"Medium Term Sector Strategies"
2007-9 Medium Term Sector Strategies 2 Day MTSS Briefing - MTEF Approach to Budgeting - Reviewing the MTSS Guidelines 1 Introduction This training material was collated by The Budget Office of the Federation, Federal Ministry of Finance Much of the contents is sourced directly from material provided by Bode Agusto (MFR), Malcolm Holmes, Theodora Galabova, William McCarten, the WBI and the OSSAP MDGs. Permission must be sought from these parties prior to reproduction The format of the training also benefited from comments by Mike Stevens 2 Outline - Day 1 Current Budget Reality in Nigeria NEEDS and the MDGs Public Expenditure Management - Aims and Challenges Medium Term Expenditure Framework (MTEF) Key Components of MTEF Medium Term Fiscal Framework MTSS Conditions Necessary for strong MTEF MTEF Case Studies 3 Outline - Day 1 Annual Budget Cycle Looking forward – Fiscal Responsibility Bill and MTEF 4 Outline - Day 2 Review from Day 1 of role of MTSS within Budget Process Review of Existing Budget Commitments Classification of Budget Commitments Data Collection Scoring of programmes and projects 5 Outline - Day 2 Collating High Level Policy Documents Indicative Envelopes Agreeing High-Level Goals and Objectives Identifying Initiatives Broad Outputs and Outcomes 6 Outline - Day 2 Prioritisation of Initiatives Costing Initiatives Reconciling Costed Initiatives with Resource Envelopes Capturing Logframes Documentation Revisiting Timetable MTSS Roles and Responsibilities 7 The Current Budget Reality in Nigeria Introduction to Nigeria’s MTEF 09:10-09:30 Review of 2006 Budget 09:30-10:00 Introduction to Timetable for 2007 Budget 10:00-10:10 Linkages from MDGs to Annual Budget 10:10-10:15 8 Understanding MTEF The Medium-Term Expenditure Framework is an integrated top-down & bottom-up system of public expenditure management designed to – Achieve macro-economic stability without compromising economic development. Direct the bulk of public spending to the nation‘s strategic priorities as articulated in NEEDS and for the attainment of the MDGs. Assure predictability of funding. Improve the value for money of federal spending. 9 Understanding MTEF MTEF is a three stage process comprising: A Medium Term Fiscal Framework (MTFF) which documents fiscal policy objectives, a set of integrated medium-term fiscal policy objectives plus fiscal targets & projections (including resource availability). A Medium Term Budget Framework (MTBF) which documents medium term budget estimates for individual spending agencies based on the nation‘s strategic priorities & in a manner consistent with overall fiscal objectives. A Medium Term Expenditure Framework (MTEF), which consolidates the MTBF of spending agencies and adds programme and output based budgeting. 10 How is MTEF being implemented? The Medium Term Fiscal Framework (MTFF) The 2005 Fiscal Strategy Paper was the first attempt at this. This is now being be updated into a MTFF Paper setting out - Fiscal policy objectives Macroeconomic targets & projections Fiscal targets Revenue projections Aggregate expenditure limits & sub-limits for major expenditure heads (i.e. Transfers, Debt Service & MDA Expenditure) These will typically cover a three year period and will be updated annually. 11 How is MTEF being implemented? Medium Term Budget Framework (MTBF) (Sector Strategy) This involves getting the spending agencies to - Articulate their medium-term goals & objectives against the background of the overall goals of NEEDS and the MDGs; Identify and document key initiatives being embarked upon to achieve their goals and objectives (i.e. their key projects and programs) Cost these initiatives, prioritise & phase them over a three year period. Define the expected outcomes of the initiatives in clear measurable terms; Link expected outcomes to their objectives and goals. This commenced in 2005 with 8 key spending agencies. We are now extending it to another 11 in 2006. 12 How is MTEF being implemented? Medium Term Expenditure Framework (MTEF) This involves consolidating the MTBF of spending agencies and fine-tuning to include the following Strategic prioritization Captured in Better costing of projects and programs 2007-9 MTSS Better definition of output Process Integration of an evaluation and monitoring framework to ensure value for money Measuring return on investment on major expenditure FMF/BOF/OSSAP MDGs Building Capacity in 2006 13 Timeline for implementing MTEF ACTIVITY 2004 2005 2006 2007 2008 1 Implement MTFF 2 Implement MTBF 3 Implement MTEF 14 What benefits will accrue? Medium Term Fiscal Framework (MTFF) Achieve the right balance between economic development and macro-economic stability. Medium Term Budget Framework (MTBF) Direct the bulk of federal spending towards spending on the nation‘s priorities and ensure that budget holders are accountable for monies allocated to them. Medium Term Expenditure Framework (MTEF) Add programme & output based budgeting. This affords opportunity for comparing agreed output with actual output and identifying variances. 15 The Current Budget Reality in Nigeria Introduction to Nigeria’s MTEF 09:10-09:30 Review of 2006 Budget 09:30-10:00 Introduction to Timetable for 2007 Budget 10:00-10:10 Linkages from MDGs to Annual Budget 10:10-10:15 16 Review of 2005 and 2006 Federal Budget Review of the 2005 Federal Budget The 2005 Federal Budget The 2006 Federal Budget What the 2006 Budget is all about Revenue framework Expenditure FGN Revenue FGN Expenditure MDA Spending Conclusion 17 The 2005 Federal Budget 18 Federation Account 2005 FAAC REVENUE AT $30 2,000 1,881 1,800 1,652 1,600 1,408 1,400 In bns 1,200 1,147 1,000 800 579 585 600 400 Crude oil sales Oil taxes Non-oil taxes Budget Actual 19 Federation Account Explanation of variances Crude Oil Sales 12% adverse variance due to 300 tbpd shortfall in production and subsidy of the pump price of petroleum products. Oil taxes 18% adverse variance due 300 tbpd shortfall in production and higher production costs. Non-oil taxes In line with Budget. 20 What the 2006 Budget is all about The 2006 Budget is about:- Clearing pension arrears and paying as and when due from 2006 under the Pay As You Go System Clearing arrears owed to local contractors Channelling savings from debt relief into pro-poor programs to assist in achieving the MDG Improving the quality of infrastructure – particularly Roads, Water and Power Improving basic services – particularly Education and Healthcare Enhancing agricultural production in order to provide raw materials for local industries and for exportation 21 What the 2006 Budget is all about The 2006 Budget is about:- Completing key projects that are near completion Ensuring no increase in petroleum prices in 2006 Reforming the Public Service Ensuring that the 2007 Elections are hitch free Improving the business environment for the private sector to grow the economy – particularly security of life & property, tax reforms, power sector reforms and dispute resolution Carefully balancing the need for economic development and macro-economic stability 22 Revenue Framework 23 Revenue Framework 24 Revenue Framework 25 Revenue Framework 26 FGN Expenditure 27 FGN Expenditure 28 FGN Expenditure BREAKDOWN OF AGGREGATE EXPENDITURE 100% 90% 80% 70% 66% 67% 60% 80% 50% 40% 30% 20% 31% 27% 10% 15% 0% 3% 6% 5% 2004 2005 2006 Transfers Debt MDA 29 MDA Expenditure BREAKDOWN OF MDA SPENDING IN 2006 Other NASS 18% Education Presidency 4% 11% Health 4% 7% Power 5% Public Service Reforms Works 3% 6% INEC Water 4% 5% Petroleum Support Police 5% 6% Pension (PAYG) 7% FCT Agriculture Foreign Affairs Internal Affairs Defence 4% 2% 2% 3% 7% 30 MDA Expenditure 31 MDA Expenditure 32 MDA Expenditure Education – 167 billion Teachers salaries (=N= 106 billion) Building and equipping schools (=N= 15 billion) Girls Education Program (=N= 2 billion) Teachers Corp Program (=N= 6 billion) Improving distance learning (=N= 3 billion) Feeding of school children (=N= 3 billion) Health - 107 billion Paying health workers salaries (=N= 60 billion) Building and equipping Primary Health Centers (=N= 10 billion) Combating HIV and AIDS (=N= 7 billion) National Immunization Program (7 billion) 33 MDA Expenditure Agriculture - N31 billion Integrated Rural Roads Project (=N= 5 billion) Fertilizer and related program (=N= 1.2 billion) Livestock and Pest Control Program (=N= 0.7 billion) Animal Traction Program (=N= 0.8 billion) Micro-Credit Scheme (=N= 0.7 billion) Farm structures for peasant farmers (=N= 0.7 billion) Power and Steel - 78 billion Rural Electrification Projects (=N= 17 billion) Alaoji Power Generation (=N= 10 billion) Geregu Power Generation (=N= 9 billion) Transmission lines nationwide (=N= 23 billion) 34 MDA Expenditure Works - 91 billion Maintainance of roads networks nationwide (=N= 12.8 billion) Dualization of Ibadan-Ilorin Road (=N= 3.8 billion) Rehabilitation of Onitsha-Owerri Road (=N= 3.4 billion) Construction of Benin Bypass (=N= 2.2 billion) Bodo-Bonny Road (=N= 1.6 billion) Abuja-Keffi Road (=N= 1.3 billion) Lamba-Kunchi-Kazaure Road (=N= 1.7 billion) Yola-Hong-Mubi-Michika Road (=N= 1.2 billion) Potiskum-Udubo-Gamawa-Gamayin (=N= 1.2 billion) Dualization of Abeokuta-Otta Road (=N= 1.5 billion) Bauchi-Kari-Yobe State Border Road (=N= 1.2 billion) 35 MDA Expenditure Water Resources - 80 billion Gurara Water Transfer Project (=N 25 billion) Rural water projects nationwide (=N= 20 billion) Federal Capital Territory – 53 billion Key Infrastructure Projects for FCT including : National Assembly Complex (=N= 6.3 billion) Phase II 20000m3/hr water treatment plant (=N= 6.5 billion) Engineering infrastructure for Karimu and Idu Industrial Estates (=N= 7 billion) Complementary infrastructure for FCC Phase II (=N= 5.3 billion) 36 MDA Expenditure Police – 87 billion Police salaries (= N73.4 billion) Barracks and staff quarters improvements (=N3 billion) Communication and related equipment (= N0.9 billion) Defence – 101 billion Military salaries (= N71 billion) Barracks improvements (= N2.75) Naval dockyard and Jetty improvement (= N1.3 billion) Floating Bridge (= N2.0 billion) 37 Conclusion The 2006 Budget is designed to Solve the problems associated with the PAYG pension scheme. Clear arrears with respect to amounts due to local contractors. Channel savings from debt relief into pro-poor programs. Complete key projects that are near completion particularly in the following sectors – Education, Healthcare, Water, Power, Roads, Agriculture and FCT. Improve security Ensure no increase in the price of petroleum products. Reforming the public service. We believe that these initiatives will Improve the business environment Create jobs, reduce poverty and generate wealth. 38 The Current Budget Reality in Nigeria Introduction to Nigeria’s MTEF 09:10-09:30 Review of 2006 Budget 09:30-10:00 Introduction to Timetable for 2007 Budget 10:00-10:10 Linkages from MDGs to Annual Budget 10:10-10:15 39 Timetable for 2007 Budget INITIATIVES PARTNERS DEADLINE 1 Agree key assumptions and FIRS, NCS, 23 Mar 2006 targets NNPC, DPR, CBN, NPC, Mr. P, NASS 2 Agree revenue framework FIRS, NCS, 14 Apr 2006 NNPC, DPR, CBN, NPC, Mr. P, NASS 3 Agree aggregate expenditure CBN, NPC, Mr. 28 Apr 2006 limit, level of deficit and how P, NASS deficit will be financed 4 Agree limits by major NJC, DMO, Mr. 18 May 2006 expenditure heads (i.e. P, NASS Statutory Transfers, Debt Service and MDA Expenditure) 5 Agree Medium Term Sector Consultants, 25 May 2006 Strategies with MDA Development Partners, NPC, MDA 40 Timetable for 2007 Budget INITIATIVES PARTNERS DEADLINE 6 Conclude stakeholder Organized 9 Jun 2006 consultations Private Sector, Civil Society, Public Sector, NASS 7 Agree MDA expenditure Mr. P, NASS 21 Jun 2006 envelopes 8 Present Fiscal Strategy Paper FEC, NASS 5 Jul 2006 to FEC 9 Issue Call Circular MDA, NASS 7 Jul 2006 Receive budget submissions MDA 7 Aug 2006 from MDA 10 Review budget submissions MDA 7 Sep 2006 from MDA and put in form suitable for submission to NASS 11 Agree Mr. President’s Budget Mr. P 7 Sep 2006 Speech 12 Mr. P presents Budget to Mr. P 12 Sep 2006 NASS 41 FGN Budget Process STAGE 1 STAGE 2 STAGE 3 STAGE 4 STAKEHOLDER MEDIUM TERM MEDIUM TERM CONSULTATION SET REVENUE FRAMEWORK EXPENDITURE FRAMEWORK •OPS PROSPECTIVE •OIL REVENUE •AGGREGATE SPENDING •COS MDA •NON-OIL REVENUE •SPENDING BY MAJOR •PUBLIC SECTOR ENVELOPES •INDEPENDENT HEADS (MDA, DEBT, REVENUE TRANSFERS) •NASS •DEFICIT STAGE 9 STAGE 8 STAGE 7 STAGE 6 STAGE 5 FISCAL STRATEGY PAPER MEDIUM FMF ISSUE TERM •REVENUE MDA S BUDGET SECTOR SUBMISSIONS FRAMEWORK BY MDAS CALL CIRCULAR •EXPENDITURE ENVELOPES STRATEGIES •INSTRUCTIONS AGREED FRAMEWORK (ANNUAL •MDA ENVELOPES •PRIORITY FOCUS UPDATE) •MDA ENVELOPES STAGE 10 STAGE 11 STAGE 12 STAGE 13 STAGE 14 NASS EVALUATION PRESENTATION OF MR TRANSMISSION APPROVES AND DRAFT BUDGET TO MR PRESIDENT & OF BUDGET BY & PASSES PRESIDENT CONSOLIDATION MR PRESIDENT APPROPRIATION ASSENTS OF SUBMISSIONS APPROVAL OF BILL BY BOF DRAFT BUDGET 42 The Current Budget Reality in Nigeria Introduction to Nigeria’s MTEF 09:10-09:30 Review of 2006 Budget 09:30-10:00 Introduction to Timetable for 2007 Budget 10:00-10:10 Linkages from MDGs to Annual Budget 10:10-10:15 43 44 QUESTIONS AND ANSWERS FOR 15 MINUTES, THEN A 15 MINUTE BREAK 45 Policy Framework for Nigerian Budgeting Introducing MDGs 10:50-11:10 Introducing NEEDS 11:10-11:30 Public Expenditure Management - Aims and Challenges 11:30-12:00 46 What are the MDGs & How do they relate to Nigeria? The Millennium Development Goals (MDGs) are the world‘s time-bound (2015) set of 8 Goals that are inter- dependent and address extreme poverty in its many dimensions. They include; poverty reduction, UPE, gender equality, child mortality, maternal mortality, HIV AIDS & Malaria, environment and global partnerships. They were agreed at the UN in September 2000 and seek to deliver a global compact between rich and poor Nations that underscores basic human rights to all people. 