Transcript Medium Term Budgeting in Other Regions

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MEDIUM-TERM BUDGETING
LESSONS FROM OTHER REGIONS
The World Bank Pacific Department
www.wordbank.org/pi
Key Messages
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

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
Why have countries pursued MTB?
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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
Medium Term Budgeting does not have
to mean complex technical processes
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Stage
Description
Medium-Term Fiscal Forward aggregate expenditure ceilings informed by
Framework (MTFF) estimates of future resource availability.
Indicators: macro-fiscal strategy, fiscal forecasts, DSA, IMF
program details.
Medium-Term
Budget Framework
(MTBF)
Agency and program expenditure ceilings informed by
combination of top-down resource availability and bottom-up
resourcing need.
Indicators: budget or other reports detailing medium-term
allocations to ministries or programs and showing a mediumterm strategic focus
Medium-Term
Performance
Framework (MTPF)
Focus on outputs and performance.
Indicators: program or ministry strategies including output
targets and results. Evidence of a performance focus.
Medium Term Budgeting does not have
to mean complex technical processes
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Good Practice for a Medium-Term Fiscal Framework
Debt and deficit targets are established using model-based debt sustainability
analysis, taking into account constraints imposed by policy rules.
Revenue forecasts are based on revenue department or other tax and non-tax
receipt models.
Independent macroeconomic forecasts are used, and fiscal forecasts are subject to
scrutiny by an audit office, fiscal council or similar consultative body.
Aid commitments are covered by debt sustainability analysis and/or revenue
forecasts.
Medium-term macro-fiscal objectives are described in a background paper
included as part of the budget documentation.
Medium Term Budgeting is widely used
and often leads to improved outcomes
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Number of Countries with MTB
120
100
80
60
40
20
0
1990
1991-93
MTEF
MTB
1994-96
MTFF
1997-99
2000-02
MTBF
2003-05
MTPF
2006-08
Medium Term Budgeting is widely used
and often leads to improved outcomes
Number of Countries in Group (percentages of
countries in region displayed at top)
7
16
33 33
14
12
46
43
39
37
53
10
29
42
8
6
4
2
0
63
16
11
9
16
7
11
0
0
MTFF
MTBF
MTPF
25
0
0
Medium Term Budgeting is widely used
and often leads to improved outcomes
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
Some reviews and case studies suggested that MTB
had not lived up to expectations
Insufficient focus on macro-resources
 Overly-sophisticated and not used
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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
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But aggregate results obscure very different country
experiences
Medium Term Budgeting is widely used
and often leads to improved outcomes
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The fiscal balance tends to improve
following the introduction of MTB
Health expenditure tends to increases
following introduction of MTB
(72 obs)
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-0.38
2
1
0
t-3
t-2
t-1
t
t+1
t+2
-1
-2
-3
-4
-5
-3.09
t+3
General Govt Health Spending(% of GDP)
Central Government Balance (% of GDP)
(72 obs)
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11.59
13
12
11
10
10.97
9
8
7
t-3
mtef
95% conf. interval
before average
after average
t-2
t-1
t
t+1
t+2
mtef
95% conf. interval
before average
after average
Correlation is not causality: MTB is not a panacea!
t+3
Medium Term Budgeting requires
certain enabling conditions
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Adequate
budget systems
Institutions and
processes
linking annual
budget to MTB
Adequate
budget
coverage
Political
commitment
Adequate
planning
processes
Effective
MTB
Predictable
donor flows
Medium Term Budgeting requires
certain enabling conditions
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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)
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Budget coverage
 Usefulness
of MTB undermined by substantial offbudget expenditure (broader African experience)
Medium Term Budgeting requires
certain enabling conditions
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Institutions and processes to allow close integration
with annual budget
MoF leadership
 Annual budgets tightly linked to MTB framework
 MTB integrated/consistent with NDP
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Adequate budget systems
Expenditure control
 Cash management
 Execution performance (realistic budgets)
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Medium Term Budgeting requires
certain enabling conditions
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Using the budget as planning tool requires a realistic
budget
How realistic is your budget?
Country B: Average Variation for all line items
by Ministry
Country A: Variations by Economic Classification
90%
Defense
80%
Daily Paid
70%
Travel& Communication
60%
Established Staff
50%
Operational Grants&Transfer
40%
Purchase of Good&Services
30%
2006
2007
2008
2009
20%
Maintenance& Operations
10%
Equity Payment
0%
-100%
0%
100%
200%
300%
400%
Ministry of Finance and Ministry of Education and
Treasury
Human Resource
Development
Ministry of Health and
Medical Services
Medium Term Budgeting requires
certain enabling conditions
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Adequate planning processes
 MTB
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is ultimately about giving effect to policy plans
Predictability of donor flows
 Vital
for bottom-up and top-down processes
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.
Medium Term Budgeting should be
tailored to the context
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Ambition of MTB approach should be calibrated to
existing PFM systems
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Poor record with “big bang” reforms in developing
countries
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The MTB model should reflect what existing systems and
capacity can support
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
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Key considerations for PICs
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Opportunity costs can be high
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Capacity constraints have been an important consideration
worldwide
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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
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MTB to achieve an objective – not as an end in itself
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
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Introduces additional uncertainty
Thank you
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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.