The document discusses approaches to integrating planning and budgeting, using South Korea's experience as an example. It outlines three phases of fiscal planning in South Korea: 1) Strategic Planning from 1962-1992, where 5-year economic development plans guided annual budgeting; 2) a Transitional Period from 1993-2003 with no long-term planning; and 3) Medium-Term Expenditure Frameworks (MTEF) adopted in 2004. The Strategic Planning approach allowed Korea to allocate resources according to national priorities and develop strategic industries that fueled rapid economic growth. However, limitations emerged as the economy became more complex. Korea now uses MTEF with sectoral ceilings, performance evaluation, and digital budget systems to

1. HOW TO INTEGRATE PLANNING AND
BUDGETING?
Focusing on Korean experience
December 2015,
Jaehyuk Choi, Policy Analyst

2. I. The relationship between Planning and Budgeting
I. Approaches to integrate Planning and Budgeting
II. Korea’s experience focusing on Strategic Planning
III. Conclusion
Content

3. 3
Why we are talking about planning and
budgeting?
Planning
•Reality
•Look Present
•Short-term
•Tackle Present needs
•Political based
•Great Vision
•Look Future
•Long-term
•Reflect Social needs
•Rationality
Budgeting
Planning and Budgeting are key tools that
governments can use for economic development
But, planning and budgeting has different
characteristics

4. • Often unrealistic about resources
(Fiscal burden)
• Usually ignored when budget is made
• Lack adequate means of
implementation
4
Either planning or budgeting alone is not
sufficient for allocating resources
Planning
Budgeting
• Budgeting is incremental
(differ only marginally)
• Focus on short term issues
• Driven by fiscal pressures not by
social needs

5. Linkage between planning and budgeting
Opportunities
vs Costs
Structured
by sectors
vs
spending
units
Different
timeframe
5
Why is it difficult to integrate planning and
budgeting?
Different
Organization
Different
perspectives
and values
Change oriented vs
Continuity oriented

6. 6
Budgeting is basic component.
Is planning essential thing to make?
THE ANSWER WOULD BE YES. WHY?
• Do we know what we should be doing? If No, Good
opportunity to build consensus on national goal
• Valuable to consider social needs unconstrained by
the budget
• Preparing for long term issues
• Though, planning cannot be achieved fully, capacity
can be enhanced

7. • Inadequate focus on the future and planning
process could be waste of time and energy
7
What will be the appropriate relationship
between planning and budgeting? (In theory)
If, Budgeting
dominates
• Weaken fiscal disciplineIf, Planning
dominates
THUS, PLANNING AND BUDGETING SHOULD CO-EXIST
• A rational planning supported by budgeting is ideal
• Having separate but linked process gives the government
the advantages of planning and budgeting
• Making planning more budget-friendly
(e.g. introducing a budget constraint into the planning process)

8. 8
Two Major Approaches to integrate planning and
budgeting
Strategic Planning
(National planning)
•Government plans program initiatives
within a budget constraint that
encourages ministries to reallocate
resources to national priorities
•Governments assess their strengths
and weaknesses and demands on them
to develop a change oriented strategy
Medium-Term Expenditure
Framework (MTEF)
•Extend the timeframe of budgeting
from one to 3-4 years
•A baseline projects the future costs of
existing and proposed programs
•MTEF is a rolling process
•Every entity should reexamine and
devise its missions to focus on
fundamental purposes
•Resources should be shifted within the
entity
•Planning is for fixed number of years

9.  Poverty Reduction Strategy Plans have been used
more than 40 low-income countries
9
But, in practice,,,
Not many countries have been successful in
economic development
9

10. 10
How can it be done in practice?
S.Korean case can be an exemplar.
S.Korea in 1950s: 60$/capita (Low income country)
• UN Korea Reconstruction Agency
representative:
“Will it be possible
Rose flowering in the trash?”

11. 11
How can it be done in practice?
S. Korean case can be an exemplar.
Strategic Planning
(1962-1992)
•5-year Economic
Development Plan
•Economic Development
Plan was grand
framework or benchmark
of annual budgeting
•Economic Planning
Board was in charge of
planning and budgeting
Transitional Period
(1993-2003)
•No long-term planning
•Utilizing line ministries’
specialty and enhancing
budgetary autonomy
MTEF
(2004-)
•5-year fiscal plan
•Top-down budgeting
•Performance
management system
•Digital budgeting and
accounting system
KOREA UNDERWENT THREE PHASES OF FISCAL PLANNING

