Public sectors around the world are under increasing pressure to deliver more with less. Citizens expect transparency, efficiency, and measurable results. Development partners demand accountability, and policymakers want clearer evidence that public spending is actually improving communities, and achieving the results from the Government’s investments in key sectors. Traditional budgeting methods, which focus on historical expenditures and incremental adjustments to budget line items have been recognised as inadequate for ensuring accountability, transparency, effectiveness and efficiency. Against this background, both developed and emerging market-orientated and OECD economies have turned to a Performance Budgeting approach to transform their budgeting frameworks (OECD, 2019). Performance Budgeting aims to improve the effectiveness and efficiency of public expenditure by linking the funding of public sector programs to the results they are expected to deliver. The impact of this reform is realized in improved prioritization of expenditures and allocation of scarce resources to the programs that deliver the greatest benefits to the community, and improved effectiveness and efficiency of delivery of government services and outputs (OECD, 2026).
The objective of this note is to outline a scalable model of Performance Budgeting that is relevant for countries embarking upon, or refining, a performance-orientated budgeting system, that will contribute to the essential elements of a well performing budget system, and support aggregate fiscal discipline, allocation of resources in accordance with strategic priorities, and efficient and effective use of resources in the implementation of strategic priorities.
What Is Meant by Performance Budgeting?
Performance Budgeting is defined as public sector funding mechanisms that link funding of public sector organizations to the results they are expected to deliver (OECD, 2026). In the Public Finance Management (PFM) literature and reference material this may be referred to as Performance Based Budgeting, Outcome-Based, Results-Based, or Priority-Based Budgeting. Whatever the nomenclature, all these terms share the common principle of aligning resources with measurable results.
Regardless of the sophistication of a country’s budget system, all budget decision makers need information on the details of programs that are being funded to be able to prioritize limited resources to programs that are achieving the most important economic and social development goals, gauge progress towards meeting these objectives, and provide clarity and transparency on the level of public funds that are allocated to programs focusing on strategic and tactical goals.
Implementing Performance Budgeting
Performance Budgeting should not be seen as an isolated reform, but should be viewed as part of a more comprehensive set of reforms to improve Public Finance Management, including implementation of a Medium-Term Budget Framework – within which Performance Budgeting will contribute to improved prioritisation of resource allocation – civil service reform, organizational restructuring, financial management systems, and legal and institutional reforms to strengthen accountability, transparency and performance. Complementary and coordinated reforms in all these areas will be necessary for achieving a well-functioning public expenditure management system.
The fundamental elements in implementing, or refining a Performance Budgeting budgetary framework will involve:
- Requiring government agencies to articulate, and ensure alignment of agency strategic goals and objectives with national priorities, reflecting the key strategic objectives that the government wishes to achieve. Many of these agency level goals/objectives may already be found within existing agency documentation, strategic documents, corporate plans, reports and other planning documents, and this will facilitate the completion of this process. This is the first step in ensuring that resources are allocated in accordance with strategic priorities.
- Development of agency program structures that reflect the allocation of resources – staff and other costs – to programs and activities that address these strategic objectives. A program is a grouping of similar services or activities performed by an agency or ministry to achieve a strategic goal/objective, and may follow a hierarchical structure as per the illustrative example below, noting that more than one program may address a designated strategic objective:
Illustrative example of Program Hierarchy
- Augmentation of the Financial Management Information System (FMIS) Chart of Accounts to incorporate the program classification architecture into the FMIS, to support the allocation and execution of budget resources by programs and sub-programs through the formal budget system. This step represents the essential ‘plumbing’ of the Performance Budgeting framework, which will permit real time updates of funds allocated to programs addressing strategic priorities, automatic reconciliation of the funds allocated to programs with budget aggregates, and production of management reports – including production of budget documentation on a program basis – as required by decision makers. These elements contribute to fiscal control and discipline.
