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

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Presentation on theme: "Improving Budgetary Outcomes The Role of a MTEF by Malcolm Holmes."— Presentation transcript:

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 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. Sequencing Public Sector Financial Management Reforms

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 budgets 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 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) PRIORITIZATION Institutional Arrangements

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 Mar 84 May 85 Nov 85 Dec 86 Aug 89 Real growth rate Projection dates

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, Source: Dixon, 1993 : 32 $ Millions Net change New spending Savings from existing policy

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

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

27 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 OPERATIONAL PERFORMANCE Institutional Arrangements

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 LINKING: Inputs Outputs, and Outcomes Performance Based Budgeting

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

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

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

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.


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