1. MTEF and performance budgeting
INTRODUCTION TO PUBLIC FINANCE MANAGEMENT
Module 2.2
MTEF and performance budgeting

2. Module map Planning and budgeting 2.4 Budget Execution
1.1 Introduction
2.1 Macroeconomics of the Budget
4.1 Revenue
Administration
3.1 Payroll, Procurement & IT
1.4 Budget Classification
4.3 Accounting & Reporting
4.2 Treasury Management
5.3 Assessing & Recapitulation
3.2 Internal Control & Audit
5.1 External Scrutiny & Oversight
2.2 MTEF and performance budgeting
1.3 The Budget and budget preparation
1.2 Budget Cycle

3. Course outline 1. What is an MTEF? 2. Main features of an MTEF
3. Achievements and pitfalls
4. Performance budgeting

4. $
1. What is MTEF? $
The camel's nose is a metaphor for a situation where permitting some small undesirable situation will allow gradual and unavoidable worsening. A typical usage is this, from U.S. Senator Barry Goldwater in 1958:
This bill and the foregoing remarks of the majority remind me of an old Arabian proverb: "If the camel once gets his nose in the tent, his body will soon follow." If adopted, the legislation will mark the inception of aid, supervision, and ultimately control of education in this country by the federal authorities.

5. 1. What is MTEF?
“ It is said that the Inuit people (Eskimo)have 15 different words for snow.
The opposite is true of MTEF, where the same term is used to refer to very different ways of stretching the time perspective of annual budgeting. Conflating a variety of different approaches into a single rubric has caused a host of problems”
Schiavo-Campo, “Potemkin Villages: 'The' MTEF in Developing Countries” Public Budgeting and Finance, Summer 2009.

6. 1. What is MTEF? Variant 1: The MTEF is an instrument
for fiscal discipline
for prioritisation in confor-mity with the strategies
for providing funding predictability
OECD countries
Some developing countries
Variant 2: The MTEF(s) cost sector strategies. It is used for negotiating budget increases with the Ministry of Finance and additional financial support with the donors
Other developing countries

7. 1. What is MTEF? 1. MTEF for fiscal discipline and prioritisation
2. Strategy costing
Ministerial (MoF)
Sectoral
Consistent with the MTFF
Should be realistic, but may include financial gap and scenarios
Rolling horizon
Regularly updated, but may have a fixed horizon
Projection period: 3 to 4 years
A long term period is required in several sectors
Unified budget-MTEF preparation processes
Prepared outside the pressure of the budget preparation process
Next slides deal with the MTEF variant 1

8. MTEF Instrument + Process Government strategic framework
(This is a picture of “The Erasmus” bridge in Rotterdam, the Netherlands)
MTEF is a concept addressing the link between the annual budget process (with a 1 year focus) and the multi year focus you normally see in the government strategies and policies.
a MTEF (a multi year budgeting framework) tries to “BRIDGE” the annual budgeting process and the strategic framework and its sector strategies and annual activities
In that respect MTEF is both an instrument and a process.
Please note: The word MTEF means different things for different people. Even among experts in PFM. Every expert will stress different aspects of MTEF. But what they all have in common is that MTEF is focussing on multi year budgeting and bringing policy and strategy closer to the budgting process.
Plans and strategies are implemented through the budget
Recent economic development and actual implementation of planned activities must be taken into account
Annual budget law appropriations & forward estimates
Government strategic framework
sector strategies &
policies framework, laws

9. 1. What is MTEF?
The MTEF defines a strategy implementation path that takes into account the financial constraints
We can distinguish:
The MTFF, which defines the totals
The Medium Term Budget Framework (MTBF) –or “global” MTEF- which allocates MTFF overall expenditure envelopes to ministries or sectors/functions
The MTEF; detailing MTBF projections by programme
Named also “global MTEF”
May be structured by ministry and/or by function/sector
Structured by ministry, it is prepared during the strategic phase of budget preparation and used to frame the preparation of the budget and ministerial MTEFs
Structured by function, it is used for policy dialogue and transparency
In several countries an MTBF is included in a budget policy paper tabled in Parliament 3 to 4 months before the budget bill (e.g. South Africa)

10. Development towards MTEF
MTFF
MTBF
MTEF

11. 1. What is MTEF? MTFF: Fiscal discipline
MTBF: Inter-sectoral resource allocation
MTEF: Intra-ministerial
resource allocation

12. 1. What is MTEF?

