Budget reform:
making it happen
Owen Barder
United Kingdom
Reform in the real world
Budget problems in the real world
Budget Reform and the MTEF
Key steps in introducing the MTEF
Lessons
South Africa is different
Apartheid


inequality
distortion of public services
Human capital & financial administration
New quasi-federal structure
Co-operative governance
Budget problems
in the real world
Unrealistic budgets

unaffordable, undeliverable, deferred
No link to behavior

no buy in, cash controls, hidden budget, overspending,
link to policy proposals
Allocation doesn’t reflect priorities

no choice, short termist, distorted, enclaves
Spending inefficient

low productivity, poor management, corruption, poor planning
Budget problems
in the real world
Unrealistic budgets

unaffordable, undeliverable, deferred
No link to behavior

no buy in, cash controls, hidden budget, overspending,
link to policy proposals
Allocation doesn’t reflect priorities

no choice, short termist, distorted, enclaves
Spending inefficient

low productivity, poor management, corruption, poor planning
Elements of budget reform
Medium Term Expenditure Framework
Budget Policy Statement
New intergovernmental system
Public Financial Management Act
Improved financial management
Wider public sector
Budget Reform White Paper
 





MTEF: rapid success
First plan April 1997
MTEF published March 1998
Compare eg Malawi since 1994
Compare South Africa 1994-96
First MTEF 1994-1996
Spreadsheet model
Sectoral analysis
Cross-sectoral links
Cabinet away-day
Sank without trace
Why did it fail?
No political buy-in
No emphasis on choice
No link to budgets
No link to budget process
Too technical
MTEF 1998
Persuaded Government

Treasury, Cabinet, Departments
3-year spending plans all departments
Analysis to improve over time
MTEF replaced budget process
Persuasion
Three goals of budget



aggregate fiscal discipline
allocative efficiency
technical efficiency
MTEF delivers all three

especially the first two …
Target the message
Persuading Cabinet
 Political control of the budget
 Better prioritization
 Choices at budget stage
 More certainty: better planning
 More delivery
 More cooperative
 Less central interference
 Cheaper borrowing
 More spending
 “State of the art”
Persuading Departments
 More cooperative
 Less central interference
 Choices at budget stage
 More certainty: better planning
 More money (borrowing costs; unspent funds)
 Better prioritization
MTEF 1998
Persuaded Government
3-year spending plans all departments
Analysis to improve over time
MTEF replaced budget process
Benefits of 3 year plans
Better prioritisation
Better planning
Immediate
Transparent and credible
Financial discipline
More spending & delivery
Affordable policy development
Benefits of analysis
Identify choices & quantify
Link to outputs and outcomes
Accountability
Benchmarking
Better outcomes
Over time
MTEF 1998
Persuaded Government
3-year spending plans all departments
Analysis to improve over time
MTEF replaced budget process
Replacing the process
Every department involved
Competing for same resources
3 year horizon for everything
Renaming eg committees
MTEF to Cabinet, not Budget
Increased financial discpline
Lessons
Obtain political commitment


emphasise empowerment, choice, delivery
involve in process
Keep it simple


3 year plans for each department
get out of the detail
Make it matter



replace budget process
link to financial discipline
plans as baselines
Did it succeed?
Too early to tell
© Zhou En Lai
Did it succeed?
Political buy-in
Reprioritisation
Budgets matter
Disciplined policy-making
Better analysis
Co-operative governance
How to do Budget Reform
 Obtain political commitment
 Keep it simple
 Make it matter
After the break: how SA does the MTEF
The MTEF in practice
The MTEF in practice
What is the MTEF?
Affordable totals
Putting the budget together
Lessons
South Africa is different
Quasi federal structure
Cooperative Governance
Good administrative capacity
What is the MTEF?
Three year projections of:
 growth and inflation
 revenues, deficit and spending
 debt interest costs
 division between tiers of government
 spending plans by department
 statement of main outputs
 contingency reserve
}
Available
Funds
}
Spending
allocations
MTEF process
MTEF process aimed at:
 Agreeing affordable totals
 Identifying policy options
 Building consensus
% GDP
Affordable totals
Deficit
Revenue
34%
32%
30%
28%
26%
24%
22%
20%
94/95
95/96
96/97
97/98
98/99
99/00
00/01
01/02
19
89
/
19 90
90
/
19 91
91
/
19 92
92
/
19 93
93
/
19 94
94
/
19 95
95
/
19 96
96
/
19 97
97
/
19 98
98
/
19 99
99
/
20 00
00
/
20 01
01
/0
2
Affordable spending
% GDP
40
35
25
5
0
R billion
300
250
30
200
20
150
15
100
10
50
0
Getting totals right
Keep projections simple
Make public fiscal commitments
Decide totals before allocations
Building consensus
Membership
Review
Teams
Baselines
Implications of baselines
Policy options
Treasury
Affordable totals
Menu of choices
Recommendations
Ministers’
Committee
Recommended allocations
Policy choices
Cabinet
MTEF
Review teams
What?

Health, Education, Welfare, Crime, Personnel, Infrastructure
Who?

Treasury, line departments, subnational government, consultants
What?




expenditure trends
implications of baseline
costed policy options
benchmarking
Review teams
Unique to South Africa
Cooperative governance
Better understanding


Treasury of policy challenges
Departments of financial implications
Consensus building
Ongoing work programmes
Ministerial Committee
Powerful minority
Identifies options
Evaluates proposals
Recommends to Cabinet
Cabinet
Forum for competing policies
Implications of plans
Menu of policy options
Collective agreement
Most important decisions
Timetable
Apr
Departments submit
baselines
June
July
MinComBud
discusses priorities
MTEF Review
Teams identify
spending trends
and policy
options
Other
departments
plans
evaluated
Aug
Officials discuss
budget proposals
Sept
MinComBud
hearings
Oct
Treasury updates
projections
Timetable
Oct
Spending totals
proposed
Treasury summary
of policy options
Nov
Cabinet agrees totals
published in MTBPS
MinComBud discusses
allocations
Dec
Jan
Cabinet approves
allocations
Departments
allocate funds
Feb
Budget
Mar
Budget documents
prepared
Implementation lessons
Include, but control
Listen to departments
Involve politicians throughout
Avoid information overload
Decide totals first
Don’t over-prescribe
Focus on priorities
Promote transparency
Contact information
Owen Barder
email: owen@owen.org
Department of Finance, South Africa
Private Bag X115, 0001 Pretoria, South Africa
website: http://www.finance.gov.za/
The End
Owen Barder