Learning Outcomes

By the end of this lesson, learners should be able to:

  • Apply results-based budgeting principles to link financial resources to policy outcomes and service delivery improvements.

  • Design programme structures, objectives, and indicators that support performance-based budgeting and results-oriented public finance .

  • Implement Medium-Term Expenditure Frameworks (MTEF) to align annual budgets with multi-year fiscal strategies and policy priorities .

  • Monitor and evaluate program performance using results-based management techniques and public finance data .

  • Communicate performance-informed budget proposals clearly to ministries of finance, legislators, and external stakeholders.

Introduction

Results-based budgeting (RBB) represents a fundamental shift in how public resources are allocated and managed. Traditional line-item budgeting focuses on inputs—what government spends money on. Results-based budgeting shifts the focus to outcomes—what government achieves with that money. As the Asian Development Bank observes, RBBM is intended to hold managers to account for their role in organizing the supply of goods and services to the public, and to enforce a regular review of the effectiveness of government expenditure programs .

The imperative for results-based approaches is clear: without linking budgets to outcomes, it is difficult to know whether public spending is achieving its intended purposes. The Sarawak, Malaysia experience demonstrates that RBB significantly improves governance, accountability and transparency, enabling citizens to better track and assess government spending decisions, with aspects of the RBB approach commonly used by OECD countries . Similarly, the World Bank’s work in Sarawak found that prior to RBB, links between policy, planning, and budgeting were weak, and appropriations were traditionally incremental and line-item based .

This lesson provides a comprehensive exploration of results-based budgeting and performance management. It examines the foundations of RBB, the role of Medium-Term Expenditure Frameworks, the design of programmes and indicators, the integration of performance into budget preparation, and the challenges of implementation.

1. Foundations of Results-Based Budgeting

Results-based budgeting is a budgeting approach that links the allocation of resources to expected results—what government aims to achieve with public funds. It represents a departure from traditional input-based budgeting, which focuses on what government spends money on, to outcome-based budgeting, which focuses on what government achieves.

The Rationale for Results-Based Budgeting

The movement toward results-based budgeting is driven by several imperatives. First, citizens and taxpayers demand accountability for public resources—they want to know what government is achieving with their money. Second, governments face increasing fiscal constraints, requiring more efficient and effective use of resources. Third, there is growing recognition that traditional line-item budgeting does not provide adequate information for strategic resource allocation.

As one analysis of public financial management notes, improving the effectiveness and efficiency of public expenditure and the optimal allocation of scarce resources are cornerstones of good practice . Results-based management provides a governing framework, and accompanying systems/mechanisms, to measure and manage developmental results (outputs, outcomes and impacts) against approved budgetary expenditures .

The results-based budgeting approach is built on several key principles:

Linking Resources to Results: Every unit of public money should be accounted for by corresponding outcomes. This means that budgets should be organized around what government aims to achieve, not just what it spends money on.

Performance Measurement: Results should be measured using appropriate indicators. This requires clarity about what is being measured, how it will be measured, and who is responsible for measurement.

Accountability: Managers should be held accountable for achieving results with the resources allocated to them. This requires clear assignment of responsibility and consequences for performance.

Continuous Improvement: Performance information should be used to improve decision-making and service delivery. This requires a culture of learning and adaptation.

Contrasting Budgeting Approaches

To understand results-based budgeting, it is useful to contrast it with traditional approaches:

Line-Item Budgeting: Focuses on inputs—what government spends money on. Budgets are organized by categories of expenditure (e.g., salaries, supplies, equipment). This approach provides control but does not link spending to outcomes.

Programme Budgeting: Organizes budgets by programmes or activities rather than inputs. This approach provides information about what government is doing but may not link activities to outcomes.

Performance Budgeting: Links resource allocation to performance—what government achieves. Performance budgeting requires clear objectives, performance indicators, and mechanisms for linking performance to resource allocation.

Results-Based Budgeting: An approach that integrates performance information into the budget process to improve resource allocation and accountability. RBB is both a technical and a cultural change—it requires a shift in how public officials think about their work and their accountability.

