Planning and Budgeting
for the MDGs
Presented by
Allen Schick
Conference on Public Sector Management in Support
of the MDGs
Bangkok, Thailand
13-15 June 2012
National Planning Can Promote Ownership
on the MDGs and Budgeting
Whose MDGs Are They?
– MDGs have been targeted by the international community, but
progress depends on country policies and actions
– The targets are too challenging for some countries, not sufficiently
ambitious for others
– Unreachable targets may spur some countries to give up, easy
targets may be irrelevant
– Few countries have ignored MDGs, but making them drivers of
country development requires that they be accorded priority in
national plans and budgets
– MDGs run to 2015, but countries with development deficit must plan
beyond then
1
National Planning Can Promote Ownership
on the MDGs and Budgeting
Country Ownership
– Countries can put their stamp on MDGs by incorporating them into
the planning process by incorporating them into the planning and
budgeting processes
– They can extend MDG planning beyond 2014 and retarget goals to
suit their situation
– Thailand has set MDG plus targets that recognize its status as a
lower middle income country
– Bangladesh has extended MDGs (and other goals) to 2021 through
10 and 5 year plans and budgets
– PNG has set below MDG-targets that recognize severe
developmental shortfalls
2
Thailand’s MDG Plus
Goes Beyond the Original Targets
•
•
•
Thailand’s 2004 MDG progress report indicated that the country had already
achieved most of the MDGs
Through its planning process, the country used the original MDGs as a platform
for specifying more ambitious targets
The country has an ongoing planning process to review and revise the MDGs
Issue
Original MDGs
MDGs Plus
Poverty
Cut in half by 2015
Reduce below 4%
Education
Universal primary education
Universal secondary education
Health
2/3 reduction in infant
mortality
Reduce to 1.5%
HIV/AIDS
Halt spread of disease
Reduce incidence among
productive adults to 1%
3
PNG Adjusted Its MDGs to Reflect the
Country’s Limited Resources
• PNG is a low income country that experienced marginal improvement in
development indicators during the pre-MDG period
• It has inadequate financial resources, low administrative capacity, and
significant data gaps
• To achieve progress it had to “localize” the MDGs, by setting realistic
expectations
• It recognized that progress could be achieved only by integrating the
MDGs into its Medium-Term Development Strategy
• Rather than aiming to reduce poverty by half, it has targeted a 10%
reduction by 2015
• It has committed to reduce the under five mortality rate to 72 per 1000,
and the maternal mortality rate to 274 per 100,000 live births
• Increase the number of households with access to safe water to 60%
• The development plan has 15 indicators and 67 targets. For other
countries, these goals may not be challenging; for PNG, they may be too
much of a challenge
4
Bangladesh Has Adopted 10 Year Objectives and a
5 year Plan that Incorporate and for
Some Targets Surpass the MDGs
• Bangladesh is on track to meet many MDG targets by 2015
• The government has recognized that despite this achievement, the
country will still have series developmental deficits, including widespread
poverty, inequality and under-investment
• It issued a Vision 2021 strategy with additional targets to stimulate the
country’s development
• In 2010, it published the country’s sixth five plan for year 2011-2015
• This plan recognizes that its end year coincides with the target year for
achieving MDGs
• The plan compares its targets to those specified in the MDGs. In many
areas Bangladesh aims to do better than prescribed by the MDGs
• The 2011-2015 plan also recommends reforms in the country’s budget
process to facilitate achievement of national objectives
• The planning commission has an implementation, monitoring and
evaluation unit to track progress on the MDGs and other targets
5
Is National Planning Appropriate?
