ADB Project On Governance Reforms in Mongolia - Terminal Report Part-4 by Tarun Das

ADB Project Terminal Report- Part-4 by Tarun Das
ADB Project Terminal Report: Part-4:

Chapters 9-11 on
(9) Immediate and Future Action Plan,
(10) Budget Performance Evaluation, and
(11) Program Assessment Rating Tool (PART)
Professor Tarun Das1
Ministry of Finance
Government of Mongolia
Ulaanbaatar, Mongolia
July 2008
1
Glocom Inc. (USA) Expert on Strategic Planning, ADB Capacity Building Project for
Governance Reforms, Ministry of Finance, Government of Mongolia. Earlier, Dr.
Tarun Das worked as Economic Adviser, Ministry of Finance and Planning
Commission, Government of India and Professor (Public Policy), Institute for
Integrated Learning in Management (IILM), New Delhi, India.
MOF, Govt. of Mongolia 215 Glocoms Inc. (USA)

Table of Contents
Table of Contents Pages
PART-4 215-310
Acknowledgements 218-219
Project Team 220
Administrative Units of Mongolia 220
Major macro-economic variables 221
List of Reports prepared by the ADB Project Team 222-228
Chapter-9: Immediate and Future Action Plan 229-231
Chapter-10: Budget Performance Evaluation 232-254
Chapter-11: Program Budgeting and Program 255-271

Assessment Rating Tool (PART)
Annexes 272-310
Annex-1: Eight Year (2008-2015) Action Plan for 272-281

complete implementation of PSMFA
Annex-2: ADB Capacity Building Project TOR Compliance 282-292
Report as on 7 July 2008
Annex-3: Comments on the IMF TA Mission Report on 293-302
the Mongolian Budget, June 2008.
Annex-4: Design of a Training Program on Performance 303-307
Evaluation and Program Assessment Rating Tool
Annex-5: List of Experts consulted 308-310

Table of Contents: Parts 1, 2 and 3

(Submitted earlier at the end of March 2008)
Table of Contents Pages
PART-1 1-70
Contents 2
Acknowledgements 3
Project Team 4
Administrative Units of Mongolia 4
Major macro-economic variables 5
Document history 6-9
List of Abbreviations 10-11
Chapter-1: Major Conclusions and Recommendations 12-51
Annex-1: TOR and Compliance Report 52-58
Annex-2: Policy Matrix – Compliance Report 59-62
Annex-3: Design of a Training Program for capacity 63-67

building for Performance Evaluation and Program
Assessment Rating Tool (PART)
Annex-4: List of Experts consulted 68-70
PART-2 71-158
Chapter-2: Strategic Business Planning 73-100
1.
Chapter-3: Output Costing and Output Budgeting 101-115
Chapter-4: Accrual Accounting and Accrual Budgeting 116-132
Chapter-5: Benchmarks and Best Practices 133-157
PART-3 158-214
Chapter-6: Financial Planning 160-191
Chapter-7: Core and Non-core functions 192-205
Chapter-8: Seven Year Action Plan (2008-2014) 206-214

Acknowledgements
Initially Tarun Das, International Strategic Planning Expert, had a tenure of

10 months for the period from June 1, 2007 to March 31, 2008 under the
ADB Capacity Building Project on Governance Reforms. At the end of March
2008, a Terminal Report of the ADB Project containing three parts was
produced and submitted to the Fiscal Policy and Coordination Department of
the Ministry of Finance. The Report summarized the major reports produced
under the ADB Project and provided main conclusions and recommendations
of the ADB project. The Terminal Report also formulated an eight year
(2008-2015) Action Plan to implement fully the preparation of Performance
Based Accrual Output Budgeting (PBAOB) for all line ministries, Aimags and
other budgetary bodies as mandated by the Public Sector Management and
Finance Act (June 2002).
Subsequently, the term of ADB Project was extended until the end of
December 2008 and the term of the international consultant was extended
for two months in intermittent basis during April 2008 to October 2008. As
per the work plan approved by Mr. Bazarsuren Batjargal, Director General,
Fiscal Policy and Coordination Department of the Ministry of Finance, the
international Strategic Planning Expert completed his first term during 22
April to 21 May 2008 and second term during 9 June 2008 to 8 July 2008.
This Part of the Terminal Report (Part-4) summarizes the outputs and
recommendations of the International Strategic Planning Expert during his
last term for two person months.
I take this opportunity to express my gratitude to all my benefactors, whom

one should always remember throughout one’s lifetime. I would like to
express my deepest gratitude to Dr. Maurence Anguh, Principal of Glocoms
Inc. Ltd., USA for recommending my candidature for the post of International
Strategic Planning Expert; Mr. Batjargal, DG, Fiscal Policy and Coordination
Department of the Mongolian Ministry of Finance for approving my
candidature and selecting me for the post; and the Asian Development Bank
management for giving the necessary concurrence. Special thanks are also
due to Mr. D. Tulga, local representative of Glocoms in Ulaanbaatar, Mongolia
for making my stay in Ulaanbaatar very comfortable. In fact, Ulaanbaatar
became a second home for me during June 2007 to July 2008.
This final report and the previous background reports have been produced
with the help of many people. I would like to thank everyone who has given
time in meetings and discussions and in the provision of basic data and
information.
First of all, I am grateful to Mr. Batjargal Bazarsuren, Director General, Fiscal

Policy and Co-ordination Department, Ministry of Finance for his continual
support, strategic guidance and overall supervision. I am grateful to Mr. E.
Sandagdorj, National Strategic Planning Expert, for providing valuable

suggestions and constructive comments and providing all possible help for
the preparation of my reports. He also co-authored many of our reports.
I am also grateful to Mr. Nymaa Buyantogtokh, Director (Expenditure

Division), Fiscal Policy and Coordination Department for valuable comments
and suggestions for improvement on our background papers. I express my
special thanks to Mr. Jan Hansen, Financial Sector Specialist, Country
Coordination, Regional Cooperation, Governance, Finance and Trade Division,
Asian Development Bank, Mania and in charge of the last phase of ADB
Capacity Building Project for Mongolia for valuable discussions on our reports
during his visits to Ulaanbaatar.
I would like to thank my colleagues Ms. Enkhtuul Khurel, Coordinator of the

ADB Capacity Building Project on Governance Reforms, Ms. D. Bolormaa,
National IT Expert and Dr. David Lowey, International IT Expert for providing
all possible help and encouragements at every stage of my works.
The Reports would not have been possible without the active participation
and help by a wide range of stakeholders in the Line Ministries. I would like
to express my sincere thanks to numerous officers, national and international
consultants in the line ministries, particularly the Ministry of Finance (MOF),
Ministry of Education, Culture and Science (MOECS), Ministry of Health
(MOH), Ministry of Justice and Internal Affairs (MOJIA), Ministry of Road,
Transport and Tourism (MORTT) and the Ministry of the Social Welfare and
Labour (MOSWL) for their enthusiastic cooperation, keen interest, useful
discussions and for providing all relevant information and documents,
sometimes at a very short notice.
I am also grateful to the international and national consultants engaged in

the World Bank counterpart projects viz. Economic Capacity Building
Technical Assistance Credit (ECTAC) Project and Governance Assistance
Project (GAP) for valuable comments on our background papers.
I would like to thank all the participants of the half-day Workshop on

Strategic Planning conducted at the Ministry of Finance on the 28 th August
2007, and the participants of the two-day Workshop on output costing and
output budgeting, accrual accounting, benchmarks and performance
parameters held at the Corporate Hotel on 29-30 November 2007 for very
fruitful discussions, valuable suggestions and comments.
It is needless to mention that the authors are solely responsible for the views
expressed in the paper and for any errors and omissions.
Tarun Das ,
International Strategic Planning Expert
Ulaanbaatar, Mongolia
The 7th July 2008.

ADB Capacity Building Project on Governance Reforms
Project Team
Project Supervisor Mr. Batjargal Bazarsuren, DG,

Fiscal Policy and Coordination Dept.,
Ministry of Finance
Project Coordinator Ms. Enkhtuul Khurel
National Consultant Mr. E. Sandagdorj

on Strategic Planning
National IT Consultant Ms. D. Bolormaa
International IT Consultant Mr. David Lowey, Ph. D.
International Consultant Mr. Tarun Das, Ph.D.,

on Strategic Planning Glocom Inc. (USA).
Administrative units of Mongolia
Aimag – province – Mongolia is divided into 21 Aimags and the Ulaanbaatar capital city
Soum or District – county – Aimags are divided into 3-27 Soums (Total 331 Soums)
District – The capital city (Ulaanbaatar) is divided into 9 districts
Bags – the smallest administrative units (19-121) of Aimags (Total 1543 bags)
Khoroos – the smallest administrative unit in the capital city (Total 121 Khoroos)
Administrative System- comprises Local Representative Meeting in the capital city/ Aimags, and
Soums/ Districts; and Citizen’s meeting in the Bags/ Khoroos.

Fiscal year: 1st January to 31st December
Major macro-economic variables:
Items Units 2005 Rank in the World

from top in 2005
Area Million 1.56 19
sq.kms.
GDP PPP Billion US$ 5.85 151
Population Million 2.55 137
GDP PPP per capita US$ 1983 176
GDP per capita US$ 736 148
Poverty ratio Percent 36 …
Items Units 2005 2006 2007
Real GDP growth rate Percent 7.0 8.7 9.9
CPI Inflation rate Percent 9.5 7.0 8.6
Interest rate on central Percent 3.7 5.8 6.4

bank bills
GR of money supply Percent 37.3 34.9 43.8
Overall budget balance As % of -1.0

GDP 3.2 3.3
BOP Current A/C balance As % of 1.4 5.2 NA
GDP
Total public debt As % of 68 54 NA
GDP
Total external debt As % of 64 51 NA
GDP
Year end foreign exch. Million US$ 333 626 1290
reserves

List of Reports Prepared by the ADB Capacity Building Project

On Governance Reforms during June 2007 to July 2008
A. Terminal Reports
1. ADB Project Terminal Report, Part-1, Executive Summary, Major

Conclusions & Recommendations, pp.1-74, ADB Capacity Building
Projects on Governance Reforms, Min of Finance, Govt of Mongolia,
Ulaanbaatar, Mar 2008.
2. ADB Project Terminal Report, Part-2, Strategic Planning, Output

Budgeting, Accrual Accounting, Benchmarks Setting, pp.1-74, ADB
Capacity Building Projects on Governance Reforms, Min of Finance,
Govt of Mongolia, Ulaanbaatar, March 2008.
3. ADB Project Terminal Report, Part-3, Financial Planning and Policies,

Core and Non-Core Functions, and Seven Year Action Plan, pp.1-74,
DB Capacity Building Projects on Governance Reforms, Min of Finance,
Govt of Mongolia, Ulaanbaatar, March 2008.
4. ADB Project Terminal Report, Part-4, Budget Performance Evaluation,

Program Budgeting and Program Assessment Rating Tool (PART), pp.1-45, ADB
Capacity Building Projects on Governance Reforms, Min of Finance, Govt of
Mongolia, Ulaanbaatar, June 2008.
B. Strategic Business Planning
5. Ministry of Finance (MOF) Strategic Business Plan 2005-2006-

Comments and Suggestions for Improvement, pp.1-37, June 2007.
6. Ministry of Education, Culture and Science (MOECS) Strategic Business

Plan 2006-2008- Comments and Suggestions for Improvement, pp.1-
20, June 2007.
7. Ministry of Health (MOH) Strategic Business Plan 2005-2008-

Comments and Suggestions for Improvement, pp.1-20, June 2007.
8. Ministry of Social Welfare and Labour (MOSWL) Strategic Business

Plan 2005-2008- Comments and Suggestions for Improvement, pp.1-
20, June 2007.
9. Summary Report of comments on Strategic Business Plans for MOF,

MOECS, MOH and MOSWL, pp.1-5, June 2007.
10. Power Point Presentation on “Preparation of Strategic Business Plans-

General Guidelines and Some Suggestions for Improvement”, Part-1,

pp.1-29, August 2007, presented at the Workshop on the 28 th August

2007 at the MOF.
11. Power Point Presentation on “Preparation of Strategic Business Plans-

General Guidelines and Some Suggestions for Improvement”, Part-2,
pp.1-54, August 2007, presented at the Workshop on the 28 th August
2007 at the MOF.
12. Accompanying Text on “Preparation of Strategic Business Plans and

General Guidelines”, pp.1-25, for Workshop held on the 28 th August
2007 at the MOF.
13. “Preparation of Strategic Business Plans- General Guidelines and

Summary of Recommendations”, Interim Report, pp.1-41, 31 August
2007.
14. “Preparation of Strategic Business Plans- General Guidelines,

Suggestions for Improvement, and Summary of Recommendations”,
Final Report, pp.1-74, 30 Sept 2007.
15. Report at 5 is translated into Mongolian by E. Sandagdorj, SPE.

17. PPP at 10 is translated into Mongolian by E. Sandagdorj, SPE.
18. PPP at 11 is translated into Mongolian by E. Sandagdorj, SPE.
B. Output Costing and Output Budgeting
21. Output Costing and Output Budgeting- Basic Concepts and

Methodology, pp.1-51, October 2007.
22. PPP on Output Costing and Output Budgeting: Part-1: Current Status
and Action Plan, pp.1-39, for the Workshop held at the Corporate Hotel
on 29-30 Nov 2007.
23. PPP on Output Costing and Output Budgeting: Part-2: Upgrading

Infrastructure, pp.1-24, presented at the Workshop held at the
Corporate Hotel on 29-30 Nov 2007.
24. PPP on Output Costing and Output Budgeting: Part-3: Output Costing
Framework, pp.1-42, presented at the Workshop held at the Corporate
Hotel on 29-30 Nov 2007.
25. PPP on Output Costing and Output Budgeting: Part-4A: Output

Costing Methodology, pp.1-32, presented at the Workshop held at the
Corporate Hotel on 29-30 November, 2007.

26. PPP on Output Costing and Output Budgeting: Part-4B: Case Studies,
pp.1-24, presented at the Workshop held at the Corporate Hotel on
29-30 November 2007.
27. PPP on Output Costing and Output Budgeting: Part-4C: Accrual

accounting, pp.1-26, presented at the Workshop held at the Corporate
Hotel on 29-30 Nov 2007.
28. Output Costing Methodology for Software Selection- Basic Concepts

and Some Advices for Selection, pp.1-9, December 2007.
29. Comparative Evaluation of the Australian ABC-FOCUS Software and

the local Mongolian ALOCOUS Software for Output Costing, pp.1-17,
January 2008.
30. Report at 21 is translated in Mongolia by E. Sandagdorj, SPE.

31. PPP at 22 is translated in Mongolia by E. Sandagdorj, SPE.
37. Report at 28 is translated in Mongolian by D. Bolormaa, IT Expert.
38. Report at 29 is translated in Mongolian by D. Bolormaa, IT Expert.
C. Accrual Accounting and Accrual Budgeting
39. Accrual Accounting and Accrual Budgeting- Basic Concepts and

Methodology, pp.1-43, November 2007.
40. Transition from Cash to Accrual Accounting pp.1-26, November 2007.
41. Accrual Accounting Rules for the Govt Finance Statistics, pp.1-36,
February 2008.
42. Glossary for Accrual Accounting and GFS, and Glossary for Financial
Statistics, pp.1-38, February 2008.

D. Benchmarks Setting and Best Practices
46. Benchmarks Setting and Best Practices for Output Costing and Output
Budgeting- Part-1: Basic Concepts, pp.1-31, Dec 2007.

47. Benchmarks Setting and Best Practices for Output Costing and Output
Budgeting- Part-2: Practical Applications for Mongolia, pp.1-36,
December 2007.

E. Financial Planning Methodology and Policies
50. Financial Planning - Part-1: Methodology, pp.1-34, Jan 2008.
51. Financial Planning Methodology and Policies- Part-2: Policies, pp.1-32,

Jan 2008.

F. Core and Non-Core Functions
54. “Core and non-core functions of the government of Mongolia- a critical

assessment” – pp.1-36, Feb 2008.
G. Budget Performance Evaluation and Program Assessment
56. Budget Performance Evaluation- Methodology, Systems and Management, pp.1-

55, ADB Capacity Building Projects on Governance Reforms, Ministry of
Finance, Government of Mongolia, Ulaanbaatar, May 2008.
57. An Introduction to Program Budgeting, Program Evaluation Review Technique

(PERT) and Program Assessment Rating Tool (PART), pp.1-36, ADB Capacity
Building Projects on Governance Reforms, Ministry of Finance,
Government of Mongolia, Ulaanbaatar, May 2008.
58. Program Assessment Rating Tool- Methodology and Application for Mongolia,
pp.1-50, ADB Capacity Building Projects on Governance R Reforms,
Ministry of Finance, Government of Mongolia, Ulaanbaatar, July 2008.


H. Miscellaneous Technical Reports
61. A Balance Sheet for the Mongolia Development Fund for the years
2007-2008 (pp.1-5), June 2007.
62. A Report on the National Workshop on Bond Market, organised jointly

by UN-ESCAP, ADB and Bank of Mongolia (BOM) at the Corporate
Hotel, Ulaanbaatar during 21-22 June 2007, pp.1-5.
63. Comments on the IT Group Report on the Budget Preparation

Information Systems (BPIS) - Budget Business Process Report, pp.1-6,
15 July 2007.
64. Comments on the IT Group Report on BPIS- Information Systems

Architecture, pp.1-5, August 2007.
65. Comments on the IT Group Report on BPIS Functional Requirements,

pp.1-3, August 2007.
66. Comments on two Reports on Policy and Expenditure Planning

Statements (PEPS) for Pre-school Education and Science and
Technology of the MOECS, prepared by the World Bank Consultants,
World Bank ECTAC Project, pp.1-2, August 2007.
67. Comments on the report of the IMF Mission on Budget Modernization

by Mongolian Government, pp.1-7, August 2007.
68. Comments on the report of the IMF Mission on Government Finance

Statistics (GFS) and Migration to GFSM 2001, pp.1-5, August 2007.
69. ADB Project and World Bank ECTAC Project Coordination Plan, pp.1-3,
August 2007.
70. Official Economic statistics- Part-1 on Government Finance Statistics

(GFS), Balance of Payments (BOP) Statistics and Rest of the World
Account, pp.1-70, lectures delivered at the United Nations Statistical
Institute for Asia and Pacific, at Chiba, Japan, on 20-25 August 2007.
71. Official Economic Statistics- Part-2 on Monetary and Financial

statistics (MFS), Multi–Factor Productivity Measures (MFP), and
Workout Sessions, pp.1-62, lectures delivered at the United Nations
Statistical Institute for Asia and Pacific, at Chiba, Japan, during 20-
25 August 2007.
72. Mainstreaming MDGs through National Development Strategies, Vol-1,

Main Report, pp.1-84, presented at the Regional MDG Workshop jointly
organised by ADB, UNDP and UN-ESCAP at Bangkok, 15-16 Oct 2007.

73. Mainstreaming MDGs through National Development Strategies, Vol-2,

Annexes on policies, programs and challenges for poverty reduction
in 14 countries, pp.1-79, presented at the Regional MDG Workshop
jointly organised by ADB, UNDP and UN-ESCAP at Bangkok, 15-16
October 2007.
74. Comments on the Mongolia Second National Report on Millennium

Development Goals Implemention in 2005-2006, pp.1-4, Oct 2007.
75. A Seven Year (2007-2013) Action Plan to implement the provisions of

the PSMFA (2002) as regards preparation of Strategic Business Plans
on the basis of Accrual Output Budgeting (AOB) and Performance
Based Budgeting (PBB), pp.1-21, November 2007.
76. Report at 75 is translated in Mongolian by E. Sandagdorj, SPE.
77. An abridged version of Report 76 prepared by E. Sandagdorj has been

included in the Mongolian Draft Budget for 2008.
78. Roll Out Plan for the ADB Project on Capacity Building on Governance
Reforms, pp.1-3, December 2007.
79. ADB Capacity Building Project on Governance Reforms- Policy Matrix

Compliance Report for 2007, pp.1-5, January 2008.
80. Executive Summary of the Mongolia Seven-Year Capacity Building

Action Plan for 2008-2014, pp.1-6, Jan 2008.
81. Report 80 is translated in Mongolian by E. Sandagdorj, SPE.
82. A comparative analysis of budget planning, preparation, approval and

execution systems in Mongolia and Thailand, pp.1-11, Mar 2008.
83. Report 82 is translated in Mongolian by E. Sandagdorj, SPE.

Compliance Report – An Update, pp.1-8, March 2008.
85. Comments on the IMF Technical Assistance Mission Report on

Mongolian Budget, pp.1-20, June 2008.
I. Monthly and Terminal Progress Reports
86. Monthly Progress Report for June 2007, pp.1-2, June 2007.
87. Monthly Progress Report for July 2007, pp.1-2, July 2007.
88. Monthly Progress Report for Aug 2007, pp.1-2, August 2007.
89. Monthly Progress Report for Sept 2007, pp.1-2, September 2007.

