Performance Evaluation of National Programs for Fiscal Year 2013 assesses national finance in-depth with respect to 23 aspects, including major issues of national finance, high-cost national projects, and inter-ministerial projects.
The tasks to be assessed were chosen in consultation with the standing committees and the Special Committee on Budget and Accounts of the National Assembly in an effort to strengthen the linkage to account closing review by the standing committees. For more timely and effective evaluation, such tasks were selected with emphasis on national agenda. After a study on the programs of interest to each standing committee of the National Assembly, 10 tasks were assessed, out of the 22 tasks for which evaluation was requested.
Assessment of performance reports indicates that performance information on a substantial number of programs, such as performance indicators, performance targets, and measurement formulas, lacks validity and that there is no sufficient connection between performance records and budgets.
In some cases, the performance targets and management tasks were partially omitted in the setup of performance indicators. In other cases, outcome indicators were not sufficiently reflected, though it is generally desirable to use outcome indicators, as performance indicators, that show the ultimate effect of a program. There was also weak linkage between performance indicators and the actual achievement of performance targets and results of management tasks, which means that performance indicators often failed to represent actual performance of the programs concerned. For some programs, targets were so unambitious that they were nearly completely meaningless; evidentiary materials were not objective and transparent enough to validate the formulas to assess performance indicators; and management tasks were not designated in their performance reports even though they are hardly deemed an exceptional case.
In Performance Evaluation of National Programs for Fiscal Year 2013, assessment was carried out with respect to (i) comprehensive and inter-ministerial performance, (ii) economy and industry, and (iii) society and administration. Based on in-depth assessment findings, a total of 111 proposals were made including 59 requests for correction, 10 proposals for amendments to law, 24 proposals for performance management, and 18 proposals for budgeting.
Concerning economy and industry, the following eight tasks were subject to evaluation: the Exchange Equalization Fund project; the Deposit Insurance Fund project; analysis of counter-cyclical effects of policy funds granted to small- and medium-sized enterprises (SMEs); the raw material accumulation project; the expressway construction project; the SW human resources development project; the state-subsidized agricultural project; and the SME financial assistance project. Each task is summarized as follows:
Evaluation findings regarding the financial position of the Exchange Equalization Fund show that its management methods need to be improved in order to enhance its sustainability and further stabilize the foreign exchange market. As of the end of 2013, the Fund suffered KRW 40.2595 trillion in cumulative losses due to structural factors. To redress such cumulative losses, there is a need to (i) adjust the amount of government bonds issued to stabilize the foreign exchange market by setting an appropriate foreign reserve target; (ii) improve its funding methods (reduction of deposit interest rates of the Public Capital Management Fund, direct issuance of foreign exchange equalization bonds denominated in foreign currencies, etc.); (iii) raise returns by adopting different methods of entrusting funds in Korean won and foreign currencies in its possession (breakdown into current and investment funds and a subsequent increase in earning rates of investment funds); and (iv) bolster monitoring of entrustment of its surplus funds with the Korea Investment Corporation and utilization of a foreign currency lending system.
Assessment of the financial position of the Deposit Insurance Fund project indicates that concerns about sustainability of a financial safety net must be dispelled through formulation of measures to resolve debts. There is an urgent need to establish steps to ensure repayment of about KRW 12 trillion in additional restructuring assistance that was rendered in excess of the original estimated requirement (approximately KRW 15 trillion) at the time of establishment of a special account in 2011. It is also necessary to secure funding sources for possible additional restructuring of mutual savings banks and promote mid- to long-term financial soundness of the Deposit Insurance Fund.
Empirical analysis of counter-cyclical effects of policy funds granted to SMEs found that guarantees issued by the Korea Credit Guarantee Fund were an effective assistance vehicle. When economic stimulation is designated as a policy goal during an economic recession, it may be more effective to expand policy funds granted to SMEs through guarantee issuance by the Korea Credit Guarantee Fund. There is a need to implement an in-depth government-level evaluation and formulate systematic performance valuation standards so as to verify the macroeconomic effect of financial support by means of assistance (credit guarantee, direct lending, and substitute lending) and by institution (Korea Credit Guarantee Fund, Small & Medium Business Corporation, and the Bank of Korea).
Assessment of the current status of the raw material accumulation project by the Public Procurement Service points to a need to establish a reasonable basis for performance evaluation and to enhance efficiency of the project. Since the project is not included in a budget, its performance (effectiveness of the project, efficiency of dual accumulation schemes, professionalism serving as a foundation for sustained activities, etc.) has not been assessed in a consistent, well-organized manner. It is necessary to minimize inefficiencies in such dual systems (a lack of linkage between related programs, eroded unity in accumulation processes, and unnecessary overlaps in business affairs) by expediting business exchange among the agencies concerned, reinforce the ability to adjust, in advance, the scale of accumulated raw materials in response to the price cycles, and also develop concrete performance indicators pertaining to the project.
