The Financial Funds Are Performance Management Reform Study

Poverty alleviation, economic development and social progress have been the long-lasting dream of governments and their people in all countries. Over the past six decades, especially since the opening-up and reform program in late 1970s, thanks to the rapid economic growth and active policy support, China has made remarkable achievements in poverty alleviation, and become the first country that fulfilled the target of halving the poor population as required in the Millennium Development Goals (MDGs). As the tool of active policy support, public funds for poverty alleviation have played a significant role in this historical process. However, with the slowing down of the poverty alleviation pace in recent years, deepening of understanding of poverty itself, and strengthening of results-based management (RBM) in public finance, the institutional deficiencies and problems in allocation, operation and management of public funds for poverty alleviation have attracted wide attention from the public. To achieve the goal of "substantially reducing poor population and basically alleviating absolute poverty by 2020", it is imperative, on the basis of increasing public finance input, to draw upon the advanced theories and best practices in the international community, and enhance the economy, efficiency and effectiveness of public funds for poverty alleviation through innovative institutional reforms.From the perspectives of international poverty reduction and development process and the evolution of development assistance norms, the past three decades have witnessed the expansion of RBM paradigm from private to public sector in advanced countries, and further dissemination to developing countries through the practice of Managing for Development Results (MfDR) by multilateral and bilateral development institutions. The RBM paradigm features the establishment of four mechanisms, namely, objective-driven, resources control, performance assessment, public participation and supervision. Building upon this paradigm and the development assistance practices, MfDR focuses on formulating strategic framework and performance targets, monitoring and evaluation through results-based framework, improving incentive systems, broad participation of all stakeholders, human capital investment and institutional capacity building.Drawing on these paradigms and practices, the RBM system of China's public funds for poverty alleviation may involve five elements, i.e., strategic and policy framework, objectives and performance indicators, rolling budget (mid-term expenditure framework) and projects pipeline, performance assessment and results application, accountability and stakeholder participation mechanism. Among these, formulating strategic framework serves as the precondition, objectives and performance indicators as references in monitoring the implementation process and determining whether the expected results are achieved, rolling budget as the linkage between the strategic program and annual performance plans, performance assessment as important means, and accountability and stakeholder participation as the safeguarding mechanism for achieving the performance targets.Beginning from mid 1980s, the Chinese government have launched the planned, organized and large-scale poverty alleviation and development program in poor areas, the program of "getting 80 million people out of poverty within 7 years" in 1994, and "Outline for Poverty Alleviation and Development in Rural China (2001-2010)". These continuous efforts resulted in great progress regarding organizational architecture, beneficiary targeting and institutional development. Analytical studies reveal positive co-relationship between the input of public funds for poverty alleviation and reduction of poor population and increase of poor people's income. Nevertheless, even with sustained rapid economic growth and gradual increase of public funds, the pace and efficiency of poverty alleviation declined in recent years. While the growing costs and difficulties of poverty alleviation are among the causes, the underlying factor is that the current management pattern of public funds for poverty alleviation has failed to keep pace with the new situation. The institutional deficiencies are reflected in the blurred responsibility between central and local governments, stagnant adjustment of the county targeting mechanism, segmented management of funds involving several government agencies, lack of positive incentives in allocation of funds, deviation of beneficiary targeting, low level of poor people participation, non-availability of comprehensive and effective monitoring and evaluation system and accountability mechanism, and insufficient attention to other stakeholders.To establish the RBM system of public funds for poverty alleviation, first it is necessary to identify the underlying principles of the strategic framework while taking account of the features of rural poverty. In the strategic framework, the primary goal is to substantially reduce poor population and basically alleviate absolute poverty, the priority is to target the extremely poor areas, and the guiding principle is to follow the poverty alleviation through development approach and enhance the synergy effect with social safety nets. While following the roadmap from pilot-testing to refinement and completion, the institutional innovation and reform safeguarding the RBM system need to be conducted in seven aspects:first, getting the division of responsibilities clear and right among government at different levels and enhancing the effectiveness in identifying and targeting poor people; second, making the county targeting mechanism more dynamic and establishing reasonable competition and incentive system; third, adopting the results-based allocation mechanism and giving the assessment outcome due consideration; fourth, bringing public financial resources together to maximize the synergy effects; fifth, adopting the rolling budget approach and setting up projects pipeline to strengthen the linkage between strategic framework and annual performance plans; sixth, improving the strategic targets and performance monitoring and evaluation system; seventh, creating a win-win situation through broad stakeholder participation.This study is based on the research methodology of combining nominal and empirical analysis and comparing international best practices with domestic experiences. The breakthroughs as compared with previous studies are embedded in three aspects. First, building on theoretical analysis, this study reveals the relationship between the public sector RBM in advanced countries and the MfDR in international development institutions, and draws valuable lessons for public funds management which fit into Chinese national circumstance. Second, through applying the stakeholder theory in identifying and classifying stakeholders in managing public funds for poverty alleviation, the study further analyzes the competition and collaboration among them in seeking maximum self benefits, and puts forward suggestions for a win-win mechanism among all stakeholders. Third, with a comprehensive and objective analysis of progress, problems and challenges, the study gives suggestions on RBM reform of public funds for poverty alleviation, covering both the roadmap and corresponding institutional reforms.