BHUTAN -
WORKSHOP ON PEM
MTEF EXPERIENCES OF OTHER
COUNTRIES
Mike Stevens
Introduction
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MTEFs frequently recommended by Bank
But the record is spotty
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MTEF unit busy developing new processes, but annual budget still
made the traditional way
Political leadership has little understanding of MTEF and what it
means to spending choices
Launched with fanfare, MTEF soon crashes
Closer inspection reveals it never changed budget behaviour
Some Questions to Ask
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Thus PEM specialists in Bank are stepping back and
asking - what have we learned from nearly a decade of
MTEFs?
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What has happened in countries attempting a MTEF?
Has the MTEF gained traction on annual budget-making?
Did we get the technical design recommendations right?
What were the other PEM reforms the country needed to pursue?
Was the sequence of reform right?
Did the finance ministry have the technical capacity to lead PEM
reform?
Did policy-makers understand the ambit of reforms and back
them?
Some emerging answers
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Unquestionably MTEFs are a desirable component of
budget reform.
All major OECD countries make annual budgets within a
MT framework, with good reasons:
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Every major OECD country has a medium term fiscal strategy
Correcting 3 decades of incremental budgeting resulting in
unsustainable taxation levels and deficits
Demographic change and inter-generational effects (LT
framework)
Changing the incentives of departmental budget making, shifting
from adversarial conflict to emphasis on performance
Developing country arguments for
MTEFs
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Poorer countries have just as many reasons for making
annual budgets in a medium term framework
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Classic argument – to capture incremental recurrent costs of
investment projects
Fitting PRSP policies and programs into budget – pro=poor
spending typically has high cost drivers
Implementing Civil Service Reform – managing wage bill change
Changing role of government implies portfolio spending shifts
Planning implementation of big ticket policies: funded pension
schemes, reducing arrears, rescheduling and reducing debt
Managing revenue volatility (eg: mineral revenue dependent)
Improving budget predictability, escaping cash release budgeting
Three African Examples
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South Africa: Well functioning MTEF on second try, driven by need
to control deficit, reduce debt, reallocate spending across and within
ministerial portfolios, and change the culture of budgeting from
incrementalism to performance, strong National Treasury
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Ghana:
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Uganda:
Ambitious MTEF, integrating current and capital
budgets, new budget classification system, accounting changes,
performance indicators, MTEF run by separate PIU
Less sophisticated but more durable, retained dual
budget, delayed performance indicators, lengthened budget calendar,
highly participatory, strong MF
Three critical questions
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Does MTEF fit into sequence of PEM reform?
Is the design of the MTEF right?
Is the finance ministry strong and competent and the
political leadership on board?
What is the Sequencing of PEM reform?
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What is it that the government is trying to fix with budget
reform?
Some contenders:
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Off-budget spending
Revenue not remitted to Treasury
Aid funds outside budget
Budget classification does not permit function and economic
analysis
Dysfunctional accounting system
Weak fiscal reporting
Low development value PIP
Is the design of the MTEF right?
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Tendency in many countries to overspecify the MTEF – a
particular risk with consultants
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Not starting with a MTFF
Believing that you can launch a MTEF in selected sectors
Moving too quickly to integrating RB & DB in program structure
Prematurely incorporating performance information
Giving departments too much flexibility too quickly to determine
sector budgets within overall envelopes
Moving to concepts of “headroom” before accounting system
generates reliable costs
Is political leadership on board?
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Does the political leadership understand the new rules of the game?
How strong is the finance ministry?
Is there a clear overall strategy for PEM reform, and how well does the
MTEF fit into this strategy?
Is there institutional capacity in MF and line ministries to operate a
MTEF?
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Capacity to project revenues and spending over MT and develop fiscal
strategy
Capacity within sector ministries to move beyond incremental budgeting
Capacity of MF to play a challenge role
Conclusions
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Three key questions to ask before embarking on a MTEF
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How does the MTEF fit with other PEM reforms and their
sequencing? (If not, more dialogue on budget reform priorities
may be needed). What is the budget problem that needs fixing?
Is the MTEF design appropriate? (Keep it simple: MTFF and topdown portfolio envelopes, maintaining MF scrutiny)
Is the finance ministry politically and technically strong?(If not,
risk is that MTEF and most other PEM reforms will founder).