What we can do - Seongbak Wi
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What we can do - Seongbak Wi
- 1. 1 What can we do?What can we do? against inefficient budget executionagainst inefficient budget execution May. 6, 2014 Seongbak Wi Ministry of Strategy and Finance, Korea Secondee to Inter-American Development Bank
- 2. 2 Ⅰ Raising an issue Contents Ⅱ M&E in Korea and strengthening the method Ⅲ Challenges and remarks
- 3. 3 I. Raising an issue
- 4. 4 세계경제 전망 (%) Object of budget Budget a bridge and no output No monitoring, no sanction 1. Raising an issue Ⅰ. Raising an issue
- 5. 5 세계경제 전망 (%) Request a building construction Cost : US$9 -> US$15 -> US$ 30 1. Raising an issue Ⅰ. Raising an issue
- 6. 6 세계경제 전망 (%) 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. Ⅰ. Raising an issue
- 7. 7 Ⅱ. M&E in Korea and strengthening the method
- 8. 8 세계경제 전망 (%) 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
- 9. 9 세계경제 전망 (%) Ⅱ . M&E in Korea and strengthening the method ▶ Existence of output vs ▶Feasibility and Efficiency
- 10. 10 세계경제 전망 (%) 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?
- 11. 11 세계경제 전망 (%) 2. Re-assessment of Feasibility Ⅱ. . M&E in Korea and strengthening the method ▶ 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)
- 12. 12 세계경제 전망 (%) 2. Re-assessment of Feasibility ▶ Counter action by re-assessment of feasibility (2) : adjustment of total costs year # 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 Ⅱ. . M&E in Korea and strengthening the method
- 13. 13 세계경제 전망 (%) 3. Total Project Cost Management Ⅱ. . M&E in Korea and strengthening the method ▶ 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
- 14. 14 세계경제 전망 (%) 3. Total Project Cost Management 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
- 15. 15 세계경제 전망 (%) 3. Total Project Cost Management Ⅱ. . M&E in Korea and strengthening the method ▣ 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%
- 16. 16 세계경제 전망 (%) 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 Ⅱ. . M&E in Korea and strengthening the method
- 17. 17 세계경제 전망 (%) 4. Budget Waste Reporting System ▶ 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 . Ⅱ. . M&E in Korea and strengthening the method
- 18. 18 세계경제 전망 (%) 4. Budget Waste Reporting System Ⅱ. . M&E in Korea and strengthening the method ▶ 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.
- 19. 19 세계경제 전망 (%) 5. Performance Evaluation Ⅱ. . M&E in Korea and strengthening the method 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
- 20. 20 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 6.3 2010 132 Δ10.0 33 8.4 Ⅱ. . M&E in Korea and strengthening the method 5. Performance Evaluation
- 21. 21 세계경제 전망 (%) 5. Performance Evaluation Ⅱ. . M&E in Korea and strengthening the method 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
- 22. 22 Ⅲ. Challenges and remarks
- 23. 23 세계경제 전망 (%) Challenges in M&E Ⅲ. Challenges and remarks Difficulty in monitoring Tetrapod for breakwater
- 24. 24 세계경제 전망 (%) Challenges in Sanctions Ⅲ Challengesand 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?
- 25. 25 세계경제 전망 (%) Concluding Remarks Ⅲ. Challengesand 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
Editor's Notes
- Buenos dias. Thanks for giving me this opportunity to present a Korean case. I have been working at the Korean Ministry of Strategy and Finance, which is in charge of planning, budgeting and M&E as well. Budget is very important for national develo0pment, however, securing the budget is as important as budgeting, of course. I would like to talk about several methods to strengthen effectiveness of M&E of budget execution
- The order of presentation will be Raising an issue Tools for M&E in Korea and strengthening the method And finally, Challenges and remarks
- As we understand, the object of budget is to get some output. But we do not expect all budget will have output. As an extreme case, for example, let’s say that a Ministry of Finance budgeted a bridge across water and paid to an executing entity. After some years, the government found that there was no bridge at that place. The issue is that there was no monitoring of the budget execution, and there was no sanction against this bad execution of budget. In this case, however a budget itself was desirable, the result could not be desirable .
- Let me give you another example which can happen often in the real world. Somebody might request a building construction by saying that it will cost 9 US billion dollars, the construction of which will last for three years. Once it was approved, and after a year, he/she might say it will cost 15 billion dollars. What can you do? Can you cancel the project which is being under construction, or will you accept the increase in the cost? What can you do, if the entity say it will cost even more, say, 30 billion dollars, two years later?
- M&E is an important tool for budget to be effective. That is, M&E helps projects implemented as planned and budgeted. It is necessary because line ministries or construction companies may have desire to increase the size of projects or even want to use the money for their personal purpose. Another important point is that, for M&E to be effective, we need some strong methods such as sanctions against bad executions. In this presentation, I’d like talk about some sanctions for bad budget executions in Korea.
- Let me introduce M&E in Korea and how it strengthens the method.
- First, let me talk about eternal supervision of project execution. In all countries, project execution is supervised by government. And since payment can be done only after checking the process and proof in Korea, we do not worry about no output of the budget. That’s kind of crime, and will be punished by eternal entities, such Administration of Audit and Inspection, Prosecutors. By them, very strong sanctions such as fire off, cut in salary, imprisonment, and fine, will be taken against violation of a law.