90. Quarterly Progress Report for July-Sep 2007, pp.1-3, Sep 2007.
91. Monthly Progress Report for Oct 2007, pp.1-2, Oct 2007.
92. Monthly Progress Report for Nov 2007, pp.1-2, Nov 2007.
93. Monthly Progress Report for Dec 2007, pp.1-2, Dec 2007.
94. Monthly Progress Report for Jan 2008, pp.1-2, Jan 2008.
95. Monthly Progress Report for Feb 2008, pp.1-2, Feb 2008.
96. Monthly Progress Report for Mar 2008, pp.1-2, Mar 2008.
97. Terminal Progress Report- Compliance Report on the ADB Terms of
Reference for the Strategic Planning Expert, pp.1-9, March 2008.
98. Monthly Progress Report for April-May 2008, pp.1-2, May 2008.
99. Monthly Progress Report for June-July 2008, pp.1-2, July 2008.
100. Terminal Progress Report- Compliance report on the ADB TOR for the
Strategic Planning Expert- An Update, pp.1-10, July 2008.

Chapter-9
Immediate and Future Action Plan
1. The Assigned Task
The ADB Capacity Building Project on Governance Reforms is

scheduled to end in December 2008. It had the following basic tasks:
(1) To prepare detailed Manuals and Guidelines on Strategic

Business Planning, Output Costing and Output
Budgeting, Accrual Accounting and Accrual Budgeting,
Benchmarks setting and international best practices,
Performance evaluation and program assessment, Ex
Ante Financial Planning, Identification of Core and Non-
core functions of the government,
(2) To provide training on these subjects to the officials

engaged in preparation, implementation, monitoring
and evaluation of budgets, and
(3) To assist in the preparation of Strategic Business Plans and

Performance Based Accrual Output Budgeting, as mandated by
the Public Sector Management and Finance Act (June 2002),
in four pilot line ministries viz. Ministry of Finance (MOF),
Ministry of Health (MOH), Ministry of Education, Culture and
Science (MOECS) and Ministry of Social Welfare and Labour
(MOSWL).
2. Current Status of Progress
Broadly speaking, ADB Project has been highly successful and major
tasks have been fulfilled. The International and National Consultants on
Strategic Planning under the ADB Project have already prepared detailed
Manuals and Guidelines in both English and Mongolian on Strategic Planning,
Output Budgeting, Accrual Accounting, Benchmarks Setting, Ex-ante Financial
Planning, Performance Evaluation and Program Assessment Rating Tool (PART)
for the budgetary bodies.
Significant progress has been made for improving the technical capabilities of the
staff engaged in budget formulation, strengthening Information Technology (IT)
system and creating general awareness of all stakeholders about the usefulness
and necessity of modern techniques for budgeting on the basis of accrual
accounting, benchmarks and performance parameters.

Medium Term Strategic Plans (2008-2010) have been prepared for selected line
ministries. Program Budgeting has been introduced in the 2008 budget in four
pilot line ministries viz. Ministry of Health (MOH), Ministry of Education, Culture
and Science (MOECS), Ministry of Social Welfare and Labour (MOSWL) and
Ministry of Food and Agriculture (MOFA) as a prelude to the ultimate adoption of
performance based accrual output budgeting (AOB). They have also provided
necessary training for upgrading skill of the budget personnel.
3. Unfinished Agenda
Despite these efforts and good results during the last few years, there is still
unfinished Agenda as regards the following:
(1) Line ministries are yet to prepare fully the Performance Based
Accrual Output Budgeting (PBAOB) which is required under the
PSMFA (2002). World Bank ECTAC Project Team has produced
Program Budgets for the MOH, MOECS, MOSWL and MOFA for
the budget year 2008. But, Program Budgeting is only a first
step towards the Accrual Output Budgeting2.
(2) Most of the budgetary entities including the Aimags are yet to
prepare Strategic Business Plans and move towards Accrual
Output Budgeting due to constraints on financial resources,
technical man power and supporting ICT system.
4. Future Action Plan
Above observations lead to the conclusion that the successful implementation of

the PSMFA (2002) as regards strategic business plans and output budgeting on
the basis of accrual accounting and benchmarks will require the following actions
on a priority basis by the present government of Mongolia:
(1) To consolidate the progress made until now by proper

documentation in both English and Mongolian;
(2) To build up necessary institutions for modernizing budgets;
(3) To build up capacity and skill of the personnel engaged in planning,
budgeting, accounting and auditing;
(4) To strengthen and upgrade the information technology system to
support the budget modernization process and systems.
(5) To conduct all these works in a time-bound systems framework but
step by step and in a phased manner.
In order to complete these works successfully, an eight year (2008-2015)

Action Plan has been proposed for the Government of Mongolia with
2
This aspect is explained in details in my Comments on the IMF TA Mission Team, June 2008, reproduced
in Annex- in this Report.

Ministry of Finance taking the lead role. The details of the Action Plan are
explained in Annex-1.
5. Immediate Action Plan
In order to reap the full benefits and to bring the ADB Capacity Building Project to
its logical conclusion, it is strongly recommended that the ADB Capacity
Building Project on Governance Reforms needs to be extended for 12
months until the end of December 2009 to accomplish the following tasks:
1. To roll out medium-term expenditure program budgeting and output

costing from the current pilot ministries to all portfolio ministries and
selected budgeted entities;
2. To advise and assist the portfolio ministries in preparation of the medium

term (2010-2012) strategic planning and performance based accrual
output budgets (AOB) through training and capacity building;
3. To align and integrate fully the output budgeting and accrual accounting
methodology with the IT systems for budgeting and accounting;
4. To procure additional hardware and software for integrated output

budgeting and accrual accounting; and
5. To disseminate the findings of these studies through publications and

development of dedicated government websites for budget information.
The completion of the above mentioned tasks will require engagement of the
following experts during January to December 2009:
(1) An International Strategic Planning Expert for four person months on

intermittent basis,
(2) Two National Strategic Planning Experts for 12 months on continual
basis;
(3) An International IT Expert for two months on intermittent basis;
(4) One National IT Expert for 12 months on continual basis; and
(5) A Project Coordinator for 12 months on continual basis.

Chapter-10
Budget Performance Evaluation (BPE)
1. Introduction, Scope and Objectives
“Would you tell me please, which way I ought to go from here?” asked Alice.
“That depends a great deal on where you want to get to,” said the cat.
“I don’t much care where ….,” said Alice.
“Then it does not matter which way you go,” said the cat.
--- Extract from Alice in Wonderland, Lewis B. Carroll
Eventually Alice in Wonderland realized that it matters a great deal to know

“where to go” and “how to get there”. Similarly, in government budget it is
important to know the basic goals and objectives and the overall scope of
budgeting in terms of exact outputs and outcomes, and how to achieve these
goals, objectives, outputs and outcomes in time and with least cost.
Strategic Planning, Budget Formulation, and Performance Management Cycle

is an interactive on-going process to facilitate sound government business
and financial plan. Budget Performance Evaluation (BPE) makes a detailed
and critical analysis of the multi stakeholders’ requirements, develops action
plans and allocates resources by integrating budget and performance goals.
Government resources are not unlimited and there are constraints on public
resources and competing demands by various social sectors, public goods
and services. Consequently, an optimal resource planning and budgeting
requires that strategic planning, budget and performance management must
be integrated in a comprehensive and time bound plan.
1.1 The Budget and Public Sector Performance
Performance budgeting is primarily a management, transparency and

financial accountability tool rather than a mere budgetary instrument.
Effective and efficient delivery of public goods and services by budgetary
agencies requires performance management, under which an Agency
establishes its service objectives and monitors performance towards the
attainment of those objectives. Meyers (1996) has identified 11
characteristics of an effective budget which supports performance. These
characteristics include Accountability, Comprehensiveness, Hard Budget
Constraints, Cooperation, Honesty, Judgment, Legitimacy, Perception,
Responsiveness, Timeliness and Transparency (for detailed definitions see
Tarun Das 2008).

Some of these characteristics for an effective budget relate to the process

of budget prioritization (comprehensiveness, perception), while others
relate to operational efficiency (cooperation, timeliness). Major factors that
might affect adversely the budget performance include Extra-budgetary
Funds, Earmarked Funds (Earmarking), Unpredictability and Unreliable
Information (for detailed definitions see Tarun Das 2008).
1.2 Performance Based Budgeting
A performance budget is an integrated annual performance plan that shows

the relationship between program funding levels and expected results. A
program performance budget defines all activities, direct and indirect,
required by a program, in addition to estimating activity costs. The following
figure outlines this process. By tracking the cost and number of units for
each activity, output, and outcome, unit cost information also may be
generated.
Money  Activity  Output  Outcome  Strategic Goals
Recently many countries have focused their attention to governance reforms

and the role of performance based budgeting. As in the case of many aspects
of Budget Modernization techniques, Australia and New Zealand have
developed over the years very extensive performance based budgeting
methodology and systems. The common principles in Australia and New
Zealand relate to governance reforms and the institutionalization of
performance standards in budgets:
(i) Budget transparency is the key issue. In Australia, for example, there
is a requirement for three-year forward estimates and for reporting of
budgetary versus actual budgetary allocations for the previous year. Under
the Public Sector Management and Finance Act (PSMFA, 27 June 2002)
government of Mongolia has also adopted the same requirement 3.
(ii) Decentralization of operating functions is another important

development. Under the system of portfolio budgeting, line agencies are
required to prepare multi-year Strategic Business Plans indicating vision,
mission, objectives and priorities, and identifying spending and revenue
measures necessary to meet aggregate fiscal targets set by the Head
Quarter. PSMFA of Mongolia also mandates the same requirements 4.
3
Articles 26.1, 26.2 and 26.3 of the Public Sector Management and Finance Act (PSMFA, 27 June 2002).
4
Articles 26.1, 26.2 and 26.3 of the Public Sector Management and Finance Act (PSMFA, 27 June 2002).

1.3 Integration of Strategic Plan with Program Budget
To accomplish its strategic objectives effectively, an Agency must link

outcomes, strategy, budget, and performance into an integrated
management system. This management system, based on a model of
continuous improvement, is shown in Flow Chart-1 below:
Strategic Business Plan

Broadly defines strategic goals, outcomes, outputs of an
Agency and the methods to achieve them.
Performance Program Budget and

Assessment and Performance Planning
Improvement Plan Program Budgets- Funds allocated to specific
Compares actual to target programs to achieve desired goals, outputs,
performance and and outcomes with least cost.
benchmarks. Performance - specifically designed results
Determine changes that will Value- achieving value for money
produce the best value. Establish long-term and annual targets for
spending, performance and value.
Performance Monitoring
Track the progress, expenditure, and value for
money for achieving outcomes.
Flow-Chart-1: Strategic Plan and Performance Based Budgeting Cycles:

Source: John Mercer, regarded as the father of the USA GPRA, 1993.
The process begins with an understanding of important national priorities and

outcomes, which are then translated into broadly defined goals and intended
results for the Agency. These become the Agency’s strategic goals and
strategic objectives. Outcomes and Outputs related to these strategic goals
and objectives are then articulated. Programs are developed to achieve these
outcomes and outputs with least resources, and then performance measures
and indicators are identified to provide the means to assess the progress
made during the budget year and to suggest improvements for the next
year’s budget. Flow Chart-2 below explains the relationship between an
Agency’s Medium Term Strategic Business Plan and its Annual Program
Budget and performance evaluation.

Strategic Business Plan Next Year’s Budget
Vision, Mission, Strategy Improvement Plan

and Objectives
Strategic Goals Performance Monitoring and

Evaluation through PART
Performance Indicators Performance Indicators

And Measures And Measures
Strategic Outcomes Program Outcomes

And Outputs And Outputs
Activities and Processes Program Budgets
Inputs (Staff, Funds, Resources for

Goods, Services, ICT) The Budget Year
Flow Chart-2: Integration of Strategic Business Plan,

Program Budget and Performance Evaluation
2. Budget Performance Evaluation Methodology
Budget Performance Evaluation involves five main steps as the following:
1. Review of Baseline Scenario and Budget Profile

2. Diagnostic Scan and SWOT Analysis
3. Budget Compliance, Efficiency and Effectiveness Evaluation
4. Performance Evaluation
5. Major Findings and Recommendations

2.1 Review of Baseline Scenario and Budget Profile5
In undertaking a performance evaluation, it is necessary to start with a

baseline and initial profile and to identify the key issues on which the
performance evaluation is to be focused.
Table-1: Scope of Performance Review and the Initial Profile
Scope of Performance Scope of Initial Profile (say for the Budget

Review: year 2008):
1. Strategic Business Plans 1. Scope, Governance, Vision, Mission and
objectives
2. Scope of review 2. Main functions, programs and activities
3. Review steps and key 3. Structure, staffing and time schedules
milestones
4. Preliminary assessment 4. Program-wise Budgeted funds
5. Focus of review 5. Output costs, benchmarks and performance
parameters
This assessment allows an agency to take a detailed look at their current business
activities and how they wanted to perform in the budget review year. Agencies will be
asked to provide a brief description 6 of their Strategic Business Plan with vision, mission,
objectives and goals. They will also be asked to provide summary of their program
budgets, which is being reviewed, with budgeted resources, outputs and outcomes.
Agencies will be required to provide details of workforce size, their functions and skills,
workload volume and contributions to the strategic planning. Template-1 attached to
this chapter provides detailed Template for Review of Baseline Scenario and
Budget Profile.
2.2 Diagnostic Scan and SWOT Analysis
A diagnostic scan of an Agency is necessary before starting a performance

review, because actual performance is influenced by constraints on
resources, technical manpower and the ICT system. There are basically two
types of review- strategic review and operational review.
Strategic Review:
How well an Agency manages its external environment by delivering
relevant and effective services.
Operational Review:
How well an Agency manages its internal environment by using its
resources efficiently and prudently.
5
Annex-1 of this chapter provides the detailed Template for Review of Baseline Scenario, Strategic Plan
and Budget Profile.
6
Agencies are not supposed to hand over the original copies of the Strategic Business Plan (SBP) and
Budget document which they had earlier supplied to the MOF. They are required to make a summary of the
SBP and budgeted programs.

Both desktop and field scans are required to determine the following aspects:
whether best practice techniques were attempted;
whether the practice was documented; and
Whether it was widely applied within the agency.
The desktop scan involves checking the existing material on strategic plans
and program/ output budgets already submitted by the Agency to the
Ministry of Finance, whereas field scans involve conducting surveys and
interviewing key stakeholders (clients, community groups, staff and
management), to obtain their views on how internal management tools are
working in practice.
There are 8 possible strategic review areas and 8 operational review areas as
indicated in Table-2.
Table-2 Strategic Review and Operational Review Areas
Strategic review areas Operational review areas

1. Strategies 9. Work Culture
2. Environment 10. Communications
3. Clients 11. Organisation structure
4. Other stakeholders 12. Reporting Lines
5. Regulation 13. Human resources
6. Policy regime 14. Processes and systems
7. Service delivery 15. Controls
8. Reviews 16. Cost and Asset management
For each of these 16 areas, it is necessary to test whether the agency has
applied any typical best practice management techniques. For example,
when examining “Clients”, agencies would be asked whether they have
applied any of the following types of management practices e.g. client needs
analysis, client segmentation, clients’ satisfaction surveys, grievances and
complaints handling and so on. When examining “Controls and Cost and
Asset Management”, agencies would be asked if they use the following
practices e.g. financial information system, management information system,
asset management plan and corporate overhead costs analysis, etc.
Template-2 attached to this chapter provides a detailed Template for
Strategic & Operational Evaluation
Table-3A: Typical Best Practices for Strategic Review

Strategic Review Areas Typical Best Management Practices

(number of sub-areas)
1. Strategies (2) Strategic Business Plan, Master Plan
2. Environment (2) Socio-Economic-Political Environment Analysis,

SWOT Analysis.
3. Clients (2) Clients Needs and Satisfaction Surveys,
Grievances and Complaints Handling.
4. Other Stakeholders (2) Stakeholders Consultation, Focus Groups
5.Regulation (2) Regulatory Review, Parliamentary Consultative

Committee Review
6. Policy (2) Ministerial Review, Donors Review
7. Service Delivery (2) Service Charter, Benchmarking
8. Review plan (2) Performance Agreements, External Audits
Table-3B: Typical Best Practices for Operational Review
Operational Review Areas Typical Best Management Practices

9. Work Culture (2) Code of Conduct, Regular Staff Meetings
10. Communications (2) Annual Report, Website for Public
11. Organisation Structure (2) Organisation Chart, Job Descriptions
12. Reporting Lines (2) Delegation of Powers, Chinese Walls
13. Human Resources (2) H/R Manual, Training and Development

Programs.
14. Process & Systems (2) Rules and Procedure Manuals, ICT development
Plans.
15. Controls (2) Financial Information System, Management
Information System
16. Expenditure and asset Asset Management Plan,
management (2) Agency Overheads Analysis
2.3 Strategic and Operational Performance Evaluation7
An agency’s performance can be assessed in relation to the 16 performance factors

listed in Tables-3A and 3B. Each factor can be given scores on a scale of 0 to 5 by
using an approach adapted from the Australian Quality Council:
7
Annex-2 of this chapter provides a Template for Strategic & Operational Evaluation.

Table-4: Scores for Strategic and Performance Evaluation
0 Approach had not been considered or attempted or does not exist.
1 Some evidence of individual initiative and unsystematic efforts.
2 Approach is planned and introduced in some areas in a limited way.
3 Systematic approach has been implemented in some areas and results are
under examination.
4 Approach has been implemented in some areas and results/outcomes have
been used to improve the planning and budgeting.
5 Approach used in most of the areas and results/outcomes have been used
to improve the planning and budgeting.
Then a “Borda Index” (i.e. sum of all ranks for all factors) can be estimated. This will
provide a composite index for rating performance of agencies. There are 32 (=16X2)
sub-areas. So a maximum 160 marks can be scored by an Agency. Total score can
be expressed as a percentage of 160 marks. Percentage can also be calculated
separately for strategic performance and operational performance. Then, total marks
for each category can be expressed as a percentage of 80 marks. It is most unlikely
that an Agency will be able to score 100% marks. On the basis of percentage of
marks, the strategic performance or operational performance, or the combined
strategic and operational performance of an Agency could be rated as follows:
Table-5: Rating of an Agency on the basis of Performance Scores
Range of Performance Scores

Rating of Agency
(in percentage)
(a) Effective (EF) 85 – 100
(b) Moderately Effective (ME) 70 – 84
(c) Adequate (AD) 50 – 69
(d) Ineffective (IN) 0 – 49
2.4 Budget Compliance, Efficiency and Effectiveness Evaluation
Under Budget Compliance Evaluation, program and sub-program wise budgeted

expenditure are compared with the actual expenditure, and the following marks are
assigned to each program:
Table-6: Marks for Budget Compliance Evaluation

0 If actual expenditure exceeds budgeted expenditure by more than 10%.
1 If actual expenditure exceeds budgeted expenditure by more than 7.5 per

cent but less than 10 per cent.
2 If actual expenditure exceeds budgeted expenditure by more than 5 per cent
but less than 7.5 per cent.
3 If actual expenditure exceeds budgeted expenditure by more than 2.5 per
cent but less than 5 per cent.
4 If actual expenditure exceeds budgeted expenditure by less than 2.5%.
5 If actual expenditure is within the budgeted expenditure.
Under efficiency evaluation, budgeted outputs are compared with actual outputs, and
the following marks are assigned to each program.
Table-7: Marks for Budget Efficiency Evaluation
0 If actual output falls short of budgeted output by more than 10 per cent.
1 If actual output falls short of budgeted output by more than 7.5 per cent
but less than 10 per cent.
2 If actual output falls short of budgeted output by more than 5 per cent but
less than 7.5 per cent.
3 If actual output falls short of budgeted output by more than 2.5 per cent
4 If actual output falls short of budgeted output by less than 2.5 per cent.
5 If actual output is at least equal to the budgeted output.
Under effectiveness evaluation, budgeted outcomes are compared with actual

outcomes, and the following marks are assigned to each program. However, one has
to wait a number of years before the outcome results are available. Therefore, for
the next three years, effectiveness evaluation may not be feasible.
Table-8: Marks for Budget Effectiveness Evaluation
0 If actual outcome falls short of budgeted outcome by more than 10%.

