The MTEF in Practice - The MTEF in Practice - Reconciling Conflicting ClaimsReconciling Conflicting Claims

Malcolm HolmesMalcolm Holmes

Implementing an MTEFImplementing an MTEFImplementing an MTEFImplementing an MTEF Pilot or whole of GovernmentPilot or whole of Government Budget unification (PIP elimination)Budget unification (PIP elimination) Reduction of the number of budget Reduction of the number of budget

line itemsline items Link between line items and Link between line items and

objectives and impactobjectives and impact Introduction of a 3 year perspectiveIntroduction of a 3 year perspective Mission statements and strategic Mission statements and strategic

plans for sectorsplans for sectors

Implementing an MTEF Implementing an MTEF (Cont.)(Cont.)

Implementing an MTEF Implementing an MTEF (Cont.)(Cont.)

Use of strategic plans for budget Use of strategic plans for budget preparationpreparation

Emphasize costs of activitiesEmphasize costs of activities Merging of external and domestic Merging of external and domestic

financing financing Withdrawal of MoF from details of budget Withdrawal of MoF from details of budget

allocations in LMallocations in LM Engaging cabinetEngaging cabinet Focus on performanceFocus on performance

Ghana: Explaining progressGhana: Explaining progressGhana: Explaining progressGhana: Explaining progress Commitment from Minister and Commitment from Minister and

Ministry of Finance, line ministers Ministry of Finance, line ministers and donors and donors

MTEF based on GOG-led PERMTEF based on GOG-led PER Consensus building efforts (losers Consensus building efforts (losers

and winners)and winners) MTEF becomes budget processMTEF becomes budget process

Ghana: Explaining Progress Ghana: Explaining Progress (Cont.)(Cont.)

Ghana: Explaining Progress Ghana: Explaining Progress (Cont.)(Cont.)

Consistency between MTEF Consistency between MTEF and sector approaches and sector approaches

Link to other reformsLink to other reforms Performance focus - matching Performance focus - matching

authority and accountabilityauthority and accountability

Ghana: Sustainability TestsGhana: Sustainability TestsGhana: Sustainability TestsGhana: Sustainability Tests

Predictability of funding (domestic and Predictability of funding (domestic and external) external) – predictable macro/fiscal frameworkpredictable macro/fiscal framework– cash flow estimatescash flow estimates– cash available on timecash available on time– budget voted on time by parliamentbudget voted on time by parliament

Predictability of policiesPredictability of policies

- Cabinet Engaged- Cabinet Engaged Controlling expenditureControlling expenditure Focus on outcomesFocus on outcomes

Ghana: Sustainability Tests Ghana: Sustainability Tests (Cont.)(Cont.)

Ghana: Sustainability Tests Ghana: Sustainability Tests (Cont.)(Cont.)

Dynamic process of evaluation Dynamic process of evaluation of policiesof policies

Autonomy and accountability Autonomy and accountability of LMof LM

Civil service management - Civil service management - pay policy, authoritypay policy, authority

DecentralizationDecentralization

UgandaUganda Sequential progression through 3 levelsSequential progression through 3 levels Using MTEF-style approach since early Using MTEF-style approach since early

1990’s1990’s– Fiscal disciplineFiscal discipline– Predictable sectoral expenditures that reflect Predictable sectoral expenditures that reflect

stated strategic policies stated strategic policies MTEF reinforcing goalsMTEF reinforcing goals Provides framework for implementing Provides framework for implementing

Poverty Eradication Action PlanPoverty Eradication Action Plan

Sequencing the MTEF in UgandaSequencing the MTEF in Uganda

1992/93: Medium-term expenditure 1992/93: Medium-term expenditure planning with goal of fiscal disciplineplanning with goal of fiscal discipline– Cash-flow management with monthly Cash-flow management with monthly

expendituresexpenditures 1996/97 Linking sectoral allocations 1996/97 Linking sectoral allocations

to policiesto policies Linking policy and funding Linking policy and funding

predictability to technical efficiencypredictability to technical efficiency

Reforming the budget processReforming the budget process

Annual budget framework process:Annual budget framework process:– Identifies medium-term priorities, Identifies medium-term priorities,

resource constraints and sectoral resource constraints and sectoral ceilingsceilings

– Consultation with line Ministries and Consultation with line Ministries and external stakeholdersexternal stakeholders

– Links with civil society through more Links with civil society through more transparent budgeting documentstransparent budgeting documents

Extending the MTEFExtending the MTEF

Extending MTEF to district governmentExtending MTEF to district government– Provision of technical expertise from Provision of technical expertise from

central Ministriescentral Ministries Defining roles in budgetingDefining roles in budgeting

– Budget administrators propose envelopesBudget administrators propose envelopes– Sectors propose policy choices and Sectors propose policy choices and

allocationsallocations– Cabinet and parliament make political Cabinet and parliament make political

choiceschoices

Uganda: Sustainability TestsUganda: Sustainability Tests

Implementation of strategic allocationsImplementation of strategic allocations– Deviation between budgeted expenditure Deviation between budgeted expenditure

and actual spending 25% and actual spending 25% – Line Ministries overspending MTEF ceilingsLine Ministries overspending MTEF ceilings

