Transcript Document 7207859

Medium-Term Expenditure Framework
Planning under resource constraints
The World Bank
Bill Dorotinsky
Public Sector Group
PE Perspectives for HD
November 12, 2003
Outline
• Introduction to MTEF
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Core questions for Government
Common PEM problems
What is an MTEF?
Technical Objectives
• Five stages of MTEF
• Changing roles and responsibilities
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Core Questions for Government
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Are national objectives being met?
Are sector objectives met? Policies implemented?
Do resources flow to programs as planned?
Is budget used as tool for steering and managing government?
Does Government get the information and analysis it needs to make
good choices?
• Does the budget process support good decision-making? Effective
programs?
• Are potential spending or policy crises anticipated and managed
(versus reacted to after they become a crisis)?
• Is spending efficient and effective?
If you answered “no” to some of these,
then perhaps there is a need to think differently…..
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Common PEM problems
• Weak links between policy, resource limits, and budgets
– failure to achieve strategic objectives
– abstract planning, unrelated to ways and means
– resources do not flow to line agencies
• Annual focus leads to suboptimal choices
– Digging a hole: complacency today, unaware of crisis tomorrow
– Inability to climb out of poor fiscal situation
• Separation between capital and recurrent budgets
– Lower than expected returns to capital
• Non-comprehensive budget
– Using other means to support favored programs
• Failure to think strategically about tools and objectives
• Not learning from experience
• Not harnessing energies of all actors in system; mismatch of roles and
responsibilities
• Taking piecemeal decisions without reference to over-all effect
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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
– Assure resources flow to programs, aligned with budget
priorities
• Technical efficiency
– Getting the most from each zloty spent
– Improving service delivery
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What is an MTEF about?
• Process, not only components, of public expenditure
systems
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process of government decision-making
developing a “public interest” in decision-makers
Multi-year emphasis
creating a learning system
• Emphasizing policy
– steering versus rowing for senior officials, organizations
– linking policy, inputs, outputs, objectives
• Effort to change paradigm, incentives of actors in system
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Technical Objectives of MTEF
• Improve macrofiscal situation
– lower deficits, improved economic growth
– more rational approach to retrenchment and economic stabilization
• Improve impact of Government policy
– link between government priorities/policies and government
programs
• Improve program performance/impact
– Shift bureaucracy from administrative to managerial culture
• Managerial flexibility & innovation: lower cost/output; greater
effectiveness of programs/policies
• More efficient use of resources
– Improved resource predictability to line agencies
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MTEF: New Budget Process
• Stage 1. Macroeconomic and public sector
envelopes
• Stage 2. High-level policy: aligning policies &
objectives under resource constraints
• Stage 3. Linking policy, resources, and means by
sector
• Stage 4. Reconciling resources with means
• Stage 5. Reconciling strategic policy and means
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Stage 1. Macroeconomic and public sector envelopes
Macroeconomic Estimates
Revenue Estimates
Fiscal Policy
Expenditure Estimates
(current services)
Expenditure Estimates
(current law, normatives)
All in multi-year context
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•Affordable/sustainable
Fiscal Envelope
•Monetary and Fiscal
Policy
•Debt and Deficits
•Aid flows
Stage 2. High-level policy: aligning policies & objectives
under constraints
Fiscal Envelope
Sectoral Resource Ceilings
Setting
Strategic
Policy
Priorities
Under
Resource
Limits
(downsizing, or
expansions)
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Ministry Resource Ceilings
• Comprehensive resource plans
Stage 3. Linking policy, resources, and means by sector
Sector Policies and Objectives
Reconcile policy, laws,
resource limits
Multi-year strategy
Program priorities
relative to objectives
Sector programs
Assess modalities for
objective
Evaluate Production
Function; Identify Cost
Drivers
Sector Budget Request
Again, multi-year
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Under ceiling
Above ceiling
Stage 4. Reconciling resources with means
Sector Ceilings
Sector Requests
Technical
Assessment
and
Reconciliatio
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Vetting
assumptions,
policies,
estimates
Challenging
modalities,
production
function
Evaluate
performance
Revised requests and/or decision papers
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Stage 5. Reconciling strategic policy and means
Policy
assessment
and
reconciliation
Revised
Requests,
Unresolved
Issues
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Policy official
dialogue
Modify baselines
Finalize decisions
Budget Proposal
Roles and responsibilities before…
• Issues broad guidance at start of process, with cost
increase assumptions
Ministry of
Finance
• Cutting spending requests uniformly or by economic
class or line item to meet totals
• Heavy involvement in setting line item totals
•No idea of out-year implications of choices
• Develop requests in vacuum
• Request is wish list; incentive to ask for more, hoping
that after cuts will have enough
Line Ministry
• Little discretion to allocate funds in own budget
• Little incentive to focus on current programs,
reallocate
• Minimal policy content in budget request
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• Low likelihood of getting budget levels during year
…. And after
• Issues broad guidance with multi-year sector ceilings
at start of process (cabinet approved)
Ministry of
Finance
• Cuts spending requests only if above ceiling
• Little involvement in setting line item totals, except
perhaps capital and personnel
•Clearer picture of future implications of current choices
• Clear resource framework for planning
• Request must prioritize between current and new
programs
Line Ministry
• Near complete discretion to allocate funds in own
budget
• Potential for larger policy content in budget request
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• Ceterus paribus, higher likelihood of receiving
budget levels during year