Medium Term Expenditure Framework for Implementing Poverty Reduction Strategies Dr' Yan Wang ywang2w - PowerPoint PPT Presentation

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Medium Term Expenditure Framework for Implementing Poverty Reduction Strategies Dr' Yan Wang ywang2w

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Pre-conditions of MTEF and Issues To Be Addressed. More capacity ... Malawi. Central, 3 years. 7 sectors/recurr/cap. 1998. Tanzania. Cen/prov/local, 4yrs ... – PowerPoint PPT presentation

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Title: Medium Term Expenditure Framework for Implementing Poverty Reduction Strategies Dr' Yan Wang ywang2w


1
Medium Term Expenditure Framework for
Implementing Poverty Reduction StrategiesDr.
Yan Wangywang2_at_worldbank.orgfor NEEDS
Implementation Workshop, Abuja, NigeriaMarch
7-10, 2005

2
  • A budget is much more than
  • a collection of numbers.
  • A budget is a reflection of
  • a nations priorities, its needs, and its
    promise.
  • Alexander Hamilton

3
Overview Outline
  • Introduction of MTEF
  • International experiences African countries
  • Pre-conditions of MTEF and Issues To Be
    Addressed
  • More capacity building /training needed
  • Implementation Strategy for Nigeria to be
    discussed

4
Introduction of MTEF
5
What is a MTEF?
  • A tool for linking policy, planning budgeting
    over a medium-term ( 3 years) at the
    Government-wide level
  • It consists of a top-down resource envelope a
    bottom-up estimation of the current medium-term
    costs of existing policies

6
What is a MTEF?
  • Matching of policy priorities and budget in the
    context of the annual budget process and
  • Involves rolling over this exercise every year
    by incorporating policy changes.

7
Objectives of MTEF
  • Improved macroeconomic balance esp. fiscal
    discipline
  • Integrating policy priorities (identified in
    NEEDS) into annual budget Resources allocated to
    priorities to ensure credible policy.
  • Better inter- and intra-sectoral resource
    allocation
  • Greater budgetary predictability for line
    ministries by providing mid-term perspective (3-5
    yrs)
  • Enhancing operating efficiency high quality, low
    cost
  • Greater accountability for public expenditure

8
What can it do?
  • If successfully applied, MTEF can
  • Improve macroeconomic balance by developing a
    multi-year resource framework (expenditure
    revenue)
  • Assist in improving resource allocation between
    across sectors
  • Improve predictability of funding for line
    ministries.

9
MTEF 6 stages
10
(No Transcript)
11
MTEF Process (simplified)
Macro-economic forecasting
Sectoral Ceiling Setting for multi years
Fiscal Target
Total Expenditure Setting For multi years
Annual Budget Formulation
New sectoral demand for t2 (priority/cost)
  • Updated cost
  • estimate of
  • existing
  • policy/program

Sectoral Budget Preparation
12
Experiences in Africa
  • Source Houerou and Taliercio 2002

13
Lessons from International Experiences
  • Integration of multi-year planning with annual
    budget
  • - MTEF and annual budgeting is one process
  • Realistic macroeconomic forecasting honest
    revenue projection
  • Separation of total budget from detailed program
  • Clarification of new roles of MOF/line ministries
  • Capacity building and incentives for MOF/line
    ministries
  • Development of feedback mechanism

14
Preliminary lessons from MTEF experience
  • The importance of initial PEM conditions. The
    MTEF is a complement to not a substitute for --
    basic budgetary management reform
  • Budget comprehensiveness including donors
    off-budget items,
  • Classification integrate capital and recurrent
    budgets
  • Budget execution. Timely reporting (publication)
  • Timely audit (and publication) underpinned by
    sanctions against misappropriations of resources.
  • 2. Sequencing and phasing of the MTEF reform
  • Phased vertically (macro, sector, service
    delivery)
  • Piloted horizontally (across sectors)
  • Timing and elements tailored to capacity

15
An ideal country case
  • Consensus on priorities built through the
    participatory process, built on ongoing programs.
    Lower priority activities dropped/scaled down
  • ComprehensiveCritical to the success of the PRSP
    is the need to implement only the PRSP
  • PRSP-budget link is central Budget preparation
    scrutiny by MOF to ensure that line agency budget
    submissions are consistent with the PRSP
  • Transition phase for donor activities
  • Existing projects grand fathered
  • All new projects must fit within PRSP priorities
  • Annual review vehicles, envisaged as countrys
    central policy review process
  • PER expenditures impacts
  • PRSP review (annual progress report) complemented
    by a comprehensive review every three years

16
  • Need for patience and perseverance
  • Prioritisation and costing will likely need
    continuing improvement in the context of
    implementation and monitoring of the first PRSP
  • Prioritization and costing will only be possible
    if the PRSP is linked to the budget process
  • MTEF can be valuable
  • The MTEF should be integrated with existing
    budget processes
  • the institutional arrangements for the MTEF
    PRSP should be consistent in both exercises, and
    recognize the central role of Ministry of Finance
  • Phasing-in of MTEF, by sector and functions,
    needed

