1. MTEF Lessons of Experience:
Lessons from the U.S. and Africa
Bill Dorotinsky
The World Bank
Seoul, Republic of Korea
March 16, 2004

2. U.S. Background Presidential system of government
Strong legislature with ultimate spending authority
Full federal system – subnational not covered
Formal medium-term estimates required from 1970 onward, mainly for macrofiscal reasons
Started with relatively high capacity
Started with good classification, accounting systems
Program budgets
Reforms about improving PFM system and budget process, not ‘MTEF’ as separate exercise

3. Stage 1: macrofiscal envelopes
Sound technically
but opportunities for political involvement taught hard lessons
Technical and policy consensus mechanism important (troika)
Policy key driver of outcomes, set at political level (NEC)
Weaker macrofiscal outcomes tolerated in large system with easy access to capital markets

4. Stage 2: top-down sector ceilings
Relatively weaker top-down in executive
Functional classification used, but weakly
Executive for broad analytical view
Legislature for hard ceilings ex ante
But high correlation between ministry and sector/function makes that less important
Out-years less important until fiscal rules adopted

5. Stage 3: linking policies, resources and means within sector
Strong linkages between law, resources, policies
In executive and legislature
High capacity at spending ministries, agencies, and legislature
But weaker executive top-down ceilings limit
intra-sector trade-offs
pressure to review existing programs
Under hard fiscal rules, more pressure for trade-offs in executive --- and in the legislature
Mostly in discretionary spending
And for NEW mandatory spending

6. Stage 4 and 5: aligning top-down and bottom-up, at technical and policy levels
Weaker sector ceilings early in process make this more important
Ministry-budget office conflict
Appeals process critical
Generally, high budget office discretion to enforce policy decisions from stage 1, 2

7. Broad Lessons
Budget process evolved over many decades, and still evolving (including medium-term aspects)
Sound macrofiscal estimation critical
Hard sector ceilings early-on yield more benefits for sectoral allocation
Formal intra-executive consensus mechanism important (technical level and policy level)
Legislature must also have formal internal process for managing its role in process
Perhaps less critical where legislature has limited role
Comprehensive budget important
Capital and recurrent; planning and development
Mandatory and discretionary
Transparency helps reinforce good behavior

8. Ghana Background Parliamentary system, limited legislative role
High political instability over decades lead to crisis
Unitary state, but subnational not directly addressed in MTEF
Poor country, with little margin for error
Relatively limited technical capacity
Weak accounting, classification
MTEF approached
more as technical reform, less emphasis on policy dimensions
bundled with other large reforms (program budgets, IFMIS)
intended to address macrofiscal, allocative, and technical efficiency

9. Ghana: over-all assessment
Stage 1: macrofiscal
Weak technical capacity, high political involvement
Weak basis for fiscal policy and budgets
Stage 2
Weak stage 1 and low capacity limited effectiveness
Wage bill determined outside of budget process
Stage 3
Low capacity, non-comprehensive budgets undermined
Stage 4 and 5 weak, more perfunctory
Lessons:
initial conditions matter
attempting too much at once will undermine reform
implementation needed broader policy and technical consensus

10. South Africa Background
Parliamentary system, limited legislative involvement, but high capacity, transparency and accountability
Unitary state, subnational involved
Middle income country
Political stability
Relatively high capacity, but generally limited to center (versus ministries, provinces, municipalities)
Decent national FMIS, but limited at subnational
MTEF focus on allocation and technical efficiency
First MTEF failed

11. South Africa: overall assessment
Stage 1 macrofiscal
Treasury dominates, technical and policy
Prudent policies pursued
Stage 2 sectoral allocation
Cabinet subcommittee reviewed, cabinet approved
Program budgets help
Stages 3-5
Collegial approach from beginning make this less contentious, raise issues early

12. Uganda Background Parliamentary system Unitary state Low-income
Recent general political stability
Strong leadership from president directly
Limited capacity, but effective use of expatriate skills and focus on building-capacity
Reasonable accounting, fmis

13. Uganda overall assessment
Stage 1
Broad civil society consensus building
Cabinet level approval
Generally prudent, as political officials understand economic impact
Stage 2-5
Broad consensus within and outside government makes process easier
Lessons:
Strong leadership from top can overcome capacity limits
Transparency and consensus ease later stages of process, and afford many opportunities for accountability
Prudent macrofiscal important