Korea’s budgeting system has been shifted from traditional line item budgeting to program budgeting since 2007. However, critical expenditure information for performance evaluation of projects has not been properly provided. Direct costs are estimated with expenditures directly related to each program while Administrative cost including salaries and other expenses that provide direct services is controlled under separate program. Within the current budgeting system, it is hard to distinguish expenditures related to certain program from administrative cost. Moreover, this system cannot provide expenditure information on how efficiently the public servants execute their jobs.

In the case of the Ministry of Foreign Affairs and Trade, directs costs for each program reaches only 22.26% while the rest 77.74% is estimated with Administrative cost. As such, it is difficult to calculate administrative cost for each program. Therefore, needless to say, evaluation of performance and expenditure are not able to be executed. For example, a simulation result reports that the 75% of Administrative cost for a project “Regional Diplomatic Relationship with North American Countries” could have been accounted by program expenditure.

This report suggests several alternatives in order to realize the program budgeting’s aims to improve financial efficiency and effectiveness through introducing the notion of performance management into budgeting. First, definition of administrative cost except for direct costs should be redefined so that it could only be applied to actual administration. Second, basic expenditures and salaries related to a program should be allocated to the particular program so that total cost for the program could be calculated and accurate information could be provided for performance evaluation. Third, original administrative service such as management and assistance should be classified under a separate program so that performance evaluation for administration could be executed.