Performance-based budgeting as a tool for informed decision-making in Latvia: linking sustainability policy to the finance

Abstract

<p>Latvia has made significant strides in aligning its public finance with sustainability principles in recent years. Latvia is implementing the UN Sustainable Development Goals by integrating them into the Sustainable Development Strategy of Latvia 2030 and National Development Plan for 2021-2027. Strategy 2030 identifies key focus areas such as science and innovation, modernisation of governance, and reducing inequalities. This research explores the potential of performance-based budgeting (PBB) to link sustainability policy to future finance and accounting practices in Latvia. PBB is an approach that seeks to enhance decision-making by connecting budget allocations to performance outcomes. The main challenge is the integration of sustainability policy objectives into budgetary processes, ensuring the monitoring and evaluation of performance metrics related to the expenditures and the reporting system ensuring accountability. Enhancing transparency and accountability by implementing the PBB provides a framework for tracking and reporting on the outcomes of budgetary decisions. The changes in the budget legislation of Latvia and OECD countries were also studied using retrospective and comparative analysis. Based on the current experience of OECD countries, recommendations for potential reforms included the creation of the linkage between sustainable national development goals and budget strategy documents based on medium-term timeframes and improving communication between the government and civil society. The practical significance of the research is related to creating a budget reform programme and appropriate reporting and monitoring system for Latvian public sector organisations.</p>