1. Performance-informed budgeting in OECD countries
Governments across the OECD are facing substantial fiscal challenges that pose a significant threat to long-term fiscal sustainability. The enduring impacts of the COVID-19 pandemic, rising energy prices and the cost-of-living crisis have resulted in substantial increase in government spending. These factors, combined with mounting mandatory expenditure related to an ageing population, the pressing issues of climate change, and other challenges, have left governments with limited fiscal space to fund new spending initiatives.
Countries have been implementing performance-related budgetary reforms, such as performance budgeting and spending reviews, to help align limited fiscal resources with the priorities of the government and to increase transparency and accountability throughout the budget process. By systematically taking stock of existing expenditure to identify savings or relocation options through spending reviews, and by moving away from the traditional focus on inputs towards measurable results through performance budgeting, governments are in a better place to improve the allocation of public funding.
Performance budgeting
Performance budgeting is defined as the systematic use of performance information to inform budget decisions, either as a direct input to budget allocation decisions or as contextual information to inform budget planning. Its purpose is to instil greater transparency and accountability throughout the budget process by providing information to government officials, legislators, and the public on the purposes of spending and the results achieved.
Most OECD countries have performance budgeting and spending review frameworks (Figure 1.1). Since 2020, more OECD countries, such as Greece, Portugal, Estonia, and the Czechia, have introduced performance budgeting and spending reviews.
International experience shows that performance-informed budgetary reforms are most effective when they are a part of a set of mutually supportive reforms, and not an isolated initiative. Efforts such as restructuring the budget around policy objectives and programmes, using performance information for decision-making, implementing spending reviews to examine baseline expenditure, and introducing IT systems mutually support the development of performance-oriented culture within the administration.
There is no one-size-fits-all design to performance-informed budgeting, as budgeting practices differ across countries. However, OECD experience shows that there are several key factors that can make the implementation of such reforms more effective. These include having clear and transparent objectives, encouraging both accountability and autonomy, and designing a practical and functional framework. These elements are essential for shaping a successful performance-informed budgeting framework tailored to each country's unique circumstances and needs.
While many OECD countries have been implementing performance-informed budgeting reforms, certain common challenges persist. As reported by OECD countries, this includes lack of political commitment, limited access to relevant performance data, insufficient capacities within line departments, and the absence of effective monitoring mechanisms. These challenges hinder the successful implementation of performance-informed budgeting, prompting countries to seek ongoing improvements to their frameworks to address these obstacles.
References
[2] OECD (2020), OECD Spending Review Survey, http://qdd.oecd.org/subject.aspx?Subject=GOV_SP_REV.
[1] OECD (2018), OECD Performance Budgeting Survey, https://qdd.oecd.org/subject.aspx?Subject=PB_2018.