Implementing MTEFs in Countries with Different Legacy Systems

Posted by Ian Lienert

On September 24, the PFM blog drew attention the important role that forward estimates play in developing medium-term expenditure frameworks (MTEFs). Specific reference was made to the proceedings of CABRI’s annual seminar in December 2007, under the title: "Are We Asking the Right Questions? Embedding a Medium-Term Perspective in Budgeting" (Download cabri 2007.pdf). Three papers in the same publication examine the influence of legacy systems on MTEFs in African countries.

Two papers examine the PFM legacies in francophone and anglophone African countries—for Burkina Faso and Kenya respectively. A third paper, authored by myself, contrasts the role of legacy systems on MTEFs in French and British-influenced countries. The paper concludes that while it is necessary to pay attention to inherited institutional and organizational arrangements for PFM, there are other, more fundamental, constraints that thwart the effectiveness of the MTEFs that have been introduced in Africa.

In the paper on Burkina Faso, Halidou Ouedraogo, economist in the Ministry of Economy and Finance, examines how France’s 1959 Budget Ordinance, together with the 1997 Directives of the West African Economic and Monetary Union (WAEMU), have shaped budget systems in francophone countries. The author notes that the emphasis has been on legal reform and implementation of new laws. Reforms that have not been supported by a revised legal framework, such as the introduction of a program budget approach or a MTEF, have been less successful.

Kubai Khasiani, deputy Budget Director in Kenya, discusses the tension between the country’s inherited anglophone system of decentralized budget management and its constitutional form, which contains significant elements of a presidential system. In former British colonies of anglophone Africa, the role of parliament in budget processes is typically quite weak. Ex post oversight by a public accounts committee is one of the few ways the legislature has indirect influence over the size and shape of the annual budget. In contrast, in presidential systems, legislatures often have more ex ante influence on spending decisions. The rising tensions between the executive and parliament in Kenya influence the size and shape of budgets in the medium-term, including their comprehensiveness and transparency.

In my paper, I first examine, for the francophone countries, the role played by directives of the WAEMU Commission—inherited from laws and regulations adopted in France in 1959 and 1962. With a focus on the principle of annuality, these constrain the development of effective MTEFs. Most francophone African countries have a regional obligation to abide by a regional directive on budget nomenclature, which requires detailed spending classified by its economic nature. Similarly, the high degree of centralization of budget power in the finance ministry—all part of the inherited French system—acts as a constraint on developing capacity in spending ministries for medium-term budget planning and projections. Despite this, in a few countries such as Burkina Faso and Mali, spending ministries draw up MTEFs. These are proving useful for ministries’ internal planning and prioritization of policies. However, even in these countries, the finance ministry is unable to concede budget power to spending ministries, since the present WAEMU directives state that only the finance minister—not spending ministers—has authority to approve spending. Also, spending commitment control is generally delegated to the budget department of the finance ministry, with ex ante controls performed by financial controllers, also under the finance ministry’s authority.

In contrast, in the anglophone countries, there is neither a strong tradition of needing a law to introduce budget reforms (Uganda, exceptionally, adopted a law in 2000 requiring rolling MTBFs), nor is there a strong concentration of power in the finance ministry. On the contrary, the British-based budget system has upheld the principle of accountability of the accounting officer – usually the permanent secretary (head civil servant) of each spending ministry—who is responsible for all major aspects of budgeting, including medium-term planning and budget projections, annual budget execution and spending. Accounting officers are held accountable for budget management before a public accounts committee of parliament, whose members could, in principle, question budget managers on how they intend to reorient spending to achieve medium-term budgetary objectives. In practice, this seldom occurs, since parliaments in anglophone countries, although becoming more active in budget management, generally focus on short-term budget questions, particularly those that affect their constituencies.

While it is necessary to pay attention to legacy system issues, there are other constraints that thwart the introduction of effective medium-term systems more. In particular:

• African countries are under pressures by donors, who advocate the adoption of MTEFs, building on medium-term budget frameworks (MTBFs).
• It is highly challenging to develop MTEFs when the macroeconomic framework is inherently unstable, a result of narrow-based economies, high dependence on exports and imports whose prices fluctuate widely, and, in several cases, political and institutional instability. In view of this, it is perhaps not surprisingly that no African country has an effective, operational MTEF – one in which the Y+2 estimates made in Y+0 are systematically used as the starting point in Y+1 for preparing the annual budget for Y+2.
• In summary, many African countries have made efforts to introduce a medium-term perspective to budgeting, but very few have reached a stage where MTEFs materially impact the expenditures (inclusive of donor-financed spending) of annual budgets adopted by parliaments.
• Legacy issues have an important bearing on the present inadequacy of MTBFs/MTEFs in Africa. However, as discussed above, there are a number of other important constraints for effective implementation of a medium-term approach to budgeting.

Further details on these three papers can be found in the CABRI publication.