Transcript 5. Strategic Planning in the Public Sector

Medium-Term Expenditure
Framework: Lessons
Bill Dorotinsky
The World Bank
Istanbul
June 6, 2005
Lessons in Implementation
 MTEF
 is designed to improve decision-making, and focuses
on budget formulation ---- one process for allocating
resources
 will not solve all PEM problems
 is not a standardized product, per se. The principles
can be implemented in various ways
 needs to be customized to the country, including
initial conditions in PEM, human and IT capacity
 should be viewed as a multi-year exercise, built and
improved upon annually over years
 With MTEF, and PEM reform generally, doing too much
at once can overload the Government capacity and
prevent progress on all reforms
More lessons
 Not all aspects need to be undertaken at once
 Integration of capital and recurrent budgets need not
be done immediately
 Performance information (outcomes, outputs) need
not be incorporated immediately
 Budget comprehensiveness critical, but can be
improved over time (start from where you are)
 Flexibility for spending ministries to allocate
resources across programs, subprograms, and
activities can be introduced gradually
 Many start with a medium-term fiscal framework
 Sound fiscal framework important to start
 Use as opportunity to educate policy-officials of
constraints
 MTEFs should not be launched in selected sectors until
there are medium-term ceilings in place
And more lessons
 Pressure on ministries to find resources within current
expenditures may be more successful when


accounting systems are in place to provide good
information
program and activity structure in place as focal point for
discussion, costing
 Need not be contentious between line ministries and
MoF/budget office (South Africa)
 Over-all, can be used to build consensus across
government actors (US troika)
 Consider legislatures role early
 Educate them as appropriate
 Encourage good internal legislative decision process
How to implement?
 Identify major limiting factor first
 Policy-level – high-level decision process
 Adequate policy-level input, ownership of
budget?
 Adequate trade-offs of major policy
directions?
 Adequate policy-level incentives?
 Technical – tools to support process
 Unbundling MTEF technical aspects
 Which aspect of the budget process needs to
be improved?
Unbundling MTEFs
Multi-year
Feature
PEM
Objective
Responsible
Agent
Intended Effect
Requires
Macroeconomic
forecast
Macrofiscal
discipline
Finance,
Planning or
Economy
Ministry
Provides strategic framework
for setting fiscal and
monetary policy, and allows
proactive fiscal adjustment to
changing economic trends.
Forecasting model,
capacity, multi-year
macro variable time
series, or access to
multiple nongovernmental forecasts
Multi-year
revenue, debt
sustainability
analysis and debt
policy, yielding
expenditure
envelope
Macrofiscal
discipline
Finance,
Planning or
Economy
Ministry
Sets upward bound for
expenditures, limiting
deficits, inflation, and
currency depreciations;
supports sustainable fiscal
policy, and realistic
expenditure planning within
the expenditure envelope;
supports focus on adequate
revenue mobilization.
Forecasting models.
Stronger if
relationships between
macro growth, income
distribution, and
revenues understood
and modeled. Debt
sustainability
analysis/model, or hard
rule on debt/deficit
limits.
Unbundling MTEFs (2)
Multi-year
Feature
PEM
Objective
Responsible
Agent
Intended Effect
Requires
Multi-year
forecast of
spending under
current policy or
current level of
services, by
ministry or
program
Macrofiscal
discipline,
Allocational
efficiency
(sector)
Finance,
Planning or
Economy
Ministry, or in
some cases
spending
ministries
with clear
guidance
Broad indicator of future
cost of current spending
trends, identification of
potential risk areas, and
proactive, measured, more
rational fiscal adjustment.
Baseline for evaluating
policy spending choices.
MoF provided inflators
for pay, non-pay, and
clear guidance for
projecting costs. Can be
automated. Can be
budget year only, but
more effective over
several years.
Multi-year
ceilings for sector
ministries
Allocational
efficiency
(sector),
Macrofiscal
discipline,
Operational
efficiency
Finance,
Planning or
Economy
Ministry
Enabling more realistic
planning, appropriate
policies; incentive for
reviewing existing programs
for effectiveness,
reallocations within sectors.
At center, explicit trade-offs
between sectors.
More credible if
reflecting policy
choices, which requires
some explicit policy
directions on
reallocation. More
effective in changing
behavior if approved by
cabinet or parliament.
Unbundling MTEFs (3)
Multi-year
Feature
PEM
Objective
Responsible
Agent
Intended Effect
Requires
Multi-year sector
strategy
Allocational
efficiency
(sector),
Operational
efficiency,
Macrofiscal
discipline
Spending
Ministry
Sector strategic plan links
outputs/outcomes with
inputs in multi-year
framework. Effective only if
prepared within multi-year
sectoral resource ceiling.
Strategic planning
capacity at sector
ministry, information on
outputs/outcomes of
programs, and
relationship to activities
and inputs.
Multi-year
estimates of cost
of new policies or
programs
(recurrent), or
expansion of
existing programs,
prepared by sector
ministries
Operational
efficiency,
Allocational
efficiency
(sector),
Macrofiscal
discipline
Spending
Ministry
Identifies multi-year
implications of new
initiatives relative to their
objectives, and assessment
of whether they can be
financed from within
existing sectoral ceilings or
even within aggregate
spending ceilings, and if
they are financially
sustainable over time.
Requires
guidance/training for
spending ministry staff,
and spending ministry
staff capacity; MoF
provision of common
inflators for use by
ministries (pay rates,
non-pay, capital costs).
Unbundling MTEFs (4)
Multi-year
Feature
PEM
Objective
Responsible
Agent
Intended Effect
Requires
Multi-year
estimates of cost
of existing
policies,
programs,
subprograms, or
activities prepared
by sector
ministries
Operational
efficiency,
Allocational
efficiency
(sector),
Macrofiscal
discipline
Spending
Ministries
Sensitizes sector ministry to
cost drivers, affordability of
existing policy or programs,
attention to different means
of attaining objectives, unit
cost.
Can begin at program,
and later move to
subprogram and activity
costing. Requires
trained staff at spending
ministries, agencies;
MoF guidance and
common inflators (pay
rates, non-pay, capital
costs).
Multi-year
estimates of cost
of new projects
(capital), or
expansion of
existing projects,
prepared by sector
ministries
Operational
efficiency,
Allocational
efficiency
(sector),
Macrofiscal
discipline
Spending
Ministries
Many capital budget
processes already include
such estimates, including
the recurrent cost
implications of new capital
projects.
Trained staff at
spending ministries,
guidance on costing,
understanding of project
design and work flow.