What can we do? against inefficient budget execution

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What can we do? What can we do? against inefficient budget executionagainst inefficient budget execution

May. 6, 2014

Seongbak WiMinistry of Strategy and Finance, Korea Secondee to Inter-American Development Bank

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Ⅰ Raising an issue

Contents

Ⅱ M&E in Korea and strengthening the method

Ⅲ Challenges and remarks

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I. Raising an issueI. Raising an issue

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세계경제 전망 (%)

Object of budget

Budget a bridge and no output

No monitoring, no sanction

1. Raising an issue

Ⅰ. Raising an issue

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Request a building construction

Cost : US$9 -> US$15 -> US$ 30

1. Raising an issue


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1. Raising an issue

M&E helps projects implemented as planned and budgeted.

- Line ministries and executing entities have desire to increase

the scale of projects or to use money for personal purpose

For M&E to be effective, we need some strong methods, such

as sanctions against bad executions.


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Ⅱ. M&E in Korea and strengthening the method Ⅱ. M&E in Korea and strengthening the method

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1. External supervision of project Execution

Ⅱ. M&E in Korea and strengthening the method

▶ Project execution is supervised by government

- payment will be done after checking the process and proof.

▶ Administration of Audit and Inspection :

- fire-off, cut in salary, warning, …

▶ Prosecutors ,

- imprisonment, fine

▶ Parliament and people’s monitoring

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Ⅱ . M&E in Korea and strengthening the method

▶ Existence of output

vs

▶Feasibility and Efficiency

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2. Re-assessment of Feasibility

Ⅱ. . M&E in Korea and strengthening the method

▶ Projects start after feasibility test,

However, their feasibilities can change after the initiation

▶ Re-assess of Feasibility will be done

- If TPC has increased by more than 20%

- If new demand forecast is smaller by 30% than the initial one

▶ What if a project appears not to be feasible by reassessment?

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▶ Sanctions by Re-assessment of Feasibility (1)

: Example of stopped projects which completed detailed design

- Janghowon~Jumdong national road(BC=0.24)

- Bukmyun~Bugok natinal road(BC-0.26)

- Sungnam~Janghown natinal road(BC-0.83)

- Imchun~Kanhkyung local road(BC=43)

- Boryung new harbour (BC=0.24)

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▶ Counter action by re-assessment of feasibility (2) : adjustment

of total costsyear # of

Proj.Initial TPC

(A)Reqest

(B)B/A(%)

Adjust(C)

C/A(%)

2010 (36) 8,783 15,829 80.2 13,826 57.4

2011 (22) 10,627 14,264 34.2 13,012 22.4


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3. Total Project Cost Management


▶ MOSF watch the execution of projects to prevent excessive increase

in total cost induced by modification of construction size or design .

▶ TPC rule

- Line ministries should report to MOSF and get approval

- difference between designed project cost and the cost in bidding

- changes in total project cost

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Ⅱ . M&E in Korea and strengthening the method

▶ what if an entity violate TPC rule?

- execution of projects without report of changes project cost

▶ Sanctions, introduced in 2000

- Cut in supplementary expenses of projects

- Cut in operational expenditures of the relevant line ministry

- No budgeting the unapproved increment

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▣ Effect of Introducing Sanctions to TPC Management

TPC requested TPC Adjusted

Before introducing sanctions (1996~1999)

26.4% 11.1%

After introducing sanctions (2000~2003)

4.4% 1.0%

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4. Budget Waste Reporting System

▶ Concept : On-line monitoring system open to the public

- operating 309 portal sites : 50 in central governments,

246 in local governments, 13 in state-owned enterprises

- Number of reported projects by people are increasing

(2009) 1,390 -> (2012) 3,474


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▶ Following actions

- MOSF reviews reported issues,

- reassess feasibility, in-depth evaluation

▶ Possible sanctions

- cut in the project cost, cut in the budget, stop the project

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▶ Case : Reconstruction of national road between Yoju-

Yangpyung

- Projects : from 2 lanes to 4 lanes,

- reported issue :

another road is being built.

- Reassessment of feasibility

- cut in TPC, straightening the lanes

$117 mil. → $ 60 mil.

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5. Performance Evaluation


1. Self- evaluation

▶ concept

- MOSF gives check lists for line ministries to evaluate projects

- Line ministries assess performance of programs

- Considers for the next year’s budgeting

▶ counteractions

- cut in the next year’s budget in case of poor performance

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Linkage between Self Evaluation and Budgeting

Year　

Budget change of Projects(%)

Projects (No.) Poor performance

Projects (No.) Good performance

2008 70 Δ6.8 19 6.7

2009 133 Δ12.5 27 6.32010 132 Δ10.0 33 8.4



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2. In-depth Evaluation

▶ concept

- Evaluate appropriateness, effectiveness, sustainability

- in-depth evaluation on some selected projects

▶ counteractions

- Some cases, if some problems were found, are sent to Reassessment of feasibility test

- cut in the project cost, cut in the next year’s budget, stopping the project

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Ⅲ. Challenges and remarksⅢ. Challenges and remarks

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Challenges in M&E

Ⅲ. Challenges and remarks

Difficulty in monitoringTetrapod for breakwater

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Challenges in Sanctions

Ⅲ Challenges and remarks

▶ Limitation on effectiveness

- Once a project was launched, it is hard to stop it.

- it is also hard to restore to the initial condition

▶ Reluctance to sanction

- People want to give favor to someone rather than sanction

▶ Is Restriction always desirable?

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Concluding Remarks

Ⅲ. Challenges and remarks

▶ Effective M&E is as important as planning and budgeting.

- to secure a project to be realized as planned

▶ M&E requires counteractions to be effective

- Strong counteractions, sanctions, will help feedback

and launching a new efficient project

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Muchas gracias

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What can we do? against inefficient budget execution