MKUKUTA/PER Consultations 2007 Key messages from PEFAR 2007 25 May

PEFAR Main Messages Challenges for medium & long term expenditure strategy due to: Rising aggregate expenditure; High aid dependency, constraints on absorption Strategic choices on expenditure for sustained growth & poverty reduction BUT GoT’s reform of strategic allocation systems has not yet delivered: An effective instrument for strategic planning and budgeting; or A transparent framework for dialogue and accountability

Medium Term Budget Strategy: Key Challenges Sustainability Aggregate & recurrent expenditure continue to rise (28% GDP) High aid dependency Need for medium & long term strategy to address major increase in external financing ⇧ from 6% to 12% of GDP over past 5 years Effective absorption of aid Requires making critical strategic choices on expenditure composition

Domestic revenue, expenditure & Net external financing

Key challenges (continued) Appropriate balance between development/recurrent expenditures Translating the MKUKUTA growth objectives into specific growth promoting expenditure Develop medium term strategy on wage bill, underpinning public service reform and better service delivery

Addressing these challenges will need more than good macroeconomic management. It will need….. Careful steering of the composition of public expenditure Broad based public debate on the important national choices ahead …….so how effective and transparent are the Government’s tools for steering public expenditure ?

Observations on the current budget cycle….. Highly unrealistic MDA budget requests On average, 150% above available resources Not linked to previous year’s decision on MTEF year 2 Budget Guidelines “Priority Investments” weakly aligned with Sector Plans Key strategic decisions poorly reflected in the MDA initial submissions In part due to excessive detail which absorbs scarce planning capacity

Observations on the current budget cycle (2) Late release of Budget Guidelines results in a lack of early consistent policy direction Discrepancies between BG and MTEF e.g.: Implementation of consolidation of allowances in wage bill No reporting on actual expenditure by main MKUKUTA categories (objective, target, activity) in the last three years Not sure what this means? - Track record on external financing projections shows deviation of 4-5% GDP, FY07 projections still heavily skewed to existing commitments

6 things which undermine a robust and transparent MTEF….. Absence of clear Cabinet/political decision on strategic priorities early in the cycle MDAs begin detailed budget submissions without guidance on resource constraints and strategic priorities Excessively detailed budget classification for early submissions Uncertainty on external financing within the resource envelope Lack of a clear, user friendly published summary of the MTEF as a base for accountability Lack of reporting on MKUKUTA/MTEF actual expenditure

MKUKUTA Expenditure Reporting Issue: Lack of reporting on expenditure by main MKUKUTA objectives and targets Despite use of SBAS since 04/05; and Government’s commitment to such reporting at the GBS Annual Review Oct 06 Next Steps: Analysis of reports to be carried out prior to next GBS annual review Review of classification structure

Budget Transparency Lack of clear user-friendly published summary of MTEF as a base for accountability Better accessibility to budget planning/execution documents For LGAs, difficulty in tracking funds due to various funding channels

Budget Transparency? A sector budget analysis for education should consider at least 26 votes (votes 37, 46, 53, 56, 68 and the 21 regional votes plus local government vote) The absence of clarity is particularly acute for financial flows between central government, districts and final beneficiaries, and reconstituting the financial flows is extremely difficult

PEFAR Main Messages Challenges for medium & long term expenditure strategy due to: Rising aggregate expenditure; High aid dependency, constraints on absorption Strategic choices on expenditure for sustained growth & poverty reduction BUT GoT’s reform of strategic allocation systems has not yet delivered: An effective instrument for strategic planning and budgeting; or A transparent framework for dialogue and accountability