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

2. 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

3. 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

4. Domestic revenue, expenditure & Net external financing

5. 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

6. 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 ?

7. 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

8. 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

9. 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

11. 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

13. 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

14. 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

15. 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