1. Public Expenditure Review Workshop December 1-2, 2010 The Planning and Budget Process 1 Andrew Bird Mokoro Consultants

2. Overview Strengthened planning and budgeting architecture :Strengthened planning and budgeting architecture : Reinstatement of NDP processReinstatement of NDP process More realistic and strategic approach to budget planningMore realistic and strategic approach to budget planning MPSA budgets now activity based MPSA budgets now activity based But, in practice, reforms not sufficiently linked:But, in practice, reforms not sufficiently linked: NDP sector action plans not linked to the budgetNDP sector action plans not linked to the budget Insufficient analytical work to guide resource allocationInsufficient analytical work to guide resource allocation Medium-term focus of the budget remains weakMedium-term focus of the budget remains weak Issues over the transparency of the Planning and Budgeting ProcessesIssues over the transparency of the Planning and Budgeting Processes 2

3. Policy Framework and Budget Process 3 National Development Plan/Strategy Detailed Annual Budget MTEF Resource framework Public expenditures Strategies and program priorities Sector and MPSA resource ceilings and expenditure priorities Detailed resource allocation

4. Lessons of International Experience Review and evaluations have raised questions about:Review and evaluations have raised questions about: The realism and rigidity of national planning exercises and their ultimate usefulness.The realism and rigidity of national planning exercises and their ultimate usefulness. Whether MTEF reforms have resulted in improved budget outcomes.Whether MTEF reforms have resulted in improved budget outcomes. Whether the necessary conditions are in place for successful implementation of performance oriented budgeting initiatives.Whether the necessary conditions are in place for successful implementation of performance oriented budgeting initiatives. Main lessons:Main lessons: Proceed gradually and stepwise – similar reforms in advanced economies have often taken over 10 years.Proceed gradually and stepwise – similar reforms in advanced economies have often taken over 10 years. Learn from experience – if things are not working, find out why and implement changesLearn from experience – if things are not working, find out why and implement changes 4

5. 1. National Development Plan and Strategy 5

6. Reinstatement of the NDP Process PRSP in 2000 marked return to medium-term economic policy and planning.PRSP in 2000 marked return to medium-term economic policy and planning. 2006 National Vision 2030 to be operationalised though five year development plans and annual budgets.2006 National Vision 2030 to be operationalised though five year development plans and annual budgets. Fifth National Development Plan 2006-10 more realistic than predecessors emphasising:Fifth National Development Plan 2006-10 more realistic than predecessors emphasising: macroeconomic stability,macroeconomic stability, improved economic governance,improved economic governance, administrative and regulatory reforms, andadministrative and regulatory reforms, and improved public service delivery.improved public service delivery. Broad based consultative process in preparing NDP.Broad based consultative process in preparing NDP. 6

7. Issues Difficult to link to the budget planning process:Difficult to link to the budget planning process: No multi-year fiscal framework.No multi-year fiscal framework. Used different sector classification to the budgetUsed different sector classification to the budget Analysis tended to be reflective, policy prescriptions and program plans not sufficient developed.Analysis tended to be reflective, policy prescriptions and program plans not sufficient developed. No process for updating and adapting strategies and plans to reflect changes in economic circumstances and the government priorities.No process for updating and adapting strategies and plans to reflect changes in economic circumstances and the government priorities. FNDP quickly became outdated and less relevant in guiding government decision-making.FNDP quickly became outdated and less relevant in guiding government decision-making. 7

8. Recommendations SNDP an opportunity to address weaknesses of FNDP:SNDP an opportunity to address weaknesses of FNDP: Include 5 year fiscal accounts projection within which the NDP proposals have been developed.Include 5 year fiscal accounts projection within which the NDP proposals have been developed. Better elaborated sector strategies and priorities that link to NDP objectives.Better elaborated sector strategies and priorities that link to NDP objectives. Fully costed sector action plans linked to resource allocations that are consistent with the fiscal accounts projections.Fully costed sector action plans linked to resource allocations that are consistent with the fiscal accounts projections. Introduce process for regular review and updating of NDP linked to the MTEF/Budget process:Introduce process for regular review and updating of NDP linked to the MTEF/Budget process: NDP strategy review and update at beginning of each yearNDP strategy review and update at beginning of each year Updating and rolling forward of sector action plans as part of integrated NDP/MTEF/Budget Process.Updating and rolling forward of sector action plans as part of integrated NDP/MTEF/Budget Process. 8

