PUBLIC EXPENDITURE MANAGEMENT REFORM IN TURKEY:
TRANSITION TO MEDIUM- TERM EXPENDITURE SYSTEM
HÜSEYİN GÜÇLÜ ÇİÇEK
SERDAR ÇİÇEK
University of Suleyman Demirel, TURKEY
Abstract
Public Expenditure Management (PEM) which can be defined as efficient, effective and
sensitive allocation of resources is a basic instrument of government policy. “Public
Expenditure Management Reform” which mostly involves institutional and
administrative regulations and gradually becomes widespread in many countries has
approximated public sector to private sector at a large extent.
This approach, which was put into practice by World Bank from the beginning of 1980’s,
like in a good number of countries, has accelerated the tendency for implementation with
2000-2001 crises in Turkey.
In this paper, “Medium-Term Expenditure System” which probably forms the most
important step of Public Expenditure Management Reform, has been discussed and the
expenditure system has been evaluated by “5018 No. Public Financial Management and
Control Law” which came into force in Turkey 01.01.2006.
Keywords: Public Expenditure; Reform in Turkey; Medium-Term Expenditure System;
5018 Numbered Public Financial Management and Control Law
Introduction
The core of public finance depends on spending someone’s money by some other people.
In democratic countries, this process has been constructed by the voters to whom they
have given the public force elected by themselves (Shah, 2007, p.27).
This case is the basic characteristic of public finance (Von Hagen, 1998, p.1).States act as
determining basic players of the performance in economy by forming the main frame of
the market economy with the accumulation of the revenues and expenditures
accomplished. However, the growing fiscal burdens as a result of the expansion of the
state economy have become a barrier in the development of the economy. Especially,
during the recession in 1980, Naomi Caiden, a budget theorist, has made a clever warning
on “the work of public budget has increased extremely more complicated, abstruse and
worrying (Hou, 2006, p.730). How far this warning made by Caiden was taken into
account has found a response by re-experienced 2001 recession.
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State budgets, through revenue and expenditures units, keep its importance in economy
increasingly today as in the past. The increasing significance of budgets in economy has
obliged utilizing new techniques in managing it.
Particularly, the significance of the budget’s expenditure unit has been stressed by both
theorists and practitioners through their studies. Since the application of initial state
budgets, the achieving of sources, effective and productive usage, source allocation,
deficits and gradually increasing public loans have continued to become a problem.
Owing to these reasons, scientific studies made heavily depend on state budgets’
expenditure direction in the last twenty years in particular. The public expenditure
management presents new approaches for these former problems mentioned (Schick,
1999, p.1).
Nevertheless, public expenditure management, while presenting new approaches, differs
at these two points by not denying traditional budgeting exactly. Firstly, it includes
political rules into traditional routine rules. Secondly, it gives importance to institutional
and administrative arrangements instead of traditional partnerships. The prerequisite of a
good financial performance can be covered through a good institutional arrangement
during budgeting (Shah, 2007, p.48).
1. Public Expenditure Management Concept
States act as determining basic players of the performance in economy by forming the
main frame of the market economy with the accumulation of the revenues and
expenditures accomplished. However, the growing fiscal burdens as a result of the
expansion of the state economy have become a barrier in the development of the
economy.
The government expenditures, as in the past, still keep its importance today. Especially,
despite the fact that it has already been proved in literature that the public expenditures
have continually been increasing owing to various reasons, the problems related to
essential, effective, productive and on time-using of the increasing public expenditures
have gradually been enlarged. As a result of increasing public expenditures, various types
of researches have begun among mainly the lender states and international organizations.
Through these researches, a new management perception called as “New Public
Management” in literature based on accountability, transparency, participation, sharing,
performance management (focusing on targets and outputs and decentralization) has
occurred. As well as the new public management perception, a crucial change has also
been experienced in “public fiscal management” perception.
In practice, the regulations made after these dates, particularly targets and realizations of
“medium-term expenditure system”, have been examined in details and the criteria such
as institutional regulations, fiscal responsibility, transparency, fiscal discipline,
government priorities and compatible resource allocation and efficiency of public
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services that are heavily stressed and published by World Bank’s 1998 “Public
Expenditure Management Handbook” have been taken into account.
Public expenditure management (PEM) is a basic means of government policy
distributing and utilizing sources productively, effectively and sensitively (Allen,
Tommasi, 2001, p.19).
A clear distinction occurs between expenditure management and expenditure policy.
While expenditure policy is trying to find an answer for the question “what”, expenditure
management tries to find an answer for the question “how”.
This is a reality that while forming strict borders between policy and application gives
way to special aimed applications, it causes bad policy and applications in time as well.
