion of spending reviews = No.; Inclusion of PI in Budget book = Limited to selected activities and KPIs. - Other country entries summarized in Table 3 indicate varied approaches (see Table 3 in source). - Table 4 presents the “MECE” (Mutually Exclusive, Collectively Exhaustive) methodology for category analysis as applied to OBB design: - Mutually Exclusive: Each category distinct without overlaps — benefit: clear separation and more accurate attribution. - Collectively Exhaustive: Categories taken together cover the totality — benefit: ensures all public expenditure fits within OBB structure. ### Sectoral approach to align national outcomes, programs, and activities (proposed design) - The 11th Malaysian National Plan (publication in 2015) provides national-level outcomes and objectives that can inform OBB but is not comprehensive of public expenditure. - A sector based approach reconciles top-down and bottom-up planning by: - Using sector aggregation (COFOG as a starting point, refined as required) to create an organizing structure for public finance management. - Mapping National Plan outcomes downwards against sectors; creating sector outcomes where National Plan outcomes are not adequate. - Grouping sub-outcomes/outputs to program-level subsectors with a single leading sector outcome used to group contributors. - Program definition cited: “results-based program and is therefore defined as a group of different types of output and/or transfer payments that have a common intended outcomes together, possibly, with other common characteristics such as a single target group.”6 - Spending reviews should: - Bring together key role players to map contributing programs, activities, and institutional units. - Identify spending within each sector, program and activity. - Evaluate future spending commitments and cost pressures. - Enable MOF review of efficiency and effectiveness. - Mapping institutional units to activities is critical to identify overlap and attribution, including cases where: - Numerous institutional units contribute to a single activity (e.g., multiple investment promotion agencies). - An institutional unit contributes to more than one activity and program (e.g., schools transport unit contributing to educational access and carbon emissions reductions). - Accountability arrangements: - Performance accountability and institutional management accountability may differ. - Where performance accountability crosses ministry boundaries, accountability is to the senior official in the lead ministry. - Single senior ministry official (Secretary-General or Deputy Secretary-General level) should be chiefly accountable for programs where the ministry has primary responsibility. ### Design principles to apply - Apply the MECE principle to ensure: - Comprehensive coverage of public expenditure. - Avoidance of duplication between sectoral and program areas. - Clear attribution to outcomes to support fiscal allocations and OBB decision making. ### Process leadership and sequencing - MOF should lead the design of sectoral structure and mapping, working with EPU and relevant public institutions within each sector. - The sectoral design and mapping process should be embedded within sectoral spending reviews (Chapter V); begin with sectors already advanced toward OBB structures (e.g., Ministry of Health). ### Recommendations (short term and medium term) - Short term: - MOF should use a sector categorization to improve alignment of outcomes, programs, and activities. Start with COFOG classification but refine categories where necessary. - Working with EPU and relevant public institutions within each sector, MOF should map the outcomes of the 11th National Plan against the sector model, devising sector outcomes where National Plan outcomes are not adequate. This exercise will provide the framework for spending reviews covered in Chapter V. - Medium term: - MOF should ensure the sectoral, program, and activity structure developed is comprehensive of public expenditure, while programs and activities avoid overlap and are distinct enough to allow attribution at institutional level. The MECE methodology could be applied to support this. - MOF should work with ministries, EPU, and PEMANDU to clarify how performance accountability will be managed. Performance accountability should be at the senior Secretary-General or Deputy Secretary-General level. This program leader should sit within the ministry with primary responsibility for this area. ### Integrating performance information (PI) into the budget process - Current situation: - The current budget process does not facilitate the use of PI to guide resource allocations. - No explicit mechanism exists for feeding PI back into budget review at MOF or ministry level despite MBS PI availability for many years. - Factors limiting use of PI: - MBS’ PI is not often utilized by ministries for management; it is viewed primarily as a top-down initiative to present output-oriented PI in the Budget Book. - The program-activity structure of MBS is designed to match administrative ministry structures, which can depart from a logical results-based delivery chain. - MBS’ PI relates to ministries’ operational budgets and excludes the development budget; development project performance information is gathered at ICU in the Prime Minister’s Department in SPP2. - Consequently, MBS’ PI featured in the Budget Book is limited and generally not useful for oversight purposes. - OBB and MyResults: - OBB applies a more holistic approach designed to integrate planning, budgeting, monitoring and reporting for all ministries on a single IT platform MyResults. - Under OBB and MyResults ministries link ministry outcomes to NKRAs as well as to program outcomes and activity outputs. - Since 2013 all ministries have been preparing budgets using MyResults; however only 9 out of a total of 24 ministries have refined their programs and the related PI. - Ministries continue to submit PI that relates to the MBS system, and it is this PI that is used in the Budget Book. - The nine pilot ministries will start to enter their performance results into the system within the next few months. - When OBB is fully developed it should enable comprehensive quarterly reporting, including on program PI as well as actual spending on both operational and development budgets. - Consolidated reporting will be enabled through backward data integration with: - Government’s GFMAS accounting system - EPU’s SPP2 development project reporting system *Source: IMF staff report section titled "OBB seeks to reform the MBS output based program structure to a new" (content unit _cr15266).