Hype and Reality: "The" Medium-term Expenditure Framework in Developing Countries

Posted By Salvatore Schiavo-Campo, LL.D., Ph.D.

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.

Comments

[Andy Wynne]

I welcome Salvatore's comments which seem to reflect my own assessment of the situation across Africa. I also agree that "a suitable medium-term fiscal and expenditure perspective remains essential to frame annual budget preparation". However, this does not always mean a three year timescale, in many cases this should be much longer, but as the future is always uncertain, the estimates become projections, guesstimates and then just guesses. So there is no point in putting much effort or detail in to these projections. But a brief over-view of budgetary developments into the next five to ten years would provide useful background to the annual budget for most governments.

But we have to start from where we are. If a government has a significant mid-year budget update and funds are only released by the Ministry of Finance each quarter, then the first step is to move towards effective annual budgeting, it is not the creation of a three-year MTEF! However, some forward planning, especially for the capital budget will mean that annual development budgets can actually be spent before the end of the financial year!