1 If actual outcome falls short of budgeted outcome by more than 7.5 per cent

2 If actual outcome falls short of budgeted outcome by more than 5 per cent but
less than 7.5 per cent.
3 If actual outcome falls short of budgeted outcome by more than 2.5 per cent
4 If actual outcome falls short of budgeted outcome by less than 2.5%.
5 If actual outcome is at least equal to the budgeted outcome.
After assigning marks for all sub-programs, actual marks obtained for all programs of
an Agency will be expressed as a percentage of total possible marks. The following
Box indicates the calculation of marks for an agency for compliance and efficiency
evaluation.
Total number of sub-programs = N

Maximum possible marks for both compliance and efficiency= 10N
Total marks obtained for compliance = M1
Total marks obtained for efficiency = M2
Percentage of Marks assigned to the Agency for compliance evaluation

= 100 * M1 / 5N = P1
Percentage of Marks assigned to the Agency for efficiency evaluation
= 100 * M2 / 5N = P2
Percentage of marks assigned for both compliance and efficiency evaluation
= (P1+P2)/2 = 100 * (M1 + M2)/ 10N
Template-3 attached to this chapter (for details see the main report on Budget
Performance Evaluation Methodology and Systems prepared by Tarun Das in May
2008) provides the templates for the compliance and efficiency evaluation for the
program budget of the Ministry of Education, Culture and science (MoECS) for the
budget year 2008. However, it may be noted here that MOECS Program budget has
confused between outputs and outcomes8. In the MOECS Program budget,
immediate results of the Programs are called “outcomes”. But, these are, in fact,
“outputs” of the program, and not “outcomes”.
To reiterate the exact definitions, outputs are the immediate or end results of a
project, whereas outcomes are the long term impact of the project on the society
after the completion of the project. For example, literacy rate is an outcome, number
of students is an output and number of teachers is an input. So, I have replaced
outcomes by outputs in the Template. While preparing the next Program
Budget, the line ministries and the World Bank ECTAC Team may please
keep this distinction in mind.
2.5 Overall Assessment and Score
Thus, we have the following three broad evaluations:
8
For definitions of inputs, outputs and outcomes, consult Tarun Das and E.
Sandagdorj (2007a). Also consult the Budgets of the Australian Government for any
Portfolio.

(1) Strategic Plan and Baseline Profile Evaluation- Annex-1 provides 20 basic
questions each carrying 5 marks. Total marks obtained will be expresses as a
percentage which will be the score for strategic plan evaluation.
(2) Strategic and Operational Performance Evaluation – It has been explained

in section 2.3 above and the template is given in Annex-2. Total marks obtained will
be expresses as a percentage which will be the score for strategic plan evaluation.
(3) Budget Compliance and Effectiveness Evaluation – It has been explained in

section 2.4 above and the template is given in Annex-3. Total marks obtained will
be expresses as a percentage which will be the score for strategic plan evaluation.
For overall assessment a weight of 30 per cent will be given for strategic plan and
baseline evaluation (Annex-1), a weight of 20 percent will be given for strategic and
operational performance evaluation (Annex-2) and 50 per cent will be given for
budget compliance and effectiveness evaluation.
Table-9: Weights for Various Types of Evaluation

Type of Evaluation Weights
1-A Strategic Plan Evaluation Weight: 10%
1-B Systems Development Weight: 10%
1-C Human Resource Development Weight: 10%
2-A Strategic Performance Evaluation Weight: 10%
2-B Operational Performance Evaluation Weight: 10%
3-A Program Budget Compliance Weight: 25%
3-B Program Budget Effectiveness Weight: 25%
Total 100%
Translating Performance Scores into Ratings: Finally, the overall performance scores will be
converted into qualitative ratings using the scoring bands given in the following table:
Table-10: Rating of an Agency on the Basis of Overall Scores

Rating of Agency
(in percentage)
(a) Effective (EF) 85 – 100
(b) Moderately Effective (ME) 70 – 84
(c) Adequate (AD) 50 – 69
(d) Ineffective (IN) 0 - 49
There will be another category called “Results Not Demonstrated” when an Agency
does not have performance measures that have been agreed by MOF either for
baselines or for the assessment year.
3. Budget Performance Evaluation Management

The Department of Fiscal Policy and Coordination (DFP&C) of the Ministry of

Finance may be made nodal department for conducting Budget
Performance Evaluation in association with all line Ministries and
budgetary agencies. The management process and system along with time
schedules are described in Flow Chart-4. To start with DFP&C of the MOF
will prepare a detailed guidelines and manual for the Budget Performance
Evaluation and would circulate the document among all agencies and line
ministries after approval by the Cabinet Committee.

1. Department of Fiscal Policy and Co- 2. Pilot Line Ministries/ Agencies are
ordination (DFP&C) of the MOF prepares selected by MOF for BPE by the 5th May.
detailed guidelines and manual on Budget
Performance Evaluation (BPE), and
circulates the Document (along with
Annexes) among line ministries/ Agencies
3. Pilot Line Ministries/ Agencies prepare
after approval by the Cabinet Committee
replies and assign marks to the Templates
no later than the 30th April.
given in Annex-1 to annex-3 and submits the
draft reply to the DFP&C (by 1st July 2008).
5. Pilot Line Ministries / Agencies

finalize the reply and resubmit the 4. MOF gives comments to the draft Budget
Budget Performance Evaluation Report Performance Evaluation Report no later than
to MOF no latter than 1st August. the 15th July.
6. MOF finalizes the Budget 7. The State Central Administrative Body

Performance Evaluation Report responsible for Finance and Budget shall
(BPER) and sends copies to the Line compile the Budget Performance
Ministry Portfolio Minister and to the Evaluation Reports of pilot Line Ministries
State Central Administrative Body and submit these along with the
responsible for Finance and Budget no consolidated Portfolio Appropriation
latter than 15 August. Portfolio Minister Estimates to the Government no later than
also submits the Strategic Business Plan the 15th of September.
to the State Central Administrative Body
responsible for Finance and Budget no
later than the 15th of August.
9. Budget Performance Evaluation 8. The State Great Hural shall debate and
Report (BPER) published, publicly approve the State Budget no later than the
released and put on government website 1st of December.
no latter than 15 December.
10. MOF and line ministries/ Agencies 11. DFP&C of the MOF revise the
conduct multi-stakeholders feedback Manual and Guidelines for Budget
seminars on the Report by 31 January. Performance Evaluation no latter than
the 31st March.
Flow Chart-4: Performance Evaluation System and Monitoring

Selected References
Bergin, Jeffrey (2004) Performance Based Budgeting, Performance Management

Institute.
Canadian Comprehensive Auditing Foundation (2002) Reporting Principles:

Taking Public Performance Reporting to a New Leve, Ottawa, 2002.
Das, Tarun (2008) Budget Performance Evaluation- Methodology, System

and Management, pp.1-53, ADB Capacity Building Project on Governance Reforms,
Ministry of Finance, Mongolia, Ulaanbaatar, May 2008.
Das, Tarun and E. Sandagdorj (2007a) “Preparation of Strategic Business Plans-

General Guidelines, Suggestions for Improvement, and Summary of
Recommendations”, Final Report, pp.1-74, ADB Capacity Building Project on
Governance Reforms, Ministry of Finance, Mongolia, Ulaanbaatar,30 Sept 2007.
Das, Tarun and E. Sandagdorj (2007b) Output Costing and Output Budgeting-
Basic Concepts and Methodology, pp.1-51, ADB Capacity Building Project on
Governance Reforms, Ministry of Finance, Mongolia, Ulaanbaatar, October 2007.
Das, Tarun and E. Sandagdorj (2007c) Accrual Accounting and Accrual

Budgeting- Basic Concepts and Methodology, pp.1-43, ADB Capacity Building Project
on Governance Reforms, Ministry of Finance, Mongolia, Ulaanbaatar, November
2007.
Das, Tarun and E. Sandagdorj (2007d) Transition from Cash to Accrual

Accounting, pp.1-26, ADB Capacity Building Project on Governance Reforms, Ministry
of Finance, Mongolia, Ulaanbaatar, November 2007.
Das, Tarun and E. Sandagdorj (2007e) Benchmarks Setting and Best Practices
for Output Costing and Output Budgeting- Part-1: Basic Concepts, pp.1-31, ADB
Capacity Building Project on Governance Reforms, Ministry of Finance, Mongolia,
Ulaanbaatar, Dec 2007.
Das, Tarun and E. Sandagdorj (2007f) Benchmarks Setting and Best Practices
for Output Costing and Output Budgeting- Part-2: Practical Applications for Mongolia,
pp.1-36, ADB Capacity Building Project on Governance Reforms, Ministry of Finance,
Mongolia, Ulaanbaatar, Dec 2007.
Das, Tarun (2007g) Terminal Report: Part-1, Major Conclusions and

Recommendations, pp.1-70 and Part-2 on Strategic Business Plans, Output costing
and Output Budgeting, Accrual Accounting and Accrual Budgeting, and Benchmarks
Setting, pp.71-157, ADB Capacity Building Project on Governance Reforms, Ministry
of Finance, Mongolia, Ulaanbaatar, March 2008.
Government of Australia, Council on the Cost and Quality of Government

(2001) Annual Report 2001, November 2001.
Government of Mongolia (2002) Public Sector Management and Finance Act

(PSMFA, 27 June 2002).

Government of USA (2005) Performance Management Process: Strategic

Planning, Budget and Performance Management cycle, General Services
Administration (GSA), Office of the Chief financial Officer, 31 January 2005.
Hatry, Harry P. (1977) How Effective are your Community Services?, The Urban
Institute, Washington, D.C.
Kaplan, Robert S. and David P. Norton (1996) The Balanced Scorecard:

Translating Strategy into Action, Harvard Business School Press.
Mercer, John: See Website on GPRA and Performance Management:

www.governmentperformance.info
Mercer, John (2003) CASCADE Performance Budgeting- A Guide to an Effective

System of Integrating Budget and Performance Information and for Linking Long-
Term Goals for Day-to-Day Activities, USA, May 2003,
www.governmentperformance.info
Meyers, Roy T. (1996) Is There a Key to the Normative Budgeting Lock, The World
Bank, Washington, D.C.
Schick, Allen (1995) Federal Budget: Politics, Policy and Process, Brookings
Institution.
Steiner, George; Simon and Schuster (1997) Strategic Planning: What Every
Manager Must Know.
Thomas, Paul G. (2004) Performance Measurement, Reporting and Accountability:

Recent Trends and Future Directions, Saskatchewan Institute of Public Policy Paper
No 23, February 2004; http://www.uregina.ca/sipp/
Thomas, Paul G. (2005) Performance Management and Management in the Public

Sector, Optimum Online — The Journal of Public Sector Management, Vol 35, Issue
2, July 2005. http://www.optimumonline.ca/
Thomas, Paul G. (2006) Performance Measurement, Reporting, Obstacles and

Accountability -Recent Trends and Future Directions, Research School of Social
Sciences, The Australian National University, Canberra ACT 0200.
USA (1993) Government Performance and Results Act (GPRA) of 1993, Office of Management
and Budget (OMB).
United States of America, Office of Management and Budget (OMB) Homepage:

http://www.whitehouse.gov/omb/gils/gil-home.html

Template -1
Template for Review of Strategic Business Plan (SBP)

And Baseline Profile of the Agency
Name of the Line Ministry ________________________________
Name of the Budgetary Agency _____________________________
Location _______________________________________________
Part-1: Strategic Business Plan (SBP) (Total Marks=50)
1. Do you have a Strategic Business Plan for your Agency? If Yes, answer the
following questions. Answers should be brief and to the point. It may be noted
that each question carries 5 marks and answers will be evaluated by the
Ministry of Finance.
Q1. Which is the period of your latest SBP? Does the SBP contain all the
components of a standard SBP as recommended by the MOF viz. Minister’s
Foreword, GM’s Statement? Vision, Mission, Values, Priorities, Clients, Strategic
Goals and Objectives, SWOT Analysis, Strategic Outcomes. Outputs, Processes and
Activities, Medium Term Budget estimate, Organisational Structure, System for
Monitoring and Evaluation? If some components are missing, indicate those
components and give reasons for not developing those components.
Q2. Does any of the Millennium Development Goals (MDGs) concern your Agency?
If yes, indicate the MDGs which relate to your Agency. Have you considered these
MDGs and suggested measures to achieve those goals in your Strategic Business
Plan? If yes, give details.
Q3. Does your Agency have a Master Plan? If yes, for which period? Have you
linked SBP to the Master Plan? Give a brief account of these linkages.
Q4. Indicate briefly Vision, Mission, Values, Priorities, Strategic Goals and
Objectives.
Q5. Reproduce the SWOT Table from the Agency’s SBP, if you have one.
Q6. Who are your clients? Is the Client base growing, shrinking or stable? Do they
need differentiated products, services, locations and quality? Are there significant
groups of potential clients who are not currently being reached? If yes, why? How
do you add value for clients and how can you serve them better?
Q7. Provide a current organizational chart of your agency?
Q8. Provide a list of the broad output groups indicated in your SBP. If the total
number exceeds 25, list the most important 25 outputs or output groups.

Q9. How well do your current information and communications technology (ICT)
systems assist in meeting your mission and long term goals? How is your Agency
developing and strengthening the ICT and the skills and capabilities of the
workforce to meet these needs? Are there any critical management issues which
also need to be addressed?
Q10. List and rank the highest priority strategic initiatives and operational priorities
required for the success of your Agency. Identify any new proposals, anticipated
outputs and link them to your strategic plans.
Part-2: Systems Evaluation (Total Marks=25)
As in Part-1 each question carries 5 marks and replies will be evaluated by

the MOF.
Q11. Does your Agency have a system for continual monitoring and annual
evaluation of performance parameters recognized in your SBP and Annual Budget?
Are the annual Performance Evaluation Reports used consistently to justify funding
requests, management actions and legislative proposals? If yes, describe the
evaluation system and illustrate your reply on the basis of latest budget.
Q12. Do your senior agency managers meet at least quarterly to examine reports on
financial and performance information for all outputs/ programs of the Agency?
(Evaluation: 5 marks if meetings held at least once in a quarter, 3 marks if
meetings held at least once in six months, 2 marks if meeting held at least once in
a year, 0 marks if no such review meeting is held in a year).
Q13. Does your Agency have well designed plans to improve program performance
and efficiency each year? If yes, provide evidence.
Q14. Does the latest Annual Budget and performance documents incorporate
performance measures identified in the SBP and Master Plan? If yes, provide
evidence.
Q15. Does your Agency have a proper costing methodology? Does the methodology
report the full cost of all outputs accurately in the budget and performance
documents? If yes, describe the methodology.
Part-3: Human Resource Development (Total Marks=25)
As in Part-1 and Part-2, each question carries 5 marks and replies will be
evaluated by the MOF.
Q16. Do you have Performance Evaluation Reports at least for the middle level and
senior level officers? Are these Evaluation Reports used for placements, promotions
and training for officers? Are these Reports also used to direct program
improvements and hold managers accountable for those improvements? Provide
evidence for your answer.

Q17. Has your Agency implemented a comprehensive Human Capital Development

and Utilization Plan that is fully integrated with the agency’s overall strategic plan
and annual performance goals? If yes, provide a brief account of the plan.
Q18. Has your Agency analyzed the existing organizational structure from service
and cost perspectives and is implementing a plan to effectively develop, train,
deploy, restructure, recruit and retain employees? If yes, provide a brief account of
the plan.
Q19. Does your Agency used competitive sourcing, E-Gov solutions, as necessary;
and has processes to address future changes in business needs?
Q20. Does your Agency have succession strategies, including structured leadership
and talent pool development programs, and is able to close leadership competency
gaps?
Summary of total marks and grading:
Questions Marks for Questions Marks for Questions Marks for

Part-1 Part-2 Part-3
Q1 M11 Q11 M21 Q16 M31
Q2 M12 Q12 M22 Q17 M32
Q3 M13 Q13 M23 Q18 M33
Q4 M14 Q14 M24 Q19 M34
Q5 M15 Q15 M25 Q20 M35
Q6 M16
Q7 M17
Q8 M18
Q9 M19
Q10 M110
Total Marks Sum of Sum of Sum of
obtained Marks Marks Marks
(M) (M1) (M2) (M3)
Express M P1 = 100 * P2 = 100 * P3 = 100 *
as % of M1/ 50 M2/ 25 M3/ 25
maximum
marks
Grade your G1 G2 G3
agency9
Overall Marks for Parts 1, 2 and 3 M = M1 + M2 + M3
Express M as % of maximum marks P = 100 * M / 100 = M
Grade your agency G
9
Grades are determined as per the following Table:
Rating of AgencyRange of Performance Scores
(in percentage)Effective (EF)85 – 100Moderately Effective (ME)70 – 84Adequate
(AD)50 – 69Ineffective (IN)0 - 49

Template -2
Template for Strategic and Operational Review
On the basis of factual information, rank the following activities of your Agency on a
scale of 0 to 5. The rankings must be based on the following score card.
0 Approach had not been considered or attempted or does not exist.

1 Some evidence of individual initiative and unsystematic efforts.
2 Approach is planned and introduced in some areas in a limited way.
3 Systematic approach has been implemented in some areas and results are
under examination.
4 Approach has been implemented in some areas and results/outcomes have
been used to improve the planning and budgeting.
5 Approach used in most of the areas and results/outcomes have been used
to improve the planning and budgeting.
A. Strategic Review Areas- Best practices Ranking

(Marks)
1. Strategies and 1.1 Do you have a Strategic Business Plan?
reviews
1.2 Do you have a Master Plan of your
Agency?
2. Environment 2.1 Have you conducted recently any socio-
economic and political environment analysis
for your Agency?
2.2 Does your Strategic Business Plan contain
a SWOT analysis?
3. Clients 3.1 Have you conducted any clients’ needs
assessment and satisfaction surveys?
3.2 Do you have a permanent and
independent unit to deal with grievances and
complaints of your clients?
4. Other stakeholders 4.1 Do you conduct multi stake holders'
consultations/ workshops regularly?
4.2 Have your Agency formed focus groups
for the services of your Agency?
5. Regulation 5.1 Has there been any regulatory review of
the activities/ functions/ programs of your
Agency?
5.2 Has there been any review of the

activities/ functions/ programs of your
Agency by any Committee of the Parliament?
6. Policy regime 6.1 Is there any Ministerial Statement on the
vision, mission, objectives and scope of
functions of your agency?
6.2 Have the donors made any review of
functions of your Agency?

7. Service delivery 7.1 Have you published any Service Charter

indicating rights of your clients?
7.2 Have you conducted any benchmarking
analysis for the cost and quality of the goods
and services supplied by your Agency?
8. Review plan 8.1 Have you signed performance
agreements with the MOF?
8.2 Have the programs been audited by to
audit authority?
Grading of Agency for Strategic Performance Evaluation
Total Marks obtained Sum of

(M1) Marks
Express M1 as % of = 100 * M1/
maximum possible 80
marks (i.e. 80)
Grade your agency10 G1
B. Operational Review Areas- Best practices Ranking

(Marks)
9. Work culture 9.1 Is their written code of conduct for the
staff?
9.2 Do the senior officers hold review
meetings regularly with subordinate staff on
works plan?
10. Communication 10.1 Does the Agency produce an Annual
Report every year?
10.2 Does the Agency have a Website for
public information?
11. Organization 11.1 Does the Agency have an updated
structure organization chart?
11.2 Does the Agency have written work
charts and allocation of works for all staff
members?
12. Reporting lines 12.1 Does the Agency have written
delegation of powers?
12.2 Does the Agency follow the principle of
Chinese Wall11?
13. Human resources 13.1 Does the Agency have an updated
Manual on human resource development and
utilization?
13.2 Does the Agency have permanent

training program for skill development?
14. Process and 14.1 Does the Agency have an updated
systems Manual on general rules and procedures for
10
Grades are determined as per the following Table:
Rating of AgencyRange of Performance Scores
(in percentage)Effective (EF)85 – 100Moderately Effective (ME)70 – 84Adequate
(AD)50 – 69Ineffective (IN)0 - 49
11

the Agency?
14.2 Does the Agency have a definite plan for
ICT upgradation?
15. Controls and 15.1 Does the Agency have computerized
metrics government finance information system for
accounting and auditing?
15.2 Does the Agency have general
management information system (MIS)?
16. Expenditure and 16.1 Does the Agency have a definite plan
asset management and program for asset management?
16.2 Does the Agency conduct regular
analysis for management of agency
overheads?
Grading of Agency for Operational Performance Evaluation
Total Marks obtained Sum of

(M2) Marks
Express M2 as % of = 100 * M2/
maximum possible 80
marks (i.e. 80)
Grade your agency G2
(as given in footnote
11)
Overall grading:
Total Marks obtained M=

(M) M1 + M2
Express M as % of = 100 * M/
maximum possible 160
marks (i.e. 160)
Grade your agency G2
(as given in footnote
11)
17. If the grade is ineffective, analyze reasons for that and suggest
measures for improvement?