* ### 103. OBB is not currently used to produce the Budget Book. The format and content of ### _cr15266 - 103. OBB is not currently used to produce the Budget Book. The format and content of ### Current use of OBB and Budget Book format - OBB is not currently used to produce the Budget Book. The format and content of the Budget Book tabled in Parliament is based on the old MBS approach. - Because MBS is also a PBB approach some pertinent performance and spending information is presented in the Budget Book. - There are 50 supply heads in the budget, which includes ministries, department, agencies, commissions and charge heads (e.g., debt service). - The Heads for ministries include: - totals for development and operational budgets, - actual spending trends for the past three years, - high-level objectives and strategies, - brief beneficiary information. - Below Heads there are output based programs with specific objectives and activities (i.e., sub-programs). For activities there are selected output KPIs and targets but there are none for programs. - The Budget Book also contains extensive detailed line-item information presented by object code and six volumes detailing all the staff posts in government (required by law). - Current presentation includes some PI but is not compatible with OBB’s stronger focus on outcomes and program results. - MBS is purely a presentation form of PBB and does not influence government decision making processes. ### Integrating and utilizing performance information in the budget process - MOF should ensure processes are put in place to enable the active use of PI in budget review discussions. - Budget review officers (BRO) in NBO could require ministries to prepare and present simple trend analyses of selected KPIs for review during budget deliberations. - Raising the profile of PI via MOF interest will facilitate review of KPI quality put forward by ministries in either MBS or OBB. - International experience: improvements in PBB systems are achieved iteratively through application of PI to guide allocative and operational decision-making. - The nine pilot ministries should start reporting on performance results along OBB lines through the MyResults portal this year; other ministries should do so once they refine program structures along OBB lines. - Within MOF, NBO should use indicators from both OBB and MBS for analyzing service delivery; benchmarking similar programs internationally could highlight inefficiency and wasteful spending. - BROs in NBO should engage in more analysis of cost and performance information throughout the year and work with the OBB unit to identify diverse KPIs. - According to the Center for Learning on Evaluation and Results (CLEAR) high-value KPIs include effectiveness (i.e., outcomes) indicators as well as output indicators for quality, efficiency and quantity. - NBO employs 60-70 staff members. Groups of two to three specialists focus on one to two ministries. - There are 50 budget entities including 24 ministries, which are large entities and oversee over 1000 government companies. - MOF should review institutional capacity of NBO in light of enlarged demands for performance analysis (see Chapter VII). ### Introducing spending reviews - Improved expenditure prioritization and increased performance pressure on ministries are two channels for improving fiscal performance and service delivery. - MOF is relatively strong at guiding ministries to produce PI but has not integrated formal routines for reconsideration of spending priorities, especially baseline and operational spending. - Personnel emoluments have shown an increasing trend over recent years as public service size has expanded and automatic pay rises take effect; personnel as a proportion of total spending has continued to increase as investment spending has fallen (see Chapter I and III). - PSD plans under the 11th MP to employ a demand driven human resource forecasting model to better project personnel costs and provide line ministries better flexibility. - There appears significant risk of duplication, overlap and redundancy between public sector institutions—there are 1,169 government companies established over time. - Example: MOF reports 23 different agencies responsible for innovation and research in government. - Spending reviews: systematic scrutiny of existing expenditure to identify options for reprioritization and spending reductions; draws on program evaluations and efficiency reviews and includes systematic priority analysis. - Without spending reviews, ineffective or low-priority programs risk continuing to command resources. - “Incrementalism”: tendency to take spending on existing programs for granted; weak spending review capacity leads to budgets focused on new spending. - Good spending reviews increase pressure on ministries to improve performance and should be linked with management improvement and program redesign. - Frequency and approaches: - Reviews can be annual as part of the budget process or every three to four years (e.g., U.K.) under fixed medium-term ceilings. - Approaches include discretionary targeting (focus on likely savings) or regular program review cycles over three to five years (e.g., Canada). - A spending review function should be established in NBO to analyze spending and performance of selected programs or sectors on a rolling basis. - Reviews should: (1) provide detailed understanding of program elements, expenditure drivers, and historical expenditure patterns; (2) delineate budget allocations