However, the distinction between durability of method and processes of public
expenditure management and the goals it wishes to realize is very significant. Besides, the
necessary mechanisms, techniques, skills and data are different from the ones needed for
formulating a good policy. So, the analysis and discussion here is usually applicable
without state’s political preferences and strategical priorities.
2. Public Expenditure Management Development
Public Expenditure Management approach was put into practice in the early years of 1980
by World Bank and this approach has been improved at a large extent so far (Rajaram,
Krishnamurthy, 2001, p.2).
In particular, institutional and administrative arrangements are of great importance.
Especially, it has been observed that expenditure allocations, provisions, financial
management and evaluations which form the significant units of public expenditure
management approach have been followed by the countries at an increasing ratio after the
year 2001.
However, another face of this development is that struggling by World Bank (WB) and
International Monetary Fond (IMF) towards this direction in particular has facilitated the
collection of revenues from HIPC’s for these institutons. The economical programs of
member states by World Bank and IMF for public expenditure management approach
have begun as public investment reviews (PIRs) and investment projects have taken
priorities. Public expenditure reviews (PERs) took place of public investment reviews
(PIRs) owing to increasingly broadening budgets in 1980s. In West Africa alone, a total
of 27 PIR/PERs were undertaken over the first half of the 1980s (Rajaram,
Krishnamurthy, 2001, p.2).
Particularly, during this period, it is seen that public expenditure reviews were heavily
focused on budget allocation.
In order to provide a better balance among various expenditure categories, it has been
focused on capital expenditures instead of current expenditures, repair and maintance
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instead of prices, subvansion (or monetary aid) instead of investment expenditures
(Rajaram, Krishnamurthy, 2001, p.2).
In this period, while institutional arrangements such as budget management carry less
importance, the narrowing of budgets by central governments is of greater significance.
These approaches suggesting the lessening of central government’s expenditures have
met a great reaction in many societies. By institutional arrangement approach in 1980s,
public management understanding has become more widespread. The 1983 World
Development Report was entitled Management in Development, and this report led to the
establishment of a unit in the Bank focusing on core issues of public sector management
(PSM).Public sector management has developed basic experiences and literature of public
expenditure approach. This experience was summarized in the 1987 World Development
Report by the management.
In Douglass North’s (1993 Nobel Prize Winner) study, the stress of institutional
arrangements in the development of both private and public sector has led the Bank’s
attention concentrate on this direction. Examining the World Bank’s studies, it is possible
to see “medium-term expenditure system” which forms the most important step of public
expenditure management and budget rules.
It is seen (World Bank, Public Expenditure Management Handbook) that a substantial
amount of “public expenditure management handbook (1998)”, which is one of the basic
sources of this study, has been covered by institutional arrangements and medium-term
expenditure system.
This approach shapes the state budget and stresses the understanding “rules of the game”
in practice. Today, these institutional approaches provide the definition of public
expenditure management as “public expenditure and institutional reviews” (PEIRs)
approach (Rajaram, Krishnamurthy, 2001, p.4). These approaches made on weak
institituonal arrangements and public managements have given an opportunity to recollect the revenues given by the World Bank and International Monetary Fund in
particular.
The World Bank has supported (see, World Bank Annual Report, 2000, p.110) many
countries both technically and financially in terms of their harmony with medium-term
approaches in public expenditures.
Today, many countries have been able to develop (Rajaram, Krishnamurthy, 2001, p.5)
their instutitonal capacities for conducting budget allocations and budget plans better
through public expenditure management. In the next years as well, it can be told that
public expenditure management is going to maintain its feature of being an important
means and basic guide in this sense.
Public expenditure management approach has been taken into consideration not only by
World Bank and IMF but also The Organization for Economic Co-operation and
Development (OECD) and European Union has supported this approach.
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As a result of both institutions’ cooperation, so as to provide a better management in
public, “Support for Improvement in Governance and Management in Central and
Eastern European Countries” (SIGMA) has been constructed.
“The Transition Economies Public Expenditure Management Handbook” placed by this
program in 2001 has provided the development and widening of public expenditure
management approach.
3. Public Expenditure Management Basic Goals
Although public expenditure management system varies from country to country, it
necessitates (Campos, Pradhan, 1997, p.425) accomplishing some complicated and
determined duties. While executing these duties, it is inevitable to admit some basic
principles.
The basic goals (principles) of public expenditure management are accomplishing macro
financial discipline, strategical priorities (productive source allocation) and functional
application (technical productivity). All three goals are in very strong interaction (World
Bank, Public Expenditure Management Handbook, 1998, p.3) both theoriticaly and
practically.