- Existence of output, or sanction by external entities is not a main issue today. I do not expect such a case will happen in ordinary circumstance. The issue is how to achieve feasibility and efficiency by strengthening monitoring, evaluation and counteractions against violations.
- An important tool for M&E is re-assessment of the feasibility. Though projects passed feasibility test, their feasibility can change during the execution. Reassessment of feasibility will be done If total project cost increases by more than 20%, or new demand forecast is smaller than the initial one by 30%, What can we do if if a project appears not to be feasible by reassessment?
- As a result of reassessment of feasibility, some sanctions are possible against which showed lack of feasibility. An example of sanction is stopping the projects. Some projects, of which BC ratio turned out to be smaller than 1, were stopped though they completed detailed design and waited to start construction.
- Another counteraction by re-assessment of feasibility is adjusting project cost. Though it may not be called a sanction, it does not allow dispensable increase in project cost as requested. For example, in 2010 accumulated TPC increase of 30 projects were 80.2 %. As a result of reassessment, the TPC increase was adjusted to 57.4%.. Also in 2011, for 22 projects, excessive increase in TPC was adjusted by reassessment of feasibility from 34.2% to 22.4%.
- The next tool for M&E is Total project cost management. Korean MOSF is watching the execution of project to prevent excessive increase in the project cost induced by increase in construction size or modification in its design. The TPC rule says that line ministries should report to MOSF the difference between designed project cost and that in bidding, and the change in project costs as well, to get approval.
- What If a line ministry violate TPC rule, that is, if it changes project cost without consultation with the MOSF? The MOSF will give sanctions that were introduced in 2000. MOSF may cut the budget in supplementary incidental expenses for the project, it cut the budget of the line ministry for operational expenditures as well, And, it does not budget the unapproved increment, which occurs in case of budget sharing with other entities such as local government, so that the budget sharing entity should burden the increase.
- The effect of introducing sanctions was significant. As seen on the table, line ministries’ request for project cost increase was reduced from 26.4% to 4.4% after introducing sanctions, And adjusted rate of TPC increase reduced as well from 11.1% to 1.0%.
- Since there are too many projects to be monitored by government, Korea operates on-line public monitoring system, so called “budget waste reporting system”. We have 309 on-line portal sites, at central government, local governments and SOEs. Since it was open in 2009, the number of reported issues is increasing significantly
- Once reported, the MOSF reviews the issues, and if necessary, sent some of them to reassessment of feasibility or in-depth evaluation. If some significant problems are found, possible sanctions will be taken; for example, cut in the project cost, cut in the budget, or stopping the project.
- Now, let’s look at an example of budget waste case report and counteraction. There was a reconstruction of a national road which was planned to broaden from 2 lanes to 4 lanes. A person reported that it is a budget waste case since a new expressway was being built parallel to it, two of which were constructed by different entities. The MOSF reassess the feasibility, concluded that it was a waste of budget. The MOSF adjusted the construction type to straightening the road instead of broadening, and cut the project cost half from $117mil to $60mil.
- Another tool for M&E is performance evaluation. One of the performance evaluation in Korea is self-evaluation. For the self-evaluation, the MOSF gives check lists to line ministries, and line ministries assess performance of programs according to the check list. The counteraction of the self-evaluation is next year’s budget, that is, cut in the next year’s budget in case of poor performance.
- Let’s look examples of cut in the budget of poor performances. The table shows budget changes in a ministry classified into two groups. The left two columns represents poor performance, the budget of which shows cut by around 10%, while the right two columns represents the group of good performance with increases in budget by 6 to 8 %.
- The second tool of performance evaluation is in-depth evaluation. This assesses appropriateness, effectiveness and sustainability of the projects in detail for some selected projects. Following the in-depth evaluation, some cases are sent to reassessment of feasibility . Of course, some sanctions such as cut in project cost, cut in the next year’s budget, stopping the projects, are possible
- Now, let me talk about challenges and some remarks
- Though we know that M&E is important, sometimes monitoring itself is very difficult. Let me show an example. Do you know what they are? These are Tetrapod, A government budget breakwater. Many tetrapod were sunk in the water, and it is hard to estimate how many tetrapod were sunk in the water.
- There are some challenges in strengthening M&E by sanctions. First issue is limitations of effectiveness. We understand that once a project was launched, it is hard to stop it, or restore it to the initial condition That’s why every entity is trying to launch a project. Next, people are reluctant to sanctions, since people like to give favor to someone rather than sanction Another point is that restriction is not always desirable. Sometimes it is more desirable to allow luxury design, high project cost for future condition. Seoul international airport is an example. When it was being built, I was the person who budgeted the construction cost, at that time I doubted if it was too luxurious and too big. However, currently the airport is one of the world best international airports. If budget authority was too conservative to accept it, we could not have had such a fantastic facility.
- In conclusion, Effective M&E is very important to secure a project to be realized as planned and budgeted. Even more important thing is that M&E requires counteractions to be effective Strong counteractions, or sanctions, will help feedback and launching a new efficient project. In this sense, I hope Korean case will be a good reference for development of fiscal system in LAC countries.
- Thank you very much. “Muchas gracias !”