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Medium-Term Budgeting Lessons from Other Regions

Medium-Term Budgeting Lessons from Other Regions. The World Bank Pacific Department www.wordbank.org/pi. Key Messages . Medium Term Budgeting does not have to mean complex technical processes Medium Term Budgeting is widely used and often leads to improved outcomes

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Medium-Term Budgeting Lessons from Other Regions

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  1. Medium-Term BudgetingLessons from Other Regions The World Bank Pacific Department www.wordbank.org/pi

  2. Key Messages Medium Term Budgeting does not have to mean complex technical processes Medium Term Budgeting is widely used and often leads to improved outcomes Medium Term Budgeting requires certain enabling conditions Medium Term Budgeting approaches should be tailored to the context

  3. Why have countries pursued MTB? Achieving fiscal discipline and managing upcoming cost pressures Achieving greater efficiency in resource use Better linking expenditure to policy priorities Estimating sector resource needs for the achievement of policy outcomes

  4. Medium Term Budgeting does not have to mean complex technical processes

  5. Medium Term Budgeting does not have to mean complex technical processes

  6. Medium Term Budgeting is widely used and often leads to improved outcomes MTB

  7. Medium Term Budgeting is widely used and often leads to improved outcomes

  8. Medium Term Budgeting is widely used and often leads to improved outcomes • Some reviews and case studies suggested that MTB had not lived up to expectations • Insufficient focus on macro-resources • Overly-sophisticated and not used • Recent empirical work has shown some benefits • MTB improve fiscal discipline as measured by overall fiscal balance • MTB improve allocative efficiency as measured by share of budget allocated to health • But aggregate results obscure very different country experiences

  9. Medium Term Budgeting is widely used and often leads to improved outcomes The fiscal balance tends to improve following the introduction of MTB Health expenditure tends to increases following introduction of MTB Correlation is not causality: MTB is not a panacea!

  10. Medium Term Budgeting requires certain enabling conditions

  11. Medium Term Budgeting requires certain enabling conditions • MTB is not a technical fix to all expenditure management problems • Political commitment: • Whatever the technical details, MTB will only lead to improved outcomes if the framework is followed by decision-makers • If not, MTB becomes a potentially costly distraction (Ghana) • Budget coverage • Usefulness of MTB undermined by substantial off-budget expenditure (broader African experience)

  12. Medium Term Budgeting requires certain enabling conditions • Institutions and processes to allow close integration with annual budget • MoF leadership • Annual budgets tightly linked to MTB framework • MTB integrated/consistent with NDP • Adequate budget systems • Expenditure control • Cash management • Execution performance (realistic budgets)

  13. Medium Term Budgeting requires certain enabling conditions Country B: Average Variation for all line items by Ministry Country A: Variations by Economic Classification Using the budget as planning tool requires a realistic budget How realistic is your budget?

  14. Medium Term Budgeting requires certain enabling conditions Commitment to MTB can lead to the emergence of necessary conditions MTB can provide a tool for progressing broader reforms in context of strong political commitment. But some level of budget functionality is necessary in advance. • Adequate planning processes • MTB is ultimately about giving effect to policy plans • Predictability of donor flows • Vital for bottom-up and top-down processes

  15. Medium Term Budgeting should be tailored to the context • Ambition of MTB approach should be calibrated to existing PFM systems • The MTB model should reflect what existing systems and capacity can support • Poor record with “big bang” reforms in developing countries • Doing everything at once does not work • Take care when combining the introduction of MTB with broader reforms • Capacity constraints necessitate a step-by-step approach to reform • What will work depends on context

  16. Key considerations for PICs • Opportunity costs can be high • MTB to achieve an objective – not as an end in itself • Capacity constraints have been an important consideration worldwide • Budget units already stretched thin • Basic MTB (MTFF) need not be effort intensive • Capacity supplementation can create opportunities if political commitment exists • Adequacy of basic budget systems is key • MTB is of little use if annual budgeting is not credible or cash management is weak • Basic level of functionality in annual budgeting is probably a prerequisite • PICs may face unique challenges in regards to extent of reliance on donor financing • Introduces additional uncertainty

  17. Thank you • This presentation draws heavily on the following papers: • World Bank (2011) Review of Experience with Medium-Term Expenditure Frameworks, World Bank • Ilona Castro and Bill Dorotinsky(2006)Medium-Term Expenditure Frameworks – demystifying and unbundling the concept, OECD Journal of Budgeting • Le Houerou, Philippe and Robert Taliercio, (2002) Medium-term Expenditure Frameworks: From Concept to Practice, Africa Region Working Paper Series No. 28.

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