across ministries, departments and government companies. - Once program delivery chains are understood, proposals for improved medium-term budget allocation and links between policy intent and program design become more feasible. - Spending review exercises are typically managed around three stages and should be overseen by a coordinating team within MOF and by political leadership. Findings should be presented to the Director of the NBO and the Secretary General of the Ministry of Finance and, if cross-cutting, to Cabinet. Box 2: Steps in Implementing a Spending Review (summary of source text) - Stage 1: Decide overall aims and focus; initiate specific reviews; involve center of government and other ministries; optional cabinet negotiation for final decision. - Stage 2: Plan and conduct reviews over extended periods; determine who conducts reviews, methodologies, findings; maintain engagement via steering committees. - Stage 3: Shape findings into advice on resource allocation; present in written and verbal form to NBO and Secretary General; use findings in budget submissions, internal allocation proposals, or as basis for substantive reallocation or policy redesign. Additional operational interactions - The spending review function must interact with standard NBO work and may require structural adjustments over time, shifting emphasis from line-item analysis to fiscal/economic analysis and performance and priority appraisal. ### Proposed structure to incorporate performance information into budget documents - MOF decided in 2012 to continue using the MBS structure for the Budget Book as an interim step while OBB is rolled-out. - To maintain ministry interest, pilot ministries should report performance results in MyResults this year and start to use OBB structure in budget presentation. - MOF should present OBB program detail in the Budget Book for the nine pilot ministries for the 2017 budget to incentivize adaptation and reflect reform efforts; once published the information should be more widely utilized. - MOF should redesign the Budget Book format to ensure relevant and reliable PI is presented with budget allocations based on OBB structure coherently. - MOF may consider examples from other countries; the Open Budget Index and South Africa’s Estimates of National Expenditure are noted as references in the source text. - Table 5 in the source sets out a proposed Budget Book format using OBB with sections including: - SECTION 1: MALAYSIA DEVELOPMENT PLAN (National Strategic Thrusts; National Key Results Areas; National Outcomes) - SECTION 2: MINISTRY (Vision and mission; Key Performance Indicators Trends table with columns 2014, 2015, 2015, 2015, 2016, 2017, 2018; Budget Summary RM’000 with columns 2014, 2015, 2015, 2015, 2016; Outcomes-based Budget Actual, Original Budget, Revised Budget, Revised Estimate, Proposed Budget) - SECTION 3: PROGRAMS (Program Key Performance Indicators Trends with same year columns; Budget Summary RM’000 with same year columns; Activity-level breakdowns) - ADDITIONAL TABLES: Infrastructure; Personnel; Government Company Financials - Figure details present in the source: trends in Federal Level Personnel Emoluments chart axis and labels: - Vertical axis labels: 0, 10,000, 20,000, 30,000, 40,000, 50,000, 60,000, 70,000 - Horizontal axis years: 2010 2011 2012 2013 2014 2015 - Unit label: Mn ringgit - Series label: Pers emoluments ### Recommendations (as listed in the source) Short term - MOF should ensure processes are put in place to enable the active use of PI in the budget review discussions. - The nine pilot ministries should start reporting on performance results along OBB lines through the MyResults portal this year. Other ministries should do so once they have refined their program structures along OBB lines. - Throughout the year BROs in NBO should gather in more information and engage in more analysis of cost and performance information. - MOF should review the institutional capacity of NBO in light of the different and enlarged demands for performance analysis of government programs. - A spending review function should be established and charged with analyzing spending and performance of a series of selected government programs on a rolling basis. - MOF should redesign the format of the Budget Book as proposed in this report and present the OBB program structure in the Budget Book for the nine pilot ministries in the 2017 budget and roll it out to all ministries. Medium Term - Spending review should be integrated with the budget process. *Source: IMF Staff (content unit _cr15266).* ### 125. There are a number of performance management frameworks in use in ### _cr15266 - 125. There are a number of performance management frameworks in use in ### Monitoring and reporting: current state - There are a number of performance management frameworks in use in Malaysia, both competing and complementary. However there is a lack of consistent monitoring and reporting. - Monitoring and reporting is only consistently undertaken for: - Economic Transformation Plan - Government Transformation Plan - Strategic Reform Initiatives - (These are led by PEMANDU.) - Table 6 findings (summarized): - 10th Malaysia National Development Plan (to be replaced by RMK 11 in 2015) - Custodian: Economic Planning Unit (Office of the Prime Minister) - Monitoring and Reporting: "No systematic monitoring or reporting of NKRA in the 10th has been undertaken." - Modified Budgeting System (replaced by Outcomes-Based Budgeting although still in use for the Budget Book) - Custodian: Ministry of Finance - Monitoring and Reporting: "Reporting takes place in the Myresults system and selected information is included in the budget book." - Outcomes-Based Budgeting - Custodian: Ministry of Finance - Monitoring and Reporting: "Reporting will commence in 2016 for pilot ministries" - Economic Transformation Plan / Government Transformation Plan / Strategic Reform Initiatives / National Key Economic Areas / National Key Result Areas / Ministerial Key Result Areas - Custodian: PEMANDU (Office of the Prime Minister) - Monitoring