PART I Medium Term Budget Frameworks (MTBF)

1. PART IMedium Term Budget Frameworks (MTBF) By SAMUEL KIIRU THE NATIONAL TREASURY

2. Outline • Introduction • Basic MTBF Concepts • Objectives and rationale for MTBFs; • Key characteristics/features of MTBFs, • Structure for the MTBFs - Key conditions needed to operationalize the features; • Roles and responsibilities of different institutions; • Example of MTBF - Preparation of MTBFs in Kenya • Case study on MTBFs (using examples from OECD Countries ) • Practical Exposure based on a Case Study on MTBF • Challenges that governments face in implementing PFM reforms COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

3. Introduction • In recent years, GOK has introduced a range of budget reforms aimed at strengthening public financial management and planning processes. • These reforms have two key objectives: • To develop expenditure priorities and budget plans over the medium term • To more closely link budget allocation decisions to the economic and social priorities of the country. • The preparation of medium-term budget plans is therefore intended to assist govt. to develop a more strategic basis for resource allocation that reflect national policy priorities and objectives. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

4. Basic MTBF, Concepts • A Medium Term Budget Framework (MTBF) is a technical and institutional mechanism for setting multi-year objectives for budget expenditure and ensuring that they are respected in budget formulation, approval and execution. • It is an approach to budgeting which links the spending plans of government to its policy objectives. • The main feature of a MTBF is that annual budget preparation is carried out within a framework, which takes into account the resources expected to be available to the government over the medium term. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

5. Objectives and rationale for MTBFs • Improved aggregate fiscal discipline thro’ estimation of realistic medium term resource envelopes and setting of aggregate and sectoral ceilings; • More effective fiscal policies thro’ improved planning and execution of stimulus and exit strategies by identifying fiscal space and possible or required policy measures over medium-term; • Linkage of annual budget to long-term fiscal targets. MTBF ensures that fiscal policy objectives (levels of revenue, expenditure and fiscal deficit) provide the overall framework for budgetary management; • Enhanced strategic prioritization by linking budget to strategic planning and sectoral priorities, and building in decision-phase on new expenditure priorities in budget cycle. MTBF relates budgetary allocations to strategic priorities by focusing the budget more clearly on services (i.e. outputs) and providing budgetary ceilings to MDAs that reflect these priorities; COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

6. Objectives and rationale for MTBFs (Cont.) • Increased planning certainty for MDAs thro’ availability of multi-year resource ceilings. MTBF supports predictability in the budget process by ensuring the budget is based on a medium term macroeconomic and fiscal forecast; • Increased fiscal policy transparency and accountability thro’ the linkage to expenditure outputs and outcomes, shift from administrative to managerial culture. MTBF creates a more efficient budget management system based on delegated authority to MDAs. • Improve operational and expenditure efficiency by strengthening the capacity of MDAs to prepare and manage their budgets. MTBF emphasizes fundamental principles of fiscal discipline, strategic prioritization and strengthening the system of budgetary management by MDAs. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

7. Key characteristics/features of MTBFs • Purpose is to present the underlying macroeconomic and fiscal assumptions, policies, and strategies for the development of the medium term expenditure framework and annual budget plans. • The information in Medium Term Budget Framework is presented in form of a statement which goes by different names in different countries: • Budget Policy Statement (BPS), • Budget Framework Statement (BFS), • Budget Strategy Paper (BSP) e.t.c. • The suggested format includes: • Macroeconomic outlook, • Fiscal outlook and • Fiscal risks. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

8. Key Features of MTBF (Cont.) • The macroeconomic outlook • Provides policy makers and others information on current macroeconomic conditions, forecasts of key macroeconomic indicators, and a statement of risks to the economy and stated forecasts. • The macroeconomic forecasts and other assumptions • Are used by policy makers to assist in setting the Govt. overall macroeconomic and fiscal policy i.e. policies consistent with the prevailing economic circumstances. • More specifically, the forecasts will be used by individual Ministries of Finance/National Treasuries to develop revenue and expenditure projections for the medium term and annual budget plans. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

9. Key characteristics/Features of MTBFs • The fiscal outlook • Provides policy makers information on the current fiscal situation, including updates of baseline budget expenditures and revenues, projection of revenues, an aggregate fiscal summary, and a discussion of risks to the forecast. • This section is used by policy makers to assist in setting fiscal strategy and as the basis for setting sector expenditure ceilings. • The risks section • Identifies potential domestic and international risks to economic and fiscal stability. • These risks need to be taken into account in developing economic policy and fiscal strategy. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

