Budget reform:making it happen
Owen BarderUnited Kingdom
Reform in the real world
Budget problems in the real worldBudget Reform and the MTEFKey steps in introducing the MTEFLessons
South Africa is different
Apartheid inequality distortion of public services
Human capital & financial administrationNew quasi-federal structureCo-operative governance
Budget problemsin the real world
Unrealistic budgets unaffordable, undeliverable, deferred
No link to behavior no buy in, cash controls, hidden budget, overspending,
link to policy proposals
Allocation doesn’t reflect priorities no choice, short termist, distorted, enclaves
Spending inefficient low productivity, poor management, corruption, poor planning
Unrealistic budgets unaffordable, undeliverable, deferred
No link to behavior no buy in, cash controls, hidden budget, overspending,
link to policy proposals
Allocation doesn’t reflect priorities no choice, short termist, distorted, enclaves
Spending inefficient low productivity, poor management, corruption, poor planning
Budget problemsin the real world
Elements of budget reformMedium Term Expenditure FrameworkBudget Policy StatementNew intergovernmental systemPublic Financial Management ActImproved financial management Wider public sector
Budget Reform White Paper
MTEF: rapid success
First plan April 1997MTEF published March 1998Compare eg Malawi since 1994Compare South Africa 1994-96
First MTEF 1994-1996
Spreadsheet modelSectoral analysisCross-sectoral linksCabinet away-daySank without trace
Why did it fail?
No political buy-inNo emphasis on choiceNo link to budgets No link to budget processToo technical
MTEF 1998
Persuaded Government Treasury, Cabinet, Departments
3-year spending plans all departmentsAnalysis to improve over timeMTEF replaced budget process
Persuasion
Three goals of budget aggregate fiscal discipline allocative efficiency technical efficiency
MTEF delivers all three especially the first two …
Target the message
Persuading CabinetPolitical control of the budgetBetter prioritizationChoices at budget stageMore certainty: better planningMore deliveryMore cooperativeLess central interferenceCheaper borrowingMore spending“State of the art”
Persuading DepartmentsMore cooperativeLess central interferenceChoices at budget stageMore certainty: better planningMore money (borrowing costs; unspent funds)Better prioritization
MTEF 1998
Persuaded Government3-year spending plans all departmentsAnalysis to improve over timeMTEF replaced budget process
Benefits of 3 year plans
Better prioritisationBetter planningTransparent and credibleFinancial disciplineMore spending & deliveryAffordable policy development
Immediate
Benefits of analysis
Identify choices & quantifyLink to outputs and outcomesAccountabilityBenchmarkingBetter outcomes
Over time
MTEF 1998
Persuaded Government3-year spending plans all departmentsAnalysis to improve over timeMTEF replaced budget process
Replacing the process
Every department involvedCompeting for same resources3 year horizon for everythingRenaming eg committeesMTEF to Cabinet, not BudgetIncreased financial discpline
LessonsObtain political commitment
emphasise empowerment, choice, delivery involve in process
Keep it simple 3 year plans for each department get out of the detail
Make it matter replace budget process link to financial discipline plans as baselines
Did it succeed?
Too early to tell© Zhou En Lai
Did it succeed?
Political buy-inReprioritisationBudgets matterDisciplined policy-makingBetter analysisCo-operative governance
How to do Budget Reform
Obtain political commitment Keep it simple Make it matter
After the break: how SA does the MTEF
The MTEF in practice
The MTEF in practice
What is the MTEF?Affordable totalsPutting the budget togetherLessons
South Africa is different
Quasi federal structureCooperative GovernanceGood administrative capacity
What is the MTEF?
growth and inflation revenues, deficit and spending debt interest costs division between tiers of government spending plans by department statement of main outputs contingency reserve
Three year projections of:
Available Funds}Spendingallocations}
MTEF process
Agreeing affordable totals Identifying policy optionsBuilding consensus
MTEF process aimed at:
Affordable totals
20%
22%
24%
26%
28%
30%
32%
34%
94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02
DeficitRevenue
% GDP
Affordable spending
0
5
10
15
20
25
30
35
40
1989
/90
1990
/91
1991
/92
1992
/93
1993
/94
1994
/95
1995
/96
1996
/97
1997
/98
1998
/99
1999
/00
2000
/01
2001
/02
0
50
100
150
200
250
300% GDP R billion
Getting totals right
Keep projections simpleMake public fiscal commitmentsDecide totals before allocations
Building consensus
ReviewTeams
Ministers’Committee
Cabinet
Implications of baselinesPolicy options
Recommended allocationsPolicy choices
Treasury
Affordable totalsMenu of choicesRecommendations
MTEF
BaselinesMembership
Review teamsWhat?
Health, Education, Welfare, Crime, Personnel, Infrastructure
Who? Treasury, line departments, subnational government, consultants
What? expenditure trends implications of baseline costed policy options benchmarking
Review teams
Unique to South AfricaCooperative governanceBetter understanding
Treasury of policy challenges Departments of financial implications
Consensus buildingOngoing work programmes
Ministerial Committee
Powerful minorityIdentifies optionsEvaluates proposalsRecommends to Cabinet
Cabinet
Forum for competing policiesImplications of plansMenu of policy optionsCollective agreementMost important decisions
Timetable
Apr
June
July
Aug
Sept
Oct
Departments submitbaselines
MTEF ReviewTeams identifyspending trends
and policyoptions
Otherdepartments
plansevaluatedMinComBud
discusses priorities
Officials discussbudget proposals
Treasury updatesprojections
MinComBudhearings
Timetable
Oct
Nov
Dec
Jan
Feb
Mar
Spending totalsproposed
Cabinet agrees totalspublished in MTBPS
Departmentsallocate funds Budget documents
prepared
Cabinet approvesallocations
Treasury summaryof policy options
MinComBud discussesallocations
Budget
Implementation lessonsInclude, but controlListen to departmentsInvolve politicians throughoutAvoid information overloadDecide totals firstDon’t over-prescribeFocus on prioritiesPromote transparency
Contact information
Owen Barderemail: [email protected]
Department of Finance, South AfricaPrivate Bag X115, 0001 Pretoria, South Africawebsite: http://www.finance.gov.za/
The End
Owen Barder