Improving Budgetary Outcomes The Role of a MTEF by Malcolm Holmes.
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Transcript of Improving Budgetary Outcomes The Role of a MTEF by Malcolm Holmes.
![Page 1: Improving Budgetary Outcomes The Role of a MTEF by Malcolm Holmes.](https://reader035.fdocuments.in/reader035/viewer/2022062618/5514fb2e55034693478b62c9/html5/thumbnails/1.jpg)
Improving Budgetary Outcomes
The Role of a MTEF
by
Malcolm Holmes
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Three Levels of Expenditure Outcomes
Three Levels of Expenditure Outcomes
• Aggregate Fiscal Discipline
• Prioritization of the Composition of Expenditures
• Technical Efficiency in the Use of Budgeted Resources
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Some PrinciplesSome Principles
• Transparency and accountability
• Comprehensiveness of budget
• Predictability of resources & policies
• Flexibility
• Contestability
• Existence and sharing of information
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Fragmentation/Lack of Comprehensiveness
Fragmentation/Lack of Comprehensiveness
Across:• Policy Making, Planning, Budgeting• Fiscal activities• Types of expenditure• Sources of funds• Time• Inputs, outputs and outcomes
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Dual BudgetingDual Budgeting
• Investment as basis of development
• Development Budget
• PIP
• R Coefficients
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• The government should foster an environment that supports and demands performance before introducing performance, output or outcome budgeting.
• Control inputs before seeking to control outputs.
• Account for cash before accounting for accruals.
• Establish external controls before introducing internal control.
• Establish internal control before introducing managerial accountability.
• Operate a reliable accounting system before installing an integrated financial management system
• Budget for work to be done before budgeting for results to be achieved.
• Enforce contracts in the market sector before introducing contracts in the public sector.
Sequencing Public Sector Financial Management Reforms
Sequencing Public Sector Financial Management Reforms
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Restraint with
FlexibilityRestraint with
Flexibility• Hard Budget Constraint
• Transparency
• Accountability
• Exit
• Voice
Flexibility
Information
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Enabling Environment for Public Sector
Enabling Environment for Public Sector
• Link Policy, Planning, Budgeting
• Restrain decision making:– affordability– cost, expected results– evaluate
• Forum within which policies compete
• Capacity and willingness to reprioritize and reallocate.
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Characteristics of Sound PEMCharacteristics of Sound PEM
Commitment, capacity & willingness to:• Prepare a budget (a) in line with development
priorities and (b) that can realistically be implemented
• Specify the budget’s intended results• execute budget as passed by the legislature• Account for results achieved• Evaluate impact of policies and programs and
take results into account in budget preparation.
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A Contract for PerformanceA Contract for Performance
The Center• More predictable funding• More predictable policy• Greater transparency and predictability in
processes for reprioritizing and reallocating resources
• Leave management decisions to line managers
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A Contract for PerformanceA Contract for Performance
The Line
• Living within budget• Clear sector strategies• Using resources efficiently and
effectively• Reporting on resource use
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Using a Medium Term Expenditure FrameworkUsing a Medium Term
Expenditure Framework• Fiscal Targets (what is affordable)
• Forward Estimates of Existing Policy
• Institutional Mechanisms for Making the Trade-offs
• A Focus on Performance
• Enhanced Predictability
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Implementing an MTEFImplementing an MTEF
• Pilot or whole of Government
• Budget unification (PIP elimination)
• Reduction of the number of budget line items
• Link between line items and objectives and impact
• introduction of a 3 year perspective
• mission statements (strategic plans) for sectors
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Implementing an MTEF (Cont.)
Implementing an MTEF (Cont.)
• Use of strategic plans for budget preparation
• Emphasize costs of activities
• Merging of external and domestic financing
• Withdrawal of MoF from details of budget allocations in LM
• Engaging cabinet
• Focus on performance
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Ghana: Explaining progressGhana: Explaining progress
• Commitment from Minister and Ministry of Finance, line ministers and donors
• MTEF based on GOG-led PER
• Consensus building efforts (losers and winners)
• MTEF becomes budget process
• Consistency between MTEF and sector approaches
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Ghana: Explaining Progress (Cont.)
Ghana: Explaining Progress (Cont.)
• Link to other reforms
• Performance focus - matching authority and accountability
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Ghana: Sustainability TestsGhana: Sustainability Tests
• Predictability of funding (domestic and external) – predictable macro/fiscal framework– cash flow estimates– cash available on time– budget voted on time by parliament
• Predictability of policies
- Cabinet Engaged
• controlling expenditure
• focus on outcomes
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Ghana: Sustainability Tests (Cont.)
