1. Medium-Term Expenditure Scenario Analysis
USING BOOSTS

2. Outline Why? How? Limitations and constraints
Objectives of medium-term analysis
How?
Setting a macro-framework
Selecting a unit of analysis
Designing scenarios and options
Limitations and constraints

3. Why? Medium-Term Analysis Using BOOSTs

4. Objectives of Medium-Term Analysis using BOOSTs
BOOSTs provide detailed historical expenditure information
Can be extrapolated to assess expenditure allocation options over the medium-term

5. Objectives of Medium-Term Analysis using BOOSTs
Analysis using BOOSTs provides powerful tool to illustrate:
How sector or ministry-level expenditure can adjust to macroeconomic trends and shocks
Impacts of expenditure decisions on fiscal aggregates
Trade-offs and conflicts between expenditure in different priorities and sectors
Trade-offs and conflicts between expenditure decisions and macro-fiscal policy objectives

6. Example 1: Country with growing debt repayment obligations
Policy targets to:
Increase expenditure in “priority sectors” of health and education
Reduce the share of expenditure on the wage bill
BOOST analysis used to show how policy targets could be achieved within sustainable aggregate limits and while meeting repayment obligations

7. Output: share of expenditure by sector
Output: share of expenditure on wage bill

8. Example 2:
Country with deteriorating revenue effort, SOE subsidies imposing severe fiscal costs
Policy target of maintaining the real value of Sovereign Wealth fund
BOOST analysis used to demonstrate the need for revenue and SOE reforms if policy objectives were to be achieved without large cuts in expenditure in priority ministries

9. Output: Expenditure and Fund Balance trends
Fiscal Aggregate
Outcomes
Macroeconomic
Based on IMF projections, medium-term real growth GDP of 2% and inflation of around 2.5%.
Revenue
No growth in revenue in nominal terms. No budget support. Project grants remain at trend levels.
Financing
Commercial debt is maintained at current levels.
Output: Expenditure and Fund Balance trends

10. How? Medium-Term Analysis Using BOOSTs

11. Setting a macro framework
“Anchor” can be chosen according to objective of analysis
Fix aggregate expenditure
Used to demonstrate tradeoffs within sustainable expenditure limits
Flexible aggregate expenditure
Used to demonstrate short-term impacts of expenditure decisions on cash reserves/debt levels

12. Setting a macro framework
Fixed aggregate expenditure
Copy aggregate expenditure limits from appropriate scenario of IMF/World Bank Debt Sustainability Analysis over projection period
Divide expenditure types (ministries, sectors, inputs) into:
Those determined by input assumptions that you control
Residual expenditures that will be forced to adjust to accommodate change in manually-determined expenditure types

13. Calculated based on input assumption
Expenditure can be presented in the most useful disaggregation for the policy purpose using BOOST data for current year baseline
Input expenditure trajectories in drop-down menus
Taken from DSA
Calculated based on input assumption
Set to adjust automatically to keep deficit equal to DSA level –share of non-priority expenditure maintained

14. Setting a macro framework
Flexible aggregate expenditure
All expenditure lines are manually determined
Adjustments reflected in change in the deficit/surplus

15. Manually input based on policy assumptions
Expenditure can be presented in the most useful disaggregation for the policy purpose using BOOST data for current year baseline
All expenditure dynamics input from drop-down menu
Taken from DSA
Manually input based on policy assumptions
Adjusts to reflect aggregate impact of sector/ministry expenditure decisions

16. Selecting unit of analysis
BOOSTs allow high level of disaggregation when analyzing expenditure
Appropriate level at which to model expenditure choices will depend on policy issues
Sectors – implications of achieving sector expenditure targets
Ministries – implications of ministry expenditure targets
Inputs – implications of public sector wage settlements
Sub-national governments – implications of decentralization initiatives
Etc.

17. Expenditure categories taken from BOOST
Level of disaggregation appropriate to complexity of analysis
Sector, Ministry, Division, Input, sub-national government unit, etc.

18. Selecting Input Assumptions
Based on policy options under consideration
Based on policy decisions already made to understand implications
Examples:
Fixed rates of expenditure growth by sector
Sector or ministry expenditure levels established in plans or policy commitments
Changes in spending to achieve target expenditure ratios

19. Drop-down menus linked to scenario sheets are an easy way to update assumptions and examine the implications of different policy targets

20. Running scenarios BOOST analysis can:
Help communicate incompatibilities and required trade-offs between competing commitments and priorities
Identify the need for trade-offs within an overall resource constraint
Show macro-fiscal impacts of expenditure policy decisions
Illustrate required sector expenditure adjustments within a given macro framework

21. Running scenarios
Government considering ambitious program of expenditure in priority sectors identified in the national plan
Real expenditure growth of 5% per annum for health, education and infrastructure
Government has implemented a hiring freeze, but agreed with the public sector union to inflation indexing of wages and no layoffs
Under the terms of an IMF program, there is no scope for additional borrowing

22. Input appropriate spending trends
Because no additional borrowing, use “fixed aggregate expenditure, setting deficit as DSA levels

23. Expenditure growth can be absorbed by reductions in other sectors
Running Scenarios
Expenditure growth can be absorbed by reductions in other sectors
But, because of fixed real wages, required unfeasible compression of non-wage expenditure

24. Running scenarios
Government facing economic shock, with expected decline in real revenue
Committed to maintaining real expenditure on core public services, but has established nominal expenditure freeze in other areas
Wishes to assess debt implications

25. Input appropriate spending trends

26. Running scenarios Short-term growth in deficit
Growth in budget share for priority sectors
Short-term growth in deficit

27. Limitations and constraints

28. Limitations and constraints
Complement to, rather than substitute for, DSA
BOOST analysis relies on a macro framework taken from a DSA
BOOST does not provide data on economic growth, revenue, inflation, which needs to underpin all analysis
BOOST data not sufficient for modeling debt dynamics
Static analysis - No mechanism for tracing interactions between expenditure decisions and growth or revenue