Medium Term Sector Strategies by mikesanye

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									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

								
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