The allocation of sources in harmony with strategical priorities and its effective and
productive usage constitutes a sounder ambience for the performance (World Bank,
Public Expenditure Management Handbook, 1998, p.3).
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Chart 1: Public Financial Management: Output-Outcome Matrix
PFM Outputs
PFM Outcomes
Institutional
Arrangements
Medium-Term Expenditure Framework
Central Expenditure Controls/Sanctions
Hard Budget Constraint
Budget Comprehensiveness
Official (Formal) Restrictions
Strong Expenditure Management
Target
Revenue/Expenditure
Ratio Achieved
Accountability
Ex Post Reconciliation Of Expenditures
Sanctions Applied For Agency
Overexpenditures
Openness Of Financial Market
Reduction İn Agency
Overspending
Transparency
Publication Of Fiscal Results
Public Openness
Freedom Of Press
Fiscal Discipline
Source Distribution in Harmony with Government Priorities
(Strategic Priority)
Institutional
Budgetary Planning Consultative
Arrangements
Allocations/Strategic Targets Linked
Line Agency Allocation Discretion
Usage Of Objective Criteria
Accountability
Outcomes Reported
Ex Post Evaluation Of Results
Transparency
Stakeholder Voice Mechanisms
Outcome Performance Published
Productivity in Public Services
(Technical Efficiency)
Institutional
Civil Service Reformed
Arrangements
Relative Line Agency Autonomy
Sorumluluk
Accountability
Accounts Audited
Personnel Policies Performance-Based
Service Delivery Standards
Customer Satisfaction Surveys
Transparency
Program Performance Publicized
Client Voice Mechanisms
Budget
Expenditures/Strategic
Goals Matched
Service Delivery
Efficiency Maximized
Source: Campos, Jose Edgardo and Sanjay Pradhan, 1997, p.426 and Publıc Expendıture Management
Handbook, 1998, p.143.
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3.1. Fiscal Discipline
Fiscal discipline has a close relation with the control of budget magnitudes effectively
and it assumes a binding role on both macro level and expenditure unit by means of
expenditure ceilings (Allen, Tommasi, 2001, p.19).
In macro financial discipline, budget totals do not only arrange expenditure demands;
results in decisions applicated must be clear as well.These totals should be set before
individual spending decisions are made, and should be sustainable over the medium-term
and beyond (Schick, 1999, p.2).
The initial purpose of all budget systems (traditional or modern) is to provide an effective
control on total expenditures. Those who are authorized in public expenditures are going
to try to keep their expenditures at the highest level without central controlling.
In this level, application is of great importance.In providing financial discipline, utilizing
effective rules leads to differences among countries. While some countries barely comply
with the rules related to current expenditures, some applicate these rules in capital
expenditures as well (Schick, 2001, p.14).
Providing financial discipline covers expenditure controls, and it necessitates struggling
for realistic income and expenditure approximations.
As shown in chart 1, this case is related to the dominant role (duties assumed) and macro
economical aims of spending institution that are desired to be reached. Institutional
arrangements for aggregate fiscal discipline can range from formalconstitutional restraints
on aggregate expenditure (Indonesia) through formal laws (Maastricht, New Zealand,
Australia) to public commitments by the executive (with or without the commitment of
the legislature - U.S.) (World Bank, Public Expenditure Management Handbook, 1998,
p.27).
Commitments of this nature can usefully be supported by formal legal requirements that
all government revenue be paid into a single fund and only be available for spending
where there is an appropriation of funds by the legislature. All of this should be
supplemented by restraints imposed by financial markets and a free press (World Bank,
Public Expenditure Management Handbook, 1998, p.27). For many countries,
international financial institutions may play a key role, particularly in the absence of open
financialmarkets. Independent Central Banks can also play an important role in
disciplining aggregate expenditure (World Bank, Public Expenditure Management
Handbook, 1998, p.27).
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3.2. Source Distribution in Harmony with Government Priorities (Strategic Priority)
Efficieny in allocation is the skill of distributing sources in budget priorities. Here,
replacing inefficient activities with more productive activities, leaving former priorities to
newer ones and accomplishing these values in line with the state’s goals are of great
significance (Allen, Tommasi, 2001, p.20).
As seen in chart 1, efficieny in source distribution can be done among various units of the
state.Expenditures must be base on the government’s priorities and the efficiency of
public programs. Budget system should act according to each importance step of reallocation of sources (Schick, 1999, p.2).
