1. 1 MTBF Methodology Jean-Pierre Dumas Advisor on Multi-Annual Budgeting PFMR, Ministry of Finance December 18, 2003

2. 2 Contents Sequencing the MTBF The top-down approach The bottom up approach Main characteristics of a MTBF Points for discussion Budget execution is as important as the MTBF 2

3. 3 Macro economic framework, budget projection Different steps of the MTBF (top down) Preliminary ceilings at the macro and chapter level Sector diagnostic Review of objectives, outputs, activities & performanc e indicatorts Activities costing, capital & recurrent, Govt & donors Integration of the MTBF in the budget Hearing: program selection within an agency. Arbitrage from PM at interagency level. Sectoral ceilings Priorisation of activities and expenditures at Chapter level STEP 1 STEP 2 STEP 3 STEP 4 STEP 5 Budget circular 3

4. 4 Macro Fiscal Framework (MFF) 1 Objective: Set up a macro fiscal ceilingObjective: Set up a macro fiscal ceiling At the CG (State) levelAt the CG (State) level For SS Funds & other FundsFor SS Funds & other Funds Break down the macro fiscal ceiling by chaptersBreak down the macro fiscal ceiling by chapters How to break down by chapters?How to break down by chapters? Projections by years Projections by years Any projection should start with actual year Any projection should start with actual year Actual year should be consistent with projections Actual year should be consistent with projections Projections must be on accrual basis Projections must be on accrual basis Consistency with the macro ceiling Consistency with the macro ceiling Iterative process Iterative process 4

5. 5 Macro Fiscal Framework (MFF) 2 How to calculate the macro ceiling?How to calculate the macro ceiling? Project revenue for CG & other part of the GGProject revenue for CG & other part of the GG Project expenditure based on economic classification (first step)Project expenditure based on economic classification (first step) Make a clear distinction between non discretionary (debt service, arrears to be paid) and discretionary expenditureMake a clear distinction between non discretionary (debt service, arrears to be paid) and discretionary expenditure It is not the role of the MF to set up sub ceilings within a chapterIt is not the role of the MF to set up sub ceilings within a chapter Programs should be designed first, inputs secondPrograms should be designed first, inputs second 5

6. 6 The bottom up approach The chapters prepare their programs within their ceilings Program costing according to economic classification Hearing 6

7. 7 Main characteristics of a MTBF The MTBF is an iterative process it is not important if the data projected are approximate What is important is to be consistent with the hard budget constraint What is important is to have one budget flowing from the MTBF and not two parallel budget processes What is also important is the different steps & the hearing process (not clear today) 7

8. 8 Points for discussion Shall the MTBF be limited to the state budget or other budgets?Shall the MTBF be limited to the state budget or other budgets? Shall the programs follow the chapters or the reverse?Shall the programs follow the chapters or the reverse? Is accrual accounting necessary for performance budgeting?Is accrual accounting necessary for performance budgeting? Consistency between program & economic classificationConsistency between program & economic classification The reserve Rezerva na prioitne projeekt, for what purpose?The reserve Rezerva na prioitne projeekt, for what purpose? The consolidation issueThe consolidation issue Refine the budget process, who, when at what stage?Refine the budget process, who, when at what stage? Inclusion of contestability and hearingsInclusion of contestability and hearings Budget Rules law and other legislation 8

9. 9 Budget execution is as important as budget formulation Compare budget Law with budget outturnCompare budget Law with budget outturn How to improve knowledge on budget expenditure (actual)?How to improve knowledge on budget expenditure (actual)? How to control sectoral fiscal ceilingsHow to control sectoral fiscal ceilings How to you control actual expenditure against appropriation?How to you control actual expenditure against appropriation? Discretionary intervention of the Ministers during the budget executionDiscretionary intervention of the Ministers during the budget execution 9