and Reporting: "Extensive monitoring and reporting (357 KPIs reported on a weekly basis). Selected KPIs included in performance agreements. Annual report audited by independent firm." - Department Strategic Plans - Custodian: Ministries & Departments - Monitoring and Reporting: "No requirement for annual reporting" - The lack of monitoring and reporting diminishes the impact of frameworks that aim to promote increased accountability for results. Planning without monitoring weakens assessment, learning and program adaptation. - Outside of PEMANDU, there is limited information available and therefore limited transparency and public accountability for program and project delivery. ### Auditor-General role and performance audits - The Auditor-General undertakes up to 200 performance audits annually of government programs and capital projects. - Focus of Auditor-General’s performance audit: evaluating whether government activities have been carried out efficiently and economically to achieve desired objectives and goals. Areas reviewed include procurement practices, contract administration, asset management, infrastructure project management and program management of service delivery programs. - The Auditor-General tables a series of three performance audit reports before Parliament’s Public Accounts Committee (PAC); these reports are helpful but have been noted to focus on detailed compliance rather than big picture issues. - Auditor-General’s Dashboard (launched May 2013) tracks status of actions on recommendations. At the end of 2013 the Dashboard recorded: - 9 audit findings not addressed - 205 in process of being addressed - 188 addressed - The Auditor-General already performs multiple audit functions including: - Attestation Audit of financial statements - Performance Audit of selected programs and projects - Government Companies Audits and Compliance Audit - For the Compliance Audit the NAD produces an Accountability Index that results in a Star Rating. The Accountability Index currently reflects evaluation of ten elements: 1. Organizational management control 2. Budgetary control 3. Revenue control 4. Procurement control 5. Expenditure control 6. Management of trust funds 7. Management of assets and inventories 8. Management of vehicles 9. Management of investments and loans 10. Financial statement - The Star Rating has incentivized ministries: in recent ratings 98% of those audited receive the highest 4-star “Excellent” rating, whereas initially many audited received a two to three-star “Satisfactory to Good” rating. ### Improving the quality of performance indicators (PI) - Generating PI is insufficient; ensuring quality of PI is necessary. - Recommendation: The Auditor-General should include an audit of OBB performance data and systems in its annual Compliance Audit. - The National Audit Department (NAD) should support the MOF’s effort to improve the reliability of KPI information. - Adding assessment of data management controls for selected KPIs (based on risk and materiality) to the Accountability Index is not likely to add significantly to current audit effort; NAD already performs aspects of PI management audits through Performance Audits. ### Developing capacity for program evaluation - Current practice: performance information is heavily focused on performance measures and indicators; there is not a strong practice of conducting program evaluations. Evaluations conducted tend to focus on infrastructure project implementation rather than program-level evaluations. - Some ministries (e.g., Health) undertake evaluations occasionally, often instigated by international commitments such as the Millennium Development Goals. - The MOF has not issued central guidance to promote demand for and use of evaluations nor to improve internal capacity, although this is a stated intention of OBB. - Definition used in the report: evaluation is "the systematic collection and objective analysis of evidence on public policies, programs, projects, functions and organizations to assess issues such as performance, value for money, impact and sustainability, and recommend opportunities for improvements." - Distinction: Evaluations are distinct from spending reviews conducted by NBO; spending reviews will generally include systematic priority analysis and identify inefficient duplication, overlap and relevance. - NBO’s main role: provide guidelines for conducting ex post program evaluations and motivate ministries to conduct regular evaluations; ensure involvement of independent expertise and maintain contact with the evaluation community. - Recommendation: The Performance and Evaluation Sector in the NBO should establish a community of practice (CoP) to bring together staff responsible for research, monitoring, and reporting within ministries, departments, and agencies, supporting government-wide guidance on ex ante and ex post evaluations. - Recommendation: MOF should annually publish a list of program evaluations that are planned, underway, and completed on a rolling three-year basis on its website to ensure demand and utilization of program evaluations and broaden stakeholder involvement. ### Improving the use of performance information - PI (performance indicators and evaluations) must be used in decision making to motivate ministries to improve results. - Mechanisms to integrate PI into decision making: - Include selected OBB program outcome indicators in Prime Ministerial performance agreements with ministers. - Budget Officers should use PI in discussions with ministries and undertake trend analysis of selected KPIs. - Ministries should report quarterly on performance and financial information and publish results online. - Recommendations for linking OBB and PEMANDU: - Improve the link between OBB and PEMANDU’s transformation programs by including selected OBB program outcome KPIs in the Prime Minister—Minister performance agreements to avoid parallel, competing processes. - PEMANDU practice: produces a biannual report for the Prime Minister on each minister’s performance; the Prime Minister meets each