Transcript The UK’s fiscal watchdog: a view from the kennel

Sector Planning and Budgeting within
the MTEF: Key Concepts
Richard Allen
I. Outline of Presentation
II. Relationship between MTBFs and National
Development Plans (NDPs)
III. Preparation of Sector Strategy Plans
(SSPs)
IV. Formulation of a Sector MTBF
V. Key challenges
VI. Conclusions
(How has this conceptual framework been
applied in METAC countries?)
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II. Relationship between the NDP and
MTBF
Prepared every 5 years
with mid-term review
Prepared every 3-5
years
Prepared
annually
NDP
Sets high level government policy vision. Not usually
costed or prioritized.
Sector
Planning
Translates NDP into sector specific strategies. Not
usually costed or prioritized. Sometimes phased.
Ministry Planning
MTBF
Annual Budget and Out-year
Projections
Identifies strategic priorities for one year
and medium term. Costed and prioritized.
Includes forward estimates of existing
activities as well as new policy initiatives.
Allocates aggregate resources to
existing activities and approved
new policy initiatives over a 3-5 year
period.
Authorizes annual
spending and indicative
use of resources over the
out-years.
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II. MTBFs and National Development Plans
• In advanced countries, MTBFs have largely
replaced NDPs which no longer exist as
separate policy instrument, except for special
purposes (e.g., EU structural funds)
• The functions of planning and economic
development ministries / commissions have also
disappeared, or changed radically
• The issue for EMs and developing countries is
how to manage the coexistence of these two
institutions and strengthen their relationship
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II. No perfect solution has emerged to this
issue …. partial solutions include
• Greater cooperation between ministry of finance
and ministry of development planning
• Merger of planning and finance officers into a
single cadre within one ministry
• Integration of budgeting and planning into a single
calendar and parallel processes
• Establishment of multi-constituency sector working
groups (SWGs) that cover both the planning and
budgeting process
• What approaches have been taken in the METAC
region?
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Preparing a Sector Strategic Plan
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III. Purpose of the Plan
• Relevant ministries work together to develop a shared
strategy and costed plan aimed at achieving the
sector-specific objectives and goals of the NDP;
• Guides sub-sectors in their regular medium-term and
annual planning and budgeting exercises; and
• Provides a framework for the lead ministry to:
– Coordinate the policy and expenditure prioritization and budgeting
processes within a sector
– Promote strategic resource allocation to agreed priority areas over
the medium term
– Ensure coordinated mobilization of resources from external funding
agencies and efficiency in the use of resources by the sector.
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III. Major Tasks/Stages in Preparation of an
SSP
• Task 1: Undertaking a Situation Analysis
• Task 2: Establishment of the Sector Vision and Mission
• Task 3: Development of Sector Goals, Objectives and
Strategy
• Task 4: Assessment of Medium-term Sector Resource
Envelope
• Task 5: Costing and Prioritizing of Sector Objectives
and Outputs
• Task 6: Approval by Cabinet - buy-in, ownership
commitment and consistency over the medium-term
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III. Task 1: Conducting a Situation Analysis
• Assessment of the sector’s achievements, and challenges that
constrain delivery of its NDP-driven mandate
• Examples from Education:
–
–
–
–
–
Net enrollment and pass rates in “strategic” subjects (mathematics, science)
Gender/income/geographic disparities
% of students advancing to the next stage (secondary, tertiary)
Teachers’ performance; availability of science teachers
Is the curriculum aligned with strategic objectives (e.g. promoting the
private sector, SMEs, environment)?
• A description of the current status of the sector highlighting:
– Coverage and quality of services
– Opportunities and constraints
– High priority issues that merit special attention
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III. Task 2 : Developing the Sector’s Vision
and Mission
Vision:
- A statement of the sector’s expectations of service
delivery and desired medium-term development goals
Mission:
– The sector’s rationale for existence
– The public services to be provided, and clients’ needs
and expectations
– The relationship between the sector and other
stakeholders in addressing the needs of clients
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III. Task 3: Developing Sector Goals,
Objectives and Strategy
Goals:
To set realistic goals for sector service delivery, outputs or outcomes over
the medium term. These goals should:
– be informed by a well-defined assessment of current economic and
social conditions, and the challenges facing the sector
– provide a framework for more detailed planning at lower levels
within the sector and its component ministries and agencies
Sector Objectives:
• To identify specific, quantifiable and time-bound sector objectives that
seek to ensure that the strategic goals specified above are attained.
– Economic analysis of cost-effective mechanisms to deliver sector
goals and objectives, collaboration with NGOs involved in the sector
– In Education: policy choices to deal with gender disparities; school
building; private sector partnerships and financing; access to remote
areas, etc.
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III. Task 4: Developing the Sector Resource
Envelope
– Demand-side: Estimation of the total
resource requirements for achieving these
desired goals or target
– Supply-side: Assessment of the resources
likely to be available to the sector from both
domestic and foreign sources over the MTBF
period
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III. Task 5: Costing and Prioritizing of
Sector Objectives and Outputs
Purpose:
– Align policy objectives with a resource-constrained framework
– Estimate the costs of attaining the sector objectives and outputs to be
produced over the MTBF period
– How many schools should be built? Number of teachers to be recruited and
wage bill implications? Inclusion of recurrent costs of school building
program?
– Are the priorities too costly or overambitious? Is there a methodology and
expertise to carry out feasibility studies and cost-benefit analysis of planned
projects? Are absorptive capacities sufficient for planned expenditures?
Outputs:
– Prioritization of new programs and investment projects that can be
accommodated within the estimated resources available to the sector in the
MTBF, linking with country’s public investment plan (PIP) if available
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III. Task 6: Cabinet Approval of the SSP
• The SSP must be approved by Cabinet and
Parliament (buy-in, ownership and commitment
important).
