MKUKUTA/PER Consultations 2007

1. MKUKUTA/PER Consultations 2007 Key messages from PEFAR 2007 25 May

2. PEFAR Main Messages • Challenges for medium & long term expenditure strategy due to: • Rising aggregate expenditure; • High aid dependency, constraints on absorption • Strategic choices on expenditure for sustained growth & poverty reduction • BUT GoT’s reform of strategic allocation systems has not yet delivered: • An effective instrument for strategic planning and budgeting; or • A transparent framework for dialogue and accountability

3. Medium Term Budget Strategy:Key Challenges • Sustainability • Aggregate & recurrent expenditure continue to rise (28% GDP) • High aid dependency • Need for medium & long term strategy to address major increase in external financing • ⇧ from 6% to 12% of GDP over past 5 years • Effective absorption of aid • Requires making critical strategic choices on expenditure composition

4. Domestic revenue, expenditure & Net external financing

5. Key challenges (continued) • Appropriate balance between development/recurrent expenditures • Translating the MKUKUTA growth objectives into specific growth promoting expenditure • Develop medium term strategy on wage bill, underpinning public service reform and better service delivery

6. Addressing these challenges will need more than good macroeconomic management. It will need….. • Careful steering of the composition of public expenditure • Broad based public debate on the important national choices ahead …….so how effective and transparent are the Government’s tools for steering public expenditure ?

7. Observations on the current budget cycle….. • Highly unrealistic MDA budget requests • On average, 150% above available resources • Not linked to previous year’s decision on MTEF year 2 • Budget Guidelines “Priority Investments” weakly aligned with Sector Plans • Key strategic decisions poorly reflected in the MDA initial submissions • In part due to excessive detail which absorbs scarce planning capacity

8. Observations on the current budget cycle (2) • Late release of Budget Guidelines results in a lack of early consistent policy direction • Discrepancies between BG and MTEF • e.g.: Implementation of consolidation of allowances in wage bill • No reporting on actual expenditure by main MKUKUTA categories (objective, target, activity) in the last three years

9. 6 things which undermine a robust and transparent MTEF….. • Absence of clear Cabinet/political decision on strategic priorities early in the cycle • MDAs begin detailed budget submissions without guidance on resource constraints and strategic priorities • Excessively detailed budget classification for early submissions • Uncertainty on external financing within the resource envelope • Lack of a clear, user friendly published summary of the MTEF as a base for accountability • Lack of reporting on MKUKUTA/MTEF actual expenditure

11. MKUKUTA Expenditure Reporting Issue: • Lack of reporting on expenditure by main MKUKUTA objectives and targets • Despite use of SBAS since 04/05; and • Government’s commitment to such reporting at the GBS Annual Review Oct 06 Next Steps: • Analysis of reports to be carried out prior to next GBS annual review • Review of classification structure

13. Budget Transparency • Lack of clear user-friendly published summary of MTEF as a base for accountability • Better accessibility to budget planning/execution documents • For LGAs, difficulty in tracking funds due to various funding channels

14. Budget Transparency?

15. PEFAR Main Messages • Challenges for medium & long term expenditure strategy due to: • Rising aggregate expenditure; • High aid dependency, constraints on absorption • Strategic choices on expenditure for sustained growth & poverty reduction • BUT GoT’s reform of strategic allocation systems has not yet delivered: • An effective instrument for strategic planning and budgeting; or • A transparent framework for dialogue and accountability