minister individually biannually; results are shared with Cabinet; ministers are rated and compared. - Budget review officers in the NBO should undertake trend analysis of selected KPIs on a bi-annual basis and release results on MOF’s website to strengthen NBO’s gatekeeper role and foster iterative improvement in PI quality. - Ministries should report on performance against OBB indicators along with quarterly financial reports and publish performance results online (for all ministries when OBB is fully implemented; pilot ministries could do so sooner). - MOF should submit an annual OBB performance report on ministries’ performance to the PAC, including performance trends based on OBB outcome and output KPIs information. - The PAC has authority under Section 77(5) of the Standing Order of the Dewan Rakyat to comment on ministry, department or agency programs and activities and can call Controlling Officers to explain performance results and trends. ### Recommendations: short term and medium term - Short term: - Include selected OBB program KPIs in the performance agreements between the Prime Minister and ministers. - Budget review officers in the NBO should undertake a trend analysis of selected KPIs results on a bi-annual basis and release the results online. - MOF should submit an annual OBB performance report on ministries’ performance to the PAC. - NBO should lead the effort to introduce guidelines for ministries, departments and agencies on conducting program evaluations. - NBO should establish a community of practice (CoP) focusing on the staff responsible for the research, monitoring, and reporting related functions within ministries, departments, and agencies. - MOF should annually publish a list of program evaluations that are planned, underway and completed on a rolling three-year basis on its website. - Medium term: - The Auditor-General should include an audit of OBB performance data and systems in its’ annual Compliance Audit. - Ministries should submit an annual performance report to Parliament and the PAC. ### OBB: strategy and sequencing of reforms (selected points) - Implementation of OBB needs partnership between MOF, EPU, PSD and ministries; the reform process needs collaborative management and will entail significant behavioral change within ministries. - Chapter VI mechanisms to encourage ministries to use PI include incorporating PI in performance agreements, public reporting, and using PI in budget review. - Until OBB becomes material to decision making in the Budget, incentives for ministries to engage will remain weak. - Increased internal flexibility over medium term resource planning is a strong incentive for ministries to embrace OBB reforms; personnel planning is centrally controlled and there is a significant gap in current ministerial delegations in this area. *Source: IMF Staff (excerpts from _cr15266).* ### 149. The management of the civil service workforce is not sufficiently agile or ### 149. The management of the civil service workforce is not sufficiently agile or focused on the localized skills needed by ministries to deliver OBB and achieve governmental outcome priorities ### Civil service workforce: findings and problems - Current system is heavily centralized for personnel planning; central management is appropriate for cross cutting civil service policy (pensions, employment terms and conditions, in service training programs etc.), but: - Malaysia would benefit from a significant rebalancing of responsibility for recruitment and resource planning from the central civil service planning ministries towards the institutions responsible for delivery. (Paragraph 149) - PSD plans to examine these issues as part of the 11th MP. (Paragraph 149) - There is a disconnect between the rewards structure and performance: - Key aspects of personnel incentive schemes, such as annual bonuses, are not in the control of ministries. - Civil service wide bonuses are awarded centrally without regard to specific performance of ministries or staff. (Paragraph 152) - The quid pro quo for increased flexibility should be an expectation for ministries to develop clearer, evidence based medium term manpower plans, including ceilings on personnel cost; these plans must be negotiated and agreed with NBO and PSD as part of the budget process. (Paragraph 153) ### Capacity building required within ministries to embed OBB (Box 4) - Strategic planning - Focus on delivery of sectoral and program priorities by evaluating long- and medium-term fiscal allocations and investment requirements, and ensuring organizational skills and capacity are built at the right time and in the right places to secure delivery. - For some institutions this will be a marked shift from year-by-year financial and human resource planning. (Box 4.1) - Cross-boundary working and multi-stakeholder implementation - Use evidence to build consensus and negotiate across government in support of common goals; ministries become less constrained by institutional boundaries. (Box 4.2) - Evidence gathering, analysis, and performance management - Targeted strengthening of data flows, increased emphasis on gathering evidence, and analytical capability to analyze implementation and assess delivery system effectiveness and efficiency. (Box 4.3) - Designing policy reform - Use performance evidence and medium term financial plans to identify, plan and implement policy reform priorities that can deliver outcome objectives. (Box 4.4) - Program and project management - Secure implementation in delivery environments that reach across traditional institutional boundaries, and use performance evidence to actively manage implementation. (Box 4.5) - Departments will need flexibility to implement their own human resource plans to develop these strengths and to plan for resource priorities under OBB. (Paragraph 151) ### National Budget Office (NBO): current role, gaps, and recommendations - Current state and constraints - NBO is focused on day to day operational concerns and has a limited strategic role in spending policy across government; fragmentation of