Budget Management Framework

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Nov 18, 2013 (3 years and 11 months ago)

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Budget Management Framework



Background


1.

The f
iscal position
of Singapore is expected to be

tighter in the future,

given
the
many
challenges Singapore will face, namely,

an aging population, low birth rates, global

competition, etc.

There is a need for
fiscal prudence and

to optimi
s
e the

use of limited
resources
.
Ministry
of Finance

(MOF)

has been
advocating


Do The Most
with

What We
Can Give You


and

Do More with Less

.
In t
h
is document
, we will
look
at the budget
ary

framework

developed by MOF



known as the Budget Management Framework (BMF)
-
-

to address the concerns of
(1) fiscal discipline


i.e. living within our means, and
(2)
financial discipline



i.e. seeking the best value for taxpayers’ monies.




Policy Content


2.

Prior to FY2001, Singapore
was able to
enjoy budgetary surpluses due
mainly
to buoyant
revenues and favo
u
rable demographics.
With the business cycles getting shorter and the
global financial markets experiencing greater volatility and uncertainty, Singapor
e’s open
economy will not be spared from any future external shocks.
It

will be more challenging
to manage the
fiscal po
sition of Singapore. Going forward, how will MOF address these
challenges?
More specifically, how
will

MOF achieve

its

desired outcomes

through its
BMF
,

namely, fiscal sustainability and the efficient and effective use of resources
?


Budgeting Principles


The two desired outcomes of
BMF
are
:




Fiscal Sustainability

o

T
o
promote and
achieve sustained, non
-
inflationary
economic
growth of 3% to

5% over the medium term

o

T
o balance the budget

over the business cycle

o

T
o safeguard the country's reserves




Efficient
and

Effective Use of Resources

o

T
o be prudent with the use of

limited resources

o

T
o be
mindful of
the

duty of accountability to the public




3.

Given the changing operating environment, the b
udget policies and frameworks
have
undergone several changes. Under the current budgetary system, MOF adopt
s a
principles
-
based rather than rules
-
based

approach in policy implementation.




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Budget Management

Framework























4.

The four principles governing Singapore’s Budget Management Framework are:


Principle 1: Establish Limits



In order to be able to balance the budget over a term of government,
MOF controls the budgets of Ministries by determining an absolute
dollar figure as the Ministry’s
baseline

budget (known as
the
Block
Budget Cap) during budget negotiations between MOF and the
Ministry
. Block budget
negotiations are normally undertaken
every
5 years where the Ministry’s current programmes and future plans
are evaluated and discussed
.



This
Block Bu
dget

Cap
provides certainty to Ministries for the
ir
budget planning within the 5
-
year period, while limiting the overall
expenditure of Gover
nment
.
The baseline budget is allowed to grow

annually by a budget growth factor. The budget growth factor is
40% of the smoothened GDP growth rate (smoothened to reduce
pro
-
cyc
licality of Government spending
)
.
Separate “above
-
the
-
block” funding may also
be given to some Ministries to fund
additional projects, such as for large development projects where
expenditures are volatile.


To
allow

greater flexibility in channelling resources to meet new
priorities and help Ministries pursue deserving additional projects
over and above their Block Budget allocations
,

a

certain proportion
of budget growth
is

not allocated to
M
inistries but
is central
ly

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retained as the

Re
-
investment Fund
for

Ministries to tap on via
competitive bidding
.

The Re
-
investment Fund is not an actual
Government Fund, but a
portion

of the
allowable
budget growth for
the year

which is set aside
.

The total amount disbursed from
the
Reinvestment Fund annually is centrally managed to ensure that
total spending can be supported by revenue growth.


The setting of
Block Budget C
aps, supplemented by the
Reinvestment Fund, helps MOF in its medium term fiscal planning
and ensures that to
tal Government spending does not exceed
revenues, while providing flexibility to provide for new needs over
the term of the Government.


While MOF does not get involved in the micro
-
budgetary decisions
made by Ministries, there are
also
some broad controls

in place for
sound budget management by individual Ministries.


To ensure that Ministries do not request for more budget than
required, Ministries will suffer a once
-
off budget adjustment in the
following year, if they spend less than 95% of their budget

allocations. The tendency for end
-
of
-
year “binge spending” is
reduced by the roll
-
over mechanism

in the budget flexibility
framework
.



All large capital projects above S$80m need to be approved by a
Development P
lanning

Committee (DPC) before they can pr
oceed.
The committee comprises the Minister for Finance, the Minister for
Trade and Industry, as well as the Minister of the ministry
submitting the project. There is a system to monitor the
implementation status of the projects.


The policies under this p
rinciple
are
:



Block Budgeting Framework



Reinvestment Fund



Budget Utilisation Framework



DPC Process


For details of the above policies, please refer to the
“R
eferences

section in this document
.




