Nuts & Bolts: Performance Budgeting in the Republic of Korea

Korea embarked on a comprehensive performance budgeting (PB) reform program in the mid-2000s after unsuccessful attempts to introduce PB in the late 1990s and early 2000s. Korea’s experience can offer several lessons for other countries.

First, Korea provides a benchmark case of PB reform and is considered a model country with an effective public financial management (PFM) system. The country is known for its sound fiscal condition, with records of complete recovery from two recent financial crises. In particular, Korea’s reformed PB system is known for its effective integration into the regular budget process. The country’s experience has drawn the attention of many emerging and developing economies because they share similar traits: experiences with economic development planning, frequent and regular rotation of civil servants, a recent transition to a democratic society, and a lack of capacity among civil servants.

Second, Korea’s approach may also provide useful lessons for developing countries that are considering implementing a PB reform program within a short time frame. Relatively quickly, Korea was able to develop a comprehensive PB system with reasonable success. Thus, its “big bang” approach may offer policy lessons for other countries with limited time. This approach carries with it benefits and risks; it can create irreversible momentum for reform, but requires huge resources that many countries lack. This study shows how PB reform was implemented as one component of a PFM reform package.

Third, although PB can also be used for program improvement, Korea adopted a PB system focused on resource allocation. Its PB system can be used as a model for other countries trying to develop a system focused on improving allocative efficiency.

Fourth, Korea’s experience shows that technical assistance and capacity building are essential elements of PB reform. Few disagree with the goals of PB reform, but the difficulties of PB design and implementation have created many skeptics. Korea’s example illustrates how to overcome this skepticism with technical assistance and capacity building.

Fifth, Korea did not succeed overnight; previous efforts at PB reform failed in the late 1990s and early 2000s. In the early stages of its second attempt, the country still had not come up with a comprehensive blueprint. But through a process of trial and error, the Korean government developed its customized PB system.

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