Presentation on theme: "Medium Term Expenditure Framework for Implementing Poverty Reduction Strategies Dr. Yan Wang firstname.lastname@example.org for NEEDS Implementation Workshop,"— Presentation transcript:
1 Medium Term Expenditure Framework for Implementing Poverty Reduction Strategies Dr. Yan Wang for NEEDS Implementation Workshop, Abuja, Nigeria March 7-10, 2005
2 a collection of numbers. A budget is a reflection of “A budget is much more thana collection of numbers.A budget is a reflection ofa nation’s priorities, its needs, and its promise.”Alexander HamiltonIn Nigeria, the National Eco Empowerment and Development Strategy: NEEDS has articulated a vision, a determination of Nigerian government and people, we now need to translate the target and policies into budgetary allocations in a MTEF and annual budget process.
3 Overview Outline Introduction of MTEF International experiences: African countriesPre-conditions of MTEF and Issues To Be AddressedMore capacity building /training neededImplementation Strategy for Nigeria: to be discussed
5 What is a MTEF?A tool for linking policy, planning & budgeting over a medium-term ( 3 years) at the Government-wide level;It consists of a top-down resource envelope & a bottom-up estimation of the current & medium-term costs of existing policies;
6 What is a MTEF?Matching of policy priorities and budget in the context of the annual budget process; andInvolves rolling over this exercise every year by incorporating policy changes.
7 Objectives of MTEFImproved macroeconomic balance esp. fiscal disciplineIntegrating policy priorities (identified in NEEDS) into annual budget: Resources allocated to priorities – to ensure credible policy.Better inter- and intra-sectoral resource allocationGreater budgetary predictability for line ministries by providing mid-term perspective (3-5 yrs)Enhancing operating efficiency: high quality, low costGreater accountability for public expenditure
8 What can it do? If successfully applied, MTEF can Improve macroeconomic balance by developing a multi-year resource framework (expenditure & revenue);Assist in improving resource allocation between & across sectors;Improve predictability of funding for line ministries.
9 MTEF: 6 stages STAGE CHARACTERISTICS Development of Macroeconomic FrameworkMacroeconomic model that projects revenues and expenditure in medium termDevelopment of Sectoral ProgramsAgreement on sector objectives, outputs, and activitiesReview and development of programs and sub-programsProgram cost estimationDevelopment of Strategic Expenditure FrameworkAnalysis of inter- and intra-sectoral trade-offsConsensus-building on strategic resource allocationDefinition of Sector Resource AllocationsSetting medium term sector budget ceilingsPreparation of Sectoral BudgetsMedium term sectoral programs based on budget ceilingsPolitical ApprovalPresentation of budget estimates to cabinet and parliament for approval
10 Medium Term Expenditure Framework Central AgenciesCabinetMinisterMedium Term Expenditure FrameworkSetting Fiscal TargetsAllocation of Resources to Strategic PrioritiesEconomic and Fiscal UpdateFiscal Framework Statement ReportBudget Policy StatementCorporate Plans
11 MTEF Process (simplified) Macro-economic forecastingFiscalTargetTotal ExpenditureSettingFor multi yearsSectoral CeilingSetting for multi yearsAnnual BudgetFormulationUpdated costestimate ofexistingpolicy/programNew sectoral demand for t+2 (priority/cost)Sectoral BudgetPreparation
12 Source: Houerou and Taliercio 2002 Experiences in AfricaYear ofInitiationScope and formatGovernment level and length of periodGhana1996All sectors/recurr/capCentral, 3 yearsKenya1998MalawiRwanda199915/20 sector/recurrCentral and regionalS. Africa1997Cen/prov/local, 4yrsTanzania7 sectors/recurr/capUganda1992Central/local, 3yrsSource: Houerou and Taliercio 2002
13 Lessons from International Experiences Integration of multi-year planning with annual budget- MTEF and annual budgeting is one processRealistic macroeconomic forecasting; honest revenue projectionSeparation of total budget from detailed programClarification of new roles of MOF/line ministriesCapacity building and incentives for MOF/line ministriesDevelopment of feedback mechanism
14 Preliminary lessons from MTEF experience The importance of initial PEM conditions. The MTEF is a complement to – not a substitute for -- basic budgetary management reform:Budget comprehensiveness –including donors’; off-budget items,Classification – integrate capital and recurrent budgets;Budget execution. Timely reporting (publication)Timely audit (and publication) underpinned by sanctions against misappropriations of resources.2. Sequencing and phasing of the MTEF reform:Phased vertically (macro, sector, service delivery)Piloted horizontally (across sectors)Timing and elements tailored to capacity
15 An ideal country caseConsensus on priorities built through the participatory process, built on ongoing programs. Lower priority activities dropped/scaled downComprehensive“Critical to the success of the PRSP is the need to implement only the PRSP”PRSP-budget link is central: Budget preparation & scrutiny by MOF to ensure that line agency budget submissions are consistent with the PRSPTransition phase for donor activities:Existing projects “grand fathered”All new projects must fit within PRSP prioritiesAnnual review vehicles, envisaged as country’s central policy review processPER – expenditures & impactsPRSP review (annual progress report) complemented by a comprehensive review every three years