10. Suggested structure for the MTBF statements: • Part 1: Macroeconomic Outlook and Assumptions • Current Economic Situation and Recent Macroeconomic Trends • Analysis of recent macroeconomic trends and factors contributing to these trends and to the current economic situation • Trends in nominal and real GDP growth (previous two years, current year, budget year and two forward years) and • Trends in inflation, employment, and other key macroeconomic indicators • Medium-term Economic Outlook • Setting out key macroeconomic indicators and forecasts (previous year(s), current year, budget year and two outer/forward years) including inflation, employment, balance of payments, investment etc. • Analysis and discussion on outlook and factors impacting on the domestic economy, specifically those that offer explanation and insight into those projections. • Risks to Macroeconomic Projections • Analysis and discussion of possible factors that might cause the estimates to be inaccurate. Assumptions in the previous section should be covered. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

11. Suggested structure for the MTBF statements (Cont.) • Part 2: Fiscal Outlook • Revenue Projections By Revenue Type • Tax policies and administration • Measures taken and proposed to improve the efficiency and effectiveness of the Tax Administration system along with a discussion of any adjustments to the revenue forecast that result from assumptions relating to tax administration and • Planned changes to Tax Policy (e.g. new taxes, revised tax rates) as well as any adjustments to the revenue estimates from changes in tax policy. • Analysis of factors underlying forecast of tax and non-tax revenues, including any assumptions separate from the assumptions contained in the macroeconomic outlook statement. • Revenues and Expenditures of National and state/County Governments • Summary of revenue projections and ongoing estimates of expenditure (existing policies only). • Overview of trends and expenditure policies. • Extra Budgetary Funds for SAGAs/ Public Owned Entities • Summary of aggregate revenue projections (based on existing policy settings and macroeconomic indicators) COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

12. Suggested structure for the MTBF statements (Cont.) • Part 3: Fiscal Risk Assessment • Assessment of risk of emerging and potential external and/or internal economic pressures; • Potential impact of economic and other risks on fiscal aggregates, with a discussion of assumptions and methodological issues; and • Discussion of “what if” scenarios and impact on fiscal aggregates. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

13. Preparation of MTBFs in Kenya COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

14. Experience with MTBF in Kenya • Prior to 1970, Kenya’s budget process lacked consultation and was merely an accounting exercise on revenue and spending • In 1970s the Program Review and Forward Budget (PRFB) was introduced to among other things: • Provide hard budget constraints • Establish costs of programs and process of reviewing priorities • Establish a criteria for reviewing performance and ensure linkage between budget and planning • In the mid 1980s, concerns about productivity of government investments were raised, especially inadequate provision of O&M and bias toward new programs (build-up of while-elephant projects) COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

15. Experience with MTBF in Kenya Macro- Policy Framework • Development Strategy based on Vision 2030 which is implemented thro’ 5-year Medium Term Plans • Based on the three pillars, namely: • Economic Pillar: rapid economic growth while maintaining macro-stability; • Social Pillar: enhancing equity and poverty reduction; and • Political Pillar: improving governance and national cohesion. • Development goal of the Vision 2030 is achieving higher growth rising to 10% by 2030; achieving equity and poverty reduction; democratic political system that is issue –based, people centred, results – oriented, and accountable to the public • The medium term budget framework is an instrument to achieve the pillars of the Government’s development agenda. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

16. Experience with MTBF in Kenya Macro- Policy Framework • Kenya’s Development Strategy since 2003 has been “export-led and private sector-driven” • This calls for a stable macro-economic environment and creation of a conducive environment for private sector development • The key instruments for achieving macro-economic stability are the monetary and fiscal policies. • Fiscal policy should not be seen in isolation and that indeed, changes in fiscal policy often have an impact on Monetary Policy and vice-versa. • It is important, therefore, that the two are harmonized and implemented thro’ a well thought-out MTBF . COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

17. Experience with MTBF in Kenya Macro- Policy Framework • Macro economic stability therefore, imposes the first major constraint on macro-fiscal, at four levels: • Macro-economic environment (growth, investments, savings, level of interest, inflation and exchange rates) • Resource envelope (level of ordinary revenues, AIA, and grants) • Priority areas to be financed (consistent with growth and development objectives) • Level of domestic borrowing consistent with macroeconomic framework and debt sustainability COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