budget responsibilities and decision making over development and personnel planning held outside MOF contribute to this. (Paragraph 154) - Strategic role needed under OBB and MTBF - NBO must be enabled to be the primary role player in budget reform across the Malaysian government, leading strategic planning and ensuring operational and development expenditure is allocated in accordance with medium term spending priorities, challenging efficiency and effectiveness across government. (Paragraph 155) - The small Performance Management and Evaluation team in NBO has had notable successes, but mainstreaming within sector budget teams is required for the next phase of OBB reform. (Paragraph 156) - Capacity and organizational changes recommended - Conduct a Strategic Review of NBO to clarify role, functions, and capabilities in driving government wide planning and spending; start with clarification of the role NBO wishes to play and identify steps needed for transformation. (Paragraphs 158–159) - Review should include plans to increase headcount: Malaysian NBO is relatively small compared to international comparators; additional technical capacity would free senior Budget Deputy Directors to engage in strategic planning and evaluation. Review number of sector leaders after agreement on OBB sector and program structure. (Paragraph 160) - NBO’s place within the Treasury should be reconsidered; budget offices commonly have a dedicated deputy secretary general level leader with direct accountability to ensure presence at the right level across government. (Paragraph 161) ### Characteristics shift needed in NBO (Table 7 summary) - Move from an operationally focused Budget Office (column A) to a strategically focused Budget Office (column B) across the following dimensions: - Management of budget process - A: Annual Budget allocations managed reactively, aiming to meet year by year departmental pressures and commitments. - B: Annual Budget allocations managed in context of medium term plans that reconcile outcome priorities, future cost pressures, fiscal constraints and evidence on effectiveness and efficiency. (Table 7) - Engagement with ministries - A: Transactional engagement focused on completing budgeting tasks. - B: Engagement aimed at achieving strategic priorities, reviewing impact as well as financial performance. - Role in developing fiscal strategy - A: Coordinating function, responsive to spending priorities taken elsewhere. - B: Central leadership on fiscal strategy, setting direction for operational and investment expenditure by analyzing and planning coordination over time. - Role of senior budget officials - A: Primarily engaged in reactive problem solving and managing budget processes. - B: Sector leaders across government, challenging ministries on future plans and contributing direction to reform priorities. - Performance management - A: Budget office marginal to ministry performance management, limited use of performance evidence. - B: Key user of performance information (PI) and contributor to performance management systems and culture across government. (Table 7) ### Reform strategy: phases and enabling reforms - Summary of reform approach - Reforms focus on four key areas over the short to medium term; implementation should match reform process to evolving institutional capacity and commitment. Build on successes in high performing ministries and support those further behind. (Paragraphs 162–164) - Enabling reforms will involve cross institutional work and strong leadership from MOF at all levels. (Paragraph 165) - Key reform phases and actions 1. Reviewing central capability and processes, particularly in NBO - Increase NBO capacity and capability through a strategic review to assess functions and resources required to drive Budget reform and deliver spending reviews. (Section 1.a) - Clarify NBO role and objectives and the wider Treasury decision making processes relating to financial planning and priority setting. (Section 1.b) - Secure high level agreement to the principle of conducting spending reviews; obtain senior officials and Cabinet level approval. (Section 1.c) 2. Agreeing sector structure and reviewing integration between OBB and wider government reporting and monitoring processes - Agree sector structure and map National Plan outcomes and other outcome priorities against them. (Section 2.a) - Review reporting and monitoring processes to ensure OBB integrates with existing systems without unnecessary duplication. (Section 2.b) 3. Review integration of financial decision making across government - Improve coordination of budgeting across MOF, EPU, ICU and PSD to adopt a “whole of spending” approach. (Section 3.a) - Initiate review of personnel delegations to ministries to increase flexibility for recruitment, reallocation, and rewards. (Section 3.b) 4. Initiating spending reviews and embedding Budget reform - Conduct initial spending reviews with advanced sectors to test methodology and produce learning. (Section 4.a) - Roll out spending reviews to the rest of government over time. (Section 4.b) ### Complementary cross-cutting changes required to implement OBB - Development of a stronger level of engagement with the reform agenda across government and externally. - A stronger focus on achieving results, including the use of incentives and disincentives to affect behavior. - Higher levels of data collection and strengthened analytical capability to support improved forecasting, planning and decision making and to integrate financial and non financial performance data. - Strengthened capability to undertake analysis at all levels and greater ability to present and communicate results. - Strengthened coordination and cooperation between involved government ministers, ministries and agencies. - Increased flexibility for managers at all levels to determine the most appropriate mix of resources to achieve objectives. - Improved management capacity at all levels. - Greater transparency in the production of and commentary on performance data. (Paragraph 160 list) ### Reform Action Plan (implementation