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Building Budget CredibilityBuilding Budget Credibility
Collaborative Africa Collaborative Africa Budget Reform Seminar.Budget Reform Seminar.
11stst to 3 to 3rdrd December 2004 December 2004
FARM INN, Pretoria, FARM INN, Pretoria, South AfricaSouth Africa
2
OutlineOutline
BackgroundBackground Ownership ofOwnership of Priorities Priorities Predictability of Predictability of RResourcesesources Budget Should DeliverBudget Should Deliver with Minimum with Minimum
deviationsdeviations Lessons LearntLessons Learnt
3
BackgroundBackground
PEAP defines government macroeconomic PEAP defines government macroeconomic and poverty policy objectivesand poverty policy objectives: Economic : Economic Management, Enhancing production, Management, Enhancing production, Competitiveness, and Incomes, Security, Competitiveness, and Incomes, Security, Conflict resolution and Disaster Conflict resolution and Disaster Management, Good Governance, Human Management, Good Governance, Human developmentdevelopment
A credible budget should be consistent A credible budget should be consistent with agreed PEAP prioritieswith agreed PEAP priorities and deliver and deliver projected targetsprojected targets ..
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Building budget credibilityBuilding budget credibility
Institutionalisation of a harmonised Institutionalisation of a harmonised framework to sustain a credible budget framework to sustain a credible budget through:through:
Identification and consensus and priorities Identification and consensus and priorities (Ownership)(Ownership)
Link Budget with agreed priorities(Assurance)Link Budget with agreed priorities(Assurance) Predictability of resources (Trust)Predictability of resources (Trust) Deliverance of budget with minimum deviation.Deliverance of budget with minimum deviation.
A framework that promotes synergy A framework that promotes synergy between policies, legislation and between policies, legislation and processesprocesses
5
Ownership of Ownership of PrioritiesPriorities
Participatory approach: strategic role by Participatory approach: strategic role by stake holders thru SWAP, working groupsstake holders thru SWAP, working groups
National consultations take 18 months at National consultations take 18 months at national , sectoral and local government national , sectoral and local government levelslevels
Action oriented research, studies on sector Action oriented research, studies on sector specific,institutional and cross cutting specific,institutional and cross cutting issues (operational efficiency, equity)issues (operational efficiency, equity)
Outcomes of studies inform the decision Outcomes of studies inform the decision making processmaking process
Revision of PEAP ever three yearsRevision of PEAP ever three years
6
Trust level 1: Linking National Trust level 1: Linking National Budget to Agreed Priorities Budget to Agreed Priorities
Poverty focused & equity concern in policies and programmes
Outcome & Output Orientation MTEF Budget Consultations at national,
local government and sector levels Parliamentary involvement (Budget
Act 2001) Donor sub groups and PER
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SeSector Wide Approach (SWAP)ctor Wide Approach (SWAP) Identification and agreement of Priorities ,
targets and monitorable indicators by all stake holders
Promotes intra-sectoral linkages and synergy within the sector
Strategic allocation of resources Facilitates monitoring and minimizes
transaction cost on behalf of the donors Minimize on duplications and wastage
8
MTEF MTEF The MTEF resource envelope is consistent with
macroeconomic objectives The MTEF is three year rolling expenditure
framework, it prioritizing the expenditures within constrained resources.
It enhances fiscal discipline and provides strategic allocation of resources.
The MTEF operationalises the PEAP and SWAP at both center and local government levels.
MTEF provides sectors with predictable and stable projection of budget resources.
9
The Consultative Budget ProcessThe Consultative Budget ProcessParliament
Cabinet
Line Ministries/
Spending Agencies/
SWGs/Donors
MFPED
National Budget Workshop-Indicative Sector Ceilings-Budget & SWG Guidelines
Preparation of SectorBFP and RevisedMTEF Allocationswithin the Ceiling
Cabinet Approval of BFP/MTEF
Inter-ministerial Consultations
Compilation of National BFPAnd Updated MTEF
Submission of IndicativePlan/MTEF
Finalisation of BudgetAllocations/MTEF
Final Budget Approval
BudgetSpeech
Preparation of DetailedBudget Estimates
Oct - Dec Jan - Mar Apr - June
PER
April 1 June 15May 15
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Sectoral Shares in the MTEF: 1994/5-Sectoral Shares in the MTEF: 1994/5-2005/62005/6
0%
5%
10%
15%
20%
25%
30%
1994/ 95 1995/ 96 1996/ 97 1997/ 98 1998/ 99 1999/ 00 2000/ 01 2001/ 02 2002/ 03 2003/ 04 2004/ 05 2005/ 06
Sh
are
of
Bu
dg
et
(%)
Education
Health
Security
PA
Interest
JLO
Agric.
