MINISTRY OF FINANCE (Implementation of new budget system)

Encik Mansor Haji Sukaimi asked the Minister for Finance what difficulties are envisaged in the implementation of the new Budget System and what measures are being or will be taken to ensure that the system is implemented smoothly.

Mr Hon Sui Sen: Mr Speaker, Sir, the new budgetary system will be a major departure from the present. It will naturally pose a number of problems in its implementation but these are likely to be mainly on orienting the civil service towards performance criteria in estimating and expenditure.

The new system will do away with the present preoccupation on "things to be bought" and emphasise "the things to be done". The Budget will be framed to show each Ministry's programme, that is, what it intends to do. All expenditure items under each programme will be arranged according to projects and activities. Since each programme will constitute a separate subhead, Ministries will have great flexibility to reallocate expenditure within each programme to make the best possible use of the funds to achieve the objectives of the programme.

However, all this implies that in estimating expenditure requirements, Ministries submit proposals on the basis of performance. For example, for road construction, estimates will have to be based on the total length of roads to be built and the cost per unit run and how these compare against past costs and achievements and what the targets for the new year represent in the Ministry's total 5-year plan and other costs and benefits data.

On the expenditure side, Ministries will have to monitor expenditure from the point of view of results and whether alternative means cannot be found to cut costs and improve, productivity. Because there will be greater flexibility, there will be less delays in changing the nature and content of expenditures to meet changed conditions. For example, within the constraints of their manpower budget, each Ministry will be able to employ more staff or less staff on a particular programme if conditions require this.

Needless to say, these changes will require quite radical changes in the mental attitude of the civil service. There will have to be a greater awareness of cost-benefit and cost-effective criteria. There will have to be a greater emphasis on the correlation of financial requirements with objectives and targets. The civil service will have to develop performance indicators, norms, standards and historical data for estimating budgetary requirements. For actual expenditure the civil service will have to find effective ways of achieving the objectives or targets of their Ministry's programmes. Finally, at the end of the financial year, performance will have to be measured and evaluated. The evaluation of performance (the performance annual review) will be an integral part of the budgetary system, because this will enable the assessment to be made for the following year of the size of funds to be allocated on the basis of performance. In view of the nature and complexity of Government activities, much effort will be required to devise systems of measurement and refinements of performance indicators and norms as well as procedures for evaluation and assessment. Action has already been taken to explain to the civil service the new system and to train those officers directly involved in the budgetary process in the Ministries and Departments. The first rounds of discussions and talks involved recasting FY 1976 Budget into the new format. Numerous sessions were held to explain the principles and concepts involved. The major problems and difficulties associated with the system have been identified and in the second and third rounds of discussions, solutions and various compromises were worked out. When the FY 77 Budget has been approved, a similar exercise will be done to recast it into the new format. This will give the civil service further experience with the new system and hopefully enable the framing of the FY 78 Budget to be made properly and in time for the next financial year.