NEPAL’S EXPERIENCE WITH BUDGET REFORMS: Sequencing an MTEF in Nepal PARA SURIYAARACHCHI Tuesday, August 17, 2004 7/29/2019

What Is Unusual/Significant About Nepal’s Experience? Identifying the country’s critical public resource management problems and needs; Tailoring/Sequencing MTEF approach to meet these needs– Phased implementation ; Building public support and “internalization” to ensure sustainability; 7/29/2019

Background to MTE Preparation – Critical Development Problems and Needs Poor Development performance/results, Considerable analysis and public debate; Array of problems: unrealistic planning and budgeting, too many projects, under-funding, lack of prioritization, poor fund lease, reporting and monitoring mechanisms; Spread of Conflict, resulting Budget Crisis; Political instability; PRSP being prepared, but its implementation at high risk; and Budget reforms essential. MTEF important tool. 7/29/2019

MTEF Preparation – What Did They Do? Opportunistic/ Practical Approach: MOF/NPC take the lead, involve key line ministries; Pragmatic, phased approach to MTEF preparation. Focus on country-specific needs – DEVELOPMENT BUDGET- and practicality/readiness - 5 KEY MINISTRIES; Parallel track approach – MTEF directly linked to PRSP, prepared by same teams. Preparation Process: Key Objectives; The Macroeconomic Framework; Developing the “Resource Envelope”- - Revenue and Foreign Aid Forecasts;. Setting ‘hard budget’/ tight sector ceilings – balancing through prioritization, rather than ‘top down-bottom up” reconciliation. Linking the MTEF to the PRSP – prioritization criteria. Complementary Budget reforms (Fund release procedures, work programs, exp. reporting/certification): (i) Assuring funding to highest priorities, (ii) Linking funding to performance, (iii) Expenditure reporting and monitoring: Cabinet approval; public dissemination/discussion process, NDF. Widening and deepening the MTEF process. 7/29/2019

HOW HAS IT WORKED? (Benefits of MTEF so far) Too early to be definitive; But several positive Indicators: More realistic budget framework; Cleaning up development budget; Prioritization/Aligning better with PRSP; Better funding of highest priorities; Facilitating orderly fund management by MOF; Better expenditure reporting; greater transparency; Restoring donor confidence and more aid; Institutional building at various levels. 7/29/2019

Budget Targets Vs. Actuals, 2000/01 – 2003/04 (in Billion Rupees) FY2000/2001 FY2001/2002 FY2002/2003 FY2003/2004 Budg. Actual Change % Total Exp. 91.6 79.8 -12.9 99.8 90.1 -19.8 96.1 84.6 -12.0 102.4 97.5 -4.8 Regular 43.5 42.8 -1.7 49.3 48.6 -1.5 57.4 56.6 -1.6 60.5 0.0 Devt. 48.1 37.1 -23.0 50.5 31.5 -37.6 38.7 28.0 -27.6 41.8 37.0 -11.5 FINANCING Revenue 53.0 48.9 -7.7 60.3 50.4 -16.3 57.2 55.3 -3.3 62.2 Foreign Aid 31.6 18.8 -40.0 30.5 14.4 -53.0 27.0 17.3 -35.9 28.3 23.5 -17.0 Domestic Borrowing 7.0 12.1 72.3 9.0 15.3 69.3 12.0 11.8 7/29/2019

Development Budget Allocations 1998/99 – 2003/04 Key Changes in Development Budget Allocations 1998/99 – 2003/04 FY98/99 FY99/00 FY00/01 FY01/02 FY02/03 FY03/04 Dev. Budget (Rs. Billion) 37.74 41.85 48.11 50.47 38.68 41.35 Number of Projects 770 681 715 633 434 443 Allocation per Project (Rs. Million) 49.0 61.5 68.0 79.7 89.1 94.5 Priority Classification in the MTEF, 2002/03 and 2003/04 FY2002/03 FY2003/04 No. of Projects Amount (Rs. Bil.) % of Dev. Budget Allocation Per Project Rs. (Mil.) Priority One 186 22.82 59 122.7 206 30.34 73 147.3 Priority Two 131 12.76 33 97.4 164 9.75 23 59.5 Priority Three 117 3.09 8 26.5 1.75 4 24.1 Development Budget 434 38.68 100 89.1 443 41.34 94.5 7/29/2019

WHAT NEXT? KEY Challenges Widening and deepening the process to make MTEF more comprehensive, (integrating recurrent/regular budget, improving expenditure estimates/costing, strengthening prioritization/links with PRSP); Effective Implementation and Monitoring (linking fund releases and expenditures with work programs/performance; creating effective expenditure monitoring and tracking system); Ensuring sustainability (strengthening ownership; living with political instability). 7/29/2019

Lessons from Nepal’s Experience Is there a set way of doing MTEFs? (Determine specific needs; be pragmatic); Is political stability essential? A prerequisite? (Not always; but supportive environment needed); What is necessary to make MTEF work? (Good preparation, strong collaboration of key agencies, involving line ministries, public support, internalization). 7/29/2019