Presentation on theme: "MTEF and performance budgeting"— Presentation transcript:
1 MTEF and performance budgeting INTRODUCTION TO PUBLIC FINANCE MANAGEMENTModule 2.2MTEF and performance budgeting
2 Module map Planning and budgeting 2.4 Budget Execution 1.1 Introduction2.1 Macroeconomics of the Budget4.1 RevenueAdministration3.1 Payroll, Procurement & IT1.4 Budget Classification4.3 Accounting & Reporting4.2 Treasury Management5.3 Assessing & Recapitulation3.2 Internal Control & Audit5.1 External Scrutiny & Oversight2.2 MTEF and performance budgeting1.3 The Budget and budget preparation1.2 Budget Cycle
3 Course outline 1. What is an MTEF? 2. Main features of an MTEF 3. Achievements and pitfalls4. Performance budgeting
4 $1. What is MTEF?$The camel's nose is a metaphor for a situation where permitting some small undesirable situation will allow gradual and unavoidable worsening. A typical usage is this, from U.S. Senator Barry Goldwater in 1958:This bill and the foregoing remarks of the majority remind me of an old Arabian proverb: "If the camel once gets his nose in the tent, his body will soon follow." If adopted, the legislation will mark the inception of aid, supervision, and ultimately control of education in this country by the federal authorities.
5 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.
6 1. What is MTEF? Variant 1: The MTEF is an instrument for fiscal disciplinefor prioritisation in confor-mity with the strategiesfor providing funding predictabilityOECD countriesSome developing countriesVariant 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 donorsOther developing countries
7 1. What is MTEF? 1. MTEF for fiscal discipline and prioritisation 2. Strategy costingMinisterial (MoF)SectoralConsistent with the MTFFShould be realistic, but may include financial gap and scenariosRolling horizonRegularly updated, but may have a fixed horizonProjection period: 3 to 4 yearsA long term period is required in several sectorsUnified budget-MTEF preparation processesPrepared outside the pressure of the budget preparation processNext slides deal with the MTEF variant 1
8 MTEF Instrument + Process Government strategic framework (This is a picture of “The Erasmus” bridge in Rotterdam, the Netherlands)MTEF is a concept addressing the link between the annual budget process (with a 1 year focus) and the multi year focus you normally see in the government strategies and policies.a MTEF (a multi year budgeting framework) tries to “BRIDGE” the annual budgeting process and the strategic framework and its sector strategies and annual activitiesIn that respect MTEF is both an instrument and a process.Please note: The word MTEF means different things for different people. Even among experts in PFM. Every expert will stress different aspects of MTEF. But what they all have in common is that MTEF is focussing on multi year budgeting and bringing policy and strategy closer to the budgting process.Plans and strategies are implemented through the budgetRecent economic development and actual implementation of planned activities must be taken into accountAnnual budget law appropriations & forward estimatesGovernment strategic frameworksector strategies &policies framework, laws
9 1. What is MTEF?The MTEF defines a strategy implementation path that takes into account the financial constraintsWe can distinguish:The MTFF, which defines the totalsThe Medium Term Budget Framework (MTBF) –or “global” MTEF- which allocates MTFF overall expenditure envelopes to ministries or sectors/functionsThe MTEF; detailing MTBF projections by programmeNamed also “global MTEF”May be structured by ministry and/or by function/sectorStructured by ministry, it is prepared during the strategic phase of budget preparation and used to frame the preparation of the budget and ministerial MTEFsStructured by function, it is used for policy dialogue and transparencyIn several countries an MTBF is included in a budget policy paper tabled in Parliament 3 to 4 months before the budget bill (e.g. South Africa)
15 2. Main features of MTEF Exercise Exercise: Identify key MTEF concepts Explain content of key concepts
16 What is top-down / bottom-up in an MTEF? 2. Main features of MTEFWhat is top-down / bottom-up in an MTEF?Top-down budget preparationMulti-year projections of resource envelope targets (what is affordable)Bottom-up budget preparationMulti-year cost estimates of sector programmes (what has to be financed, with a focus on programme performance)Integrating these two pillarsInstitutional (political-administrative) decision-making process to make the necessary trade-offs
17 2. Main features of MTEF Costing MTEF expenditure projections Expenditure ceilingNew programs and policy changesBaselineHowever, in the first implementation steps, the projection baseline may consist of:For personnel and goods and services: the current level of activities (The actual budget plus the impact of the inflation and decisions already made)Transfers related to the existing legally binding commitmentsOngoing investment projects, including their recurrent costsSavings on existing programsYear 0Year 1Year 2Year 3
18 2. Main Features of MTEF ? Rolling Budget Forward Estimates Budget T 18
20 Course outline 1. What is an MTEF? 2. Main features of MTEF 3. Achievements and pitfalls3. Other special issues
21 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
22 2. Achievements and pitfalls Why uneven results?Too complex/sophisticated approachesPoor annual budget disciplineNo impact on the annual budget: the MTEF prepared the previous year is ignoredAdministrative and/or political instability. Every year MTEF preparation starts from scratchComplexity. Some countries prepared very complex MTEFs, attempting to link costed activities closely to objectives. Appeared complex and too arbitrary in estimating linkages (e.g. failed Ghana experience).Poor budget discipline. Why an MTEF, when the budget is in practice revised every 3 months?No impact on the annual budget, the MTEF prepared the previous year is ignored.E.g. the 2010 budget may be quite different from the 2010 tranche of the MTEF prepared in 2008)Administrative and/or political instability. Every year MTEF preparation starts from scratch.No link with the budget processIsolated sector MTEF prepared by external consultants to comply with a donor request.The MTEF remain a pure technical exercise, the decision-makers are not involved in the MTEF processesEconomic difficulties that make obsolete the previous MTEF forecastsLack of predictability of resources
23 2. Achievements and Pittfalls Why uneven results?Isolated sector MTEF prepared by external consultants to comply with a donor requestThe MTEF remain a pure technical exercise; no political interferenceEconomic instabilityLack of predictability of resources
24 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 Page 22.
25 2. Achievements and pitfalls How to avoid the pittfalls?Before considering implementing MTEF:Make sure annual budget processes are disciplinedAvoid complexityPrepare an MTBFEnsure there are capacities to prepare an MTFFPrepare costed sector strategies firstEstimate the forward costs of existing activitiesMake sure decision makers are involvedBASICS FIRSTMTBF +MTFFCOSTINGPOLITICS
26 Course outline 1. What is an MTEF? 2. Main Features of MTEF 3. Achievements and pitfalls4. Performance budgeting
30 Main principles in selecting Performance indicators Indicators should be prioritised on the strategic and operational objectivesThere 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?
31 Criteria for Useful Performance Indicators CREAM-criteria Clear: Precise, understandable, unambiguousRelevant: Appropriate, useful to the objective at handEconomic: Data available at reasonable costsAdequate: Attributable, provide reliable and timely basis for the assessment of performanceMonitorable: Availability of information, consistent over time and open to independent scrutiny
32 Key messagesSound MTEF processes may help in reinforcing the policy-budget link, but only if several preconditions are metStrategy costing should be carried out, but planning documents with a financial gap should not be considered as financial commitment of the governmentProgramming documents and working plans should not be over-sophisticated