Transcript Slide 1

INTRODUCTION TO PUBLIC FINANCE
MANAGEMENT
Module 2.2
MTEF and performance budgeting
Module map
1.1 Introduction
1.2 Budget
Cycle
1.3 The Budget and
budget preparation
2.1 Macroeconomics
of the Budget
Planning and
budgeting
2.2 MTEF and
performance
budgeting
1.4 Budget
Classification
3.1 Payroll,
Procurement &
IT
4.2 Treasury
Management
2.4 Budget
Execution
4.1 Revenue
Administration
3.2 Internal
Control & Audit
5.1 External Scrutiny
& Oversight
4.3 Accounting &
Reporting
5.3 Assessing &
Recapitulation
Course outline
• 1. What is an MTEF?
• 2. Main features of an MTEF
• 3. Achievements and pitfalls
• 4. Performance budgeting
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1. What is MTEF?
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1. What is MTEF?
“ It is said that the Inuit people (Eskimo)have 15
different words for snow.
The opposite is true of MTEF, where the same term
is used to refer to very different ways of stretching
the time perspective of annual budgeting.
Conflating a variety of different approaches into a
single rubric has caused a host of problems”
Schiavo-Campo, “Potemkin Villages: 'The' MTEF in Developing Countries” Public
Budgeting and Finance, Summer 2009.
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1. What is MTEF?
Variant 1: The MTEF is an
instrument
•for fiscal discipline
•for prioritisation in conformity with the strategies
•for providing funding
predictability
Variant 2: The MTEF(s)
cost sector strategies. It is
used for negotiating
budget increases with the
Ministry of Finance and
additional financial support
with the donors
OECD countries
Some developing countries
Other developing countries
1. What is MTEF?
1.
MTEF for fiscal discipline
and prioritisation
2.
Strategy costing
•
Ministerial (MoF)
•
Sectoral
•
Consistent with the MTFF
•
Should be realistic, but may include
financial gap and scenarios
•
Rolling horizon
•
Regularly updated, but may have a
fixed horizon
•
Projection period: 3 to 4 years
•
A long term period is required in
several sectors
•
Unified budget-MTEF preparation
processes
•
Prepared outside the pressure of
the budget preparation process
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Instrument +
Process
MTEF
Annual budget law
appropriations &
forward estimates
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Government strategic
framework
sector strategies &
policies framework, laws
1. What is MTEF?
• The MTEF defines a strategy implementation path that
takes into account the financial constraints
• We can distinguish:
• The MTFF, which defines the totals
• The Medium Term Budget Framework (MTBF) –
or “global” MTEF- which allocates MTFF overall
expenditure envelopes to ministries or
sectors/functions
• The MTEF; detailing MTBF projections by
programme
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Development towards MTEF
MTFF
MTBF
MTEF
1. What is MTEF?
t-3
t-2
t-1
Actual
t
Budget
t+1
t+2
t+3
Projection
Medium-Term Macro-economic Framework
Projection of national accounts including the government account (i.e. the MTFF)
Medium-Term Fiscal Famework (MTFF)
Revenue and grants
Total expenditures
MTFF: Fiscal
discipline
Personnel
Goods and services
Interest
Transfers
Capital
Medium-Term Budget Framework (MTBF)
Defence
Personnel
Goods, services and transfers
Capital
Education
MTEF: Intraministerial
resource allocation
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Education ministry MTEF
MTBF: Intersectoral resource
allocation
Personnel
Goods, services and transfers
Capital
Administration
Personnel
Goods, services and transfers
Capital
Primary Education
Personnel
Goods, services and transfers
Capital
Secondary Education
Personnel
Goods, services and transfers
Capital
Etc
T ourism
Personnel
Goods, services and transfers
Capital
Etc
Balance (deficit/surplus)
Financing
1. What is MTEF?
National strategy
Development plans
PRSP
MTEF
Costing
MTBF-Expenditure
ceilings
by ministry/sector
Ministry MTEFs
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Financial constraint
Macroeconomic
framework
MTFF
Budget
Economic
situation
Prepared annually
Sector
MT/LT plans &
strategies
Course outline
• 1. What is an MTEF?
• 2. Main features of MTEF
• 3. Achievements and pitfalls
• 4. Other special issues
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MTEF in Tajikistan
MTEF in Tajikistan
2. Main features of MTEF
Exercise
Exercise:
•
Identify key MTEF concepts
•
Explain content of key concepts
2.What
Main is
features
of MTEF
top-down
/ bottom-up in
an preparation
MTEF?