47 How do the MDGs relate to NEEDS? The NEEDS document is the long term development plan for Nigeria. It aims to achieve sustainable development, wealth creation, value re-orientation and employment generation. The MDGs are a key stepping stone in this process if the journey is to be successful. 48 The MDGs in Nigeria 8 goals 18 targets 48 indicators What are the targets in Nigeria? What is our progress? 49 Goal 1 ERADICATE EXTREME POVERTY AND HUNGER Target: Halve the proportion of people living on less than a dollar a day and those who suffer from hunger by 2015. 2015 target: Poverty rate cut to 21.4% Today: 54.4% of the population in Nigeria lives on less than =N= 135.00 per day. 50 Goal 2 ACHIEVE UNIVERSAL PRIMARY EDUCATION Target: Ensure that all boys and girls will be able to complete primary school by 2015. 2015 target: Universal primary education Today: Over 7 million primary age children are out of school. 51 Goal 3 PROMOTE GENDER EQUALITY AND WOMEN EMPOWERMENT Target: Eliminate gender disparities in primary and secondary education preferably by 2005,and at all levels by 2015. 2015 target: Total equality in primary and secondary education and 30% of seats of the National Assembly held by women Today: 13 states in Nigeria still have gender disparity (11 states in the north and 2 in the south). The percentage of the girl child enrolled in primary and secondary schools in Nigeria is still very low especially in the north (34% for primary and 10% for secondary). Out of the 109 senators we have in Nigeria only 4 are female. There are no female Governors in Nigeria. 52 Goal 4 REDUCE CHILD MORTALITY Target: Reduce by two thirds the mortality rate among children. 2015 target: 30.3 per 1000 live births Today: Nigeria has one of the highest infant mortality rates in the world (100 per 1000 live births). There are 201 children who will die by the age of 5 for every 1000 born in Nigeria. 53 Goal 5 IMPROVE MATERNAL HEALTH Target: Reduce by three quarters the ratio of women dying in childbirth. 2015 target: No data available (in progress) Today: 17% of women in Nigeria have NO assistance during delivery and 26% are assisted by untrained persons. Out of every 100,000 women Nigeria 800 die during child birth. 54 Goal 6 COMBAT HIV/AIDS,MALARIA AND OTHER DISEASES Target: Halt and begin to reverse the spread of HIV/AIDS, malaria and other major diseases. 2015 target: Reversal in deaths caused by major diseases Today: Deaths caused by HIV/AIDS have increased in Nigeria from less than 50,000 in 1999 to about 350,000 in 2003/4 70 million people in Nigeria have at least one episode of malaria annually. only 12% of house holds own a mosquito net and only 2% own an insecticide treated net (ITN). 55 Goal 7 ENSURE ENVIRONMENTAL SUSTAINABILITY Target: Integrate principles of sustainable development into policies and programmes and reverse the loss of environmental resources by 2015; Reduce by half the proportion of people without access to safe drinking water by 2020; Achieve significant improvement in the lives of at least 100 million slum dwellers. 2015 target: 20% of land area covered by forest; 100% of households with access to safe drinking water and safe sanitation Today: Nigeria is currently losing about 350 sq km of its land mass annually to the advancing desert in northern states of Borno, Yobe, Katsina, Sokoto and Kano 72 million Nigerians have no access to safe drinking water 55.2 million Nigerians have no access to improved sanitation 56 Goal 8 DEVELOP A GLOBAL PARTNERSHIP FOR DEVELOPMENT Target: Develop further an open rule based, predictable non discriminatory trading and financial system (includes the commitment to good governance, development and poverty reduction) Today: The International Community must keep promises made for funding the MDGs The International Community needs to implement fairer international trade negotiations that will enhance Nigeria's productivity and export capabilities. It must also reduce the burden of National debt to allow Nigeria access to increased domestic resources The Millennium Development goals are a test of political will to build stronger partnerships 57 58 59 Process………….. Initial exercise target MDG‘s (within NEEDS/SEEDS) Target MDG MDA‘s (Ministries,Depts,Agencies) Build/Integrate within ongoing Reforms (BOF/NPC) of budget processes 60 Policy Framework for Nigerian Budgeting Introducing MDGs 10:50-11:10 Introducing NEEDS 11:10-11:30 Public Expenditure Management - Aims and Challenges 11:30-12:00 61 Background of NEEDS Poverty Reduction Strategy Paper for Nigeria 2003-2007 Horizon Home-Grown - developed with extensive stakeholder consultation NEEDS II will update this for 2008-2012 Aligned with the Millennium Development Goals - strategies for helping to achieve these Four Goals Wealth Creation Employment Generation Poverty Reduction Value Reorientation 62 GOALS Wealth creation Employment generation Poverty reduction Value reorientation MACROECONOMIC FRAMEWORK Empowering Promoting Changing the People Private Way the Government Health, education, environment, Enterprise Does Its Work integrated rural development, Security and rule of law, Public sector reforms, privatization housing development, employment infrastructure finance, sectoral and liberalization, governance, and youth development, safety strategies, privatization and transparency and anticorruption, nets, gender and geopolitical liberalization, trade, regional service delivery, budget, and balance, and pension reforms integration, and globalization expenditure reforms Financing and plan implementation strategies 63 Linking Sector Budgets & NEEDS NEEDS is the framework that establishes the priorities for Government Spending Many of the strategies laid out in NEEDS require that government plays a central role (both State and Federal) Empowering People - Investment in key social services and public goods Promoting Private Enterprise - Investment in key infrastructure to support growth NEEDS places a strong emphasis on the role of the private sector - Government must create a strong enabling environment but not try to replicate private sector functions. It is therefore also important to think about what should not be in the Budget. 64 Government Role in NEEDS 65 The Budget Process & NEEDS NEEDS also lays down clear aims for the strengthening of Public Expenditure Management and the Budget Process in Nigeria Early involvement of Stakeholders Medium Term Expenditure Framework and Fiscal Strategy Paper consistent with NEEDS Strengthened Procurement Process Fiscal Rules Benchmark Price for Crude and Excess Crude Account Deficit no greater than 3% of GDP 66 Policy Framework for Nigerian Budgeting Introducing MDGs 10:50-11:10 Introducing NEEDS 11:10-11:30 Public Expenditure Management - Aims and Challenges 11:30-12:00 67 Basic Objectives of Public Expenditure Management Level 1: Aggregate Fiscal Discipline (Budget totals as the result of explicit, enforced decisions) Level 2: Allocative Efficiency (Expenditure according to government priorities and effectiveness of public programs) Level 3: Operational Efficiency (Best value for money on the spending included in the Budget) 68 Need to know… what is the framework in which budget decisions are made; who is responsible for planning and preparing the budget; what are the basic steps; what are the typical weaknesses in procedures and how can these be overcome; and how can changes in budget plans be programmed and targeted? 69 Soundness of budget Comprehensiveness Is the coverage of government operations complete? Are estimates gross or does netting take place? Transparency How useful is the budget classification? Is it easy to connect policies and expenditures through a program structure? Realism Is the budget based on a realistic macroeconomic framework? Are estimates based on reasonable revenue projections? How are these made, and by whom? Are the financing provisions realistic? Is there a realistic costing of policies and programs and hence expenditures (e.g., assumptions about inflation, exchange rates, etc.) How are future cost implications taken into account? Is there a clear separation between present and new policies? How far ahead are spending priorities determined and agreed under the budget process? 70 Expenditure reductions Expenditure reductions under a revised annual budget require: expenditure policy changes and avoidance on across the board cuts or freeze in development projects Estimates for programs are revised down Conservative assumptions on cuts in number of staff, salaries, equipment purchases, fuel bills etc Less reliance on administrative actions 71 Characteristics of Sound PEM Commitment, capacity & willingness to: Prepare a budget (a) in line with development priorities and (b) that can realistically be implemented Specify the budget‘s intended results Execute budget as passed by the legislature Account for results achieved Evaluate impact of policies and programs and take results into account in budget preparation. Initial PEM conditions crucial for MTEF implementation 72 Common PEM problems Weak links between policy, resource limits, and budgets Annual focus leads to suboptimal choices Separation between capital and recurrent budgets Non-comprehensive budget Failure to think strategically about tools and objectives Not learning from experience Not harnessing energies of all actors in system; mismatch of roles and responsibilities Taking piecemeal decisions without reference to over-all effect The common pool problem – deficit bias 73 MTEF Budget Framework Aims and Components of MTEF 12:00-12:30 Medium Term Fiscal Framework - Forecasting Revenue and Aggregate Expenditure 12:30-13:10 Medium Term Budget Framework and MTSS 14:00-14:30 74 Why an MTEF to achieve PEM aims? Fiscal (aggregate fiscal discipline) * to communicate: - medium term fiscal policy & targets - policy of fiscal discipline and sustainability Allocation (allocative efficiency) * to discipline decision making and highlight need for action by showing: -future costs of current policies -future costs of new policies and investments * to communicate commitment to specific priorities through medium term allocations * to open up budget space to reallocate funds for new priorities Resource Use (operational efficiency) * improve predictability of funding and policy for strategic planning and management & operational performance at sector level 75 Conceptual Framework (I) An MTEF is a whole government framework for supporting a strategic & policy based approach to plannin and budget preparation within a medium term perspective - a medium term fiscal framework - future costs of existing policy - sector strategies An MTEF is an integral part of the annual budget cycle 76 Conceptual Framework (II) Associated with a top-down process whereby budget realities at the macro and sector/agency level, together with sector strategies, inform and discipline a discussion of strategies, policies and resource allocation in advance of the preparation of detailed budget estimates 77 Conceptual Framework (II) These envelopes are reconciled with a bottom-up estimate of current and future costs of existing policies and programs through an iterative process of prioritization 78 Technical Objectives of MTEF Improve macroeconomic balance Promote fiscal discipline lower deficits, improve economic growth enable more sustainable public finances Improve impact of Government policy link between government priorities/policies and programs sustainable policy Improve program performance/impact Shift from administrative to managerial culture Managerial flexibility & innovation: lower cost/output; greater effectiveness of programs more efficient use of resources Improve resource predictability 79 Key Features of a Medium Term Expenditure Framework Aggregate Fiscal Targets (what is affordable) FGN Medium Term Fiscal Framework Forward Estimates of Costs of Existing Policy 3 Year Horizon - updated annually Institutional Mechanisms for Making the Allocation Trade-offs Envelopes allocated by Mr. President and FEC Costed Sector Plans - Aligned with Policy Priorities MTSS Process A Focus on Performance Monitoring and Evaluation Enhanced Predictability 80 ILLUSTRATIVE MTEF STRUCTURE Year 1 : Budget Estimate + 1 Estimate + 2 Estimate + 3 Estimate Revenue 100 102 104 106 Fiscal Aggregates Expenditure 100 102 104 106 Sectors Future Costs of Existing Policy A 45 48 50 52 B 35 35 35 35 C 20 21 22 23 Total 100 104 107 110 Year 2 : Budget Estimate + 1 Estimate + 2 Estimate + 3 Estimate Revenue 103 105 107 109 Fiscal Aggregates Expenditure 103 105 107 109 Sectors Future Costs of Existing Policy A 48 