From zero-base budgeting to spending review – achievements and challenges

Abstract

ABSTRACTThis paper traces the development of spending reviews from their origins in a set of budgetary innovations in the United States in the 1950s and 1960s – notably zero-base budgeting (ZBB) and Planning, Programming and Budgeting Systems (PPBS) – to their application internationally for budget management and fiscal consolidation. Spending reviews have been successfully developed and applied in mostly advanced economies but, because they rely on advanced tools of fiscal analysis and established public financial management systems, their application in low- and middle-income countries is more limited. Many countries use spending reviews to identify budgetary savings or to improve the efficiency and effectiveness of the government's spending policies and programmes. The reviews can either be comprehensive or target specific programmes or areas of spending. Finance ministries are the cornerstone of an effective spending review process, which requires strong analytical skills and tools, as well as reliable data. Line ministries also play a key role and good use can be made of external experts. Political oversight and good governance are fundamental to success, but countries have followed a variety of models in designing their spending review processes; simpler approaches are available for countries with low capacity.KEYWORDS: Spending reviewszero-based budgetingbudgetary savingsefficiencyeffectivenessfinance ministries analytical tools and skills AcknowledgementThis article draws on material presented at a workshop on ZBB organized by the South African National Treasury in January 2021. The authors would like to give thanks to the organizers of that workshop, to Julien Dubertret, Gerhard Steger and Sami Ylaoutinen for their presentations, and to the two anonymous referees for their helpful comments on an earlier version of the article.Disclaimer StatementThe views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.Disclosure statementNo potential conflict of interest was reported by the author(s).Notes1 Applied to the public sector, allocative efficiency means the mix of public goods and services delivered by the government that represents the combination that is most desired by society. Productive efficiency means that, given the available resources and technology, it is not possible to increase the output of any public service (e.g., education or health) without decreasing the output of another service.2 For further information on the concept of ‘baseline expenditures’ and a methodology for estimating baselines over the medium term, see Rahim and Wendling, Citation2022.3 See, for example, https://thedocs.worldbank.org/en/doc/274711479159288956-0290022017/originial/GuidanceNoteonValueforMoney.pdf4 This section draws on a helpful paper on the history of ZBB by the South Africa National Treasury (Citation2020).5 Texas Instruments Incorporated is an American technology company headquartered in Dallas, Texas, that designs and manufactures semiconductors and various information technology equipment.6 A nonprofit, nonpartisan research organization that helps improve policy and decision making through research and analysis.7 Technically a Constitutional Bylaw on Budget Acts (la loi organique de 2001 relative aux loi des finances, widely referred to as the LOLF).8 The United Kingdom and Australia are examples of countries that produce multiyear baseline projections (see Rahim and Wendling, Citation2022).9 Each year since 2017 a detailed analysis of compensation trends based on spending review methodologies has been included in the South African Medium-term Budget Policy Statement.10 The OECD are preparing a new survey of spending reviews, based on more recent data, but the consolidated results have not yet been published.11 National Treasury spending review methodology. This involves six stages: policy and institutional analysis, logical analysis, performance indicator analysis, expenditure analysis, cost modelling, and report and action planning.12 As a consequence of the COVID-19 pandemic, the 2020 review covered just a one-year period in contrast to the usual multi-annual framework.13 For example, see H.M. Treasury, Autumn Budget and Spending Review 2021, and Autumn Statement 2022.