July 2008 · Number 129 46977 A regular series of notes highlighting recent lessons emerging from the operational and analytical program of the World Bank`s Latin America and Caribbean Region. Institutionalizing Performance in the Public Sector in LAC: The Case of Mexico Nick Manninga, Pedro Ariztib and Roby Senderowitschc Mexico, like other OECD governments, is committed the SED's implementation an ongoing technical assistance to improving the performance of the public sector. An commitment through a series of Fee For Services financed important first step is to gather objective information activities with diverse actors such as the Secretaría de that enables governments to measure progress towards Desarrollo Social (SEDESOL), the National Evaluation achieving their policy and program goals. As well as Council (Consejo Nacional de Evaluación, CONEVAL) potentially improving decision making by politicians and SHCP and the introduction of performance related and civil servants provided with higher quality informa- mechanisms in various sectors. The latter includes the use tion on the performance of departments/agencies and of impact evaluations in the Upper Secondary Education programs, this information can enhance transparency and Ministry, the development of a monitoring system with the accountability to the public and the legislature. Ministry of Health to follow organizational and institutional reforms at the state level, the development of the National The Government of Mexico (GoM)'s new results-based Water Information System to measure performance budgeting initiative is anchored in a new legal frame- of utilities or the use of output-based disbursement work, establishing the Performance Evaluation System or mechanisms in infrastructure programs. Sistema de Evaluación del Desempeño (SED) that will provide data on the performance of publicly-financed The Bank also brings significant value to the GoM programs and organizations as inputs to the budget cycle. through its ability to convene relevant international experi- These performance data include consolidated data from ence and is leveraging relevant OECD experiences and program evaluations or other sources on the outputs and introducing case studies to inform the design and imple- impact/effectiveness of public expenditures; and data on mentation of reforms for the Mexican context. As part of the quality of public management, which is the focus of this commitment, the Bank has helped to put together and a new Management Improvement Program (Programa de coordinate a newly formed Global Advisory Group on Mejoramiento de la Gestión, PMG). The SED is led by performance budgeting and an International Conference two institutions: the Finance Ministry (Secretaría de Ha- on Performance Budgeting held in Mexico on June 9-10 cienda y Crédito Público, SHCP) and the Public Admin- in collaboration with other partners such as OECD, IDB, istration Ministry (Secretaría de Función Pública, SFP). DFID and the Mexican CIDE. These efforts have played a key role in solidifying the engagement with the GoM The World Bank is supporting the introduction and on performance budgeting matters, have helped to create implementation of the SED and more broadly the common ground among actors and generation and use of performance information in the bring first-hand experience and public administration through a broad engagement realism to discussions with the containing an array of instruments such as the soon-to- client, paving the path to realistic be-approved Technical Assistance Loan that will support expectations concerning the speed of implementation. The work described in this note was partially supported by the UK Government's Department of International Development (DFID) through the Markets and Governance for Poverty Reduction Fund (MGPR) Trust Fund. The views expressed in this document are not necessarily those of the UK Department for International Development' Finally, the Bank's engagement includes the elabora- information, the link is loose: performance measurement tion of a series of publications to anchor many of these is one source of information to be incorporated with oth- good practices and challenges. For example, a series of ers. Another dimension is the extent to which the use of notes on the quality of public expenditure in Mexico performance information is formalized. It may be insti- was launched during the conference and will continue tutionalized--that is, based on rules and procedures, and to be published regularly featuring good practice ex- systematic and automatic--or it can be rather ad hoc, amples, progress and challenges in the area of perfor- that is, opportunistic and not sustained. mance budgeting (see http://www.worldbank.org/lac- publicsector). This note presents the main elements of Types of Performance Budgeting the framework for Performance-Informed Budgeting The matrix in Table 1 depicts the most common (PIB) contained in the first note of the series and its models of the use of performance information in links to the Mexico context OECD countries according to these two dimensions. Performance Budgeting: A Significant Development1 Table 1 - Performance Budgeting Categories Public sector accountability is increasingly moving Linkage to decision-making its focus away from complying with rules and proce- Degree of Tight Loose dures to achieving outcomes. Generating and using Instutionalization performance information in the public administration is essential to increase accountability of actors and im- Institutionalized Direct/formula perfor- Performance-informed prove decision-making in the use of public monies. It mance budgeting budgeting switches the focus from how things are being done to Ad hoc - Presentational use of what actors have accomplished, a fundamental change performance that ultimately affects all aspects of the budget cycle. information Latin American countries--and Mexico is a case in Direct/formula performance budgeting is used in rare point--have traditionally been characterized by low situations when there is sufficiently constant demand for levels of taxation, expenditure, and quality of public a service to ensure that performance-related variations service delivery. Accountability mechanisms and the in budgetary allocations are unlikely to lead to a politi- generation and use of performance information have cally awkward need for closure. Performance budgeting also been weak, and the public has tended to view the rhetoric often aspires to this use, impelled