The Medium Term Expenditure Framework

Malcolm HolmesMalcolm Holmes

Three Levels of Expenditure Outcomes

Three Levels of Expenditure Outcomes

Aggregate Fiscal Discipline Aggregate Fiscal Discipline Prioritization of the Prioritization of the

Composition of ExpendituresComposition of Expenditures Technical Efficiency in the Use Technical Efficiency in the Use

of Budgeted Resourcesof Budgeted Resources

Some PrinciplesSome Principles

Transparency and accountabilityTransparency and accountability Comprehensiveness of budgetComprehensiveness of budget Predictability of Predictability of resourcesresources & policies & policies FlexibilityFlexibility ContestabilityContestability Existence and sharing of Existence and sharing of

informationinformation

Fragmentation/Lack of Comprehensiveness

Fragmentation/Lack of Comprehensiveness

Across:Across: Policy Making, Planning, BudgetingPolicy Making, Planning, Budgeting Fiscal activitiesFiscal activities Types of expenditureTypes of expenditure Sources of fundsSources of funds TimeTime Inputs, outputs and outcomesInputs, outputs and outcomes

Enabling Environment for Public Sector

Enabling Environment for Public Sector

Link Policy, Planning, BudgetingLink Policy, Planning, Budgeting Restrain decision making:Restrain decision making:

– affordabilityaffordability– cost, expected resultscost, expected results– evaluateevaluate

Forum within which policies Forum within which policies competecompete

Capacity and willingness to Capacity and willingness to reprioritize and reallocatereprioritize and reallocate..

Characteristics of Sound PEMCharacteristics of Sound PEM

Commitment, capacity & Commitment, capacity & willingness to:willingness to:

Prepare a budget (a) in line with Prepare a budget (a) in line with development priorities and (b) that can development priorities and (b) that can realistically be implementedrealistically be implemented

Specify the budget’s intended resultsSpecify the budget’s intended results execute budget as passed by the legislatureexecute budget as passed by the legislature Account for results achievedAccount for results achieved Evaluate impact of policies and programs Evaluate impact of policies and programs

and take results into account in budget and take results into account in budget preparation.preparation.

A Contract for PerformanceA Contract for Performance

The CenterThe Center More predictable fundingMore predictable funding More predictable policyMore predictable policy Specifying expected performanceSpecifying expected performance Greater transparency and predictability Greater transparency and predictability

in processes for reprioritizing and in processes for reprioritizing and reallocating resourcesreallocating resources

Leave management decisions to line Leave management decisions to line managersmanagers

A Contract for PerformanceA Contract for Performance

The LineThe Line

Living within budgetLiving within budget Clear sector strategiesClear sector strategies Using resources efficiently and Using resources efficiently and

effectivelyeffectively Reporting on resource useReporting on resource use

Using a Medium Term Expenditure FrameworkUsing a Medium Term

Expenditure Framework

Fiscal Targets (what is affordable)Fiscal Targets (what is affordable) Forward Estimates of Existing Forward Estimates of Existing

Policy Policy Institutional Mechanisms for Institutional Mechanisms for

Making the Trade-offsMaking the Trade-offs A Focus on PerformanceA Focus on Performance Enhanced PredictabilityEnhanced Predictability

Ensuring Better Resource Planning

MTEF provides structure that:MTEF provides structure that:– Disciplines policy choices within Disciplines policy choices within

realistic constraintsrealistic constraints– Translates longer-term priorities into Translates longer-term priorities into

funded programs and activitiesfunded programs and activities– Links policy and spending choices with Links policy and spending choices with

expected impact and costsexpected impact and costs– Improves predictability of policy and Improves predictability of policy and

fundingfunding

Better Resource Planning

Reflected in:Reflected in:– Matching of spending with overall Matching of spending with overall

resource availabilityresource availability– Sectoral spending coordinated with Sectoral spending coordinated with

government-wide prioritiesgovernment-wide priorities– Improved sector planningImproved sector planning– Increased effectiveness and efficiency Increased effectiveness and efficiency

of spendingof spending

7 Steps in Preparing an MTEF (Re)estimate the resource envelope(Re)estimate the resource envelope Define medium-term sectoral resource limitsDefine medium-term sectoral resource limits Prepare sector programsPrepare sector programs Review the sector programsReview the sector programs Submit revised limits to the CabinetSubmit revised limits to the Cabinet Finalize the budget and present it to Finalize the budget and present it to

ParliamentParliament Review and RolloverReview and Rollover

1: (Re)estimate the resource envelope

Forecasts of economic performanceForecasts of economic performance 3-5 year perspective3-5 year perspective Derive domestic revenue estimatesDerive domestic revenue estimates Forecast development assistance flowForecast development assistance flow

What actors are involved?What actors are involved?

2: Define medium-term sectoral resource limits

Costs of existing policies and programs--Costs of existing policies and programs--committed, contractedcommitted, contracted

Sectoral priorities of governmentSectoral priorities of government Adjust baseline to reflect strategic Adjust baseline to reflect strategic

priorities and existing priorities and existing policies/commitmentspolicies/commitments

Submit to Cabinet prior to beginning of Submit to Cabinet prior to beginning of budget cyclebudget cycle

What actors are involved?What actors are involved?

3: Prepare sector programs

Medium-term strategic plan by sectorMedium-term strategic plan by sector– Objectives, outcomes, outputs and Objectives, outcomes, outputs and

activitiesactivities– Expenditure forecastsExpenditure forecasts

Identify changes in ongoing and new Identify changes in ongoing and new programsprograms

Define spending by programs and Define spending by programs and objectsobjects

What actors are involved?What actors are involved?

4: Review the sector programs

Review and improving quality of sectoral Review and improving quality of sectoral efforts efforts – focus on broad strategic issuesfocus on broad strategic issues

Verify consistency between sectoral and Verify consistency between sectoral and government-wide objectives and spendinggovernment-wide objectives and spending

Verify costs over medium-termVerify costs over medium-term Assists sector in realigning spending in Assists sector in realigning spending in

case estimate exceeding ceilings case estimate exceeding ceilings What actors are involved?What actors are involved?

5: Submit revised limits to cabinet

MoF proposes multiyear limits on MoF proposes multiyear limits on sector spendingsector spending

Present for Cabinet approvalPresent for Cabinet approval Cabinet decision forms the basis of Cabinet decision forms the basis of

detailed budget proposaldetailed budget proposal

What actors are involved?What actors are involved?

6: Finalize the budget and present it to Parliament

MTEF budget proposal provides framework MTEF budget proposal provides framework for line agenciesfor line agencies

Line agencies prepare budget submissions to Line agencies prepare budget submissions to MoFMoF

Include indicative allocations/limits for Include indicative allocations/limits for medium-termmedium-term

MoF reviews and aggregates agency MoF reviews and aggregates agency submissionssubmissions

Considered by CabinetConsidered by Cabinet Presented to ParliamentPresented to Parliament

What actors are involved?What actors are involved?

7: Review and Rollover Maintain existing spending estimatesMaintain existing spending estimates Revise according to policy or parameter Revise according to policy or parameter

changes at specified pointschanges at specified points Begin next budget cycle using updated Begin next budget cycle using updated

estimatesestimates Consider changes in government-wide Consider changes in government-wide

prioritiespriorities (Re)estimate the resource envelope(Re)estimate the resource envelope What actors are involved?What actors are involved?