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

A Primer on Performance Budgeting 175
Accurate cost data are critical to analysis that seeks to determine the return
on investment in government programs.
Financial cost of the reform
Sufficient financial resources for data collection, initial training, and ongoing
system maintenance are critical for the implementation of performance
budgeting. Performance budgeting information systems, which entail data
collection and validation, analysis, and reporting, may be costly to develop
and maintain.
Apart from these four prerequisites—the need for incentives to reform,
legislative commitment, citizen support, and the necessary capacity-building
measures—a preparation stage of careful practice in performance reporting
and management is critical. A valid, reliable, and uniform financial and
performance reporting system provides the database for performance budgeting.
A performance monitoring system helps public managers understand
how inputs are converted into outputs and outcomes. Given that many
governments do not have any practice in performance reporting and
management, a long preparation time is needed before any performance
budgeting practice becomes apparent (Wang 1999).
Concluding Remarks
Performance budgeting is a useful tool for performance accountability and
budget transparency in line ministries but of limited relevance for ministries
that perform central policy functions, such as the ministry of
finance or ministry of foreign affairs. Furthermore, in the absence of an
incentive environment for better performance or results-based accountability,
the introduction of performance budgeting may not lead to
improved performance. Managerial accountability must be on outputs,
not outcomes, because outcomes are influenced by external factors. However,
outcomes should be monitored. Performance budgeting cannot be
expected to be a mechanistic, rational system that replaces the political
process of making resource choices in a complex environment of competing
demands. Instead, it has the potential to facilitate informed political
choices. A transparent budget and citizen evaluation of outputs, if
embodied in performance budgeting, can be helpful in improving budgetary
outcomes. Performance budgeting is a costly exercise, but it yields positive
net benefits if performed in a performance management culture and
with accountability to citizens for results.