Korea-MTEF Paper



Korea-MTEF Paper

MTEF EXPERIENCE IN SUB_SAHARAN AFRICA

Introduction

1. This paper looks at the experience of three countries in Sub-Saharan Africa which have introduced a Medium Term Expenditure Framework (MTEF) approach to government budgeting in the past decade. These countries are: Ghana, South Africa and Uganda.[1]

2. On the face of it, these three countries have little in common with Korea, a fast growing economy which has successfully made the transition from a mainly rural economy with war damaged infrastructure to a fully industrialized advanced technology and high consumption economy, a member of the OECD, in the space of four decades of unrivalled economic performance. Ghana, which, at independence in 1956, had a per capita income higher than Korea and substantial accumulated foreign exchange reserves from gold and tropical produce, squandered this inheritance through bad economic policies and political instability, leading to an exodus of qualified manpower, and, at its nadir in the early 1980s, a per capita income below that at independence. Since that time and with some slippage, Ghana has been broadly on a reform path, and began a MTEF based system of budgeting in 1998. South Africa, a middle income country with a diversified economy and traditionally a strong mining base, was until 1994 under white minority rule. With the end of apartheid and the arrival of universal suffrage, came an urgent need to stabilize the budget and radically restructure spending. South Africa began implementing its MTEF in 1997. Uganda, a landlocked mainly agricultural country, with a similar history of poor economic policies under its first post independence governments, leading to military dictatorship and tyranny, and two civil wars, dates its present era of political stability, good policies and growth from 1987. It began making its budgets within a MTEF in the wake of a fiscal crisis in the early 1990s.

3. Uganda’s MTEF, the simplest, has proven durable and is still evolving. It has become a key instrument of economic management, and has helped the government both maintain the confidence of aid donors in the country, while at the same time retaining control over its own priorities. South Africa’s MTEF likewise has become central to the transformation of spending programs while at the same time stabilizing the fiscal situation and reducing debt. It, too, continues to evolve. Ghana’s MTEF, more sophisticated than Uganda’s but with shallower institutional roots, faltered in 2001 under the combined pressures of terms of trade shocks and excessive pre-election spending, and collapsed back into short term incremental budgeting . Efforts are now being made to revive it.

4. Although the circumstances of these three countries are quite different to Korea’s, there are lessons to be learned from these African experiences which could be of value to policy makers in Korea as they shape a MTEF adapted to Korean conditions. Principally, they have to do with the design of the MTEF, the commitment to it of the principal central management agencies, particularly the finance ministry, the understanding and engagement of ministers and the political leadership, and whether there are complementary reforms in the areas of human resource management and accounting.

Planning and Budgetting in Africa – an Historical Detour

5. As background to the three case studies, it is useful to recapitulate the history of planning and budgeting in Africa in the decades since independence, since this provides the backdrop to the adoption of MTEFs and, as will be shown, may strike some historical chords in Korea.

6. Prior to independence, around four decades or so ago for most countries in Sub Saharan Africa, governments had unitary budgets, revenue sources were limited and spending was constrained. In an effort to accelerate development in the newly independent states, many governments, inspired by the success of Indian planning, adopted national development planning systems. Typically these comprised five year plans, containing a macroeconomic framework, sector policies, and a public investment program. To implement these plans through the budget, dual budgets evolved, comprising a current budget, consisting chiefly debt service, wages and salaries of the public service, and the non-wage operating costs of existing services, and a capital or “development” budget, chiefly investment projects, drawn from the public investment program of the plan.

7. To provide discipline to the process, the better run countries developed a medium term fiscal framework, based upon the macroeconomic projections of the plan. This gave projections not only for aggregate revenue, spending and borrowing, but also broke aggregate spending into sector ceilings. Ministries and agencies proposing projects for the PIP, and in turn for the annual budget, were required to demonstrate that the incremental recurrent costs arising from implementing a capital investment project could be fitted within the medium term fiscal framework of the national plan.

8. The purpose of mentioning this is to draw attention to the fact that countries coming to a MTEF from a background of national planning, just as Korea is, are likely to be approaching a MTEF with some background of medium term expenditure programming.