3.3. Productivity in Public Services (Technical Efficiency)
The effective utilization of budget sources as technically and functionally depends on
applicable capacity of programs and providing of services with lower cost or minimizing
per capita (Allen, Tommasi, 2001, p.20). Competing of public administrations with
market prices and obtaining sustainable gains is contingent upon producing assets and
services with the lowest cost (Schick, 1999, p.2).
4. Budget Concept
The word “budget” (As “budjet” in Middle English) meant King’s wallet (Shah, 2007,
p.57). As for today, it can be called as basic policy document of public financial
management that besieges all incomes and expenditures of public (OECD, p.7). These
comprehensive documents, politically, are public management tools for curbing illegality
and raising democracy. In terms of administration, it means planning of legislation and
administrative units’ coordination; technically, improving of managerial productivity
(Hou, 2006, p.730).
Seperately, state budgets can also be defined as keeping the registrations of income and
expenditures of the governmentwhich belong to a definite time period (Shah and Von
Hagen, 2007, p.28).
The budgeting institutionals and budgeting period execute some significant basic
functions. These functions are as follows (Shah and Von Hagen, 2007, p.27);
-
Allocation priorities of public sources
-
Planning for succeeding political goals
-
Providing financial control of the rules and harmonious input
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-
Providing managerial function with financial savings
-
Providing confidence of taxpayers through honesty and accountability
In addition, the other functions of states budgets are providing economical growth and
employment and re-destribution of incomes in economy (Premchand, 2001, p.1023).
However, it is disputablewhether budget reflects political priorities or economical
priorities7.
4.1. Medium-Term Expenditure (Budgeting) Concept
Medium-term expenditure system (MTEFs) is estimation for sources affecting political
changes and new programs and arranging budget necessities in future with multi-year
expenditure planning applications (Pearson, 2002, p.1). Medium-term expenditure system
is a basis for measuring the effects of political changes on budget.
Mediu-term expenditure system provides an opportunity for viewing the comparison with
financial magnitudes during the application of budget expenditure (Schick, 1999, p.13).
The system has been realized in a form of planning the next three years of government
expenditures and it depends on the limits of expenditure, aimed income, financial posture
of government and loan management policies (Africa Research Bulletin, 2005, p.16547).
Medium-term expenditure system includes distribution of sources from upper part to
bottom, estimation of present short and medium term political costs from lower part to the
top, and the harmony of these costs with available sources in the end (World Bank, Public
Expenditure Management Handbook, 1998, p.48).
Source distribution from upper part to bottom is a macro economical model estimating
revenues and outgoings and displaying financial target including high cost price programs
such as financial obligations and public service reform where the government has put into
service on the basis (Le Houerou, Taliercio, 2002, p.2).
Sectors engage in reviewing from the lower part to top by examining sector policies and
activities with a point of view optimizing inner sector allocations in order to complete
macro economical model (like zero-based budgeting approach) (Le Houerou, Taliercio,
2002, p.2).
Medium-term expenditure system is an expenditure planning orientating expenditures
with political priorities and making it possible to connect to a definite method with
budget realities and presenting connective frame (World Bank, Public Expenditure
Management Handbook, 1998, p.3). The system is contingent upon safe commitments in
reaching at macro financial discipline, binding of budget to a definite technique and
7
See on the issue that budget reflects political priorities much more: Stefania Fabrizio and Ashoka
Mody, “Can budget institutions counteract political indiscipline?”, International Monetary Fund
Journal Economic Policy October 2006
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strategical priorities of the government and central units for the allocation of public
sources (World Bank, “What is MTEF”).
In many cases, the needs exceed reachable sources quite a lot and medium-term
expenditure management provides technical help on the issue of allocating these limited
sources to decision makers for specialized activities taking place in sector or intersectorally (ministry or institutions) (Muggeridge, 1997, p.7).
If the problem is that there exists no link among creating policy, planning and budgeting,
medium term expenditure system has been viewed as potential solution (Le Houerou,
Taliercio, 2002, p.2).
While creating policy, planning and budgeting periods are given as pre-requisites of
developing countries’ managements, medium term expenditure system has gradually been
seen as central element of public expenditure management reform (PEM) (Le Houerou,
Taliercio, 2002, p.2).
4.2. Medium-Term Expenditure System Levels
Medium-term expenditure system period consists of three basic steps shown in chart 2
(Muggeridge, 1997, p.8).
Chart 2: The MTEF Process
Step One
Step Two
Step Three
Macroeconomic Framework
Available resources
Sector Requirements
Based on objectives, policies and targets for
each sector
Matching resources with
priorities
Annual budget
Source: Muggeridge, Elizabeth, 1997, p.8
First step is estimating of available inner and outer sources in medium-term (three or five
year periods). These estimations provide preparation of macro economical frame and its
up to date (Muggeridge, 1997, p.8).
