(Originally published 18 June 2010)
Developing countries should, given their limited resources and capacity constraints, keep their performance budgeting systems simple. It is a remarkable fact, however, that they frequently seek to implement systems considerably more complicated than most of the performance budgeting models one sees in developed countries. One of many areas where this is true is the design of program structures. Country after country in Africa, and elsewhere in the developing world, have tried to implement complex program structures consisting of four or even more levels. Whereas OECD countries commonly opt for two-level structures comprising only programs and sub-programs*, these complex structures add (the terminology used differs between countries) sub-sub-programs and even sub-sub-sub-programs.
The amount of complexity which this adds is enormous. If you have a program structure comprised of four levels, it is necessary to be able to follow budget execution – that is, to monitor expenditure via the accounting system during the year – right down to the lowest of those four levels. Suppose that each program is comprised of four sub-programs, each sub-program of four sub-sub-programs and, finally, each sub-sub-program or four sub-sub-sub-programs. If this is the case, then a four level program structure involves classifying and monitoring expenditure in sixteen times as many categories as does a two-level structure. The challenge of correctly recording expenditure is enormously increased, as is the scale of the technical challenge of dealing with “indirect” (shared) costs. Given the magnitude of the difficulties many developing countries face with their accounting systems, it will hardly come as a surprise to say that few succeed in successfully implementing such complex structures.
The complexity of the program budgeting systems some countries seek to introduce does not end there. In a number of cases, they have also introduced requirements that objectives, indicators and targets are specified for each and every level of these elements in the program structure. By contrast, even a country like France – with one of the best-designed program budgeting systems in the world – only requires that objectives and indicators be specified at the level of programs, and not at the level even of sub-programs (“actions” in French terminology). The specification of objectives and the selection of indicators is a challenging technical task, and to multiply the task sixteen-fold is an act of extraordinary ambition.
The greater the unnecessary complexity of developing country systems, the lower the likelihood of successful implementation. So why do they opt for systems of such complexity? International consultants are part of the problem. But I am convinced that another part of the answer lies in the continuing influence of the planning doctrine of the nineteen sixties, with its exaggerated notion of the capacity of the central agencies like the ministry of finance and the planning ministry to micro-manage spending ministries. The orientation of these planning doctrines towards central control is completely at odds with the modern notion of increased managerial freedom for government agencies, which is a fundamental element in all systems of performance budgeting.
Duncan Last and I argued, in our 2009 paper on A Basic Model of Performance Budgeting, for keeping it simple. This message applies arguably applies to all countries, but nowhere more than in the developing world.
*Or as a variant on this, a three-level structure in which – as in the case of the French “missions” – there is a higher level category comprised of groupings of programs. Having a top level comprised of broad aggregations of programs does not add materially to the complexity of the system. Complexity increases when smaller desegregations of program expenditure are created.