9. One difference between African countries and Korea is that, although both groups created national development planning institutions, Korea was much more successful, and planning ministries in Africa have now either been absorbed into the finance ministry or have lost the power and influence they once had. This happened largely because of a growing gap between planning aspirations and reality. Due to a combination of external shocks and poor economic policy in the 1970s and 80s, the course plotted by the plan and the actual trajectory of the economy parted company, and plans became increasingly irrelevant. Planning institutions, however, largely remained, and one of the challenges facing those countries developing a MTEF approach to budgeting is what to do with the planning ministry.

10. In Uganda planning and finance were fused to create a single powerful ministry operating the MTEF, and this has ensured a balance between the tradition concerns of a finance ministry with the aggregates, and a planning ministry’s focus on allocation issues.. In Ghana planning and finance were kept separate for a long time (they have only recently been joined), and the MTEF never enjoyed the same strong sponsorship. .

11. South Africa took a different track. Under apartheid rule the government maintained a single budget and never went down the national planning road in the way other SSA countries did. After the transition to majority rule, there were some efforts to create a separate capital budget, but these were abandoned fairly quickly, and the decision was made to reshape public expenditure through a MTEF rather than by planning. South Africa’s National Treasury, however, has a strong appreciation of allocative issues (and performance) as well as aggregate fiscal policy. Korea, however, coming from a strong tradition of planning, will have to decide what role economic planning agencies should play in the design and operation of the MTEF.

12. A second lesson from this earlier period is the need to keep budget forecasts realistic. National planning was typically optimistic, with the economy projected to grow (and thus revenues) almost invariably at a higher rate than proved to be the case. Similarly buoyant assumptions were made for external financing. This made annual budgets in the national planning era more expansionary than they should have been, and accounts in part for the over-extension of government which characterizes most African countries today. .Korea’s experience has been different, with actual economic growth for extended periods meeting or exceeding forecasts. Nevertheless, ensuring the economic projections underpinning a MTEF are realistic remains important.

MTEFs and the World Bank in Africa

13. Although the World Bank has no formal policy on MTEFs, it has increasingly been recommending to governments in the Region that they develop medium term frameworks to guide annual budgeting. Thus the recommendation that the government adopt a MTEF appears in a large number of diagnostic instruments that the Bank carries out in the course of its analytical work, such as Public Expenditure Reviews (PERs) and Country Financial Accountability Assessments (CFAAs). There is a need to continually assess the response to this advice[2]. In the meantime, it is useful to outline some of the reasons why the Bank has been recommending MTEFs.

14. First, many countries in Africa are recipients of large aid inflows, some of which are directed to NGOs, but the bulk comes to government, typically worth 5-10% of GDP. Consequently, most of the capital budget and an increasing portion of the current budget are aid financed. But aid flows are variable over time, and if governments are to coordinate aid and direct it to areas which reflect national priorities rather than donors, finance ministries need a fiscal planning mechanism to regain control over the aid process.

15. Second, many countries have high and unsustainable volumes of public debt. Debt relief is increasingly becoming available through the Heavily Indebted Poor Countries’ (HIPC) initiative, on condition of satisfactory macroeconomic policies and that debt relief is applied to areas of spending that support poverty reduction. Governments need a mechanism through which the use of debt relief can be managed. As part of the HIPC process, governments are encouraged to develop a Poverty Reduction Strategy paper in a participatory way, and to use this to guide budget allocations. Unless the PRSP is made part of a broader medium term budget planning process, there is a grave risk that governments will expand spending in areas with high recurrent costs without cutting back in other areas, to the detriment of fiscal sustainability. Conversely, if PRSPs are complemented by a strong MTEF, the policy-making process will be more disciplined, and the required trade-offs made.

16. Third. many poor countries in the Region, in the wake of the collapse of the “development state”, have highly distorted budgets. The wage bill crowds out overhead spending in the current budget, and there are typically too many projects in the capital budget relative to available funding, thus ensuring slow implementation. Government pay for professionals, managers and technical staff is often seriously below labour market comparators, making it difficult for governments to recruit, retain and motivate skilled personnel. Pay reform, which cannot be implemented other than gradually, looms in front of most governments. Downsizing requires separation payments, which in the short run, due to existing laws, may exceed wage bill savings. Governments also have to manage significant arrears, and a growing and unfunded pensions burden. A fiscal framework is necessary within which these structural changes can be planned and managed over the medium term.

