Medium-Term%20Expenditure%20Framework

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Medium-Term Expenditure Framework

• Planning under resource constraints

Bill Dorotinsky Public Sector Group
PE Perspectives for HD November 12, 2003
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Outline

• Introduction to MTEF
• Core questions for Government
• Common PEM problems
• What is an MTEF?
• Technical Objectives
• Five stages of MTEF
• Changing roles and responsibilities

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Core Questions for Government

• Are national objectives being met?
• Are sector objectives met? Policies implemented?
• Do resources flow to programs as planned?
• Is budget used as tool for steering and managing
  government?
• Does Government get the information and analysis
  it needs to make good choices?
• Does the budget process support good
  decision-making? Effective programs?
• Are potential spending or policy crises
  anticipated and managed (versus reacted to after
  they become a crisis)?
• Is spending efficient and effective?

If you answered no to some of these, then
perhaps there is a need to think differently..
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Common PEM problems

• Weak links between policy, resource limits, and
  budgets
• failure to achieve strategic objectives
• abstract planning, unrelated to ways and means
• resources do not flow to line agencies
• Annual focus leads to suboptimal choices
• Digging a hole complacency today, unaware of
  crisis tomorrow
• Inability to climb out of poor fiscal situation
• Separation between capital and recurrent budgets
• Lower than expected returns to capital
• Non-comprehensive budget
• Using other means to support favored programs
• Failure to think strategically about tools and
  objectives
• Not learning from experience
• Not harnessing energies of all actors in system
  mismatch of roles and responsibilities
• Taking piecemeal decisions without reference to
  over-all effect

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Three Objectives of Public Expenditure Management
Systems

• Macrofiscal discipline and stability
• Avoid public finance crises
• Support economic growth and stability
• Strategic allocation of resources
• Match government policy with programs, objectives
• Assure resources flow to programs, aligned with
  budget priorities
• Technical efficiency
• Getting the most from each zloty spent
• Improving service delivery

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What is an MTEF about?

• Process, not only components, of public
  expenditure systems
• process of government decision-making
• developing a public interest in decision-makers
• Multi-year emphasis
• creating a learning system
• Emphasizing policy
• steering versus rowing for senior officials,
  organizations
• linking policy, inputs, outputs, objectives
• Effort to change paradigm, incentives of actors
  in system

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Technical Objectives of MTEF

• Improve macrofiscal situation
• lower deficits, improved economic growth
• more rational approach to retrenchment and
  economic stabilization
• Improve impact of Government policy
• link between government priorities/policies and
  government programs
• Improve program performance/impact
• Shift bureaucracy from administrative to
  managerial culture
• Managerial flexibility innovation lower
  cost/output greater effectiveness of
  programs/policies
• More efficient use of resources
• Improved resource predictability to line agencies

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MTEF New Budget Process

• Stage 1. Macroeconomic and public sector
  envelopes
• Stage 2. High-level policy aligning policies
  objectives under resource constraints
• Stage 3. Linking policy, resources, and means by
  sector
• Stage 4. Reconciling resources with means
• Stage 5. Reconciling strategic policy and means

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Stage 1. Macroeconomic and public sector envelopes
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Stage 2. High-level policy aligning policies
objectives under constraints

• Comprehensive resource plans

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Stage 3. Linking policy, resources, and means by
sector
Reconcile policy, laws, resource
limits Multi-year strategy
Sector Policies and Objectives
Program priorities relative to objectives Assess
modalities for objective Evaluate Production
Function Identify Cost Drivers
Sector programs
Under ceiling Above ceiling
Sector Budget Request
Again, multi-year
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Stage 4. Reconciling resources with means
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Stage 5. Reconciling strategic policy and means
Policy assessment and reconciliation
Policy official dialogue Modify
baselines Finalize decisions
Revised Requests, Unresolved Issues
Budget Proposal
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Roles and responsibilities before

• Issues broad guidance at start of process, with
  cost increase assumptions
• Cutting spending requests uniformly or by
  economic class or line item to meet totals
• Heavy involvement in setting line item totals
• No idea of out-year implications of choices

Ministry of Finance

• Develop requests in vacuum
• Request is wish list incentive to ask for more,
  hoping that after cuts will have enough
• Little discretion to allocate funds in own
  budget
• Little incentive to focus on current programs,
  reallocate
• Minimal policy content in budget request
• Low likelihood of getting budget levels during
  year

Line Ministry
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. And after

• Issues broad guidance with multi-year sector
  ceilings at start of process (cabinet approved)
• Cuts spending requests only if above ceiling
• Little involvement in setting line item totals,
  except perhaps capital and personnel
• Clearer picture of future implications of current
  choices

Ministry of Finance

• Clear resource framework for planning
• Request must prioritize between current and new
  programs
• Near complete discretion to allocate funds in
  own budget
• Potential for larger policy content in budget
  request
• Ceterus paribus, higher likelihood of receiving
  budget levels during year

Line Ministry