- Identification of output and outcome performance indicators/measures for each program that will measure the success of agency programs in achieving their stated objectives. Outcomes measures provide information on the extent to which program goals or objectives have been achieved on the basis of resources allocated. Output or Quantity Measures will provide information on what is produced or delivered – the products or services generated from the activities of an organization, policy, program or initiative. Quality and timeliness measures will reflect characteristics of the outcome and output measures service standards based on client and customer needs, and how frequently and within what timeframes program outputs will be produced and outcomes achieved. These elements contribute to the efficient and effective use of resources in the implementation of strategic priorities.
- Finally, development of a budget preparation process designed to integrate the use of performance information in making budget funding decisions. Adequate performance information, particularly in relation to program effectiveness, allows entities to assess the impact of policy measures, adjust management approaches as required, and provide advice to government on the success, shortcomings and/or future directions of programs. This information also allows for informed decisions to be made on the allocation and use of program resources. In addition, performance information and reporting enable the Parliament and the public to consider a program’s performance, in relation to both the impact of the program in achieving the policy objectives of the government, and its cost effectiveness.
Challenges to Implementation
Based on international experience, implementation of a fully functional Performance Budgeting framework is a significant task. It is a journey towards a high performing budget system that will take a number of budget cycles to become operational (European Parliamentary Research Service, 2018). Where there is political will, absorptive capacity, technical capacity, systems development, and technical assistance, it is possible to establish the key fundamental requirements for establishing a public-sector wide Performance Budgeting system i.e. the implementation of the program structure and incorporation of its architecture into the FMIS, over the course of one to two years. Development of meaningful performance indicators for gauging progress towards, or achievement of planned outcomes/ results, integration of this information into budget documentation and deliberations, and establishment of a results-based monitoring and evaluation framework, will take place over a longer time frame. Integration of the performance information into budget funding decisions and its impact for improved expenditure prioritization is both a technical, procedural and cultural process, and each budget cycle provides an opportunity to improve and refine the framework and its efficacy.
Where the readiness of a country in terms of fiscal governance, macro-fiscal stability, political championship for reform, and capacity of people and systems are constrained, the trajectory of Performance Budgeting implementation will need to be adjusted to address these issues.
Conclusion
Implementing a Performance Budgeting framework represents a significant transformative shift in public financial management, and embarking on journey towards a high performing budget framework that shifts the focus from financial inputs, to the outcomes and results of government resource allocations. Through linking funding of public sector organizations to the results they are expected to deliver, and establishing systematic monitoring of key performance indicators, government administrations enhance their ability to deliver and demonstrate more effective, responsive and efficient delivery of government services and outputs, and ensure limited resources are prioritized to programs that are achieving the most important economic and social development goals.
Performance Budgeting is an ambitious, complex, and transformative reform. It requires political will, technical reform, institutional development, and cultural change. But the payoff is significant. For countries committed to better public services, stronger fiscal management, and long‑term development, Performance Budgeting is a powerful public financial management instrument.
Sources:
- European Parliamentary Research Service (2018) Performance budgeting: A means to improve EU spending. https://www.europarl.europa.eu/RegData/etudes/IDAN/2018/608724/EPRS_IDA(2018)608724_EN.pdf
- Government of Ireland (2024). Performance Budgeting. Department of Public Expenditure, NDP Delivery and Reform. https://www.gov.ie/en/department-of-public-expenditure-infrastructure-public-service-reform-and-digitalisation/collections/performance-budgeting/
- OECD (2026), Performance budgeting https://www.oecd.org/en/topics/performance-budgeting.html
- OECD (2019), OECD Good Practices for Performance Budgeting, OECD Publishing, Paris, https://doi.org/10.1787/c90b0305-en
- Zhuge, A., C.Chen, W.Wang, and P.Zhang. (2026). “Do Performance Budgeting Reforms Reduce Corruption? Evidence From a Quasi-Experimental Study.” Public Administration Review1–14. https://doi.org/10.1111/puar.70134
Disclaimer: Statements expressed in this blog reflect the personal opinion of the author and do not represent the position or policy of GBPG or entities we are affiliated with. While we strive to ensure the accuracy of the information presented, we make no guarantees regarding its completeness, reliability, or accuracy.