sequencing highlights) - The Action Plan in Table 8 maps technical reforms across 2015, 2016, 2017 and aligns reforms with the budget process; key elements include: - Chapter III (Strengthening the Building Blocks) - Introduce a medium-term focus into the budget process; present a Fiscal Strategy paper approved by the FPC and Cabinet at the beginning of the budget process. - Examine approaches to containing overall personnel expenditures. - Merge operational and development budgets by having a single ceiling covering both OE and DE and improve process coordination. - Require ministries’ requests for new and one-off policies to include projections of medium-term costs, including personnel costs, and justification of how they support national priorities. (Table 8, Chapter III) - Introduce a medium term budget framework: prepare an expanded fiscal strategy paper; establish firm and indicative ceilings for ministries covering OE and DE; instruct ministries to submit budgets within these ceilings; provide training to ministry budget staff in making medium-term estimates. (Table 8, Chapter III) - Chapter IV (Improving alignment of outcomes, Programs and Institutions) - Use a sector categorization (starting with COFOG) to map outcomes, programs, and activities; NBO should map the outcomes of the 11th National Plan against the sector model and work with EPU and relevant public institutions. (Table 8, Chapter IV) - Chapter V (Integrating Performance Information and Analysis into the Budget Process and Budget Documents) - Ensure processes enable active use of performance information (PI) in budget review discussions; BROs in NBO should gather more information and engage in more analysis of cost and performance information. - Require the nine pilot ministries to report on performance results along OBB lines through the MyResults portal; redesign the Budget Book format and present the OBB program structure in the Budget Book for the 9 pilot ministries for the 2017 budget, then roll out to all ministries. (Table 8, Chapter V) - Establish a Spending Review function charged with analyzing spending and performance of selected government programs on a rolling basis. (Table 8, Chapter V) - Chapter VI (Improving performance monitoring, reporting and evaluation) - NBO to introduce guidelines for program evaluations, establish a Community of Practice for staff responsible for research, monitoring and reporting, include selected OBB program KPIs in performance agreements between the Prime Minister and ministers, and have BROs undertake bi-annual trend analysis of selected KPI results and release results online. - Submit an annual OBB performance report on ministries’ performance to the PAC; annually publish a rolling three-year list of program evaluations on the MOF website; Auditor-General to include an audit of OBB performance data and systems in its annual Compliance Audit; ministries to submit an annual performance report to Parliament and the PAC. (Table 8, Chapter VI) *Source: IMF Staff* ### APPENDIX 1: MINISTRY OF TRADE LINKING THE NATIONAL THRUSTS, KRAS, OUTCOMES & ### _cr15266 - APPENDIX 1: MINISTRY OF TRADE LINKING THE NATIONAL THRUSTS, KRAS, OUTCOMES & ### Creating a Conducive Environment to Generate Economic Growth - Table reference: "Table1. Creating a Conducive Environment to Generate Economic Growth" - Linkage notation used in table: D: Direct Linkage and I: Indirect Linkage ### Appendix 2 — Supply Acts and Supplementary Supply Acts Fiscal Years 2011-2015 - Budget and Gazette publication dates (after Royal assent): - 2011 budget – original: A1388: Supply (2011) Act — December 2010 - 2011 budget – supplementary 1: A1396: Supplementary Supply (2011) Act 2011 — 21 July 2011 - 2011 budget – supplementary 2: A1426: Supplementary Supply (2011) Act, 2012 — 18 May 2012 - 2012 budget – original: A1408: Supply (2012) Act — 30 December 2011 - 2012 budget – supplementary 1: A1438: Supplementary Supply (2012) Act 2012 — 16 August 2012 - 2012 budget – supplementary 2: A1453: Supplementary Supply (2012) Act 2013 — 6 September 2013 - 2013 budget – original: A1446: Supply (2013) Act — 26 December 2012 - 2013 budget – supplementary 1: A1454: Supplementary Supply (2013) Act 2013 — 1 November 2013 - 2013 budget – supplementary 2: A1461: Supplementary Supply (2013) Act 2014 — 12 June 2014 - 2014 budget – original: A1458: Supply (2014) Act — 31 December 2013 - 2014 budget – supplementary 1: A1466: Supplementary Supply (2014) Act 2014 — 24 July 2014 - 2015 budget – original: A1469: Supply (2015) Act — 30 December 2014 ### Appendix 3 — Country Examples of Spending and Performance Review Methodologies - A. South Africa’s Spending Review Methodology - Step 1: Assemble team - Central unit supports Budget Office in National Treasury; establishes steering committee with implementing agents and center of government institutions; contracts consulting experts. - Step 2: Program elements - Articulate program, policy environment, situational analysis, theory of change (inputs → processes → outputs → outcomes), assumptions, delineation of program elements. - Step 3: Performance analysis - Outline chain of delivery for every program element; develop log frame with inputs, activities, intermediate outputs, and outcomes; identify performance indicators with data sources, baselines, and targets; preference for quantitative indicators. - Step 4: Expenditure analysis - Detailed understanding of existing expenditure patterns and flow of funds using government accounting systems at program/sub‑program levels; benchmark costs against non‑government sectors. - Step 5: Costing model - Produce costing model distinguishing capital, personnel and operational costs; use model for costings and performance across scenarios. - Step 6: Final report - Report limited to 25 pages including a one page ministerial memo, three to four page executive summary and 20 page detailed report. - B. United Kingdom’s Spending Review Methodology - Step 1: Set out scope and process - Coordinated within Treasury between Budget Coordination and General Expenditure Policy; start