by the notion general effectiveness and efficiency of the public sector that targets for outputs can always steer the allocation with skepticism. Institutionalizing the use of perfor- of resources. In practice, this use is unlikely to succeed mance information by key decision-makers in the pub- for several reasons: many government objectives (e.g., lic administration can break this vicious cycle. foreign policy, defense) are not measurable in terms of outputs; the logic of reducing funding for poorly perform- Performance information can influence decision-mak- ing but politically important programs is perverse; and, to ing in planning or management in several ways. Deci- the extent that the measures directly affect real resources, sions can be tightly linked to performance measure- strong incentives for gaming are created. Some examples ments: that is, the metrics lead to the decision in a di- of the use of direct/formula performance budgeting: rect way, and other sources of information play a neg- Denmark's funding for technical schools and universities, ligible role. If decisions are informed by performance Chile's voucher system for child care and per capita fund- ing for local clinics, Finland's university and occupational 1.For more information on performance budgeting, see Dooren,Wouter education, and Sweden's Patent Office. Van, Nick Manning, Jana Malinska, Dirk-Jan Kraan, Miekatrien Sterck, and Geert Bouckaert, Issues in Output Measurement for "Government at a Glance": OECD GOV Technical Paper 2 (http://www.olis.oecd. In presentational use of performance information, org/olis/2006doc.nsf/LinkTo/NT00003F02/$FILE/JT03215908.PDF), performance information (targets, results) is presented Paris, 2006; Ketelaar, Anne, Nick Manning, and Edouard Turkisch, Per- formance-Based Arrangements for Senior Civil Servants - OECD Experi- as background information in budgeting documents for ences (OECD Governance Working Paper), Paris, 2007; Kraan, Dirk-Jan, accountability. It serves as a tool for discussion by the Programme Budgeting in OECD Countries, OECD Journal on Budgeting government, the legislative, and citizens, and has no im- (forthcoming); OECD, Performance Budgeting in OECD Countries, Par- plications for resource allocation. It tends to be found in is, 2007; Marc Robinson and Jim Brumby, Does Performance Budgeting Work? An Analytical Review of the Empirical Literature, IMF Working settings that impose a high degree of social responsibility Paper, WP/05/210, IMF Nov 2005. on actors. For example, in Denmark and Sweden, indi- 2 · July 2008 · Number 129 vidual ministries can present performance information in the spending-agency level to ensure that budgets are more budget negotiations but there is no expectation of a formal effectively executed, controlling for either over or under link between the indicators and resource allocation. spending. This often entails moving from centralized con- trols over detailed line items toward programs, with new Performance-informed budgeting is the most common rules governing administrative expenditures (e.g. wages use of performance information in all aspects of the bud- and maintenance costs). get process. The term performance-informed implies that the use of performance information is institutionalized, Another critical foundation is the introduction of integrat- and that the connection with decision-making is loose. ed financial management information systems (IFMIS), in- The overall objective of performance-informed budgeting cluding in procurement, treasury, and rendición de cuenta is to improve the quality of public expenditures through pública. An IFMIS is essential at all stages of the budget the improved allocation of resources, consistent with po- process to support performance-improved budgeting: litical and social goals, and improved efficiency in their · Budget formulation. For planning purposes, quantifying use. The intermediate objective is to make performance the cost of producing results is essential. The previous information available to decision-makers so that they can year's costs of delivering specific program results are use it--along with such other sources of information as needed for planning, because central budget officers un- experience, qualitative information, and political priori- derstand and negotiate the budget on a cost-result basis. ties--in planning and managerial actions. · Budget execution. During implementation, managers need to keep track of current program spending. When Examples in budget preparation include most OECD budgeting is not integrated with procurement and trea- countries, which require the presentation of performance sury, neither budget officers nor program managers have targets and past performance information during budget reliable expenditure figures to compare budget execution preparation although in a few cases it is the single pre- and, for example, physical results of the project. dominant factor in preparing budgetary estimates. Exam- · Budget audit and evaluation. Slow or late submis- ples in budget execution include Australia, Canada, and sion of the cuenta pública prevents timely expenditure the UK, where performance information must be present- evaluations. A third important foundation is the role ed, but is treated along with other sources of information of the supreme audit institution. This must be able to in reviewing the effectiveness of budget execution. The undertake performance audits; among other things, remainder of this note discusses aspects of performance it must have an appropriate legal basis and capac- informed budgeting in greater detail. ity through investment in skilled human resources. Performance auditing requires skills and competen- Technical Foundations of Performance-Informed Budgeting cies that are more often associated with management The development of program budgeting is generally a consulting than traditional legal/accounting auditing. precursor to the effective use of performance informa- tion in the budget process. However, it is important to Quality of Performance Information be realistic about introducing a program structure to the Ultimately, the quality of performance information depends budget. In many cases, the program is essentially synony- on the strength of the sectoral planning and information mous with the work of the ministry or department, which system in line ministries. However, some external checks cannot realistically be described meaningfully in terms are essential. For many years, financial