Medium-Term Budgeting in MoldovaMedium-Term Budgeting in Moldova

Progress and Progress and Future ChallengesFuture Challenges

February 200February 20088

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General contextGeneral context

IIn 200n 20022 Government introduced MTEFGovernment introduced MTEF as as a method of strategic budget planning a method of strategic budget planning

MTEF reform was introduced with the MTEF reform was introduced with the World Bank and DFID supportWorld Bank and DFID support

MTEF – one of the main elements in the MTEF – one of the main elements in the agenda of strengthening public finance agenda of strengthening public finance managementmanagement

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Key Key objectives underobjectives under the MTEF Initiative the MTEF Initiative

Policy LinkagePolicy Linkage – the National Public Budget is a key – the National Public Budget is a key instrument through which government policies are instrument through which government policies are realised. realised.

ComprehensivenessComprehensiveness – medium-term budget planning – medium-term budget planning covers all public revenues and expenditures. covers all public revenues and expenditures.

RealismRealism – government programmes must be planned – government programmes must be planned against a realistic assessment of available resources.against a realistic assessment of available resources.

PrioritisationPrioritisation – programme planning must recognise – programme planning must recognise budget constraints, include cost analysis, and allow for budget constraints, include cost analysis, and allow for reallocation of resources to higher priority areas.reallocation of resources to higher priority areas.

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MTEF MTEF – – Core ElementsCore Elements

Macro-fiscal frameworkMacro-fiscal framework Macro-economic forecastMacro-economic forecast Public revenue frameworkPublic revenue framework DeficitDeficit and financing resources and financing resources

Analysis of inter-sector budget issuesAnalysis of inter-sector budget issues EGPRSP implications for expenditure allocationsEGPRSP implications for expenditure allocations Wage bill analysisWage bill analysis Inter-government financingInter-government financing Public InvestmentsPublic Investments

Expenditures priorities analysisExpenditures priorities analysis Between the sectorsBetween the sectors Within the sectorsWithin the sectors ( (expenditures strategiesexpenditures strategies))

Expenditures ceilingsExpenditures ceilings By types of budgetsBy types of budgets By sectors and central Public AuthoritiesBy sectors and central Public Authorities ( (state budgetstate budget))

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MTEF MTEF scheduleschedule

January January – Launching the process, the issuance of – Launching the process, the issuance of methodological indicationsmethodological indications

January to MarchJanuary to March – Development of the macro-– Development of the macro-fiscal framework, sectorial expenditure strategies, and fiscal framework, sectorial expenditure strategies, and the establishment of resource ceilingsthe establishment of resource ceilings

MarchMarch - Finalisation of MTEF and discussions with - Finalisation of MTEF and discussions with the MTEF Coordination Groupthe MTEF Coordination Group

AprilApril – Submission of MTEF to the Government– Submission of MTEF to the Government

By 1By 1stst May May – approval of MTEF by the Government – approval of MTEF by the Government

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The link between MTEFThe link between MTEFand the Yearly Budgetand the Yearly Budget

It is an integrated part of the yearly It is an integrated part of the yearly budget planning cyclebudget planning cycle

It is prepared before the development of It is prepared before the development of budgeting instructionsbudgeting instructions

It sets the strategic framework for the It sets the strategic framework for the further budget planningfurther budget planning

It is updated and extended yearly, in It is updated and extended yearly, in order to keep a three-year perspectiveorder to keep a three-year perspective

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MTEF – Linking Policy and Budget ProcessesMTEF – Linking Policy and Budget Processes

National Policy Update

Annual Budget

MTEF

Resource Framework for

Public Expenditure

Strategies and

Programme Priorities

Sector Resource Ceilings and

Spending Priorities

Detailed Resource

Allocations

Dec-May

Jun-Nov

Jun-Nov

Seq

uenc

ing

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MTEF CoverageMTEF Coverage

State BudgetState Budget Basic ComponentBasic Component Special FundsSpecial Funds Special meansSpecial means Foreign financing of the Foreign financing of the

projectsprojects ( (besides technical besides technical assistanceassistance))

ATU BudgetsATU BudgetsState Social Security BudgetState Social Security BudgetHealth Insurance FundHealth Insurance Fund

SSectorectoral coverageal coverage EducationEducation Health careHealth care Social protectionSocial protection AgricultureAgriculture Culture and tourismCulture and tourism DefenseDefense JusticeJustice ScienceScience Environmental protectionEnvironmental protection Road and transportRoad and transport Sport and youthSport and youth

ATU levelATU level ((territorialterritorial)) 10 10 ATU-sATU-s

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MTEF andMTEF and External FinancingExternal Financing

MTEF includes primarily externally financed MTEF includes primarily externally financed investment projectsinvestment projects

Grants financed technical assistance that is not Grants financed technical assistance that is not administered by the MoF is not part of the administered by the MoF is not part of the MTEF.MTEF.

Uncertainties over future aid commitments has Uncertainties over future aid commitments has made it difficult to forecast external financing in made it difficult to forecast external financing in outer years of MTEF.outer years of MTEF.

Increased levels of donor support requires better Increased levels of donor support requires better harmonization and integration of external harmonization and integration of external financing into the National Public Budget.financing into the National Public Budget.

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Working Group for macroeconomic frameworkResponsible – Ministry of Economy

Working Group for fiscal policy and resource framework

Responsible – Ministry of Finance

Working Group for public expenditure policy and priorities

Responsible – Ministry of Finance

Budget Synthesis Department within Ministry of Finance

Sector Working Groups

(education, health, social protection, agriculture,

culture, defense and s.o.)

