MTEF s: Concept and Lessons

Transcription

1 MTEF s: Concept and Lessons Bill Dorotinsky International Monetary Fund September 10, 2007

2 Outline Budget Formulation in context MTEF Concept Technical objectives Process View Sequenced decision-making Component View - unbundling Major Blocks More manageable pieces Output View Experience Ghana South Africa Uganda Lessons

3 Expenditure Management Cycle Financial management system boundaries Planning system Project appraisal Medium term plans, e.g. three year rolling plans Resource allocation Annual budgets Development, recurrent and revenue Expenditure review Liquidity management Public expenditure review Institutions Fund release procedure, e.g... warranting Accountability Audit system Project monitoring Expenditure control Post event review Reports and financial statements Monitoring & controlling Accounting for revenue and expenditure Source: Adapted from Integrated Financial Management. Michael Parry, International Management Consultants Limited. Training Workshop on Government Budgeting in Developing Countries. THE UNITED NATIONS. December 1997.

4 Three Objectives of Public Expenditure Management Systems Macrofiscal discipline and stability Avoid public finance crises Support economic growth and stability Strategic allocation of resources Match government policy with programs, objectives Technical efficiency Getting the most from each ruble spent

5 Common Issues and Reforms Budget not policy tool, policy-based Budget does not promote strategic resource use, efficiency National objectives not met Planning and policy not linked Medium-term expenditure framework (MTEF) Capital-recurrent integration Budget classification Program, performance budgeting

6 Technical Objectives of MTEF Improve macrofiscal situation lower deficits, improved economic growth more rational approach to retrenchment and economic stabilization Improve impact of Government policy link between government priorities/policies and government programs Improve program performance/impact Shift bureaucracy from administrative to managerial culture Managerial flexibility & innovation: lower cost/output; greater effectiveness of programs/policies Improved resource predictability

7 MTEF: New Budget Process Stage 1. Macroeconomic and public sector envelopes Stage 2. High-level policy: aligning policies & objectives under resource constraints (top-down) Stage 3. Linking policy, resources, and means by sector (bottom-up) Stage 4. Reconciling resources with means Stage 5. Reconciling strategic policy and means

8 MTEF Major Components Medium-Term Fiscal Framework Aggregates, policy Medium-Term Budget Framework Ceilings and sector strategies Program budgeting/activity-based costing Within ministries, programs, costing, input-output models Performance measures

9 Unbundling MTEFs Medium-Term Fiscal Framework Multi-year Macroeconomic forecast Multi-year revenue, debt sustainability analysis and debt policy, yielding expenditure envelope (fiscal policy paper) Medium-Term Budget Framework Multi-year forecast of spending under current policy or current level of services, by ministry or program Multi-year ceilings for sector ministries Multi-year sector strategy Program budgeting/activity-based costing Multi-year cost estimates of new policies or programs (recurrent), or expansion of existing programs, prepared by sector ministries Multi-year estimates of cost of existing policies, programs, subprograms, or activities prepared by sector ministries Multi-year estimates of cost of new projects (capital), or expansion of existing projects, prepared by sector ministries

10 Summary MTEF is about Process reform Integrating planning and budgeting Changing Incentives of Key Actors Integrating policy and technical aspects of budgeting Thinking multi-year Misconceptions MTEF is only multi-year estimates MTEF separate process, document only Preconditions? Civil service/administrative reform for allocative flexibility?

11 Ghana MTEF first introduced in 1999 Declared a success at first budget big-bang covering all MTEF aspects at once, plus IFMIS and Civil Service Reform Problems encountered Limited MDA capacity Data limitations EBFs Weak macroforecasting undermined MTEF Rigidity of spending inhibited reallocation

12 Ghana (2) Problems encountered (continued) No visible change in budget formats, information provided (e.g. budget speech) Limited buy-in outside core MoF group Implemented as project versus reform of budget process, as technical versus policy-oriented Linking next budget with multi-year estimates Top-down implemented, but bottom-up not quite in place

13 South Africa First attempt 1994 Department of Finance only Failed, too internal Second attempt 1997 Inclusive process, with sectoral working groups All departments at once Led by policy officials MTEF is budget process Have MTBPS and sectoral plans But sectoral plans formal Performance emphasized more recently Reprioritization within sectors has happened Over and under spending reduced

14 Uganda Started in 1992 in MoFPED With MTFF, major economic classes To address macrofiscal problems and counterpart funding problems Gradually expanded 1995 sector analysis (Ag, Roads, Health, Education) 1997 all sectors (sector working groups) 2000 local governments 2001 MTEF required submission to Parliament Donor-financed investments (PIP) separate process Limited performance orientation, though expanding More top-down, with limited detailed costing from the bottom-up MTEF home-grown but still not fully integrated with the budget process Emphasis on PEAP priority programs

15 Lessons in Implementation MTEF is designed to improve decisionmaking, and focuses on budget formulation. It will not solve all PEM problems. MTEF is not a standardized product, per se. The principles can be implemented in various ways. MTEF needs to be customized to the country, including initial conditions in PEM, human and IT capacity. With MTEF, and PEM reform generally, doing too much at once can overload the Government capacity and prevent progress on all reforms.

16 More lessons Start with a medium-term fiscal framework MTEFs should not be launched in selected sectors until there are medium-term ceilings in place Integration of capital and recurrent budgets need not be done immediately Performance information (outcomes, outputs) need not be incorporated immediately Flexibility for spending ministries to allocate resources across programs, subprograms, and activities can be introduced gradually Pressure on ministries to find resources within current expenditures may be more successful when accounting systems are in place to provide good information on program and activity costs

17 Selected References Public Expenditure Handbook, World Bank, Managing Government Expenditure, S. Schiavo-Campo and D. Tommasi, Asian Development Bank, (on-line) Managing Public Expenditures: A Reference Book for Transition Countries. Richard Allen and D. Tommasi, editors. Organization for Economic Cooperation and Development (2001)