50 51 52 B 34 34 34 34 C 21 21 21 21 Total 103 105 106 107 Year 3 : Assumptions : (1) Commitment to Balanced Budget (2) As forward estimates represent future costs of policies funded in budget they do not necessarily sum to the estimated aggregate for that year. 81 What Commitments are Required to Make the MTEF Work? The Center More predictable funding More predictable policy Greater transparency and predictability in reprioritizing and reallocating resources Leave management decisions to line managers 82 What Commitments are Required to Make the MTEF Work? The Line Living within budget Clear sector strategies Revealing true cost of programs Using resources efficiently and effectively Reporting on resource use 83 Budget roles and responsibilities before… • Issues broad guidance at start of process, with cost increase assumptions Ministry of • Cutting spending requests uniformly or by economic class or line item to meet totals Finance • Heavy involvement in setting line item totals •No idea of out-year implications of choices • Develop requests in vacuum • Request is wish list; incentive to ask for more, hoping that after cuts will have enough Line Ministry • Little discretion to allocate funds in own budget • Little incentive to focus on current programs, reallocate • Minimal policy content in budget request • Low likelihood of getting budget levels during year 84 …. And after reforms • Issues broad guidance with multi-year sector ceilings at start of process (cabinet approved) • Cuts spending requests only if above ceiling, leave most details of what to cut to line ministry (though with Ministry of recommendations, frequently) Finance • Little involvement in setting line item totals, except perhaps capital and personnel; may set personnel ceilings too •Clearer picture of future implications of current choices •Focus more on policy and objectives, performance assessments (costs, objectives, effectiveness, efficiency) • Clear resource framework for planning • Request must prioritize between current and new programs Line Ministry • Near complete discretion to allocate funds in own budget • Potential for larger policy content in budget request • Ceterus paribus, higher likelihood of receiving budget levels 85 during year MTEF Budget Framework Aims and Components of MTEF 12:00-12:30 Medium Term Fiscal Framework - Forecasting Revenue and Aggregate Expenditure 12:30-13:10 Medium Term Budget Framework and MTSS 14:00-14:30 86 Sources of Revenue for FGN Budget Oil Taxes Crude Oil Sales Petroleum Profits Tax Royalties Non-Oil Taxes Company Income Tax VAT Customs and Excise Duties Independent Revenue 87 OIL REVENUE NON-OIL INDEPENDENT VAT (benchmark) Revenue REVENUE 13% DERIVATION FEDERATION VAT ACCOUNT POOL 15% 52.68% LOCAL GOVT STATE GOVT FGN 20.60% 26.72% CONSOLIDATED REVENUE FUND OF THE FEDERATION 14% of VAT 4.18% of Federation Account 48.5% of Federation Pool Account SPECIAL FUNDS FEDERAL BUDGET 88 Revenue Projections Oil Taxes Level of output Production Capacity Production Quota World Crude Oil Price and Benchmark Crude Price for Budget Operating Costs Capital Costs Government share of different Joint Venture Operations Tax Rate Collection Efficiency 89 Revenue Projections Non-Oil Taxes VAT VAT Rate Economic Activity (GDP, Consumption) FIRS Collection Efficiency CIT CIT Rate and Investment Tax Holiday Rules Economic Activity (GDP) FIRS Collection Efficiency 90 Revenue Projections Non-Oil Taxes Customs and Excise Duties Weighted Average Tariff Rate Trade Activities (Exports and Imports by value) NCS Collection Efficiency Independent Revenue Activity of Revenue Generating Agencies 91 What ceilings and targets? Budget balance/deficit Public debt Size of total budget Statutory Transfers Debt Service Total MDA Spending 92 Why a limit on public debt? Accelerating costs of servicing growing debt stock Before Paris Club debt foregiveness Debt Service was absorbing an increasing proportion of FGN Budget Inter-generational fairness - not leave future generations with debt burden 93 Why a ceiling on the total budget? Cannot Expand Taxation without severely Laffer curve impacting economic growth Fragile Investment Climate Weak Tax Base Dead-weight loss Dead-weight loss of taxation Diminishing tax returns Marginal tax rate (Laffer Curve) Inefficient administrative allocation Many activities in Nigeria better delivered by private sector than Government 94 What should be covered? Discretionary spending Mandatory spending Social security Interest Payments Donor Funding Spending of Internally Generated Revenue by Agencies 95 Issues to Consider in MTFF Scale Nominal terms In proportion to GDP but also thinking about ratio of non-oil taxes to non-oil GDP Update - Annually to respond to changing economic reality Time Horizon - 3 years 96 MTEF Budget Framework Aims and Components of MTEF 12:00-12:30 Medium Term Fiscal Framework - Forecasting Revenue and Aggregate Expenditure 12:30-13:10 Medium Term Budget Framework and MTSS 14:00-14:15 97 What Are We Doing? Assisting Ministries, Parastatals and Agencies to define their strategies over the medium-term (3 years period) Alligning the goals and objectives of the MDAs to: NEEDS MDG Long-Term Sector strategy (when in place) Other strategic directions of Federal Government 98 Relationship of MTSS with Strategic Planning Tools 10 Year Strategic MDGs High Level Plans Presidency Policy NEEDS NPC 5-10 Year MDAs Horizon NPC Medium Term MDAs Expenditure MTSS MTFF/MTBF BOF Framework - 3 Years FMF DMO Annual MDAs 1 Year Horizon BOF Budget 99 How Are We Doing It ? Assisting MDA to : Understand how NEEDS and MDG should impact their goals and objectives Set medium-term goals and objectives Identify key initiatives (programs and projects) that they need to do to achieve their goals and objectives Cost each initiative and phase them over the medium-term period bearing in mind the indicative envelop of the MDA for the same period set out in the Fiscal Strategy Paper Define outcomes and outputs to be delivered to Nigerians in clear measurable terms Agree how performance will be monitored and reported to Nigerians 100 How Are We Doing It ? Review/Evaluation of existing budget commitments High-Level Sector Strategy Sessions involving - Sector Staff Relevant committees of NASS Select Civil Societies Organisation “MTSS Team” comprising – BOF/FMF OSSAP MDG NPC BPMIU Consultants Sector Experts 101 How Are We Doing It ? Documentation of MTSS Medium-Term goals and objectives Key initiatives (projects/programmes) Detailed and comprehensive costing Prioritization Phasing of projects/programs Detailed logframes 102 When Are We Doing It ? 2nd Quarter 2006 and this will be updated annually 103 Who Are We Doing It For ? 2006-2008 MTSS New Addition for 2007- 2009 • Revise MTSS of 8 Key Ministries, namely – • Develop MTSS for 11 Agriculture additional Ministries, namely – Education Transport Health Youth Development Police Science and Technology Power Environment Water Resources Aviation Works Internal Affairs FCT Foreign Affairs Defence Information and National Orientation Solid Minerals Housing and Urban Development 104 Why Are We Doing It ? To ensure that : Annual budgets of the MDA are consistent with their medium-term startegies, the Fiscal Strategy Paper, NEES and MDG Expected outcomes and outputs from MDA spending are clearly defined, monitored, variances explained and communicated to Nigerians We get greater value for money spent 105 2007 - 2009 MTSS Why 2007-9 MTSS when we have done 2006-8 MTSS? MTSS should be updated yearly Capture changing resource environment and strategic priorities Allows M&E to feed into budgeting Add 11 more key strategic sectors Create a ‗complete‘ MTSS document for all 19 sectors - 2006-8 MTSS was excellent start but key components of full MTSS missing: Review of existing projects and programmes - including consideration of staffing levels Detailed costings 106 Situating MTSS within Strategic Budget Planning Key Characteristics of Good MTSS Nested within MDGs, NEEDS, 10 Year Plans Should not contradict or depart from high level policy Actualize High Level Strategy within Medium Term Expenditure Framework by translating policy into material that can be used in developing detailed Budget Reflect resource environment captured in MTFF - using indicative envelopes to guide MDA priorities Contain detailed costings of projects and prgrammes (capital and associated recurrent costs) Measurable Objectives, Key Performance Indicators Should be tied to current budget reality Review of existing projects and programmes Assessment of current staffing 107 Role of Government Agencies in Expenditure Planning BOF - Co-ordinate Expenditure Planning Process NPC - Lead long-term strategic planning across government, economic analysis MTSS represents the point at which NPC planning and analysis meets resource realities in a unified Medium-Term Expenditure Framework OSSAP-MDGs - Providing support on all expenditure related to MDG achievement, including spending financed by Debt Relief Gains SERVICOM, BPSR, BPE, Women Affairs, NACA - Bring expertise on specific dimensions of government activities into the MTSS 108 Looking Forward as the MTEF Evolves Extending the MTEF and Integrating with the Annual Budget Cycle 14.15-14.35 Performance Budgeting (Introduction) 14.35-14.55 Programme Budgeting (Introduction) 14.55-15.15 109 Extending the MTEF - Integrating into Annual Budget An MTEF requires strong linkages between: Fiscal Framework - Resources Available Costed Sector Plans - Policy Priorities Performance – Budgeting: Feeding M&E into Budget Preparation Using analysis to ensure efficient allocation of funds across sectors e.g. Cost-Benefit Analysis MTSS represents crucial stage - bringing together these different components of MTEF 110 Extending the MTEF - Integrating into Annual Budget Annual budget: Framed in medium term context Reflects what is affordable in the short term Policy and program priorities inform funding Comprehensive coverage of all fiscal activities Focus on results 111 Extending the MTEF - Integrating into Annual Budget Budget as a key development tool and governance issue Why is the budget process important? In formulation phase - determines resource envelope - allocates to priority policy areas In execution phase - releases funds to the service delivery agencies, predictably In reporting phase - accounts for how the funds have been used 112 Extending the MTEF - Integrating into Annual Budget STAGE CHARACTERISTICS I. Development of Macroeconomic •Macroeconomic model that projects revenues and Framework expenditure in medium term II. Development of Sectoral •Agreement on sector objectives, outputs, and activities Programs •Review and development of programs and sub- programs •Program cost estimation III. Development of Strategic •Analysis of inter- and intra-sectoral trade-offs Expenditure Framework •Consensus-building on strategic resource allocation IV. Definition of Sector Resource •Setting medium term sector budget ceilings Allocations V. Preparation of Sectoral Budgets •Reconciliationof bottom-up (line ministry bids) and top- down (available envelopes based on sector ceilings) VI. Political Approval •Presentation of budget estimates to cabinet and parliament for approval 113 Extending the MTEF - Integrating into Annual Budget Sequencing and phasing of the MTEF reform • Phased-in vertically (macro, sector, service delivery) • Piloted horizontally (across sectors) • Timing and elements tailored to capacity 114 Policy Goals Impact MTSS Assessment Objectives Feedback Create Options Evaluation Appraisal Monitoring Reporting Implementation Budget Mid-Project Appraisal and re-evaluation 115 Appraisal and Evaluation in Central Government Purpose of Appraisal and Evaluation Are there better ways to achieve this objective? Are there better uses for these resources? This is achieved through Identifying other possible approaches which may achieve similar results Wherever possible, attributing monetary values to all impacts of any proposed policy, project or programme Performing an assessment of the costs and benefits for relevant options 116 Key Stages in Project Appraisal and Evaluation 1. Justifying Action - clearly identified need, action is worth the cost 2. Setting outcomes and objectives 3. Option Appraisal - Cost-benefits analysis of different options 4. Developing and Implementing a Solution 5. Monitoring and Evaluation 117 Objectives, Outcomes, Outputs and Targets Objectives need to be clear Can be a mixture of policy specific objectives for ministries and wider macroeconomic goals Outputs should identify concrete actions and processes needed to meet the objectives Outcomes should identify the measurable desired result of actions and processes and should be linked to objectives Targets should be: Specific, Measurable, Achievable, Relevant, Time-bound (S.M.A.R.T) 118 Setting Objectives What are you trying to achieve? What would be a successful outcome? Have similar objectives been set in the past? Are the objectives consistent with Ministry strategic aims? Have you distinguished outcomes from outputs? How will objectives and outcomes be measured? What factors are critical to success? 