A group presentation slide for the subject 'Budget Administration', Master of Public Policy, University Malaya. The subject was taught by Tan Sri Sulaiman Mahbob, former Director-General of Economic Planning Unit, Prime Minister's Department and current Chairman of Felda Global Ventures (FGV).

1. NATIONAL BUDGET ADMINISTRATION
SESSION 2014/2015
The Evolution of Budgeting System in Malaysia
PREPARED BY:
1. Safwan Salleh (ZGA 130009)
2. Atiya Rasool (ZGA130025)
3. Nik Amir Hanif Nik Roslan (ZGA130024)
4. Nurul Mardhiah Baharun (ZGA13022)
5. Nur Hani Alias (ZGA130005)
6. Pang Siew Chin (ZGA130016)
7. Mohd Hasim Ujang (ZGA110011)
1

2. INTRODUCTION
• Budgeting system refers to the the combination
of methods, techniques, plus the overall
bureaucratic structures, processes and
applications or instruments that are used to
prepare, present and execute government
budgets.
• Different budgeting system will apply different
approaches for planning, controlling
andevaluating the roles and effectiveness of the
allocated budgets and programs.

3. • Malaysia budgeting system evolutions started
since 1957 as part of an effort by the
government to strategically develop the
country based on these goals.
 To Meet Development Challenges
 New Administrative Initiatives
 Following Trends in World Budget
Development
 Budgeting Based on: Program and Activity,
Objectives, Performance Monitoring and
Evaluation

5. LINE ITEM BUDGETING

6. SALIENT FEATURES
• STRUCTURE:
– Lists revenue sources and expenditure classification in
vertical columns.
Previous Fiscal Year
2012-13
Actual
Current Fiscal Year
2014-15
Budgeted
Next Fiscal Year
2015-16
Estimated
Emoluments
Salaries and Wages
Permanent Allowances
Statutory Contributions
Supplies and Services
Travel and Transport
Transport of Goods
Assets
Land and Maintenance
Buildings and Maintenance
TOTAL

7. SALIENT FEATURES…
• FUTURE PLANNING:
• develops its estimates for next year on the basis of
expenditure requirements and not from the cost
required to produce output and services.
• CONTROL ORIENTED DESIGN:
– Tightly controlled budget execution from Treasury.
– Prior Treasury approval on the individual items of
expenditure even if these expenditure are part of the
approved budget.
– Every transfer of funds from one line item to another –
e.g. from salaries and transport to hospitality had to be
approved by the Treasury.

8. WEAKNESSES OF LINE ITEM BUDGETING
• Relies heavily on line item expenditure control with no
concern for whether the goods and services produced
for that expenditure achieves the objectives of the
department.
• Pays no value for knowing what goods and services
have been produced and in what quantity and quality.
The funds are not distributed into programs and
activities of an object of expenditure.
• The estimation of future funds on the basis of past
inhibits innovative and rational allocation of resources.
Leads to lack of foresightedness and limits any increase
from base line figures.

9. WEAKNESSES OF LINE ITEM BUDGETING…
• Centralized authority to spend, required review and approval
by the top management/ the central budget & finance
authority.
• No flexibility to shift resources to desired areas so that
service delivery may meet dynamics and needs of the
market place expeditiously.
• Expenditure decisions are hedged by a centralized and
elaborate system of bureaucratic rules and procedures.
• All the above obstacles made Line Item Budgeting ideal for
departmental and lower management levels. These levels
did not have to breakup funds any further. However at the
national level, such budgeting was not conducive for
promoting performance or achieving objectives.

10. LINE ITEM BUDGETING IN MALAYSIA
• Line item budgeting which was inherited from colonial period was
manageable with small budget and government’s role limited to law
enforcement.
• After independence, promoting socio – economic development has
ballooned the public expenditure. The combined operating and
development expenditures were almost doubled.
• Montgomery (Harvard University) and Esman (University of Pittsburgh)
recommended in 1966 to the government in their report “Development
Administration in Malaysia” to adopt Program And Performance
Budgeting (PPBS).
• Line Item Budgeting was unable to handle the escalating expenditure and
the increasing complexity of government management.
• The government of Malaysia introduced PPBS when it realized that Line
Item Budgeting had failed to allocate resources based on policy priorities
and performance.
• Malaysian version of PPBS was devised and adopted in 1969.