18. Roles and Responsibilities of Different Institutions Assessing appropriateness of policies (Action by NT, MDAs) Evaluating proper use of funds and measurement of achievement of objectives (Action by NT, Auditor General & MDAs with the oversight role played by Parliament) Policy review & formulation Audit & Evaluation Accounting for and reporting on actual expenditure and service delivery (Action by NT, CoB & MDAs with the oversight role played by Parliament) Planning for the achievement of goals and objectives (Action by NT, MDAs) Monitoring & reporting Strategic & operational planning Budget execution Budget formulation & adoption Implementing expenditure according to plans (Action by NT, CoB, MDAs with the oversight role played by Parliament) Projecting revenue and allocating expenditure (Action by NT, CRA, MDAs, Cabinet, Parliament)

19. Experience with MTBF in Kenya (Cont.) • Budget Rationalization Program (BRP) was then introduced in mid 1980s to improve allocation of resources and link budgeting with development priority. By late 1980s it was realized that BRP could not itself achieve a higher level of strategic investment planning • This formed the basis for forward budget and annual budget capital spending which came to be known as the Public Investment Program (PIP). PIP was introduced to: • Strengthen the forward budget by providing a more comprehensive instrument for planning and prioritization of public spending; and • Strengthening project cycle and aid coordination in budgeting. • Despite PIP and other budget reforms introduced over the years, budgeting challenges continued in Kenya. For instance, due to lack of prioritization, available resources were thinly distributed. A Public Expenditure Review (PER) which was undertaken in 1997 revealed that project completion rate had fallen to merely 3%. By late 1990, it was clear that the budget was not facilitating economic development. • Consequently, the GoK introduced Medium Term Expenditure Framework MTEF in the FY2000/01 (See detailed presentation of MTEF later in Part II) COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

20. Challenges with MTBF using examples from OECD Countries • Sources: • Public Expenditure Management Handbook, World Bank 1998; • Modern Budgeting, OECD, Allen Schick 1997; • OECD Journals of Public Budgeting • Medium-term/multi-year budgeting was first introduced in a number of OECD countries during the 1970's and 1980s’. By the year 2000 it had become more or less universal approach in budgeting. • In the first years of transition, the process faced problems with the lower level of certainty of estimates in the outer/forward years (i.e. the outer years were not binding and were revised every year). Some of the problems included: COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

21. Challenges with MTBF using examples from OECD Countries (Cont.) • Tendency to overestimate economic growth resulting in an overestimate of available revenue resources. • Tendency for budget users in MDAs to consider medium term forecasts as definitive estimates as well as a unwillingness to identify savings against low priority or poor performing programmes. • This attitude also made it difficult to reduce expenditures in the following period, even when the projections were too optimistic and the budget framework unrealistically high. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

22. Challenges with MTBF using examples from OECD Countries • Budget users’ assessment of their needs was not in line with fiscal reality or available resources. • This approach reflected insufficient attention on fiscal discipline by Governments (including Budget Users). • Planning for the period longer than a budget year has been considered as less obligatory, and therefore information and estimates were created casually and without in-depth analysis • Technical difficulties and lack of capacity in costing of government activities and policies leading to poor quality budget submissions. • Besides these “general“ problems, which were applicable to many countries, there were some “specific“ problems related to individual experiences. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

23. Challenges with MTBF using examples from OECD Countries: (United Kingdom) • During the 1970's in the UK, the medium term budget plan was presented in real, rather than nominal terms. • This often meant expenditure forecasts were automatically adjusted in line with inflation placing additional pressure on the budget. • To meet requirements to find savings, budget users offered ‘savings’ of capital expenditure in order to maintain high levels of current budget expenditures. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

24. Challenges with MTBF using examples from OECD Countries: (Canada) • Canada’s five year budgeting approach introduced in the early 1980’s achieved unsatisfactory results due to inclusion of “programme reserves“ in the medium term estimates. • Budget users in MDAs understood it as a signal that the Government was ready to spend more than current expenditures, and they focused on the “reserves“, continuously seeking resources for new programmes. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