119 Creating Options Different options for achieving the same outcome might include: Varying time and scale Renting, refurbishing, building Co-operating with other Government agencies Public-Private Partnership Regulation instead of active intervention 120 Valuing Costs and Benefits Estimating Costs Financial Costs Opportunity Costs of resources Distinguishing fixed, variable and quasi-variable costs Estimating Benefits Monetizing Benefits using economic theory Capturing all possible benefits 121 NEEDS, MTEF, and the Budget MTEF can be valuable: The MTEF should serve as the link between NEEDS and the budget The MTEF should not be a parallel exercise, but integrated with existing budget processes – role of MTSS the institutional arrangements for the MTEF & NEEDS should be consistent in both exercises, and recognize the central role of FMF and BOF Phasing-in of MTEF, by sector and functions, needed 122 Looking Forward as the MTEF Evolves Extending the MTEF and Integrating with the Annual Budget Cycle 14.30-14.50 Performance Budgeting (Introduction) 14.50-15.10 Programme Budgeting (Introduction) 15.10-15.30 123 Performance Budgeting and Management Objective: To bring greater results-orientation and accountability to PE management by focusing on what government achieves with the money it spends. Moves beyond preparation of budgets and financial monitoring of expenditures to evaluating whether government programs work and whether budgets actually deliver services. Focuses on the outputs, the reach, the outcomes and the impact of public expenditures and programs Involves: Definition of specific policy goals or objectives—outcomes Definition of program/project level performance targets-outputs 124 Performance Budgeting and Management Involves: Linking budget allocations to these goals (ensuring a logical sequence from outputs to outcomes in projects and programs funded Measuring and evaluating results of programs and projects Basing new budget allocations on results Establishing new accountability relationships and changing the incentives of budget managers by making them responsible for showing whether outputs were met Examples: Outcome: Increase in pass rate of school leaving children Output: number of classes taught; 125 Implementing effective performance monitoring requires: That political leaders : Have information to enforce achievement of output targets Have incentive to actually enforce achievement of output targets Are called to account for both the amount of money they spend and their results Setting organizational incentives to support performance monitoring including through: Predictable funding Flexible resource application at program level 126 Implementing effective performance monitoring requires: Setting organizational incentives to support performance monitoring including through: Increased contract authority Reduced budget oversight Pay bonus for key staff members Getting performance monitoring consistent with organizational culture A Central Unit playing active and effective leadership role in defining criteria and implementing practical performance monitoring May not be MoF or Budget Office!! (US NPR, UK) 127 Getting Decisions in the Right Hands Performance Budgeting allows decisions to be put in the hands of those in the Line Ministries and Agencies Strategic Policy - Sets out Goals Sector Envelopes - Provides Resources Program: Individual Ministers Running Costs: Managers Individuals are then responsible for the performance of their expenditure 128 Operational Performance Institutional Arrangements Legitimacy of policy goals Predictability of funding Delegation of authority to line managers Responsibility for producing outputs linked to outcomes Hard budget constraint during budget execution Independent external audit 129 LINE ITEM (Old Approach) PERFORMANCE BUDGETING 1. Input 1. Input Cash Cash/Accrual Output Performance data/ indicators/standards Authority Accountability Outcome Clear Objectives Indicators 2. Classification Evaluation Economic Type 2. Classification Functional Program 3. Annual Organizational 3. Multi-year 130 Performance Based Budgeting LINKING: Inputs Outputs, and Outcomes 131 Looking Forward as the MTEF Evolves Extending the MTEF and Integrating with the Annual Budget Cycle 14.30-14.50 Performance Budgeting (Introduction) 14.50-15.10 Program Budgeting (Introduction) 15.10-15.30 132 Identifying Expenditure by Program Expenditure transactions typically should be classified in four ways: 1. by administrative responsibility--the ministry, department, or spending agency that undertakes the expenditure; 2. by economic category--defined by Government Financial Statistics standards; 3. by function (e.g., health, education)--defined by the United Nations; and 4. by program (e.g., by policy goals and objectives). 133 Program Budgeting Progress on performance based budgeting also requires moving away from line item budgeting towards program budgeting This allows government departments to conceptualize their operations in terms of what they do rather than in terms of what inputs it uses-as reflected in line item budgeting Focus is on the output from spending rather than on individual line items A Program budget is a collection of expenditure items that together seek to deliver one objective: Personnel Costs of the staff associated with that program Overhead/recurrent running costs Capital Costs 134 Program Budgeting Teacher Training Programme Line Item Amount Personnel Costs 3 million Agency Personnel 5 million Overheads 1.5 million Costs Agency 2 million Teacher Training 3 million Overheads Centre Classroom Capital Expansion Programme Teacher Training 3 million Personnel Costs 2 million Centre Overheads 0.5 million Classroom 3 million Building Classroom 3 million 135 Building South African Experience South African experience considered best practice in developing world Progress has been gradual over more than 8 years Moved from line item budgeting to program budgeting Eg department of health had three large programs: Administration; strategic health; 6 subprograms on HIV/AIDs Health service delivery Added column in budget on key outputs, indicators and targets related to each program area Asked MDAs to identify targets for service delivery in main output areas 136 South African Experience Example: Maternal, Child and Women‘s Health Subprogram Output: Improved Immunization coverage Output measure/Indicator: Number of cases of indigenous measles; Immunization coverage of1-year-olds Schools visited for routine vaccination Targets: Indigenous measles eliminated 90% coverage of 1-year olds by 2004 (minimum 80% in each province) 90% of schools vaccination coverage by 2004 137 South African Experience Example: District Health Systems Subprogram Output: Fully functional clinics and Community health centres Output measure/Indicator: Number of existing and new facilities that have water electricity sanitation and roads Targets: All facilities to have services by 2003/2004 138 South African Experience Challenges Budgets still do not provide clear link between performance and allocation Performance measures still do not constitute an effective basis for results identification, measurement, and management Budgets still fail to identify who is responsible for performance and resources use making it difficult to know who is accountable 139 What Progress Has Nigeria Made? Made a start on performance based budgeting In 2004 budget encouraged MDAs to identify outputs they would deliver against their budgets (key agencies provided this) A few examples of program budgeting eg NPI, UBE, Need to move further to implement other aspects of performance budgeting by: More program budgeting Linking clearly allocations with policy objectives/outcomes Generating information on outcomes and outputs Instituting monitoring and evaluation Holding budget managers accountable (clarifying who is accountable for what, who will enforce accountability and how) Moving towards program budgeting 140 Putting the MTEF in Context Conditions necessary for a Strong MTEF 15:50-16:10 Case Studies - Lessons Learned from other MTEFs 16:10-17:10 Key Role of MTEF in the Draft Fiscal Responsibility Bill 17:10-17:40 141 Conditions necessary for a Strong MTEF Conditions for Budget Process Short Term Long Term Successful Requirements for MTEF Solutions Objective MTEF 1. Fiscal Macro/Fiscal Stabilty Use IMF FMF to have Stability macroeconomic capacity to Realistic Medium framework run its own Term Economic Outlook macro- &Fiscal Strategy economic Begin to build Disciplined Resource framework FMF capacity: Allocation Revised budget Sector Macroframework used classifications analysis to inform in NEEDs must be the Capacity allocation of same as that used in building in resources MTEF macroeconomic and fiscal policy Better domestic resource management 142 Conditions necessary for a Strong MTEF Conditions for Budget Process Requirements for Short Term Long Term Successful MTEF Solutions Objective MTEF 2. IfMTEF is to really maximise the MTEF can be Allexpenditure Comprehensive impact of resource allocation - all rolled out on budget Budget Coverage expenditure must be covered by the across budget budget over time 3. Predictability Volatility is immensely damaging to Prioritise most Budget is a MTEF sensitive reliable guide to Reduces credibility of hard budget spending when expenditure ceilings there is budget Undermines performance budgeting shortfall 143 Conditions necessary for a Strong MTEF Conditions for Budget Process Requirements for Short Term Long Term Successful MTEF Solutions Objective MTEF 4. Timely and Reliable Financial Information is vital Enhance Prompt Capture accurate data Manage Budget during year financial of all transactions Planning expenditures management In-year budget Monitoring and Evaluation reporting execution Non-financial Information is also vital systems reporting Performance Measures 5. Expenditure Strong treasury procedures to Role out Effective Control accurately control and monitor revenue MTEF internal control and expenditure alongside and audit in Reduction in cash budgeting, Financial government amendments and virement Management Effective public Strong financial management in MDAs reforms procurement is crucial for forward budgeting system 144 Conditions necessary for a Strong MTEF Conditions for Budget Process Requirements for Short Term Long Term Successful MTEF Solutions Objective MTEF 6. Evaluation and Legislature has to fulfill its role as Strengthen External audit Audit principal oversight Auditor- and M&E Sanctions for misuse of funds General and provides Input from various M&E agencies other M&E authorities with agencies all relevant information 145 Putting the MTEF in Context Conditions necessary for a Strong MTEF 15:50-16:10 Case Studies - Lessons Learned from other MTEFs 16:10-17:10 Key Role of MTEF in the Draft Fiscal Responsibility Bill 17:10-17:40 146 South Africa Background Parliamentary system, limited legislative involvement, but high capacity, transparency and accountability Unitary state, subnational involved Middle income country Political stability Relatively high capacity, but generally limited to center (versus ministries, provinces, municipalities) Decent national FMIS, but limited at subnational MTEF focus on allocation and technical efficiency First MTEF failed due in part to complexity 147 South Africa: overall assessment Stage 1 macrofiscal Treasury dominates, technical and policy Prudent policies pursued Stage 2 sectoral allocation Cabinet subcommittee reviewed, cabinet approved Program budgets help Stages 3-5 Collegial approach from beginning make this less contentious, raise issues early 148 South Africa in more detail - Getting totals right Keep projections simple Make public fiscal commitments Decide totals before allocations 149 South Africa in more detail - Building consensus Membership Review Baselines Teams Implications of baselines Policy options Affordable totals Treasury/ Menu of choices Ministers’ (i.e. finance) Recommendations Committee Recommended allocations Policy choices Cabinet MTEF 150 The Baseline –it is important In the MTEF, the baseline is used both to establish the fiscal framework and to determine whether expenditure changes are consistent with the framework. Inasmuch as future conditions are not yet known, the baseline and estimates of policy change are grounded on assumptions concerning economic performance, the behavioral responses of persons affected by policy changes, and other variables. Countries which use baselines to establish and enforce expenditure frameworks, such as SA, must have rules for how the projections are made and policy changes are measured as well as procedures for dealing with deviations from the baseline. They must also assign responsibility for maintaining the baseline and assuring that policy changes are accurately measured against it. In a few countries, managing the baseline and related controls has become the finance ministry's most important budget responsibility. 