• Top-down budget
Multi-year projections of resource envelope
targets (what is affordable)
• Bottom-up budget preparation
Multi-year cost estimates of sector
programmes (what has to be financed, with a
focus on programme performance)
• Integrating these two pillars
Institutional (political-administrative)
decision-making process to make the
necessary trade-offs
2. Main features of MTEF
MTEF expenditure
projections
Expenditure
ceiling
Baseline
Year 0
Year 1
Year 2
Year 3
Savings on
existing
programs
New
programs
and policy
changes
2. Main Features of MTEF ?
T
Budget
Forward Estimates
Budget
T +1
T +2
Forward Estimates
Budget
t +1
t +2
t +3
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Forward Estimates
t +4
t+5
MTEF process
Top-down (MoF)
Step 1
Macroeconomic
framework /
Availability of
resources
Step 1
Sector review
of ministry
objectives/
outputs and
activities
Step 2
Detailed
expenditure
and sector/
ministry
ceilings for 3
years
Step 2
Agreement
on programs
and
subprograms
Step 3
Approval of
ceilings by
Cabinet
Step 3
Costing of
agreed
programs
and
subprograms
for 3 years
Bottom-up (Line Ministries)
Step 4
Hearings to
agree on
objectives
and priority
programs
Step 4
Preparation
of 3 year
estimates
within cabinet
approved
ceilings
Step 5
Review of
estimates in
MoF and
presentation
to Cabinet
Budget
Submission
Parliament
Course outline
• 1. What is an MTEF?
• 2. Main features of MTEF
• 3. Achievements and pitfalls
• 3. Other special issues
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1. Achievements and pitfalls
• The results are uneven…..
• “Developing comprehensive MTEF can be effective when
circumstances and capacities permit….
•
• Otherwise, … it might distract attention from the immediate
needs for improving the annual budget and budget
execution processes…
•
• in a number of African countries, the MTEF was introduced
prematurely, and is turning out to be merely a paper
exercise”.
World Bank-IMF Global Economic Report 2006, page 146
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2. Achievements and pitfalls
• Why uneven results?
 Too complex/sophisticated approaches
 Poor annual budget discipline
 No impact on the annual budget: the MTEF prepared the
previous year is ignored
 Administrative and/or political instability. Every year
MTEF preparation starts from scratch
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2. Achievements and Pittfalls
• Why uneven results?
 Isolated sector MTEF prepared by external consultants to
comply with a donor request
 The MTEF remain a pure technical exercise; no political
interference
 Economic instability
 Lack of predictability of resources
2. Achievements and pitfalls
Supporting donor practice??
• However, it does not make sense to demand a "sector
MTEF" prematurely….
• Taking stock from experience, it is recommended to
adopt a process and systemic perspective on the
development of a sector MTEF, rather than making it a
pre-requisite for supporting a sector programme.
EC. Support to sector programmes. Guidelines no2. July. 2007. Page 22.
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2. Achievements and pitfalls
• How to avoid the pittfalls?
Before considering implementing MTEF:
BASICS
FIRST
• Make sure annual budget processes are disciplined
• Avoid complexity
• Prepare an MTBF
MTBF
+MTFF
• Ensure there are capacities to prepare an MTFF
• Prepare costed sector strategies first
COSTING
• Estimate the forward costs of existing activities
• Make sure decision makers are involved
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POLITICS
Course outline
• 1. What is an MTEF?
• 2. Main Features of MTEF
• 3. Achievements and pitfalls
• 4. Performance budgeting
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4. Performance budgeting
Inputs
Economy
Activities
Outputs
Efficiency
Intermediate
outcomes
Quality
Operational arrangements;
or other benchmarks
End
outcomes
Effectiveness
Policy objectives
Performance indicators (PI):
• Activities
• Output indicator
• Outcome indicators
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4. Performance budgeting
Inputs
Activities
Money
Buying books, building
schools, hiring teachers
Outputs
Enrollment ratio
outcome
Literacy rate
Impact
Competitiveness,
engaged citizens
4. Performance budgeting
BUDGET
Financial
information
Performance
information
Q-1
MONITORING
Q-2
MONITORING
Q-3
MONITORING
ANNUAL
REPORT
Main principles in selecting
Performance indicators
 Indicators should be prioritised on the
strategic and operational objectives
 There should not be more indicators than are
necessary to capture the objectives (limited
number)
 Performance indicators can be developed by
asking ‘How will the objectives be achieved?
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Criteria for Useful Performance
Indicators CREAM-criteria
Clear:
Precise, understandable, unambiguous
•Relevant:
Appropriate, useful to the objective at hand
•Economic:
Data available at reasonable costs
•Adequate:
Attributable, provide reliable and timely
basis for the assessment of performance
•Monitorable: Availability of information, consistent over
time and open to independent scrutiny
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Key messages
 Sound MTEF processes may help in reinforcing
the policy-budget link, but only if several
preconditions are met
 Strategy costing should be carried out, but
planning documents with a financial gap should
not be considered as financial commitment of the
government
 Programming documents and working plans
should not be over-sophisticated
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