Template -3
Template for Compliance and Efficiency Evaluation
Here we present an example from the Program Budget for the Ministry of
Education, Culture and Science for the budget year 2008. However, it may
be noted here that MOECS Program budget has confused between outputs
and outcomes12. Immediate results of the Programs are called “outcomes”.
But, these are, in fact, “outputs” of the program, and not “outcomes”.
To reiterate the exact definitions, outputs are the immediate or end results of a
project, whereas outcomes are the long term impact of the project on the society
after the completion of the project. For example, literacy rate is an outcome, number
of students is an output and number of teachers is an input. So, I have replaced
outcomes by outputs in this Template. While preparing the next Program
Budget, the line ministries and the World Bank ECTAC Team may please
keep this distinction in mind.
Actual
Program/ Output Budgeted Performance Marks
Pre-school education Total budget: 69.6 billion. MNT
1.Services for end-users Total budget: 64.3 billion. MNT
Budget share of Pre-school

education: 92.4%
Output 1.1 Total budget: 61.2 billion MNT
Kindergarten service % within the section: 95.0%
 Number of children to be
covered : 96901

24-hour kindergarten services % within the section: 1.0%
covered: 1239

Preschool education alternative % within the section: 3.0%
services
covered: 37682
2. Policy renovation activities Total budget: 5.13 billion. MNT

(strengthening institutions )
Budget share of Pre-school
12
For definitions of inputs, outputs and outcomes, consult Tarun Das and E.
Sandagdorj (2007a).

education: 7.4%

Annex-4:
Methodology for calculation of composite score and grading the Line

Ministry/ Budgetary Agency
For overall assessment, a weight of 30 per cent will be given for strategic plan and
baseline evaluation (Annex-1), a weight of 20 percent will be given for strategic and
operational performance evaluation (Annex-2) and 50 per cent will be given for
budget compliance and effectiveness evaluation.
% of Marks Weighted Grades

Weights Marks in total percentage
Type of Evaluation
obtained marks in the
category
Strategic Plan 10% 10% * P1 G1
1-A M1 P1
Evaluation
Systems 10% M2 P2 10% * P2 G2
1-B
Development
Human Resource 10% M3 P3 10% * P3 G3
1-C
Development
Strategic 10% M4 P4 10% * P4 G4
2-A Performance
Evaluation
Operational 10% M5 P5 10% * P5 G5
2-B Performance
Evaluation
Program Budget M6 P6 25% * P6 G6
3-A 25%
Compliance
Program Budget M7 P7 25% * P7 G7
3-B 25%
Effectiveness
Total 100% M P P G
Finally, the overall performance

Translating Performance Scores into Ratings:
scores will be converted into qualitative ratings using the scoring
bands given in the following table:
Rating of Agency
(in percentage)
(e) Effective (EF) 85 – 100
(f) Moderately Effective (ME) 70 – 84
(g) Adequate (AD) 50 – 69
(h) Ineffective (IN) 0 - 49
There will be another category called “Results Not Demonstrated” when an

Agency does not have performance measures that have been agreed by MOF either
for baselines or for the assessment year.

Chapter-11
Program Budgeting and
Program Assessment Rating Tool (PART)
1. Introduction and Scope
Three line ministries of the Government of Mongolia viz. Ministry of

Education, Culture and Science (MOECS), Ministry of Food and Agriculture
(MOFA) and the Ministry of Social Welfare and Labor (MOSWL) under the
guidance of the World Bank ECTAC Project have introduced Program Budget
for the budget year 2008. These budgets are based on Korean system of
Program Budgeting introduced in 2005 also with the help of the World Bank
consultants (see John M. Kim 2007 and Katherine Barraclough 2005).
Program budgeting as a concept belongs more to the realm of budgeting

infrastructure than to the frontline of topics and best practices in budgeting--
examples of which include performance-based budgeting, accrual output
budgeting (AOB), Activity-Based-Costing (ABC) or multi-year budgeting.
Present paper discusses basic concepts and structure of a Program Budget,
methods for its effective implementation and methodology for assessment of
its performance. However, this is just an introduction to the subjects. The
detailed methodological paper on these issues will be prepared next month.
1.1 What is a Program?
IMF Manual for Fiscal Transparency defines “Programs” as the “groupings of

government activities in relation to specific government objectives”.
Programs are considered as the basis for budget appropriations and
allocations of resources for the line ministries and other budgetary agencies.
1.2 What is Program Budgeting?
The traditional input budgeting is in fact the proverbial "black box" of annual
spending, where funds are allocated by traditional line-item budgets to
agencies, but it does not indicate what the money actually achieves. Thus
under line-item budgeting, while the budget and audit officers know what
inputs are being purchased, they have no knowledge of what activities are
being performed for what purposes, and ultimately what outputs or outcomes
are being purchased. A common first step for many countries towards
opening the black box of spending is to adopt a program classification of
spending, and introduce program budgeting. Program Budget seeks to
manage fiscal resources more effectively by identifying and prioritizing
institutional goals and providing funds towards those programs which best
support these goals and objectives.

2. Origin and Merits of Program Budgeting
2.1 Origin of Program Budgeting
The starting point for most forms of performance budgeting, including

Accrual Output Budgeting (AOB), is program budgeting, which was the
standard public budgeting practice throughout Australia in the 1980s prior to
the adoption of AOB. AOB incorporates most of the former program
budgeting framework. The annual government budget documents under AOB
report the breakdown of funds allocated to broad output groups within each
Department, very much like the former ‘programs’ 13. These output groups
are groups of related outputs designed to deliver the same outcome 14. Each
broad output group comprise a number of sub-output groups, like the former
‘sub-programs’.
Budgetary allocations for the separate output groups are not binding.
Instead, parliamentary appropriations for departmental outputs are ‘global’,
just as they were under the former program budgeting regime 15. In other
words, parliament approves for each department one aggregate sum to cover
all the outputs for which the department is responsible, but has the flexibility
to reallocate funds between outputs during the year in response to
unanticipated events and as per legal requirements for accounting and
auditing.
Although AOB has its roots in program budgeting, it differs from the program
budgeting in many respects. First of all, it incorporates private business and
competitive market environment in government activities to ensure
efficiency. Essentially, it builds a market-type superstructure upon program
budgeting foundations (WAT 1996a). In this respect, it differs considerably
from the forms of performance budgeting which operate in other countries
and do not generally regard agency profit results as a key performance
measure. To take an example, in the USA under the system of ‘performance
based program budgeting’ the annual budget for each agency passed by the
legislature includes only output and outcome targets, but no prices. The
United Kingdom has developed since 1998 a system of Public Service
Agreements and Service Delivery Agreements between the Government and
agencies linked to the budget. In Australia, New South Wales is the only
state not to have adopted accrual output budgeting.
13
Output groups under Accrual Output Budgeting in Australia are defined in such a way that they
more truly reflect the concept of an output than that under the program budgeting practice. For
example, departments are not permitted to use ‘corporate services’ as an output group, although
corporate services programs were common under program budgeting.
14
The Commonwealth refers to ‘Outcomes’ rather than output groups, meaning the same thing.
15
The Commonwealth submits appropriations to Parliament in a form grouped into ‘outcomes’.
However, this allocation is not binding, and is purely for information (DOFA, 1998; 1999c).

Another important aspect of the Australian AOB, as compared to program

budgeting, is that the capital appropriations to departments have now been
re-labeled as ‘equity injections’ 16. Ministry of Finance asserts that, in addition
to equity injections, departments like private corporations may have access
to two main alternative sources of capital funding. The first is the so-called
‘depreciation-based’ capital funding, which is a draw-down from the
accumulated depreciation reserves. The other is the ‘rearrangement of the
asset structure’, an accounting jargon for funds derived from departmental
asset sales or disinvestment or privatization (Robinson, 2002a).
Consequently, Australian agencies, like private enterprises, enjoy
considerable degree of freedom for new investments.
So-called ‘capital charging’ has also been introduced by most of the states in
the Australian AOB system. Capital charging is a private-sector idea to
include it as a part of the output cost to reflect return on capital. Its first
application to the public sector appears to have been by the British National
Health Service (NHS). New Zealand subsequently extended capital charging
to the whole budget sector. The idea is that, in addition to depreciation, a
type of ‘interest’ charge is levied upon departments for the use of the capital,
particularly in physical assets. The rate of the capital charge is supposed to
reflect the opportunity cost of capital provided to Departments, and it is
expected that that the Agencies to which the government provides capital
should earn at least a ‘normal’ rate of return. Proponents of capital charging
argue that it would reduce wasteful capital expenditure and encourage the
identification and sale of idle and surplus assets.
Clearly, in a budgeting system based upon output prices, it is logical to treat

the opportunity cost of capital as a component of cost in price-setting.
Accordingly, the State governments which impose capital charges treat it as
an ‘above the line’ expense in operating statements. However, the
Commonwealth Government takes a different approach, treating the capital
charge as a ‘below the line’ entry, treating the capital charge equivalent of a
profit dividend paid to shareholders.
2.2 Benefits of Accrual Output Budgeting
The above analysis suggests that the ‘market’ principle of funding based on
output prices can only be selectively applied in the public sector. In addition
to the distinctive ‘market’ aspects of AOB, the system has led to a renewed
effort to improve and extend performance measures and indicators.
Considerable work is being undertaken in the Australia, Canada, New
Zealand, UK and USA to articulate the linkages between outputs and
outcomes, and strategy. Moreover, it has been associated with a major drive
to shift public sector accounting in Australia onto an accrual basis: a step
16
The Commonwealth differs from the states in that it provides loans to the departments as well
as equity injections (DOFA 1998; 1999c).

which arguably has many benefits in other areas, including fiscal policy
(Robinson, 2002).
2.3 Merits of Program Budgeting
Although program budgeting is the first stage of Accrual Output Budgeting,

the ultimate objective of any department, Program budget is better than
other forms of traditional budgeting models 17 such as Incremental Budgeting,
Zero based budgeting, Responsibility Centered Budgeting and Formula Based
Budgeting. Program budget has the following basic features:
1. There is a focus on organizational goals and objectives, and budgetary

resources are allocated according to agency’s objectives and priorities.
2. There is focus on Programs/ Outputs/ Outcomes that support best
these goals and objectives.
3. It allocates expenditure by these programs and sub-programs.
4. It assesses results on the basis goals and objectives.
5. The system can be easily applied to make cost-benefit analysis.
6. Thus the budgeting focus shifts from line items to programs.
7. This prompts line ministries to define objectives and match activities

and resources to achieve outputs/ outcomes as per legal mandate.
8. Program budget also acts as a tool for granting greater autonomy and
responsibility consistent with transparency and accountability.
2.4 Pros of Program Budgeting
(i) Basis for supporting enhanced fiscal discipline.

(ii) Facilitates decision-making for resource allocation.
(iii) Organizes budget around government policy priorities.
(iv) Acts as a mechanism to focus on efficiency and performance.
(v) Enhances transparency and is user friendly for stakeholders.
(vi) Enhances control and accountability for the budget office.
(vii) Affords greater autonomy and flexibility to spending agencies.
17
For definitions, relative merits and demerits of these different models, see the main report on An
Introduction to Program Budgeting, Program Assessment Rating Tool (PART) and Program Evaluation
Review Technique (PERT) prepared by Tarun Das in May 2008.

2.5 Cons of Program Budgeting
(a) May create confusion if programs are not properly defined or there are
too many programs or some programs overlap.
(b) Program management and implementation may be difficult if it is not
supported by proper infrastructure.
(c) May not be effective if there is no Program Assessment Rating Tool.
3. Conceptual Understanding of Program Budgeting
“Which program did we mean in program budgeting? 18” This was the question
raised in 1954 by David Novick, the most influential proponent of program
budgeting during the post-World War II period. More than half a century
later, the same question can still be asked, because there is neither clear-cut
definition of a program budget nor general consensus on what it does. Novick
was perplexed by various applications of the program concept. He cautioned
that: “The word program can be used by different people to mean different
things such as an administrative organization, the performance of a specific
function, a combination of activities, a combination of functions, or any
endless number of combinations of activities, organizations and functions”
(David Novick 1954). In other words, a program is whatever is labeled a
program, and a program budget is any budget that is so designated.
Concept of program budget is simple, but its implementation becomes

difficult sue to the multiplicity of governmental purposes. For example, what
is the basic purpose of money spent on public schools? Is it to educate
children, or to prepare them for a livelihood or adulthood, or to mold them
into competent and responsible citizens? Each objective is promoted by
public education, but each leads to a different needs and different structure
of budget accounts. As a government can have only one program, some
objectives will inevitably be crowded out by a single program structure.
The fuzzy definition of programs and the multiplicity of objectives have

forced some governments to spend several years in searching for the ideal
program structure. The final result is a hybrid to protect diverse interest
groups: some programs are organization units, some are overhead activities,
some are processes, and others are purposes.
3.1 Integration of Program Budget with the

Medium Term Expenditure Framework (MTEF)
Annual Program Budget needs to be integrated with the Medium term

Expenditure Framework (MTEF). Table-1 shows that there are five
components of the MTEF viz. Macro-Economic Projections, Medium-Term
18
David Novick, Which program did we mean in program budgeting? The Rand Corporation, May 1954.

Strategic Plan, Top-Down Budgeting, Performance Management and Annual

Budget. While these components are integrated in MTEF, each has its own
accounting basis and products. These are arrayed from the most to the least
aggregated. Thus, macro-budgetary projections, the first step in the
framework, pertain to spending totals, while the annual budget, which is the
final step, deals with specific activities. There is a corresponding progression
of activities and decisions, from the most to the least aggregated process.

Table-1 The Medium-term Expenditure Framework (MTEF)
3.2 An Example of Program Budgeting from MOECS
Table-2 provides the basic structure of program budgeting on the basis of

top-down approach, and provides an example with respect to the Ministry of
Education, Culture and Science (MOECS).
Table-2 Basic Structure of Program Budget
Structure of
Levels An Example
Program Budget
  
Ministry Of Education, Culture and
Level-1 Ministry
Science (MOECS)
  
Level-2 Function Education
  
Level-3 Sub-function Pre-school education

  
Level-4 Program Services for end-users
  
Level-5 Output Kindergarten service
  
(a) Financial budget (in terms of staff
(a) Cost estimates;
cost, goods and services, capital cost,
Level-6 (b) Performance
subsidies and transfers);
parameters
(b) Number of children to be covered.

3.3 Conceptual Framework of Program Budget
Chart-1 describes the process and sequence for preparation of program

budget.
Chart-1: Conceptual Framework for Program Budget
Function Mission
Sub-function Strategic Mid/long –

Objective term Target
Performance
Program Indicators
Objective
AccountFund Resource
Allocation
Activity Strategic
Priority
Object

4. Program Assessment Rating Tool (PART)
The Program Assessment Rating Tool (PART) is a diagnostic tool used to

assess the performance of programs and to identify actions to improve
program performance. PART assessments review overall program
effectiveness, starting from the program design and examining its
implementation process until its completion and end results. Once completed,
PART reviews help to make appropriate decisions for the next year’s budget
so that results of a program improve continuously over its life span.
Agencies are held accountable for implementing PART follow-up actions and
improvement plans, for each of their programs.
In this report, we present a modified version of the PART system of the USA
Federal Government, which can be applied to evaluate the programs of the
government of Mongolia. In the USA the system was introduced in July 2002,
when the Director of the Office of Management and Budget announced
development of a rating tool, called PART, for formally evaluating the
effectiveness of federal programs.
4.1 PART Design and Questionnaire
The PART is designed to provide a consistent approach to assessing and

rating programs across the government. The PART questionnaire is
divided into four sections:
1. Program Purpose and Design,

2. Strategic Planning,
3. Program Management, and
4. Program Results/ Accountability.
Each question in the first three sections of the PART is answered in a

Yes/No format. Questions in section 4 (Program Results/Accountability)
may be answered as Yes, Large Extent, Small Extent or No. When a PART
question is answered, there should be a brief explanation that provides
relevant evidence substantiating the answer. The questions within each
section are given equal weight.
The PART sets a very high standard for compliance for each question. The
burden of proof for a Yes answer lies on the Agency to show that the
program has fully met the evidentiary requirements in order to award a Yes.
Each question requires a clear explanation of the answer and citations of

relevant supporting evidence, such as agency performance information,
independent evaluations, and financial information. Responses must be
evidence-based and objective and not rely on personal or subjective
impressions or generalities. Thus, a Yes answer must be definite and reflect a
high standard of performance.

4.2 PART Scoring System
Points are awarded to a program based on the answer to each question, and
an overall rating of effectiveness is then estimated by using the following
weights.
weight: 20%
I. Program Purpose & Design
weight: 10%
II. Strategic Planning
weight: 20%
III. Program Management
weight: 50%
IV. Program Results/Accountability
4.3 Translating PART Scores into Ratings
The PART scores are converted into 5 categories of possible qualitative

ratings viz. Effective, Moderately Effective, Adequate, Ineffective, and
Results Not Demonstrated, by using the following scoring bands.
Rating Range
(a) Effective 85 – 100
(b) Moderately Effective 70 – 84
(c) Adequate 50 – 69
(d) Ineffective 0 – 49
In addition to these four categories of ratings, there is a category of “Results

Not Demonstrated”, if the program does not have performance measures
that have been agreed-upon by MOF, or if the measures lack baselines and
performance data for the assessment year.

5. Program Evaluation Review Technique (PERT)
Program Evaluation Review Technique (PERT) is also known as PERT Chart. It

is a project management tool used to plan, schedule and co-ordinate plan.
Sometimes, it is referred to as the Critical Path Method (CPM).
PERT chart is basically a detailed action and business plan to turn budgeted
program into actual results. Business action plans are an essential part for an
effective program implementation and ensures that the budgeted outputs are
actually produced. It involves two stages:
(b) A Process to link long-term outcome goals with actions,

activities and initiatives and identify priorities, resource
allocations, projects and program components.
(c) A written plan that documents priority actions, resource plans,

principal roles and responsibilities, project designs, tasks, goals,
measures, targets, work schedules and milestones.
There are two types of written business plans:
(i) Operational Plans: Are typically implemented by the

head quarter or top management and supervisors and include
policies, procedures, methods and operational rules.
(ii) Tactical Plans: Also called Business Action Plans (BAPs):

Are typically implemented by the program managers and field
officers and have shorter time frames, and require detailed and
specific day-to-day activities to implement a program. It
specifies what will be done, by whom, when, how and with what
cost, and how will output be measured. It fully defines the
implementation process and time schedules of a program.
5.1 The Process: Developing a Business Action Plan (BAP)
1. Identify the Agency or the Organisation who is

responsible for implementation of the Program.
2. Select a Team Leader for the Program.
3. In consultation with the Team Leader form a Team

consisting of operational and tactical members (including multi-
disciplinary and cross-functional service and staff members).
4. Identify roles and responsibilities of each member of the

Team.

5. Plan milestones of business results for the program.
6. Hold brainstorming sessions with all members of the

Team.
7. Select the most effective and efficient action plan.
8. Document detailed action plan.
5.2 The Written Business Action Plan
There is no unique format for documenting a Business Action Plan.

Depending on the special requirements of a program and the work culture of
the implementing agency, a Business Action Plan can be prepared for a
particular project. Most importantly, an effective Business Action Plan will be
clear, concise, easily understood by team members, and cover the following:
(a) Agency or the organization responsible for the

implementation of the program.
(b) Team Leader and other members of the Team
(c) Specific roles and responsibilities of each member

of the Team.
(d) The support from the Headquarter.
(e) Long term outcome goals that will be achieved by

the program.
(f) Immediate outputs that will be produced during

the life span of the program.
(g) All relevant actions, activities or initiatives

necessary for successful implementation of the program.
(h) Identify corresponding milestone events, work

schedules and timeframe for each action.
(i) Identify resources required (e.g. funding,

manpower, goods and services, contract support, new capital
equipment etc.)
(j) Identify how success will be measured (i.e.

performance parameters and measures) and the target (i.e.

performance goals) and interim targets to show progressive

achievement toward the performance goal.