17. Fourthly, many services are delivered very inefficiently. Throughout the continent there are public school programs with no textbooks, hospitals without drugs, water supplies not maintained and roads in disrepair. A rebalancing of spending within ministerial portfolios is desperately needed, and again this cannot be implemented overnight, and must be both planned for and incentivized if it is to occur at all.

The above describes well the background behind both Ghana’s and Uganda’s MTEFs. As a middle income country with virtually no aid inflows and ready access to international capital markets, South Africa is different, though, as the case study reveals, the political need to restructure spending has been the greatest of all three countries.

Ghana

18. When the MTEF was introduced into Ghana, that country had on paper one of the most comprehensive public sector reform programs in the Region. After alternating between civilian and military rule, each with unsatisfactory economic policies, Ghana undertook necessary structural adjustment reforms in the mid-1980s, and the economy responded. So did donors, providing money for both rehabilitating the fabric of the country and rebuilding public institutions. The MTEF was a sub-program in the Public Financial Management Reform Program (PUFMARP), which also included the introduction of an integrated financial management system, BPEMS. In turn PUFMARP was part of the National Institutional Renewal Program (NIRP), which itself included a Civil Service Performance Improvement Program, CSPIP. All these programs were generously supported by external donors.

19. Ghana has a calendar year, and preparation of the MTEF began in 1998 and was launched in 1999. It was initially confined to three pilot ministries, but rapidly was extended to all ministries. Unlike Uganda, the emphasis of Ghana’s MTEF was on all three levels of budgetary effectiveness - aggregate fiscal strategy, allocating resources according to political priorities, and improving efficiency and effectiveness. Responsibility for introducing the MTEF lay with the Budget Department of the Ministry of Finance[3], which in turn relied heavily on a team of long term consultants, both local and external, to develop the model, train budget staff in the centre and line ministries, and launch the process.

20. Until the introduction of the MTEF, Ghana operated a traditional line item dual budget system, incremental in nature. Under the MTEF the two budgets were unified and a new system of budget classification was introduced based on programs. Consistent with the top down/bottom up spirit of an MTEF, three year sectoral ceilings were developed by the Ministry of Finance, and approved by the Cabinet through a Budget Framework Paper. This was made the basis for the bottom up formulation of spending proposals by line ministries through a call circular containing the MTEF envelopes. .

21. Through a strategic planning process, line ministries were required to develop a set of objectives and performance indicators for each program, and submit these as part of their budget estimates proposals. By making performance information an explicit part of the budget process, Ghana much more emphatically than the other two countries embarked down a performance budgeting road. Programs were broken down into activities, and a deliberate effort was made to develop accurate cost information. Although there were mechanisms developed for consultation within government, it was a more closed process than in either South Africa or Uganda.

22. Initially, the MTEF seemed to be off to a strong start in Ghana, and received the admiration of donors for its technical design and its rapid launch. However, it began to falter in 2000 and 2001 in the face of declining export earnings and a pre-election spending boom. By 2002 Ghana, while maintaining it still had a MTEF, had reverted to one year at a time incremental budgeting, a situation which prevails today, though the government is trying to re-launch the MTEF with donor assistance. The weaknesses, perhaps less visible at the time, appear to have been the following:

23. First, there was insufficient understanding of the MTEF and thus buy-in and ownership by ministers and chief directors (the civil service heads of ministries). This was not the fault of the consultants team which sought strenuously to broaden understanding, but because instead of being brought into the heart of central agency management, the MTEF was run as a project, housed in an annex and staffed by consultants, not Budget Department staff.[4] Senior policy-makers never properly understood the MTEF, and thus did not see it as a mechanism that could make the budget better reflect their political priorities.

24. Second, the MTEF was let down by the failure to make progress in other areas of the NIRP. The introduction of an integrated financial management system was badly delayed, through a combination of over-specification of the system and disputes between the government and the software vendor – which are still being resolved. CSPIP, too, was a disappointment , failing to tackle the central issue of pay reform and numbers, and instead spent its energies what some observers regarded as cosmetic activities.[5]

25. Third, there were substantial parts of public spending outside the ambit of the MTEF. For example, significant parts of the education budget were financed off budget through a special fund. There were also categories of spending within the MTEF which were governed by a different process, such as the wage bill, determined through a central establishment control process[6].