Given the evaluation findings of the expressway construction project, the government needs to (i) earmark continuing expenditures for the budget bill for the construction of expressways, a key national traffic network, in a timely fashion, (ii) rationally determine the ratio of expressway construction investment spending, and (iii) curb construction cost overruns stemming from rock mass identification. The National Finance Act stipulates that a budget bill for a project essential to building a key national traffic network, among large-scale development projects with working designs and total project costs finalized, should be accounted for as continuing expenditures. Accordingly, the government needs to review the possibility of designating a budget bill for expressway construction costs as continuing expenditures. The Ministry of Land, Infrastructure and Transport needs to explore an approach of conducting a financial analysis during a feasibility study and determining a government investment ratio for each expressway based on such analysis findings. The Korea Expressway Corporation has to set up measures to ensure an accurate soil survey and working design so that an increase in construction costs arising from rock mass identification may be minimized. It must also deploy on-site professional supervisors capable of performing tunnel rock mass classification.
Concerning the SW human resources development project, there was an overlap in beneficiaries. Therefore, the government must duly consider consolidation of projects and downscaling of assistance for elementary SW human resources, which might touch off an oversupply of human resources. There is a need to coordinate the “program to enhance competencies of professional SW human resources” and the “program to foster professional information protection human resources” as they have the same goals and beneficiaries. Problems with SW human resources tend to result from a lack of high-caliber talents and a tendency among those workers to shun SMEs. Under the circumstances, the government needs to reconsider its measures for supply of
elementary SW human resources.
According to assessment findings of the state-subsidized agricultural project, the national budget for overall subsidies is steadily rising. As the budget for agricultural grants significantly increases year by year, subsidies are granted illegally in some cases. For instance, some farmers cease cultivating their lands after receiving subsidies owing to a lack of self-financed funds, but do not return the subsidies to the competent central agency. Other farmers, while building a natural disaster-resistant greenhouse, receive subsidies both from a state-subsidized project and a local government-supported program. The Ministry of Agriculture, Food and Rural Affairs needs to provide grants effectively by fully considering various conditions, including procurement of funding from local governments, farmers’ self-financing capacity and the possibility of budget execution in the corresponding year, and establish a management system for integrating and aligning subsidies of the central and local governments.
Regarding performance of the SME financial assistance project, there exists a possibility of overestimation, given a lack of objectivity in the selection process of submitted data and the performance records presented by the government. Prior studies have conflicting views on whether the government’s financial assistance for SMEs generates a positive or negative effect. However, the government’s performance reports suggest that it creates a positive impact. Accordingly, an in-depth evaluation of the project is deemed necessary. To boost angel investment, the government must explore the possibility of increasing its investment ratio for start-up businesses through a fund-of-funds.
The tasks to be assessed were chosen in consultation with the standing committees and the Special Committee on Budget and Accounts of the National Assembly in an effort to strengthen the linkage to account closing review by the standing committees. For more timely and effective evaluation, such tasks were selected with emphasis on national agenda. After a study on the programs of interest to each standing committee of the National Assembly, 10 tasks were assessed, out of the 22 tasks for which evaluation was requested.
Assessment of performance reports indicates that performance information on a substantial number of programs, such as performance indicators, performance targets, and measurement formulas, lacks validity and that there is no sufficient connection between performance records and budgets.
In some cases, the performance targets and management tasks were partially omitted in the setup of performance indicators. In other cases, outcome indicators were not sufficiently reflected, though it is generally desirable to use outcome indicators, as performance indicators, that show the ultimate effect of a program. There was also weak linkage between performance indicators and the actual achievement of performance targets and results of management tasks, which means that performance indicators often failed to represent actual performance of the programs concerned. For some programs, targets were so unambitious that they were nearly completely meaningless; evidentiary materials were not objective and transparent enough to validate the formulas to assess performance indicators; and management tasks were not designated in their performance reports even though they are hardly deemed an exceptional case.
In Performance Evaluation of National Programs for Fiscal Year 2013, assessment was carried out with respect to (i) comprehensive and inter-ministerial performance, (ii) economy and industry, and (iii) society and administration. Based on in-depth assessment findings, a total of 111 proposals were made including 59 requests for correction, 10 proposals for amendments to law, 24 proposals for performance management, and 18 proposals for budgeting.
Concerning economy and industry, the following eight tasks were subject to evaluation: the Exchange Equalization Fund project; the Deposit Insurance Fund project; analysis of counter-cyclical effects of policy funds granted to small- and medium-sized enterprises (SMEs); the raw material accumulation project; the expressway construction project; the SW human resources development project; the state-subsidized agricultural project; and the SME financial assistance project. Each task is summarized as follows:
Evaluation findings regarding the financial position of the Exchange Equalization Fund show that its management methods need to be improved in order to enhance its sustainability and further stabilize the foreign exchange market. As of the end of 2013, the Fund suffered KRW 40.2595 trillion in cumulative losses due to structural factors. To redress such cumulative losses, there is a need to (i) adjust the amount of government bonds issued to stabilize the foreign exchange market by setting an appropriate foreign reserve target; (ii) improve its funding methods (reduction of deposit interest rates of the Public Capital Management Fund, direct issuance of foreign exchange equalization bonds denominated in foreign currencies, etc.); (iii) raise returns by adopting different methods of entrusting funds in Korean won and foreign currencies in its possession (breakdown into current and investment funds and a subsequent increase in earning rates of investment funds); and (iv) bolster monitoring of entrustment of its surplus funds with the Korea Investment Corporation and utilization of a foreign currency lending system.