6. Pre-requisites of Successful Implementation of

Program Budgeting in Mongolia
6.1 Implementation Issues
In February 2008 the IMF Fiscal Affairs Department Report on “ Mongolia-

Budget Preparation: A Roadmap for Reform and Institutional Strengthening”
prepared by the IMF Technical Assistance Mission Team composed of Messrs.
Holger van Eden (Head of the Team), Regis Chapman, Dick Emery and Justin
Tyson has concluded that:
“The mission strongly supports the movement towards medium-term

program budgeting instigated by the World Bank ECTAC project. The move to
medium-term budgeting will enhance budgetary planning and show the
consequences of expenditure proposals more clearly. Program budgeting will
allow much better insight in the policy direction of line ministry budgets and
enable linking to performance targeting.”
“The World Bank proposals do require some simplification, sequencing and

parallel development of financial management capacity in line ministries and
MOF. In the report we sketch the possible sequence of the major elements of
the reform agenda over the period 2008–2010.”
In addition to the suggestion given by IMF, priority action on the part of the
government of Mongolia is required on the following implementation issues
for successful implementation of program budgeting in Mongolia:
1. Effective implementation needs Full Co-operation between the MOF,

Line Ministries and the spending agencies.
2. General Consensus and commitment at high level of executive and
legislative and among stakeholders.
3. Preparation of detailed blueprint (containing Manual & Guidelines) for
Program Budget (PB).
4. Integrating Program Budget with the Medium Term Strategic Plans and
Medium Term Expenditure Framework (MTEF).
5. Avoiding piecemeal approach and preparing a blueprint for gradual and
steady coverage of all Agencies under PB over the years.
6. To ensure that the spending agencies design their own program
budgets with cooperation and advice from MOF.
7. Developing Program Evaluation Review Technique (PERT)
8. Developing Program Assessment Rating Tool (PART)

6.2 Lessons from different countries
Various governments across the globe have been introducing program

budgets over many decades, including Russia and Brazil in the past decade
and more recently, the Republic of Korea (RoK). A recent book entitled
“From Line-item to Program Budgeting” edited by John Kim and
published by the Korean Institute of Public Finance and the World Bank
(Seoul, 2007) summarizes key lessons from the global experience, and offers
practical advice to countries who are in the process of introducing program
budgeting. Some practical lessons from the book include the following:
6.2.1 Program Development Process
(b) Change mind set of all involved in budgeting
Program budgeting is not simply about changing the way a budget is

presented, but about changing the way policy officials, the public and
government staff think of the government, and how they plan, manage and
budget. Each line ministry, and agency within it, need to develop a strategic
planning exercise and a program structure for their budget and to relate the
program budget to the objectives of the organization and the government.
(c) Joint Work of the MOF and line ministries
An effective program budgeting system cannot be developed centrally by

the ministry of finance alone. It needs to be developed jointly by MOF and a
line ministry in consultation with all stakeholders.
(a) Line ministry staff, not consultants, must undertake the work
Programs must be owned by the ministries. This implies that the line
ministry management and staff, and not consultants, must take the lead for
classification and development of programs, although the advice and
guidance of the consultants will be valuable.
(b) Do not follow other countries blindly
This implies that a country should not simply import a program classification
from another country and try to adopt it.
(c) Stability in classification structure is important
While some effort in developing a program structure is important, developing

the perfect structure is not essential before introducing a program budget.
However, it should not be such a light exercise that the program structure
changes annually. Mexico has over 10,000 program outcome indicators in its
annual budget, but over the past few years the programs and indicators have
changed annually. The result is an inability to track performance over time,

or hold anyone accountable for results. Some degree of continuity and

consistency is required over time for the program classification to be useful.
(d) Meet demands for new information, IT and skilled manpower
Program budgeting will lead to demands for new data and information,
improved IT and skilled manpower for tracking performance results. Agencies
and MOF must be prepared to spend more money for strengthening their IT
system and recruiting more technical manpower.
6.2.2 Program Design Process
(a) Programs need to be within ministries
One failure in the past had been that centrally developed program structures
are imposed upon many ministries and local governments. As a result, no
one agency is responsible for achieving program objectives and no one
manager is accountable for results. This undermines managerial
accountability and effective linkages among objectives, activities and funds.
(b) Direct costs need to be allocated to programs
This does not mean that one must adopt output budgeting or full accrual
accounting or activity-based-costing. It simply means that a program budget
must reflect at least all direct costs such as staff, materials, utilities and
other services.
(c) A program should integrate recurrent and capital budgets.
All inputs leading to the output or outcome under a program need to be

taken into account. This will entail direct labor, money (for indirect costs
comprising goods and services), transfers and subsidies and capital cost.
(d) A program budget should take care of other classifications.
A good budget classification should take care of the following requirements:

● Legal: Provide a legal basis and structure for the approval of the
government budget by legislature.
● Administrative: Identify the responsibility and authority of all players in
the management and implementation of the programs within the line
ministries and agencies.
● Financial: Facilitate government budgeting, accounting, reporting, and
auditing by making detailed classification of revenues and expenditures, and
integrating the same into the government chart of accounts.
● Analytical: Facilitate the analysis of the impact of the program on the
economy as a whole and in the functions in which governments decide to
intervene through regulatory activities or direct delivery of services.
● Managerial: Improve efficiency in resource use on delivering services, by
providing and monitoring performance indicators.

To address these requirements, four types of budget classifications have

been developed. These classifications are: (i) functional; (ii) organizational or
administrative; (iii) program or operational; and (iv) input or object or
economic or accounting, normally referred as economic classification.
6.2.3 Budgetary Reform Management
(a) Don’t consider a program budget as an expenditure cutting

method
As with any public sector reform, if program budget is undertaken primarily

as an expenditure cutting measure, there will be strong resistance from the
line ministries and agencies for its introduction.
(b) Annual budget ceilings can help motivate ministries
Given that program budgeting requires several years of persistent efforts to

bear fruits, Annual budget ceilings, especially hard budget constraints, can
help motivate line ministries to improve efficiency of spending and to relate
programs to strategic goals and objectives.
(c) Provide ample support to ministries
In introducing a program budget, ministries will need support and advice

from the Ministry of Finance on analytical tools. This may include producing
detailed guidelines and manuals and provide practical training on the
program structure. For example, international development assistance
agencies have for many decades employed the “logframe,” or logical
framework model, as an aid to project design. The logframe is a four-by-four
matrix that adds some discipline for formulation of projects.

Selected References
Barraclough, Katherine (2005) Introduction to Program Budgeting, 26

slides, Power Point Presentation at the Fiscal Management Reform Workshop,
Istanbul, Turkey, June 6-8, 2005.
Bergin, Feffrey (2004) Performance Based Budgeting, Performance

Management Institute, 2004.
Das, Tarun (2008) An Introduction to Program Budgeting, Program

Assessment Rating Tool (PART) and Program Evaluation Review Technique
(PERT), pp.1-28, ADB Capacity Building Project on Governance Reforms,
Ministry of Finance, Government of Mongolia, Ulaanbaatar, May 2008.
DOFA (Department of Finance and Administration) (1999a) Accrual

Resourcing Framework, DOFA (Canberra).
DOFA (Department of Finance and Administration) (1999b)

Commonwealth Accrual Budgeting Guidelines, DOFA (Canberra).
DOFA (Department of Finance and Administration) (1999c) Accrual

Appropriation Framework, DOFA (Canberra).
Dorotinsky, Bill (2007) From Line-item to Program Budgeting – Opening

the 'black-box' of spending, pp.1-3, Fiscal Affairs Department, IMF Website.
Eden, Holger van; Regis Chapman; Dick Emery and Justin Tyson
(2008) Mongolia-Budget Preparation: A Roadmap for Reform and
Institutional Strengthening, IMF Technical Assistance Mission Team, Fiscal
Affairs Department, IMF, Washington D.C., February 2008
General Services Administration (2005) Performance Management

Process: Strategic Planning, Budget and Performance Management cycle,
PP.1-108, Office of the Chief Financial officer, Federal Government of USA,
January 31, 2005.
Kim, John M. (2007) edited. From Line-item to Program Budgeting- Global

Lessons and the Korean Case, pp.1-281, Korea Institute of Public Finance
and the World Bank, Seoul, Korea.
Office of Management and Budget (2007) Program Assessment Rating

Tool Guidance No.2007-02, vii+pp.1-82, Executive Office of the President,
United States of America, Washington D.C. 20503, January 29, 2007.
Robinson, Marc (2007) edited. Performance Budgeting- Linking Funding and

Results, Palgrave McMillan.

WAT (Treasury, Western Australia) (1998) Output Based Management

Output Measures - Guidelines To Assist Agencies, The Treasury (Perth).

Annex-1
Subject: Eight-Year (2008-2015) Action Plan for

The Complete Implementation of the Provisions of
The Public Sector Management and Finance Act (27 June 2002)
Tarun Das19 and E. Sandagdorj20
1. Background
1.1 Tasks envisaged under PSMFA (June 2002)
It is well known that the Government of Mongolia enacted the Public Sector
Management and Finance Act (PSMFA) on the 27 June 2002 in order to
modernize budget planning and budgeting systems as per international best
practices. The complete implementation of the provisions of the Act requires the
following activities on the part of the government:
(1) Preparation of “a Strategic Business Plan” for each budgetary body

indicating its strategic objectives for the next three years and the outputs to
be delivered during the budget year specified by category, quantity, quality
and costs. Output costs shall be determined on the basis of accrual cost of
production including management overheads and capital charges. 21
(2) Signing of output purchases agreement between the “Portfolio Minister”

and the budgetary bodies for purchase of goods and services. Output
purchase agreement shall specify terms of delivery of outputs and prices to
be paid from the budget22.
(3) Setting accounting policies for budgetary bodies in conformity with

International Accounting Standards and implement these policies 23:
(4) To prepare Financial Statements containing operating statement, balance

sheet, and statements of cash flows, net assets and contingent liabilities 24,
which are also the requirements of the IMF Government Finance Statistics
Manual (GFSM 2001).
19
International Strategic Planning Expert.
20
National Strategic Planning Expert.
21
Articles 26.1, 26.2 and 26.3 of the Public Sector Management and Finance Act (27
June 2002).
22
Article 23 of the PSMFA.
23
24
(5) To prepare Fiscal Framework Statement including the Government’s

medium term objectives, public investment plans, forecast balance sheet
and cash flow for the budget year and two forward years 25.
(6) To conclude Performance Agreement between the Portfolio Minister and

the General Managers (GM) of a budgetary body within one month from the
date of the approval of the State Budget by the State Great Hural 26.
(7) The Act also specifies systems for the Assessment of Performance
Agreement27 .
1.2 Progress of implementation during last five years
The government of Mongolia initiated measures to implement the provisions of

the PSMFA almost immediately since its inception in June 2002. Good progress
has been made with the preparation of Strategic Business Plans in major line
ministries; formulation of Medium Term Fiscal and Budgetary Framework,
preparation of consolidated financial statement for the general government, time
bound execution of budget and improved fiscal reporting on cash basis with
some steps towards accrual accounting.
MOF is implementing two major capacity building projects being financed by

grants and loans from the World Bank and the Asian Development Project.
Significant progress has been made in the development of basic concepts,
preparation of methodological papers, guidelines, manuals on strategic planning,
output costing and output budgeting, accrual accounting, setting benchmarks and
performance parameters for the budgetary bodies, improving technical
capabilities of the staff engaged in budget formulation, strengthening Information
technology (IT) system and creating general awareness of the stakeholders
about the usefulness and necessity of modern techniques for output budgeting
on the basis of accrual accounting and benchmarks.
In addition to the mobilization of the national capacities, valuable assistance and

consultancy from experts of the international financial institutions such as ADB,
IMF and the World Bank have been extensively used in the implementation of
fiscal reforms and enforcing related legislation. Assessment and evaluations
made by the international experts facilitated the fiscal reforms process,
particularly for strengthening the capacity building for governance reforms.
Despite these efforts and good results during the last five years, progress
towards full implementation of the PSMFA remains slow due to some structural
problems. Assessments made by the IMF and ADB experts have indicated the
following constraints:
25
Article 25 of the PSFMA.
26
27
Article 47 of the PSFMA.
(a) There is absence of a specialized institutional system at various levels of

the Government, line ministries and local governments, which have
adequate experience and expertise in strategic planning, output costing
and accrual budgeting;
(b) The issues and activities involved in budget modernization are complex,
but the international experiences for transition from the classical budget
techniques to the modern framework were not studied carefully and in a
timely manner.
(c) Assessment of national capabilities for implementation of the law such as

outlining of required human resources, suitable organizational structures,
and adequate information technology was also neglected.
(d) Thus, a hustled approach was adopted to complete the full

implementation of the framework within 1-2 years without adequate
capacity building and necessary infrastructure, which is responsible for
slow progress and partial success.
(e) In a way, the Act was passed in a hurry without assessing the capacities
and skill within the government for implementation of the Act and without
establishing the adequate institutional set up to support the process of
implementation. In fact, the Act has not provided an implementation plan.
(f) The Act is also over-ambitious for a developing country like Mongolia.
The Act contains all the components of Budget Modernization, which in
fact at present are being implemented by only the most advanced
countries like Australia, Canada, New Zealand, UK, USA 28 and selected
OECD countries. Even these countries (having much higher per capita
income, advanced information technology and skilled manpower) have
taken more than two decades to reach to this stage. Such a leap-frogging
may not be feasible for a developing country like Mongolia.
28
In the USA, there is an elaborate system and well established infrastructure to prepare strategic
plans, budgets and to evaluate budget performance. The Office of Performance Budge ting and
Strategic Planning is the focal point of Treasury's budget and performance integration efforts. The
Office oversees the USA President's Management Agenda and provides guidance to the Bureaus (i.e.
Agencies) on policy issues. There is also a separate Department on Strategic Plan in the Treasury
which prepares and implements medium term Strategic Plan for the Fiscal Years 2007 – 2012. It
indicates goals, objectives and strategies for the diverse activities under the strategic plan. There is also
an Office of Management and Budget (OMB) in the USA Congress to assist the USA President in
overseeing the preparation of the federal budget and to supervise its administration in Executive
Branch agencies. As compared to this, the institutional set up in Mongolia is constrained due to lack of
resources and technical manpower. At present, most of the substantial works are being carried out by
the international and national consultants under the capacity building projects being funded by the
Asian Development Bank and the World Bank. There is need to establish permanent internal units in
each ministry to deal with all these aspects of budget modernization.

2. Eight-Year Action Plan for 2008-2015

For Complete Implementation of the PSMFA (2002)
Above observations lead to the conclusion that the successful implementation of

the PSMFA (2002) as regards strategic business plans and output budgeting on
the basis of accrual accounting and benchmarks will require the following actions
on a priority basis by the present government of Mongolia:
(6) To consolidate the progress made until now by proper

documentation in both English and Mongolian;
(7) To build up necessary institutions for modernizing budgets;
(8) To build up capacity and skill of the personnel engaged in planning,
budgeting, accounting and auditing;
(9) To strengthen and upgrade the information technology system to
support the budget modernization process and systems.
(10) To conduct all these works in a time-bound systems
framework but step by step and in a phased manner.
2.1 An Action Program for 2008-2015
On the basis of the above observations and conclusions, an eight year Action
Program for the period of 2008-2015 has been prepared by the government.
This is described in the Flow Chart-1 and Table-1 indicating desired actions by
all budgetary bodies in a phased manner during 2008-2015. This Action
Program will enable the budgetary bodies to complete implementation of the
Public Sector Management and Finance Law and, particularly, in endorsements
of the main law provisions such as formulation of strategic business plan,
determination of outputs and outcomes in public entities, and budgeting on the
basis of output costing, benchmarks and accrual accounting.
While framing this action program the following issues have been considered:
1. For successful transition into strategic business planning and output

budgeting, there is need to strengthen central and local governments
organizations for integrated strategic planning consistent with national
development plan, millennium development goals, sectoral master plan
and regional and sectoral investment programs;
2. In framing the current structures of sectoral ministries, there is need to

identify output costs centers that will have own budgets managed
independently. Internal restructuring is also required for accountability of
budget expenditure, maintaining records of outputs and outcomes,
developing accounting codes in the State Treasury system, provision of
appropriate conditions for monitoring and auditing; and reporting results
in a timely manner to the MOF.

3. In the case of investment projects being funded by both domestic and

external resources, there is need to carry out independent assessments
on technical feasibility, financial viability, economic and environmental
sustainability as per international level of standards and completion of
projects without any time and cost overruns.
All the budgetary bodies including agencies and Aimags are directed to study the
flow chart carefully and to take note of the following tasks:
1. In the first phase of implementation of this Action Program i.e.

during 2008-2010, MOF will prepare detailed guidelines, manuals
with precise elaboration of concepts, methodologies and examples
on strategic planning, output costing and output budgeting, modified
accrual accounting29, benchmarks and performance parameters.
MOF will also advise line ministries and provide necessary training
for preparation of strategic business plans, output budgeting and
accrual accounting.
2. During the first phase the line ministries and other budgetary bodies
will prepare strategic business plans consistent with national plan,
sectoral master plan, millennium development goals as per advice
and directives by the MOF. They also prepare output budgets on the
basis modified accrual accounting and provide advice and guidance
to the agencies under their jurisdiction for preparation of strategic
business plans and output budgets.
3. During the second phase (2011-2013) all ministries and agencies

will move towards full accrual accounting i.e. depreciation costs will
be considered as a part of output cost. MOF will conduct pilot
studies on performance based budgeting 30 for selected line
ministries and agencies.
4. During the last phase (2014-2015) there will be complete

implementation of the provisions of the PSMFA. All ministries/
Agencies including Aimag will move towards strategic planning and
29
Modified Accrual Accounting also called cash-plus-accrual accounting means
preparing budgets basically on cash accounting but using accrual accounting wherever
possible such as for government’s contributions to employees’ insurance, social security,
reserve fund, natural calamity and contingent liability funds. Depreciation costs for
assets may not be considered until all assets (both financial and non-financial) have been
fully listed and assessed at market prices.
30
Under performance based budgeting, outputs, outcomes, costs, planning and execution
of projects, physical and financial performances of the line ministries/ agencies of the
previous year are tracked and evaluated by the MOF as per prescribed performance
parameters, and budget for the next year is determined on the basis of this performance.
MOF also provides suggestions for improvement of performance parameters.
output budgeting on the basis of full accrual accounting, benchmarks

and performance parameters.
5. Along with the above mentioned transition of all budgetary bodies,

there will be development and strengthening of the accounting and
auditing norms and standards as per international best practices.
Works are already in progress for strengthening both software and
hardware for accounting and auditing. These works will continue and
be brought to their logical ends.
6. Government of Mongolia gratefully acknowledges the valuable

financial and technical assistance received from international
development organizations, other donors and bilateral countries
during the last few years. It is expected that in future similar
technical assistance will be provided by these donors for capacity
building and upgrading the technical manpower of line ministries/
Agencies/ Aimags and other budgetary bodies.

Phase-1 (2008-2010) Phase-2 (2011-2013) Phase-3 (2014-15)

MOF/ Fiscal 1. Prepare Manuals Prepare 1. Review & Move towards
and Guidelines on: annual and consolidate Performance
Policy and (a) Strategic Planning; medium SP & output Budgeting:
Coordination (b) Output costing and term budgeting; 2. (a) Track and
output budgeting; output Move assess outputs,
Department (c) Benchmarks; budget for towards full costs, and
………………… (d) Modified Accrual the govt on accrual performance of
Accounting; and cash cum accounting; line ministries/
………………… (e) Performance accrual 3. Pilot agencies;
. Assessment Rating accounting projects on (b) Suggest
Tool (PART). performance improvements
2. Advise Line budgeting for next year’s
Ministries for budget
preparation of SP &
output budgets
3. Provide training on Be consistent with; (a) MDGs, (b)
SP, output budgeting, National Development Plan and
and accrual (c) Sectoral Master Plans
accounting
Line Ministries Strategic Planning

(a) Define vision, Output 1. Review &
……………… mission, objectives and Costing and consolidate Performance
goals; Budgeting SP & output Planning and
(b) Make a SWOT budgeting; 2. Evaluation
(Strength Weakness (a) Cost and Move
Opportunities and budget towards full (a) Specify
Threat) Analysis outputs on accrual performance
(b) Specify outputs and cash cum accounting; parameters-
outcomes over the accrual basis 3. Pilot timeliness,
annual and medium and on projects on relevance,
term; benchmarks performance stakeholders’
(c) Indicates targets for specified by budgeting responses,
outputs and outcomes the MOF MOF costs and
for the Annual and (b) Provide (b) Provide benefits of
Medium Term (three guidelines to guidelines to programs
forward years) the Agencies the Agencies (b) Track and
(d) Provide an on output on output report results to
assessment of last budgeting budgeting the MOF
year’s strategic plan
and budget
Track and report

results and
Prepare Prepare
performance
Agencies Prepare Strategic output output
parameters to the
Business Plan similar budget on budget on full
……………… respective Line
to that by Line cash cum fledged
Ministries
Ministries accrual basis accrual basis
similar to that similar to that
by Line by Line
Ministries Ministries
Upgrade IT and
technical manpower Capacity building in line ministries/ agencies to
to support output provide support for the preparation of SBPs and
Donors budgeting output budgets on the basis of performance
management and modified accrual accounting.
FLOW CHART-1: SEVEN YEAR (2008-2014) ACTION PROGRAM

