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Linking Policies and Budgets: Implementing Medium Term Expenditure Frameworks in a PRSP Context

Author: P de Renzio and S Smith
Date: 2005
Size: 5 pages (112 KB)

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Summary

Poverty Reduction Strategy Papers are often criticised for being de-linked from the availability of resources in the budget. Can Medium Term Expenditure Frameworks bridge this gap? This briefing paper from the Overseas Development Institute is based on 9 country case studies of implementing MTEFs in a PRSP context. It finds that in general, MTEF implementation is a significant driver of wider reform, but that a number of issues need to be taken into account during implementation.

Medium-Term Expenditure Frameworks have the potential to link often competing short-term imperatives with medium and longer-term policies, thereby contributing to improved policymaking and planning. Increasing importance is placed on the development of a MTEF to support PRSP implementation. While PRSPs lay out detailed, long-term poverty reduction priorities, the MTEF provides a framework for allocating resources and a forum for policy trade-offs.

The case studies are divided into categories based on a qualitative assessment of their progress: Maturing (South Africa, Uganda), Getting it Together (Albania, Benin, Rwanda, Tanzania) and Struggling (Burkina Faso, Cameroon, Ghana).

'Maturing' cases feature: the integration of MTEFs with policy and budget processes; budget predictability; integrated institutional arrangements and fiscal stability. Initial conditions matter when introducing an MTEF, but MTEFs can also be a catalyst for building basic budget conditions such as improved fiscal stability. The weaker the budget conditions, the less onerous MTEF design should be. A realistic approach to the resources available is vital. In cases such as Albania, South Africa and Uganda, MTEFs reinforce public confidence, accountability and political legitimacy, but this depends on the political elite's involvement from early stages of budgeting and on its commitment to efficient planning. Further findings include:

• A strategic budgeting phase should be followed by detailed costings to maintain focus on priorities.
• The absence of links between budgeting, planning and policy undermines the prioritisation of resource allocation.
• Sectoral strategic management should encourage central agencies to challenge existing policies and optimise expenditure.
• MTEFs can support decentralisation by promoting a strategic focus and a clear allocation of decision-making responsibilities between the centre and individual sectors.
• An excessive focus on priorities can lead to a neglect of non-priority programmes. Expectations of expanding funding can contribute to the softening of budget constraints.
• MTEFs require wide participation; case studies show that the Parliament's engagement is higher where targets are set at PSRP level.

Effective links between MTEFs and PRSPs lead to a stronger focus on the strategic phase of budget preparation, and consequently to greater political engagement in resource allocation.

• It is necessary to continue developing integrated frameworks for policy, planning and budgeting.
• There is also a need to manage expectations: about additional funding, the rate of progress in improving budgeting outcomes, and how quickly PSRPs will become the overarching policy framework.
• There is a need to build basic capacity to support implementation, especially in the area of basic budget discipline.
• A single central agency is optimal for coordinating all aspects of budget expenditure, and the PRSP should be implemented by the same agency. Cabinet should be involved early on in decision making to maximise political engagement.
• There should be a greater performance orientation, with a focus on predictability of funding and policy, and line ministries focussing on clearer objectives and strategies. The strategic phase of budgeting can be supported with a Budget Framework Paper.
• MTEFs and PRSPs should be implemented so as to support any ongoing processes of decentralisation.

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Source: De Renzio, P. and Smith, S., 2005, 'Linking Policies and Budgets: Implementing Medium Term Expenditure Frameworks in a PRSP Context,' Briefing Note, Overseas Development Institute