Responsible – Relevant Line ministries

MTEF Coordination CommitteeResponsible – Ministry of Finance

Organizational Chart of the MTEFOrganizational Chart of the MTEF ProcessProcess

Government

Sector Finance Divisions of the MoF

Public investment Wagebill

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Stakeholder involvementStakeholder involvement

MTEF Coordination GroupMTEF Coordination Group a consultative body in the decision making processa consultative body in the decision making process wider participatory approach (Parliament, Presidency, wider participatory approach (Parliament, Presidency,

Government, public authorities, trade union, syndicate)Government, public authorities, trade union, syndicate) detailed discussions and regular meetingsdetailed discussions and regular meetings

Government involvementGovernment involvement takes final decision on the MTEF proposalstakes final decision on the MTEF proposals a earlier involvement in the decision making process and a a earlier involvement in the decision making process and a

better coordination with MTEF Coordination Group proposal better coordination with MTEF Coordination Group proposal is requiredis required

Parliament engagement Parliament engagement MTEF provides context for discussion of annual budgetMTEF provides context for discussion of annual budget a more strategic approach to budget debate in Parliament is a more strategic approach to budget debate in Parliament is

requiredrequired

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Sector Working GroupsSector Working Groups (SWG) (SWG)

Participatory approach (inter-ministerialParticipatory approach (inter-ministerial)) Representatives of different public authorities, obligatory MoF and Representatives of different public authorities, obligatory MoF and

MoETMoET It is recommended to include representatives of Local authorities, It is recommended to include representatives of Local authorities,

social partners and civil society (NGOsocial partners and civil society (NGO)) Nominal composition is revised annually at the beginning of MTEF Nominal composition is revised annually at the beginning of MTEF

processprocess

Line ministry – key roleLine ministry – key role Leads and manages the activity of SWGLeads and manages the activity of SWG Takes decision and is responsible for sector expenditure Takes decision and is responsible for sector expenditure

strategy preparationstrategy preparation A strong collaboration between policy formulation units and A strong collaboration between policy formulation units and

budget units is requiredbudget units is required

Submit sector expenditure strategies and reports to the MTEF Submit sector expenditure strategies and reports to the MTEF coordination Group and MoFcoordination Group and MoF

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Sector Working Groups – Sector Working Groups – Main FunctionsMain Functions

Help line ministries in development of Help line ministries in development of sector expenditure strategies within MTEFsector expenditure strategies within MTEF

Monitoring of MTEF sector strategies and Monitoring of MTEF sector strategies and programsprograms

Participate in discussion of main sector Participate in discussion of main sector policy issues, linked to the budget, andpolicy issues, linked to the budget, and

Changes in the priorities in resource Changes in the priorities in resource allocation at sector levelallocation at sector level

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How has the MTEF Changed the Budget How has the MTEF Changed the Budget Planning Process in Moldova?Planning Process in Moldova?

MTEFMTEF is an integrated part of the extended annual is an integrated part of the extended annual budget cyclebudget cycle ( (initial phaseinitial phase))

Provides a strategic and comprehensive Provides a strategic and comprehensive framework for budget developmentframework for budget development ( (3 year 3 year perspectiveperspective))

Covers all the National Public Budget ComponentsCovers all the National Public Budget Components IncludeIncludes sector and inter-sector analysiss sector and inter-sector analysis

Budget process has become more transparent Budget process has become more transparent and participatoryand participatory

Is approved by the Government in a participatory mannerIs approved by the Government in a participatory manner Is published in the Official Gazette (Is published in the Official Gazette (Monitorul OficialMonitorul Oficial) and on ) and on

the the WEB siteWEB site

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The Challenges AheadThe Challenges Ahead

Institutional capacities and processes for policy development, programme Institutional capacities and processes for policy development, programme planning and budgeting require further development.planning and budgeting require further development.

Policy frameworks should take more account of capacity and budgetary Policy frameworks should take more account of capacity and budgetary constraints.constraints.

Constraints and prioritisation issues must be more explicitly addressed at Constraints and prioritisation issues must be more explicitly addressed at the political level.the political level.

More space has to be created within budgets to accommodate new policy-More space has to be created within budgets to accommodate new policy-led spending initiatives.led spending initiatives.

Political level engagement in the budget planning process has to be Political level engagement in the budget planning process has to be broadened and strengthened.broadened and strengthened.

Presentation of the governments budgetary plans has to be improved – Presentation of the governments budgetary plans has to be improved – both to Parliament and to civil society.both to Parliament and to civil society.

Although much progress has been made since the MTEF initiative was first introduced five years ago,

policy-based budgeting in Moldova is still at an early stage of development.

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Priorities in Taking Forward the MTEF Priorities in Taking Forward the MTEF InitiativeInitiative

Better integration between policy development and budget planning Better integration between policy development and budget planning processes and calendars.processes and calendars.

Introduction of improved procedures for assessing fiscal impact in Introduction of improved procedures for assessing fiscal impact in policy decision making processes.policy decision making processes.

Development of policy units in sector ministries.Development of policy units in sector ministries.

Introduction of a budget programme classification linking resource Introduction of a budget programme classification linking resource allocations to policies and strategies.allocations to policies and strategies.

A stronger emphasis on identifying efficiency reforms in order to A stronger emphasis on identifying efficiency reforms in order to create the space within budgets to fund new initiatives.create the space within budgets to fund new initiatives.

Improvements and better integration in MTEF and Budget Improvements and better integration in MTEF and Budget presentation – a greater focus on what ministries plan to achieve.presentation – a greater focus on what ministries plan to achieve.