Public financial management and accountability

Budgets and medium term expenditure frameworks

To turn policies into practice, they must be linked to concrete spending plans. Well-developed pro-poor policies will fail if not backed up by sufficient budgets. The budget process should encompass several stages: developing policies to achieve desired outcomes; costing, prioritising and choosing between policy options; supporting the implementation of chosen policies; and assessing their impact (note that other sections of this topic guide deal with the political and social nature of such decisions. Link to earlier section on social and political contexts of PFM)

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Where is a good place to start?

Fozzard, A, 2001, ‘The Basic Budgeting Problem: Approaches to Resource Allocation in the Public Sector and their Implications for Pro-Poor Budgeting’, Centre for Aid and Public Expenditure, ODI, London
How should governments decide which activities to prioritise in the budget? This paper from the Overseas Development Institute explores attempts to resolve this basic budgeting problem over the last 60 years in various countries. Resource allocation decisions in the public sector may be guided by economic analysis and technical theory, but ultimately have to rely on political processes.
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Budgets and Medium Term Expenditure Frameworks (MTEFs)

The budget determines the origin and application of public financial resources and hence plays a central role in the process of government. Budgeting is the mechanism by which government can achieve greater allocative efficiency. It is the vehicle by which government should establish overall spending limits, reconcile competing priorities and translate policy objectives into detailed spending plans.

Unlike the budget, which almost always takes place on an annual basis, a medium-term plan - often known as a Medium Term Expenditure Framework (MTEF) - extends over a three to five year timeframe. A MTEF sets expenditure and deficit targets on the basis of macroeconomic projections over the next few years and outlines the cost of current and medium term spending priorities. Budgets formulated in the context of a medium-term plan are more likely to take account of ongoing resource availability and policy commitments.

Rolling MTEFs are designed to offer greater predictability to spending ministries in order to strengthen the links between planning and budgeting. These documents draw attention to the challenges involved in introducing MTEFs into developing country contexts.

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
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.
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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.
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).
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Holmes, M, and Evans, A, 2003, ‘Review of MTEFs in the context of PRSPs - Country case studies’, Overseas Development Institute, London
Medium Term Expenditure Frameworks or MTEFs are now recognised as key elements to effective budget management and to successful Poverty Reduction Strategies (PRSPs). MTEFs are said to enable the harmonisation of the competing short-term imperatives of macroeconomic stabilisation with the medium and longer-term demands of effective service delivery, policy-making and planning. But do MTEFs really deliver? This report by the Overseas Development Institute (ODI) analyses the experience of implementation of MTEFs and the links established with PRSPs.
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Le Houerou, P. and Taliercio, R. 2002, 'Medium term expenditure frameworks. From concept to practice: Preliminary lessons from Africa', World Bank, Africa Region Working Paper Series No. 28, World Bank, Washington D.C.
This study of MTEF experience in Africa identifies the importance of taking into account other aspects of budget management ( in particular budget execution), the need to see MTEF as an enhancement/extension to the budget process rather than a parallel exercise, the requirement for effective political engagement, especially at cabinet level, and the importance of broader participation and transparency.
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Performance based budgeting

Performance budgeting, or results-oriented budgeting, 'allocates budget resources to spending ministries and agencies on the basis of reviews of past performance and statements of future strategy, and in return for commitments to achieve defined results' (Roberts, 2003). Reforms introducing performance budgeting have been carried out in a substantial number of OECD countries, and are credited with promoting allocative and operational efficiency in public financial management systems. However, there is a debate over the suitability of implementing such reforms in developing and transitional countries.

Roberts, J., 2003, 'Managing Public Expenditure for Development Results and Poverty Reduction', Overseas Development Institute (ODI) Working Paper, London.
This paper argues that low-income countries are making some achievements in the realms of performance budgeting and management. There is evidence that practitioners are being reflexive and seeking ways to improve their performance. Such initiatives are likely to play a vital role in the successful implementation of poverty reduction strategies.
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Diamond, J., 2003, 'Performance Budgeting: Managing the Reform Process', IMF, Working Paper No. 03/33, Washington D.C.
Over the last two decades, many OECD countries have reformed their budgetary processes from an inputs-based, command and control model to a more decentralised approach that focuses on outputs. The success of 'performance budgeting' has stimulated interest from many middle-income emerging economies. This working paper from the International Monetary Fund aims to improve the quality of IMF technical assistance to countries considering when and how to approach such reforms.
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What other resources are available on the GSDRC?

Use the site search at the top of this page if you wish to look for wider resources on budgets and medium term expenditure frameworks.

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