A Preliminary Review of the MTEF Experience in Africa Philippe Le Houerou Rob Taliercio AFTM1

Motivation About twenty five MTEFs are currently being implemented in developing countries and ten more are under consideration About twenty five MTEFs are currently being implemented in developing countries and ten more are under consideration Over half of MTEFs are being implemented in Africa Over half of MTEFs are being implemented in Africa World Bank has been explicitly involved in vast majority of cases (through PERs, conditionality, policy dialogue) World Bank has been explicitly involved in vast majority of cases (through PERs, conditionality, policy dialogue) HIPC and PRSPs have refocused attention on MTEFs HIPC and PRSPs have refocused attention on MTEFs

Objectives Typology of MTEFs at the operational level Typology of MTEFs at the operational level Preliminary assessment of MTEFs Preliminary assessment of MTEFs Lessons for design, implementation, and management of MTEF reforms Lessons for design, implementation, and management of MTEF reforms

MTEF: An elegant concept STAGECHARACTERISTICS I. Development of Macroeconomic Framework Macroeconomic model that projects revenues and expenditure in medium term Macroeconomic model that projects revenues and expenditure in medium term II. Development of Sectoral Programs Agreement on sector objectives, outputs, and activities Agreement on sector objectives, outputs, and activities Review and development of programs and sub- programs Review and development of programs and sub- programs Program cost estimation Program cost estimation III. Development of Strategic Expenditure Framework Analysis of inter- and intra-sectoral trade-offs Analysis of inter- and intra-sectoral trade-offs Consensus-building on strategic resource allocation Consensus-building on strategic resource allocation IV. Definition of Sector Resource Allocations Setting medium term sector budget ceilings Setting medium term sector budget ceilings V. Preparation of Sectoral Budgets Medium term sectoral programs based on budget ceilings Medium term sectoral programs based on budget ceilings VI. Political Approval Presentation of budget estimates to cabinet and parliament for approval Presentation of budget estimates to cabinet and parliament for approval

However, the guidelines for MTEF design and implementation are unclear Examples of operational questions: Examples of operational questions: Is performance-based budgeting part of an MTEF? Is performance-based budgeting part of an MTEF? Should the MTEF include a contingency fund? Should the MTEF include a contingency fund? How long is the ‘medium term’? How long is the ‘medium term’? What are the appropriate roles for the ministry of finance and the sector ministries? What are the appropriate roles for the ministry of finance and the sector ministries? Where and how does the MTEF fit in with the budget process? Where and how does the MTEF fit in with the budget process? What are the initial conditions and sequencing necessary for the success of the MTEF? What are the initial conditions and sequencing necessary for the success of the MTEF?

6 Opening Up the Black Box: a three dimensional typology of MTEFs in practice General General Technical Technical Organizational Organizational

Dimension 1: General DESIGN FEATURE KEY ELEMENTS Coverage -Sectors included -Sectors included -Type of expenditure included (recurrent and/or capital) -Type of expenditure included (recurrent and/or capital) -Contingency reserve option -Contingency reserve option Format -Expenditures presented by classification (economic, functional, geographical, program-based) Government Levels -Level of government encompassed (central, regional, and/or local) Length of Period -Number of years (including budget year)

Dimension 2: Technical DESIGN FEATURE KEY ELEMENTS Macro/Fiscal Framework (MFF) -Basis for framework (type of quantitative model) -Content of framework (projections, targets, aggregate and sectoral ceilings, etc.) Sector Expenditure Framework (SEF) -Inclusion of policy framework and strategy -Type of costings of existing and proposed programs (level of detail)

Dimension 3: Organizational DESIGN FEATURE KEY ELEMENTS Status in Budget Process -Fit in budget process (form and date of inclusion in annual process) -Approval/authorization process Management Structure -Central and sectoral agencies’ roles -Organizational locale of MTEF management -Civil society input into process Dissemination -Method and form of dissemination internally and externally (formality) Oversight and Support -Oversight of sectors by central ministries -Oversight of central ministries by sectors -Training support

Level of MTEF Development

Preliminary Impact Assessment EXPECTED OUTCOMES ACTUALOUTCOMES Improved macroeconomic balance, especially fiscal discipline With the possible exception of Uganda, no empirical evidence of improved macroeconomic balance Better inter- and intra-sectoral resource allocation Some limited empirical evidence that MTEFs are associated with reallocations to subsets of priority sectors Greater budgetary predictability for line ministries No empirical evidence of link between MTEFs and greater budgetary predictability More efficient use of public monies No evidence that MTEFs are developed enough to generate efficiency gains in sectoral spending

Conclusions 1. MTEFs in Africa have largely failed in their promise to deliver improved PEM in a number of countries where operational MTEFs do not closely resemble their textbook cousins. 2. In the two countries where it seems that the MTEF had some impact – South Africa and Uganda – the MTEF process started from very different “initial conditions” in terms of PEM capacity. In both cases they also enjoyed strong political support.

Preliminary Lessons 1. MTEF reforms have not paid sufficient attention to initial PEM conditions 2. MTEF reforms have not been properly sequenced/phased 3. MTEF reforms have not paid sufficient attention to political-institutional issues

14 New Opportunities? The on-going PRSPs and HIPC tracking exercises provide an excellent window of opportunity to bridge the gap between theory (the target) and practice. The on-going PRSPs and HIPC tracking exercises provide an excellent window of opportunity to bridge the gap between theory (the target) and practice. 1. The first step should be to unbundle - country- by-country – the main PEM problems. 2. The second step should be to strengthen the major building blocks necessary for developing successful MTEFs.