1. INTRODUCTION TO PUBLIC FINANCE MANAGEMENT Module 2.3 :MTEF and other special issues 1

2. 2.2 & 2.3 Planning and budgeting 3.1 The Budget Execution Cycle 5.2 Decentralisation 1.1 Introduction 2.1 Macroeconomics of the Budget 4.1 Revenue Administration 3.2 Payroll, Procurement & IT 1.3 Budget Classification 4.3 Accounting & Reporting 4.2 Treasury Management 1.2 The Budget 5.3 Assessing & Recapitulation 3.3 Internal Control & Audit 5.1 External Scrutiny & Oversight Module map 2

3. Course outline What is an MTEF? Main features of an MTEF The MTEF preparation procedure Achievements and pitfalls Other special issues 3

4. Course outline What is an MTEF? Main features of an MTEF The MTEF preparation procedure Achievements and pitfalls Other special issues 4

5. What is MTEF? 5

6. “ It is said that the Inuit people have 15 different words for snow. The opposite is true of MTEF, where the same term is used to refer to very different ways of stretching the time perspective of annual budgeting. Conflating a variety of different approaches into a single rubric has caused a host of problems” Schiavo-Campo, “Potemkin Villages: 'The' MTEF in Developing Countries” Public Budgeting and Finance, Summer 2009. 6 What is MTEF?

7. Variant 1/ The MTEF is an instrument for fiscal discipline, for prioritisation in conformity with the strategies and for providing funding predictability OECD countries Some developing countries Variant 2/ The MTEF(s) cost sector strategies. It is used for negotiating budget increases with the Ministry of Finance and additional financial support with the donors Other developing countries 7

8. 8 1.MTEF for fiscal discipline and prioritisation 2.Strategy costing MinisterialSectoral Consistent with the MTFFShould be realistic, but may include financial gap and scenarios Rolling horizonRegularly updated, but may have a fixed horizon Projection period: 3 to 4 yearsA long term period is required in several sectors Unified budget-MTEF preparation processes Prepared outside the pressure of the budget preparation process Expenditure projections are the result of the budget process Simulation models are frequently used to prepare the projections

9. 9 Instrument + Process Government strategic framework sector strategies & policies framework, laws Annual budget law appropriations & forward estimates MTEF

10. What is MTEF? The MTEF defines a strategy implementation path that takes into account the financial constraints We can distinguish: The MTFF, which defines the totals The Medium Term Budget Framework (MTBF) –or “global” MTEF- which allocates MTFF overall expenditure envelopes to ministries or sectors/functions The MTEF; detailing MTBF projections by programme 10

11. What is MTEF? 11

12. What is MTEF? The MTEF projects expenditures according to their purpose. It is aimed at: Planning policy changes that need several years to be implemented, finding a fiscal space for priority programmes IF, the processes are disciplined, improving operational efficiency through providing managers with predictability of funding 12

13. Fiscal discipline Inter-sectoral resource allocation Intra-ministerial resource allocation 13 Medium-Term Frameworks

14. Course outline What is an MTEF? Main features of an MTEF Achievements and pitfalls Other special issues 14

15. MTEF in Tajikistan 15

16. Exercise Exercise: Identify key MTEF concepts Explain content of key concepts 16

17. What is top-down / bottom-up in an MTEF? Top-down budget preparation Multi-year projections of resource envelope targets (what is affordable) Bottom-up budget preparation Multi-year cost estimates of sector programmes (what has to be financed, with a focus on programme performance) Integrating these two pillars Institutional (political-administrative) decision- making process to make the necessary trade-offs 17

18. What is baseline costing? Year 0 Year 1 Year 2 Year 3 Baseline Expenditure ceiling Savings on existing programs MTEF expenditure projections New programs and policy changes 18

19. What is a rolling budget?? 19 Forward EstimatesBudget T T +1 T +2 BudgetForward Estimates Budget t +1 t +2t +3 t +4 t+5 19

