1. Improving Budgetary Outcomes
The Role of a MTEF by
Malcolm Holmes

2. Three Levels of Expenditure Outcomes
Aggregate Fiscal Discipline
Prioritization of the Composition of Expenditures
Technical Efficiency in the Use of Budgeted Resources

3. Some Principles Transparency and accountability
Comprehensiveness of budget
Predictability of resources & policies
Flexibility
Contestability
Existence and sharing of information

4. Fragmentation/Lack of Comprehensiveness
Across:
Policy Making, Planning, Budgeting
Fiscal activities
Types of expenditure
Sources of funds
Time
Inputs, outputs and outcomes

5. Dual Budgeting Investment as basis of development Development Budget
PIP
R Coefficients

6. Sequencing Public Sector Financial Management Reforms
The government should foster an environment that supports and demands performance before introducing performance, output or outcome budgeting.
Control inputs before seeking to control outputs.
Account for cash before accounting for accruals.
Establish external controls before introducing internal control.
Establish internal control before introducing managerial accountability.
Operate a reliable accounting system before installing an integrated financial management system
Budget for work to be done before budgeting for results to be achieved.
Enforce contracts in the market sector before introducing contracts in the public sector.

7. Restraint with Flexibility
Hard Budget Constraint
Transparency
Accountability
Exit
Voice
Flexibility
Information

8. Enabling Environment for Public Sector
Link Policy, Planning, Budgeting
Restrain decision making:
affordability
cost, expected results
evaluate
Forum within which policies compete
Capacity and willingness to reprioritize and reallocate.

9. Characteristics of Sound PEM
Commitment, capacity & willingness to:
Prepare a budget (a) in line with development priorities and (b) that can realistically be implemented
Specify the budget’s intended results
execute budget as passed by the legislature
Account for results achieved
Evaluate impact of policies and programs and take results into account in budget preparation.

10. A Contract for Performance
The Center
More predictable funding
More predictable policy
Greater transparency and predictability in processes for reprioritizing and reallocating resources
Leave management decisions to line managers

11. A Contract for Performance
The Line
Living within budget
Clear sector strategies
Using resources efficiently and effectively
Reporting on resource use

12. Using a Medium Term Expenditure Framework
Fiscal Targets (what is affordable)
Forward Estimates of Existing Policy
Institutional Mechanisms for Making the Trade-offs
A Focus on Performance
Enhanced Predictability

13. Implementing an MTEF Pilot or whole of Government
Budget unification (PIP elimination)
Reduction of the number of budget line items
Link between line items and objectives and impact
introduction of a 3 year perspective
mission statements (strategic plans) for sectors

14. Implementing an MTEF (Cont.)
Use of strategic plans for budget preparation
Emphasize costs of activities
Merging of external and domestic financing
Withdrawal of MoF from details of budget allocations in LM
Engaging cabinet
Focus on performance

15. Ghana: Explaining progress
Commitment from Minister and Ministry of Finance, line ministers and donors
MTEF based on GOG-led PER
Consensus building efforts (losers and winners)
MTEF becomes budget process
Consistency between MTEF and sector approaches

16. Ghana: Explaining Progress (Cont.)
Link to other reforms
Performance focus - matching authority and accountability

17. Ghana: Sustainability Tests
Predictability of funding (domestic and external)
predictable macro/fiscal framework
cash flow estimates
cash available on time
budget voted on time by parliament
Predictability of policies
- Cabinet Engaged
controlling expenditure
focus on outcomes

18. Ghana: Sustainability Tests (Cont.)
Dynamic process of evaluation of policies
Autonomy and accountability of LM
Civil service management - pay policy, authority
Decentralization

19. PRIORITIZATION Institutional Arrangements
Hard Budget Constraint
Cohesive political executive
Sector Strategies
Forum within which decisions constrained by resource availability over medium term and policies compete
Programmatic decisions devolved to line ministers (within hard sector ceilings)

20. PRIORITIZATION Institutional Arrangements (Cont.)
Strategic priorities and sustainability drive aid
Information - Costs, Performance

21. Mechanisms for Prioritization
Case: Australia
Aggregate Fiscal Targets and Strategic Objectives
Medium-term Costs of Competing Policies

22. Australia: Medium-term Costs of Policies
Real growth rate
Mar 84
Projection dates
May 85
Nov 85
Dec 86
Aug 89

23. Mechanisms for Prioritization
Case: Australia
Aggregate Fiscal Targets and Strategic Objectives
Medium-term Costs of Competing Policies
Arena for Contesting and Coordinating Policies
- Cabinet: Strategic Priorities
- Line: Spending-Savings within Hard Budgets
Ex-post Evaluation
Outcomes:
- Deficit 4% GDP to surplus of 2% GDP
- Shifts in intra and intersectoral composition
- Greater funding predictability

24. Australia: Changes in Expenditure Composition, 1983-94
$ Millions
New spending
Net change
Savings from existing policy
Source: Dixon, 1993 : 32

25. Sector-wide Approaches as Performance Based Budgeting
Clear Strategy and Policy Framework
Program Focus
Sector Expenditure Program
Medium-term Perspective
Consistent with Macroeconomic Framework
Donor Coordination

26. Getting Decisions in the Right Hands
Strategic Policy
Sector Envelopes
Program: Individual Ministers
Running Costs: Managers

27. OPERATIONAL PERFORMANCE Institutional Arrangements
Legitimacy of policy
Predictability of funding
Delegation of authority to line managers
Responsibility for producing outputs linked to outcomes
Hard budget constraint -upwards and downwards- during budget execution
Independent external audit

28. Improving Technical Efficiency
broader public sector
markets and the private sector
civil service
Strengthen
“voice”
mechanisms
More
“exit”
possibilities
Improve “rule-compliance” and “loyalty”

29. Getting the Best out of Organizations
Hard, but Predictable, Budget Constraint
Flexibility for Managers
Clarity of Purpose and Task
Ex-Ante Specification of Performance
Contestability
Evaluation and Audit
Exit Options
Voice

30. LINE ITEM
1. Input
Cash
2. Classification
Economic Type
3. Annual
PERFORMANCE BUDGETING
1. Input
Cash/Accrual
Output
Performance data/
indicators/standards
Authority
Accountability
Outcome
Clear Objectives
Indicators
Evaluation
2. Classification
Functional
Program
Organizational
3. Multi-year

31. Performance Based Budgeting
LINKING:
Inputs
Outputs, and
Outcomes

32. Inputs Resources used to produce the service: Hard budget constraint
central budget
user charging
Full cost/Unit cost
cash
accrual

33. Outputs The good or service produced: Who controls Who is accountable
Measuring and reporting performance

34. Outcome
Purpose to be achieved by government intervention (including production of outputs):
Who controls
Who is accountable
Measuring and reporting performance

35. Enabling Environment for Public Sector
Link Policy, Planning, Budgeting
Restrain decision making:
affordability
cost, expected results
evaluate
Forum within which policies compete
Capacity and willingness to reprioritize and reallocate.