Expenditure Data Manual - 2010 Indigenous Expenditure Report
The World Bank Budget Management: Strengthening through a Medium-Term Expenditure Framework Bill...
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Transcript of The World Bank Budget Management: Strengthening through a Medium-Term Expenditure Framework Bill...
The World Bank
Budget Management: Strengthening through a Medium-Term
Expenditure Framework
Bill DorotinskyThe World Bank
Seoul, Republic of KoreaMarch 15, 2004
The World Bank
Three Objectives of Public Expenditure Management Systems
• Macrofiscal discipline and stability– Avoid public finance crises– Support economic growth and stability
• Strategic allocation of resources– Match government policy with programs,
objectives• Technical efficiency
– Getting the most from each won spent
The World Bank
Basic principles of PEM
• Comprehensiveness– include all revenue and expenditure, all agencies
• Accuracy– record actual transactions and flows
• Annuality– cover a defined period of time (e.g. one year budget, multi-year
forecasts)• Authoritativeness
– only spend as authorized by law• Transparency
– information on spending is public, timely, understandable
The World Bank
Common PEM problems• Weak links between policy, resource limits, and budgets
– failure to achieve strategic objectives– abstract planning, unrelated to ways and means
• Annual focus leads to suboptimal choices– Digging a hole: complacency today, unaware of crisis tomorrow– Inability to climb out of poor fiscal situation
• Separation between capital and recurrent budgets– Lower than expected returns to capital
• Non-comprehensive budget– Using other means to support favored programs
• Failure to think strategically about tools and objectives• Not learning from experience• Not harnessing energies of all actors in system; mismatch of roles and
responsibilities• Taking piecemeal decisions without reference to over-all effect
The World Bank
Technical Objectives of MTEF• Improve macrofiscal situation
– lower deficits, improved economic growth– more rational approach to retrenchment and economic stabilization– enable more sustainable public finances
• Improve impact of Government policy– link between government priorities/policies and government programs– sustainable policy
• Improve program performance/impact– Shift bureaucracy from administrative to managerial culture
• Managerial flexibility & innovation: lower cost/output; greater effectiveness of programs/policies
• more efficient use of resources– Improved resource predictability
The World Bank
MTEF: New Budget and Planning Process
• Stage 1. Macroeconomic and public sector envelopes
• Stage 2. High-level policy: aligning policies & objectives under resource constraints
• Stage 3. Linking policy, resources, and means by sector
• Stage 4. Reconciling resources with means• Stage 5. Reconciling strategic policy and means
The World Bank
Stage 1. Macroeconomic and public sector envelopes
Macroeconomic Estimates
Revenue Estimates
Expenditure Estimates(current services)
Fiscal Policy
Expenditure Estimates(current law, normatives)
•Affordable/sustainable Fiscal Envelope•Monetary and Fiscal Policy•Debt and Deficits•Aid flowsAll in multi-year context
The World Bank
Stage 2. High-level policy: aligning policies & objectives under constraints
Fiscal Envelope
Setting Strategic Policy
Priorities Under
Resource Limits
(downsizing, or expansions)
Sectoral Resource Ceilings
Ministry Resource Ceilings
The World Bank
Stage 3. Linking policy, resources, and means by sector
Sector Policies and Objectives
Sector programs
Reconcile policy, laws, resource limits
Program priorities relative to objectives
Assess modalities for objective
Evaluate Production Function
Sector Budget Request
Again, multi-year
Under ceiling
Above ceiling
The World Bank
Stage 4. Reconciling resources with means
Sector Ceilings
Sector Requests
Technical Assessment
and Reconciliatio
n
Vetting assumptions, policies, estimates
Challenging modalities, production function
Evaluate performance
Revised requests and/or decision papers
The World Bank
Stage 5. Reconciling strategic policy and means
Policy assessment
and reconciliation
Policy official dialogue
Modify baselines
Finalize decisions
Budget ProposalRevised
Requests, Unresolved
Issues
The World Bank
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
Mar 84
May 85
Nov 85Dec 86
Aug 89
Real growth rate
Projection dates
Macrofiscal stability:Australia’s Medium-term Costs of Policies
The World Bank
Implementing an MTEF
• Adopt framework– getting policy-official and technical staff buy-in– recognize this is continuous, long-term
endeavor• Customize implementation to country
needs, initial conditions– macro, sectoral policy
• Target institutional capacity development
The World Bank
Key Capacity Issues
• Technical– Staff skills
• policy analysis, budget examination, policy and activity-costing
– Accounting system– Budget execution system
• Policy– Capacity to enforce hard budget constraints– Commitment to continuous process of improvement
The World Bank
A further word on evolution of budget offices….longer-term trends
• Changing role of budget office– Control to monitoring/oversight– Policy analysis and development over excessive budget
detail– Shifting authority towards line ministries
• Emphasizing training and guidance• Performance over compliance
– Analysis of emerging issues, problems, and health of decision-making and finance system
• Integration of planning into budget process– Integration of capital and recurrent budgets
The World Bank
Budget roles and responsibilities before…
Ministry of Finance
Line Ministry
• Issues broad guidance at start of process, with cost increase assumptions
• Cutting spending requests uniformly or by economic class or line item to meet totals
• Heavy involvement in setting line item totals
•No idea of out-year implications of choices
• Develop requests in vacuum
• Request is wish list; incentive to ask for more, hoping that after cuts will have enough
• Little discretion to allocate funds in own budget
• Little incentive to focus on current programs, reallocate
• Minimal policy content in budget request
• Low likelihood of getting budget levels during year
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…. And after reforms
Ministry of Finance
Line Ministry
• Issues broad guidance with multi-year sector ceilings at start of process (cabinet approved)
• Cuts spending requests only if above ceiling, leave most details of what to cut to line ministry (though with recommendations, frequently)
• Little involvement in setting line item totals, except perhaps capital and personnel; may set personnel ceilings too
•Clearer picture of future implications of current choices
•Focus more on policy and objectives, performance assessments (costs, objectives, effectiveness, efficiency)
• Clear resource framework for planning
• Request must prioritize between current and new programs
• Near complete discretion to allocate funds in own budget
• Potential for larger policy content in budget request
• Ceterus paribus, higher likelihood of receiving budget levels during year
The World Bank
“Benchmarking”Recent McKinsey Study looked at 7 dimensions of 7 country
Finance Ministries• Australia, Brazil, Malaysia, Singapore, Thailand, UK, US
• All had taken steps to ‘empower’ line ministries and professional managers
• All had made substantial efforts to strengthen external audit• All had taken measures to move away from input budgeting
towards performance or output budgets• Most had taken measures to improve transparency of
processes and information
Source: Transforming MOF: Organizational Recommendations and Implementation. Confidential report to Indonesian Ministry of Finance. June 18, 2003.
The World Bank
“Benchmarking” (continued)
• Six had made substantial effort to separate policy development and oversight from implementation
• All had taken strong measures to consolidate similar functions, especially cash and debt management
• Most had taken some measures towards greater checks and balances to MoF functions
Source: Transforming MOF: Organizational Recommendations and Implementation. Confidential report to Indonesian Ministry of Finance. June 18, 2003.