25. Challenges with MTBF using examples from OECD Countries: (Australia) • In the 1970's in Australia, the forward year estimates became wish lists and not real priorities. • That led to long and difficult discussions with Government about the prioritization of Government expenditures and about which ones were really priorities. Such an approach had minor importance for an annual budget preparation process. • Based on this initial experience with medium term budgeting, Australia introduced the concept of (rolling) forward estimates in the early 1980’s. Under this approach, estimates of MDAs’ programme expenditures were for the budget year and the two forward estimates. • Once the budget was approved, the estimates for the first forward year of the annual budget then became the starting point for the following year’s budget, thus leading to a rolling approach. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

26. The National Treasury uses a homegrown macroeconomic model in formulation of MTBF and MTFF • Parliament (NA & Senate) extensively participates in the approval of the MTBF which forms the basis of budget formulation. • MTBF also takes into account the input coming through public participation in the budget process. Public participation has been institutionalized in the Constitution of Kenya and Public Finance Management Act, 2012. • In line with the PFM Act, 2012, we have initiated the process of moving from old fashioned line item budgeting with programme based budgeting to establish a more visible linkage between government spending and results in the form of outputs and outcomes • Also introduced Programme Performance Reviews (PPRs) - a technical evaluation system for budget bids so that projects can be efficiently identified, prioritized and funded accordingly. Lessons Learned

27. Case Study No. 1 • PFM reforms generally try to change incentives to better meet objectives of government spending by changing rules, roles and information. Ffollowing the footsteps of OECD countries, a number of African Countries have introduced budget reforms including the following areas: • Medium Term Budget Frameworks (MBEFs) process for improving allocation of scarce resources between MDAs • Bottom up processes (Budget Framework Papers, Public Expenditure Reviews) through which MDAs define their requirements as an input into the setting of ceilings within the fiscal framework • Performance or programme budgeting to link the budget to the achievement of targets • Computerised Financial Management Systems (IFMIS) • Introduced a culture of increased transparency, accountability and performance thro’ the performance contracting framework • Discuss the extent to which these reforms have been implemented in your respective countries (see table on the next slide) • To what extent have these reforms improved the credibility of the budget process in your own countries? COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

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29. Challenges that governments face in implementing PFM reforms • Issues and challenges that governments face in implementing public financial management reforms may include: • Lack of standardised processes and systems that provide uniform and meaningful information to Ministries of Finance/National Treasuries for setting ceilings • Challenges of defining good performance indicators and activities as the basis for performance planning and budgeting • Lack of user friendly presentation of budgets that clearly show performance and accountability • Insufficient focus on ensuring that the budget process is used to improve efficiency and effectiveness of budgets through improving budget implementation, monitoring and evaluation • A danger that the process become routine, “business as usual”, rather than an attempt to assess ways of improving service delivery and value for money • Governments have introduced computerised financial management information systems (IFMIS) which do not fully support either the MTEF or performance based budgets (as they are mostly spreadsheet based) COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

30. Challenges that governments face in implementing PFM reforms • There is not a sufficiently strong link between the financial information in the IFMIS and performance information developed through the MTEF • Systems do not support the use of performance information in the budget implementation, monitoring and evaluation • Lack of simple user friendly processes • Lack of ongoing capacity building once the new processes have been introduced • Lack of ownership within governments • Lack of high level commitment to reforms • Insufficient emphasis and training on changing culture from control to transparency and accountability COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

31. PART II Medium Term Fiscal Frameworks (MTFF) & Medium Term Expenditure Framework (MTEF) By FRANCIS ANYONA NATIONAL TREASURY COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

32. Medium Term Fiscal Framework (MTFF) • The MTFF sets out the parameters on the govt. revenue and expenditure within given period. More so it’s concerned with the levels and composition of taxation, spending and borrowing by government. • Fiscal policy encompasses fundamental policy issues, including the role and size of the state, equity between different generations, the role of govt. in promoting growth and job creation, and the amount and type of public services that are provided to the citizens. • Fiscal policy is normally a deliberate effort to influence the working of the economy to achieve desired macroeconomic and microeconomic objectives. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

33. Medium Term Fiscal Framework (MTFF) • A MTFF which sets fiscal targets for spending, tax and borrowing over the medium term has the following benefits: • Facilitates transformation, by creating scope for substantial reprioritization of policies and creating an integrated planning framework; • Enables Government to plan spending over the medium term, with a large number of benefits for the improved allocation and efficiency of public spending; • Encourages investment, by enhancing the predictability of taxes, interest rates and government demand; • Increases the transparency and credibility of government's fiscal policy, by explaining how government intends to meet its targets, and thereby contribute to lower debt service costs and lower interest rates; • Enhances the opportunities for the participation of Parliament, the public, private sector representatives and civil society in budget-making process and in evaluating and monitoring the performance of government programmes; and, • Increases public and private efficiency by reducing changes to fiscal policy, so creating more stability in the tax system and in levels of public spending. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

