The IMF-managed Pacific Finance Technical Assistance Center (PFTAC) recently released a publication on Medium-Term Public Finance Frameworks (MTF). This is the first in a new series of Handbooks with the purpose to help building capacity in the public sector for Pacific Island States.
Handbook No. 1 focuses on the theory and practice of implementing medium term fiscal frameworks. The publication is the proceedings of a workshop on MTFs held in late 2006 in Nadi, Fiji, and papers range from more general contributions on "Approaches, Issues and Challenges" to country-specific experience in Fiji, Vanuatu and Samoa.
While terminology and acronyms are a challenge, MTFs can be broadly divided into three subspecies:
- A medium-term fiscal framework (MTFF) provides a top-down statement of fiscal policy objectives, and it includes medium-term macroeconomic and fiscal targets and projections. The MTFF should augment traditional annual budgeting to meet the government's stabilization objectives, and typically includes the identification of fiscal risks, such as the vulnerability to shocks in the export sector, and the need to control fiscal aggregates and coordinate with monetary policy. In terms of the three main goals of PFM, the focus of the MTFF is clearly on maintaining aggregate fiscal discipline and fiscal sustainability.
- A medium-term budget framework (MTBF) incorporates realistic projections of spending by individual agencies (e.g. line ministries) and allocates resources in line with strategic priorities. Moving from a MTFF to an MTBF means adding a mechanism for allocating resources between competing spending agencies, again over a multi-year horizon.
- Finally, a medium-term expenditure framework (MTEF) extends the analysis further with more detailed costing within the sectors (e.g. policies and programs) and with performance measures. MTEFs seek to identify and promote incentives for better public sector performance, often through the increased delegation of authority to line ministries or agencies and increased flexibility in the mode of service delivery.
While the Handbook is not yet available on the internet, the workshop presentations can be found under www.pftac.org
Posted by Christian Schiller