Water
11
PAF Expenditures 1997/98-2005/6PAF Expenditures 1997/98-2005/6
0
100
200
300
400
500
600
700
800
900
1997/98(Pre-PAF)
1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06
Sh
s B
n
Other (Land Reform, AdultLiteracy, Restocking, LGDP)
Accountability
Rural Roads
Agricultural Extension andExportsSafe Water and Sanitation
PHC
Universal Primary Education
12
Trust Level 2: Trust Level 2: Predictability of Predictability of ResourcesResources
FiscalFiscal Policy Objectives Policy Objectives Forecasting Resource envelopeForecasting Resource envelope Improving resource predictabImproving resource predictabilityility Execution of the BudgetExecution of the Budget with with
minimum deviationsminimum deviations
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FiscalFiscal policy objectives policy objectives Economic growth (7%). To fund the public goods
and services needed to run a modern state and meet the objectives identified in the PEAP
Low inflation (no more than 5%). To maintain a fiscal stance which is consistent with macroeconomic objectives. To avoid unsustainable public debt
Competitive exchange rate Foreign exchange reserves at least 5 months of
imports Growth in private sector credit. To raise domestic
revenues in a manner which does not distort incentives for the private sector or discourage work and investment
14
Resource envelopeResource envelope
MTEF = Total Inflows (Tax and non MTEF = Total Inflows (Tax and non tax revenues + donor inflows) – Total tax revenues + donor inflows) – Total outflows ( external debt servicing) - outflows ( external debt servicing) - (domestic arrears payments) .(domestic arrears payments) .
MTEF MTEF distributesdistributes the resources into the resources into sectosectoral and institutional ral and institutional allocationsallocations
Improving resource predictabilityImproving resource predictability
15
Composition of Resource EnvelopeComposition of Resource Envelope
0
500
1000
1500
2000
2500
3000
1992/93 1995/96 1998/99 2001/02
Total Revenue Domestic Revenue Grants
16
Domestic Revenues: % of GDP Domestic Revenues: % of GDP 1992/3-2003/04 (stagnating growth) 1992/3-2003/04 (stagnating growth)
0%
2%
4%
6%
8%
10%
12%
14%
1992
/93
1993
/94
1994
/95
1995
/96
1996
/97
1997
/98
1998
/99
1999
/00
2000
/01
2001
/02
2002
/03
2003
/04
Domestic Revenues
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Enhance Enhance Non Tax revenues as % of Domestic Non Tax revenues as % of Domestic Revenue and %GDPRevenue and %GDP
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
2000/1 2001/2 2002/3 2003/4 2004/5
Domestic revenue GDP
18
Donor Commitment verses outturnDonor Commitment verses outturn ( (Budget Support Budget Support in in US$ millions)US$ millions)
0
100
200
300
400
500
600
700
1998/99 1999/00 2000/01 2001/02 2002/03 2003/04
Projections Outturns
19
Fiscal Deficit as % GDP
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
Govt Expenditure Govt Revenue Fiscal Deficit
20
Budget should Deliver Budget should Deliver (Financial front)(Financial front)
Fiscal discipline by maintaining the agreed budget domestic deficit thru:
Manage expenditures within realized resources (cash budgeting).
Cut expenditures to match underperformance of domestic revenues.
Reduce foreign reserves to match under disbursements of donor funds
Supplementary expenditures are approved by parliament
Ring fencing of priority expenditures Enhance financial management,
monitoring and accountability
21
Budget should Deliver Budget should Deliver (physical performance front)(physical performance front)
Periodic monitoring of the PEAP (Poverty Periodic monitoring of the PEAP (Poverty assessment; House hold integrated assessment; House hold integrated surveys, demographic survey, integrity surveys, demographic survey, integrity survey,National Service Delivery Survey)survey,National Service Delivery Survey)
Annual Budget Performance ReportAnnual Budget Performance Report District and sector reports on PEAP District and sector reports on PEAP
targetstargets National Integrated Monitoring and National Integrated Monitoring and
Evaluation SystemEvaluation System
22
Lessons learntLessons learnt Homegrown responding to Emerging IssuesHomegrown responding to Emerging Issues Substantial investment in awareness raising and Substantial investment in awareness raising and
capacity and institutional bcapacity and institutional building uilding or restructringor restructring Budget Budget a Potential but Not sustainable Means to a Potential but Not sustainable Means to
All Political Aspirations: role of Govt Intervention All Political Aspirations: role of Govt Intervention and Balancing spending between social and and Balancing spending between social and productive sectors.productive sectors.
Targeted and Cost effective consultations versus Targeted and Cost effective consultations versus bottom up approach. bottom up approach.
Measures to counter political interference Measures to counter political interference ((necessity for ring fencing the poverty priority necessity for ring fencing the poverty priority programmesprogrammes))
Clarity on Principles of collaborationClarity on Principles of collaboration
23
THANK YOUTHANK YOU