26. Although technically it should have had the capacity to do better, the Ghana government was weak in the area of macro-economic forecasting, and budgets were prepared with over-optimistic projections of resource availability. As a result, budgets contained more spending than could be afforded, and budget implementation had to be managed through heavy use of the cash release system. In turn, this played havoc with what remained of performance management.

South Africa

27. After the first fully democratic elections in South Africa in 1994, the government of President Nelson Mandela faced a number of budgetary challenges. First, there was a need to rein in the deficits and reduce the debt which had been run up in the declining years of the apartheid government. There was a simultaneous requirement to lower taxes, which had been ratcheted up by the previous regime to levels incompatible with long term growth and employment creation. Second, the new political dispensation mandated a major reallocation of spending, both away from the security sector towards the social sectors, and within almost all sectors to remove the bias benefiting the white middle class, and to deliver services to the entire population, and especially the hitherto disenfranchised black majority. The African National Congress (ANC) government came to power with a non-negotiable mandate to re-prioritize expenditures. Third, because the re-allocation had to be done within a tightly constrained spending envelope, programs had to be delivered more efficiently than before. Furthermore, it was politically desirable that restructuring of public spending took place not only at the national level, but also in provinces and local governments[7] After a decade of sanctions, South Africa needed to re-integrate its economy with international markets.

28. South Africa produced its first MTEF budget in 1997/98, and has been deepening the process ever since, extending it downwards to provinces. But it was not the first attempt to introduce an MTEF. Shortly after the transition one of the Bank’s earliest economic missions suggested a MTEF. The Bank made this recommendation partly because of the challenges of restructuring expenditures already described, but additionally because the government was experimenting with overlaying the budget with a category of special priority programs which seemed like a dual budget in the making[8]. It was partly to forestall this development, move beyond annual incremental budgeting, and help the government make existing programs the target of restructuring that an MTEF was suggested.

29. However, the first attempt at developing an MTEF in 1994-5 did not take root, chiefly because it was approached more as a internal fiscal planning exercise, and less as a new way of making budgets engaging the relevant stakeholders. There is a lesson here for other countries – the need to move quickly to define the MTEF and build it into the rules of the game for annual budgeting. When the MTEF was re-launched a couple of years later, this link was much more explicit, and there was immediate traction.

30. At the macroeconomic level, the government used the MTEF to define a new fiscal strategy. This embraced realistic estimates of revenues based on lower tax rates, debt service projections based on a steadily declining deficit and thus borrowing need, and an aggregate spending envelope for programs based upon this. Fortunately, the government had access to economic estimation skills both within the ranks of the National Treasury (as the finance ministry is called) and outside, and was able to develop quite quickly a robust fiscal framework (though this had to be adjusted more than expected due to exchange rate changes)[9].

31. In describing this system, National Treasury staff also emphasize the importance of early development of a fiscal monitoring system , to monitor revenues, debt servicing and borrowing against the borrowing plan, and spending, at the level of ministries and agencies and sub-national governments. This meant thoroughly overhauling and modernizing the tradition system, which was not sufficiently responsive,[10].

32. Up to the introduction of the MTEF, the South African government budget was

in traditional line item format. This was changed as part of the budget reform process, partly to make the budget more transparent, but most importantly to facilitate the prioritization of spending, and enable spending to be linked with objectives. Programs have become the basis on which budget bids are made. Budget classification was brought into line with international standards.

33. In common with many other countries introducing MTEFs, South Africa has lengthened the budget preparation cycle. The process starts with the National Treasury seeking inputs from line ministries on their priorities, through “ministerial letters”, which are consolidated and summarized in a Budget Framework Policy paper by the National Treasury. The BFP relates ministerial priorities to current economic developments and the consequent fiscal envelope, consistent with the latest macroeconomic forecasts and the cost of servicing debt. The paper is discussed in a cabinet retreat (Cabinet legotla), and also in intergovernmental meetings. Considerable effort is made to secure political commitment to MTEF priorities, and the intergovernmental meetings include a premiers’ forum, as well as sectoral committees[11]. The fiscal strategy and spending priorities are agreed, and a Medium Term Budget Policy Statement (MTBPS) is prepared and circulated by the National Treasury. It is tabled in the legislature but not voted upon. Thereafter, budget proposals are called for within three year ministerial ceilings which reflect those priorities.[12]

34. The MTEF was introduced across all ministries in a single year, and not piloted initially in a select few. This shows that early on, the National Treasury recognized that a MTEF is a “whole of government” system of budget making, or it is nothing.