151 Review teams What? Health, Education, Welfare, Crime, Personnel, Infrastructure Who? Treasury, line departments, subnational government, consultants What? expenditure trends implications of baseline costed policy options benchmarking 152 Ministerial Committee Powerful minority Identifies options Evaluates proposals Recommends to Cabinet 153 Implementation lessons Include, but control Listen to departments Involve politicians throughout Avoid information overload Decide totals first Don‘t over-prescribe Focus on priorities Promote transparency 154 Review teams What? Health, Education, Welfare, Crime, Personnel, Infrastructure Who? Treasury, line departments, subnational government, consultants What? expenditure trends implications of baseline costed policy options benchmarking 155 Ministerial Committee Powerful minority Identifies options Evaluates proposals Recommends to Cabinet 156 Treasury review process Informed by Cabinet priorities Examination of expenditure & budgets Focus on changes to baseline allocations Identify activities to discard Identify new commitments Review spending by agencies Inform Cabinet of risks 157 Timetable Apr Departments submit baselines MTEF Review June Teams identify Other departments spending trends plans MinComBud and policy evaluated July discusses priorities options Aug Officials discuss budget proposals Sept Min Com Bud Treasury updates hearings projections 158 Oct Timetable Spending totals Treasury summary Oct of policy options proposed Nov Cabinet agrees totals MinComBud discusses published in MTBPS allocations Dec Cabinet approves allocations Jan Departments allocate funds Budget documents prepared Feb Budget 159 Mar South Africa in more detail - Review teams What? Health, Education, Welfare, Crime, Personnel, Infrastructure Who? Treasury, line departments, subnational government, consultants What? expenditure trends implications of baseline costed policy options benchmarking 160 South Africa in more detail - Review teams Unique to South Africa Cooperative governance Better understanding Treasury of policy challenges Departments of financial implications Consensus building Ongoing work programmes 161 Budget reform highlights Macroeconomic coordination 1996 economic strategy – stabilisation Post-2001 – expansionary fiscal stance Budget process & systems 1998 MTEF (3-year budgets) Intergovernmental division of revenue 2001 new budget documentation 2004 ―measurable objectives‖ by programme Financial management 2000 Public Finance Management Act Promotion of Public-private partnerships 2004 Supply chain management reforms Modernisation of IT systems & accounts Risk management & contingent liabilities 162 Reform sequencing issues 1. Macroeconomic framework comes first Price and wage stability Credible macro projections 2. Policy and medium term budget priorities 3. Build central analytical & planning capacity 4. Assign performance responsibility & dismantle regulatory micro- controls 5. Financial management & IT systems 6. Broaden reforms to include agencies, extend longer term capital planning 7. Continuously deepen public accountability and performance measures 163 Financial management reform PFMA promotes accountability of managers… Together with comprehensive reporting requirements Procurement management reforms Balance competing objectives (efficiency, local content, black empowerment) E-Government opportunities for improving services & coordination 164 Fiscal trends - not “incremental” budgeting Consolidated general government spending by function % of non-interest 1982/83 1992/93 2002/03 expenditure 30,0 25,0 20,0 15,0 10,0 5,0 0,0 nce tic e ti on elfa re ner gy ces tion lli ge Jus uca W &E er vi inis tra d in te ons & Ed lth & ter ic s om a dm nc e an e, P r is Hea ev, Wa r econ ner al e ic ty d e Ge D ef Pol uni Oth m 165 g, C om usin Fiscal trends - 2 12% Tax as % of GDP 10% 8% 6% 4% 2% 0% 5 6 7 8 9 0 1 2 3 4 /9 /9 /9 /9 /9 /0 /0 /0 /0 /0 94 95 96 97 98 99 00 01 02 03 19 19 19 19 19 19 20 20 20 20 Personal income tax Corporate income tax Value-added tax Levies on fuel 166 Fiscal trends - 3 6,0% 5,5% 5,7% 5,2% 5,5% 5,4% 5,1% 5,0% 4,7% 4,5% 4,1% 3,9% 4,0% 3,8% 3,7% 3,6% 3,5% 3,0% 2,5% Debt service costs as % 2,0% of GDP 1,5% 1,0% 0,5% 0,0% 1996/97 1998/99 2000/01 2002/03 2004/05 2006/07 167 Treasury review process Informed by Cabinet priorities Examination of expenditure & budgets Focus on changes to baseline allocations Identify activities to discard Identify new commitments Review spending by agencies Inform Cabinet of risks 168 Treasury review process Informed by Cabinet priorities Examination of expenditure & budgets Focus on changes to baseline allocations Identify activities to discard Identify new commitments Review spending by agencies Inform Cabinet of risks 169 Legislative Role in SA The scrutiny and oversight of the South Africa budget have also improved during the past year. In parliament, the joint Budget Committee has recently taken over the oversight role for scrutiny of the budget. This committee concentrates on the expenditure estimates. The Portfolio Committee on Finance deals mainly with taxation. From 2004, the Treasury conducts explanatory workshops with the Budget Committee, the Portfolio Committee on Finance and the Select Committee on Public Accounts before and after the presentation of the budget. 170 Lessons for transition from SA Strengthen performance accountability Clearly assign responsibilities of agencies Transparent publication of budget and services delivery plans and reports Clear boundaries between public and private sector institutions Modernise systems and supply chain management Rigorous planning and analysis Public disclosure and Parliamentary debate 171 Putting the MTEF in Context Conditions necessary for a Strong MTEF 15:50-16:10 Case Studies - Lessons Learned from other MTEFs 16:10-17:10 Key Role of MTEF in the Draft Fiscal Responsibility Bill 17:10-17:40 172 Introduction The National Assembly are currently working with a Draft Fiscal Responsibility Bill (FRB) for Nigeria This Bill, when passed, will create the framework within which Nigeria‘s Economic Policy is managed The MTEF lies at the heart of the FRB - this will be the future direction of Economic and Budget Policy 173 Historical Situations Lack of fiscal discipline by all tiers of Government. Planning based on unsustainable revenues Highly volatile, pro-cyclical and unsustainable spending Persistent, highly inflationary deficits that could not be financed High and unsustainable debt levels Poor planning framework for spending by all tiers of government and spending did not reflect the priorities of Government. Lack of accountability and transparency in fiscal affairs by all tiers of Government. Little or no coordination of fiscal activities among the tiers of Governments on the financial side. 174 What does the FRB seek to achieve? Sound and prudent principles of public expenditure management Better coordination among the FGN, States and Local Governments Transparency and accountability Value for money 175 What is in a FRL ? According to Kopits (2004) the major elements of a fiscal responsibility framework are: permanent policy rules such a limits on government deficit, expenditures, debt, or borrowings, procedural rules for public financial management such as whether to prepare a medium-term budgetary plan and budgeting and audit processes; transparency standards (timely publication and comprehensive coverage of government accounts); and a monitoring and enforcement mechanism, sometimes supported by scrutiny from an independent agency. In essence a fiscal responsibility framework sets government on a path of budgetary policy pre-commitment which takes a legislative form. 176 What is needed for success An important lesson to emerge from the recent literature is that good rules depend critically on: well conceived legislative designs with multiple constraints, as in the case of Brazil, the presence of a supportive institutional framework, and the presence of a broad public consensus for the adherence to these rules. Such as consensus has emerged in Brazil over the last five years, perhaps stimulated by the demonstration effect of what happened in neighboring Argentina. 177 Fiscal Prudence ADHERENCE TO FISCAL RULES Use of prudent sustainable price of oil for budgeting. Set deficit limits at sustainable levels that can be financed Set aggregate expenditure limits Limit government borrowings by level and type 178 Fiscal Prudence LINKING ANNUAL BUDGETS TO LONG TERM STRATEGIES AND MEDIUM TERM SECTOR STRATEGIES MEDIUM TERM OUTLOOK TO PLANNING Medium-Term Revenue Framework Medium-Term Expenditure Framework Fiscal Strategy Paper Medium Term Sector Strategies Annual budgets with projects and programmes linked to medium term plans 179 Better Coordination ONE NATIONAL ECONOMY Management of key prices in the economy Management of Excess Crude Save earnings resulting from favorable crude oil price variance. Savings only to be distributed in current year to augment shortfall in revenue Distribute such portion of savings in year (t) as is agreed between the 3 tiers of government in year (t+1) for capital expenditure. Phase out distribution to avoid overheating the economy. All tiers of government to adhere to rules of fiscal prudence 180 Transparency & Accountability CLEAR RULES FOR TIMELY FINANCIAL REPORTING All tiers and arms of government required to publish audited accounts within 6 months of year end Publication of consolidated accounts of all tiers of government in the mass media within 9 months of year end Publication of quarterly budget implementation reports. (Implementation issues ) Publication of summarised annual budget execution report Promotion of public hearings during budget discussions Wide publication of fiscal affairs of government. 181 Value for Money Sector Strategies Expenditure tracking Monitoring and Reporting 182 2007-9 MTSS Reviewing in detail the guidelines for the forthcoming MTSS process 183 Reviewing Existing Budget Commitments MTSS Aims and Timetable 09.00-09.10 Classification of Budget Commitments 09.10-09.30 Data Collection 09.30-09.45 Scoring Criteria 09.45-10.15 Scoring Exercise (Group-work) 10.15-11.00 184 185 MTSS Timetable S/N MDA SECTO R TE AM REV IEW OF STRATEG Y DOC UMENTATIO N TRAIN ING EXI STI NG BUDGET SESSIO N CO MMITMENTS 1. Agriculture 2. Education 3 Apr Š 4 Apr 3. FCT 4. Health 7 Apr Š 3 May 5 May Š 7 May 8 May Š 5 June 5. Police 6. Power 5 April Š 6 Apr 7. Water 8. Works 186 MTSS Timetable S/N MDA SECTOR TEAM REVIEW OF STRATEGY DOCUMENTATION TRAINING EXISTING BUDGET SESSION COMMITMENTS 9. Aviation 10. Defence 7 Apr – 8 Apr 11. Environment 12. Foreign Affairs 12 Apr – 5 May 12 May – 14 15 May – 5 June 13. Internal Affairs May 14. Science & 10 Apr – 11 Technology Apr 15. Transport 16. Solid Minerals Development 187 MTSS Timetable S/N MDA SECTOR TEAM REVIEW OF STRATEGY DOCUMENTATION TRAINING EXISTING BUDGET SESSION COMMITMENTS 17. Housing and Urban Development 12 Apr – 13 18 Apr – 5 May 19 May – 21 22 May - 5 Jun 18. Information and Apr May National Orientation 19. Youth Development 188 Aims of the 2007-9 MTSS Process Articulate Medium Term (3 Year) goals and objectives against Background of overall goals of NEEDS and the attainment of the MDGs Identify the key initiatives (projects and programmes) that will achieve these goals and objectives Costing the identified initiatives in a clear and transparent manner - phasing the identified initiatives over the medium term 189 Aims of the 2007-9 MTSS Process Reconcile costed, prioritized initiatives with indicative envelopes to produce budget plans aligned with available resources Define the expected outcomes of the identified initiatives in clear, measurable terms - linking outcomes to objectives and goals 190 Sector Planning Teams Minister and/or Permanent Secretary 2 Most Senior Officers Responsible for Planning 2 Most Senior Officers Responsible for Budgeting Heads of core parastatals and agencies within the sector 2 Members of the Oversight Committee in the Senate 2 Members of the Oversight Committee in the House of Representatives 2 Members of reputable Civil Society Groups 1 Member of the Organised Private Sector 191 Support to SPTs MTSS Team Sector Planning Experts from NPC Relationship team members from Expenditure and BME - BOF OSSAP-MDGs Resource persons available from BMPIU, BPSR, Ministry of Women Affairs, SERVICOM External Sector Experts Consultant Support Teams 192 Reviewing Existing Budget Commitments MTSS Aims and Timetable 09.00-09.10 Classification of Budget Commitments 09.10-09.30 Data Collection 09.30-09.45 Scoring Criteria 09.45-10.15 Scoring Exercise (Group-work) 10.15-11.00 193 Identifying Existing Budget Commitments Review 2006-8 MTSS 2006 Appropriation Break commitments down into categories based on function and ‗programme‘ 194 Identifying Existing Budget Commitments Function Personnel Costs Overhead Costs Utilities - Electricity, Telephone Travel - International, Local Training Maintenance - Any costs associated with keeping federal capital assets productive Services - Legal, security, financial consulting Administrative Capital e.g. Vehicles, Headquarters Programme Capital e.g. vaccines for immunization programme (non-asset creating) Developmental Capital e.g. Roads, Hospitals 195 Identifying Existing Budget Commitments By Organisation/Programme Main Ministry (core functions) Main Ministry (specific activities outside core functions e.g. particular programmes) Agencies and parastatals Key individual agencies/parastatals e.g. NiPost Key sub-sectors e.g. NUC, Primary Health Care Centres, Business Incubators 196 Reviewing Existing Budget Commitments MTSS Aims and Timetable 09.00-09.10 