The Malaysian state of Sarawak provides an instructive example. Work geared up after the Sarawak State Cabinet approved an RBB Policy Circular in April 2024, which detailed the concepts, principles, and other fundamentals of the new budgeting approach. The RBB Circular was informed by technical inputs from the FMUP-funded World Bank team in Sarawak . The state is on track to replace a line-item budgeting system that had been based on relatively arbitrary year-to-year increments .

2. Medium-Term Expenditure Frameworks

Medium-Term Expenditure Frameworks (MTEF) are a key component of results-based budgeting. An MTEF links annual budgets to multi-year fiscal strategies and policy priorities, providing a framework for strategic resource allocation.

Understanding MTEF

MTEF is a prioritized resource package consistent with macroeconomic stability and some overt strategic priorities. It ensures a graduated costing of short- and medium-term policies (ongoing and planned) and decision-making based on an iterative process matching costs with available resources .

The development of a medium-term framework for designing budgets increases the feasibility of policy priorities. Where such frameworks do not exist, their introduction should be considered a priority . In Kenya, for example, the Medium-Term Expenditure Framework is a central component of the national budget process, with sector MTEFs prepared by ministries and approved by the Parliamentary Budget Committee .

Key elements of MTEF include:

Top-Down Resource Envelopes: MTEF starts with a top-down determination of resource availability. The Ministry of Finance works with revenue agencies and debt management divisions to project likely revenues for the coming three-year period . Based on the macro-fiscal framework, indicative ceilings are set for the coming MTEF period .

Bottom-Up Costing: Sector ministries prepare medium-term strategic plans setting main sector objectives and projecting performance, production and expenditure, in keeping with the limits set by the council of ministers .

Iterative Matching: MTEF involves an iterative process matching costs with available resources. The Ministry of Finance revises sectoral programmes to check their consistency with all priorities and expenditure limits . Where a sector’s expenditure is projected to exceed the set limits, the Ministry of Finance helps the sector to revise expenditure, or requests further information to review the limits .

The MTEF Process

The MTEF process typically follows several steps :

Step 1: Costing the Resource Package: Income estimates are derived from three- to five-year projections on economic performance and development assistance flows. The MTEF method sets expenditure caps for major sectors of government .

Step 2: Setting Limits for Medium-Term Sector Resources: Trickle down resources depend on current commitments. Indicative expenditure limits are set in consideration of government and ongoing programme priorities during discussions with sector-specific ministries .

Step 3: Preparing Sectoral Plans: Sector-specific ministries prepare medium-term strategic plans setting main sector objectives and projecting performance, production and expenditure, in keeping with the limits set by the council of ministers. These plans should factor in the costs of ongoing programmes .

Step 4: Revising Sectoral Plans: The Ministry of Finance revises sectoral programmes to check their consistency with all priorities and expenditure limits. It prioritizes comprehensive strategies at the expense of the envisaged detailed expenditure format .

Step 5: Submitting Reviewed Limits to the Council of Ministers: On the strength of such revision, the Ministry of Finance proposes new multi-year spending limits to the council of ministers. Such limits are the basis for designing more detailed budget estimates during the first year of MTEF .

Step 6: Preparing the Annual Budget and Submission to Parliament: The annual budget, based on the MTEF proposal, is prepared by experts and submitted to the Ministry of Finance for compilation and onward presentation to the cabinet. It is later tabled before parliament for adoption .

Benefits and Challenges of MTEF

MTEF provides several benefits. It improves fiscal discipline by linking resource allocation to fiscal realities. It enhances strategic planning by linking policy priorities to resource allocation. It increases predictability by providing multi-year resource envelopes. It improves efficiency by enabling better planning and prioritization.

However, MTEF also faces challenges. It requires significant institutional capacity and political commitment. It can be difficult to implement in contexts of high uncertainty or weak fiscal management. It requires effective coordination across government, which can be challenging in fragmented systems. It also requires reliable data and forecasting capabilities.

Kenya’s MTEF faces several risks, including lower than expected revenue, which could widen the fiscal deficit, governance and payroll integrity risks, debt sustainability pressures due to high domestic and external borrowing, and weak fiscal management at the county level . To address these risks, the Government proposes several reforms, including strengthening revenue administration, reforming payroll systems, conducting forensic audits, and structuring public-private partnerships and public contracts more carefully to manage risk .

3. Designing Programmes and Indicators

Effective results-based budgeting requires clear programme structures and robust performance indicators. This is the foundation for linking resources to results.