Table-1: Major Components of a Phased Action Plan for 2008-2015
Major Components First Phase Second Phase Third Phase

of Action Plan (2008-2010) (2011-2013) (2014-2015)
1. Strategic 1.1 Set up a specialized 1.4 Review the system 1.6 Review the system
Management of organization (similar and upgrade it as and upgrade it as
Institutional Set- to the USA Office of demanded by needs demanded by needs
Up (Priority Performance and changing and changing
Action and Budgeting and circumstances. circumstances.
Continual Review Strategic Planning) to 1.5 Set up a specialized
and Upgrading) oversee preparation of unit in all Agencies
SBPs, manuals and and all Aimags.
guidelines on SBPs,
output costing,
performance
budgeting etc.
1.2 If (1.1) is not
feasible, then
strengthen and enlarge
the Fiscal Policy and
Coordination Dept in
MOF for planning and
coordination of SBPs
at the national level
and in line ministries.
1.3 Set up a specialized
unit (with at least 3
professionals) in all
line ministries, major
Agencies and selected
Aimags
2. Comprehensive 2.1 Have a systematic 2.3 Review the system 2.4 Review the system
Human Capital and comprehensive and upgrade it as and upgrade it as
Strategy (Priority plan for capacity demanded by needs demanded by needs
Action and building through and changing and changing
Continual Review regular training, and circumstances circumstances
and Upgrading) upgradation of IT
for each line
ministry and agency
2.2 Formulate
manpower planning
and policy
indicating size,
composition and
salary structure of
technical people
3. Strategic Planning 3.1 Prepare manual on 3.3 Prepare SBPs for all 3.4 Prepare SBPs on the
scope and uniform line ministries and basis of full accrual
structure of SBPs Agencies with accounting
3.2 Prepare SBPs for output budgeting on
major ministries the basis of cash
and Agencies on the accounting and
basis of cash and feasible accrual
feasible accrual accounting
accounting


of Action Plan (2008-2010) (2011-2013) (2014-2015)
4. Output costing and 4.1 Prepare guidelines 4.3 Introduce 4.5 Move towards
output budgeting and manuals on performance based output costing, and
output costing and output budgeting in performance based
output budgeting on major ministries output budgeting on
the basis of cash and major Agencies the basis of full
accounting and 4.4 Extend the initial accrual accounting.
feasible accrual system of output
accounting costing and output
4.2 Apply the methods budgeting to all
to major line ministries, agencies
ministries and and Aimags
major agencies
5. Strengthen cash 5.1 Move towards 5.8 Strengthen and 5.12Develop and
accounting and move Activity Based consolidate these approve Public
towards accrual Costing and systems on output sector accrual
accounting Management budgeting at all line accounting rules
(ABC/M) system. ministries, agencies and procedures
5.2 Strengthen data and Aimags 5.13Develop system and
base for Activity 5.9 Develop fully methodology for
Based Costing computerized valuation and
(ABC) on the basis systems for recording of assets
of cash accounting. accounting and (both financial and
5.3 Develop budget auditing non-financial
accounting rules 5.10Develop technical assets)
and procedures for cadre on modern 5.14Develop
cash accounting. accounting and methodology for
5.4 Develop accrual auditing as per estimation of fixed
accounting for international best assets depreciation
interests and social practices and capital charge
insurance systems, 5.11 Make a complete in the public sector
5.5 Develop additional List of stocks and 5.15 Move towards full
codes for outputs assets (for both accrual accounting
and performance in financial and non- for output costing
the Master Chart of financial assets) in and output
Accounts. all line ministries budgeting
5.6 Strengthen and Agencies
government internal
audit in the HQ and
line ministries
5.7 Conduct pilot
implementation of
output costing and
output budgeting in
selected agencies
and selected
Aimags


of Action Plan (2008-2010) (2011-2013) (2014-2015)
6. Performance Based 6.1 Develop systems 6.6 Develop systems 6.10Build capacity in
Budgeting and methodology for Cost Accounting line ministries and
for performance for Performance- agencies for accrual
budgeting and Based Budgeting- accounting,
performance 6.7 Develop new performance-based
evaluation, accounting budgeting, and
managerial cost principles and performance
accounting systems, standards and evaluation
with an emphasis budget systems that 6.11Extend
on Activity-Based can support implementation of
Costing (ABC) and comprehensive performance-based
cost management. Performance budgeting, output
6.2 Prepare a White Management at all and outcome
Paper on levels of the performance rating
Performance-Based organization. and reporting,
Budgeting. This 6.8 Develop monitoring and
paper should Performance audit to all line
explain what a Management ministries, agencies
Performance System to ensure and Aimags
Budget is, what are that an agency’s
its scope and administrative and
objectives, key support functions
steps in its (budget, financial
development, and management,
how it may be used. human resources,
6.3 Prepare a Guide to information
Performance-Based technology,
Budgeting. This procurement, etc.)
guide should directly and
include tables and explicitly serve the
charts illustrating a needs of program
step-by-step managers in
approach on how a meeting the
government agency agency’s strategic
may develop an and annual goals.
effective 6.9 Conduct pilot
performance implementation of
budget. performance-based
6.4 Develop Program budgeting, output
Assessment Rating and outcome
Tool (PART). performance rating
6.5 Apply these and reporting,
techniques for one monitoring and
line ministry and audit in selected
one Agency. Line ministries,
selected agencies
and selected
Aimags

Annex-2: ADB Capacity Building Project

Prof. Tarun Das, Strategic Planning Expert
Mr. E. Sandagdorj, National Expert
Progress Report Update as on 7 July 2008.
Items of Responsibilities Status as on 7 July 2008
A. Review core and non-core functions Completed:
(i) Based on earlier assessments of the
core versus non-core functions of Report prepared:
ministries and budgetary agencies,
critically review functions of the key 1. “Core and non-core functions of
line portfolio ministries to segregate the government of Mongolia- a critical
the core from non-core functions. assessment” – pp.1-32, Feb 2008.
The functional review will include all 2. Report at (1) is translated in
agencies that come under the Mongolian and submitted to Fiscal
structure of the ministries included. Policy and Coordination Department in
(ii) Formulate recommendations on order to consider some critical
alternative arrangements for assessment by MOF and line
carrying out non-core functions. ministries.
(iii) Formulate recommendations based Completed:
on the above review, to streamline Reports prepared:
the core functions of the ministries 3. Benchmarks Setting and Best
concerned. Assess the Practices for Output Costing and
administrative expenditures of Output Budgeting- Part-1: Basic
Ministry of Finance (MOF), Ministry Concepts, pp.1-31, Dec 2007.
of Health (MOH), Ministry of 4. Benchmarks Setting and Best
Education, Culture, and Science Practices for Output Costing and
(MOECS), and Ministry of Social Output Budgeting- Part-2: Practical
Welfare and Labor (MSWL) and if Applications for Mongolia, pp.1-36,
necessary redefine and set ceilings Dec 2007. And both these two
on such expenditures. documents are translated and officially
circulated from MOF to 8 line
ministries including MOH, MOECS,
MOL&SW and MOF by letter 3-5/641
dt. Jan 12, 2008.
5. Report at (3) is translated in
Mongolian and circulated to all line
ministries.
Mongolian and circulated to all line
ministries.
(iv) Prepare a report deriving lessons for Completed:
the whole of the Government from Included in the following reports:
these assessments. 7. ADB Project Terminal Report,
Part-1, Executive Summary, Major
Conclusions & Recommendations,
pp.1-74, ADB Capacity Building
Projects on Governance Reforms,
MOF, Government of Mongolia,
Ulaanbaatar, March 2008.

8. ADB Project Terminal Report,

Part-3, Financial Planning and
Policies, Core and Non-Core
Functions, and Seven Year Action
Plan, pp.1-74, ADB Capacity Building
Project on Governance Reforms,
MOF, Govt of Mongolia, Ulaanbaatar,
March 2008.
B. Strengthen Strategic Planning, Output Specification, Benchmark Setting and

Costing in Selected Ministries
(v) (a) Based on previous assessments Completed. Reports produced:
of the strategic business plans 9. Summary Report of all comments
(SBPs) of MOECS, MOH, MSWL on SBPs for MOF, MOECS, MOH
and MOF review the revised SBPs and MOSWL, pp.1-3, June 2007.
and certify that they are in line with 10. MOF SBP 2005-2006- Comments
comparable SBPs of public sector and Suggestions for Improvement,
agencies in other countries. pp.1-37, June 2007.
11. MOECS SBP 2006-2008 –
Comments and Suggestions for
Improvement, pp.1-20, June 2007.
12. MOH SBP 2005-2008- Comments
and Suggestions for Improvement,
pp.1-20, June 2007.
13. MOSWL SBP 2005-2008-
Comments and Suggestions for
Improvement, pp.1-20.
Mongolia and circulated to the pilot
ministries.
Mongolia by E. Sandagdorj, and
circulated to the pilot ministries for
their comments and suggestions.
16. Final report after incorporating the
comments is submitted to the FPD
and PID of the MOF and forwarded
to the line ministries.
17. Report at (16 is translated in
Mongolia by E. Sandagdorj, and
circulated to the pilot ministries for
their comments and suggestions.
(v) (b) In particular, review the 18. Linkages are discussed in the
current linkages between SBPs and Final Report on Preparation of
medium-term sector specific budget Strategic Business Plans- General
planning and advice on Guidelines and Suggestions for
improvement of the linkage. Improvement - Final Report, pp.1-
74, jointly with Mr. E. Sandagdorj,
and Eight Year Action Plan 2008-
2015

19. Recommendations are

summarized in the ADB Project
Terminal Report, Part-1, Executive
Summary, Major Conclusions and
Recommendations, pp.1-74, ADB
Capacity Building Projects on
Governance Reforms, Ministry of
Finance, Govt of Mongolia,
(v) (c) Assess past sector Completed. Reports produced:

performance against benchmarks 20. Benchmarks Setting and Best
and recommend ways to integrate Practices for Output Costing and
lessons from assessments. Output Budgeting- Part-1: Basic
Concepts, pp.1-31, Dec 2007.
21. Benchmarks Setting and Best

Practices for Output Costing and
Output Budgeting- Part-2:
Practical Applications for
Mongolia, pp.1-32, Dec 2007.
(vi) Based on the above Completed. Reports produced:

recommendations, assist in 22. Preparation of Strategic Business
preparation of the SBP for MOH, Plans- General Guidelines and
MOECS, MSWL and MOF and Suggestions for Improvement - Final
advise MOF on consolidating/ Report, pp.1-74, jointly with Mr. E.
analyzing SBPs received from the Sandagdorj.
line ministries, develop regulations/ 23. Issues on consolidation and
guidelines on consolidation/ analysis suggestions for improvement are
and recommend ways to strengthen discussed in Report at (14) and also
them. in the Eight Year Action Plan 2008-
2015.
24. Recommendations are summarized
in ADB Project Terminal Report,
Part-1, Major Conclusions and
Recommendations, pp.1-74, ADB
Governance Reforms, MOF, Govt of
Mongolia, Ulaanbaatar, March 2008;
and also in the following report.
25. ADB Project Terminal Report, Part-
2, Strategic Planning, Output
Budgeting, Accrual Accounting,
Benchmarks Setting, pp.1-74, ADB
Governance Reforms, Ministry of

(vii)Assess medium term expenditure Completed. Reports produced:

planning on accrual accounting 26. Accrual Accounting and Accrual
basis (International Public Sector Budgeting- Basic Concepts and
Accounting Standards). Formulate Methodology, pp.1-43.
recommendations and design the 27. Transition from Cash to Accrual
methodology for medium term Accounting pp.1-26.
expenditure planning on accrual 28. Reports (22) is translated in
basis for the ministries. Mongolia and circulated to other
line ministries.
29. Reports (22) is translated in
Mongolia and circulated to other
line ministries.
(viii) Provide assistance in Completed. Reports produced:
establishment of the linkage among 30. Output Costing and Output
the Government, MOF and portfolio Budgeting- Basic Concepts and
ministries in regard of output based Methodology, pp.1-51.
accrual budget planning. 31. Report translated in Mongolia and
circulated to line ministries.
(ix) Improve guidelines on portfolio
appropriation estimates in line with Completed:
PSMFL provisions and issue the 32. Included as a part of ADB Project
guideline and manual for formulation Terminal Report, Part-1, Executive
of medium term appropriation Summary, Major Conclusions and
estimates. Formulate Recommendations, pp.1-74, ADB
recommendations on improvement Capacity Building Project on
of the structure and relationships Governance Reforms, Ministry of
between the headquarters of Finance, Govt of Mongolia,
ministries and aimag administrations Ulaanbaatar, March 2008.
in regard of budget planning,
contracting, financing, and reporting.
(x) Assess the level of preparedness for Completed. Reports produced:
output specification, benchmark 33. A Seven Year (2007-2013) Action
setting, and costing at the central Plan to implement the provisions
and local levels, at the headquarters of the PSMFA (2002) as regards
of ministries and aimag preparation of Strategic Business
administrations and provide Plans on the basis of Accrual
recommendations. Output Budgeting (AOB) and
Performance Based Budgeting
(PBB), pp.1-21,
34. Report translated in Mongolian by
E. Sandagdorj and submitted to
the FPD and PID of the MOF,
and circulated to the line
ministries for comments and
suggestion.
35. An abridged version in Mongolian
prepared by E. Sandagdorj has
been included in the Mongolian
Draft Budget for 2008.

(xi) Improve the (sample) format and Completed:

manual for preparation of output
provision report for budget entities,
and design and issue the manual for 36. Recommendations are included in
preparation of output provision the Terminal Reports of the ADB
report for the portfolio ministers Project on governance reforms,
where required. Provide assistance March 2008.
to MOF in review and evaluation of
portfolio ministers’ and budget
entities’ reports on output provision
and performance contract.
(xii)Provide overall advisory support in Completed.
output specification, benchmark There is continual interaction between the
setting, and costing to MOF and ADB Project consultants with the World
other line ministries. Bank Project Consultants and the officials
of the line ministries engaged in
preparation of SBPs and budgets.
(xiii) Identify 3 other portfolio ministries,
in consultation with MOF and at Completed.
least 3 provinces, and provide in-
depth advisory support to strengthen
their output specification, Mr. Sandagdorj, National Strategic
benchmark setting, and costing. Planning Consultant, visited two Aimags
Within these portfolios, select (Bayankhongor and Uvorkhangai Aimags
facilities to get a good and their 5 somons) in October 2007, and
representation of the chosen reviewed output costing and output
sectors, and undertake a full costing budgeting at the level of sub-national
exercise. Finalize the methodology government agencies like Aimags and
for output specification, benchmark some somons and provided relevant
setting and costing, and the formats recommendations for 8 budget entities
for reporting the outputs and costs in including 2 hospitals, 3 secondary schools
the education, health, and social and financial and treasury departments of
sectors, and sound standards for the Aimags.
monitoring the utilization of
budgetary allocations against the
specified outputs.
(xiv) Design and conduct training Completed: Two Workshops held.
programs for central and local a. First, a half-day Workshop
government officials (including on “Preparation on SBPs- General
public sector agencies) on planning, Guidelines” was held at the MOF on
output specification, benchmark the 28 August 2007. 35 officers from
setting, and costing. the MOF, MOECS, MOJ, MOR&
Transport, MOH, WB ECTAC Project
and ADB GRCB Project attended the
workshop and actively participated in
wide ranging discussions on strategic
business plans, millennium
development goals, national
development plan, output costing and

budgeting, benchmarks, accrual and

cash accounting. Power Point
Presentations in two parts in both
English and Mongolian were
distributed among the participants.
b. Second, a two-day
Workshop on Output Budgeting and
Accrual Accounting was held on 29-30
November 2007 at the Corporate
Hotel, Ulaanbaatar. The Workshop as
attended by 86 officials from 6 line
ministries (viz. MOF, MOECS, MOH,
MOSWL, MOJIA and MORTT), all
local government budget entities,
World Bank ECTAC Project and the
ADB Project on Governance Reforms.
The following Six PPPs were prepared

in both English and Mongolian,
presented in the Workshop jointly by
Tarun Das and E. Sandagdorj, and
distributed among all participants.
37. PPP on “Strategic Business Plans-

General Guidelines and
Suggestions for Improvement”.
Part-1 (30 slides)
38. SBP Part-2 (54 slides)
39. Output Costing and Output
Budgeting: Part-1: Current Status
and Action Plan (39 slides)
40. Part-2:Upgrading Infrastructure
(24)
41. Part-3: Output Costing Framework
(42 slides)
42. Part-4A: Output Costing
Methodology (32 slides)
43. Part-4B: Case Studies (24 slides)
44. Part-4C:Accrual Accounting (26S)
45. A design of the Training Program
with scope and need for resource
persons will be included as a part
of the Terminal Report to be
prepared in March 2008.
(xv) Coordinate and provide advisory It is understood that the said National
support to the work of the National Council on Anti-Corruption (NCAC)
Council on Anti-Corruption (NCAC) subgroup has since been discontinued
subgroup established as part of the and an alternative agency has been
Second Phase of the GRP to established. But, the new Agency is still in
evaluate the performance of the preparatory mode.
customs and tax agencies, and

public service delivery functions in As per the World Bank Quarterly Report
education and health portfolios. on Mongolia dated the 28th February 2008,
“The recent passage of the Anti-
Corruption legislation, the implementation
of the Asset and Income Declaration
requirements for senior Government
officials and Parliamentarians, and the
adoption of the Extractive Industries
Transparency Initiative (EITI) is a
commendable step by the Government in
the right direction. Much remains to be
done, and the current Government has
also stated its intention to continue to
strengthen its public sector governance
capacity and implement the anticorruption
law effectively, and promote transparency
in Government-business interactions.”
The World Bank quarterly Report further

states that “the Independent Authority
Against Corruption (IAAC) is showing
significant progress, as it pursues its
mission of prevention and investigation of
corruption. The Criminal Code was
amended in September 2007, allowing the
Agency conduct investigations. In
December, the agency had more than 70
investigations underway, of which 21 had
been referred to the prosecutor and 8 are
going to trial. A Public Awareness was
launched in November and within a month
the IAAC had received more than 275
calls and close to 50 walk-ins. The IAAC
appropriation in the 2008 Budget is 2.7
billion Togrogs, which represents a 43
percent increase compared to 2007.
The other investigative bodies authorized

to conduct investigations under the
Criminal Procedures Code are the
Criminal Policy, the Central Intelligence
Agency, and the Special Investigative Unit
under the Attorney General’s Office.”
(xvi) Prepare a comprehensive report Completed: The Reports have been
outlining the overall current status of produced:
strategic planning, output
specification, benchmark setting and 46. ADB Project Terminal Report,
costing activities in the public sector. Part-1, Executive Summary, Major
Recommend forward looking Conclusions & Recommendations,
reforms in these areas to ensure full pp.1-74, ADB Capacity Building
compliance with Public Sector Projects on Governance Reforms,

Management and Finance Law Min of Finance, Govt of Mongolia,

(PSMFL). Ulaanbaatar, Mar 2008.
Part-2, Strategic Planning, Output
Budgeting, Accrual Accounting,
Benchmarks Setting, pp.1-74, ADB
Governance Reforms, Min of
Part-3, Financial Planning and
Policies, Core and Non-Core
Functions, and Seven Year Action
Plan, pp.1-74, DB Capacity Building
Projects on Governance Reforms,
Min of Finance, Govt of Mongolia,
Part-4, Budget Performance
Evaluation, Program Budgeting and
Program Assessment Rating Tool
(PART), pp.1-45, ADB Capacity
Building Projects on Governance
Reforms, Min of Finance, Govt of
Mongolia, Ulaanbaatar, June 2008.
50. Budget Performance Evaluation-
Methodology, Systems and
Management, pp.1-55, ADB Capacity
Reforms, Ministry of Finance,
Government of Mongolia,
Ulaanbaatar, May 2008.
51. An Introduction to Program
Budgeting, Program Evaluation
Review Technique (PERT) and
(PART), pp.1-36, ADB Capacity
Ulaanbaatar, May 2008
52. Program Assessment Rating Tool-
Methodology and Application for
Mongolia, pp.1-50, ADB Capacity
Building Projects on Governance R
Ulaanbaatar, June 2008.
53. Report 50 is translated in Mongolia
and circulated to line ministries.

54. Report 51 is translated in Mongolian

and circulated to line ministries.
(xvii) Develop the methodology for the Completed: Reports Produced:

preparation of ex ante financial
planning. 55. Financial Planning Methodology
and Policies- Part-1:
Methodology, pp.1-34, January
2008.
56. Financial Planning Methodology
and Policies- Part-2: Policies,
pp.1-32, January 2008.
Project Related Non-TOR Works Completed
In addition to the above mentioned reports, the following Non-TOR reports have been
prepared by the International Consultant.
57. A Balance Sheet for the Mongolia Development Fund for 2007-2008 (pp.1-5).
58. A Report on the National Workshop on Bond Market, organised jointly by UN-
ESCAP, ADB and Bank of Mongolia (BOM) at the Corporate Hotel, Ulaanbaatar
during 21-22 June 2007 (pp.1-4).
59. Comments on the IT Group Report on the Budget Preparation Information

Systems (BPIS) - Budget Business Process Report (15 July 2007).
60. Comments on the IT Group Report on BPIS- Information Systems Architecture

(August 2007).
61. Comments on the IT Group Report on BPIS Functional Requirements (August

2007).
62. Comments on two Reports on Policy and Expenditure Planning Statements

(PEPS) for Pre-school Education and Science and Technology of the MOECS
by the World Bank Consultants.
63. Comments on the report of the IMF Team on Budget Modernization on

Mongolian Government, pp.1-7.
64. Comments on the report of the IMF Mission on Government Finance Statistics
(GFS) and Migration to GFSM 2001, pp.1-5.
65. Comments on the Mongolia Second National Report- Millennium

Development Goals Implemention in 2005-2006, pp.1-4.


