Thailand's Quest For Results-focused Budgeting

Abstract

Budgeting in Thailand is highly centralized. The powerful Bureau of the Budget (BOB) controls each agency's spending in detail through numerous separate budget allocations (detailed line itemizing). After a failed program budget reform in the late 1990s, the Thai Government attempted to introduce a performance-based reform into this centralized, controlled setting. The reform followed a “hurdle” whereby line entities could gain greater discretion over their budgets (and move towards a performance management approach) upon “clearance” of specific hurdles—achieving minimum levels in budget basics. This article examines why this approach did not work.

Notes

Krongkaew attributes this blend of systems to the fact that Thailand was never colonized. Krongkaew, M. Fiscal Discipline in Thailand: Is the Thai Government Clever or Just Lucky? Economic Development Institute, World Bank: Washington, DC, September 1997.

Under detailed line itemization BOB decides separate budget votes for each workplan or project undertaken by an agency, and within these workplans/projects for each category of operational spending (seven objects of expenditures). The legislature plays a limited role in budgeting and great power resides with the senior government officials. This is reinforced by the Budget Procedure Act 1959, which gives the Director of BOB the power to effectively remake the budget during the course of execution through the four monthly cash allotments and control over virements.

Allotments are usually made three times a year (with numerous sub-allotments in between), and effectively determine the level of commitments that can be incurred by an agency. They can be seen as a further round of budget preparation, involving a more thorough analysis of agency spending proposals by BOB than in the original budget request process, but focusing particularly on three of the seven objects of expenditure. Requests by agencies are evaluated by the relevant BOB Office of Analysis in greater detail than for the original budget appropriation (they are broken down by geographical location of the spending unit), using standard formulae. The approved allotments are transmitted to the Comptroller General's Department for clearing requests from agencies for payments to individual suppliers against accounts payable.

Although Thailand has incurred budget deficits since the 1997 Asian crisis, the expenditure side of the budget normally comes in under the budget plan. See Krongkaew, M. Fiscal Discipline in Thailand: Is the Thai Government Clever or Just Lucky? Economic Development Institute, World Bank: Washington, DC, September 1997.

The focus of budgeting control continued to be the seven objects of expenditure (categories of operating expenses).

The only substantive change to detailed central control brought by program budgeting seems to have been the ability of departments themselves to transfer some detailed budget allocations between workplans in the same program.

Budget reform was one of five elements in the Public Sector Reform Plan adopted by the Royal Thai Government in 1999. See Office of the Civil Service Commission. The Public Sector Management Reform Plan Bangkok, October 1999.

Public debt is projected to peak at around 60% of GDP, with the budget returning to surplus by 2007.

World Bank. Thailand's Hurdle Approach to Budget Reform, Prem Note No. 73, Washington, August 2002; Asian Development Bank. Governance in Thailand: Challenges, Issues and Prospects. Manila, April 1999.

Budget tracking and control has three functions: avoiding waste and misappropriation within allocations, advice on priority setting between allocations, and control of aggregate spending relative to revenues.

After two decades of reform the Australian Department of Finance and Administration is still concerned about the ability of key line agencies to provide results-based information in a meaningful and timely manner. See Davis, M. The Quiet Counter Revolution, Australian Financial Review, November 25, 2002, 6

Separation of responsibilities refers to the principle that proposal of expenditures and approval of the expenditure should be by different officials. World Bank. Thailand's Hurdle Approach to Budget Reform, Prem Note No. 73, Washington, August 2002.

Under the hurdle approach it was intended that the freedom of agencies to transfer funds between line items be increased, and ultimately the detailed budget lines be aggregated into a small number of blocks at the program level of the budget classification.

The reports were prepared by sector experts who had hands-on experience of financial management in similar agencies in other countries and a familiarity with international best practice for the sector.

The incidence of “gaps” varied greatly across the pilot agencies. Some, in the education and commerce sectors, showed a reform focus, whereas others, such as in foreign affairs, faced a major paradigm shift to a modern financial management ethic.