11. PROGRAM AND PERFORMANCE
BUDGETING SYSTEM

12. PROGRAM AND PERFORMANCE BUDGETING SYSTEM
• Based on budget performance
• Appropriation of funds and how the public funds being spent
– Efficient ? Effective?
• Emphasizes on budget preparation in term of planning,
budgeting and controlling the public expenditure
Concept

13. Strategic Needs
Policies/Objectives
Programmes and Activities
Strategic
Planning
Inputs
Output and Outcome
Performance Monitoring
and Reporting
Programmes/Activities
Budgeting
Implementation,
Control and
Review
FRAMEWORK

14. • Government was concerned on the inadequacy of the Line
Item Budgeting System to serve the country’s development
needs
• To estimate performance of the agencies’ program financially
and physically.
• Introduced a simplified coding classification for expenditure
and revenue for better budgeting as well as monitoring
aspects (Xavier, J.A., 1996).
• Enabled to match between the input and output by requiring
all departments of all agencies to form and devise their
programme structures
• Required all agencies to submit the estimation of their budget
and also report on the performance data for three years.
Why Change?

15. • Enables agencies and departments to prepare and come out
with a budget which will be based on the cost of delivering
the targeted outputs.
• It allows a department to focus on outputs and outcomes
rather than on inputs alone.
• Did not fully determining the objectives and evaluating the
alternatives course of actions.
• It is difficult to determine the appropriate performance
measures
Strengths
Weaknesses

16. MODIFIED BUDGETING SYSTEM

17. CONCEPT OF MBS
• Was introduced to overcome the weaknesses of PPBS
MBS
• A system that was introduced in 1988 through
the Treasury Circular No. 11
• Implemented in 1990 through the Treasury
Circular No. 8
A system that designed to establish the logical
linkages on the relationship between inputs
(emoluments, supplies and services, assets, grants
and fixed charges and other expenditures), outputs
(the product or services produced by the government
or its agencies) and impacts.

18. OBJECTIVES OF MBS
1. The rational and improved allocation of
resources.
• To promote a rational allocation of
resources to the government programmes
• Government need to impose a budget
limits upon agencies and making a link
between inputs and outputs

19. 2. Better and accountable program management.
• Adopts a better management practices by
encouraging a greater flexibility in the use of
resources from the Treasury to the agencies as
well to the program and activity managers.
• MBS seeks to re-orient the focus of
accountability from mere compliance to rules
and procedures to issues of program efficiency
and effectiveness
OBJECTIVES OF MBS…

20. FEATURES OF MBS
• The ministry must not exceed the expenditure target for the
existing and minor new policy purposes
• Thus, the Treasury provides them with a single, specific,
numerical target for expenditure from the operating budget
Expenditure
Target
• The ministries are required to prepare an Integrated
Planning Framework known as program agreements,
consists of proposed levels of performance for each
activity
• At the end of the financial year, the ministries are
required to provide Treasury with exceptions reports
on areas where the actual performance was
inconsistent with what was agreed upon in the
program agreements with the Treasury
Program
Agreements
and
Exceptions
Reports

21. FEATURES OF MBS…
• More in-depth evaluations are required to
assist the decision-making on the major
policy changes
• The evaluation will be at least once in five
years
Cycle of Program
Evaluations
• To provide for stricter aggregate controls
while detailed controls are rationalized,
reduced and even removed if necessary
• It will save more time, reduced red tape in
obtaining and giving specific approvals
More Generalized
Approach to
Expenditure
Control

22. INTERNALISED SELF-EVALUATION (ISE) MODEL
• Was designed to complement the MBS because evaluation
has evolved into more than just an external event but rather
one with emphasis on development and capacity building.
• Evaluation in the MBS environment will look at performance
or results at various levels in program implementation.
Program managers will be better positioned to understand
the nature of the problem, its linkages and its historical
perspective and suggest how best to overcome them.
• This has resulted in greater innovation, better-targeted
program delivery and more positive and committed attitude
towards recommendations for program improvement.