13. Course outline 1. What is an MTEF? 2. Main features of MTEF
3. Achievements and pitfalls
4. Other special issues

14. MTEF in Tajikistan
MTEF in Tajikistan

15. 2. Main features of MTEF Exercise Exercise: Identify key MTEF concepts
Explain content of key concepts

16. What is top-down / bottom-up in an MTEF?
2. Main features of MTEF
What is top-down / bottom-up in an MTEF?
Top-down budget preparation
Multi-year projections of resource envelope targets (what is affordable)
Bottom-up budget preparation
Multi-year cost estimates of sector programmes (what has to be financed, with a focus on programme performance)
Integrating these two pillars
Institutional (political-administrative) decision-making process to make the necessary trade-offs

17. 2. Main features of MTEF Costing MTEF expenditure projections
Expenditure ceiling
New programs and policy changes
Baseline
However, in the first implementation steps, the projection baseline may consist of:
For personnel and goods and services: the current level of activities (The actual budget plus the impact of the inflation and decisions already made)
Transfers related to the existing legally binding commitments
Ongoing investment projects, including their recurrent costs
Savings on existing programs
Year 0
Year 1
Year 2
Year 3

18. 2. Main Features of MTEF ? Rolling Budget Forward Estimates Budget T18

19. MTEF process
MTEF process

20. Course outline 1. What is an MTEF? 2. Main features of MTEF
3. Achievements and pitfalls
3. Other special issues

21. 1. Achievements and pitfalls
The results are uneven…..
“Developing comprehensive MTEF can be effective when circumstances and capacities permit….
Otherwise, … it might distract attention from the immediate needs for improving the annual budget and budget execution processes…
in a number of African countries, the MTEF was introduced prematurely, and is turning out to be merely a paper exercise”.
World Bank-IMF Global Economic Report 2006, page 146

22. 2. Achievements and pitfalls
Why uneven results?
Too complex/sophisticated approaches
Poor annual budget discipline
No impact on the annual budget: the MTEF prepared the previous year is ignored
Administrative and/or political instability. Every year MTEF preparation starts from scratch
Complexity. Some countries prepared very complex MTEFs, attempting to link costed activities closely to objectives. Appeared complex and too arbitrary in estimating linkages (e.g. failed Ghana experience).
Poor budget discipline. Why an MTEF, when the budget is in practice revised every 3 months?
No impact on the annual budget, the MTEF prepared the previous year is ignored.
E.g. the 2010 budget may be quite different from the 2010 tranche of the MTEF prepared in 2008)
Administrative and/or political instability. Every year MTEF preparation starts from scratch.
No link with the budget process
Isolated sector MTEF prepared by external consultants to comply with a donor request.
The MTEF remain a pure technical exercise, the decision-makers are not involved in the MTEF processes
Economic difficulties that make obsolete the previous MTEF forecasts
Lack of predictability of resources

23. 2. Achievements and Pittfalls
Why uneven results?
Isolated sector MTEF prepared by external consultants to comply with a donor request
The MTEF remain a pure technical exercise; no political interference
Economic instability
Lack of predictability of resources

24. 2. Achievements and pitfalls
Supporting donor practice??
However, it does not make sense to demand a "sector MTEF" prematurely….
Taking stock from experience, it is recommended to adopt a process and systemic perspective on the development of a sector MTEF, rather than making it a pre-requisite for supporting a sector programme.
EC. Support to sector programmes. Guidelines no2. July Page 22.

25. 2. Achievements and pitfalls
How to avoid the pittfalls?
Before considering implementing MTEF:
Make sure annual budget processes are disciplined
Avoid complexity
Prepare an MTBF
Ensure there are capacities to prepare an MTFF
Prepare costed sector strategies first
Estimate the forward costs of existing activities
Make sure decision makers are involved
BASICS FIRST
MTBF +MTFF
COSTING
POLITICS

26. Course outline 1. What is an MTEF? 2. Main Features of MTEF
3. Achievements and pitfalls
4. Performance budgeting

27. 4. Performance budgeting
Performance indicators (PI):
Activities
Output indicator
Outcome indicators

28. 4. Performance budgeting
Inputs
Money
Activities
Buying books, building schools, hiring teachers
Outputs
Enrollment ratio
outcome
Literacy rate
Impact
Competitiveness, engaged citizens

29. 4. Performance budgeting
Q-1 MONITORING
Q-2 MONITORING
Q-3 MONITORING
ANNUAL REPORT
Financial information
Performance information

30. Main principles in selecting Performance indicators
Indicators should be prioritised on the strategic and operational objectives
There should not be more indicators than are necessary to capture the objectives (limited number)
Performance indicators can be developed by asking ‘How will the objectives be achieved?

31. Criteria for Useful Performance Indicators CREAM-criteria
Clear: Precise, understandable, unambiguous
Relevant: Appropriate, useful to the objective at hand
Economic: Data available at reasonable costs
Adequate: Attributable, provide reliable and timely basis for the assessment of performance
Monitorable: Availability of information, consistent over time and open to independent scrutiny

32. Key messages
Sound MTEF processes may help in reinforcing the policy-budget link, but only if several preconditions are met
Strategy costing should be carried out, but planning documents with a financial gap should not be considered as financial commitment of the government
Programming documents and working plans should not be over-sophisticated