Classification of Budget Commitments 09.10-09.30 Data Collection 09.30-09.45 Scoring Criteria 09.45-10.15 Scoring Exercise (Group-work) 10.15-11.00 197 Capturing Key Data Refer to data templates given with guidelines Historical & Current Data Personnel Costs Budget Allocation for previous 2 years - Broken down by organisational classification Staff Strength submitted for previous 2 years 2006 Allocation and estimated allocations for 2007-9 at current staffing levels Overhead Costs Budget allocation for previous 2 years - broken down by organisational classification and functional classification 2006 Allocation and estimated allocations for 2007-9 given current activities 198 Capturing Key Data Capital (for administrative, programme and developmental capital) Original Estimated Contract Cost Original Completion Date Budget allocation over previous 3 years Budget releases over previous 3 years Revised estimated total completion cost Costs required 2007-9 for completion 199 Additional Data Collection Exercise Federal Ministry of Finance and Budget Office are seeking to develop capacity to conduct Cost-Benefit Analysis of projects and programmes As part of this effort, a pilot of 20 major projects is being conducted A team from FMF may contact you during the MTSS process looking to gather some data in addition to that which you are collecting - please give them every assistance possible 200 Reviewing Existing Budget Commitments MTSS Aims and Timetable 09.00-09.10 Classification of Budget Commitments 09.10-09.30 Data Collection 09.30-09.45 Scoring Criteria 09.45-10.15 Scoring Exercise (Group-work) 10.15-11.00 201 Scoring of Existing Budget Commitments SPTs are required to score existing Budget Commitments using the following system: 5 Criteria - 3 that apply to recurrent expenditure, 4 that apply to developmental capital 2 questions under each criteria - answer each of these questions by grading the particular budget commitment Use the scoring grid to combine the scores for each question into one score for the criteria Repeat this for each of the criteria 202 Scoring of Existing Budget Commitments Which criteria should be used for different classification of expenditure? For recurrent spending, or spending that is currently having an impact e.g. programme capital Criteria 2.1, 2.2, 2.3 For capital projects (developmental and administrative) that will have expected future impact Criteria 2.1, 2.2, 2.4, 2.5 203 Scoring of Existing Budget Commitments 2.1. nt Clarity of Current Justification for Budge t Commitme Mark How we llcan the Sector How we llcan the Sector articulate the purpose of the account for the le v e lof funds e xisting Budge t Commitment? currently allocated to that Budget Commitment? 4 Very Well Š There is a clearly Very Well Š All cost components defined purpose for the existing can be identified and a strong expenditure that matches a argument presented for all costs higher level goal of the Sector 3 Well Š There are rationale for Well Š The cost components can the existing budget commitment, be identified, although not all can although these may not be be fully justified as necessary completely clear 2 Moderately Š There is some Moderately Š Some but not all of justification for the commitment, the cost can be identified, but with but of limited clarity limited justification 1 Not at all Not at all 204 Scoring of Existing Budget Commitments 2.2. Risk of Current Budget Commitment Failing to Perform due to Negative Events Mark What would be the impact on What is the probability of that the performa nce of the Budget event occurring? Commitment if a negative event were to occur? 4 Small Impact, Risk can be Low managed 3 Moderate Impact, Risk can be Moderate managed 2 Moderate Impact, Risk difficult to Substantial manage 1 Substantial Impact, Risk difficult High to manage 205 Scoring of Existing Budget Commitments 2.3. Current Impact of Budge t Commitment Mark What are the Tangible Positive How we llcan the MDA justify Impacts of the Budge t ng the current costs of de liv e ri Commitment? those impacts? This score should consider the historical r costs of de liv ey ve rsus the current Budget Commitment. 4 Evidence (convincing) of Very well Š MDA can show that substantial positive impact from current cost represents best value existing commitment 3 Evidence (convincing) of Well Š MDA can show that current moderate positive impact cost is reasonable for this existing Budget commitment 2 Some evidence of moderate Moderately Š MDA can offer positive impact limited evidence that the cost is reasonable 1 No substantial evidence of Not at all positive impact 206 Scoring of Existing Budget Commitments 2.4. Like lihood of Comple tion in 2007-2009 Time frame Mark How well has the project How well can the MDA justify that progressed up to this point? This the Current Bud get Com mitment score should be based on the and pl anne d future spending will data gathered on releases, and complete the project, and run the any evidence of implementation project post completion? This offered by the MDA. should be based on the contract and the data collected. 4 Project is on course with All evidence suggested project will reference to original contract be completed with budgeted ing funds, future runn costs have been fully taken into account 3 Project has progressed MDA can show that project is reasonably well, with substantial likely to be completed with funds released budgeted funds, future running costs have been considered 2 Project has started but has MDA can show that budgeted suffered from poor release of funds will allow for substantial funds or poor implementation progress but not completion, future running costs can be identified 207 1 Not at all Not at all Scoring of Existing Budget Commitments 2.5. Expe cted Future Impact of Budge t Commitment Mark h What will be t e tangible How we ll can the MDA justify he sts Positive Impact of t Budge t the expecte d co of bringing Commitment? this project to comple tion? Can future re current running costs i be justifed? 4 Evidence (convincing) of Very Well Š the completion costs substantial expected positive represent the lowest reasonable impact cost of completion, future running costs have been fully taken into account 3 Evidence (convincing) of Well Š the completion costs are moderate expected positive reasonable, future running costs impact have been considered 2 Some evidence of moderate Moderately Š Some justification expected positive impact can be given for the completion costs, future running costs can be identified 1 No substantial evidence of Not at all expected positive impact 208 Scoring the Criteria Take the score from the first 4 2 3 4 4 question and read along the bottom axis. Then read along the side axis with the score for 3 2 3 3 4 the Second question. This will give you the score for the criteria overall. 2 1 2 3 3 1 1 1 2 2 1 2 3 4 209 Reviewing Existing Budget Commitments MTSS Aims and Timetable 09.00-09.10 Classification of Budget Commitments 09.10-09.30 Data Collection 09.30-09.45 Scoring Criteria 09.45-10.15 Scoring Exercise (Group-work) 10.15-11.00 210 Scoring Exercise Please refer to the notepacks provided Work in small groups of 4-6 Review the case study provided - look at the existing budget commitments and think how you would score these Discuss the challenges that you think will arise during this scoring component of the MTSS 211 Review of High Level Policy Inputs Collating High Level Policy Documents 11.15-11.30 Basis for Indicative Envelopes 11.30-11.45 212 Review of High-Level Policy Documents Why? MTSS is the actualization of the agreed High Level Policy of NEEDS and the MDGs It must also be aligned with any other policy-work that the Sector has engaged in - the MTSS process must increase rather than reduce focus in Government planning 213 Review of High-Level Policy Documents What? MDGs NEEDS 2006-8 MTSS for those sectors that have them (you will remember from yesterday that MTSS are updated yearly) Sectors own Strategy Plans NPC will bring most recent drafts of new 10 Year Strategy Plans to the sectors for which they exist BPSR Functional Reviews of Staffing Levels SERVICOM Charters for MDAs Other long-term strategies developed with partners agencies e.g. BPE, World Bank 214 Review of High-Level Policy Documents What has to be delivered? Before strategy sessions Short report drawing together and summarising all high level policy material Short report on existing budget commitments Presentation ready as opening point for Sector Strategy Sessions 215 Review of High-Level Policy Documents 2006-8 MTSS documents are a crucial input for the 8 sectors for which they were written Goals, objectives and initiatives that were captured in 2006-8 MTSS that are still relevant should be carried over to the 2007-9 MTSS The MTSS process should be an updating of the previous MTSS rather than a new Strategy produced each year 216 Review of High Level Policy Inputs Collating High Level Policy Documents 11.15-11.30 Basis for Indicative Envelopes 11.30-11.45 217 Basis for Indicative Envelopes Aggregate FGN Expenditure Forecast Revenue Sustainable Deficit Aggregate MDA Expenditure Aggregate FGN Expenditure net of: Forecast Debt Service Payments Estimated Statutory Transfers 218 Basis for Indicative Envelopes Envelopes are then allocated to MDAs based a combination of the following factors: ‗Outer Year‘ Envelopes (2007 and 2008) allocated in 2006-8 MTFF 2006 Budget Allocation Expenditure items for initiatives that have reached completion should not be included in a sector envelope New policy priorities 219 Strategy Sessions Introducing the Strategy Sessions - Scope of Work 11.40-11.50 Agreeing Goals and Objectives 11.50-12.20 Identifying Initiatives 12.10-12.40 Outputs and Outcomes 13.30-13.45 Logframe Exercise 13.45-14.15 Prioritization Using the Scoring System 14.15-14.35 Scoring Exercise (part 2) 14.35-15.00 220 Scope of the MTSS MTSS should capture ALL Goals and Objectives for the Sector - both existing and new - that remain relevant MTSS should capture ALL initiatives - both existing and new - that will help to deliver those goals and objectives This includes the administrative and core costs of MDAs MTSS should NOT be a wish-list of new projects and programmes - the envelope provided is the total indicative envelope for 2007-9. All spending must be accomodated 221 Scope of MTSS Sector Planning Teams must think realistically about the internal structure of their sector Taking into account the sub-sectors, agencies and parastatals in each sector How will this be achieved during the MTSS process? When defining goals and objectives Developing goals and objectives specifically for each sub- sector, agency, parastatal Identifying goals and objectives that cut across various parastatals and agencies in the sector Allocate realistic sub-envelopes to sub-sectors and agencies based on the quality of the initiatives proposed 222 Strategy Sessions Introducing the Strategy Sessions - Scope of Work 11.40-11.50 Agreeing Goals and Objectives 11.50-12.20 Identifying Initiatives 12.10-12.40 Outputs and Outcomes 13.30-13.45 Logframe Exercise 13.45-14.15 Prioritization Using the Scoring System 14.15-14.35 Scoring Exercise (part 2) 14.35-15.00 223 Strategy Sessions Agreeing on Goals and Objectives: Assimilate material from review of high level policy documents Number of goals should not be excessive - should give a clear and concise picture of what will drive the Ministries activities over the period 2007-9 They must be completely aligned with all of the High Level policy documents you have review 224 Strategy Sessions Agreeing Goals and Objectives Goals should be clearly defined - this may involve setting broad quantitative targets as in the MDGs, or qualitative statements of policy intension for the Sector However, Goals should remain broad Different Sub-sectors, agencies and parastatals can have their own goals defined but they must be in the context of the overall Goals and Objectives for the sector Objectives represent the next stage in the planning process - breaking down broad goals into more detailed components 225 Strategy Sessions Agreeing Goals and Objectives Objectives should wherever possible be couched in terms of clear measurable targets - ideally specific numbers rather than percentages or qualitative statements Number of additional Nigerians provided with access to a particular service Number of units additional buildings constructed, kilometers of road provided Number of enquiries handled by a particular MDA 226 Strategy Sessions Introducing the Strategy Sessions - Scope of Work 11.40-11.50 Agreeing Goals and Objectives 11.50-12.20 Identifying Initiatives 12.10-12.40 Outputs and Outcomes 13.30-13.45 Logframe Exercise 13.45-14.15 Prioritization Using the Scoring System 14.15-14.35 Scoring Exercise (part 2) 14.35-15.00 227 Strategy Sessions Identifying Initiatives What do we mean by initiatives? Any activity that allows the Sector to achieve the objectives that have been set Programmes - any set of personnel costs, overheads and capital expenditure aimed at achieving a particular output or outcome Projects - capital expenditure designed to deliver a specific outcome or output in the form of an asset that will last for more than one year 228 Strategy Sessions Identifying Initiatives Later in the MTSS process, each priority initiative will be costed - an initiative must therefore be sufficiently distinct as a piece of spending such that it can be costed: Build and equip 1000 additional classrooms and supply teachers for those classes Train 50 new Forestry Research Officers and provide them with 25 new vehicles Run a Headquarters with 200 staff 229 Strategy Sessions Scope of MTSS Goals and Objectives should try to capture the administrative functions of MDAs as well as the service and developmental activities in the Sector One Sector Goal might be to improve the quality of service available to the public making enquiries Objective might - reduce to one week the time to reply to written enquiries Initiative required to deliver this objective - install a new computer network to allow electronic transfer of documents between departments 230 Strategy Sessions Scope of MTSS - Include Administrative Functions of Main Ministry Sector Goal - Improve Service Delivery in the Sector Objective - Improve working tools and environment for 100 staff Initiative - Provide desktop PCs for 100 staff 231 Strategy Sessions Introducing the Strategy Sessions - Scope of Work 11.40-11.50 Agreeing Goals and Objectives 11.50-12.20 Identifying Initiatives 12.10-12.40 Outputs and Outcomes 13.30-13.45 Logframe Exercise 13.45-14.15 Prioritization Using the Scoring System 14.15-14.35 Scoring Exercise (part 2) 14.35-15.00 232 Strategy Sessions Establishing Outputs and Outcomes Once all initiatives (new and existing) have been listed, outputs and outcomes must be identified Outputs - Mirror the initiatives. Should commit to a specific quantitative target, location specific where possible Outcomes - Mirror objectives. Should be the result of achieving one or a set of initiatives - broader positive impact for Nigeria. 