Programme Structuring

Programme structuring involves organizing government activities into coherent programmes aligned with policy objectives. A programme is a group of related activities directed toward achieving specific objectives. Programme structures should be:

Aligned with Policy Objectives: Programmes should reflect government priorities and policy objectives. This requires clarity about what government is trying to achieve.

Comprehensive: Programmes should cover all government activities. There should be no activities that are not part of a programme.

Mutually Exclusive: Programmes should not overlap. Each activity should belong to only one programme.

Managerially Coherent: Programmes should be manageable. They should be structured in a way that enables effective management and accountability.

The process of programme structuring involves moving from fragmented activities to coherent program architectures. This requires a shift from thinking about what government spends money on to what government aims to achieve. As the Asian Development Bank notes, in order for governments to gauge policy effectiveness, a statistical framework must be developed to define outputs and outcome indicators .

Results Chains: From Inputs to Outcomes

Results chains provide a framework for understanding the relationship between resources and results. A results chain links inputs, activities, outputs, outcomes, and impact:

  • Inputs: Resources used to deliver activities (money, staff, equipment)

  • Activities: Actions taken to achieve objectives

  • Outputs: Immediate products or services produced

  • Outcomes: Changes resulting from outputs

  • Impact: Long-term changes in the community or society

The results chain is the foundation for performance measurement. It provides clarity about what is being measured and how different levels of results relate to each other.

Performance Indicators and Targets

Performance indicators are measures used to assess progress toward achieving objectives. Effective indicators should be:

Specific: Clearly defined and unambiguous
Measurable: Quantifiable or verifiable
Achievable: Realistic given resources and constraints
Relevant: Aligned with objectives and policy priorities
Time-Bound: Associated with a timeframe

The training course from Uphilos Consultancy emphasizes that learners should formulate 5-10 SMART indicators for a selected program and set realistic annual and medium-term targets based on baseline data . This requires assessing data sources, frequency, and responsibilities for indicator reporting.

The Asian Development Bank’s publication on results-based budget management frameworks provides extensive guidance on common outputs and their performance indicators, including templates for capital budget proposals and criteria for assessing results-based budgeting management proposals .

4. Integrating Performance into Budget Preparation

Integrating performance into budget preparation is the core challenge of results-based budgeting. This requires embedding performance information into budget processes and decisions.

Linking MTEF and Performance

The interaction between Medium-Term Expenditure Frameworks and performance information is critical. Multi-year ceilings and performance data should guide resource allocation decisions . This requires:

  • Linking Program Objectives to Budget Envelopes: Program objectives and indicators should be linked to medium-term budget envelopes. This ensures that resource allocation reflects performance priorities.

  • Identifying Trade-Offs: Trade-offs between fiscal constraints and performance ambitions should be identified. This requires transparent discussion about what is achievable given resource constraints.

  • Using Performance Data: Performance data should inform budget decisions. This requires that performance information is available, reliable, and used in decision-making.

Preparing Performance-Based Budget Submissions

Performance-based budget submissions should meet the requirements of ministries of finance and planning. This involves:

  • Articulating Program Objectives: Budget submissions should clearly articulate program objectives, expected outputs, and anticipated outcomes .

  • Linking Resources to Results: Submissions should demonstrate the link between requested resources and expected results.

  • Providing Performance Data: Submissions should include performance data from previous periods to demonstrate past performance and inform future decisions.

  • Identifying Risks: Submissions should identify risks to achieving expected results and mitigation strategies.

Challenges of Implementation

Results-based budgeting faces several implementation challenges:

Data Quality: Results-based budgeting requires reliable and timely data. As the IMF’s analysis of India’s experience notes, “RBM reforms will only flourish when data systems are reliable and high-quality” . The 2018 audit of India’s Outcome Budgets found myriad problems—unquantifiable and non-measurable targets, lack of link and coherence between outlays and targets, inconsistent and unreliable reported data, and unchecked use of process and output indicators as ‘outcomes’ .

Capacity Constraints: Results-based budgeting requires significant institutional capacity. Staff need skills in programme design, performance measurement, and data analysis. The Asian Development Bank notes that the principal-agent problem and disparate interpretations and understanding of the logical framework can impede implementation .