12. • Korea’s Economic Planning Board (EPB)
held the authority to design the 5-year
Economic Development Plans and was
also empowered with budgetary authority
12
S.Korean case: Organizational perspective
President
Ministry of Finance
(Tax, Treasury, Finance)
Prime
Minister
Other
ministries
Economic Planning Board
Deputy Prime Minister
(planning, budgeting,
cooperation)
5-year Economic
Development Plans
(1962-1991)
1962-1994
• As a Deputy Prime Minister agency, EPB
can coordinate and determine matters
relating economic development plans
through various coordinating bodies
• The objective of the EPB was to deliberate
and execute investment priorities for
economic development by addressing
challenges of few resources and inefficient
investment

13. 13
S.Korean case: Strategic Planning History
1st 5-year EDP (1962-1966)
•Pursuit for growth
•Grow rural incomes through
greater productivity
•Grow exports to improve trade
balance
•Foster technology by establishing
R&D institute
2nd-3rd 5-year EDP (1967-1976)
•Building exports oriented heavy
and chemical industries
•Accelerate rural income growth
•Accelerate export growth
•Invest in SOC
(express way, plant complex)
4th–5th 5-year EDP (1977-1986)
•Pursuit for growth, equity,
and stability
•Social development
(income distribution, living
condition)
•High technology industries
(semi-conductors)
6th 5-year EDP (1987-1991)
•Pursue market based economy
and redefine government function
•globalization
•Information technology industry

14. 14
How can it be done in practice?
S. Korean case can be an exemplar.
1961: 82$/capita 1992: 7,527$
1962-1979 (initial stage)
- average economic growth: 9.1%
- Average export growth: 38%
Export products:
Agricultural products Industrial products
Light industrial products Heavy products
Wigs
Textiles
Autos
Semi-conducts
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
60 65 70 75 80 85 90 95
GDP per
capita($)

15. • How to design an organizational structure
(planning and budgeting) matters
• Especially, developing and emerging
economies could put importance on planning
• It would be plausible to have an organization to
look at economy from an overall economic
perspective
• Resource allocation should be decided by the
priority based on the public interest
• Talented people have to be employed and
should be incentivised to work hard
15
S. Korean case: Overall view of success
Organization

16. 16
S. Korean case: Overall view of success
• Carefully thought out plan tailored to each
country considering history, culture and natural
environments can have a meaning
• Clear policy goal (e.g. growth) should be
established
• The 5-year plans has been changed
appropriately by the times
Factor driven growth stage (cheap labour)
investment driven (manufacturing capability)
innovation driven (innovative capability)
• Planning could be flexible reflecting changing
circumstances (e.g. Kyungbu expressway)
Planning

17. • However planning is good, it’s meaningless
without implementation
• Leadership that can induce sustained efforts
can make a big difference
• Back up with strong support from the top
(President or Prime Minister) is critical
• Well designed incentive and monitoring system
can make a big difference in the final results
17
S. Korean case: Overall view of success
Implementation

18. 18
Korean case: limitations of strategic planning
HOWEVER, LIMITATIONS OF STRATEGIC PLANNING
SHOULD ALSO BE WELL NOTICED
• Low income countries: Planning seems more important
• High income countries: Budgeting seems more important
0%
20%
40%
60%
80%
100%
Low income Middle income High income
Planning
Budgeting

19. 19
Korean case: limitations of strategic planning
• Strategic planning can be more successful in small
and developing economies. Why?
 As economy evolves, economic, social structure are
complex and specialized that the effectiveness of
single comprehensive planning will be lowered
 The demand for ministerial autonomy increased
Strategic Planning
(1962-1992)
Transitional Period
(1993-2003)
MTEF
(2004-)
• Korea moved from strategic planning to MTEF

20. 20
Korean case: limitations of strategic planning
President
Ministry of
Strategy and
Finance
(Budgeting,
Economic Policy,
Tax, Treasury)
Other
ministries
Prime
Minister
Financial
Services
Commission
• Korea integrated Economic Planning Board and Ministry of Finance
in 1994 and has a different organizational feature now
President
Ministry of Finance
(Tax, Treasury, Finance)
Prime
Minister
Other
ministries
Economic Planning Board
Deputy Prime Minister
(planning, budgeting,
cooperation)
1962-1994 2008-present

21. • 5 year expenditure plan
• Annually updated
21
S.Korean case: MTEF after 2004
MTEF
• Total Expenditure / Sectoral ceiling
• Enhanced line ministries autonomy
Top-down
budgeting
Performance
evaluation
• Program Review: Self-Assessment
• In-depth Evaluation
• Performance Monitoring
Digital Information
System
• Integrated fiscal information system
• Connect to local government

22. THANK YOU !
JAEHYUK.CHOI@OECD.ORG
22