35. Under the MTEF budgeting is multi-year, with departments being asked to submit program spending proposals for the full three year period. Because “headroom” opens up only in the outer years, new programs tend to be introduced progressively. Ministries can, of course, accelerate this by cutting existing programs and proposing savings within their existing envelopes. Since budgeting is now on a program basis, departments are responsible for striking their own balance between the wage bill, overheads and capital, instead of bidding for the maximum independently. They are also required to absorb intertemporal unevenness in capital spending within their ceilings. Thus the MTEF process combines top down ceiling setting with bottom up formulation of spending proposals. A Ministers’ Committee on the Budget (MinComBud), a cabinet sub-committee, reviews policy changes and any reallocations, and submits them to the full cabinet.

36. To foster greater efficiency and effectiveness, departments are required to provide an objective for each program, and to specify targets, mostly outputs, against which progress can be monitored. These are arrived at through a strategic planning process at the departmental level, are published in the budget, and described in annual departmental reports. Performance targets and their achievement however, are not formally linked to budget allocations. A key function of strategic plans is to set forth the medium term costs of programs and prioritize accordingly, thereby the support the MTEF budget process.

37. To reinforce the new approach to budgeting and other changes in financial management, South Africa passed a new organic finance law, the Public Finance Management Act, in 2001. This establishes a strong framework for accountable public financial management, including the regular publication of fiscal reports, and annual reports by departments on how they have used public resources. It also institutionalizes the MTEF, and enables accounting officers[13] to manage while at the same time holding them accountable[14]. At the same time there have been parallel reforms taking place in the civil service, to accelerate African participation in the higher ranks, modernize personnel management and promote performance.

38. Overall, the South African MTEF has been highly successful in helping the government reduce the deficit and borrowing. It has also greatly helped the government re-prioritize spending, and coordinate better national with sub-national spending. How far it has helped departments improve performance is still being determined.

Uganda

39. Uganda gained independence from Britain in the early 1960s. With a good climate, particularly in the South and East, agriculture was productive, plantation produced sugar was exported, and the country had a small light industrial base. After a good start, economic management deteriorated, and in the 1970s Uganda entered a dark period of brutal dictatorial rule by General Idi Amin, ending in two cycles of civil war. Uganda emerged in 1987 with its economy shattered. Since that time Uganda has been governed by President Musoveni somewhat autocratically, but progressively. Good macroeconomic and structural policies supported by generous donor aid have enabled the economy to rebound. In the wake of the civil wars, Uganda had one of the world’s highest incidences of HIV/AIDS, but has successfully reduced the rate of new infections by active public health campaigns.

40. Although Uganda had operated a classic national planning model in the 1960s and 1970s, it had effectively collapsed by the time President Musoveni came to power. What was left was a line item dual budget system, incremental and opportunistic, as aid flows increased. The origins of the MTEF were a fiscal crisis in the early 1990s, which led to the development of a medium term fiscal framework, which by 1995/96 had developed into a MTEF with sector envelopes covering all ministries. More recently, the country has embarked on an ambitious decentralization program, and approximately one third of the central government budget consists of transfers to local governments in the form of conditional grants. Domestic revenues run at about 11-12% of GDP, and with total spending slightly over 20%, the gap is filled by highly concessional aid. Donors finance about two thirds of the development budget, and are increasingly providing untied support to the budget as a whole.[15]

41. Uganda was the first country in Africa to be granted debt relief through the HIPC process. As a result, Uganda has been strongly pressured to high priority is given to pro poor spending. This is broadly consistent with the President’s political objectives, though there has been a long running tension between the poverty agenda and security and defence demands, as Uganda faces long running brigandry in the North and political instability beyond its borders in the West.

42. The Uganda financial year is July/June, and the MTEF/budget cycle begins in October with the convening of a participatory process in Kampala, the capital, to which all stakeholders in the budget process are invited - sector ministries, local governments, donors, NGOs and civil society representatives, donors and the business sector – and given an overview by the Ministry of Finance, Economic Planning and Development (MFPED) of the current year’s performance, and prospects, issues and challenges for the year ahead. Sector Working Groups (SWGs) are then formed, which review how services have been delivered in the current year, how they might be improved in the future, and what priorities should be reflected in allocations. Donors play an active roles in these SWGs, supporting them with consultants, as required, particularly in sectors like health and education, where there are already well defined sector development plans[16].