34. Medium Term Expenditure Framework (MTEF) • MTEF is part of the many reforms that have been instituted into the Kenya’s budget process. MTEF is a multi-year budgeting approach whereby we prepare budgets for 3 years, but revise the projections annually to incorporate policy changes through the concept of a rolling 3-year framework. • It is a broad approach to integrating policy-making, planning and budgeting over a 3-year period based on policy priorities • MTEF provides a framework in which the country’s long term policy aspirations are translated into actionable financial plan through various programs in a 3-year rolling budget cycle. • It involves Preparation of annual budgets with a medium-term perspective in a top-down and bottom-up approach. It is a rolling process that is repeated annually – every year baselines are updated. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

35. Principles of MTEF Approach • A multi-year time horizon typically three years; • Top-down hard budget constraints; • Bottom-up development of spending plans; • Comprehensiveness; central and local government budgets, Recurrent & Development • Sound information about costs; • Accountability for performance (outputs and outcomes); • Policies prioritization; • Budget stability and predictability; • Bring political oversight; integrate political and administrative practices to align with the priorities of government • Fiscal and budget transparency COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

36. Objectives of introducing MTEF • MTEF is a means to provide certainty and consistency in funding MDAs. • It is a tool for enforcing government to stick within its overall budget (aggregated hard budget constraint), while allowing for flexibility in expenditures between MDAs and programmes • The main objectives in introducing the MTEF include: • Links the annual budget to the long-term development policies, objectives and plans; • Improves macroeconomic growth targets by developing consistent and realistic resource envelopes; • Improves the allocation of resources to agreed strategic priorities both between and within sectors; • Generates the commitment of MDAs to increased predictability in resource allocations so that these spending agencies could plan ahead; and, • Increase incentives for more effective (better targeted) and more efficient utilization of resources by MDAs, by providing them with predictable funding levels and increased autonomy. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

37. MTEF Budgeting Process in Kenya • MTEF process in Kenya can be summarized into three main stages: • Working out what is affordable - the top-down multi-year projections of resource envelope (Macro Target Setting or Estimation of overall resource envelope) • This is a top down approach to budgeting where the macro economic targets including projected economic growth, desired inflation rate, money supply, projected interest rates, desired levels of borrowing both domestic and external, and other macro aggregates which include realizable revenues and sustainable expenditure levels including the sector resource envelop ceilings are predetermined in advance. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

38. MTEF Budgeting Process in Kenya (Cont.) • Working out what has to be financed - the bottom-up multi-year cost estimates of government policy and programmes. • This is a bottom up approach where MDAs/Sectors are expected to review their past budget performance which should inform their future financial plans. The Sector report presents the MDA’s three year financial plan with programs that are prioritized, and criteria for allocation of resources among competing MDAs priorities. At these levels, the MDAs engage in resource biding within the sector and each ministry is given a ceiling of its future resource envelope. • Financial Programming /Making the necessary trade-offs - process to match resources available with priority programs • This is the final stage in the budgeting process where the preparation and approval of the budget is undertaken. Based on the ceiling agreed, MDAs prepares a 3-year budget guided by: the existing commitments; work in progress; and new policy commitments, which form the first charge against available resources. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

39. Kenya’s MTEF Budgeting Framework COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

40. The MTEF requires: • Information • Accurate costs of government policies, programmes, sub-programmes, activities and projects • outputs and outcomes • Institutions: “rules of the game” • Mechanisms at Cabinet and MDAs level to make trade-offs • Good relationship between the Ministries of Finance/ National Treasuries and MDAs • Political versus managerial accountability clearly defined. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

41. What the MTEF is NOT • The MTEF does not address issues of budget execution (PBB does) • The MTEF on its own does not address performance management and reporting • It does not provide additional resources but rather focuses on reprioritisation of existing resources • It is a management tool - not the answer to tough decisions on resource allocation COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

