What can we do? against inefficient budget execution

What can we do? against inefficient budget execution May. 6, 2014 Seongbak Wi Ministry of Strategy and Finance, Korea Secondee to Inter-American Development Bank

Contents Ⅰ Raising an issue Ⅱ M&E in Korea and strengthening the method Ⅲ Challenges and remarks

I. Raising an issue

Ⅰ. Raising an issue 1. Raising an issue Object of budget Budget a bridge and no output No monitoring, no sanction 세계경제 전망(%)

Ⅰ. Raising an issue 1. Raising an issue Request a building construction Cost : US$9 -> US$15 -> US$ 30 세계경제 전망(%)

Ⅰ. Raising an issue 1. Raising an issue • M&E helps projects implemented as planned and budgeted. - Line ministries and executing entities have desire to increase the scale of projects or to use money for personal purpose • For M&E to be effective, we need some strong methods, such as sanctions against bad executions. 세계경제 전망(%)

Ⅱ. M&E in Korea and strengthening the method

Ⅱ. M&E in Korea and strengthening the method 1. External supervision of project Execution ▶ Project execution is supervised by government - payment will be done after checking the process and proof. ▶ Administration of Audit and Inspection : - fire-off, cut in salary, warning, … ▶ Prosecutors , - imprisonment, fine ▶ Parliament and people’s monitoring 세계경제 전망(%)

Ⅱ . M&E in Korea and strengthening the method ▶ Existence of output vs ▶Feasibility and Efficiency 세계경제 전망(%)

Ⅱ. . M&E in Korea and strengthening the method 2. Re-assessment of Feasibility ▶ Projects start after feasibility test, However, their feasibilities can change after the initiation ▶ Re-assess of Feasibility will be done - If TPC has increased by more than 20% - If new demand forecast is smaller by 30% than the initial one ▶ What if a project appears not to be feasible by reassessment? 세계경제 전망(%)

Ⅱ. . M&E in Korea and strengthening the method 2. Re-assessment of Feasibility ▶ Sanctions by Re-assessment of Feasibility (1) : Example of stopped projects which completed detailed design - Janghowon~Jumdong national road(BC=0.24) - Bukmyun~Bugok natinal road(BC-0.26) - Sungnam~Janghown natinal road(BC-0.83) - Imchun~Kanhkyung local road(BC=43) - Boryung new harbour (BC=0.24) 세계경제 전망(%)

Ⅱ. . M&E in Korea and strengthening the method 2. Re-assessment of Feasibility ▶ Counter action by re-assessment of feasibility (2) : adjustment of total costs 세계경제 전망(%)

Ⅱ. . M&E in Korea and strengthening the method 3. Total Project Cost Management ▶ MOSF watch the execution of projects to prevent excessive increase in total cost induced by modification of construction size or design . ▶ TPC rule - Line ministries should report to MOSF and get approval - difference between designed project cost and the cost in bidding - changes in total project cost 세계경제 전망(%)

Ⅱ . M&E in Korea and strengthening the method 3. Total Project Cost Management ▶ what if an entity violate TPC rule? - execution of projects without report of changes project cost ▶ Sanctions, introduced in 2000 - Cut in supplementary expenses of projects - Cut in operational expenditures of the relevant line ministry - No budgeting the unapproved increment 세계경제 전망(%)

Ⅱ. . M&E in Korea and strengthening the method 3. Total Project Cost Management ▣ Effect of Introducing Sanctions to TPC Management 세계경제 전망(%)

Ⅱ. . M&E in Korea and strengthening the method 4. Budget Waste Reporting System ▶Concept : On-line monitoring system open to the public - operating 309 portal sites : 50 in central governments, 246 in local governments, 13 in state-owned enterprises - Number of reported projects by people are increasing (2009) 1,390 -> (2012) 3,474 세계경제 전망(%)

Ⅱ. . M&E in Korea and strengthening the method 4. Budget Waste Reporting System ▶Following actions - MOSF reviews reported issues, - reassess feasibility, in-depth evaluation ▶ Possible sanctions - cut in the project cost, cut in the budget, stop the project . 세계경제 전망(%)

Ⅱ. . M&E in Korea and strengthening the method 4. Budget Waste Reporting System ▶Case : Reconstruction of national road between Yoju-Yangpyung - Projects : from 2 lanes to 4 lanes, - reported issue : another road is being built. - Reassessment of feasibility - cut in TPC, straightening the lanes $117 mil. → $ 60 mil. 세계경제 전망(%)

Ⅱ. . M&E in Korea and strengthening the method 5. Performance Evaluation 1. Self- evaluation ▶ concept - MOSF gives check lists for line ministries to evaluate projects - Line ministries assess performance of programs - Considers for the next year’s budgeting ▶ counteractions - cut in the next year’s budget in case of poor performance 세계경제 전망(%)

Ⅱ. . M&E in Korea and strengthening the method 5. Performance Evaluation Linkage between Self Evaluation and Budgeting

Ⅱ. . M&E in Korea and strengthening the method 5. Performance Evaluation 2. In-depth Evaluation ▶ concept - Evaluate appropriateness, effectiveness, sustainability - in-depth evaluation on some selected projects ▶ counteractions - Some cases, if some problems were found, are sent to Reassessment of feasibility test - cut in the project cost, cut in the next year’s budget, stopping the project 세계경제 전망(%)

Ⅲ. Challenges and remarks

Ⅲ. Challenges and remarks Challenges in M&E Difficulty in monitoring Tetrapod for breakwater 세계경제 전망(%)

Ⅲ Challenges and remarks Challenges in Sanctions ▶ Limitation on effectiveness - Once a project was launched, it is hard to stop it. - it is also hard to restore to the initial condition ▶ Reluctance to sanction - People want to give favor to someone rather than sanction ▶ Is Restriction always desirable? 세계경제 전망(%)

Ⅲ. Challenges and remarks Concluding Remarks ▶ Effective M&E is as important as planning and budgeting. - to secure a project to be realized as planned ▶ M&E requires counteractions to be effective - Strong counteractions, sanctions, will help feedback and launching a new efficient project 세계경제 전망(%)

Muchas gracias seongbakw@iadb.org 26

What can we do? against inefficient budget execution