Compliance Report for 2007, pp.1-4, January 2008.
67. Mongolia Seven-Year Capacity Building Action Plan for 2008-2014, pp.1-6,
January 2008.
68. Providing substantial help to the IT Expert Group for model description and
methodology, test, calibration, evaluation and selection of appropriate software
for output costing (December 2007-January 2008). Following report has been
prepared as a business guideline for choice of software.
69. Output Costing Methodology for Software Selection- Basic Concepts and Some
Advices for Selection, pp.1-9, December 2007.
70. Comparative Evaluation of the Australian ABC-FOCUS Software and the local
Mongolian ALOCOUS Software for Output Costing, pp.1-17, January 2008.
71. A comparative analysis of budget systems and planning in Mongolia and

Thailand, pp.1-11, March 2008.
72. ADB Project Policy Matrix Compliance Report, pp.1-7, March 2008.07.04
73. Comments on the IMF Technical Assistance Mission Report on the Mongolian
Budget, pp.1-20, June 2008.
Non Project Related Works Completed
74. On an invitation from Ms. Davaasuren Chultemjamts, Director, United

Nations Statistical Institute for Asia and Pacific (UN-SIAP), Chiba, Japan
(formerly Chairperson, the National Statistical Office, Mongolia) International
Consultant Tarun Das visited UNSIAP at Tokyo, Japan during 19-25 August
2007 and delivered a set of lectures on Government Finance Statistics (GFS),
Balance of Payments (BOP) Statistics, Rest of the World Account (ROW) in the
National Accounts, Monetary and Financial Statistics (MFS) and Multi-Factor
Productivity Measures to a group of 25 statisticians/ economists from the
Ministry of Finance/ Central Statistical Organisation/ Central Banks of 18
selected countries viz. Argentina, Armenia, Bhutan, Bolivia, Cambodia,
Honduras, Indonesia. Malaysia, Micronesia, Mongolia, Nepal, Pakistan,
Paraguay, Philippines, Tajikistan, Tanzania, Turkey and Vietnam. Two
participants from Mongolia- Ms. Bolormaa Gochoosuren, Officer,
Economic Policy Division, MOF and Ms. Erdenesan Endev Ochir, Senior
Economist, National Statistical Office, Mongolia – also attended the
Workshop.
75. International Consultant Tarun Das prepared two lecture notes for UN-SIAP,
Chiba, Japan, as indicated below. Lecture notes were partly based on reports
of the ADB project (such as those on Government Finance Statistics, Cash
Accounting and Accrual Accounting).

76. Lecture Notes on Official Economic statistics- Part-1 on Government Finance

Statistics (GFS), Balance of Payments (BOP) Statistics and Rest of the World
(ROW) Account, pp.1-70.
77. Lecture Notes on Official Economic Statistics- Part-2 on Monetary and Financial
statistics (MFS) and Multi–Factor Productivity Measures (MFP), and Workout
Sessions, pp.1-62.
78. International Consultant Tarun Das attended a regional Workshop on

Mainstreaming Millennium Development Goals (MDGs) in the National
Development Plans (NDPs), organised jointly by the Asian Development
Bank (ADB), UN-ESCAP and UNDP at Bangkok, Thailand on 15-16 October
2007. Consultant presented the following paper and participated in discussions:
79. Mainstreaming MDGs through National Development Strategies, Prepared for

the Economic Commission for Asia and the Pacific (UN-ESCAP), Vol-1, Main
Report, pp.1-84, May 2007.
80. Mainstreaming MDGs through National Development Strategies, Prepared for

the Economic Commission for Asia and the Pacific (UN-ESCAP), Vol-2,
Annexes on policies, programs and challenges for poverty reduction in
individual countries, pp.1-79, May 2007.
Reports 79 and 80 were circulated to Mr. Batjargal, Ms. Enkhtuul and E. Sandagdorj of
the MOF; Mr. Maurence and Mr. Tulga of Glocoms Inc. (USA); Ms. Pratibha Mehta,
Regional UNDP Director, Mongolia, Dr. Dilli Bhattarai, Chief Technical Adviser, and Ms.
Tsedev Erdenchimeg, National Project Manager, UNDP and Ministry of Finance,
Poverty, MDGs Monitoring and Assessment Systems Support, Ulaanbaatar.
Prepared by
Prof. Tarun Das

Strategic Planning Expert
Dated the 8th July 2008.

Annex-3
Ministry of Finance
ADB Capacity Building Project on Governance Reforms
Subject: Responses by Tarun Das, Strategic Planning Expert to the IMF Fiscal
Affairs Department Report on “ Mongolia-Budget Preparation: A Roadmap for
Reform and Institutional Strengthening” prepared by the Technical Assistance
Mission Team composed of Messrs. Holger van Eden (Head of the Team), Regis
Chapman, Dick Emery and Justin Tyson in February 2008.
A. General Response
First of all, I would like to congratulate the IMF Mission Team for producing an
excellent, comprehensive and well researched report on a Roadmap for Reform and
Institutional Strengthening for modernizing Budget preparation in Mongolia. It carries
the distinct quality stamp of IMF. I wonder how they do it, but they improve quality in
each of their reports. I think it reflects the intellectual versatility, natural talents and
incredible skills of the team members for research and report writing.
B. Specific Responses
My specific responses to some of the operational recommendations relating to both the

World Bank ECTAC Project and the ADB Capacity Building Project on Governance
Reforms Project are indicated in tabular form with two columns in Attachment-1.
Summary of Specific Responses:
1. I fully agree with the following recommendations of the IMF Mission Team:
(a) Reforming fiscal, planning and budgetary process will not be possible if Mongolia
does not choose to invest in new and strengthened institutions, and in well-trained
and remunerated staff in the financial management area.
(b) The mission would suggest that the MOF retains the core national and
international consultants of the World Bank ECTAC project to continue with
Program budgeting in other ministries. On the other hand, the ADB products on
output budgeting and accrual accounting represent far reaching reforms that
capture best practices, but are beyond Mongolia’s current capacity.
2. In fact, in our reports prepared during the project period, and also in the
terminal reports, we have made similar observations and recommendations.
3. However, I would like to make the following additional recommendation.

ADB Project Team also had the responsibilities to prepare methodologies for the
following: (a) Benchmarks setting for costing & budgeting; (b) Development,
monitoring & evaluation of performance parameters; (c) Budget Performance

Evaluation Methodology and System; (d) Program Evaluation Review Technique

(PERT); and (e) Program Assessment Rating Tool (PART). All these works are
also relevant for the Program Budgets and should form additional
components of the extended World Bank ECTAC Project. For these works,
the WB ECTAC Project needs the services of an additional international
consultant for four months on intermittent basis and a national consultant for 12
months on continual basis during January-December 2009 or the ADB Project
needs to be extended for one year during January-December 2009 with similar
requirements of services of an international consultant for four months and a
national consultant for 12 months to complete these works and to bring the ADB
Project on Governance Reforms to a logical end.
4. It should also be recognized that the ultimate goal should be to introduce the
performance and accrual based output budgeting as per the requirements of
the Public Sector Management and Finance Act (PSMFA) passed on the 27
June 2002. For this we need gradual improvement in ICT and manpower skill and
progressive movement towards the goal. For this we have recommended Eight
Year Action Plan (2008-2015) for the government of Mongolia (Please see
Annex-1 for detailed plan).
5. Finally, it should be remembered that the IMF-World Bank recommended

Program Budgeting is only a first step towards the Accrual Output
Budgeting as required under the PSMFA 2002 and as developed by the ADB
project team. Here exist the complementarities between the World Bank Project
and the ADB Capacity Building Project on Governance Reforms. There is no
doubt (as observed by the IMF TA Mission) that accrual based output budgeting
developed by the ADB Project Team is at a much higher technical level than the
traditional and classical program budgeting developed by the World Bank Team.
6. It may be mentioned here that the starting point for most forms of
performance budgeting, including Accrual Output Budgeting (AOB), is
program budgeting, which was the standard public budgeting practice
throughout Australia in the 1980s prior to the adoption of AOB. AOB
incorporates most of the former program budgeting framework. The annual
government budget documents under AOB report the breakdown of funds
allocated to broad output groups within each Department, very much like the
former ‘programs’31. These output groups are groups of related outputs designed
to deliver the same outcome 32. Each broad output group comprise a number of
sub-output groups, like the former ‘sub-programs’.
31
Output groups under Accrual Output Budgeting in Australia are defined in such a way that they
more truly reflect the concept of an output than that under the program budgeting practice. For
example, departments are not permitted to use ‘corporate services’ as an output group, although
corporate services programs were common under program budgeting.
32
The Commonwealth refers to ‘Outcomes’ rather than output groups, meaning the same thing.

7. Budgetary allocations for the separate output groups are not binding. Instead,
parliamentary appropriations for departmental outputs are ‘global’, just as they
were under the former program budgeting regime 33. In other words, parliament
approves for each department one aggregate sum to cover all the outputs for
which the department is responsible, but has the flexibility to reallocate funds
between outputs during the year in response to unanticipated events and as per
legal requirements for accounting and auditing.
8. Although AOB has its roots in program budgeting, it differs from the program
budgeting in many respects. First of all, it incorporates private business and
competitive market environment in government activities to ensure efficiency.
Essentially, it builds a market-type superstructure upon program budgeting
foundations (WAT 199834). In this respect, it differs considerably from the forms
of performance budgeting which operate in other countries and do not generally
regard agency profit results as a key performance measure. To take an example, in
the USA under the system of ‘performance based program budgeting’ the annual
budget for each agency passed by the legislature includes only output and
outcome targets, but no prices. The United Kingdom has developed since 1998 a
system of Public Service Agreements and Service Delivery Agreements between
the Government and agencies linked to the budget. In Australia, New South
Wales is the only state not to have adopted accrual output budgeting.
9. Another important aspect of the Australian AOB, as compared to program

budgeting, is that the capital appropriations to departments have now been re-
labeled as ‘equity injections’35. Ministry of Finance asserts that, in addition to
equity injections, departments like private corporations may have access to two
main alternative sources of capital funding. The first is the so-called
‘depreciation-based’ capital funding, which is a draw-down from the accumulated
depreciation reserves. The other is the ‘rearrangement of the asset structure’, an
accounting jargon for funds derived from departmental asset sales or
disinvestment or privatization (Robinson, 200736). Consequently, Australian
agencies, like private enterprises, enjoy considerable degree of freedom for new
investments.
33
The Commonwealth submits appropriations to Parliament in a form grouped into ‘outcomes’.
However, this allocation is not binding, and is purely for information (see Commonwealth Accrual
Budgeting Guidelines, 1999 and Accrual Appropriation Framework, 1999, Department of Finance
and Administration, Canberra).
34
WAT (Treasury, Western Australia) (1998) Output Based Management Output Measures -
Guidelines to Assist Agencies, The Treasury (Perth).
35
The Commonwealth differs from the states in that it provides loans to the departments as well
as equity injections (DOFA 1999).
36
Robinson, Marc (2007) edited. Performance Budgeting- Linking Funding and Results, Palgrave
McMillan.

10. So-called ‘capital charging’ has also been introduced by most of the states in the
Australian AOB system. Capital charging is a private-sector idea to include it as a
part of the output cost to reflect return on capital. Its first application to the public
sector appears to have been by the British National Health Service (NHS). New
Zealand subsequently extended capital charging to the whole budget sector. The
idea is that, in addition to depreciation, a type of ‘interest’ charge is levied upon
departments for the use of the capital, particularly in physical assets. The rate of
the capital charge is supposed to reflect the opportunity cost of capital provided to
Departments, and it is expected that that the Agencies to which the government
provides capital should earn at least a ‘normal’ rate of return. Proponents of
capital charging argue that it would reduce wasteful capital expenditure and
encourage the identification and sale of idle and surplus assets.
11. Clearly, in a budgeting system based upon output prices, it is logical to treat the
opportunity cost of capital as a component of cost in price-setting. Accordingly,
the State governments which impose capital charges treat it as an ‘above the line’
expense in operating statements. However, the Commonwealth Government takes
a different approach, treating the capital charge as a ‘below the line’ entry,
treating the capital charge equivalent of a profit dividend paid to shareholders.
Benefits of Accrual Output Budgeting
12. The above analysis suggests that the ‘market’ principle of funding based on
output prices can only be selectively applied in the public sector. In addition to
the distinctive ‘market’ aspects of AOB, the system has led to a renewed effort to
improve and extend performance measures and indicators. Considerable work is
being undertaken in the Australia, Canada, New Zealand, UK and USA to
articulate the linkages between outputs and outcomes, and strategy. Moreover, it
has been associated with a major drive to shift public sector accounting in
Australia onto an accrual basis: a step which arguably has many benefits in other
areas, including fiscal policy (Robinson, 2000 and 200237).
37
Robinson, Marc (2000) ‘Contract Budgeting’, Public Administration, Vol. 78, No. 1, pp.75-90.
Robinson, Marc (2002) ‘Accrual Accounting and Australian Fiscal Policy’, Fiscal Studies.

ATTACHMENT-1
Major operational recommendations Response by Tarun Das,

of the IMF TA Mission Team Strategic Planning Expert
Recommendation-1: Page-6
“Reforming fiscal, planning and I fully agree with these recommendations.

budgetary process will, however, not be In our final report38 on Strategic Business
possible if Mongolia does not choose to Plan, we have also recommended that:
invest in new and strengthened
institutions, and in well-trained and “Preparation of the Strategic Business Plan
remunerated staff in the financial (SBP) by any agency is a very technical
management area. This report job. In order to ensure uniformity and
recommends setting up a strategically- consistency in the structure and
oriented Economic Development Agency methodology for SBPs of various agencies,
under the Prime Minister’s (PM) Office it is necessary to set up a specialized
and a Budget Support Office for the Budget dedicated organization (may be called the
Standing Committee of parliament. These Office of Performance Budgeting and
new institutions are to improve the strategic Strategic Planning as in the USA).”
guidance and the approval process of the
budget, respectively.” “If it is not possible to set up such a
separate structure to provide support for
“The report also advises to substantially performance based budgeting, then the
strengthen core units in the MOF, Fiscal Policy and Coordination Division in
especially in the Fiscal Policy and MOF need to be enlarged and strengthened
Coordination Department (Mongolia’s for planning and coordination of SBPs at
Budget Office), and to set up financial the national level and in line ministries.”
management units in all line ministries,
first level spending agencies and Aimags. “It is also necessary to set up additional
These offices would include accounting, unit at each line ministry including MOF
budgeting and strategic planning capacities, and local governments comprising
which the MOF should regulate and set experienced economists, IT specialists,
standards for.” works and cost accountants, and chartered
accountants specialized in public sector
accounting. It will help to build up
necessary capacities, skill and experience
in each Agency and to establish a proper
succession plans for management in the
event of an exit of the coordinator or the
unit supervisor or any other member of the
38
Pages 16-17 in Das, Tarun and E. Sandagdorj (2007a) “Preparation of Strategic Business
Plans- General Guidelines, Suggestions for Improvement, and Summary of Recommendations”,
Final Report, pp.1-74, 30 Sept 2007.

specialized unit dealing with preparation of

comprehensive SBPs.”
“Thus, the successful implementation of

the PSMFA (2002) will require the
following actions on a priority basis by the
government of Mongolia:
(11) To consolidate the progress
made until now by proper
documentation in both English and
Mongolian;
(12) To build up necessary
institutions for modernizing budgets;
(13) To build up capacity and
skill of the personnel engaged in
planning, budgeting, accounting and
auditing;
(14) Strengthen and upgrade
information and communications
technology (ICT) to support the budget
modernization process and systems.
(15) All these works need to be
done in a phased and systems
framework.”

Recommendation-2: Pages-7 and 41

Page-7
“TA and capacity building is a third I fully agree with these observations and
essential element in maintaining the recommendations of the IMF TA Team.
momentum of reform. The mission would The World Bank ECTAC Project Team has
suggest that the MOF retain the core done excellent works for Medium Term
national and international consultants of the Budget Forecasts and also by introducing
World Bank ECTAC project. These Program Budgets in three line ministries
consultants would be needed for the further viz. MOECS, MOFA and MOSWL. In fact,
roll-out of medium-term program in our report on Output Costing and Output
budgeting over the coming years. A request Budgeting39, we have noted that:
of this nature towards the World Bank
should have some urgency given the mid- “For the Budget Year 2008, three pilot
2008 end of the project, and the start-up ministries viz. MOECS, MOFA, MOSWL
time for project extension.” have introduced Program Budgets linked to
outputs and outcomes. These budget
formulations are in the right direction.
“The reform methodologies developed by Program budget, as in many other countries
ADB consultants do not seem worth like Australia and New Zealand, is the first
pursuing at this time given their very step towards output budgeting and accrual
advanced nature and the lack of capacity to accounting. These ministries and the World
implement them in Mongolia in the Bank ECTAC Project Team need to be
foreseeable future.” congratulated and complemented for their
pioneering and excellent works.”
Page-41: Analysis and recommendations I also agree with the observations of the
IMF Team on the methodologies and
“Our overall assessment of the ADB and guidelines on Output Costing and Output
World Bank projects is that while Budgeting, and Accrual Accounting and
conceptually sound they will need to be Accrual Budgeting developed by the ADB
phased in to meet the constraints of the Project Team comprising myself and E.
Mongolian budget establishment. The Sandagdorj. We had to prepare these
ADB products represent far reaching guidelines as per TOR approved by ADB
reforms that capture best practice, but are and also required under the sections 26.1,
beyond Mongolia’s current capacity. 26.2 and 26.3 of the Mongolia Public
39
Das, Tarun and E. Sandagdorj (2007b) Output Costing and Output Budgeting- Basic
Concepts and Methodology, pp.1-51, October 2007, and slide 1.2 of the Power Point
Presentation on Output Costing and Output Budgeting: Part-1: Current Status and Action
Plan, pp.1-39, at the Workshop held at the Corporate Hotel, Ulaanbaatar on 29-30 Nov 2007.

Indeed, only the most reform-minded Sector Management and Finance Act
countries, like New Zealand and Australia (PSMFA, 27 June 2002). However, while
come close to having systems with these formulating the Seven Year Action Plan 40
characteristics. Most OECD countries are for complete implementation of the
far from achieving these standards of PSMFA, we have observed that:
performance. The World Bank products in
contrast present a sound overall approach “The government of Mongolia has initiated
that needs to be simplified and phased in to measures to implement the PSMFA almost
fit current capacity constraints of immediately since its inception in June
Mongolia’s line ministries and the MOF.” 2002. Good progress has been made with
the introduction of Strategic Business Plans
in major line ministries; formulation of
Medium Term Fiscal and Budgetary
Framework, preparation of consolidated
financial statement for general government,
time bound execution of budget and
improved fiscal reporting on cash basis
with some steps towards accrual
accounting.”
“MOF is implementing two major capacity

building projects being financed by grants
and loans from the World Bank and the
Asian Development Bank. Significant
progress has been made in the development
of basic concepts, preparation of
methodological papers, strengthening IT
system and creating general awareness
about the usefulness and necessity of
modern techniques for output budgeting
and accrual accounting.”
“Despite these efforts, little progress has

been made towards moving to a system
of output costing, output budgeting,
accrual accounting and performance
budgeting. More than five years had
passed since the Act had been enacted by
the Parliament, but the progress of
implementation is slow due to the
40
Pages 1-2 in Das, Tarun and E. Sandagdorj (2007) “ Seven Year (2007-2013) Action
Plan to implement fully the provisions of the PSMFA (2002) as regards preparation of SBPs on
the basis of Performance Based Accrual Output Budgeting, pp.1-21, Nov 2007.

following reasons:
(1) The Act was passed in a hurry
without assessing the capacities and
skill within the government for
implementation of the Act and without
establishing the adequate institutional
set up to support the process of
implementation. In fact, the Act has
not provided an implementation plan.
(2) The Act is over-ambitious for a

developing country like Mongolia.
The Act contains all the components of
Budget Modernization, which in fact at
present are being implemented by only
the most advanced countries like
Australia, Canada, New Zealand, UK,
USA and selected OECD countries.
Even these countries (having much
higher per capita income, advanced
information technology and skilled
manpower) have taken more than two
decades to reach to this stage. Such a
leap-frogging is not feasible for a
developing country like Mongolia.”