• It then becomes the basis for forward estimates
within the indicated spending ceilings
• SSP and sector MTBF facilitates progressive
achievement of sector objectives within available
resources
• Regular monitoring and evaluation must be carried
out and the SSP updated accordingly
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Preparation of the Sector MTBF
(Strategic Phase of the Budget/MTBF process)
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Stages of the MTEF Process
Political involvement through
early cabinet meeting setting
macro policy objectives
Issuing of MTEF/budget
guidelines with baseline MTBF
Departmental and sectoral reviews
2 based on indicative allocations
Setting of policy objectives; costing
of programmes/sub programmes
within baselines
Formulation of options deviating
from baselines
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Detailed
expenditure
framework and
sectoral/depart
mental ceilings
for 3 years
Approval of
ceilings by
cabinet
and
publication
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3
Hearings to
agree on
priority
programmes
and tradeoffs
Preparation
of 3-year
estimates by
ministries
6 within
ceilings
Review
7 by
Treasuries,
presentation to
legislature
Top Down
Macro framework -- Availability
1 of Resources (more or less
money available over baseline)
Bottom Up
Understanding the MTEF
III. Preparing Sector Strategic Plans
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IV. Strategic Phase at Sector Level
(Bottom-up process)
Stage 1: Expenditure Review
– Review of past expenditure and identification of inefficiencies and low
absorptive capacities that need to be addressed
– Review progress on attaining sector objectives and identify bottlenecks
that need to be addressed
Stage 2: Development of Sector Forward Estimates
• Sector/Ministry Forward Estimates aligned with affordable sector priorities
within the medium-term resource envelope
• Separation of costs for current policies and new policy proposals
• Resource allocations should be estimated by subsectors, administrative
units, major programs within a sector and NOT by economic classification
Stage 3: Reconciliation of Sector MTBF proposals with overall MTBF
– Budget hearings with MoF
– Discussion and approval by cabinet to initiate preparation of detailed
budget estimates
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IV. Stage 1: Sector Expenditure Reviews
• Review of previous spending
Sector Policies and Objectives
• Do the expenditure choices
support the achievement of
sector objectives and
priorities?
Program priorities
relative to objectives
Sector Programs
• Identify policy implementation
issues and propose strategies
to address them.
• Develop sector resource
allocation proposals (forward
estimates) for the MTBF
Reconcile
policy, laws,
resource limits
Assess modalities and
strategies
Evaluate service
delivery performance
Sector Budget Request
Under ceiling
Above ceiling
Potential savings
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IV. Stage 2: Preparation of Forward
Estimates
1. Understand the existing budget (baselines)
Identify current level of service delivery (no policy changes)
Separate sector into sub-sectors / spending units / major spending areas
Identify one-off expenditures to estimate potential savings
2. Understand and apply medium-term cost drivers
Identify and apply price and volume cost drivers, e.g., inflation, exchange
rate changes, changes in the school-age population
Link price and volume parameters to macro-economic and demographic
variables
Increase baseline spending by price and volume parameters
3. Aggregate spending for the ministry / sector
Aggregate for the spending units in the sector / sub-sector / ministry
Calculate sensitivity of estimates to changes in price / volume parameters
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IV. Stage 3: Reconciliation of Requests
and MTBF Ceilings within MoF
•
Sector requests must be
reconciled with the
resource ceilings
Sector Ceilings
•
Technical
Assessment
and
Reconciliation
Competing policy priorities
must be sequenced with
budgetary implications
•
Final policy priorities and
funding decisions reached
•
The stage can be
contentious or
productive depending on:
– effectiveness of decisionmaking process;
– reliability of budget and
forward estimates; and
– policy consistency.
Sector Requests
Vetting
assumptions,
policies,
estimates
Challenging
strategies,
modalities,
activities
Evaluating
performance,
absorptive
capacities
Revised requests and/or decision
papers
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IV. Lessons Learned: Deviations between
Forward Estimates and Budget Estimates
Example: Spending on Primary Education
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Baseline Estimates
160
Budget Appropriations
Problem
140
120
100
MTBF Allocations
80
2011
2012
2013
2014
2015
2016
2017
2018
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V. Challenges of implementing SSPs and
sector MTBFs in developing countries
• Extensive consultation with stakeholders, including
donors can lead to bureaucratic overload
• Lack of capacity in line ministries – economists, financial
analysts, project managers, etc.
• Institutional fragmentation of the budget and SSP
processes
• Poor links with macroeconomic framework and fiscal
targets/objectives – one aspect of institutional
fragmentation
• Lack of realism of SSPs and PIPs
• In countries that are aid dependent, inadequate
mechanisms for coordinating aid financed projects
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V. To what extent do METAC countries
comply with these models/approaches?
• In Egypt, education and health sectors prepare
SSPs up to 2030, and are working on 5-year
programs
• In Afghanistan, government has taken measures to
align national priority programs (NPPs) with overall
development strategy (ANDS), and to set priorities
for internal and external funding
• However, challenges remain, e.g., available funding
for specific NPPs is driven by donor priorities and
earmarking in some sectors
• What about other METAC countries’ experience?
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VI. Conclusion
1. The institutional relationship between MTBFs and NDPs in most
developing countries is challenging
2. There is no one method of preparing SSPs, but guidelines on good
practice have been developed over the past 25 years
3. Preparing baselines and forward estimates of future spending are the key
steps in preparing sector MTBFs
4. Preparing forward estimates is technically challenging for many
countries and requires intensive and sustained capacity building
5. PIPs should be upgraded and costed as an entry point for preparing
sector MTBFs
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