1. NEPAL’S EXPERIENCE WITH BUDGET REFORMS: Sequencing an MTEF in Nepal
PARA SURIYAARACHCHI
Tuesday, August 17, 2004
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2. 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;
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3. 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.
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4. 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.
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5. 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.
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6. 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
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7. 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
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8. 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).
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9. 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).
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