• The answer may depend on a country’s stage of development
– Other conditions, such as the political or administrative structure, are relevant
• Few highly-developed countries have national planning systems
– Korea terminated its planning ministry a few years ago because the
government perceived that it needed different policy instruments once it
developed
• Fragile countries generally have ineffective planning systems
– Their plans promise more than the government can deliver
• Countries that are developing have the most potential for national
planning
– Their plans can prepare the way for investments and policy initiatives that
stimulate development
• Current circumstances appear highly favorable for national planning
– The fact that many Asian countries are developing indicates they can make
effective use of formal planning systems
6
It is Difficult to Integrate
Planning and Budgeting
• Planning and Budgeting usually are managed by different government
organizations
• Planning and Budgeting generally operate with different time frames
• Planners and Budget officials tend to have different values and
perspectives
• Planning is change-oriented, budgeting favors continuity
• Plans usually are structured by programs or sectors, budgets by
organizational units and expenditure items
• Planning focuses on opportunities to do good, budgeting on the cost of
policy initiatives
7
Planning and Budgeting Coexist:
Separate but Linked
• A country benefits from the different – sometimes clashing –
perspectives of planning and budgeting
– It is useful to plan for social needs independent of the budget
– But it also is necessary to have realistic budgets that can be financed with
available resources
• Without robust planning, there is risk that government will give
inadequate attention to the future development opportunities
– The budget’s short-term perspective would likely crowd out consideration of
policy initiatives
• But subordinating the budget to national planning would risk
weakening fiscal discipline
– Government would be tempted/pressured to promise in the plan services
that it cannot finance in the budget
• Having separate processes opens the door to incompatible plans and
budgets
– It is necessary, therefore, to encourage consistency by integrating plans and
budgets
8
Make Planning More Budget Friendly
• Introduce a budget constraint into the planning process
– Base the plan on reliable costing of policies and priorities
• Be explicit about responsibility for implementing the plan
– Give organizations or program managers authority to implement both
the plan and the budget
• Set performance targets and milestones
– Without targets it is difficult to monitor progress
• Establish procedures for updating the plan
– If it is not updated, the plan will likely be ignored in allocating the
budget
• Identify priority actions to guide budget decisions
– Plans that regard every activity as a priority do not influence the
budget
9
Turning Plans Into Policies and Actions
Through Budget Actions
The Problem
– Plans often are unrealistic about the resources needed or available to carry
them out
– Budgeting tends to be incremental: each year’s allocations differ only
marginally from the previous year’s
– Annual budgets focus on short-term issues; they lack a long-term perspective
– The resources and investments needs to achieve MDGs often are crowded
out by budget pressures
Orienting the Budget to Development Objectives
– Lengthen the budget’s time frame to the medium-term
– To the extent feasible and prudent, shift budgeting from inputs to outputs and
outcomes
– Focus the budget on progress in achieving MDGs and other targeted results
– Maintain separate but coordinated planning and budget processes
10
Planning and Budgeting in Brazil
• Planning is the dominant process, with budgeting subordinate to it. The
Brazil Constitution provides that the budget should fulfill the priorities of
the plan
• A new plan is prepared every 4 years, during the first year of a newlyelected president’s term
• The plan has features normally found in budget systems. It is
comprehensive, has a fiscal constraint and indicates resources for
each of almost 400 programs
• Each program has a designated manager who (in theory) oversees
implementation. The plan does not actually allocate money: this task is
performed in annual budget decisions
LIMITATIONS
• As the next election approaches, the gap between the plan’s priorities
and budget allocations tends to widen
• The plan’s utility as an instrument of policy innovation is severely
limited by extensive earmarking of expenditures and by spending
11
controls imposed during implementation of the budget
Make the Budget More Plan Friendly
• Integrate planning and budgeting information systems
– Planners and budgeters often use incompatible information systems
• Focus the budget on the development plans and results
– When the budget disregards objectives, planning is a meaningless
exercise
• To the extent prudent, shift budgeting from inputs to results
– Consolidate line items into broad categories
• Require the budget to specify the development changes
expected from public expenditures
– This explanation should appear for every significant policy initiative
• Lengthen the time frames for formulating and implementing the
budget
– Introduce medium-terms frameworks (MTEF) and lengthen the period
for which allotments are made
12
Using MTEF to Improve Development Results
• One year often is insufficient to produce significant results;
lengthening the budget’s time frame has the potential to
strengthen the government’s focus on results
• The link between resources and results is weak in annual
budgeting
• When the time horizon is extended, government can act on
the basis of the resources that will be available over the full
MTEF cycle
• To target results, it is important to establish short-term
milestones for monitoring progress
• MTEF can achieve its potential only if the budget actually
finances the activities and services required to produce
results
13
What the Medium-Term
Expenditure Framework Does
• Extends the time frame of budgeting from one year to 3-4 years
• Establishes a expenditure constraint on budget decisions
• Projects the future cost of existing programs and policy changes
• Restructures budgeting to focus on results
• Gives spending units incentives to reallocate resources
