Public Sector Governance and Accountability Series: Budgeting and ...

132 Alta Fölscher
ministries to link budgets and operational performance to their policies and
priorities. PERs are often reviewed in a public process, thereby further
improving the quality of the information they contain. Typically, they
provide financial and nonfinancial outturn data for the ministry, analyzing
expenditure trends and relating financial performance to policy performance.
An analysis of the effectiveness and efficiency of agencies’ spending
forms the core of a good PER. PERs present an opportunity for joint
systematic review of spending agencies’ performance and for consensus on
the issues that frame agencies’ forward budgets. In essence, they improve the
quality of information.
activity-based costing and programming techniques.
A functional MTEF requires that resource allocations be set on
the basis of a comprehensive top-down expenditure framework and costed
bottom-up expenditure options. The introduction of activity-based budgeting
at the sector level has therefore formed part of the implementation of
MTEFs in a number of countries, including Ghana, Malawi, and Zambia.
Although the specifics of systems differ across countries, they follow a
similar logical framework approach to planning and budgeting at the level
of ministries.
Spending agencies are first required to identify their objectives (or the
changes they seek to effect in the real world) for the medium term and to set
outputs (or deliverables) for each objective. Outputs are usually defined as the
expected means for achieving the objectives, and ministries are required to set
targets over the medium term. These targets are expected to be specific,
measurable, achievable, realistic, and time bound. The next step is simply to
identify what activities will deliver each output and its associated inputs. Inputs
are required to be broken down into quantities and frequency. Common
activities and inputs have unit costs that are applied across the government.
The product of the unit cost, the quantity, and the frequency of the input equals
the total input cost. The sum of all total input costs equals the activity cost. The
activity costs are added up to arrive at the output cost, the objective cost, and
eventually the spending agency’s budget. Objectives are commonly associated
with longstanding programs. Cost centers are also usually identified, so that the
implementation of activities and the use of funds can be traced back to specific
institutions and subinstitutional structures.
Experience with activity-based budgets in developing countries is
mixed. First, like other pure, comprehensive, rationality-based instruments,
these budgets require a luxury of information, capacity, and time
that are simply not available. Significant efforts went into the development