9. 2. Medium-Term Expenditure Framework 9

10. Zambias MTEF Process Comprehensive and unified BudgetComprehensive and unified Budget Includes nearly all fiscal actionsIncludes nearly all fiscal actions Single budget process for capital and current spendingSingle budget process for capital and current spending Two stage MTEF process, that reflects practice in many countriesTwo stage MTEF process, that reflects practice in many countries Strategic phase leading to Green PaperStrategic phase leading to Green Paper Medium-Term Macro-Fiscal FrameworkMedium-Term Macro-Fiscal Framework Review of sector programmes and priorities (SAGs)Review of sector programmes and priorities (SAGs) Resource ceilings for budget implementationResource ceilings for budget implementation Budget formulation phase – ABBBudget formulation phase – ABB MPSA Budget Framework PapersMPSA Budget Framework Papers ABB submissionsABB submissions Consultations at key stages in process:Consultations at key stages in process: MTEF/Budget Cabinet Consultation PaperMTEF/Budget Cabinet Consultation Paper Green PaperGreen Paper Finalisation of draft BudgetFinalisation of draft Budget Budget now approved by Parliament by beginning of FY.Budget now approved by Parliament by beginning of FY. 10

11. Issues No formally agreed MTEF and budget planning calendarNo formally agreed MTEF and budget planning calendar MTEF and budget process starts late leafing insufficient time for analytical workMTEF and budget process starts late leafing insufficient time for analytical work Little input from MPSAs during the strategic phaseLittle input from MPSAs during the strategic phase Little guidance for sector reviews, SAGs not functioning effectively.Little guidance for sector reviews, SAGs not functioning effectively. Outer year resource ceilings lack credibility and have failed to bring a medium-term perspective to MPSA budget planningOuter year resource ceilings lack credibility and have failed to bring a medium-term perspective to MPSA budget planning MPSAs continue to plan their budgets for a single year.MPSAs continue to plan their budgets for a single year. Procedures for capital investment management problematicProcedures for capital investment management problematic Project selection/appraisal procedures fail to exclude wasteful projectsProject selection/appraisal procedures fail to exclude wasteful projects Commitments for on-going capital investment projects not tracked by MoFNP or fully taken into account in setting resource ceilings.Commitments for on-going capital investment projects not tracked by MoFNP or fully taken into account in setting resource ceilings. 11

12. Recommendations 1: An Integrated NDP, MTEF and Budget Calendar Expand MTEF/Budget Consultation Paper to include review of NDP cross-cutting strategies and priorities (Feb)Expand MTEF/Budget Consultation Paper to include review of NDP cross-cutting strategies and priorities (Feb) SAGs review and update NDP/MTEF sector action plans (May)SAGs review and update NDP/MTEF sector action plans (May) Update macro-fiscal framework (end May)Update macro-fiscal framework (end May) MTEF/ Budget Green Paper finalised (end June)MTEF/ Budget Green Paper finalised (end June) Budget guidelines and resource ceilings issued (July)Budget guidelines and resource ceilings issued (July) MPSAs prepare detailed budget proposals (end Aug)MPSAs prepare detailed budget proposals (end Aug) Budget hearings (end Sep)Budget hearings (end Sep) Update macro-fiscal framework (end Sep)Update macro-fiscal framework (end Sep) Draft budget finalised and sent to National Assembly (Oct)Draft budget finalised and sent to National Assembly (Oct) 12

13. Recommendations 2: Strengthening the Technical Basis of the MTEF Strengthen capacities for macro-fiscal analysisStrengthen capacities for macro-fiscal analysis Updated macro-economic forecasts at key points in MTEF/Budget cycleUpdated macro-economic forecasts at key points in MTEF/Budget cycle Review of fiscal policies and prioritiesReview of fiscal policies and priorities Revitalise SAGs and provide guidance and instructions for reviewing and updating NDP/MTEF sector action plans:Revitalise SAGs and provide guidance and instructions for reviewing and updating NDP/MTEF sector action plans: Incorporate policy and strategy developmentsIncorporate policy and strategy developments Review implementation progressReview implementation progress Initiatives/measures to improve program effectiveness and efficiencyInitiatives/measures to improve program effectiveness and efficiency Updated action plan consistent with macro-fiscal framework.Updated action plan consistent with macro-fiscal framework. Progressively increase credibility of outer year resource ceilingsProgressively increase credibility of outer year resource ceilings Include forward spending commitments on capital investment projects as Annex to the BudgetInclude forward spending commitments on capital investment projects as Annex to the Budget 13