42. MTEF : Sector Level Experiences • Organized according to (COFOG) to allows sector wide approach to planning and budgeting, and international comparison. • The functions mapped into ten sectors: • Agriculture and Rural Development (ARD) • Energy, Infrastructure and ICT • General Economic, and Commercial Affairs • Health • Education • Governance, Justice, Law & Order (GJLO) • Public Administration & International Relations • National Security • Social Protection, Culture and Recreation • Environmental Protection, Water and Natural Resources COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

43. MTEF : Sector Level Experiences (Cont.) • Structure and composition of Sector Working Groups (SWGs) • Chairperson – One Accounting Officer (AO) who is chosen by consensus by other AOs • Sector Convenor – Appointed by the National Treasury • Sector Co-Convenor – Appointed by State Dept for Planning; • Technical Working Group – Appointed by the SWG; • A SWG Secretariat – Appointed by the individual AOs to assist the Chairperson in coordinating the activities of the SWG; • Representatives from Development Partners; and • Representatives from the Kenya Private Sector Alliance •   SWGs are expected to ensure that proposed programmes and projects are in line with the strategic priorities/objectives of Medium Term Plans of the Vision 2030. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

44. MTEF : Sector Level Experiences (Cont.) • Terms of Reference (TORs) for SWGs include: • SWG s are responsible for formulating sector budget proposals and developing sectoral policies. • Review sector objectives and strategies in line with Vision 2030; • Identify the programmes and policy, legal and institutional reforms required; • Cost programmes, projects and policies; • Prioritize Sector Programmes and allocate resources; • Identify programmes and projects to be funded under Public Private Partnerships (PPP) COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

45. Link of MTEF to Budget Preparation • Initially started as a framework that was isolated from budget preparation. • MTEF was later embedded in the budget preparation calendar • July – Sept: Policy review, macro-economic and fiscal frameworks • Sept. – Nov.: SWG process • Dec. – Feb.: Budget Policy Statement • March: Budget Call circular • March – April: Finalization of PBB and submission to the National Assembly • May – June: Budget Approval • July – June: Budget Execution • MTEF incorporates participation by public/stakeholders. Cabinet and Parliamentary Approvals is essential. • The same is replicated in the County Governments. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

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47. Challenges and Constraints • Weak ownership of MTEF by MDAs - MTEF is output/ outcome focused requires a lot of information MDAs hardly provide the info. • Unrealistic medium term expenditure and revenue forecast. raising credibility concerns • In year reallocation/virement of expenditures - due to failure by MDAs to recognize a hard budget constraint and hence the need for trade-offs during preparation often leading to under estimation of costs • High percentage of non-discretionary expenditure which leaves little room for new priorities on an annual basis COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

48. Challenges and Constraints (Cont.) • Political interference often leading to funding of non core projects (phenomenon referred to log rolling i.e. increasing expenditures during budget debates or pork i.e. last minute introduction of expenditure by influential politicians without scrutiny of their viability or knowledge of politicians who approve the budget) • Evasion Strategy for emerging priorities (i.e. pushing expenditures to next MTEF) • New expenditures easily claimed as entitlement once accepted under MTEF COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

49. Discussion Issues • The MTEF is a planning tool and does not address issues of budget execution. It is thus important to ensure that effective accounting and reporting systems are in place to harness the benefits of the MTEF in the budget execution stage. • The MTEF on its own does not address performance management and reporting issues. As part of the budget formulation process, MDAs should be defining outputs and outcomes and performance indicators related to achieving these, however performance management systems will still need to be developed to collect performance information and relate individual performance to organisational performance. • One common misunderstanding, especially amongst MDAs, is that the MTEF will provide additional resources. This is not so, and the idea of the MTEF is to use it as a tool for reprioritization within the aggregate ceiling and available resources. • Furthermore, it should be understood that the MTEF is a management tool or framework within which to link policies, plans and budgets. There is still a need to make tough choices about resource allocation both across ministries and within ministries. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks

50. Exercise 1: Discuss the potential benefits of implementing the MTEF budgeting approach • Possible Answers • Stability in resource flows, resources directed towards strategically important objectives • Predictability in sector financing, facilitates domestic and international sources of funding and minimises the chances of bottlenecks in the flow of funds; • Enhances sustainability of funding for programmes • Clarity of policy choices for resource allocation where finances are limited and prioritisation is essential; • Opportunities to share and explain resource allocation decisions with stakeholders at different levels; • Greater accountability and transparency in implementing development programmes designed to improve equity and efficiency and provide value for money in the use of public funds. COMESA Monetary Institute Workshop on Medium Term Fiscal Frameworks