• In some countries, divides the budget process into framework and
estimates stages
• Activates procedures to assure that policy changes conform to budget
constraints
• Rolls the MTEF forward each year by dropping the first year and adding a
year at the end
14
MTEF Korea Style
•
MTEF introduced as part of comprehensive budget reform that included
performance based budgeting
•
MTEF was accompanied by top down policy and fiscal guidance, and devolution
of expenditure management to line ministries
•
MTEF was initiated by the budget office to prepare for future social expenditure
growth and to enable policy makers to allocate resources strategically
•
The planning function was folded into a broad Ministry of Strategy and Finance
•
The MTEF includes economic and expenditure forecasts, and future fiscal policy
guidance and goals
•
Expenditure are distributed among 16 sectors, with a resource ceiling for each
•
MTEF is integrated with the annual budget, in a year-long process that begins
with budget office spending guidelines to line ministries in January, ministry
budget submissions in June, submission of the budget to the National Assembly
in October, and adoption of the budget
•
The Strategy and Finance Ministry gains more effective management of fiscal
policy and policy initiatives, and line ministries gain greater discretion in
managing their finances
15
How the Annual Budget Is Affected by MTEF
• Government continues to prepare an annual budget when it adopts
MTEF
• The budget becomes the first year of the Medium-Term Framework
• When it is approved, the budget authorizes expenditure for the next year,
in contrast to MTEF which only indicates expenditure for future years
• The annual budget is not a separate process: it should be fully integrated
into the MTEF
• When it budgets for the year immediately ahead, government projects
the medium term expenditures from current decisions, and specifies
expected medium-term program results
• Government uses the annual budget to allocate money for policy
initiatives over the next 3-4 years
16
Implementing Performance-Based Budgeting
(PBB) to Improve Public Services
• PBB allocates funds on the basis of actual or expected results
• There is no standard definition of PBB: countries differ significantly in
the way they define and implement it
• Many countries define PBB as a system of budgeting that displays
the outputs or services provided by each spending unit
• This form of PBB does not require significant changes in budget
practices or in public management
• A few countries have PBB systems that link each increment in budget
resources to an increment in output or to changes in outcomes
• Implementing this type of PBB does require fundamental changes in
budgeting and management
• However, the closer PBB links resources and results, the greater the
likelihood that it focuses on outputs rather than outcomes
17
Combining Performance-Based Budgeting and
Medium-Term Frameworks in a Single Process
Facilitates Development
• Countries that treat PB and MTEF as separate innovations, risk
reform confusion and fatigue, and end up with different data
and labels
• The two reforms are interdependent: MTEF needs PB to define
the results budgeted for the medium term, and PB needs
MTEF’s longer horizon to achieve its targeted results
• When government budgets for the medium-term, the key issue
should be: What difference will allocating additional money
have on its goals and targets?
• When government prepares a performance-based budget, the
key question often is: How can society achieve results that take
more than one year to accomplish?
18
MTEF/PB Changes
the Role of the Central Budget Office
• In many developing countries, the primary role of the budget office is to
control public finance
• It performs this role by monitoring expenditures during the year and
controlling actions by spending units
• Line-item budgeting, which focuses on inputs, is the traditional form of
control-based budgeting
• MTEF/PB continues these roles, but subordinates them to the policymaking functions of budgeting
• In MTEF/PB, the principal role of the budget office is to manage policy
changes by measuring their impacts on current and future budgets, and
assessing whether they are in accord with government priorities, and they
can be accommodated within fiscal limits
• The extent to which the budget office shifts from control to policymaking
depends on the country’s financial condition and the reliability of its
management systems
19
Is Your Country Ready for MTEF/PB?
• Many countries claim to have MTEF/PB, but few have effective
systems
• Some countries that have MTEF/PB lack the political will and
administrative capacity to operate a Medium-Term Framework
• Several characteristics of its budget process indicate whether a
government should introduce MTEF/PB
– First, does the country have a reliable budget system? If there is significant
variance between budgeted and actual expenditures, MTEF/PB will probably
be ineffective
– Second, does the government have capacity to produce reliable economic
data and forecasts? Implementation of MTEF/PB depends on these forecasts
– Third, does the government produce timely and accurate financial reports?
Without these reports, MTEF/PB lacks credibility
– Fourth, does government have the capacity to measure the future budgetary
impacts of policy decisions? These estimates are a vital feature of successful
MTEF/PBs
– Finally, is the country’s fiscal condition highly volatile and uncertain? If it is, it
will be difficult to make firm Medium-Term decisions
20
MTEF/PB Does Not Guarantee
Effective Allocation
• If MTEF/PB is not used for allocation, it is useless
– Many countries have an MTEF/PB but do not base budget decisions on it
• MTEF/PB must become the government’s budget process
– Some countries have an annual budget plus a separate MTEF/PB
• MTEF/PB should be used by political leaders to set fiscal policy
and spending priorities
– If MTEF/PB is treated as a technical exercise, politicians will not pay attention
to it
• MTEF/PB should focus budgeting on policy choices
– If budgeting is used to control the details of spending, MTEF/PB will not be of
much value
• MTEF/PB should be a rolling process: Last year’s decisions should
be the starting point
– If the budget disregards medium-term decisions, MTEF/PB may damage the
country’s financial position
21