23. STRENGTHS
• Stakeholders and managers have ownership over the
evaluation process.
• The goal of the evaluation is not to prove but rather to
improve in line with the new paradigm.
• Evaluation is ingrained in the day-to-day operations of an
organization as part of the developmental process.
• There was improved communication and better
understanding between groups within the programs and
between programs.
• Discover new knowledge about effective practices
contributing to innovation.

24. CHALLENGES
• Continuous Capacity Building is one of the biggest challenge in keeping the
momentum going. High staff turnover is one of the main concerns in
ensuring that evaluation is undertaken continuously. One urgent solution
would be to institutionalise knowledge and develop a decision support
system internally so that staff turnover does not impact on the evaluation
process.
• Evaluation is commonly perceived as an externally driven event although it
is part of the program cycle. Traditionally, program managers have been
involved only in program planning and implementation while evaluation
was perceived as an externally driven initiative. This challenge makes
evaluation part and parcel of the program manager’s responsibility and to
build it into the developmental process along with planning and
implementation.
• Objectivity of an evaluation conducted internally by program managers
may be questioned as there is potential for bias. Program managers who
implement the programs may be tempted not to report serious issues that
may arise from the evaluation. Reporting bias can be minimised under ISE
by way of peer reviews, audits and meta evaluations which has been quite
effective in Malaysia.

25. OUTCOME-BASED BUDGETING
SYSTEM

26. 2010 BUDGET SPEECH
“The Government will improve the structure of
budget allocation and expenditure to be more
efficient and effective. Accordingly, the Outcome-
Based Budgeting (OBB) system will be developed in
2010. This system will be implemented during the
10MP period to replace the existing Modified
Budgeting System.
Under the OBB approach, emphasis will be given to
the impact and effectiveness of projects and
programmes, compared with expenditure and
output. In addition, Government expenditure will
emphasise value-for-money as well as programmes
and projects with high multiplier effect.”
YAB DATO’ SRI MOHD NAJIB TUN ABDUL RAZAK
PRIME MINISTER AND MINISTER OF FINANCE
23 OCTOBER 2009

27. OBJECTIVES
Ensure greater
budgetary alignment
with the country’s
strategic agenda
Empower officials in
managing and
monitoring
resources
Increase
accountability at all
levels
Emphasise value-for-
money expenses

28. OBB IMPLEMENTATION STRUCTURE
• Chaired by Sec. Gen. of Treasury.
• Determines OBB policies &
directions.
• Responsible to develop OBB and
continuously improve the system.
• Chaired by the Director of
National Budget, MOF.
• Responsible to review,
recommend & evaluate all
ministries estimated
budget.
• Also to review & analyse
ministries’ performance
reports which will be
submitted in the Sec.
Gen.s’ Meeting, NDPC,
Cabinet & Parliament.
• Co-chaired by the Deputy Sec.
Gen of Treasury (Policy) and
Deputy Dir. Gen. of EPU.
• To review, evaluate and
recommend new programs &
activities proposed by ministries.
• Chaired by ministries’ Controlling
Officer (Pegawai Pengawal)
• To monitor the implementation &
success of OBB.
• Chaired by Program
Manager
• To monitor the
implementation &
achievement of program
outcomes.
• Chaired by Head
of Activities.
• To monitor the
implementation
& achievement
of activities.

29. OBB IMPLEMENTATION FLOW

30. STRENGTHS
Clear linkages between national
programs and ministries’ programs
& activities
Integration of development
expenditure and operating
expenditure
Improves resource allocation and
program delivery

31. FEATURES & PROGRESS OF OBB
More detailed and more frequent
performance reporting by ministries.
An improvement and not replacement of
the PPBS and MBS.
Not yet in full force, scheduled for full
implementation by year 2016
Delegates greater accountability & flexibility to
program and activity managers.

32. TRACING THE OUTCOME OF OBB
GDP
Government
Budget
Manufactur
ing Sector
Ministries
Agriculture
Ministries
Heavy
Industries
Ministries
Mining/
Minerals
Ministries
Tourism
Ministries
Other
Sectors
(expanding)
Ministries

33. CONCLUSION
• Different budgeting system will apply different
approaches for planning, controlling and
evaluation roles of budgeting.
• It is an ongoing process and will keep on
evolving to keep up with the economic needs.
• We might have a fifth system later on based
on our socioeconomic development plan.

34. THANK YOU