Recommendation-3: Pages-11 and 41 I agree with these observations and

recommendations by the IMF TA Team.
Page-11: Budget Reform Strategy The responses given under
Recommendation-2 above equally hold
“The mission strongly supports the good for these recommendations.
movement towards medium-term program
budgeting instigated by the World Bank However, I would like to make the
ECTAC project. The move to medium-term following additional recommendations:
budgeting will enhance budgetary planning
and show the consequences of expenditure (1) Besides the works relating to
proposals more clearly. Program preparation of guidelines and manuals
budgeting will allow much better insight in on Strategic Business Plans, Output
the policy direction of line ministry budgets Costing and Output Budgeting,
and enable linking to performance Accrual Accounting and Accrual
targeting.” Budgeting, ADB Project Team also
had the responsibilities to prepare
“The ADB project on output and accrual methodologies, manuals and
budgeting is much less aligned with management systems for the
Mongolia’s capacities. Some of the more following:
advanced reforms in the ADB project are (a) Benchmarks setting for
required by the 2002 Public Sector costing and budgeting;
Financial Management Law (PFSML). Not (b) Development and
pursuing these reforms in the short to monitoring of performance
medium term would thus require a change parameters;
in the present legal framework.” (c) Budget Performance
Evaluation
“The World Bank proposals do require (d) Program Evaluation
some simplification, sequencing and Review Technique (PERT);
parallel development of financial (e) Program Assessment
management capacity in line ministries Rating Tool (PART); and
and MOF. In the report we sketch the (f) Development of Softwares
possible sequence of the major elements of for costing, accounting and
the reform agenda over the period 2008– auditing.
2010.”
(2) All these works are also relevant
for Program Budgeting. These tasks
are essentials to fulfill eleven desired
characteristics of an ideal budgeting
viz. accountability, hard budget
constrains, comprehensiveness,
Page-41: Analysis and recommendations cooperation, honesty, judgment,
legitimacy, perception, responsiveness,
timeliness and transparency, as
“Our overall assessment of the ADB and recommended by Meyers (1996)41.
World Bank projects is that while
conceptually sound they will need to be

phased in to meet the constraints of the

Mongolian budget establishment. The (3) It is strongly recommended that
ADB products represent far reaching these additional assignments should
reforms that capture best practice, but are form the components of the extended
beyond Mongolia’s current capacity. World Bank ECTAC Project beyond
Indeed, only the most reform-minded Mid-2008, because performances of
countries, like New Zealand and Australia Program budgets introduced in 2008
come close to having systems with these need to be monitored and reviewed in
characteristics. Most OECD countries are 2008-2009 as a part of Budget
far from achieving these standards of Formulation for the Budget Years
performance. The World Bank products in 2009-2010. For these additional
contrast present a sound overall approach woks, the World Bank ECTAC
that needs to be simplified and phased in to Project will need the services of one
fit current capacity constraints of additional International Consultant
Mongolia’s line ministries and the MOF.” for five months on intermittent basis
and a national consultant on
“Mongolia has been undergoing a steady continual basis for 12 months during
stream of public sector reforms; it is Sept 2008 to August 2009.
essential to avoid reform fatigue. Rather
than focusing on the final outcome of (4) Benchmarks setting and performance
implementing medium-term program evaluation are an integral part of
budgeting, it would be helpful to structure Program Budgeting in developed
reforms to produce useful intermediate countries like Australia, New Zealand
improvements in the budget system, while and USA, and also in emerging
strengthening capacity at the same time. economies like Thailand. One is
Many ministries are not complying with reminded of the popular observations
current requirements for output delivery made by Osborne and Gaebler42:
reports and strategic business plans. These
reports should be modified to make • “If you do not measure results, you
them more useful or consideration cannot see either success or failure.
should be given to dropping the • If you cannot see success, you cannot
requirements.” reward it.
• If you cannot reward success, you are
probably rewarding failure.
• If you cannot see success, you cannot
learn from it.
• If you cannot recognize failure, you
cannot correct it.
• If you cannot correct failure, you
cannot win public support.
41
Meyers, Roy T. (1996). Is There a Key to the Normative Budgeting Lock? World
Bank, Washington, D.C.
42
Source: Adopted from Reinventing Government by David Osborne and Ted Gaebler, pp.1-427,
Addison-Wesley Publication Co., 1992.

• You can win public support, only

when you can demonstrate results.”
Annex-4
Design of a 2 Day Training Program for Capacity Building on

Budget Performance Evaluation and
The consultants desired to conduct two-day workshop on the above

mentioned subjects in June 2008. But, due to the general election scheduled
to be held on the 29th June 2008, the proposed work conducted could not be
conducted. Here we present a detailed course outline and scope for the
training program, which could be repeated for the officials engaged in
preparation of program budgets and monitoring and evaluation of budget
performance.
1 Basic Objectives and Scope of the Course
The basic objective of the course is to improve the following areas of

professional competence of the government officials in the line ministries of
the central government, Aimags and Agencies:
(a) At the cognitive level, the course aims to impart, to the participants,
the current state-of-the-knowledge on program budgeting and budget
performance evaluation, so that it enhances their understanding and
ability to prepare program budgets and to monitor and evaluate
budget performance.
(b) At the attitudinal level, the course aims to increase sensitivity of the
participants about the impact of Millennium Development Goals,
governance reforms, poverty reduction and growth strategy on the
preparation of program budgets.
(c) At the skill level, the course aims to strengthen the participants’
leadership and capability for problem solving, team works and
communication skills and to make them aware of the principles and
values of modern planning, budgeting and systems management.
(d) Accordingly, the course encourages pro-active behavior and a
hands-on approach to both teaching and learning.
2 Learning Outcome
(a) Develop a comprehensive understanding of the basic concepts,

scope, analytical framework, applications and constraints for
preparation of program budgeting and monitoring and evaluation

methodology and systems for budget performance evaluation and

program assessment and program review.
(b) Develop skills and capabilities for analytical presentation,

networking and teamwork through group discussions, case studies and
workout sessions.
(c) More emphasis will be laid on understanding basic concepts,

practical issues, operational problems and prospects of program
budgeting and performance based budgeting rather than abstract
theoretical discussions and complicated analytical and mathematical
models.
3 Pedagogy
(a) Teaching techniques will consist of formal lectures, power point

presentations, case studies, workout sessions and preparation and
presentation of group project reports.
(b) Selected case studies would be given so as to facilitate participants to
relate to theoretical concepts with real life situations in program
budgeting and budget performance evaluation. The participants would
present and discuss these case studies in the class.
4 Sessions Plan: Global Public Policy and Global Business

Environment
Four Sessions a Day:
(1) First Session 0930=1100
Tea Break 1100=1115
(2) Second Session 1115=1245
Lunch 1245=1400
(3) Third Session 1400=1530
Tea break 1530=1545
(4) Fourth Session 1545=1715.

First Day MODULES/ TOPICS

Sessions
1 Module 1: Scope and objectives of budget performance evaluation
1. Introduction, Scope and Objectives

1.1 The Budget and Public Sector Performance
1.2 Performance Based Budgeting
1.3 Integration of Strategic Plan with Program Budget
1.4 Performance Monitoring and Evaluation
2. Ideal Performance Evaluation Systems

2.1 Characteristics of an ideal performance evaluation system
2.2 Various Models of Performance Evaluation
2.3 Choice of Particular Performance Evaluation System
3. Budget Performance Indicators

3.1 Performance Measures versus Performance Indicators
3.2 Types of Performance Indicators
3.3 Characteristics of an Ideal Performance Indicator
3.4 Use of Performance Measures
2 Module 2: Budget Performance Evaluation System and Methodology
4. An Operational Budget Performance Evaluation System for the

4.1 Hierarchy of Activities, Functions and Output Classes
4.2 Types of Budget Performance Evaluation
4.2.1 Input/ resource use evaluation (compliance)
4.2.2 Output/ service evaluation (efficiency)
4.2.3 Clients’ satisfaction evaluation (efficiency)
4.2.4 Outcomes/Community evaluation (effectiveness)
4.3 Benchmarks and best practices
5. Budget Performance Evaluation Methodology-Part-1

5.1 Analysis of strategic plan and baseline profile
5.2 Diagnostic scan and SWOT analysis
3 Module 3: Budget Performance Evaluation Methodology

6. Budget Performance Evaluation Methodology- Part-2
6.1 Strategic and Operational Performance evaluation

6.2 Budget Compliance, Efficiency and Effectiveness Evaluation
6.3 Overall Assessment and Score
6.4 Major findings and recommendation
4
Module 4: An Example from the MOECS and Group
Discussions

Second MODULES/ TOPICS

Day
Sessions
1 Module 1: Scope and objectives of Program Budgeting
1. Introduction
1.1 What is a Program?
1.2 What is Program Budgeting?
2. Various Budgeting Models

2.1 Incremental Budgeting
2.2 Zero based budgeting
2.3 Responsibility Centered Budgeting
2.4 Formula based budgeting
2.5 Program budgeting
3. Output Costing Models

3.1 Traditional Input Costing/ Line Budgeting
3.2 Activity Based Costing (ABC)/ Program Budgeting
2 Module 2: Program Assessment Rating Tool (PART)
4. Conceptual Understanding of Program Budgeting

4.1 Integration of Program Budget with MTEF
4.2 An example of program budgeting from MOECS
4.3 Conceptual Framework of Program Budgeting
5. Program Assessment Rating Tool (PART)

5.1 PART Design and Questionnaire
5.2 PART Questions
5.3 PART Scoring System
5.4 Translating PART Scores into Ratings
3 Module 3: Program Evaluation Review Technique (PERT)

6. Program Evaluation Review Technique (PERT)
6.1 The Process: Developing a Business Action Plan (BAP)
6.2 The Written Business Action Plan
7. Pre-requisites for successful implementation of Program Budgeting in

Mongolia
7.1 Implementation Issues
7.2 Lessons from other countries
7.2.1 Program Development Process
7.2.2 Program Design Process
7.2.3 Budgetary Reforms Management
4
Module 4: PART Questions and Instructions for Reply
and Time Schedules for PART Reply

Recommended Readings
1. ADB Capacity Building Project on Governance Reforms, Ministry

of Finance, Government of Mongolia, Ulaanbaatar
1.1 Budget Performance Evaluation- Methodology, Systems and Management,

pp.1-55, May 2008.
1.2 An Introduction to Program Budgeting, Program Evaluation Review Technique
(PERT) and Program Assessment Rating Tool (PART), pp.1-36, May 2008.
1.3 Program Assessment Rating Tool- Methodology and Application for Mongolia,
pp.1-50, July 2008.
1.4 Report at 1 is translated in Mongolia by E. Sandagdorj, SPE.
1.5 Report at 2 is translated in Mongolia by E. Sandagdorj, SPE.
1.6 ADB Project Terminal Report, Part-1, Executive Summary, Major
Conclusions & Recommendations, pp.1-74, Mar 2008.
1.7 ADB Project Terminal Report, Part-2, Strategic Planning, Output
Budgeting, Accrual Accounting and Benchmarks, pp.1-74, Mar 2008.
1.8 ADB Project Terminal Report, Part-3, Financial Planning and Policies,
Core and Non-Core Functions, and Action Plan, pp.1-74, Mar 2008.
1.9 ADB Project Terminal Report, Part-4, Budget Performance Evaluation
and Program Assessment Rating Tool (PART), pp.1-95, June 2008.
2. Other References
Bergin, Feffrey (2004) Performance Based Budgeting, Performance

Management Institute, 2004.
Dorotinsky, Bill (2007) From Line-item to Program Budgeting – Opening

the 'black-box' of spending, pp.1-3, Fiscal Affairs Department, IMF Website.
General Services Administration (2005) Performance Management

Process: Strategic Planning, Budget and Performance Management cycle,
PP.1-108, Office of the Chief Financial officer, Federal Government of USA,
January 31, 2005.
Kim, John M. (2007) edited. From Line-item to Program Budgeting- Global

Lessons and the Korean Case, pp.1-281, Korea Institute of Public Finance
and the World Bank, Seoul, Korea.
Office of Management and Budget (2007) Program Assessment Rating

Tool Guidance No.2007-02, vii+pp.1-82, Executive Office of the President,
United States of America, Washington D.C. 20503, January 29, 2007.

Annex-5
List of Experts Consulted
Asian Development Bank
1. Mr. Adrian H. Ruthenberg, Country Director, Mongolian Resident

Mission.
2. Mr. Jan Hansen, Financial Sector Specialist, Country Coordination,
Governance, Finance and Trade Division, and the Program Officer for
the Second Phase of the Governance Reforms Program and the
Capacity Building Reforms, ADB HQ, Manila.
3. Mr. Peter M. Robertson, Evaluation Specialist (Governance and
Capacity Development), Operations Evaluations Department, ADB HQ,
Manila.
4. Mr. Scott Bayley, Evaluation Specialist, Operations Evaluations
Department, ADB HQ, Manila.
International Monetary Fund
5. Mr. Holger M. Van Eden, Senior Economist, Public Finance Management

Division, Fiscal Affairs Department, International Monetary Fund,
Washington D.C.
6. Mr. Gary Jones, Government Finance Division, Statistics Department,
International Monetary Fund, Washington D.C.
7. Ms. Khulan Buyankhishing, Economist, Office of the IMF Resident
Representative Office in Mongolia, Ulaanbaatar.
Ministry of Finance
8. Mr. Batjargal Bazarsuren, DG, Fiscal Policy & Coordination Dept.

9. Mr. Nymaa Buyantogtokh, Director (Expenditure), FP&CD
10. Ms. Enkhtuul Khurel, Project Coordinator, ADB Gov Reforms Project.
11. E. Sandagdorj, National Consultatnt on SBP.
12. D. Tsogtbaatar, Director of Public Administration Department of
MOF
13. J. Jargalsaikhan, Director-general of Economic Policy Dept, MOF
14. J. S. Myagmardash, Director of Consolidated Budget Planning
Division
15. D. Oyun, Director of Monitoring and evaluation Division, MOF
16. G. Batkxurel, DG of Macroeconomic Policy & Coordination Dept.
17. B. Daajamba, DD of Accounting Policy and Control Department
18. D. Nanzaddorj, Deputy Director of Treasury Department
19. B. Ganbold, DD of Financial Policy and Coordination Department
20. N. Ganerdene, Senior Specialist of Public Administration
Department
21. D. Tsedenbal, Senior Specialist of Public Administration
Department

22. E. Selenge, Specialist of Procurement Department

23. Ts. Zolzayaa, Specialist of Foreign loans and aid Policy and
Coordination Dept.
24. I. Erdenesaikhan, Specialist of Legal Department
25. B. Uranbaigali, Specialist of Public Administration Department
26. Z. Bayanmonkh, Specialist of Public Administration Department
27. Mr. Ulziisaikhan Dash, Economist, Fiscal Policy Department
28. Ms. Munkhtseren Sharav, Officer in Charge of MDG monitoring and
localization.
29. R. Batjargal, Senior economist of A&S department, MOF
30. Ts. Zorigtbat, Specialist of Economic Policy Dept, MOF
31. B. Myagmarsuren, Deputy director of Procurement Department,
MOF
32. P. Ganchimeg, Specialist for Socila welfare sector budgeting,
FPC Dept, MOF
33. J. Enkhzul, Specialist for Health Sector Budgeting, FPCD, MOF
34. A. Mandakhnaran , Specialist of FPC Dept, MOF
35. Munkhtuul, Specialist (Education, Culture & Science), FPC Dept,
MOF
36. Tsedenbal, Senior specialist on SBP of Administration Dept,
MOF
37. G. Batbayar, Specialist for Revenue division, FPC Dept, MOF
38. Ms. Bolormaa Gochoosuren, Officer, Economic Policy Division,
MOF.
39. Ms. Erdenesan Endev Ochir, Sr. Economist, National Statistical
Institute.
40. Mr. Bat Bayar, Deputy Auditor General, Audit Office.
Ministry of Education, Culture and Science (MOECS)
40. Ts. Davaasuren, DG, Department of Economics and Finance

41. Ms. Erdemchimeg Sumiya, National Consultant for Public Exp.
Management
42. J. Otgonbat, Specialist of Monitoring, Supervision and Control
Dept, MOECS
43. J. Ganbaatar, Senior economist of FE Dept, MOECS
44. T. Sarantuya, Specialist (Planning & Reporting), Public Admn
Dept, MOECS
45. Kh. Gantsetseg, General accountant and specialist of FE Dept,
MOECS
Ministry of Social Welfare and Labor (MOSWL)
46. Ms. Nyam Ayush, Director, Monitoring Department

47. Chief, Accounting Department
48. Expert on Strategic Planning
49. Expert of Accounting
50. Expert on Social insurance

51. Mr. Dunkhree Batmonkh, Senior Financial Management

Specialist, World Bank Governance Assistance Project, ECTAC and
PHRD Projects
World Bank ECTAC Project- Civil Service Reforms
52. Darrell Freund, Functional Review Adviser

53. Clive Parry, International Public Administration Consultant
54. Ms. D. Khangal, Functional Review Consultant
World Bank ECTAC and PHRD Projects
55. Ms. Erdemchimeg Sumiya, National Consultant, Public Exp.

Management;
56. Ms. Helen E. Tilley, International Consultant, World Bank ECTAC
Project.
57. Mr. Dunkhree Batmonkh, Senior Financial Management Specialist,
World Bank GAP.
58. Mr. Benjamin Diokno, ECTAC, MOSWL.
59. Mr. Mauro Napdonno, ECTAC, MOESC.
60. B. Tugoldor, Local Expert, Short and Medium-term Budget Planning,
WB, ECTAC Project.
61. S. Dorjhand, Project coordinator of the WB ECTAC Project
62. T. Batsukh, Project coordinator of the WB ECTAC Project
63. Enkhbat, Local expert on the WB ECTAC Project
Information Technology (IT) Group
64. Mr. Jim Ramsey, International Consultant (IT development for budget
preparation)
65. Mr. David Lowey, International Consultant (IT development for
auditing and output costing)
66. Ms. Bolormaa, National Consultant
67. Mr. Oyunbaatar, National Consultant
68. Ms. Tsolmon, Functional Specialist, Citicom
69. Mr. Jugdernamjil, IT Expert, Citicom
70. Batdelger, Local consultant on software reviewing, MOF
UNDP Regional Office at Ulaanbaatar, Mongolia
71. Ms. Pratima Mehta, UNDP Regional Coordination at

Ulaanbaatar.
72. Dr. Dilli Bhattarai, Chief Technical Adviser (MDG), UNDP.
73. Ms. Tsedev Erdenchimeg, National Project Manager, UNDP and
MOF Poverty, MDGs Monitoring and Assessment Systems Support,
Ulaanbaatar.

ADB Project On Governance Reforms in Mongolia - Terminal Report Part-4 by Tarun Das

Загружено:

Сведения о документе

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

ADB Project On Governance Reforms in Mongolia - Terminal Report Part-4 by Tarun Das

Загружено:

Авторское право:

Доступные форматы

ADB Project Terminal Report- Part-4 by Tarun Das

ADB Project Terminal Report: Part-4:

Professor Tarun Das1

MOF, Govt. of Mongolia 215 Glocoms Inc. (USA)

Table of Contents Pages

Project Team 220

Administrative Units of Mongolia 220

Major macro-economic variables 221

List of Reports prepared by the ADB Project Team 222-228

Chapter-9: Immediate and Future Action Plan 229-231

Chapter-10: Budget Performance Evaluation 232-254

Chapter-11: Program Budgeting and Program 255-271

Annex-1: Eight Year (2008-2015) Action Plan for 272-281

Annex-5: List of Experts consulted 308-310

MOF, Govt. of Mongolia 216 Glocoms Inc. (USA)

Table of Contents: Parts 1, 2 and 3

Administrative Units of Mongolia 4

Major macro-economic variables 5

Document history 6-9

List of Abbreviations 10-11

Chapter-1: Major Conclusions and Recommendations 12-51

Annex-1: TOR and Compliance Report 52-58

Annex-2: Policy Matrix – Compliance Report 59-62

Annex-3: Design of a Training Program for capacity 63-67

Annex-4: List of Experts consulted 68-70

Chapter-4: Accrual Accounting and Accrual Budgeting 116-132

Chapter-5: Benchmarks and Best Practices 133-157

Chapter-7: Core and Non-core functions 192-205

Chapter-8: Seven Year Action Plan (2008-2014) 206-214

MOF, Govt. of Mongolia 217 Glocoms Inc. (USA)

Initially Tarun Das, International Strategic Planning Expert, had a tenure of

I take this opportunity to express my gratitude to all my benefactors, whom

First of all, I am grateful to Mr. Batjargal Bazarsuren, Director General, Fiscal

MOF, Govt. of Mongolia 218 Glocoms Inc. (USA)

I am also grateful to Mr. Nymaa Buyantogtokh, Director (Expenditure

I would like to thank my colleagues Ms. Enkhtuul Khurel, Coordinator of the

I am also grateful to the international and national consultants engaged in

I would like to thank all the participants of the half-day Workshop on

MOF, Govt. of Mongolia 219 Glocoms Inc. (USA)

ADB Capacity Building Project on Governance Reforms

Project Supervisor Mr. Batjargal Bazarsuren, DG,

National Consultant Mr. E. Sandagdorj

International IT Consultant Mr. David Lowey, Ph. D.

International Consultant Mr. Tarun Das, Ph.D.,

Administrative units of Mongolia

MOF, Govt. of Mongolia 220 Glocoms Inc. (USA)

Fiscal year: 1st January to 31st December

Major macro-economic variables:

Items Units 2005 Rank in the World

Population Million 2.55 137

GDP PPP per capita US$ 1983 176

GDP per capita US$ 736 148

Poverty ratio Percent 36 …

Items Units 2005 2006 2007

Real GDP growth rate Percent 7.0 8.7 9.9

CPI Inflation rate Percent 9.5 7.0 8.6

Interest rate on central Percent 3.7 5.8 6.4

Overall budget balance As % of -1.0

MOF, Govt. of Mongolia 221 Glocoms Inc. (USA)

List of Reports Prepared by the ADB Capacity Building Project

1. ADB Project Terminal Report, Part-1, Executive Summary, Major

2. ADB Project Terminal Report, Part-2, Strategic Planning, Output

3. ADB Project Terminal Report, Part-3, Financial Planning and Policies,