Lessons from Malaysia: Linking government spending to performance

Across the world, political leaders have sought to show how public spending contributes to concrete results like better public services, which citizens can experience and benefit from. Coupled with a steadily growing number of channels through which citizens can communicate their “voices,” political leaders are facing increasing pressure to do more with less resources.

In this context, how can civil servants and leaders holding office, particularly the ones who prepare budgets, manage this challenge?

In Malaysia, public finance specialists have turned to a sophisticated reform called “performance-based budgeting” to link the allocation of budgets with performance. This aims to shift the conversation from “ How much did you spend?” to “ How well did you spend it?” or “ What did you achieve with it?”

While the budget process can be a messy negotiation among competing interests, performance-based budgeting strives to be a more rational approach that links budget allocations to agreed targets and outcomes.

However, after several years of designing and implementing its performance-based budgeting reforms, Malaysia’s experience has proven mixed. On the one hand, it has helped integrate the previously disconnected national planning and budgeting processes under a unified performance framework. Yet, the tangible impact on service delivery in the country has been difficult to see.

For example, the Malaysia Ministry of Finance has since 2017 requested line ministries to link budgets to high-level national strategic outcomes found in the 11th Malaysia Plan. This approach represents an evolutionary step in Malaysia’s implementation of performance-based budgeting and is an example of how a country can successfully link high-level national strategies to specific budget programs and activities by using an integrated results framework. This was instrumental in enabling the government to re-orient budget preparation toward the achievement of clearly defined policy outcomes. However, there has been limited reporting on performance and little evidence that policy decisions were improved as a result.

Finding a credible way to assess the quality of spending and to make sure that all public actors are aligned remains important.

Public officials, therefore, need ways to discover which programs are working and which are not, and reallocate funds to those that merit their support. Moreover, governments need new ways to communicate for where money is going, for what purpose, and what it is expected to achieve. This becomes ever more important when there is a shift in political direction and policy priorities.

So, where does this leave us? Performance-based budgeting in many countries has been overly ambitious, and as a result difficult to administer. That does not necessarily have to be the case. There are insightful lessons from global experience that one can draw upon. Rather than throw out their efforts altogether, countries can adapt performance-based budgeting to new circumstances and fresh understanding of their administrative capacity and policy priorities.

The story of Malaysia’s experience is not yet fully written. The World Bank’s 2018 report on “ Budgeting for Performance in Malaysia” highlighted a few actions that policymakers could consider to build a better foundation for linking budgets with performance and responding to citizen demands. Some of these actions include generating:

•  Encouraging timely and accurate reporting on performance by ministries when and where it is most relevant
• Developing the technical capacity to evaluate performance information and presenting it in ways helpful for senior level decision-making
• Stimulating demand for performance information possibly by linking it to individual and institutional recognition/reward systems.  

In Malaysia, some first steps to improve performance-based budgeting have already been taken. The National Budget Office hosted a roundtable discussion with line ministries, think tanks, academic institutions, and international experts in August.  This offered an opportunity for officials from across the public administration to consider some of the lessons and challenges to assessing performance.

While one meeting is insufficient to agree on a new direction, participants did agree that improving the quality of spending should be a priority and that by working together it is possible to develop a more performance-oriented culture for national budgeting.

The new year provides an opportunity to think strategically about the 2020 budget process so that it contributes to transformations in public services for the benefit of all citizens.  For Malaysia and other countries, this is an important first step to a better future.