Hype and Reality: "The" Medium-term Expenditure Framework in Developing Countries
A recent paper by Salvatore Schiavo-Campo, presented at the East-West Center and Korea Development Institute Conference on “Sustainability and Efficiency in Managing Public Expenditures”, Download MTEFpaperFinal.doc assesses MTEF implementation in developing countries over the last decade. After tracing the conceptual roots of multiyear expenditure programming to the “High Development Economics” of the 1950s and 1960s and to the more recent antecedents—particularly Australia’s “forward estimates”—the paper notes that very few of the prerequisites for effective MTEF implementation are present in developing countries. The evidence is now conclusive that pushing the MTEF as fashionable “cutting edge”, “state of the art” “best practice”--in disregard of institutional considerations and capacity limits--has produced fiscal Potemkin Villages and mountains of red tape with no improvement in macroeconomic balances, financial control and predictability, or efficiency of allocation and use of public funds.
A scorecard of the last decade does suggest three positive impacts of attempts at MTEF introduction: awareness of the need to look beyond the immediate budget issues; some encouragement of intra-governmental coordination; and greater orientation toward the results of spending rather than solely the process. It also carried three negative impacts: little or no local ownership; damaging distraction from basic PFM problems; and heavy strain on limited budgeting capacity.
However, a suitable medium-term fiscal and expenditure perspective remains essential to frame annual budget preparation. Thus, and related to the disregard of institutional capacity, the core of the problem so far has been the failure to make distinctions between different MTEF variants. Unbundling the MTEF leads the paper to advance operational recommendations on which variant is suitable to different country circumstances, and specifically what gradual steps can be taken to produce, in time, a robust medium-term programmatic frame for sound budgeting.