Principle 2: Maximise Discretion


M
inistries are given discretion
to allocate
their resources

provided
that the total expenditure stays within the predetermined budget
limits. The rationale is that ministries are in the best position
to
know
their spending needs. Instead of allocating the lowest budget
possible for achieving the desired outcomes, ministries are
encouraged to achieve as much as they can within
the

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predetermined budget limits
.


Several policies have been introduced under this p
rinciple
:



Block Budgeting Framework



Budget Flexibility

Framework



Programme Budgeting



Revenue Recognition Framework (previously known as Net
Budgeting Framework)


For details of the above policies,
please refer to the “References”
section in this document.




Principle 3: Manage
Resources


This principle
gives
emphasis

to

the need for ministries to manage
the full
resource
costs of their operations. By identifying, measuring
and recording the full
resource
costs,
ministries
would be able to
make
more
informed judgments about competing expenditure
needs, prioritise their activities, and make appropriate trade
-
offs,
e.g.
the need to
rent
versus

own
ing

offices.


The key policies in
troduced under this principle are adapted from

good practices in the
private sector and include
:



Inter
-
departmental Charging
(IDC)
Framework



Manpower Management Framework (MMF)



Office Space Management Framework


For details of the above policies,
please refer to the “References”
section in this document.





Principle 4:
Achieve Value for Money


This principle
focuses on
the need to
do the most with the limited
resources

available

to ensure public monies are well spent
.
Ministries are expected to
achieve optimal

value from the

utilisation
of limited resources.


The key

policies

include:



Economy
and Value
Drive

(EVD)

(previously known as
Economy Drive or ED)



P
ublic Private Partnership (P
PP
)



Demand Aggregation

(DA)
/ Reverse Auctions



Capital Management Framework


For details of the above policies,
please refer to the “References”

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section in this document.




5.

From the above

descriptions
, it is clear that m
any policies

and
tools

have been introduced
to achieve the 4 principles.
I
t is necessary to have
a
moni
toring and evaluation
mechanism in place

to assess the performance of
the public agencies,

to

enhance
their
service delivery and
to
ensure that public resources are
being
channel
l
ed to the right
areas.



6.

As q
uantitative indicators alone do not provide the full picture of how well a
m
inistry is
doing to achieve its goals
,

MOF
has also been
actively

engag
ing

ministries on how they
can best meet their goals with their given budgets.

Some examples are as follows:


Planning,
Monitoring and Evaluation Mechanism


MOF
also
engages Ministries in more qualitative,
strategic
conversations through
the following platforms:




Whole
-
of
-
Government Strategic Outcomes

(WOG
-
SO
)
Cluster Meetings

o

MOF makes use of t
hese meetings

to
:



generate synergistic programmes and leading ideas
that
are aligned with
the
Whole
-
of
-
Government
outcomes
.



consolidate cross
-
agency ideas, highlight gaps

/

duplications across Ministries’ programmes, and
facilitate a consensus on Government’s cross agency
priorities, so that resources can be allocated
accordingly in years to come.

o

During these meetings, ministries will share their
strategies for achieving the SOs and the respective
targets as well as the progress to
-
date.

MOF, as the
gatekeeper, will help to address any gaps and
suggest
measures to brid
ge the gaps.




Strategic Budget Review Meetings
(SBRMs)

o

MOF will invite each of the
Permanent Secretaries
to
separately
share their
ministries' work plan and update
on the financials areas.

o

The discussions focus on the strategic policy issues and
high
impact areas
,

i.e. how ministries are achieving their
goals in relation to their budget utilisation, resource
management, value
-
for
-
money initiatives, Reinvestment
Fund bids and tax proposals.

o

Through

these meetings
, MOF will be able

to review the
alignme
nt of ministry
’s

desired outcomes with national
outcomes and engage ministries on new strategic thrusts.




Singapore Public Sector Performance Report


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o

Every year,
Cabinet
will be updated
about the

Whole
-
of
-
Government performance
. In preparing this report,
the
core strategic outcomes
need to be identified and public
agencies
will appreciate the
need to work across
boundaries
.

o

Since 2010, a public version of this report has also been
released as the Singapore Public Sector Outcomes
Report.




Value
-
For
-
Money A
udits

o

It is necessary to
conduct regular performance
-
based
reviews on spending by public agencies

in order

to
evaluate how funds have been used and whether goals
have been achieved.

o

The Accountant
-
General’s Department is also tasked to
conduct annual
Value
-
For
-
Money audits on
Government’s programmes and projects to ensure that
fiscal discipline is adhered to and public monies are well
spent. This is addition to the independent audits
conducted by the Auditor
-
General’s Office.




