Posted by Mr. Batjargal , Director General of Fiscal Policies and Coordination Department, Mongolian Ministry of Finance
(supported by M. Napodano and S. Erdermchimeg)
In the post below, Mr. Batjargal, head of the Mongolian Budget Office presents his views on the objectives, benefits, and progress to date, of Mongolia’s move towards a performance oriented budget system, framed within medium term sectoral expenditure ceilings.
Mongolia’s Medium Term Expenditure Framework (MTEF) is anchored to the public sector performance framework established in 2003; since 2007 the link between budget and policies is being strengthened. Following New Zealand's best practice, the Government of Mongolia (GoM) introduced a performance management system in 2003 as part of the public administration reform. 
Portfolio ministries and their dependent agencies prepare rolling three-year Strategic Business Plans. The plans show main output targets and activities by program area for the coming three-year period. A shortcoming of the approach was that the plans are not consolidated into comprehensive Portfolio MTEF statements, resulting in a weak link between budget and policies objectives at the sector level. The Ministry of Finance (MoF) has in recent years prepared an MTEF under a three-year horizon but it is mainly input based. No hard budget constraints were imposed by issuing MTEF ceilings to portfolio ministries. Since 2007 these shortcomings are being removed through the gradual introduction of new MTEF/budget procedures that promote a more integrated planning and budgeting process. The MoF has issued a revised calendar for the MTEF preparation and launched a training program to support portfolio ministries implement the new procedures. The training program is based on lessons learned during a pilot to introduce performance-based budgeting in three ministries: the Ministry of Education, Culture and Science, the Ministry of Social Welfare and Labor, and the Ministry of Food and Agriculture.
The MoF intends to use a performance-based MTEF process to improve allocative efficiency at the sectoral level. The successful pilots mentioned have allowed MoF to revise the conceptual framework the budget process Download mtef_conceptual_framework_summary.ppt by which public resources 
are being allocated to sectoral priorities. From this year on, Portfolio Ministries are no longer allowed to present their budgetary requests unconstrained, submitting a list of new sector measures to bid for additional financial resources. MoF has issued budget ceilings for all portfolio ministries, within which the latter have increased delegated authority to identify their sector priorities. In addition, to reinforce the policy dialogue between each portfolio ministry and MoF, budget expenditures should be explicitly linked to performance indicators. This is particularly important in Mongolia, which has experienced a rapid expansion of the resource framework in recent years, thanks to increasing international prices of natural resources. Introducing hard budget constraints in Mongolia means that on an annual basis, but within an overall three-year planning framework, portfolio ministries have to review and plan their sectoral measures to ensure MoF, the Government and the Parliament that public funding are directed towards national priorities and are disbursed effectively to achieve tangible results. No increases of resources are allowed outside this budget-constrained, performance framework.
The introduction of the MTEF is accompanied by a revision of sector strategies in key portfolios to strengthen the link between budget and policies. Budget specialists in the MoF are supporting a 
review of existing sector strategies in key portfolio ministries. This is expected to open a dialogue with sector specialists and senior managers of line ministries to analyze the fiscal implication of current and future policies. The first step is to verify that existing sector strategies and their operational plans are aligned to a series of seven benchmarks that should guide the (re)allocation of resources from less to more effective public services and goods. The seven benchmarks have been grouped under two categories, Master Plan and Operations. The first four benchmarks refer to policy statements that are to be found in the sectoral master plans approved by the Government. Budget specialists will analyze them on their usefulness to provide references to performance in the period covered by the plan. The other three benchmarks relate to the implementation of the master plans’ goals and objectives. The emphasis here is on process; the budget specialists should be able to assess their fiscal implications, challenging sector specialists on the effectiveness of their service delivery and policy reform initiatives.
The MTEF reform also promotes operational efficiencies in portfolio ministries as senior managers’ performance is expected to be linked to the achievement of the planned output and activities under the MTEF. The MoF has proposed to merge the performance frameworks as presented in the three-year Strategic Business Plans and in the new MTEF submissions respectively, into a single, consolidated MTEF Portfolio Statement. The various statements would then be presented to the Parliament to strengthen scrutiny of sector policy priorities and expenditures as part of the budget approval process. For the first time last year the budget document submitted to the Parliament included three separate annexes with performance targets and indicators for the three pilot ministries. These annexes were a first attempt to prepare an MTEF Portfolio Statement, a practice that is expected to be extended to most ministries this year. The statements link expenditures to specific performance indicators, identifying unit costs under specific outputs, which can be benchmarked against costs of similar measures or against market prices.
The MTEF reform agenda is challenging as it covers all central Government’s institutions. It is supported by extensive training provided by MoF to senior staff in portfolio ministries. The Department of Fiscal Policies and Coordination in MoF (the Budget Office) has developed a manual of MTEF procedures for portfolio ministries supported by a comprehensive training program for both senior managers and sector specialists Download mtef_manual.doc. Since February this year the budget specialists in the Department have started training for all portfolio ministries, grouped in teams of two-three sectors. A more exhaustive, one-to-one training will be carried out in the second semester for each portfolio ministry. The training will be hands-on: during the class sessions the participants will be capable of adapting the MTEF conceptual framework directly to their sector specificities and develop their program structure. The Government that will take office after this year election will be in the position to adopt the new MTEF procedures, as staff will be ready to make them operational.
