Improving Public Sector Efficiency: Challenges and Opportunities

Headnote

This article examines key institutional drivers that may contribute to improving public sector efficiency and focuses on one of them in more detail: performance information and its role and use in the budget process ("performance budgeting").

Executive summary

Governments of OECD countries are under pressure to improve public sector performance and at the same time contain expenditure growth. While factors such as ageing populations and increasing health care and pension costs add to budgetary pressures, citizens are demanding that governments be made more accountable for what they achieve with taxpayers' money This article briefly reviews key institutional drivers that may contribute to improve public sector efficiency, and focuses on one of them in more detail: performance information and its role and use in the budget process.

There is no blueprint for enhancing public sector efficiency. OECD countries have thus adopted diverse approaches to reforming key institutional arrangements, which include: increasing devolution and decentralisation; strengthening competitive pressures; transforming workforce structure, size, and HRM arrangements; changing budget practices and procedures; and introducing results-oriented approaches to budgeting and management. Although the majority of OECD countries have engaged in some institutional reforms, the empirical evidence of their impact on efficiency is so far limited due to: the lack of resources to conduct evaluations; the lack of pre-reform measures of performance; the complexities in measuring efficiency1 in the public sector; and the problem of isolating the effects of specific institutional reforms on efficiency from other external influences.

Empirical evidence nevertheless suggests that the following three institutional factors may improve public sector performance:

* Decentralisation of political power and spending responsibility to subnational governments.

* Appropriate human resource management practices.

* In the education and health sectors, there is evidence that increasing the scale of operations may improve efficiency.

Increasing the use of performance information in budget processes is an

important initiative that is widespread across OECD countries. It is part of an ongoing process that seeks to move the focus of decision making in budgeting away from inputs (how much money can I get?) towards measurable results (what can I achieve with this money?).

OECD countries have reported a number of benefits from the use of performance information (PI):

* It generates a sharper focus on results within the...