Performance-based budgeting reform and evolution of performance information quality: empirical analysis of Indonesia

Abstract

Purpose

Following the adoption of performance-based budgeting (PBB), the government has consistently striven to enhance performance information quality. However, long-term empirical evidence on how efforts to reform PBB have shaped the quality of performance information across various public sector organisational contexts is still lacking. This study aims to examine the effects of PBB reform on the quality of performance information in various public sector organisational settings by employing contingency theory.

Design/methodology/approach

This research systematically tracked renewal rates and trends of performance indicators over time, particularly during the period when new practices aimed at enhancing the quality of performance indicators were introduced. It compares various organisational complexities, including budget size, types of output deliveries and tasks performed, to identify patterns and mechanisms that influence the quality of performance indicators in budget documents from 2011 to 2022 across ministries and agencies. The study integrates the analysis of both macro and micro factors related to reform developmental stages and organisational complexity.

Findings

This empirical investigation identifies the increasing number of performance indicators as the reform process advances. However, the prevailing low renewal rates present an anomaly compared to previous studies. Capacity constraints and rigid rules have made organisations reluctant to change or significantly modify their indicators for budget decision-making. A comparative analysis of quality trends across different organisational complexities and time periods reveals a gradual shift toward more results-oriented indicators, with varying degrees of improvement. This suggests how organisations adapt to and respond to PBB reforms over time, with quality improvements either persisting and advancing or diminishing after the initial implementation phase.

Research limitations/implications

This study has limitations, as factors such as governance structure, political climate, bureaucratic culture and fiscal constraints may restrict the generalisability of the findings. To better understand these trends, it is essential to identify the optimal renewal rates of performance indicators and explore how changes in the quality of performance information affect its use and consequence in budget decision-making.

Practical implications

We emphasise the necessity of tailored reform strategies that consider varied organisational complexities to achieve better reform progress. At the operational level, the preparation of implementation guidance and the evaluation of performance indicators should be customised to reflect organisational complexities. This contextual factor significantly contributes to the learning processes of organisations. The continuous refinement of PBB practices in absence of proper evaluation can result in adjustments that are merely symbolic. Such modifications risk undermining stakeholder trust in the potential benefits of the reforms and may be perceived as an additional administrative burden. To further clarify these trends, it is essential to identify the optimal renewal rates of performance indicators and explore how changes in the quality of performance information affect its use and consequence in budget decision-making.

Originality/value

Longitudinal research is critical to understanding how the quality of performance information evolves through successive PBB cycles as organisations refine their measurement practices. Public sector reforms are dynamic, unfolding over time and progressing through different stages, influencing organisations in various ways at each phase. Therefore, it is crucial to consider time-related factors when studying the process and impact of PBB reforms. This approach is complemented by contingency theories to assess the outcomes of PBB reforms across different stages and organisational contexts. Indonesia, as a case study, offers a typical example for developing countries, characterised by capacity constraints, low stakeholder involvement, high informality, hierarchical structures and strong incremental budgeting practices.

Citation

Azam, M. and Bouckaert, G. (2024), "Performance-based budgeting reform and evolution of performance information quality: empirical analysis of Indonesia", Journal of Public Budgeting, Accounting & Financial Management, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JPBAFM-12-2023-0223