Budgeting Systems in Malaysia: Modified Budgeting System (LO3)

Summary

This video explores Malaysia's Modified Budgeting System (MBS), a reform introduced in 1990 to improve public sector financial management. It details MBS's core components, such as expenditure targets, performance agreements, and program evaluations, designed to enhance accountability, efficiency, and impact. While MBS provides flexibility to agencies, its focus on output over long-term impact has led to challenges in program evaluation and quality. Despite these issues, MBS remains a key tool for managing public resources, with an emphasis on strategic planning and fiscal responsibility.

Takeaways

• 😀 MBS (Modified Budgeting System) was introduced in Malaysia to reform the public sector financial management system and improve accountability and efficiency.
• 😀 The system focuses on three main criteria: efficiency, effectiveness, and economy, aiming to optimize public spending.
• 😀 MBS was introduced as a modification of the Program Planning and Budgeting System (PPBS) and was implemented in phases from 1990 to 1995.
• 😀 Key components of MBS include Expenditure Target, Program Agreement, Exception Reports, and Program Evaluation.
• 😀 Expenditure Target determines the budget allocation for each ministry or agency based on the previous year's expenditure with adjustments for inflation or policy changes.
• 😀 Program Agreement is a contract between upper and lower management that defines the targets and responsibilities for each ministry or agency.
• 😀 Exception Reports are prepared when there is a deviation from agreed-upon targets, explaining the variance and corrective actions to be taken.
• 😀 Program Evaluation involves assessing whether a program delivers the intended impact and focuses on appropriateness, effectiveness, economy, and efficiency.
• 😀 MBS encourages managers at all levels to prioritize long-term strategic planning, ensuring that resources are used effectively and efficiently.
• 😀 Despite its benefits, MBS has limitations, such as an overemphasis on output rather than the long-term impact of programs, leading to potential inefficiencies.
• 😀 The lack of structured program evaluations has led to superficial assessments of performance, which undermine the system's overall effectiveness.

Q & A

What is the Modified Budgeting System (MBS) in Malaysia?

The Modified Budgeting System (MBS) is a significant initiative introduced by the Malaysian Treasury to reform government budgeting. It was introduced in 1988 and implemented in 1990 as a modification of the Planning, Programming, and Budgeting System (PPBS). MBS focuses on financial management, accountability, and a value-for-money approach to government expenditure.

What are the key components of the Modified Budgeting System (MBS)?

The key components of MBS include: 1) Expenditure Target, 2) Program Agreement and Exception Reporting, 3) Program Evaluation, and 4) Generalized Expenditure Control. These elements aim to improve financial management, enhance accountability, and ensure efficient use of public resources.

How does the Expenditure Target work within MBS?

The Expenditure Target is a numeric allocation set by the Treasury based on the previous year's budget. It represents the base level of resources required by each ministry or agency to implement existing policies or programs. This target cannot be exceeded unless there are significant policy changes, and adjustments are made for inflation and new policy priorities.

What is the role of the Performance Agreement in MBS?

The Performance Agreement is a contract between upper-level and lower-level management. It sets clear targets for program outputs and holds lower-level managers accountable for achieving these goals. If performance deviates from the agreed targets, an Exception Report must be submitted, detailing the reasons for the variance and proposed corrective actions.

What is an Exception Report, and when is it required?

An Exception Report is submitted when performance does not meet the agreed-upon targets. It provides an explanation for the deviation, the extent of the variance, and the actions to be taken to address the issue. A certain percentage of variance is allowed, and if the deviation is within this limit, no Exception Report is necessary.

How is Program Evaluation conducted under MBS?

Program Evaluation under MBS is a systematic process to assess whether a program achieves its objectives and delivers the expected impacts. It evaluates aspects like effectiveness, efficiency, economy, and relevance. Programs are evaluated at least once a year, with selected programs being prioritized for evaluation to ensure detailed and in-depth assessments.

What is the significance of the Value-for-Money (VFM) concept in MBS?

The Value-for-Money concept in MBS focuses on ensuring that public money is spent efficiently, effectively, and economically. It evaluates programs based on three key criteria: efficiency (how well resources are used), effectiveness (how well objectives are achieved), and economy (whether costs are minimized without compromising quality).

What advantages does the Modified Budgeting System (MBS) offer to public sector management?

MBS offers several advantages, including enhanced accountability at all levels of management, greater managerial flexibility in resource allocation, improved strategic planning, and more focused performance evaluation. By giving managers more autonomy, MBS encourages better decision-making and efficiency in managing public resources.

What are the disadvantages or drawbacks of MBS?

Some drawbacks of MBS include its focus on short-term outputs rather than long-term impact, which can lead to poor-quality implementations. Over time, MBS became more of a compliance tool rather than a strategic planning mechanism, and evaluations were sometimes superficial, lacking proper structure and planning. This reduced its effectiveness in improving public sector performance.

How did the implementation of MBS change over time in Malaysia?

Initially, MBS led to positive reforms in financial management and accountability. However, over time, its focus shifted from strategic planning to merely complying with budgetary targets. As a result, program evaluations became less detailed, and the emphasis on output overshadowed the assessment of long-term impact. This shift caused some limitations in the overall effectiveness of MBS.