with macro‑economic and fiscal medium term forecasts; define governance, scope, timescales and evaluation questions. - Key evaluation questions used in 2010 SR (selection): - Is the activity essential to meet Government priorities? - Does the Government need to fund this activity? - Does the activity provide substantial economic value? - Can the activity be targeted to those most in need? - How can the activity be provided at lower cost? - How can the activity be provided more effectively? - Can the activity be provided by a non‑state provider or by citizens, wholly or in partnership? - Can non‑state providers be paid to carry out the activity according to the results they achieve? - Can local bodies as opposed to central government provide the activity? - Governance: ministerial committee (Public Expenditure Committee, PEX) chaired by the Chancellor to the Exchequer with up to six other senior Cabinet Ministers. - PEX focus areas (2010): cross‑cutting issues (public sector pay and pensions, local government expenditure), department objectives to protect frontline services, strategic issues such as welfare reform. - Step 2: Performance and expenditure analysis - Ministries analyze programs, theory of change, expenditure patterns; HM Treasury sector leads provide quality assurance; one month external engagement phase for input on specific issues. - Step 3: Submissions to HM Treasury and Review - HM Treasury reviews proposals, challenges submissions, requests supplementary evidence, debates assumptions and options. - Step 4: Finalisation - Final proposals agreed and put to PEX; sector agreements between the Chancellor and leading ministers; reconciling sector agreements and overall public spending ceiling is a major challenge. - Step 6: Final report - Final report is put to Parliament setting fiscal and reform path for coming 4 years; subsequent Budgets during SR period set out progress. ### Appendix 4 — Format of the Estimates of the National Expenditure Book in South Africa - Required sections and content: 1. Department title 2. Budget Summary - Over the medium-term per program including breakdown of current payment, transfer, payment for capital assets for the first year of the medium-term expenditure framework 3. Aim - identical to the 2015 Appropriation Bill and linked to the mandate in the strategic plan 4. Mandate - as contained in relevant act(s) 5. Selected Performance Indicators - key indicators agreed with National Treasury; may include outcome, output, activity, and efficiency indicators 6. Expenditure Analysis for the department as a whole - how expenditure, personnel and other inputs contribute to outputs and outcomes 7. Expenditure Trends - program and line-item spending over the previous 3 years 8. Expenditure Estimates - program and line-item spending for current and future 3 years 9. Personnel information – number of personnel at different salary levels and per program for past, current and future years 10. Departmental Receipts detail for past, current and future years 11. Program number and name: - a. Purpose - b. Objectives - c. Sub-programs list - d. Expenditure estimates for past, current and future years - e. Public entities list - f. Details for selected public entities including mandate, selected performance indicators, expenditure analysis, personnel information 12. Additional tables: - a. Summary of expenditure on infrastructure - b. Summary of conditional grants to provinces and municipalities - c. Summary of departmental public private partnership projects - d. Summary of donor funding - e. Summary of department specific expenditure information ### Appendix 5 — Example of the Proposed Structure for Illustrative Purposes (SECTION 2: MINISTRY OF HEALTH) - Vision and mission: - To be a world class Health sector - To serve the health needs of the people of Malaysia - Selected outcomes and KPIs (table excerpts): - Outcome 1: Name - KPI 1.1: TB infection rate — 5% 5% 5% 5% 5% 5% 5% (years: 2014, 2015 Planned, 2015 Actual, 2015 Planned, 2015 Est., 2015 Target, 2016 Proj., 2017 Proj., 2018) - Programme 1: Hospital Services — Budget Summary RM’000 (illustrative row values) - Programme 1: Hospital Services — 120 130 140 150 160 - Total — Economic Class Total 250 - Operational Budget Total 100 - Emoluments 20 - Goods and Services 50 - Of which Consulting Services 10 - Telecommunications 20 - Travel 20 - Capital Payments 20 - Transfers 10 - Development Budget Total 150 - Emoluments 10 - Goods and Services 20 - Capital Payments 110 - Transfers 10 - Expenditure and program narrative highlights: - Operational: The comprehensive TB and infectious diseases prevention grant is set to continue growing at an average annual rate of 14.2 per cent over the medium term to strengthen testing and prevention programs and increase the number of people on treatment. - Additional allocations: program receives an additional 15 million in 2015/16 and 15.8 million in 2016/17 to support the implementation of the 2012-2016 national strategic plan on prevention of infectious disease. - Medical supplies: expenditure on medical supplies is projected to increase at an average annual rate of 15.9 per cent over the medium term. - Programme 1: Hospital Services — selected performance KPIs (illustrative) - KPI 1.1: TB cure rate — 90% 90% 90% 90% 90% 90% 90% - KPI 1.2: MMR inoculation rate — 60% 60% 60% 60% 60% 60% 60% - Programme activities and medium-term focus: - Working towards universal health care coverage by overseeing 10 national health insurance pilot projects. - Conducting health economic research on rollout of national health care and alternative health care financing mechanisms. - Funding shifts observed: pilot projects funded through transfer payments in 2012/13, with establishment of national health conditional grant in 2013/14 shifting funds from transfers to contractors for general medical practitioners contracted to projects. *Source: _cr15266 - APPENDIX 1: MINISTRY OF TRADE LINKING THE NATIONAL THRUSTS, KRAS, OUTCOMES & (PDF content provided)* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15266.pdf_