Assessment of the financial position of the Deposit Insurance Fund project indicates that concerns about sustainability of a financial safety net must be dispelled through formulation of measures to resolve debts. There is an urgent need to establish steps to ensure repayment of about KRW 12 trillion in additional restructuring assistance that was rendered in excess of the original estimated requirement (approximately KRW 15 trillion) at the time of establishment of a special account in 2011. It is also necessary to secure funding sources for possible additional restructuring of mutual savings banks and promote mid- to long-term financial soundness of the Deposit Insurance Fund.
Empirical analysis of counter-cyclical effects of policy funds granted to SMEs found that guarantees issued by the Korea Credit Guarantee Fund were an effective assistance vehicle. When economic stimulation is designated as a policy goal during an economic recession, it may be more effective to expand policy funds granted to SMEs through guarantee issuance by the Korea Credit Guarantee Fund. There is a need to implement an in-depth government-level evaluation and formulate systematic performance valuation standards so as to verify the macroeconomic effect of financial support by means of assistance (credit guarantee, direct lending, and substitute lending) and by institution (Korea Credit Guarantee Fund, Small & Medium Business Corporation, and the Bank of Korea).
Assessment of the current status of the raw material accumulation project by the Public Procurement Service points to a need to establish a reasonable basis for performance evaluation and to enhance efficiency of the project. Since the project is not included in a budget, its performance (effectiveness of the project, efficiency of dual accumulation schemes, professionalism serving as a foundation for sustained activities, etc.) has not been assessed in a consistent, well-organized manner. It is necessary to minimize inefficiencies in such dual systems (a lack of linkage between related programs, eroded unity in accumulation processes, and unnecessary overlaps in business affairs) by expediting business exchange among the agencies concerned, reinforce the ability to adjust, in advance, the scale of accumulated raw materials in response to the price cycles, and also develop concrete performance indicators pertaining to the project.
Given the evaluation findings of the expressway construction project, the government needs to (i) earmark continuing expenditures for the budget bill for the construction of expressways, a key national traffic network, in a timely fashion, (ii) rationally determine the ratio of expressway construction investment spending, and (iii) curb construction cost overruns stemming from rock mass identification. The National Finance Act stipulates that a budget bill for a project essential to building a key national traffic network, among large-scale development projects with working designs and total project costs finalized, should be accounted for as continuing expenditures. Accordingly, the government needs to review the possibility of designating a budget bill for expressway construction costs as continuing expenditures. The Ministry of Land, Infrastructure and Transport needs to explore an approach of conducting a financial analysis during a feasibility study and determining a government investment ratio for each expressway based on such analysis findings. The Korea Expressway Corporation has to set up measures to ensure an accurate soil survey and working design so that an increase in construction costs arising from rock mass identification may be minimized. It must also deploy on-site professional supervisors capable of performing tunnel rock mass classification.
Concerning the SW human resources development project, there was an overlap in beneficiaries. Therefore, the government must duly consider consolidation of projects and downscaling of assistance for elementary SW human resources, which might touch off an oversupply of human resources. There is a need to coordinate the “program to enhance competencies of professional SW human resources” and the “program to foster professional information protection human resources” as they have the same goals and beneficiaries. Problems with SW human resources tend to result from a lack of high-caliber talents and a tendency among those workers to shun SMEs. Under the circumstances, the government needs to reconsider its measures for supply of
elementary SW human resources.
According to assessment findings of the state-subsidized agricultural project, the national budget for overall subsidies is steadily rising. As the budget for agricultural grants significantly increases year by year, subsidies are granted illegally in some cases. For instance, some farmers cease cultivating their lands after receiving subsidies owing to a lack of self-financed funds, but do not return the subsidies to the competent central agency. Other farmers, while building a natural disaster-resistant greenhouse, receive subsidies both from a state-subsidized project and a local government-supported program. The Ministry of Agriculture, Food and Rural Affairs needs to provide grants effectively by fully considering various conditions, including procurement of funding from local governments, farmers’ self-financing capacity and the possibility of budget execution in the corresponding year, and establish a management system for integrating and aligning subsidies of the central and local governments.
Regarding performance of the SME financial assistance project, there exists a possibility of overestimation, given a lack of objectivity in the selection process of submitted data and the performance records presented by the government. Prior studies have conflicting views on whether the government’s financial assistance for SMEs generates a positive or negative effect. However, the government’s performance reports suggest that it creates a positive impact. Accordingly, an in-depth evaluation of the project is deemed necessary. To boost angel investment, the government must explore the possibility of increasing its investment ratio for start-up businesses through a fund-of-funds.