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MTEF’s: Concept and Linkages. Bill Dorotinsky International Monetary Fund. October 8, 2007 Tegucigalpa, Honduras. Expenditure Management Cycle. Financial management system boundaries. Project. Resource. Annual budgets. Medium term. appraisal. allocation. Development,. Planning.

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Mtef s concept and linkages l.jpg

MTEF’s:Concept and Linkages

Bill Dorotinsky

International Monetary Fund

October 8, 2007

Tegucigalpa, Honduras


Expenditure management cycle l.jpg
Expenditure Management Cycle

Financial management system boundaries

Project

Resource

Annual budgets

Medium term

appraisal

allocation

Development,

Planning

plans, e.g. three

recurrent and

system

year rolling plans

revenue

Expenditure

Liquidity

management

review

Public expenditure

Institutions

review

Fund release

procedure, e.g...

warranting

Accountability

Expenditure

Project monitoring

control

Audit system

Post event

Accounting for

Monitoring

review

revenue and

& controlling

expenditure

Reports and

financial statements

Source: Adapted from Integrated Financial Management.Michael Parry, International Management Consultants Limited.Training Workshop on Government Budgeting in Developing Countries. THE UNITED NATIONS. December 1997.


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Three Objectives of Public Expenditure Management Systems

  • Macrofiscal discipline and stability

    • Avoid public finance crises

    • Support economic growth and stability

  • Strategic allocation of resources

    • Match government policy with programs, objectives

  • Technical efficiency

    • Getting the most from each peso spent


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Technical Objectives of MTEF

  • Improve macrofiscal situation

    • lower deficits, improved economic growth

    • more rational approach to new spending, retrenchment and economic stabilization

  • Improve impact of Government policy

    • link between government priorities/policies and government programs

  • Improve program performance/impact

    • Shift bureaucracy from administrative to managerial culture

      • Managerial flexibility & innovation: lower cost/output; greater effectiveness of programs/policies

    • Improved resource predictability


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MTEF: Better Budget Process

  • Stage 1. Macroeconomic and public sector envelopes

  • Stage 2. High-level policy: aligning policies & objectives under resource constraints (top-down)

  • Stage 3. Linking policy, resources, and means by sector (bottom-up)

  • Stage 4. Reconciling resources with means

  • Stage 5. Reconciling strategic policy and means


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MTEF Major Components

  • Medium-Term Fiscal Framework

    • Aggregates, policy

  • Medium-Term Budget Framework

    • Ceilings and sector strategies

  • Program budgeting/Activity-based costing

    • Within ministries, programs, costing, input-output models

    • Performance measures


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Unbundling MTEFs

  • Medium-Term Fiscal Framework

    • Multi-year Macroeconomic forecast

    • Multi-year revenue, debt sustainability analysis and debt policy, yielding expenditure envelope (fiscal policy paper)

  • Medium-Term Budget Framework

    • Multi-year forecast of spending under current policy or current level of services, by ministry or program (baseline estimates)

    • Multi-year ceilings for sector ministries (policy)

    • Multi-year sector strategy

  • Program budgeting/Activity-based costing

    • Multi-year cost estimates of new policies or programs(recurrent), or expansion of existing programs, prepared by sector ministries

    • Multi-year estimates of cost of existing policies, programs, subprograms, or activities prepared by sector ministries

    • Multi-year estimates of cost of new projects (capital), or expansion of existing projects, prepared by sector ministries


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Factors Undermining MTEFs

  • Poor accounting, budget execution data (e.g. assignaciones globales)

  • Weak public financial management human resource capacity, especially in sector ministries

  • Budgets not comprehensive

    • Off-budget

    • Significant expenditure or revenues not allocated through budget (earmarking)

    • Parallel capital budget process

  • Significant budget execution variance from approved budget

  • Parallel planning process


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Linkages to Development Plans

  • MTEF enables easier

    • Integration of development plans with budget

      • Macrofiscal space

      • Sector strategies and objectives

      • Programs affected

    • Implementation of plans

  • Planning and budgeting

    • Long-term perspective valuable

    • Realistic planning also essential


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Summary

  • MTEF is about

    • Process reform

    • Integrating planning and budgeting

    • Changing Incentives of Key Actors

    • Integrating policy and technical aspects of budgeting

    • Thinking multi-year

    • Learning - evaluating

  • Misconceptions

    • MTEF is only multi-year estimates

    • MTEF separate process, document only


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Selected References

  • Public Expenditure Handbook, World Bank, 1998.

  • Managing Government Expenditure, S. Schiavo-Campo and D. Tommasi, Asian Development Bank , 1999. (on-line)

  • Managing Public Expenditures: A Reference Book for Transition Countries. Richard Allen and D. Tommasi, editors. Organization for Economic Cooperation and Development (2001)


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