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MTEF’s: Concept and Lessons

MTEF’s: Concept and Lessons. Bill Dorotinsky The World Bank May 2, 2006. Outline. MTEF Concept Technical objectives Process View Sequenced decision-making Component View - unbundling Major Blocks More manageable pieces Output View Experience Ghana South Africa Uganda Lessons.

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MTEF’s: Concept and Lessons

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  1. MTEF’s:Concept and Lessons Bill Dorotinsky The World Bank May 2, 2006

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

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

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

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

  6. Macroeconomic Estimates Fiscal Policy Revenue Estimates Expenditure Estimates (current services) • Affordable/sustainable Fiscal Envelope • Monetary and Fiscal Policy • Debt and Deficits • Aid flows Expenditure Estimates (current law, normatives) All in multi-year context Stage 1. Macroeconomic and public sector envelopes

  7. Fiscal Envelope Sectoral Resource Ceilings Setting Strategic Policy Priorities Under Resource Limits (downsizing, or expansions) Ministry Resource Ceilings Stage 2. High-level policy: aligning policies & objectives under constraints

  8. Sector Policies and Objectives Reconcile policy, laws, resource limits Program priorities relative to objectives Assess modalities for objective Evaluate Production Function Sector programs Under ceiling Above ceiling Sector Budget Request Again, multi-year Stage 3. Linking policy, resources, and means by sector

  9. Technical Assessment and Reconciliation Vetting assumptions, policies, estimates Challenging modalities, production function Evaluate performance Sector Ceilings Sector Requests Revised requests and/or decision papers Stage 4. Reconciling resources with means

  10. Stage 5. Reconciling strategic policy and means Policy assessment and reconciliation Policy official dialogue Modify baselines Finalize decisions Revised Requests, Unresolved Issues Budget Proposal

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

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

  13. Unbundling MTEFs

  14. Unbundling MTEFs (2)

  15. Unbundling MTEFs (3)

  16. Unbundling MTEFs (4)

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

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

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

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

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

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

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

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