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Key Text Implementing a Medium-Term Perspective to Budgeting in the Context of National Poverty Reduction Strategies: Good Practice Guidance Note

Author: Overseas Development Institute
Date: 2003
Size: 18 pages (222 KB)

Access full text: available online

Summary

What is good practice for developing medium term perspectives to budgeting? How can effective linkages to poverty reduction be pursued? How can relationships between donor processes and national capacities be managed? This guidance note, produced by the Overseas Development Institute (ODI), reviews country experience of Medium Term Expenditure Frameworks (MTEFs). It also examines the links being made to national Poverty Reduction Strategies (PRSPs).

The guidance note is based on a Synthesis Report of nine country case studies: Albania, Benin, Burkina Faso, Cameroon, Ghana, Rwanda, South Africa, Tanzania and Uganda. It attempts to translate the findings from the Synthesis Report and case studies into a set of principles and practices for those working in the field of public expenditure reform and poverty reduction. The appeal of MTEFs is their potential to link competing short-term imperatives of macroeconomic stabilisation with longer-term demands on the budget.

Initially, good practice in implementing medium term approaches includes getting the basics in place, such as improved macroeconomic and fiscal management capacities and budget preparation. A commitment to fiscal discipline is crucial. At this stage keeping it simple, engaging at the political level and being honest and realistic when projecting aggregates is necessary. Moving ahead, issues requiring attention include:

Early attention should be focussed on getting the institutional arrangements right, for instance making sure an integrated budget and planning agency exists and ensuring links to PRSPs are coordinated by the same agency.
Early attention is necessary to get the process right, devolving budgetary decisions and putting policy objectives and performance information into the arena for debate.
Early attention on comprehensiveness to ensure the framework encompasses all funding and links recurrent and capital expenditures is desirable.
Moving forward with implementation involves sequencing the transition from annual budget to the MTEF process, integration into the budget cycle and reinforcing the strategic stage to create a common framework.
A strategic approach should be adopted at sector level to strengthen budget credibility and a focus on MTEF-PRSP linkages to provide a bridge between PRSP and budgets.

In terms of policy considerations, sustaining an MTEF process over time requires not only political and technical decisions, but also changes in behaviour in both the budget agency, line agencies and between different levels of government. Donor support is another factor that should be explored. Analysis of these two issues has the following implications for policy:

Behavioural change is best driven from within government, requiring strong leadership and commitment from the budget agency and Minister of Finance.
Change requires patience; it takes years to build a successful MTEF process.
Bottom-up budgeting is not compatible with an MTEF approach. Yet citizen participation in the budget process is potentially an important anchor for institutionalising participation in both the PRSP and MTEF.
Countries undertaking decentralisation should pay close attention to how an MTEF and PRSP can support decentralisation whilst also delivering improved fiscal outcomes and better results on the ground.
Donors should recognise that without political support an MTEF is unlikely to be successful. Successful MTEFs are driven by budget ministries and Ministers of Finance, not by donors.
Donors can support MTEF implementation by directly providing technical support to governments and by aligning donor behaviour towards government MTEF, PRSP and sector processes.

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Source: Overseas Development Institute, 2003, ‘Implementing a Medium-Term Perspective to Budgeting in the Context of National Poverty Reduction Strategies: Good Practice Guidance Note’, ODI, London.
Author: Overseas Development Institute (ODI), http://www.odi.org.uk/