17
Pre-Conditions of MTEF, and Issues To Be Addressed
18
Pre-conditions for Implementing MTEF
  • There may be different views on pre-conditions.
    This is one view We need
  • Strong political support
  • MOF /NPCs willingness/commitment
  • - clear understanding of MTEF and incentives
  • - strong leadership within MOF
  • Line ministries compliance
  • - proper incentives discretion and policy
    prioritization
  • Capacity building for MOF and line ministries

19
How to Build Macro Forecasting Capacity in MOF?
  • MOF plays a key role in macro forecasting
  • for fiscal policy purpose
  • - strong need to increase institutional
    capacity
  • - consideration of social/political
    factors
  • Coordination mechanism with MoF, CB of Nigeria,
  • public/private research institutes
  • Formula for conservative forecasting for
    budgeting
  • - in Canada, add 0.5-1 to forecasted
    interest rates

20
How/Who Decide Total Budget Sectoral Ceiling?
(1)
  • Two stage approach
  • total envelope setting sectoral
    allocation
  • Total budget setting
  • - macro/fiscal targets, social/political
    demands
  • - new sectoral demands and updated costs
    estimates
  • Sectoral allocation
  • - national policy priority
  • - determined within total budget zero-sum
    game

21
How/Who Decide Total Budget Sectoral Ceiling?
(2)
  • Final draft is prepared by MOF
  • in consultation with the President
  • Send draft to cabinet meeting
  • for consensus building
  • - sectoral ceiling is not revealed until
    total decided
  • - in Sweden, 2-3 days cabinet retreat
  • In case of disagreement,
  • final decision is made by President
  • It is President who holds ultimate
    responsibility of budget

22
Use of budget margin
  • Serves as a Bumper for
  • 1) macro forecasting deviations
  • 2) inevitableunexpected demand
  • 3) Presidents new initiatives under
    exceptional situations
  • Budget margin
  • total envelope aggregate of sectoral
    ceiling
  • in Sweden, 3.33 in 1997, and 0.05 in
    2003
  • Unused margin to be used to accelerate debt
    payment

23
How much sectoral ceiling is binding?
  • In principle, no breach is allowed
  • Amendment allowed for substantial macroeconomic
    change (cost estimate basis)
  • Exception is explicitly identified ex-ante
  • with MOFs consent, through cabinet meeting
  • 1) ministry makes trade-off within
    sectoral cap
  • 2) trade-off between ministries within
    total budget
  • 3) budget margin to be used

24
How Much Discretion Allowed for Line Ministries?
  • Sectoral priority discussed and agreed
  • between MOF and line ministries
  • Line ministries prepare own budget request
  • within provided ceiling priority line
  • monitoring and coordination mechanism
  • Incentive for efficient spending
  • - allowed to carry-over certain of savings
    to ministries

25
How to Build Incentive System?
  • For MOF /NPC ?
  • - Shift to higher level, macro decision-making
  • by integrating national policy priorities with
    budgeting
  • - Close interaction with President
  • For Line Ministries
  • - Budgetary Discretion to prioritize policies
  • - Flexibility in implementing policy and
    executing budget

26
How to Ensure Line Ministries Accountability?
(1)
  • Ministers hold ultimate responsibility over
    performance
  • MOF /NPC plays a role as a watchdog
  • Performance management serves as a feedback
  • mechanism for increased discretion
  • Linking budgeting with accounting system
  • Information system needs to be integrated
    between
  • MOF, NPC, and line ministries, and Office of
    Statistics

27
Capacity Building is needed on all these aspects
More training can be provided
  • How to Improve Budget Structure and Scope ?
  • How to improve the incentive system
  • How to make line ministries accountable for
    delivery?
  • Performance Management System
  • - utilized as information gathering and analysis
  • - long-term, phased approach is desirable
  • - need to adopt realistic short-term
    approach
  • - pilot projects to introduce output-based
    indicator
  • development and performance evaluation
    system
  • - expand into all programs with outcome
    indicators

28
Implementation Strategy for NigeriaSome
suggestions and followed by discussion by
Victoria Kwakwa
29
Creating Enabling Environment for MTEF
  • Use MTEF as an instrument to alter status quo
  • Fiscal reform along with Public Sector reform
  • Leadership and Capacity Building
  • - champion of reform and creating a core
    team
  • - motivating self-development and capacity
    building
  • Performance oriented environment in government
  • - e.g., regulation-free organizations

30
Implementation Strategy a suggestion
  • Stage I top-down approach
  • - macroeconomic forecasting and fiscal
    target setting
  • - setting total and sectoral ceiling prior
    to program details
  • Stage II bottom-up approach (Gradual Approach)
  • - line ministries discretion within
    sectoral ceiling and priority
  • - allowing discretion on operating costs
  • Stage III incorporation with performance
    management
  • - well-functioning information system
  • - performance information reflected in
    budgetary decision

31
Strategies for Nigeria
  • To be discussed by Victoria Kwakwa and
    representatives from the government
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