Medium-Term Expenditure Framework Lessons by kpc16389

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									Medium-Term Expenditure
Framework: Lessons


  Bill Dorotinsky
  The World Bank


  Istanbul
  June 6, 2005
Lessons in Implementation
 MTEF
   is designed to improve decision-making, and focuses
      on budget formulation ---- one process for allocating
      resources
   will not solve all PEM problems
   is not a standardized product, per se. The principles
      can be implemented in various ways
   needs to be customized to the country, including
      initial conditions in PEM, human and IT capacity
   should be viewed as a multi-year exercise, built and
      improved upon annually over years
 With MTEF, and PEM reform generally, doing too much
  at once can overload the Government capacity and
  prevent progress on all reforms
More lessons
 Not all aspects need to be undertaken at once
   Integration of capital and recurrent budgets need not
     be done immediately
   Performance information (outcomes, outputs) need
     not be incorporated immediately
   Budget comprehensiveness critical, but can be
     improved over time (start from where you are)
   Flexibility for spending ministries to allocate
     resources across programs, subprograms, and
     activities can be introduced gradually
 Many start with a medium-term fiscal framework
   Sound fiscal framework important to start
   Use as opportunity to educate policy-officials of
     constraints
 MTEFs should not be launched in selected sectors until
  there are medium-term ceilings in place
And more lessons
 Pressure on ministries to find resources within current
  expenditures may be more successful when
      accounting systems are in place to provide good
       information
      program and activity structure in place as focal point for
       discussion, costing
 Need not be contentious between line ministries and
  MoF/budget office (South Africa)
 Over-all, can be used to build consensus across
  government actors (US troika)
 Consider legislatures role early
   Educate them as appropriate
   Encourage good internal legislative decision process
How to implement?

 Identify major limiting factor first
   Policy-level – high-level decision process
     Adequate policy-level input, ownership of
       budget?
     Adequate trade-offs of major policy
       directions?
     Adequate policy-level incentives?
   Technical – tools to support process
     Unbundling MTEF technical aspects
     Which aspect of the budget process needs to
       be improved?
             Unbundling MTEFs
Multi-year          PEM           Responsible   Intended Effect                  Requires
Feature             Objective     Agent
Macroeconomic       Macrofiscal   Finance,      Provides strategic framework     Forecasting model,
forecast            discipline    Planning or   for setting fiscal and           capacity, multi-year
                                  Economy       monetary policy, and allows      macro variable time
                                  Ministry      proactive fiscal adjustment to   series, or access to
                                                changing economic trends.        multiple non-
                                                                                 governmental forecasts
Multi-year          Macrofiscal   Finance,      Sets upward bound for            Forecasting models.
revenue, debt       discipline    Planning or   expenditures, limiting           Stronger if
sustainability                    Economy       deficits, inflation, and         relationships between
analysis and debt                 Ministry      currency depreciations;          macro growth, income
policy, yielding                                supports sustainable fiscal      distribution, and
expenditure                                     policy, and realistic            revenues understood
envelope                                        expenditure planning within      and modeled. Debt
                                                the expenditure envelope;        sustainability
                                                supports focus on adequate       analysis/model, or hard
                                                revenue mobilization.            rule on debt/deficit
                                                                                 limits.
              Unbundling MTEFs (2)
Multi-year            PEM            Responsible       Intended Effect                  Requires
Feature               Objective      Agent
Multi-year            Macrofiscal    Finance,          Broad indicator of future        MoF provided inflators
forecast of           discipline,    Planning or       cost of current spending         for pay, non-pay, and
spending under        Allocational   Economy           trends, identification of        clear guidance for
current policy or     efficiency     Ministry, or in   potential risk areas, and        projecting costs. Can be
current level of      (sector)       some cases        proactive, measured, more        automated. Can be
services, by                         spending          rational fiscal adjustment.      budget year only, but
ministry or                          ministries        Baseline for evaluating          more effective over
program                              with clear        policy spending choices.         several years.
                                     guidance
Multi-year            Allocational   Finance,          Enabling more realistic          More credible if
ceilings for sector   efficiency     Planning or       planning, appropriate            reflecting policy
ministries            (sector),      Economy           policies; incentive for          choices, which requires
                      Macrofiscal    Ministry          reviewing existing programs      some explicit policy
                      discipline,                      for effectiveness,               directions on
                      Operational                      reallocations within sectors.    reallocation. More
                      efficiency                       At center, explicit trade-offs   effective in changing
                                                       between sectors.                 behavior if approved by
                                                                                        cabinet or parliament.
             Unbundling MTEFs (3)
Multi-year           PEM            Responsible   Intended Effect                 Requires
Feature              Objective      Agent
Multi-year sector    Allocational   Spending      Sector strategic plan links     Strategic planning
strategy             efficiency     Ministry      outputs/outcomes with           capacity at sector
                     (sector),                    inputs in multi-year            ministry, information on
                     Operational                  framework. Effective only if    outputs/outcomes of
                     efficiency,                  prepared within multi-year      programs, and
                     Macrofiscal                  sectoral resource ceiling.      relationship to activities
                     discipline                                                   and inputs.
Multi-year           Operational    Spending      Identifies multi-year           Requires
estimates of cost    efficiency,    Ministry      implications of new             guidance/training for
of new policies or   Allocational                 initiatives relative to their   spending ministry staff,
programs             efficiency                   objectives, and assessment      and spending ministry
(recurrent), or      (sector),                    of whether they can be          staff capacity; MoF
expansion of         Macrofiscal                  financed from within            provision of common
existing programs,   discipline                   existing sectoral ceilings or   inflators for use by
prepared by sector                                even within aggregate           ministries (pay rates,
ministries                                        spending ceilings, and if       non-pay, capital costs).
                                                  they are financially
                                                  sustainable over time.
              Unbundling MTEFs (4)
Multi-year            PEM            Responsible   Intended Effect                  Requires
Feature               Objective      Agent
Multi-year            Operational    Spending      Sensitizes sector ministry to    Can begin at program,
estimates of cost     efficiency,    Ministries    cost drivers, affordability of   and later move to
of existing           Allocational                 existing policy or programs,     subprogram and activity
policies,             efficiency                   attention to different means     costing. Requires
programs,             (sector),                    of attaining objectives, unit    trained staff at spending
subprograms, or       Macrofiscal                  cost.                            ministries, agencies;
activities prepared   discipline                                                    MoF guidance and
by sector                                                                           common inflators (pay
ministries                                                                          rates, non-pay, capital
                                                                                    costs).
Multi-year            Operational    Spending      Many capital budget              Trained staff at
estimates of cost     efficiency,    Ministries    processes already include        spending ministries,
of new projects       Allocational                 such estimates, including        guidance on costing,
(capital), or         efficiency                   the recurrent cost               understanding of project
expansion of          (sector),                    implications of new capital      design and work flow.
existing projects,    Macrofiscal                  projects.
prepared by sector    discipline
ministries

								
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