Medium Term Budgeting Ilonda Stepanova Director Budget Department Ministry of Finance April 8, 2008

Overall planning process (advisable model) 2 Policy planning process Policy planning process Performance Budgeting Performance Budgeting Medium term budget planning process Medium term budget planning process Ministries' Strategic planning process Ministries' Strategic planning process

MTEF Principles (1) Concept of Strategic Planning and Medium-Term Budget Planning in the State Administration of the Republic of Latvia (the Concept) was prepared by a working group with the assistance of the World Bank and was adopted by the Cabinet of Ministers on August 22, The Concept foresees: –Adopting the Law on Budget for 1 year period On the level of programs and sub-programs in accordance with the economic categories –Adopting the expenditure framework in Saeima (the Parliament) for the next 2 years On the level of ministries and other central government institutions

MTEF Principles (2) Setting expenditure ceilings for 3 years for ministries and other central government institutions; Introducing appropriation reserve; Foreseeing flexibility in redistribution of expenditure; Introducing process of centralized review and ranking of New Policy Initiatives; Establishing closer link between strategic planning and budget preparation process (all ministries have fully elaborated strategic plans since 2007).

4) Budget basis expenditures agreed between MoF and line-ministries (end of March) 5) Development part of the budget calculated by the MoF (end of March) 3) New Policy Initiatives (NPI) of ministries submitted for evaluation (end of February) 2) MT budget priorities accepted by the Government (early March) 6) Evaluation of the NPI by MoF, StCh and MoRDaLG (early April) 7) Prioritized inter- sectoral list of NPI created (early April) 8) MTEF adopted by the Government including the list of the NPI that will be financed during the next years (by April 15) 10) Detailed budget requests prepared by ministries (by July 1) 11) Next year’s annual budget and explanation submitted to the Government (by September 1) 12) Next year’s annual budget and explanation submitted to the Parliament (by October 1) Budget planning process (as from 2007) 9) MTEF sent to the Parliament for information (early May) 1) MoF and StCh prepares normative act on medium term budget goals and priority development directions for the next 3 years (by February 28 )

Financial Balance of the General Government Consolidated Budget, % of GDP 6

Novelties Foreseen in the MTEF Process (1) Appropriation reserve –Until year 2007 unspent budgetary resources from the endowment from general revenue at the end of the year were used for reduction of the deficit and it was not possible to transfer them for use in the next year; –The new MTEF process foresees setting an appropriation reserve that can be divided by the Cabinet of Ministers for: Completion of procurement Completion of investment projects Other well substantiated issues –Appropriation reserve can be used only if there are no other means of solving the existing situation

Novelties Foreseen in the MTEF Process (2) Flexibility in redistribution of expenditure –Until year 2007 Cabinet of Ministers could redistribute expenditure among programs, sub-programs, and ECC without amending the budget only if it was necessary for implementation of projects co-financed by the EU –The new MTEF process foresees the possibility that Cabinet of Ministers can redistribute expenditure among programs, sub-programs, and ECC without amending the budget.

Novelties Foreseen in the MTEF Process (3) Usage of institutions’ performance criteria –The institution action strategies will include analysis of the past performance that will be based on specific criteria as well as proposals on defining of criteria for further activity, so as to ensure financing of priority activities –Revised methodology on preparation of performance evaluation criteria and analysis has been elaborated and will soon be considered by Cabinet of Ministers.

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