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MALAYSIAN GOVERNMENT

BUDGETING SYSTEM
(A STUDY ON MBS AND OBB)
LECTURER: Tan Sri Sulaiman Mahbob
BY: Suganthy Siva Kumar (Zga160011) &
Hanisah Bt Abdul Rahman Sevanathan (Zga160002)

Date: 8 Dec 2017 (Friday)


PRESENTATION OUTLINE
1 Malaysias budgetary system in perspective
2 Modified Budgeting System
3 Outcome Based Budgeting
3 MyResults application

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MALAYSIAS BUDGETARY REFORM INITIATIVES
2013 - Now

1990 - 2013 Outcome Based


Budgeting (OBB)
1969 - 1990 Modify Budgeting
System (MBS)
Prog. Performance
Budgeting System
(PPBS) Integrated
1957 - 1969 Accountability, Approach
flexibility & delegation
Traditional
Programs & Integration
approach Disaggregated
Performance Alignment
Budget
Budgeting for
Program Budget Ceilings
results
Detailed Performance Program
Results Reporting
Controls & Agreements
Program-Activities
Discipline Monitoring &
Performance Exceptions
Evaluation
Incremental Reporting
Indicators
line item
Monitoring & Monitoring &
budgeting
Evaluation Evaluation
Modified Budgeting
System (MBS)
1990 2013
PPBS Weaknesses
There are several weakness from PPBS and should be improve;

1. Formulation, monitoring and implementation relies on line-items budget

2. KPI was not regarded as important in managing resources

3. Lack of management information system

4. Non emphasis on management principles and concepts

5. Distributing the power to make decision is low

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History of Modified Budgeting System
Dean (1986) concluded that financial management including budgeting in the government really
weak and it urgently needed to do a reformation (United Nation Inter-Regional Adviser).

They was officially introduced for the 1990 annual operating budget preparation with the issuance
of Treasury Circular No.11, 1988.

The implementation of MBS had stated in three pilot ministries; the Ministry of Health, Ministry of
Work and Ministry of Social welfare (Malaysia Treasury, 1988).

In 1997, the system was implemented in relevant Statutory Bodies that received allocation for
operating expenditure from the Treasury (Malaysian Treasury, 1996).

The MBS was developed to counteract the weaknesses of the PPBS through optimization of
resource allocation, improved program performance while increasing the level of
accountability.
What is MBS?

3. The implementation of
2. Based on two fundamental 4. Agencies in early years
1. MBS was based on development program &
management principles: i. had positive impact,
Program-Activities activities was undertaken
Authority must match however, in one time, it
approach with long term by ministries & agencies in
accountability & ii. Lets reverted to budgetary
macroplanning strategies accordance with the
manager manage compliance
planned strategies

6. Implementation &
5. Its an attempt to link
performance were
input efficiency with
measured by the number 7. Objectives based
output and outcome
of outputs generated, input evaluation
performance were met with
used & physical progress of
challenges
the development projects
Main Objective
i. This rationality of MBS
is to achieve fiscal
limits upon agencies and
forging a link between
To promote a rational inputs and outputs.
allocation of resources
to government program. ii. It also seeks to
promote better program
management through
the adoption of better
management practices.
1) Expenditure target (ET) which Period: Two years in year one
represents a budget ceiling for on-going
program

2) Program Agreements (PA)- is Period: Annually


representing as an agreement document
between treasury department and other
government agencies.

3) Exception report- A report prepared by Period: Every year


Four Main government agencies regarding the
performance of activities which do not
Features achieve the levels specified in the program
agreement
4) The cycle of program evaluations Period: Once in five years
which seeks to evaluate the activities of the
program

4) A more generalized approach to Period: Two years budget in year one


expenditure control has been designed as
a control process in estimate the total
allocation for implementing the program.
FEATURES OF PPBS/MBS

PPBS MBS

OBJECTIVES 1. EXPENDITURE TARGET

PROGRAM/ACTIVITY 2. PROGRAM
STRUCTURE AGREEMENTS AND
EXCEPTION REPORTS

PERFORMANCE
3. PROGRAM EVALUATION
MEASUREMENT

4. A MORE GENERALISED
PROGRAM APPROACH TO
EVALUATION EXPENDITURE
CONTROL
THE BUDGET PROCESS UNDER MBS

1st JANUARY MARCH OF OCTOBER OF 1st JANUARY


OF CURRENT CURRENT CURRENT OF BUDGET
YEAR YEAR YEAR YEAR

PREPARING
EXAMINATION OF
OF EXISTING
PROGRAM
POLICY
AGREEMENTS
SUBMISSION

STRATEGIC BUDGET INTERNAL AND


PLANNING COMMITTEE LOWER LEVEL
BUDGETING

PREPARING OF
NEW POLICIES,
EXAMINATION OF NEW POLICIES,
ONE-OFFS AND
ONE-OFFS AND SAVINGS
SAVINGS
PROPOSALS FOR BUDGET YEAR
PROPOSALS
1&2
Aggregate expenditure control

1.Expenditure target:
- refer to budget ceiling for on-going program,
- treasury estimates the resource allocation
through previous years allocation
- Then, make estimation of the allocation: on-offs,
salary increments, inflation

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Cont.
2. New policies/additional 3. One offs
allocation - Is a non recurrent expenditure
- Ministry can apply for - To finance a particular activity
additional allocations: in that budget year alone
* Implementing new policies Eg: purchase of equipment,
which would translate into upgrading of equipment, buildings
new programmes or activities and other facilities, hosting a
* Implementing new policies conference
through existing program
* One-offs
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Cont.
4. Threshold
- Is a set of limit, if exceeded can request
additional funding