Spending agencies have limited incentive to save funds in line items that are being used less cost effectively and also limited ability to increase spending where it is most cost effective. A budget workplan is well managed by a spending agency if the purpose of each line item is observed and the item is neither underspent or overspent, rather than being well spent.

The pilot agencies were the Ministry of Public Health (Provincial Hospitals Division); the Ministry of Commerce (Department of Commercial Registration); the Ministry of Foreign Affairs; the Office of the Civil Service Commission; Chulalongkorn University; and the Ministry of Education (Office of National Primary Education and Department of General Education).

In retrospect, seven hurdles were too many. With the benefit of hindsight, the initial stage of reducing central control could involve just three hurdles for line agencies: first, a sound, computer-based accounting system that meets basic financial control and reporting standards; second, the identification and costing of the agency's outputs; and third, an effective internal audit function. This would have been enough to allow BOB to begin reducing central controls on the agency without risk of too much waste of funds or increased corruption.

With improving economic conditions the sense of “reform urgency” dissipated, as did the influence of international financial institutions such as the World Bank. Complex procurement regulations also mitigated against BOB itself hiring international consultants with budget reform skills (rather than local consultants).

The Thai bureaucratic culture is complex. Rules, regulations, and structure are highly valued compared to results and cost effectiveness. In the budget reform context this is reflected in a propensity to focus on conceptual frameworks and to place a high value on legitimizing reform by reference to such frameworks.

Several of the hurdle areas fell into the areas of responsibility of OCSC and Comptroller General's Department rather than to the BOB. Insufficient attention was paid to the appropriate allocation of responsibility between the three central agencies when the reform model was being developed, with the attitude of the leadership of the Office of the Civil Service Commission being particularly negative.

The Royal Thai Government had established an overarching committee structure to coordinate public sector administrative reform. However in regard to budget reform this seemed to be a lens for adversarial bureaucratic politics rather than an arena for resolving issues.

Each sector expert reviewed the status quo in a particular department against the seven hurdle standards. The expert was normally from the financial management area of a similar agency in Australia or New Zealand. The hurdle experts were expert consultants on one of the seven hurdles, and were intended to assist each line agency formulate its gap filling actions. However, BOB decided that the hurdle experts would only work internally in the BOB on the “manual of budget reform.”

The 2003 budget is intended to be a transitional budget with output categories identified for presentational purposes and linked to the budget classification, but the budget not built on the basis of output costings. This was to be further developed in the 2004 budget by developing estimates of output costs and using these to determine the line item allocations. New laws dealing with the organization of the public sector and human resource management have been passed. A new budget law has been drafted that emphasizes planning, costing and output specification, and performance and financial reporting. Accrual accounting is also being piloted.

HE Prime Minister Thaksin Shinawatra. Opening Remarks at the 2002 OECD/Asian Senior Budget Officials Meeting. Bangkok, November, 2002.

These references are from Bureau of the Budget. Presentation to OECD/Asian Senior Budgeting Officials Meeting Bangkok, Office of the Prime Minister, Royal Thai Government, November 2002 (Natta Bhachaiyud), 5, 6, 9

While a mathematical programming solution to BOB determination of both inputs and outputs of an agency is formally possible, realistically it is not achievable in the Thai (or any) budgeting environment.

This “scissors approach” is particularly important where corruption or weak management is a problem. Systems of central control tend to increase the opportunities for inducements to be requested and paid.

Sixteen reports (excluding those of the author) were reviewed for the preparation of this paper.

In the Thai case a bureaucratic champion of reform, Issaraphan Petcharat, did go a long way to self-starting change within BOB, and by 2000 he had persuaded a group of his senior colleagues that budget reform was inevitable and that it was in BOB's interest to lead the process rather than following. However following his untimely death in 2000 the reform momentum in BOB appeared to slow markedly.