1. Budget reform: making it happen
Owen Barder United Kingdom

2. Reform in the real world
Budget problems in the real world
Budget Reform and the MTEF
Key steps in introducing the MTEF
Lessons

3. South Africa is different
Apartheid
inequality
distortion of public services
Human capital & financial administration
New quasi-federal structure
Co-operative governance

4. Budget problems in the real world
Unrealistic budgets
unaffordable, undeliverable, deferred
No link to behavior
no buy in, cash controls, hidden budget, overspending, link to policy proposals
Allocation doesn’t reflect priorities
no choice, short termist, distorted, enclaves
Spending inefficient
low productivity, poor management, corruption, poor planning

5. Budget problems in the real world
Unrealistic budgets
unaffordable, undeliverable, deferred
No link to behavior
no buy in, cash controls, hidden budget, overspending, link to policy proposals
Allocation doesn’t reflect priorities
no choice, short termist, distorted, enclaves
Spending inefficient
low productivity, poor management, corruption, poor planning

6. Elements of budget reform
Medium Term Expenditure Framework
Budget Policy Statement
New intergovernmental system
Public Financial Management Act
Improved financial management
Wider public sector
 
Budget Reform White Paper

7. MTEF: rapid success First plan April 1997 MTEF published March 1998
Compare eg Malawi since 1994
Compare South Africa

8. First MTEF 1994-1996 Spreadsheet model Sectoral analysis
Cross-sectoral links
Cabinet away-day
Sank without trace

9. Why did it fail? No political buy-in No emphasis on choice
No link to budgets
No link to budget process
Too technical

10. MTEF 1998 Persuaded Government 3-year spending plans all departments
Treasury, Cabinet, Departments
3-year spending plans all departments
Analysis to improve over time
MTEF replaced budget process

11. Persuasion Three goals of budget MTEF delivers all three
aggregate fiscal discipline
allocative efficiency
technical efficiency
MTEF delivers all three
especially the first two …
Target the message

12. Persuading Cabinet Political control of the budget
Better prioritization
Choices at budget stage
More certainty: better planning
More delivery
More cooperative
Less central interference
Cheaper borrowing
More spending
“State of the art”

13. Persuading Departments
More cooperative
Less central interference
Choices at budget stage
More certainty: better planning
More money (borrowing costs; unspent funds)
Better prioritization

14. MTEF 1998 Persuaded Government 3-year spending plans all departments
Analysis to improve over time
MTEF replaced budget process

15. Benefits of 3 year plans Better prioritisation Better planning
Transparent and credible
Financial discipline
More spending & delivery
Affordable policy development
Immediate

16. Benefits of analysis Identify choices & quantify
Link to outputs and outcomes
Accountability
Benchmarking
Better outcomes
Over time

17. MTEF 1998 Persuaded Government 3-year spending plans all departments
Analysis to improve over time
MTEF replaced budget process

18. Replacing the process Every department involved
Competing for same resources
3 year horizon for everything
Renaming eg committees
MTEF to Cabinet, not Budget
Increased financial discpline

19. Lessons Obtain political commitment Keep it simple Make it matter
emphasise empowerment, choice, delivery
involve in process
Keep it simple
3 year plans for each department
get out of the detail
Make it matter
replace budget process
link to financial discipline
plans as baselines

20. Did it succeed?
Too early to tell
© Zhou En Lai

21. Did it succeed? Political buy-in Reprioritisation Budgets matter
Disciplined policy-making
Better analysis
Co-operative governance

22. How to do Budget Reform Obtain political commitment Keep it simple
Make it matter
After the break: how SA does the MTEF

23. The MTEF in practice

24. The MTEF in practice What is the MTEF? Affordable totals
Putting the budget together
Lessons

25. South Africa is different
Quasi federal structure
Cooperative Governance
Good administrative capacity

26. } } What is the MTEF? Three year projections of: growth and inflation
Available Funds }
growth and inflation
revenues, deficit and spending
debt interest costs
division between tiers of government
spending plans by department
statement of main outputs
contingency reserve
Spending allocations }

27. MTEF process MTEF process aimed at: Agreeing affordable totals
Identifying policy options
Building consensus

28. Affordable totals
% GDP

29. Affordable spending
% GDP
R billion

30. Getting totals right Keep projections simple
Make public fiscal commitments
Decide totals before allocations

31. Building consensus Review Teams Treasury Ministers’ Committee Cabinet
Membership
Baselines
Implications of baselines Policy options
Affordable totals Menu of choices Recommendations
Treasury
Ministers’ Committee
Recommended allocations Policy choices
Cabinet
MTEF

32. Review teams
What?
Health, Education, Welfare, Crime, Personnel, Infrastructure
Who?
Treasury, line departments, subnational government, consultants
expenditure trends
implications of baseline
costed policy options
benchmarking

33. Review teams Unique to South Africa Cooperative governance
Better understanding
Treasury of policy challenges
Departments of financial implications
Consensus building
Ongoing work programmes

34. Ministerial Committee
Powerful minority
Identifies options
Evaluates proposals
Recommends to Cabinet

35. Cabinet Forum for competing policies Implications of plans
Menu of policy options
Collective agreement
Most important decisions

36. Timetable Apr June July Aug Sept Oct Departments submit baselines
MTEF Review Teams identify
spending trends and policy options
Other departments plans evaluated
MinComBud discusses priorities
Officials discuss budget proposals
MinComBud hearings
Treasury updates projections

37. Timetable Oct Nov Dec Jan Feb Mar Treasury summary of policy options
Spending totals proposed
Cabinet agrees totals published in MTBPS
MinComBud discusses allocations
Cabinet approves allocations
Departments allocate funds
Budget documents prepared
Budget

38. Implementation lessons
Include, but control
Listen to departments
Involve politicians throughout
Avoid information overload
Decide totals first
Don’t over-prescribe
Focus on priorities
Promote transparency

39. Contact information
Owen Barder
Department of Finance, South Africa Private Bag X115, Pretoria, South Africa website:

40. The End
Owen Barder