16 Need for patience and perseverance: Prioritisation and costing will likely need continuing improvement in the context of implementation and monitoring of the first PRSPPrioritization and costing will only be possible if the PRSP is linked to the budget processMTEF can be valuable:The MTEF should be integrated with existing budget processesthe institutional arrangements for the MTEF & PRSP should be consistent in both exercises, and recognize the central role of Ministry of FinancePhasing-in of MTEF, by sector and functions, needed
17 Pre-Conditions of MTEF, and Issues To Be Addressed
18 Pre-conditions for Implementing MTEF There may be different views on pre-conditions. This is one view: We needStrong political supportMOF /NPC’s willingness/commitment- clear understanding of MTEF and incentives- strong leadership within MOFLine ministries’ compliance- proper incentives: discretion and policy prioritizationCapacity building for MOF and line ministries
19 How to Build Macro Forecasting Capacity in MOF? MOF plays a key role in macro forecastingfor fiscal policy purpose- strong need to increase institutional capacity- consideration of social/political factorsCoordination mechanism with MoF, CB of Nigeria,public/private research institutesFormula for conservative forecasting for budgeting- in Canada, add 0.5-1% to forecasted interest rates
20 How/Who Decide Total Budget & Sectoral Ceiling? (1) Two stage approach:total envelope setting sectoral allocationTotal budget setting- macro/fiscal targets, social/political demands- new sectoral demands and updated costs estimatesSectoral allocation- national policy priority- determined within total budget : zero-sum game
21 How/Who Decide Total Budget & Sectoral Ceiling? (2) Final draft is prepared by MOFin consultation with the PresidentSend draft to cabinet meetingfor consensus building- sectoral ceiling is not revealed until total decided- in Sweden, 2-3 days’ cabinet retreatIn case of disagreement,final decision is made by President“It is President who holds ultimate responsibility of budget”
22 Use of budget margin Serves as a Bumper for Budget margin 1) macro forecasting deviations2) ‘inevitable’‘unexpected’ demand3) President’s new initiatives under exceptional situationsBudget margin= total envelope – aggregate of sectoral ceiling* in Sweden, 3.33% in 1997, and 0.05% in 2003Unused margin to be used to accelerate debt payment
23 How much sectoral ceiling is binding? In principle, no breach is allowedAmendment allowed for substantial macroeconomic change (cost estimate basis)Exception is explicitly identified ex-antewith MOF’s consent, through cabinet meeting1) ministry makes trade-off within sectoral cap2) trade-off between ministries within total budget3) budget margin to be used
24 How Much Discretion Allowed for Line Ministries? Sectoral priority discussed and agreedbetween MOF and line ministriesLine ministries prepare own budget requestwithin provided ceiling & priority linemonitoring and coordination mechanismIncentive for efficient spending- allowed to carry-over certain % of savings to ministries
25 How to Build Incentive System? For MOF /NPC ?- Shift to higher level, macro decision-makingby integrating national policy priorities with budgeting- Close interaction with PresidentFor Line Ministries- Budgetary Discretion to prioritize policies- Flexibility in implementing policy and executing budget
26 How to Ensure Line Ministries’ Accountability? (1) Ministers hold ultimate responsibility over performanceMOF /NPC plays a role as a watchdogPerformance management serves as a feedbackmechanism for increased discretionLinking budgeting with accounting systemInformation system needs to be integrated betweenMOF, NPC, and line ministries, and Office of Statistics
27 Capacity Building is needed on all these aspects: More training can be provided How to Improve Budget Structure and Scope ?How to improve the incentive systemHow to make line ministries accountable for delivery?Performance Management System- utilized as information gathering and analysis- long-term, phased approach is desirable- need to adopt realistic short-term approach- pilot projects to introduce output-based indicatordevelopment and performance evaluation system- expand into all programs with outcome indicators
28 Implementation Strategy for Nigeria Some suggestions and followed by discussion by Victoria Kwakwa
29 Creating Enabling Environment for MTEF Use MTEF as an instrument to alter status quoFiscal reform along with Public Sector reformLeadership and Capacity Building- champion of reform and creating a core team- motivating self-development and capacity buildingPerformance oriented environment in government- e.g., regulation-free organizations
30 Implementation Strategy [a suggestion] Stage I : top-down approach- macroeconomic forecasting and fiscal target setting- setting total and sectoral ceiling prior to program detailsStage II : bottom-up approach (Gradual Approach)- line ministries’ discretion within sectoral ceiling and priority- allowing discretion on operating costsStage III :incorporation with performance management- well-functioning information system- performance information reflected in budgetary decision
31 Strategies for Nigeria To be discussed by Victoria Kwakwa and representatives from the government
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