233 Strategy Sessions Capturing Outputs and Outcomes MTSS Guidelines and CDs include a simple logframe format that will be used to capture the intended outputs and outcomes from all listed initiatives During the strategy session initiatives, outputs and outcomes will be captured in the logframe - other details e.g. timelines will be completed during the documentation stage 234 Strategy Sessions Capturing Key Performance Indicators (KPIs) Linking spending to delivery in the Budget process requires that Performance Indicators are identified ex ante These are measures or indices for monitoring the performance of particular initiative KPIs should: Specifiy how the indicator will be monitored When the indicator will register the impact of the initiative 235 Strategy Sessions Example: Goal - Increase Access to Secondary Schooling Objective - Create capacity for 50,000 additional students in secondary school in 2007 Initiative - Build 12,000 additional classrooms in 2006 Output - 12,000 additional classrooms (specify location, timing of completion) Initiative - Ensure that 12,000 additional teachers are trained to staff additional classrooms Output - 12,000 additional teachers (trained to a specific level, posted to specific locations) Outcome - 50,000 additional students in secondary school by start of 2008 Key Performance Indicator - School Enrolment Statistics (collected and published quarterly) 236 Strategy Sessions Introducing the Strategy Sessions - Scope of Work 11.40-11.50 Agreeing Goals and Objectives 11.50-12.20 Identifying Initiatives 12.10-12.40 Outputs and Outcomes 13.30-13.45 Logframe Exercise 13.45-14.15 Prioritization Using the Scoring System 14.15-14.35 Scoring Exercise (part 2) 14.35-15.00 237 Logframe Exercise Please refer to the notepack provided For each of the three sector scenarios you have been provided with please think about what outputs and outcomes you would identify for the initiatives and objectives given Please discuss the challenges you anticipate encoutering as you try to capture outputs and outcomes during the MTSS process 238 Strategy Sessions Introducing the Strategy Sessions - Scope of Work 11.40-11.50 Agreeing Goals and Objectives 11.50-12.20 Identifying Initiatives 12.10-12.40 Outputs and Outcomes 13.30-13.45 Logframe Exercise 13.45-14.15 Prioritization Using the Scoring System 14.15-14.35 Scoring Exercise (part 2) 14.35-15.00 239 Strategy Sessions Prioritization of Initiatives At the heart of the MTEF is the idea of matching government activities to resources limited by macroeconomic constraints In order to deliver within those constraints, the prioritization of initiatives is crucial 240 Strategy Sessions Prioritization of Initiatives Existing Budget Commitments have already been scored using criteria 2.1-2.5 Any new initiatives agreed upon during the strategy session must now be scored using the same criteria (n.b. some questions concerning current costs will not be applicable to new initiatives - grade the initiative using one question per criteria only) 241 Strategy Sessions Prioritization of Initiatives Once all new initiatives have been scored using 2.1- 2.5, a second set of criteria must also be applied: 4.1- 4.5 Criteria 2.1-2.5 measure the intrinsic value and returns to the initiatives Criteria 4.1-4.5 measures the urgency of the initiative and its cross-cutting value with other goals and sectors 242 Strategy Sessions Crite ria 4 3 2 1 4.1 How Vital Š Goal Important Š This Moderately Limited Š the critical is this cannot be initiative will make Š This initiative will initiative to the achieved a substantali initiative will make no achievement otherwise contribution to make some significant of the Sector achieving the goal contribution contribution Goal? to achieving to achieving the goal the goal 4.2 How vital Vital Š If not Important Š Moderately Limited Š to the Sector is funded in Funding this Š Funding in Funding the it that Initiative 2007, the initiative in 2007 2007 may initiative in is funded in Initiative will will increase its increase the later years 2007 and not not be impact/substantially impact of will not in later years possible/the and accelerate the the initiative impact on Sector will sector to achieving the initiative not achieve this goal or the its goal achievement of the goal 4.3 How much Substantially Materially Š Will Somewhat None Š Will will this Š Direct provide limited Š May not impact initiative impact on direct support for indirectly on any other support other other goals other goals support goals 243 Sector Goals? other goals Strategy Sessions Crite ria 4 3 2 1 4.4 To what Substantially Materially Š Will Somewhat None Š Will extent does Š Direct have limited direct Š May not impact this Initiative impact on impact on the indirectly on any other cross-cut with other sectors accomplishments support sectors other sectors of other sectors other sectors 4.5 To what Not at all Somewhat Š The Largely Š Completely extent would private sector could The private Š a market the private provide, but would sector could based sector be able require substantial provide this alternative is to deliver the subsidy to avoid service, readily equivalent loss of coverage possible available outcome? through a PPP 244 Strategy Sessions Prioritization of Initiatives The scores for each initiative can then be brought together to help sectors think more clearly about their priority initiatives e.g. Crite ria 2.1 2.2 2.3 2.4 2.5 4.1 4.2 4.3 4.4 4.5 Average Initiative 1 4 3 4 3 2 4 4 3 4 3 3.4 Initiative 2 3 2 3 4 2 2 3 2 2 3 2.5 Initiative 3 1 2 1 1 3 1 1 2 3 2 1.7 245 Strategy Sessions Prioritization of Initiatives Agreement on the priority initiatives for each Sector should NOT just be a function of the scores given Sector Planning Teams should think about whether initiatives become more attractive if revised or improved e.g. increasing the number of people served at a given cost may increase the score of the project as the cost becomes easier to justify 246 Strategy Sessions Introducing the Strategy Sessions - Scope of Work 11.40-11.50 Agreeing Goals and Objectives 11.50-12.20 Identifying Initiatives 12.10-12.40 Outputs and Outcomes 13.30-13.45 Logframe Exercise 13.45-14.15 Prioritization Using the Scoring System 14.15-14.35 Scoring Exercise (part 2) 14.35-15.00 247 Scoring Exercise (part 2) Please to the notepack provided In addition to the sector scenarios you scored before, please now score the newly proposed initiatives To both the new and existing initiatives described, apply the second set of scoring criteria (4.1-4.5) Attempt to rank the initiatives based on the scores and you have given them. Discuss any challenges you anticipate in using this procedure during the MTSS process 248 Documentation Framework for Estimating Costs 15.15-15.45 Costing Exercise 15.45-16.15 Reconciling Envelopes with Costed Initiatives 16.15-16.40 Envelope Exercise 16.40-17.10 Capturing Additional Details in Logframes 17.10-17.30 Logframe Exercise (part 2) 17.30-17.50 249 Documentation Costing of Initiatives Without rigorous costing of all initiatives/spending within each Sector, it is not possible to effectively reconcile policy with resource availability Costing should be based on credible information Past experience of expenditure Recent estimates/quotes Survey based research BMPIU unit and OSSAP-MDG may provide support in pricing certain items 250 Documentation Costing of Initiatives - Key Rules ‗Reasonable Minimum‘ - Budget Estimates must be conservative Minimum reasonable estimate of unit costs Minimum reasonable estimate of number of units required - in particular in relation to staffing levels and overheads Costing should always be over 3 year time frame Costing must capture ALL components of an initiative: If the objective is to increase enrolment in school by 10000 students, classroom, teachers and materials must captured. 251 Documentation Costing of Initiatives Using standard approach employed in business/economics Fixed Costs - one-off costs that are fixed for a given initiative Quasi-variable costs - costs that scale up only when initiatives pass a certain threshold e.g. for every additional 100 police officers a new police station will be required 252 Documentation Costing of Initiatives Variable Costs - Increase continuously as the scale of the project grows e.g. for every additional child vaccinated, three vials of different vaccine may be required For our school enrolment example - classrooms (fixed), teachers (quasi-variable), textbooks (variables) What else do we need to know? Drivers of scale - what defines ‗scale‘ in a particular initiative. For school enrolment it will be the number of students, for police coverage it will be the number of policemen. All costs can be related to these key drivers 253 Documentation Costing of Initiatives What else do we need to know? Ratios - How many extra students can be enroled before a new classroom is required? Future associated costs of current spending If a capital project is started today, how much will it cost to finish it? If a project is finished in 2007 (e.g. hospital) how much will it cost to run in 2008? If a programme is initiated in 2007, how much will be required to maintain/expand in 2008? 254 Costing of Initiatives Cost Type Cost Scale Year 1 Year 2 Year 3 Vials of 1 per child A * 100 (A + B) * 100 (A + B + C) * 110 Variable Vaccine @ N100 1 per 1000 Health Worker children @ 1 * 500,000 1 * 550,000 2 * 550,000 Quasi- N500,000 Variable XŠ YŠ Fi xed Headquarters Completion Y Š Maintenance Maintenance Cost 255 Costing of Initiatives s The Following Features of the costing proces are captured in this example: 1. As the number of children vaccinated increases from A to (A+B) to ariable cost increases proportionally (A+B+C) then the v 2. Inflation is taken into account- the cost per vial of vaccine is 110 in Year 3 3. The number of Health Workers increases from 1 to 2 in year 3 Š moving from (A+B) children to (A+B+C) crosses the threshold for an extra worker 4. Wage increase is taken into account for the health worker in Year 3 5. For the fixed cost of an HQ, the recurrent (maintenance) costs are captured in Years 2 and 3. 