Revenue unpredictabilityRevenue unpredictability– Shortfall of tax revenuesShortfall of tax revenues– Inability of donors to provide medium-term Inability of donors to provide medium-term

commitmentscommitments– Impacts on expenditure disbursement Impacts on expenditure disbursement

Uganda: Sustainability Tests Uganda: Sustainability Tests (contd)(contd)

Limited flexibility with expenditure Limited flexibility with expenditure readjustmentsreadjustments– Statutory expendituresStatutory expenditures– Politically important areasPolitically important areas– Areas with donor conditionsAreas with donor conditions

Continued separation of donor-funded Continued separation of donor-funded project from Consolidated Fundproject from Consolidated Fund

Uganda: Sustainability Tests Uganda: Sustainability Tests (contd)(contd)

Sectoral planning issuesSectoral planning issues– Little clarity of goalsLittle clarity of goals– Little quantitative analysisLittle quantitative analysis– Failure to link expenditure estimates Failure to link expenditure estimates

to prioritiesto priorities– Few performance measuresFew performance measures

Monitoring and evaluation of Monitoring and evaluation of sectoral efforts is weaksectoral efforts is weak

Uganda: Sustainability Tests Uganda: Sustainability Tests (contd)(contd)

Improving the quality and Improving the quality and efficiency of service provisionefficiency of service provision

Hard Budget ConstraintHard Budget Constraint Cohesive political executiveCohesive political executive Sector StrategiesSector Strategies Forum within which decisions Forum within which decisions

constrained by resource availability over constrained by resource availability over medium term and policies competemedium term and policies compete

Programmatic decisions devolved to line Programmatic decisions devolved to line ministers (within hard sector ceilings)ministers (within hard sector ceilings)

PRIORITIZATIONPRIORITIZATIONInstitutional ArrangementsInstitutional Arrangements

PRIORITIZATIONPRIORITIZATIONInstitutional ArrangementsInstitutional Arrangements

PRIORITIZATIONPRIORITIZATIONInstitutional Arrangements Institutional Arrangements

(Cont.)(Cont.)

PRIORITIZATIONPRIORITIZATIONInstitutional Arrangements Institutional Arrangements

(Cont.)(Cont.)

Strategic priorities and Strategic priorities and sustainability drive aidsustainability drive aid

Information - Costs, PerformanceInformation - Costs, Performance

Mechanisms for Mechanisms for PrioritizationPrioritization

Mechanisms for Mechanisms for PrioritizationPrioritization

Case: AustraliaCase: Australia Aggregate Fiscal Targets and Aggregate Fiscal Targets and

Strategic ObjectivesStrategic Objectives Medium-term Costs of Medium-term Costs of

Competing PoliciesCompeting Policies

0

5

10

15

82/83 83/84 84/85 85/86 86/87 87/88 88/89 89/90 90/91 91/92 92/93

Australia: Medium-term Costs of PoliciesAustralia: Medium-term Costs of Policies

Mar 84

May 85

Nov 85Dec 86

Aug 89

Real growth rate

Projection dates

Mechanisms for Mechanisms for PrioritizationPrioritization

Mechanisms for Mechanisms for PrioritizationPrioritization Case: AustraliaCase: Australia

Aggregate Fiscal Targets and Strategic ObjectivesAggregate Fiscal Targets and Strategic Objectives Medium-term Costs of Competing PoliciesMedium-term Costs of Competing Policies Arena for Contesting and Coordinating Policies Arena for Contesting and Coordinating Policies

- Cabinet: Strategic Priorities- Cabinet: Strategic Priorities

- Line: Spending-Savings within Hard Budgets- Line: Spending-Savings within Hard Budgets Ex-post EvaluationEx-post Evaluation

OutcomesOutcomes: :

- Deficit 4% GDP to surplus of 2% GDP- Deficit 4% GDP to surplus of 2% GDP

- Shifts in intra and intersectoral composition- Shifts in intra and intersectoral composition

- Greater funding predictability- Greater funding predictability

Australia: Changes in Expenditure Composition, 1983-94

Australia: Changes in Expenditure Composition, 1983-94

-4000

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

Defense Educ Health Socsec Transp. Other

Spending

Saving

Net change

Source: Dixon, 1993 : 32

$ Millions

Net change

New spending

Savings from existing policy

Sector-wideSector-wide Clear Strategy and Policy FrameworkClear Strategy and Policy Framework Program FocusProgram Focus Sector Expenditure ProgramSector Expenditure Program Medium-term PerspectiveMedium-term Perspective Consistent with Macroeconomic Consistent with Macroeconomic

FrameworkFramework Donor CoordinationDonor Coordination

Sector-wide Approaches as Sector-wide Approaches as Performance Based BudgetingPerformance Based Budgeting

Sector-wide Approaches as Sector-wide Approaches as Performance Based BudgetingPerformance Based Budgeting

Strategic PolicyStrategic Policy Sector EnvelopesSector Envelopes Program: Individual MinistersProgram: Individual Ministers Running Costs: ManagersRunning Costs: Managers

Getting Decisions in the Right Hands

Getting Decisions in the Right Hands