43. The SWGs each prepare reports for the MFPED which in turn prepares a national Budget Framework paper in February/March. This reviews the overall economic situation, both in the current year and the year ahead, updates the fiscal framework and the MTEF, and incorporates, as it deems appropriate the allocation suggestions from the SWGs. The BFP is then submitted to the cabinet. On approval, it becomes the basis for the issue of the budget preparation call circular, and the detailed submission of revenue and spending estimates by departments. By June/July the budget estimates are ready for presentation to the parliament, which reviews them and approves[17] the Finance Bill and the Appropriation Bill in the first quarter of the financial year, whereupon departments are authorized to spend.[18]

44. Most observers of the Uganda MTEF believe that it has become well embedded, and the MTEF, now is the budget process. Participation in the SWGs has given stakeholders a strong sense of ownership, while at the same time the MFPED has been able to exert strong strategic direction, and define and implement a clear fiscal strategy. It has been very effective in both achieving macro-stability and in shifting spending to priority sectors such as education, and protecting priority areas from cuts. Where it has not been so successful is ensuring that budget allocations are translated into actual spending[19]. Uganda still relies heavily on cash budgeting, and there are often significant divergencies between how funds are actually used and what the budget provides for - both within ministries and sometimes between them.[20] And it is not clear that the MTEF has yet had a major impact on efficiency and effectiveness issues. While the SWGs have helped shed light on constraints, the cash release system has affected predictability, and there remain structural issues to address in the areas of civil service pay and overheads. Most recently, Uganda has been revising its organic finance law.

Conclusions

45. The three country examples described above are the longest running MTEFs in Sub-Saharan Africa. While other countries are seeking to follow them (eg: Burkina Faso, Benin, Kenya, Malawi, Rwanda. Tanzania, Sierra Leone), these are still early times and lessons cannot be drawn. South Africa and Uganda’s MTEFs have been described as “maturing” (rather nicely), Ghana’s as “struggling”(a charitable assessment).[21] The following seem to be the most relevant lessons for Korean policymakers.

1. Critical to the successful development of a MTEF is the active leadership of the finance ministry. It needs to be engaged, committed, technically strong and have the backing of the president. It also needs to be prepared to change its role, discarding past habits of incremental budgeting. It must get line ministries and agencies to understand the new rules of the game, and ensure that within a hard budget constraint, decisions on priorities are taken in the right place – departmentally within portfolios, at cabinet/council of ministers level between portfolios. South Africa and Uganda had this leadership, Ghana didn’t.

2. Ministers must be politically engaged in the MTEF, which needs to be more than a technical exercise of putting together budget figures. Ministers must understand the fiscal strategy underpinning the MTEF and play the role only they and the president can in making collective decisions on policies, program priorities and trade-offs. South Africa and Uganda were able to achieve this.

3. Stakeholder engagement, which both South Africa and Uganda provide for and Ghana didn’t, builds ownership of the MTEF process, and is essential to its survival.

4. The initial focus of the MTEF can be on aggregate fiscal strategy and allocation, but as South Africa shows, the MTEF can be used to stimulate strategic planning in departments and agencies, using this as a vehicle for performance management.

5. There is a difference between South Africa and the other two countries in the emphasis given to the outer years of the medium term framework. If accurate baseline costing of existing policies and programs can be developed, the debate can shift to the consideration of new policy and the scope for funding this within the “headroom” opening up in the outer years. This helps improve policy planning. Ghana and Uganda were unable to do this because of structural issues - serious underfunding of existing policy, and the uncertainty of future donor flows.

6. There is a need to integrate human resource management with the MTEF the more the latter is used as a vehicle to drive performance improvements. South Africa’s MTEF was developed in parallel with major changes in the way the public service was managed, facilitating optimizing inputs. This could not happen in Ghana, where staffing levels were determined by a separate process.

7. The introduction of a MTEF needs to proceed in parallel with (or be preceded by) the modernization of accounting and fiscal reporting systems, to give the finance ministry the confidence to abandon line item control, and to provide departmental managers with the information they need to use resources efficiently. South Africa and Uganda (broadly speaking) were able to do this. Misspecification and delays in the introduction of Ghana’s IFMIS undermined the MTEF.