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Second step is estimating of available costs of government policies and targets in each
sector in most countries, problems with planning and budget systems mean that the actual
costs of policies, such as free primary education are not easily available. However this
information is necessary for assessing the impact of either reducing or increasing
expenditures in particular sectors (Muggeridge, 1997, p.8).
Third step, putting this information together in an expenditure framework as the basis for
making decisions on how resources will be allocated to the sector ministries. As the
needs will exceed the resources, the framework can be used to show the cost of particular
policies and targets (Muggeridge, 1997, p.8). Expenditure frame is going to provide the
best definition of the knowledge of political costs in all sectoral offices and related
institutions.
Chart 3: The Six Stages of a Comprehensive MTEF
Stage
I. Development of
Macroeconomic/F
iscal Framework
II. Development of
Sectoral Programs
•
•
•
III. Development of
Sectoral
Expenditure
Frameworks
IV. Definition of
Sector Resource
Allocations
V. Preparation of
Sectoral Budgets
VI. Final Political
Approval
•
•
•
Characteristics
Macroeconomic model that projects revenues and
expenditure in the medium term (multi-year)
Agreement on sector objectives, outputs, and
activities
Review and development of programs and subprograms
Program cost estimation
Analysis of inter- and intra-sectoral trade-offs
Consensus-building on strategic resource allocation
•
Setting medium term sector budget ceilings (cabinet
approval)
•
Medium term sectoral programs based on budget
ceilings
Presentation of budget estimates to cabinet and
parliament for approval
•
Source: PEM Handbook (World Bank, 1998: 47-51), adapted, Publıc Expendıture
Management Handbook, 1998, p.47-51, reported from; Le Houerou, Taliercio, 2002, p.3
MTEF states a successive period where each MTEF follows each other every other year.
As seen in the following chart, each MTEF prepared covers next three years. The latter
MTEFt+1 takes the year stated as first year following former MTEFt’s budget year as
budget year (second year) and carries this process further with one extra year (fourth
year).
MTEFt+2 again, similarly, include the fifth year by widening of source utilizing period
planning according to the beginning.
212
Chart 4: Successive MTEF Process
Current
Year
First Year
Second Year
Third Year
Fourth Year
Estimated
Year (Budget)
First Year
Following the
Budget Year
Second Year
Following the
Budget Year
Current Year
Estimated
Year (Budget)
First Year
Following the
Budget Year
Second Year
Following the
Budget Year
Current Year
Estimated Year
(Budget)
First Year
Following the
Budget Year
Fifth Year
MTEF t
MTEFt+1
Second Year
Following the
Budget Year
MTEFt+2
Source: Hakkı Hakan Yılmaz, (accessed January 13, 2008), [available at
http://ekutup.dpt.gov.tr/kamumali/yilmazh/dunyaba1.doc]
4.3. Medium-term Expenditure System Differences
We can show differences of medium-term expenditure system from classical budgeting
and planning with following items which are defined in details at the top.
- System covers at least 3 or 5 year periods. However, having a three or five year system
does not necessitate withdrawal of annual budget. Annual budget have been put into
practice again but revised every year. A rolling structure is mentioned in the system.
- The basis of the system and starting point depend on governments’ policies and is a
concreted type.
- The repeating structure of the system every year makes it different from development
plannings. While development plannings cover a stagnant structure, medium-term
expenditure system includes a dynamic structure.
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Medium-Term Expenditure
Traditional Budget System
System
3 yearly
1 year
Long term in terms of macro Short term in terms of macro financial discipline
financial discipline
Politics-Budgeting relation has
been set up
Focused on performance (output)
and result
Providing
autonomy
for
administrators
Policies are usually being made independantly out
of source realities
Focused on input
Administrators can not act easily owing to the
detailed input controls
Source: Demirbaş, Tolga, 2006.
5. Public Expenditure Management Reform in Turkey
As in many countries, people talk about the necessity for reforms in numerous areas such
as agriculture, universities, banking sector, privatization etc. However, a distinctive
recession is met when it comes to public expenditure management reform, unfortunately.
This has a lot of reasons. Mostly, the elected ones and bureaucrats do not want to
leave the opportunities possessed. On the other hand, expenditure management reform
has been realized as a result of the discussions and evaluations on this issue.
Aiming re-definition of budget system according to international standarts, providing
budget and accountancy unity in all public administrations under the scope of general
management and forming a financial management and control system in compliance
with European Union applications, 5018 Numbered Public Financial Management and
Control Law was put into practice in 2006 (Ministry of Finance, 2006, p. 49).
