Transcript MTEFs: Concept and Lessons

MTEF’s:
Concept and Linkages
Bill Dorotinsky
International Monetary Fund
October 8, 2007
Tegucigalpa, Honduras
IMF
Expenditure Management Cycle
Financial management system boundaries
Planning
system
Project
appraisal
Medium term
plans, e.g. three
year rolling plans
Resource
allocation
Annual budgets
Development,
recurrent and
revenue
Expenditure
review
Public expenditure
review
Institutions
Fund release
procedure, e.g...
warranting
Accountability
Audit system
Reports and
financial statements
Accounting for
revenue and
expenditure
Source: Adapted from Integrated Financial Management. Michael Parry, International Management Consultants Limited.
IMFTraining Workshop on Government Budgeting in Developing Countries. THE UNITED NATIONS. December 1997.
Three Objectives of Public
Expenditure Management
Systems
• Macrofiscal discipline and
stability
– Avoid public finance crises
– Support economic growth and stability
• Strategic allocation of
resources
– Match government policy with
programs, objectives
• Technical efficiency
– Getting the most from each peso spent
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Technical Objectives of MTEF
• Improve macrofiscal situation
– lower deficits, improved economic growth
– more rational approach to new spending,
retrenchment and economic stabilization
• Improve impact of Government
policy
– link between government priorities/policies
and government programs
• Improve program
performance/impact
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– Shift bureaucracy from administrative to
managerial culture
• Managerial flexibility & innovation:
lower cost/output; greater effectiveness
of programs/policies
– Improved resource predictability
MTEF: Better Budget Process
• Stage 1. Macroeconomic and public
sector envelopes
• Stage 2. High-level policy: aligning
policies & objectives under resource
constraints (top-down)
• Stage 3. Linking policy, resources,
and means by sector (bottom-up)
• Stage 4. Reconciling resources with
means
• Stage 5. Reconciling strategic policy
and means
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MTEF Major Components
• Medium-Term Fiscal Framework
– Aggregates, policy
• Medium-Term Budget Framework
– Ceilings and sector strategies
• Program budgeting/Activity-based
costing
– Within ministries, programs, costing,
input-output models
– Performance measures
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Unbundling MTEFs
•
Medium-Term Fiscal Framework
–
–
•
Medium-Term Budget Framework
–
–
–
•
Multi-year forecast of spending under current policy or current
level of services, by ministry or program (baseline estimates)
Multi-year ceilings for sector ministries (policy)
Multi-year sector strategy
Program budgeting/Activity-based costing
–
–
–
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Multi-year Macroeconomic forecast
Multi-year revenue, debt sustainability analysis and debt policy,
yielding expenditure envelope (fiscal policy paper)
Multi-year cost estimates of new policies or programs
(recurrent), or expansion of existing programs, prepared by
sector ministries
Multi-year estimates of cost of existing policies, programs,
subprograms, or activities prepared by sector ministries
Multi-year estimates of cost of new projects (capital), or
expansion of existing projects, prepared by sector ministries
Factors Undermining MTEFs
• Poor accounting, budget execution data
(e.g. assignaciones globales)
• Weak public financial management human
resource capacity, especially in sector
ministries
• Budgets not comprehensive
– Off-budget
– Significant expenditure or revenues not
allocated through budget (earmarking)
– Parallel capital budget process
• Significant budget execution variance from
approved budget
• Parallel planning process
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Linkages to Development Plans
• MTEF enables easier
– Integration of development plans
with budget
• Macrofiscal space
• Sector strategies and objectives
• Programs affected
– Implementation of plans
• Planning and budgeting
– Long-term perspective valuable
– Realistic planning also essential
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Summary
• MTEF is about
– Process reform
– Integrating planning and budgeting
– Changing Incentives of Key Actors
– Integrating policy and technical aspects of
budgeting
– Thinking multi-year
– Learning - evaluating
• Misconceptions
– MTEF is only multi-year estimates
– MTEF separate process, document only
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Selected References
• Public Expenditure Handbook, World Bank,
1998.
• Managing Government Expenditure, S.
Schiavo-Campo and D. Tommasi, Asian
Development Bank , 1999. (on-line)
• Managing Public Expenditures: A Reference
Book for Transition Countries. Richard Allen
and D. Tommasi, editors. Organization for
Economic Cooperation and Development
(2001)
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