information systems, of specific outputs (e.g., foreign affairs). Introducing pro- with their internal control systems and internal and external gram budgeting entails structuring administrative actions audit systems have been developed to combat misrepresen- in terms of programs and designing a program structure tation. In the new performance environment, quality man- for the budget (or parts of it), and changing the nature of agement and quality assurance systems must be used for expenditure controls, with some increasing differentiation performance data; and audits of the quality of the data and between policymakers and service-providing units, and the systems that generate them can help prevent loss of data some management autonomy to executing agents. This last quality. Such audits can be undertaken by statistical offices point is normally addressed by (i) establishing consensus and by audit bodies. In the United Kingdom, most Public concerning the use of performance information in budget Service Agreement indicators are collected by the depart- and multi-annual estimates and fiscal frameworks, (ii) in- ments and agencies themselves. Statistics that are declared troducing formal mechanisms to ensure that accountability valid by the National Statistician and Statistics Commission is based on the results of programs; and (iii) maintaining receive a National Statistics label. The Australian National or strengthening financial authority and accountability at July 2008 · Number 129 · Audit Office does not issue opinions on the nonfinancial formulation, performance information is not used during bud- information in the annual report but audits the quality of get execution, where it can have its greatest impact. performance measurement systems within its value-for- money audit mandate. However, responding to strong internal and external de- mand, the Government is now moving forward in intro- Managing Change ducing performance-based budgeting and results-based The introduction of performance-informed budgeting management in the Mexican public administration. As is as much about the political economy of change as mentioned earlier, the results-based budgeting initiative is it is about a technically first-best option. Three key anchored in the SED to provide data on the performance of issues need to be addressed. First, there must be an publicly financed programs and organizations as inputs to agency that has the authority and capacity to oversee the budget cycle. This legal framework reaches the differ- developments that affect the key actors as they make ent levels of Government: federal, state and municipal, and decisions across the budget cycle; such a situation is has already made a dent in setting up the beginnings of the most often found in unitary, parliamentary countries. robust institutional structure needed to move towards a per- A second consideration is the degree to which the formance based management culture. budget is shaped by earmarks that restrict flexibility in reprioritizing programs during budget preparation. The challenge for the public administration, and the coun- And third, it is difficult to introduce performance in- try as a whole, is the implementation of a process that has formed budgeting where political and other rigidities no way back. Even though most of what is envisioned in determine how financial inputs can be used, restrict- the legal framework remains to be implemented, there are ing the ability to provide incentives for performance a number of achievements that point in the right direction, in budget execution. notably: (i) the institutionalization of the evaluation pro- cess, (ii) the creation of the National Evaluation Council The Mexican Context (CONEVAL) and (iii) the creation of the Subsecretary for Planning and Social Evaluation (SEDESOL). The sum In Mexico, the efforts of previous administrations to of these efforts and initiatives could constitute a national introduce results and performance information as part monitoring and evaluation system. Finally, the new initia- of the budget process have not fulfilled their promise. tive by the supreme audit institution (Auditoría Superior Mexico's public administration is still characterized de la Federación) in the elaboration of performance audits by features that impede the use of relevant, timely, and is very encouraging. quality performance information in managerial deci- sion-making. Federal departments and agencies are Titles in the "MEXICO: Quality of Public Expenditure" Series mainly driven by processes, with few agreed standards The notes series is produced in collaboration between the that allow benchmarking of agency and program per- Mexican Government's Secretaría de Hacienda y Crédito Pú- formance. A proliferation of reports, with fragmented blico and the Public Sector and Governance unit in the World and duplicated information, has produced a perverse Bank's Latin American and Caribbean Region. outcome: information is devalued for decision-making. · Note 1 - Institutionalizing Performance in the Public Public financial management systems have multiple IT Sector: An Emerging Framework for Performance-In- platforms and databases, and they lack realtime monitor- formed Budgeting, June 2008 ing of public expenditure execution from commitment · Note 2 - The Role of Evaluation in Mexico:Achieve- to payment; and international accounting and financial ments, Challenges, and Opportunities, June 2008 · Note 3 - Harnessing Evaluation to Improve Upper Sec- reporting practices are only partially applied. Finally, ondary Education, June 2008 the budget process is still dominated by a strong formal- · Note 4 -The Effectiveness of Poverty Reduction: The ism and is defined by rigidities that prevent policymak- State Dimension, June 2008 ers from introducing substantial reallocations based on Download these papers from performance. In addition to these limitations in budget http://www.worldbank.org/lacpublicsector About the Authors a. Sector Manager, Public Sector and Governance Unit, Latin America and Caribbean Region, World Bank b. Economist, Public Sector and Governance Unit, Latin America and Caribbean Region, World Bank c. Sr Institutional Dev. Specialist, Public Sector and Governance Unit, Latin America and Caribbean Region, World Bank "en breve" is produced by the Knowledge and Learning Team of the Operations Services Department of the Latin America and the Caribbean Region of the World Bank - http://www.worldbank.org/lac · July 2008 · Number 129