Cultural Change: Results-based budgeting requires a cultural shift from a focus on inputs to a focus on outcomes. This requires leadership commitment, training, and sustained effort.

Political Pressures: Results-based budgeting can be undermined by political pressures. As the IMF’s analysis of India notes, reforms have suffered from poor implementation . Where oversight falls short, the purpose of reforms can be undermined and potentially derailed.

Sequencing: Results-based budgeting requires appropriate sequencing of reforms. As the Asian Development Bank notes, the sequencing of reforms is important to success .

5. The Role of Leadership in Results-Based Budgeting

Leadership is critical to the successful implementation of results-based budgeting. Without strong leadership, reforms can stall or be undermined.

Building Commitment

Results-based budgeting requires commitment from political leaders, senior officials, and budget managers. As one analysis of MTEF notes, the active support of the Ministry of Finance is vital throughout the process as it lays down the fiscal incentive scheme which guides other bodies in the preparation of their budgets .

Building commitment requires several strategies:

Demonstrating Benefits: Leaders must demonstrate the benefits of results-based budgeting—improved resource allocation, better service delivery, and enhanced accountability.

Addressing Concerns: Leaders must address concerns about results-based budgeting—fear of failure, concern about data quality, and resistance to accountability.

Building Capability: Leaders must invest in building the capability needed for results-based budgeting. This includes training, coaching, and support.

Celebrating Success: Leaders must celebrate successes and recognize contributions to results-based budgeting.

Overcoming Resistance

Resistance to results-based budgeting can come from various sources. Some officials may resist because they fear accountability for results. Others may resist because they are comfortable with existing systems. Some may resist because they doubt the feasibility of measuring results.

Overcoming resistance requires:

Engaging Stakeholders: Engaging stakeholders in the design and implementation of results-based budgeting. When people are involved in shaping change, they are more committed to its success.

Providing Support: Providing support to help people succeed. This includes training, coaching, and resources.

Addressing Concerns: Addressing concerns directly and honestly. When people understand the rationale and see that their concerns are being addressed, they are more likely to support change.

Modeling Commitment: Leaders must model commitment to results-based budgeting. When leaders demonstrate commitment, others are more likely to follow.

Sustaining Reform

Sustaining results-based budgeting reform requires ongoing attention:

Embedding in Systems: Results-based budgeting should be embedded in budget systems, not treated as an add-on. This requires integration with budget processes, financial management systems, and accountability mechanisms.

Building Capacity: Results-based budgeting requires ongoing capacity building. This includes training, coaching, and support for new staff and new responsibilities.

Monitoring and Evaluation: Results-based budgeting should be monitored and evaluated regularly. This ensures that it is working as intended and identifies opportunities for improvement.

Learning and Adaptation: Results-based budgeting should be adapted over time based on experience. Continuous improvement is essential for sustaining reform.

Key Takeaways

  • Results-based budgeting links resource allocation to expected results, moving beyond input-focused line-item budgeting to outcome-focused performance management .

  • Medium-Term Expenditure Frameworks (MTEF) provide a multi-year perspective on public spending, linking policy priorities to resource allocation over a three- to five-year horizon. MTEF ensures a graduated costing of short- and medium-term policies and decision-making based on matching costs with available resources .

  • Results chains (inputs → activities → outputs → outcomes → impact) provide a framework for understanding the relationship between resources and results. SMART indicators are essential for measuring progress toward objectives .

  • Results-based budgeting requires integration of performance information into budget processes, including linking program objectives to budget envelopes, using performance data for resource allocation, and identifying trade-offs between fiscal constraints and performance ambitions .

  • Implementation challenges include data quality, capacity constraints, cultural resistance, political pressures, and sequencing of reforms. RBM reforms will only flourish when data systems are reliable and high-quality .

  • Leadership is critical to successful implementation. Leaders must build commitment, overcome resistance, and sustain reform through embedding in systems, capacity building, monitoring, and continuous improvement .

  • As the Sarawak, Malaysia experience demonstrates, RBB can transform the way governments approach budgeting and fiscal management, laying a foundation for more responsible and effective governance as well as changing the mindset of officials in managing state financial resources. “This transformation is expected to lead to better service delivery and enhanced public sector performance” .

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