What purposes?
- Encourage agencies to find funds with the
existing budget to fund minor policies
- Encourage agencies to study new policy
thoroughly so that really important ones get to
submit to the treasury
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Cont.
5. Saving proposal
- Is an expenditure target motivate agencies to
identify saving in base budget
- Need to keep saving identified by them after
informing the treasury
- Agencies will be forfeited the amount of
identifies saving if founded by treasury
allocation, it will be deduct

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Program Agreement (PA)
- Ministry will sub-allocate their spending expenditure ceiling to
programme, then the expenditure will based on priority
- Budget structures are for the last years performance, current
year and coming 2 years
- Identify for each activity on:
* Measurable objectives
* Authority of the programme
* Alternatives strategies and chosen solution
* Target outputs and services that are meeting public
needs
Cont.
Components Benefits
A program agreement is an agreement Mission and result driven budget
which determines the level of performance Links performance to budget
that can be achieved for a given budget
year with the allocation approved. Treasury focuses on outputs and
impact
-The 14 elements comprised: general
object, agency, program, activity, activity Develops a culture of performance
code, vetted power, client, policy/need Sets challenging performance
analysis, function, objective, source, output targets
specification, impact indicators, evaluation
program Ensuring accountability for results
Exception Report
Comes together after programme agreement
Specify the following:
-Where performance is inconsistent with the target
-Reason for inconsistent
-Remedial actions

Assist the management to monitor and determine


-Performance achieved as planned
-Secure departmental accountability for outputs
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Treasury circular
Allocation
Budget
warrants to
preparation by
ministries /
agency
departments

Official review /
approve /
General warrants
coordinate
to state
ministry /
accountants

MBS
department
estimates

Process
Finance minister Submit a proposal
budgeted in to the central
parliament agency

Treasury
The central
weighing /
agency reviews
approving
budget proposals
budgets
Budget inspection
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Impact from MBS
Every division prepares details of input and output
performance targets for the performance agreement

Increasing the standardization of types of performance


measures used across government organisations

Some managers provided excuses not to conform to


performance requirements

The lack of usefulness of the performance indicators in


the program agreement for internal use

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The use of expenditure as one of the performance measures
resulted in attempts by agencies to commit wasteful expenditure
at year end to justify greater performance. In addition, the lack
of structured monitoring framework, the lack of performance
information and insufficient internet capacity hindered
managers from undertaking evaluation as mandated under the
MBS. Data for evaluation was only sought after when
evaluations were done and not planned from the beginning.
Program managers had difficulty drawing constructive
conclusions as to make decisions based on the evaluation.

(Deputy Sec Gen Dato Mat Noor b Nawi- Ministry of Finance, Sept 10,
2012)

Source:
21 Outcome Based Budgeting and Evaluation: An Integrated and Holistic Approach for Improving Public Sector Performance, 2012)
Outcome Based
Budgeting (OBB)
2013 - Now

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OUTCOME BASED BUDGETING (OBB)
OBB introduced in the 10TH Malaysia Plan (2011-2015).
Focus on detailed planning with requisite horizontal & vertical linkages
(contribute to share or common outcomes).
Whole of Government approach used as a covering processes of complete
cycle from planning to result (at both national & ministry level).
OBB measures result achieved at almost every stage of the project from input
application activity completion, outputs delivery and impact achievement.

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Why Change was required??

Greater demand for quality results


Need to rationalise government expenditure & improve
public sector services delivery
Government has identified six transformation levers:

Focus on outcomes

Systematic monitoring and


evaluation system
Vertical alignment of
national priorities and
SIX ministry activities

Accountability in the public


LEVERS
sector and authority over
resources
Managing cross cutting
initiatives
Coordination of
operating and
development budgets

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OBB Strategic Cycle

Planning for Developing the


strategic Results
Performance reporting Outcome Framework for the
and policy formulation Ministry

Results Budgeting for


Reporting Outcome

Managing information for Preparing the resource


monitoring, evaluation and requirements to drive
the ministry results
decision support system
Monitoring &
Evaluation
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The
Management
Information
System (MIS)
The An Integrated
Performance e-System for
Monitoring and performance
Evaluation Management
(M&E) system System

3 supporting
components
of OBB

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Challenges on the implementing OBB
The need for stakeholders & top managements support
& commitment in planning, monitoring & evaluation

The need of better understanding of OBB to


internalize evaluation function into an
organizational culture

The need for continuous capacity building to


keep the evaluation momentum going

The need to have a sufficient resources


allocated for evaluation

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MyResults: Performance Management System
Ministry/Agency

Planning

Budgeting

Monitoring
Evaluation
Reporting

Demand Analysis

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The push for the results
Performance information will be reported to various levels of decision
makers on a timely basis.
OBB is relevant to give decisions makers a more accurate and relevant
information
OBB can support the budgetary process by helping either the program or
components of programs : can potentially modified, expanded or cut.
OBB can assist the budgetary process identify savings by improving the
efficiency of specific service.
The early warning system or dashboard for management has been
developed to generate information on shortfalls happened

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References
Amy Tam (2013), Enhancing Monitoring and
Evaluation for Better Results.
Performance Management in Public Sector OBB ,
Ministry of Finance

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thank you