Basic elements accelerating and triggering reform movements in public financial
management in Turkey have not developed as different ones than of similar countries.
At the top of these elements, not being able to have a macro fiscal discipline in Turkish
budget system takes the first place. While budget system sticks to “unity principle” hard
at the beginning, in time, processes such as funds out of budget, semi-fiscal procedures
like charge losses have accelerated these deviations (Undersecretariat of Treasury, p.1).
This case has been observed to appear especially after the year 1980. Not being able to
provide a macro fiscal discipline has also been affected by not setting into an effective
macro economical frame of budget process, possessing from “bottom to top approach”
significantly, and having lax “budget beginning subsidies” (Demirbaş, 2006).
Another element is that Turkish budget system does not have a structure to present true
information towards decision makers and society. Again, relations between plans and
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budgets to be implemented have become depraved. So, the priority between sources and
expenditures has become corrupted (Undersecretariat of Treasury, p.1).
The effective and productive utilization of public sources have been hindered by our
budget system as well. Making the system dependent on strict preliminary controlling and
visa applications direct expending administrations towards sources out of budget and the
very itself of control mechanisms which are put into practice spoil the budget system. In
such an ambience, no incentive mechanisms that are going to recover the quality of public
services can be developed (Undersecretariat of Treasury, p.1).
The loss of credibility for development plan and annual programmes and lacking of
managerial independence have all been influential in not providing the effectiveness for
the allocation of sources (Demirbaş, 2006, p.186). The budget can not be supervised in
details. Here, although Turkish Government Accounting Bureau has a lot to do on this
issue, its controlling area has been constricted in time. In addition, owing to the fact that
only supervision under the title of appropriateness for the laws has been carried out,
regulary and fruitful management of public sources can not be possible at all
(Undersecretariat of Treasury, p.1).
5.1. Central Management Budget Preparation Process According to Medium-Term
Expenditure System
One of the most significant innovations of Medium-Term Expenditure (Budgeting)
System is related to budgeting process. Budgeting process, with the exception of some
little differences, has had an opportunity to be implemented in the form developed by its
nomenclature. Medium-term budgeting process functions as follows:
Medium Term Programme: The main goal of medium-term program prepared through the
coordination of State Planning Organization Counsellorship is, on the route for European
Union Membership, to take care of all walks of society, to accelerate the economical and
social development and to raise life quality of its citizens.
Medium-term programme, presenting a consistent aim, policy and priorities set with each
other in various areas and having a three year perspective, besides its macro policies such
as growth employment etc., covers different kinds of basic development axes and main
sectors. Basic development axes follwed under five different titles are improving human
sources, strengthening social elements, increasing competition power in economy,
reducing differences among regional advancements and making a good management
widespread in public (State Planning Organization, 2005, p.83).
The programme suggests a foresight on the intentions, aims and political priorities of the
government. This programme gains speed until the end of May, signed by Council of
Ministers and is published in Official Paper.
• Medium-Term Fiscal Plan: According to the 16th article of public financial
management and control law, “in harmony with medium-term programme, together with
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total revenue and expenditure estimations for the next three years, medium-term fiscal
plan prepared by finance ministry that includes targeted deficit and debt and subsidy bid
ceilings is agreed on by higher planning board until the 15 th June and is published in
official paper (5018 numbered Law). Determined subsidy bills’ ceilings show the
maximum source allocated for institutions.
• Budget Bills’ Preperation: According to the 17th article of public financial
management and control law, public institutions, within the framework of principles
taking place in strategical plans and budget preparation guide, prepares budget revenue
and expenditure bills as justified and sends them to finance ministry until the end of July
as signed by authorities. In the meantime, these investment bills of public institituons are
submitted to State Planning Organization Counselorship in order to be evaluated (5018
numbered Law).
• Making of Budget Schemes: In cooperation with central management revenue and
expenditure budgets by Finance Ministry, these schemes are submitted to Council of
Ministers with their supplements. Council of Ministers submits budget schemes to
Turkish Grand National Assembly 75 days ago prior to fiscal New Year.
• Budget’s Becoming Law in Turkish Grand National Assembly: Council of Ministers
submits the report displaying central management budget scheme and national budget
estimations to Turkish Grand National Assembly at least 75 days ago prior to fiscal new
year. Budget schemes and report are examined by budget commission consisting 40
members. In constituting this commission, on condition that the parties in power or party
groups are given at least 25 members, its representation is taken into consideration
according to the ratio of political party groups and independents. The text to be accepted
by budget commission is discussed in Turkish Grand National Assembly and it reaches to
an agreement until fiscal New Year. Members of Turkish Grand National Assembly state
their ideas on public administrative budget during the talks on the whole of every budget
at General Meeting and articles and amendment proposals are read out and voted without
any extra discussion (Turkish Constitution). Members of Turkish Grand National
Assembly can not suggest any proposals related to expenditure raising or revenue
reducing ones during the discussions at General Meeting.