256 Costing of Initiatives Macroeconomic Assumptions Prior to the start of the costing exercise, a set of assumptions will be provided to all SPTs that must be used in the costing process Price inflation e.g. 10% p.a. Wage inflation Exchange rates etc. Rising Utility Rates 257 Documentation Framework for Estimating Costs 15.15-15.45 Costing Exercise 15.45-16.15 Reconciling Envelopes with Costed Initiatives 16.15-16.40 Envelope Exercise 16.40-17.10 Capturing Additional Details in Logframes 17.10-17.30 Logframe Exercise (part 2) 17.30-17.50 258 Costing Exercise Please refer to the notepack provided In small groups, please attempt to cost the initiatives outlined. The following steps may be useful: Break the initiative down into fixed, variable and quasi variable costs Estimate minimum reasonable unit costs Agree on the ratios of inputs to the key driver of scale Estimate initiative costs over three years Discuss the challenges you anticipate encountering during the costing of initiatives 259 Documentation Framework for Estimating Costs 15.15-15.45 Costing Exercise 15.45-16.15 Reconciling Envelopes with Costed Initiatives 16.15-16.40 Envelope Exercise 16.40-17.10 Capturing Additional Details in Logframes 17.10-17.30 Logframe Exercise (part 2) 17.30-17.50 260 Documentation Reconciling Envelopes and Costed Initiatives Crucial Stage of the MTEF process Will require second ‗Mini‘ Strategy session Simple example (below) suggests that this process is quite mechanistic - in reality it will require a lot of trading off between competing initiatives 261 Documentation Reconciling Envelopes and Costed Initiatives First Step - Attempt to allocate sub-envelopes to main agencies, subsectors and parastatals within main sector Second Step - Main Ministry, Agencies, Sub- Sectors and Parastatals attempt to fit themselves into sub-envelopes Third Step - Review allocation of sub-envelopes based on initial proposed expenditure - competition within Sector Envelopes for resources 262 Competition for Envelopes Sector - Competition between sectors Envelopes - Allocation by FEC -Competition within Sector Sub- Sub- Sub- - Allocated by Envelope Envelopes Envelopes Envelopes Holder (Minister), -Guided by BOF Expenditure Expenditure - Competing Expenditure within Items/ Items/ Sub-envelope Programmes/ Programmes/ -Allocated by agency/parastatal projects projects -Guided by Main Ministry and -BOF 263 Trade-Offs within Envelopes Possible Trade-Offs that will have to be considered in reconciling Initiatives with Envelopes Between sub-envelopes - allocating increased funds to sub-sectors that can show policy priorities and the ability to spend money effectively Right-sizing staff levels to reduce payroll and free more money for programmes/projects Scaling up priority/best performing programmes - postponing/not funding others Funding a smaller number of projects to ensure their timely completion, rather than spreading expenditure too thinly 264 Documentation Reconciling Envelopes and Costed Initiatives Several options available for each initiative Accept the initiative into the envelope as costed Revise the initiative to change the costs associated e.g. scaling down the initiative Postponing the initiative to one of the outer years of the MTEF Deciding to not include the initiative 265 Documentation Reconciling Envelopes and Costed Initiatives Several iterations will be required to produce a final 3- year Budget Plan looking at: Different combinations of initiatives Different scales of initiative costs e.g. staffing levels Different timelines for initiatives 266 Reconciling Envelopes and Costed Initiatives Step 1- The MDA captures its Payroll and Overhead costs, projected over the three years (2007-2009). Project 1 is the initiative that has been given the highest priority by the Sector Team. This is captured first Š both the capital cost of completion in 2007 and the associated recurrent running costs in 2008-2009. Money still remains in the envelopes for each of the three years. 2007 2008 2009 Enve lope A B C Enve lope A-X1-Y1-C1 B-X2-Y2-R1 C-X3-Y3-R1 Remaining MDA Payroll X1 X2 X3 MDA Y1 Y2 Y3 Overheads Project 1 Capital Completion Recurrent Running Recurrent Running Cost of Project 1 Š C1 Cost of Project 1 Š R1 Cost of Project 1 Š R1 267 Reconciling Envelopes and Costed Initiatives Step 2 Š The MDA now captures the initiative with the next highest level of priority Š Project 2. Again the costs are captured across all three years. The envelope for 2007 has now been completely allocated, but money remains in the envelopes for 2008 and 2009. NB Capital Costs for Programme 2 are Ō Programme CapitalÕe.g. Vaccines 2007 2008 2009 Enve lope A B C Enve lope A-X1-Y1-C1-C2=0 B-X2-Y2-R1-C2 C-X3-Y3-R1-C2 Remaining MDA Payroll X1 X2 X3 MDA Y1 Y2 Y3 Overheads Project 1 Capital Completion Recurrent Running Recurrent Running Cost of Project 1 Š Cost of Project 1 Š Cost of Project 1 Š C1 R1 R1 Programme 2 Ongoing Capital Cost Capital Completion Recurrent Running of Programme 2 Š Cost of Programme Cost of Programme 2 C2 2 Š C2 Š C2 268 Reconciling Envelopes and Costed Initiatives Step 3 – The initiative with the next highest level of priority is Programme 3. However, the envelope for 2007 has been fully allocated. Money remains in the envelope for 2008 and 2009, so the project can be allocated money from these envelopes. If money remains in these years after adding Project 3, further expenditure can be planned. 2007 2008 2009 Envelope A B C Envelope A-X1-Y1-C1-C2 = 0 B-X2-Y2-R1-C2-C3 C-X3-Y3-R1-R2-C3 Remaining MDA Payroll X1 X2 X3 MDA Y1 Y2 Y3 Overheads Project 1 Capital Completion Recurrent Running Recurrent Running Cost of Project 1 – Cost of Project 1 – Cost of Project 1 – C1 R1 R1 Programme 2 Ongoing Capital Cost Capital Completion Recurrent Running of Programme 2 – Cost of Programme Cost of Programme 2 C2 2 – C2 – R2 Programme 3 0 Start-Up Cost of Ongoing Cost of Programme 3 – C3 Programme 3 – C3 (Recurrent and (Recurrent and 269 Capital) Capital) Reconciling Envelopes and Costed Initiatives Two features should be noted of this approach to allocating funds: 1. Money has been made available to fully complete Project 1 and to support Programme 2 before money is allocated to the new Programme 3. Wherever possible, unless new initiatives are of vital importance, ongoing priority projects should be completed and ongoing priority programmes should be supported before funds are allocated to new projects and programmes. 2. Many capital projects have recurrent running costs associated with them that continue after capital expenditure has finished. For a road, this may simply be the maintenance cost. For a hospital, this will include all of the running costs from personnel to overheads. These should be estimated in the outer years of the expenditure plan. 270 Documentation Framework for Estimating Costs 15.15-15.45 Costing Exercise 15.45-16.15 Reconciling Envelopes with Costed Initiatives 16.15-16.40 Envelope Exercise 16.40-17.10 Capturing Additional Details in Logframes 17.10-17.30 Logframe Exercise (part 2) 17.30-17.50 271 Envelope Exercise Please refer to the notepack provided For the sector you have been given, please work in small groups to think about how you would reconcile the priority initiatives with the resource envelopes provided Discuss the (many) challenges you are likely to encounter during this part of the MTSS process 272 Documentation Framework for Estimating Costs 15.15-15.45 Costing Exercise 15.45-16.15 Reconciling Envelopes with Costed Initiatives 16.15-16.40 Envelope Exercise 16.40-17.10 Capturing Additional Details in Logframes 17.10-17.30 Logframe Exercise (part 2) 17.30-17.50 273 Documentation Completing Logframes In order to fully capture the detail required to tie budget initiatives to performance, additional information must be captured in the logframes Timeline for delivery MDA Responsible, Department Responsible Cross-cutting issues e.g. rural roads cross-cut Agriculture, transport, works Costing of Initiatives (which should match the costs used in fitting the expenditure envelope) 274 Cross-Cutting Issues Many Sectors are involved in work that cross-cuts with other sectors‘ interests Rural road: Works, Agriculture, Transport SPTs and Consultants should clearly document any such cross-cutting issues A meeting MUST be arranged with the corresponding sector team(s) to ensure coordination across these issues 275 Documentation Framework for Estimating Costs 15.15-15.45 Costing Exercise 15.45-16.15 Reconciling Envelopes with Costed Initiatives 16.15-16.40 Envelope Exercise 16.40-17.10 Capturing Additional Details in Logframes 17.10-17.30 Log frame Exercise (part 2) 17.30-17.50 276 Logframe Exercise (part 2) Refer back the logframe you completed in part 1 of the logframe exercise In small groups, quickly fill in the remaining detail that should be captured to complete the logframe 277 MTSS Logistics Reporting Format 17.50-18.10 Roles and Responsibilities 18.10-18.30 278 Documentation - Reporting Format Introduction Generic chapter provided by BOF Outlining linkages between High Level Policy (NEEDS/MDGs) and MTSS Outlining linkages between MTSS and Annual Budget Setting out MTSS stage within Annual Budget Cycle Chapter 1 – Laying out Goals and Objectives based on NEEDS/MDGs Capture and summarise the elements of NEEDS/MDGs that are relevant to the Sector (Step 3 of the MTSS Roadmap) Capture and summarise the key policy documents that have been created specifically for that Sector (Step 3 of the MTSS Roadmap) State clearly the Goals and Objective for the Sector (As defined during Step 4A of the MTSS Roadmap) 279 Documentation - Reporting Format Chapte r 2 Š Review of Ex isting Budget Commitments (Step 2 of MTSS Roadmap) 1. Executive Summary of main findings of Review MDAs and Projects/Programmes performing well MDAs and Projects/Programmes performing poorly 2. Concise description of scoring approach used for Sector Dashboard Capturing Key Performance Findings for each existing Budget Commitment Reviewed 280 Documentation - Reporting Format Chapte r 3 Š Initiative s Š Prioritisaton, Costing and Phasing i 1. Statement of Indicative Budget Envelope 2. Concise description of approaches Prioritise initiatives Cost Initiatives and Phase spending 3. On a Goal-by-Goal basis Š tabulate the key initiatives and their relative priority. Indicate required spending on a yearly basis over the 3-year horizon Š broken down into cost components. In particular, distinguish between the capital and recurrent costs of particular initiatives. This chapter captures Steps 4B, 4C, 5A, 5B of the MTSS Roadmap 281 Documentation - Reporting Format Chapte r 4 Š Pe rforma nce Me asure s 1. Concise description of Log Frame (Annex 3) approach to capturing outputs and outcomes of initiatives 2. Log Frames (Annex 3) (one or more for each Sector Goal, one per objective if there are many initiatives) capturing: Objectives Initiatives Š Required for Sector to Achieve Goal Outputs Š tangible measures of the immediate impact of the MDA, project or programme Key Performance Indicator and Reporting Mechanism Š how the MDA will demonstrate the impact of the Initiative Outcomes Š broader impact achieved by the Initiative that contributes towards achieving the goal of the MDA Linkages Š Clearly capture cross-cutting with other sectors Timelines for delivery on each initiative o Those responsible for delivery 282 Documentation - Reporting Format Anne xes Š Additional Informati n o Where deemed appropriate by the Sector Planning teams, annexes can be used to capture any other information that may add value to the MTSS o Data on past and curr ent budget allocations and expenditure Š particularly of key capital projects o Key costing data e.g. estimated unit costs 283 Report on MTSS Process If the SPT wants to submit information on the MTSS process itself, this must be done in the form of a separate report No such information should be contained in the MTSS Document itself 284 MTSS Logistics Reporting Format 17.50-18.10 Roles and Responsibilities 18.10-18.30 285 Roles and Responsibilities Sector Planning Teams Owners of the MTSS Process Attend Sector Team Training Gather data on existing budget commitments Score Existing Budget Commitments Gather relevant High Level Policy Material Key participants in Strategy Sessions Lead costing exercise Owners of Budget Envelope and Reconciliation with costed initiatives Capturing key data in logframes Final Draft of Report 286 Roles and Responsibilities BOF/NPC/OSSAP MDGs Attend Support Team Training (here!) Provide expertise during review of existing budget commitments and collation of policy material Strategy Sessions Guiding Sector Teams in fitting within Envelope Final Draft of MTSS Report NPC - Ensure that MTSS is fully aligned with the 10 year Sector Plans being developed for key MDAs 287 Roles and Responsibilities Sector Experts Attend Support Team Training Provide expertise during review of existing budget commitments and collation of policy material Strategy Sessions - critique sector specific decision- making by Sector Teams Expert Input into costing Guiding Sector Teams in fitting within Envelope Final Draft of MTSS Report 288 Roles and Responsibilities Civil Society and Organised Private Sector Attend Sector Team Training Provide input during review of existing Budget Commitments Strategy Sessions - Represent Stakeholder viewpoint Input into fitting sectors into envelopes Final Draft of MTSS Report 289 Roles and Responsibilities BMPIU, BPSR, Women Affairs, SERVICOM Attend support team training Provide input where appropriate Women Affairs - at any stage where gender issues might arise in budgeting BMPIU - review of existing budget commitments (capital), costing BPSR - review of existing budget commitments (payroll), planning future payroll expenditure SERVICOM - Strategy sessions - in particular on the Goals and Objectives of Sectors 290 Roles and Responsibilities Consultants Attend support team training Support the trainers during Sector Team training Meet and establish strong working relationship with SPT Support in building capacity for the MTSS process Act as Secretariat to Sector Planning Teams Assist Sector teams at key technical stages Gathering data on existing budget commitments Scoring Costing Fitting into envelopes Facilitate Strategy Sessions Lead documentation Keep ALL parties up to date on the timetable for each 291 stage of the progress, communicate problems Role and Responsibilities Additional Additional Sector Guidance Expertise Women Affairs NPC SERVICOM OSSAP- Sector Planning MDGs Teams BPSR BOF BPE Consultant Sector Experts Technical Support BMPIU 292