Auditor
-
General
& Public
Accounts Committee


o

The Auditor
-
General is an independent statutory
appointment and reports to Parliament. As part of the
audit, the Auditor
-
General submits an annual report to
Parliament’s Public Accounts Committee (PAC)
, which
consists of elected Members

of Parliament
. The report
covers instances of control weaknesses, poor
management of public funds and resources, as well as
operational inefficiencies. Senior officials from the
relevant Ministries may be called up by the PAC to
provide explanations on th
e audit observations. The PAC
then formally writes to Ministries to seek explanations
and enquire into the remedial actions taken, before
presenting its report to Parliament
.




FAQ




[FAQ #1]
-

What
are the benefits of the Budget Management Framework?




[Ans #1]

This framework comprises our budgeting principles, policies, monitoring and evaluation
processes, and performance management

in the public sector
.

It
reminds the public sector
agencies

about the need

to align their goals and resource allocation decisions with the
WOG
-
SOs.
Even as it sets out

limits on the
M
inistries’ spending

(under the principle of
“Establish Limits

), this framework
also

provides flexibilities to the decision makers in
managing and
allocating their resources (under the principle of “Maximise Discretion”).



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Instead of focus
ing too much and solely on their resource requirements i.e.
inputs and
their activities/programmes i.e.
outputs
, this framework

emphasises the
importance of
link
ing

the

inputs and outputs with
the outcomes and deliverables expected of the
agencies.
With

no natural resources in Singapore, it is important that the public sector
agencies are careful in the utilisation of the resources. The principles of “Manage
Resou
rces
” and “Achieve Value for Money” help to remind agencies of this concern
. The
Monitoring and Evaluation
m
echanisms help to ensure that all these policies are
being
followed by the public sector agencies

and ensure greater accountability in our budgetary

framework.





[FAQ #2]
-

What is meant by
"
Value for Money
"
?


[Ans #2]

V
alue for
money is derived from the
optimal balance of benefits and costs on the basis of
total cost of ownership.

It goes beyond financial concerns and considers also the non
-
quantifiab
le
factors
, which are important
.

Achieving value for money in the use of
resources is one of the ways to fulfill the duty of accountability to the public.





[FAQ #3]
-

What should be the key message to communicate to public officers on the
Economy and Value

Drive

(EVD)
?




[Ans #3]

The Government has launched EVD in the public sector. EVD is not a budget
-
cutting
exercise. It is a public sector campaign to reinforce continuous effort by Government to
be efficient and effective. As part of the overall policy of seeking value
-
for
-
money
and
prudence at all levels, public sector officers will be challenged under
the
EVD
framework
to continuously strive to do more with existing resources. EVD also demonstrates the
Government's resolve to tighten its belt in difficult times.








[FAQ #4]
-

I
f the ministries fail to meet their outcomes, will their budget for next FY be
cut?



[Ans #4]

No, the budget of ministries is not affected as this is pegged to the economic situation via
the block budgeting formula.

Although MOF does not use performance
indicators to
determine budgets
1
, the indicators provide a useful starting point for
the public

to assess
whether the Ministry is achieving its desired outcomes
, as well as for bilateral
discussions with MOF during the block budget negotiations
.








1

Block budgets weaken the link between indicators and budgets. Furthermore, tying indicators to budgets may not
be meaningful e.g. weak growth in patents may not necessarily imply poor performance; rather, it could
be a sign
that we may in fact need to spend more to develop the R&D industry.


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References


(Note: Unless otherwise stated, the following documents are available from the Government
Intranet at http://www.intranet.gov.sg)




Finance Reference Guide
(
refer to
MOF’s Budget Policy website)



Paper on “Government that Costs Less”, Lim Siong G
uan, Ethos, April 2004, available
from
http://www.cscollege.gov.sg/Knowledge/Ethos/Issue%201%20Apr%202004/Pages/04Co
st.pdf




Relevant circulars and informati
on for selected BMF initiatives and frameworks:


PRINCIPLE

TOPIC

REFERENCE

Establish
Limits

Block Budgeting
System



FCM M14/2007

-

Budget Growth Factor and Changes
to the Reinvestment Fund



FCM M13/2007

-

Review of the Smoothened GDP
Framework


Block
Budget
Caps



FCM M14/2007

-

Budget Growth Factor and Changes
to the Reinvestment Fund



FCM M13/2007

-

Review of the Smoothened GDP
Framework


Reinvestment
Fund

(RF)



FCM M6/2012

-

Revisions to Reinvestment Fund
(RF) criteria



FCM M11/2011

-

Revisions to
Reinvestment Fund
(RF) Process



FCM M12/2010

-

Revisions to the Reinvestment Fund
(RF) Cycle



FCM M14/2007

-

Budget Growth Factor and Changes
to the Reinvestment Fund



Budget Utilisation
Framework

(BUF)