5.2. 2006–2008 Period Public Expenditure Policy Realizations
The date 01.01.2006 can be called as fiscal milestone in terms of public fiscal
management in Turkey. During this time, “General Accountancy Law” which has been
applicated approximately 80 years since 1927, was abolished and “5018 Numbered
Public Financial Management and Control Law” was put into practice instead8. This law
draws the basic frame of public expenditure management principles mentioned above. In
8
Although 5018 Numbered Public Financial Management and Control Law was legislated in
10.12.2003, it has been put into practice in 01.01.2006 to prevent some problems that may arise.
216
particular, constituting the budget, its application and supervision levels have been
determined in details. 2006-2008 period, which is the first medium-term budget planning
in Turkey, covers the years where the foundations of public expenditure policies were
laid.
For this, institutional and administrative arrangements realized according to the targets in
medium-term programme covering 2006-2008 period in economical report published by
Turkish Republic Finance Ministry in 2006 can be lined up as follows;
Perpetuating of arrangements related to expenditure reform which support significant
contributions fastidiously in continuation of fiscal discipline and aiming efficiency in
public expenditures, transparency and increasing of accountability have been stated and
the application of following policies in connection with the programme have been
announced to public opinion and have been realized at a great portion.
5018 Numbered Law is not sufficient in the arrangements of budget application on its
own. Different kinds of laws and secondary laws supporting it have been required. Once
again, internal supervision institution which is a new structure for the establishments
during this term have been tried to be constructed. Putting into practice of secondary
arrangements in accordance with Public Financial Management and Control Law and
transfer of authorities to expending institutions related to controlling and internal
supervision before expenditure anticipated in law until transition period have been
provided.
Strategical planning and performance based budgeting studies executed with the aim of
increasing policy creating capacities and accountabilities of institutions have been
intensified.
Bearing in mind the budget restriction of institutions, source allocations have been
reviewed in the frame of priorities determined beforehand, activities and projects the
priorities of which have lost their importance are eliminated.
Accrual based state accountancy and analytical budget coding are to be put into practice
in institutions out of central administration from the year 2006 as well, increases in wages
and salaries in parallel with inflation,
Re-arrangement of social expenditures aimed at social target and priorities in a form to
raise the utilization to the utmost and elevating the share of social expenditures in entire
public,
Providing norm and standart unity by taking into consideration the fiscal sustainability
and long-term actuarial balances, setting up a solitary retirement regime purified of
payments having no premium equivalents and reducing fiscal deficit of retirement system
to the ratio of national income,
Closely pursuing of the application of general health insurance in company with
transformation in health programme in order to keep fiscal burdens at a reasonable level
brought by general health insurance,
217
Determination of the distribution of the share allocated from the budget for agricultural
supports and its distribution among agricultural supporting tools in frame of agriculture
strategy document,
With a view to finance the expenditures of local managements, by making a united whole
of the allocations made from various sources, goal-based and objective utilization of these
sources are to be accomplished.
5.3. 2008–2010 Public Expenditure Policy Targets
Turkish Republic Finance Ministry public expenditures, under the context of source
restriction and economical and social input, are to be given priority by taking into
consideration its affects on potential growth and the fiscal area to be created in this frame
has been determined to utilize in line with the priorities in development axes taking place
in the programme and 2008-2010 public expenditure policy targets have been determined
as follows (2008–2010 Middle-Term Programme);
Precautions for effective utilization of financial management, internal control and internal
supervision activities in public institutions are to be taken.
Institutions are going to review source allocation in the frame of priorities determined by
taking into consideration budget restriction. In this scope, activities and projects the
priorities of which have lost their significance are to be eliminated.
Strategical planning and performance based budgeting system in order to provide
efficiency, productivity and thriftiness in source utilization is going to be made
widespread.
Wages and salaries in public sector are to be determined by taking into consideration
the inflation targeted in the frame of income policies.
In central management budget laws, restrictions related to new staff employment in
public sector are to be lasted.
A comprehensive staff reform to base simplifying wage system, eliminating imbalances
and injustices (matters pertaining to personnel), putting into practice the wage system
based on performance is to be executed.
Without making a concession in health qualities, precautions for controlling medicine
and treatment expenditures are to be taken. General health insurance is going to be
practised with transformation in health programme so as to keep the fiscal burdens to be
brought by at a reasonable level.
