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Medium term expenditure frame work (mtef)


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ESAMI Training

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Medium term expenditure frame work (mtef)

  2. 2. Medium term expenditure framework <ul><li>Introduction </li></ul><ul><li>The Medium Term Expenditure Framework (MTEF) defines a three-year rolling macroeconomic framework, which outlines the overall resources </li></ul><ul><li>It also forms the basis for setting of national priorities and expenditure prioritization. </li></ul><ul><li>MTEF was introduced in Kenya in 1997 after the government and the World Bank carried out a Public Expenditure Review (PER) </li></ul><ul><li>The review identified various weaknesses in public expenditure management that had led to a decline in : </li></ul><ul><ul><ul><li>credibility of the budgetary process, </li></ul></ul></ul>
  3. 3. Medium term expenditure framework <ul><li>Declining quality of public investments </li></ul><ul><li>The MTEF budget approach has four main objectives: </li></ul><ul><li>Creating a macroeconomic environment that will attract both foreign and domestic private investors by: </li></ul><ul><li>Ensuring that public resources are efficiently utilized </li></ul><ul><li>Creating and supporting the potential for high growth of incomes </li></ul><ul><li>Supporting efficient production </li></ul><ul><li>Creating and sustaining fiscal discipline ( through a medium term rolling forecasting) </li></ul>
  4. 4. Medium term expenditure framework <ul><li>Equitable resource allocation and operational efficiency </li></ul><ul><li>Provide continuity to the budget process </li></ul><ul><li>The rationale for the adoption of the MTEF process is to ensure efficiency in budgeting and an equitable reduction on the share of the GDP that goes to public expenditure </li></ul><ul><li>In Kenya's case, it was to reduce from 27% in 1997 to a target of 25%. </li></ul><ul><li>The MTEF process requires a restructuring such that the government revenue is concentrated on a focused range of functions that promotes the growth of a vibrant private sector </li></ul>
  5. 5. Medium term expenditure framework <ul><li>The vibrant private sector will then contribute to the generation of the so much needed resources </li></ul>
  6. 6. Medium term expenditure framework <ul><li>MTEF process </li></ul><ul><li>The MTEF Budget Cycle(Kenyan Context) </li></ul><ul><li>The introduction of the MTEF budget process in Kenya led to the creation of various work groups </li></ul><ul><li>An MTEF secretariat was created to coordinate the budget programs </li></ul><ul><li>A Macroeconomic Work Group (MWG) was created followed by the creation of eight Sectoral Work Groups (SWG) </li></ul>
  7. 7. Medium term expenditure framework <ul><li>The various ministries and work groups were aligned to the (SWG’s) </li></ul><ul><li>The MTEF budget is preceded by a National Development plan that spells out the broad macro economic policies </li></ul><ul><li>The Macro Economic Work group (MWG) prepares a medium term fiscal strategy that sets out </li></ul><ul><ul><ul><li>The optimal levels of aggregate revenue and expenditures </li></ul></ul></ul><ul><ul><ul><li>Financing deficits </li></ul></ul></ul><ul><li>The Treasury issues budget guidelines to the various accounting officers </li></ul>
  8. 8. Medium term expenditure framework <ul><li>These guidelines include </li></ul><ul><ul><li>The composition of the SWG’s </li></ul></ul><ul><ul><li>The MTEF calendar </li></ul></ul><ul><ul><li>The fiscal strategy over the medium term </li></ul></ul><ul><ul><li>The sectoral resource ceilings </li></ul></ul><ul><ul><li>Other budget preparation information </li></ul></ul><ul><li>This is meant for the ministries and government agencies to effectively participate in the budget process through their respective sectoral work groups </li></ul><ul><li>The SWG’s prepare sector reviews and come up with reports outlining: </li></ul>
  9. 9. Medium term expenditure framework <ul><li>Their overall missions, objectives and strategies in a prioritized format </li></ul><ul><li>Then the sectoral ceilings are issued, These ceilings take to consideration the following factors </li></ul><ul><li>The overall available resources </li></ul><ul><li>The national objectives(often revolving around): </li></ul><ul><ul><li>Economic growth </li></ul></ul><ul><ul><li>Poverty reduction </li></ul></ul><ul><ul><li>Historical resource allocation </li></ul></ul>