14. Integrated NDP/MTEF/Budget Calendar 14

15. 3. Preparation of MPSA Budgets 15

16. Activity-Based Budgeting ABB introduced in 2000 replacing previous line-item budgeting processABB introduced in 2000 replacing previous line-item budgeting process Utilises two tier classification breaking down spending allocations by program and activityUtilises two tier classification breaking down spending allocations by program and activity Outputs identified at program level and included with targets in the budget estimates.Outputs identified at program level and included with targets in the budget estimates. ABB seen as having:ABB seen as having: Improved transparency of the budget (both officials and Parliamentarians)Improved transparency of the budget (both officials and Parliamentarians) Made it less easy to divert resources to other activitiesMade it less easy to divert resources to other activities 16

17. Issues Risk of strategic focus and management of the budget is being undermined:Risk of strategic focus and management of the budget is being undermined: Excessive number of programs/activities.Excessive number of programs/activities. Overly detailed breakdown of expenditures by economic itemOverly detailed breakdown of expenditures by economic item Inconsistencies in the basis under which ABB has been applied in different ministries (Large variations in the number of programs).Inconsistencies in the basis under which ABB has been applied in different ministries (Large variations in the number of programs). Some major Economic items shown as programs and activities (personal emoluments, utility costs, capital projects)Some major Economic items shown as programs and activities (personal emoluments, utility costs, capital projects) Excessive number of outputs and indicators but output information not used in budget presentation and monitoring.Excessive number of outputs and indicators but output information not used in budget presentation and monitoring. 17

18. Recommendations Undertake a detailed review ABB implementation to:Undertake a detailed review ABB implementation to: facilitate a more strategic approach to budget planningfacilitate a more strategic approach to budget planning develop a consistent institutional ly or functionally linked classification of programmes and activities that links to the NDPdevelop a consistent institutional ly or functionally linked classification of programmes and activities that links to the NDP reduce the complexity of budget preparationreduce the complexity of budget preparation introduce a stronger budget monitoring elementintroduce a stronger budget monitoring element Streamline the use of the economic classification in the budgetStreamline the use of the economic classification in the budget distinguish between control items to be shown in the budget;distinguish between control items to be shown in the budget; and accounting items that would only be used in recording expenditureand accounting items that would only be used in recording expenditure 18

19. 4. Transparency Issues 19

20. Stakeholder Consultation: Stakeholder consultation does take place, but formal processes often not working effectively (e.g. through the SAGs). Consultation around the Budget is often informal and at too late a stage in the process.Stakeholder Consultation: Stakeholder consultation does take place, but formal processes often not working effectively (e.g. through the SAGs). Consultation around the Budget is often informal and at too late a stage in the process. Internal Transparency: Compressed deadlines reduce MPSA engagement in planning and budgeting processes. Undermines link between MPSA inputs and final plans and budgets.Internal Transparency: Compressed deadlines reduce MPSA engagement in planning and budgeting processes. Undermines link between MPSA inputs and final plans and budgets. External Transparency: Zambia scored 36 out of 100 in the 2010 Open Budget Survey, ranked 60 out of 94 countries surveyed. Classified as providing minimal information about the budget.External Transparency: Zambia scored 36 out of 100 in the 2010 Open Budget Survey, ranked 60 out of 94 countries surveyed. Classified as providing minimal information about the budget. 20

21. Improving Transparency Formally adopt, publish and implement an annual planning and budgeting cycle setting out the key processes, outputs and deadlines.Formally adopt, publish and implement an annual planning and budgeting cycle setting out the key processes, outputs and deadlines. Identify key documentation to be placed in the public domain and establish deadlines for its publication on the MoFNP website.Identify key documentation to be placed in the public domain and establish deadlines for its publication on the MoFNP website. Look at how the format, content and presentation of public documents can be improved to make them less impenetrable and make them more widely accessible.Look at how the format, content and presentation of public documents can be improved to make them less impenetrable and make them more widely accessible. 21