Economical precautions are to be taken in arrangements brought by 5510 Numbered
Social Insurances and General Health Insurance Law. Conditions benefitting from
unemployment insurance are to be recovered. In addition, the share of social expenditures
in total public expenditures is to be increased.
218
Goal-based and objective utilization of allocations made for financing the expenditures of
local managements is to be provided. Local managements are going to execute their staff
policies suited to norm positions’ (permanent staff) arrangements explained.
Chart 5- Basic Macroeconomical Indicators
2008
GDP Growth (%)
GDP (Billion Dollar,
Current Prices)
2009
2010
5,5
5,7
5,7
482.693
527.150
571.154
4,0
4,0
CPI Endyear (%)
Source: Medium-term Programme 2008-2010
Political priorities taking place in medium-term programme and medium-term fiscal
planning and central management budget allocation bills’ ceilings determined in a base of
economical classification by depending on macro economical indicators are shown in
chart 6.
Chart 6: The Ratio of Central Management Budget Expenses to Gross Domestic Product
(%)
2008
2009
2010
31,4
28,8
27,4
23,1
22,5
21,9
6,6
6,4
6,4
0,9
0,8
0,8
2,6
2,5
2,3
8,2
6,3
5,4
V.Current Transfer (6)
10,1
10,0
9,7
VI.Capital Expenses (7)
1,7
1,7
1,7
VII.Capital Transfer 8)
0,4
0,4
0,3
VII.Loan (9)
0,6
0,6
0,5
IX. Spare Allocation(10)
0,2
0,2
0,2
Central Management Budget Expenses
(1)
Expenses out of Interest
I.Personnel Expenses (2)
II. State Premium Expenses to Social
Security Institutions (3)
III.Assets and Services Buying Expenses
(4)
IV.Interest Expenses (5)
Source : 2008-2010 Medium-Term Programme
219
While budget expenses are estimated, it has been predicted that Social Insurances and
General Health Insurance Law be put into practice from the year 2008, public personnel
reform be executed in fiscal planning period, health expenses of state officers (also
people with whom they are obliged to look after) be met by the related institutional
budgets and an increase in wages and salaries to public staff in harmony with financial
opportunities and programme targets is anticipated as well.
In 2008-2010 period, it has been foreseen that ratio of central management budget
expenses to Gross Domestic Product be in a decreasing motion and be realized as 31.4%,
28.8 % , 27.4% during the years 2008, 2009 and 2010 successively.
A similar decreasing tendency is to be seen in budget expenses except of interest as well.
Similarly, it has been estimated that the ratio of interest expenses (against GDP) drop to
5, 4% in 2010 by having a decreasing tendency during this term as well. So, the pressure
of interest expenses on budget is to be reduced heavily and budget’s flexibility is going to
increase.
It has been kept in mind that a decrease should occur in the ratio of assets and services
buying expenses and current transfers to gross domestic product and the ratio of other
expences to gross domestic product be kept in the same level.
6. Conclusions
In company with globalization, the understanding of public management and public
financial management in its parallel has altered.
The assets of public have gained a much more valuable appearance than the formal ones
and the necessity for efficiency in expending public sources has become significant.
In this sense, World Bank and Multinational Financial Institutions such as International
Monetary Fund in particular state that public sources should be spent in accordance with
fiscal discipline, strategical priorities and technical productivity through their various
studies and sanctions toward members.
While succeeding this, institutional arrangements, accountability and transparency have
appeared as the most important values for countries to achieve.
As a result, Turkey has been influenced by all these developments and changes and
realized public financial management reform. The most crucial alteration brought by
public financial management reform for Turkey has been experienced during budgeting
process in company with medium-term expending (budgeting) frame.
On the other hand, at the end of this study, the following obstacles have been determined
in the application of medium-term expenditure system (multi-year budgeting):
-
The process related to budgeting has not been arranged clear enough,
220
- No determination observed on according to which performance criteria
the outputs and their conclusions of public institutions be costed and ranked
after evaluation,
- During budget application, the report trafficking between State Planning
Organization and Finance Ministry and the multitude of the number of
reports may cause troubles in practice.
- Although the system renews itself incessantly, some problems may arise
in application of the system as no changes are observed on the positions of
people who put things into practice.
- Future estimations can be seen as a right obtained by expending
institutions and this can be able to hinder the restriction of expenditures when
the necessity for correction of the estimations made beforehand.
- As an inflationist atmosphere prevails in Turkey, expectations for future
boosts in multi-year budgeting may spoil public finance balance.
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