8. It may be useful to accompany the introduction of the MTEF with an overhaul of the organic finance law, specifying key steps in the process and clarifying roles and accountabilities.

Mike Stevens

Washington, DC

12 March 2004

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[1] There are other countries which are at various stages of introducing or operating MTEFs, such as Kenya, Malawi, Sierra Leone and Zambia, but the most complete experiences are those of the three countries chosen for this paper.

[2] A first assessment was made in “Medium Term Expenditure frameworks: From Concept to Practice: Preliminary Lessons from Africa” by Philippe Le Houerou and Robert Talercio, World Bank., February 2002.

[3] At the time, planning and finance were separate organizations. They have since been fused into a single finance and planning ministry.

[4] Herein lies a quandary for budget reformers in poor countries. New budget systems require dedicated staff working long hours, but if civil service pay is low and staff work only part time, the load cannot be carried by departmental regular staff, and thus Ghana hired consultants (chiefly Ghanaian former civil servants, working alongside a very committed expatriate consultant). Uganda, which also had deficient public sector pay, managed to get a donor to supplement the salaries of MFPED regular staff.

[5] There is little point in developing mission statements, ethical codes and service standards if the government is unable to pay its staff a living wage, and cannot recruit qualified professionals.

[6] This is inherently a difficult issue for poor countries with weak internal and external control systems. The risks of delegating authority to departments for personnel management are much greater than in OECD countries.

[7] While it has three tiers of government – national, provincial and local - South Africa is more a quasi than a full federal state. There are nine provincial government, which vary greatly in productive wealth, infrastructure and demographics. National government collects the largest share of revenues. Provinces have relatively few independent sources of revenue, and thus are dependent on transfers. Local government overall (there is much variation within local governments) has a strong property tax base, and to this extent is relatively independent fiscally of national government. The formulae for sharing of revenues is determined by a fiscal commission. Sub-national governments receive both shares of nationally collected taxes, and conditional grants from the National Government. They are, however, free to allocate these resources according to their own political priorities, though in practice there are strong pressures for harmonization of approaches, through political pressures, conditional grants and national standards.

[8] Termed the Reconstruction and Development Program (RDP).

[9] Although the main work is done by the National Treasury, using its own GCE model, it has also utilized the expertise of the central bank and the University of Stellenbosch

[10] Presentation made on the SA MTEF (Budget reform: Achieving budget stability)at a WBI workshop on public expenditure management, April 2001, in Kaduna, Nigeria by Kuben Naidoo of the National Treasury. This section of the paper draws heavily on this source.

[11] “Operationalizing the MTEF as a tool for Poverty reduction: South Africa case Study” Albert van Zyl, IDASA Capetown, August 2002.

[12] The BFP process is internal to the executive, and is not discussed presently with the legislature. Proposals have been made to give the legislature a larger role in pre-budget policy discussions, and to extend it some powers to amend the executive’s budget.

[13] Accounting (or controlling) officers is the term used in Anglo type systems for vote holders. Typically the AO is the senior most official in the department under the minister, and is responsible for using the vote in a proper and efficient way, and for the stewardship of public resources entrusted to that department. He/she may be called before the Public Accounts Committee of the legislature to provide an explanation on issues raised in the report of the Auditor-General.

[14] Public Finance Management Act (PFMA) 2001, and “Guide for Accounting Officers – PFMA” National Treasury.

[15] See “The Budget and Medium Term Expenditure Framework in Uganda”, by David Bevan, December 2001, Africa region Working Paper Series Number 24.

[16] For example, the Education Strategic Investment Plan (ESIP) and the Health Sector Investment Plan (HSIP).

[17] In common with most other countries in the UK public finance tradition, the Uganda parliament scrutinizes the estimates, but cannot unilaterally change them, though it can suggest amendments.

[18] This process is well described in an informative MFPED publication, “A Citizens Guide to the Uganda Budget process”.

[19] See David Bevan, op cit.

[20] A critical issue is security spending which has a habit of persistently exceeding budget. This has led to tension with donors who feel that their financing of social sectors frees the government to spend more on defence and the police.

[21] “A Review of Experience in Implementing MTEFs in a PRSP Context: A Synthesis of Eight Country Studies”, Malcolm Holmes with Alison Evans, Overseas Development Institute, London, May 2003.

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