  10. 10. Medium term expenditure framework <ul><li>On-going project commitments </li></ul><ul><li>Donor commitments </li></ul><ul><li>Government contribution to Donor funded projects </li></ul><ul><li>Upon receipt of the SWG’s proposals, the MTEF secretariat organises sectoral hearings where by the SWG”s present their respective sector reports and receive comments from the public </li></ul><ul><li>This then enables the treasury to come up a medium term expenditure frame work to facilitate inter sectoral allocations </li></ul><ul><li>The sectoral resource ceilings are then confirmed and are presented to the cabinet for discussion </li></ul>
  11. 11. Medium term expenditure framework <ul><li>They are then forwarded to the ministries to prepare itemized budgets which are forwarded to treasury for consolidation and submission to parliament for approval through the traditional budget process </li></ul><ul><li>When the sectoral ceilings are issued, they take to consideration the following factors </li></ul><ul><ul><li>The overall available resources </li></ul></ul><ul><ul><li>The national objectives(often revolving around : </li></ul></ul><ul><ul><ul><li>Economic growth </li></ul></ul></ul><ul><ul><ul><li>Poverty reduction </li></ul></ul></ul><ul><ul><li>Historical resource allocation </li></ul></ul>
  12. 12. Medium term expenditure framework <ul><li>MTEF Performance </li></ul><ul><li>To be able to measure performance, the expenditure ceilings should be backed by sustainable revenues </li></ul><ul><li>They should also include enforcement mechanisms ( to facilitate timely monitoring of outcomes) </li></ul><ul><li>Budget flexibility </li></ul><ul><li>The definition of the sectors and class identification of the expenditures should be based on purpose and not on the nature of expenditure </li></ul>
  13. 13. Medium term expenditure framework <ul><li>The process requires: </li></ul><ul><li>A Top-Down approach on resource identification </li></ul><ul><li>A Bottom-Up approach on costs and expenditures both in the current and medium term </li></ul>
  14. 14. Medium term expenditure framework <ul><li>Issues </li></ul><ul><li>The MTEF budget process assumes that the various sectoral managers have the autonomy to manage and make decisions that maximize results (this is not always the case) </li></ul><ul><li>It is difficult to assess national strategy because the sectors are categorized broadly (e.g. Trade, Tourism and Industry being lumped together). As a result, the mandates of the SWG’s are vague and not clear </li></ul><ul><li>The SWG’s are not able to improve on the intra sectoral allocations . Ideally, they should be able to shift resources with in their own departments to ensure adequate funding for high priority progrms </li></ul>
  15. 15. Medium term expenditure framework <ul><li>Effectiveness of the MTEF budget process is also hampered by the limited time allocated for the preparation of the budget hence the budget is not prepared in details.(many times it is prepared with unrealistic estimates e.g) </li></ul><ul><li>Over estimated capacity </li></ul><ul><li>Under estimated costs </li></ul>
  16. 16. <ul><li>Performance of MTEF in Kenya </li></ul><ul><li>Resource allocation and implementation is flawed by: </li></ul><ul><li>Lack of a comprehensive development strategies that are based on realistic national resource constraints </li></ul><ul><li>Excessive size of the government spending </li></ul><ul><li>Failure to achieve aggregate fiscal discipline </li></ul><ul><li>Poor quality of public expenditure </li></ul><ul><li>Weaknesses in the planning and budgeting process that have contribute to its poor performance (these weaknesses include): </li></ul>
  17. 17. Medium term expenditure framework <ul><ul><li>Forecasting ability </li></ul></ul><ul><ul><li>Lack of medium-term perspective; </li></ul></ul><ul><ul><li>Failure to cost future resource requirements </li></ul></ul><ul><ul><li>Too many supplementary budgets </li></ul></ul><ul><ul><li>Excessive political interference in budgeting </li></ul></ul><ul><li>Failure of expenditure controls by line item </li></ul><ul><li>Incremental recurrent budgeting especially on on-going programmes resulting in redundant and rising programme implementation costs; </li></ul>
  18. 18. Medium term expenditure framework <ul><li>Delays in issuing resources due to unforeseen changes in revenue, </li></ul><ul><li>Emergency expenditures and unplanned activities </li></ul><ul><li>Inadequate provision for the recurrent implications of development projects </li></ul><ul><li>Funding of recurrent activities through the development budget to attract donor funding at the expense of accountability and transparency </li></ul><ul><li>Discrepancies between development estimates and public investment programmes; </li></ul>
  19. 19. Medium term expenditure framework <ul><li>Poor quality of development projects due to poor targeting, (high per unit costs and low completion rates) </li></ul><ul><li>Weak accounting systems </li></ul><ul><li>Inadequate and at times lack of monitoring and evaluating systems </li></ul><ul><li>Failure to develop management information systems. </li></ul>