FCM M15/2006

-

Refinements to the Budget
Utilisation

Framework



FCM M40/2003

-

Interest Rates for Loans and
Advances


Development
Planning
Committee (DPC)
Process



IM on Financial Control

-

Development Projects


Cost Norms for
Government
Buildings




IM on Asset Management


Land and Building



FCM
M38/2002

-

Project Cost Adjustments for
Government Building Projects



FCM
M19/2002

-

Revised Cost Norms and Project
Cost Adjustments for Government Buildings



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PRINCIPLE

TOPIC

REFERENCE

Maximise
Discretion

Revenue
Recognition
Framework
(previously known
as Net Budgeting
Framework)



FCM
M41/2003

-

Revised Net Budgeting Framework



FCM M20/2008

-

Adjustments to Net Budgeting
Framework
(re
-
named as Revenue Recognition
Framework)


Budget Flexibility



FCM M4/2006

-

Refinements to the Rollover
mechanism



FCM M40/2003

-

Interest Rates for Loans
and
Advances



FCM M6/2002

-

Provisions for Budget Flexibility


Programme
Budgeting




FCM M25/2002


Preparation of the Budget for
FY2003



Integrated Programme Budget

(IPB)

website

(under
the “e
-
Government” section)


M
anage

Costs

Manpower
Management
Framework
(MMF)



FCM M1/2013


Clarification o
n
the Treatment o
f
S
hort
-
Term Contract Staff Under t
he Ma
npower
Management Framework (MMF
)



FCM M19/2011

-

Revisions To The Public Sector
Manpower Management Framework (MMF)
a
nd
Manpower Growth Rate For F
Y
1
2


Office Space
Management
Framework
(OSMF)



FC 2/2008


Office Space Management Framework
(OSMF)


Inter
-
departmental
Charging
(IDC)
Framework



FCM M7/2001

-

Enhanced Inter
-
Departmental
Charging Framework



Enhanced IDC

(refer to MOF’s
Budget Policy
website
)


Achieve
Value for
Money

Government’s
Optimal Sourcing
Policy and
Framework
(previously known
as Best Sourcing

Framework
)



FC

8/2012

-

Implementation Of Best Sourcing
Initiative (BSI) In Procurement Of Cleaning And
Security Services



FCM M9/2012

-

Reposition
ing of Best Sourcing
Policy And Framework



MOF’s Best Sourcing Policy and Implementation
Guide

(refer to MOF’s Procurement Portal website)



MOF’s
Procurement Portal

website


Public Private
Partnership (PPP)



FCM M6/2011
-

Enhancements
t
o Singapore's
Public
-
Private Partnership (P
PP
) Procurement Approach



Public Private Partnership Handbook

(refer to MOF’s
Procurement Portal website)



MOF’s
Procurement Portal

website


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PRINCIPLE

TOPIC

REFERENCE


Demand
Aggregation

(DA)
/ Reverse
Auctions



IM on Procurement



MOF’s
Procurement Portal

website


Economy and
Value Drive
(EVD)

(previously known
as Economy Drive

or ED
)



FCM M9/2011
-

Review of Economy Drive
Implementation For The Public Sector



Economy and Value Drive website


Capital
Management
Framework





FCM M26/2008

-

Capital
Management Framework
For Statutory Boards



Cost of Capital Framework

(refer to MOF’s
Budget
Policy website
) include

a paper on “Cost of Capital
Framework”



MOF’s Cost of Capital Framework website


Monitoring
&
Evaluation


Whole
-
of
-
Government
-
Strategic
Outcomes (
WOG
-
SO
)

Cluster
Meetings



FCM M15/2008
-

FY2009 Reinvestment Fund (RF)
and Annual Budget Meetings

Strategic Budget
Review Meetings

(SBRMs)



FCM M7/2012

-

Preparation of the Budget for
FY2013



FCM M15/2008
-

F
Y
2009 Reinvestment Fund (R
F
)
a
nd Annual

Budget Meetings


Singapore Public
Sector
Performance
Report



FCM M5/2011
-

Preparation of Ministry Report Cards
and Singapore Public Sector Outcomes Review for
2010 Performance



A Guide to Specifying Outcomes, Finance Notes,
February 2003 (refer to MOF’s
Budget Policy
website)



The Singapore Public Sector Outcomes Review
Report or SPOR, available from
http://
www.mof.gov.sg


Value
-
for
-
Money
Audits



FCM M3/2011

-

Scope of Audits by the Auditor
-
General



Value for Money
website

(refer to
AGD Portal


under

Assurance & Advisory

-

SAS@Gov

)






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Reflection





[Reflection question #
1
]

-

Have the four principles been clearly articulated in your
agency? Or are there still
old mindsets that need to be changed?




[Reflection question #
2
]

-

Are the monitoring and evaluation mechanisms effective in
meeting the desired outcomes under the
B
udget
M
anagement
F
ramework? What
can
your agency improve

on?