Ghana: Sustainability Tests (Cont.)
• Dynamic process of evaluation of policies
• Autonomy and accountability of LM
• Civil service management - pay policy, authority
• Decentralization
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• Hard Budget Constraint
• Cohesive political executive
• Sector Strategies
• Forum within which decisions constrained by resource availability over medium term and policies compete
• Programmatic decisions devolved to line ministers (within hard sector ceilings)
PRIORITIZATIONInstitutional Arrangements
PRIORITIZATIONInstitutional Arrangements
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PRIORITIZATIONInstitutional Arrangements
(Cont.)
PRIORITIZATIONInstitutional Arrangements
(Cont.)
• Strategic priorities and sustainability drive aid
• Information - Costs, Performance
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Mechanisms for PrioritizationMechanisms for Prioritization
• Case: Australia
• Aggregate Fiscal Targets and Strategic Objectives
• Medium-term Costs of Competing Policies
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0
5
10
15
82/83 83/84 84/85 85/86 86/87 87/88 88/89 89/90 90/91 91/92 92/93
Australia: Medium-term Costs of PoliciesAustralia: Medium-term Costs of Policies
Mar 84
May 85
Nov 85Dec 86
Aug 89
Real growth rate
Projection dates
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Mechanisms for PrioritizationMechanisms for Prioritization
Case: Australia• Aggregate Fiscal Targets and Strategic Objectives
• Medium-term Costs of Competing Policies
• Arena for Contesting and Coordinating Policies
- Cabinet: Strategic Priorities
- Line: Spending-Savings within Hard Budgets
• Ex-post Evaluation
Outcomes:
- Deficit 4% GDP to surplus of 2% GDP
- Shifts in intra and intersectoral composition
- Greater funding predictability
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Australia: Changes in Expenditure Composition, 1983-94
Australia: Changes in Expenditure Composition, 1983-94
-4000
-3000
-2000
-1000
0
1000
2000
3000
4000
5000
Defense Educ Health Socsec Transp. Other
Spending
Saving
Net change
Source: Dixon, 1993 : 32
$ Millions
Net change
New spending
Savings from existing policy
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• Sector-wide
• Clear Strategy and Policy Framework
• Program Focus
• Sector Expenditure Program
• Medium-term Perspective
• Consistent with Macroeconomic Framework
• Donor Coordination
Sector-wide Approaches as Performance Based Budgeting
Sector-wide Approaches as Performance Based Budgeting
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• Strategic Policy
• Sector Envelopes
• Program: Individual Ministers
• Running Costs: Managers
Getting Decisions in the Right Hands
Getting Decisions in the Right Hands
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• Legitimacy of policy
• Predictability of funding
• Delegation of authority to line managers
• Responsibility for producing outputs linked to outcomes
• Hard budget constraint -upwards and downwards- during budget execution
• Independent external audit
OPERATIONAL PERFORMANCE
Institutional Arrangements
OPERATIONAL PERFORMANCE
Institutional Arrangements
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Improving Technical EfficiencyImproving Technical Efficiency
broader public sector
markets and the private sector
civil service
Strengthen “voice”
mechanisms
More “exit”
possibilities
Improve “rule-compliance” and
“loyalty”
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Getting the Best out of Organizations
Getting the Best out of Organizations
• Hard, but Predictable, Budget Constraint
• Flexibility for Managers
• Clarity of Purpose and Task
• Ex-Ante Specification of Performance
• Contestability
• Evaluation and Audit
• Exit Options
• Voice
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LINE ITEM
1. Input
Cash
2. Classification
Economic Type
3. Annual
PERFORMANCE BUDGETING
1. Input
Cash/Accrual
Output
Performance data/
indicators/standards
Authority
Accountability
Outcome
Clear Objectives
Indicators
Evaluation
2. Classification
Functional
Program
Organizational
3. Multi-year
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LINKING:
• Inputs
• Outputs, and
• Outcomes
Performance Based BudgetingPerformance Based Budgeting
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Resources used to produce the service:
• Hard budget constraint– central budget– user charging
• Full cost/Unit cost– cash– accrual
InputsInputs
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The good or service produced:
• Who controls
• Who is accountable
• Measuring and reporting performance
OutputsOutputs
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Purpose to be achieved by government intervention (including production of outputs):
• Who controls
• Who is accountable
• Measuring and reporting performance
OutcomeOutcome
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Enabling Environment for Public Sector
Enabling Environment for Public Sector
• Link Policy, Planning, Budgeting
• Restrain decision making:– affordability– cost, expected results– evaluate
• Forum within which policies compete
• Capacity and willingness to reprioritize and reallocate.