20. MTEF process 20

21. MTEF Features of an MTEF  Projection period: 3 to 4 years  Encompass all expenditures whatever their economic nature and financing source  Generally, the MTEF is rolling.  The MTEF is consistent with the MTFF  The first year of the MTEF is consistent with the budget  The out-years are indicative, but they show a political commitment 21

22. Main features of an MTEF The Ministerial MTEF  For accountability and to ensure a close link with budget management  Sector/cross-ministry MTEFs if any, should be divided in ministerial MTEFs  providing managers with some predictability  providing a framework for performance monitoring 22

23. Main features of an MTEF  The Ministerial MTEF  Generally structured in programmes, they may include performance indicators  Degree of detail variable from the same degree of detail as the budget to a presentation by broad programmes 23

24. Course outline What is an MTEF? The MTEF preparation procedure Achievements and pitfalls Other special issues 24

25. Achievements and pitfalls The results are uneven….. “Developing comprehensive MTEF can be effective when circumstances and capacities permit…. Otherwise, … it might distract attention from the immediate needs for improving the annual budget and budget execution processes… in a number of African countries, the MTEF was introduced prematurely, and is turning out to be merely a paper exercise”. World Bank-IMF Global Economic Report 2006, page 146 25

26. Why uneven results?  Too complex/sophisticated approaches.  Poor annual budget discipline.  No impact on the annual budget, the MTEF prepared the previous year is ignored.  Administrative and/or political instability. Every year MTEF preparation starts from scratch. 26 Achievements and pitfalls

27. Achievements and Pittfalls Why uneven results?  Isolated sector MTEF prepared by external consultants to comply with a donor request.  The MTEF remain a pure technical exercise; no political interference  Economic instability  Lack of predictability of resources 27

28. Supporting donor practice?? However,it does not make sense to demand a "sector MTEF" prematurely…. Taking stock from experience, it is recommended to adopt a process and systemic perspective on the development of a sector MTEF, rather than making it a pre-requisite for supporting a sector programme. EC. Support to sector programmes. Guidelines no2. July. 2007. Page 22. 28 Achievements and pitfalls

29. How to avoid the pittfalls? Before considering implementing an MTEF Make sure annual budget processes are disciplined Make sure decision makers are involved Ensure there are capacities to prepare an MTFF 29 Achievements and pitfalls

30. How to avoid the pittfalls? Prepare costed sector strategies first Estimate the forward costs of existing activities (the baseline) Prepare an MTBF Avoid complexity Once these tasks completed, consider implementing an MTEF, eventually starting with few pilot ministries avoid complexity 30 Achievements and pitfalls

31. Course outline What is an MTEF? The MTEF preparation procedure Achievements and pitfalls Other special issues 31

32. 32 Performance information Performance indicators: Input Output indicator Outcome indicators

33. Some points to keep in mind The link between performance information and resource allocation is generally indirect PI should be attributable to the programme or the organisation the performance is measured PI published for the legislature and the citizens should be:  aimed at measuring the efficiency and the effectiveness of the relevant activities  in a limited number Performance information 33

34. Function of the performance information Link between performance information and funding Planned or actual performance Main purpose in budget process PresentationalNo linkPerformance targets and/or performance results Accountability Performance informed budgeting Loose/indirect link Performance targets and/or performance results Planning and/or accountability Direct/formula performance budgeting Tight/direct link Performance results Resource allocation and accountability Performance information Performance budgeting in OECD countries. OECD 2007 34

35. 35 Performance information

36. Prepared in many countries, notably in the social sectors May have two functions: Support budget preparation within MDAs Support budget implementation and its monitoring The annual activities plan 36

37. But these activities plans should be kept simple In some poor countries there are plans of about 8000 thousands activities. Such plans cannot be monitored. The annual activities plan 37

38.  Sound MTEF processes may help in reinforcing the policy-budget link, but only if several preconditions are met  Strategy costing should be carried out, but planning documents with a financial gap should not be considered as financial commitment of the government  Programming documents and working plans should not be over-sophisticated Key messages 38