Budget Development in a Medium-Term Perspective

Guidance Note on Linking Plans and Budgets in the Pacific_March 2018_Page_01
Posted by Richard Neves and Sanjesh Naidu[1]

For several decades, Pacific Island Countries, like many developing countries elsewhere in the world, have prepared national and sectoral plans which are inadequately linked to the annual budget process. Achieving the development objectives set out in these plans could be best described as variable. Plans have become aspirational documents, accurately reflecting the development outcomes that various communities seek, and connecting with global and regional priorities that are of national interest, for example the UN’s 2030 Agenda for Sustainable Development. But they are much less effective in guiding decisions on which projects to implement, or which services to prioritize, and securing the necessary resources.  

The availability of resources (or lack of them) is a perennial challenge to the credibility of national plans. Such difficulties can be compounded by poorly designed plans that neither accurately reflect government priorities, nor are feasible to implement. Sustainable development requires improving the linkages between national and sectoral plans that clearly identify development objectives and the budget.

A guidance note on improving these links was recently published by the IMF’s Regional Technical Assistance Center for the Pacific (PFTAC) and the Pacific Office of the United Nations Economic and Social Commission for Asia (ESCAP). The note focuses on three important aspects of the planning/budgeting relationship:

 

Unfortunately, disconnects between planning and budgeting processes are well documented in many countries. Addressing these gaps includes:

 

Introducing a strategic phase and a medium-term perspective into the budget process can foster a greater appreciation of priorities, and assist the process of building stronger links between planning and budgeting. Such a phase should review national and sectoral priorities and new policy initiatives, framing them within the overall budget context. It would facilitate the prioritization of competing policy initiatives, and help to reconcile the costs of proposed development projects with available resources. It would also enable more detailed scrutiny of budget proposals by sector ministries, the ministry of finance, and political decision makers. Success of the strategic phase could be underlined by a national MTEF developed for the local context which would:

The strategic phase in the budget process needs to reconcile the cost of delivering public services with the budget ceilings. Budget hearings, conducted between the finance ministry and spending agencies, help to scrutinize spending plans and promote agreement on priorities.

Introducing a results orientation into the budget process can also help to integrate the government’s planning and budgeting functions. It can be achieved in gradual steps, such as:

Common indicators for planning and budgeting, would allow for consolidated reporting (perhaps annually) structured around the budget and MTEF. Such reports would contain information on the allocation of resources, the resulting activities, and development outcomes. They could track the implementation of national development priorities, and inform domestic policy, as well as global and development partner reporting requirements.

In conclusion, several benefits would emerge if planning and budget systems were well linked. These benefits include:

 

[1] Richard Neves is a PFM Advisor at the IMF’s Regional Technical Assistance Center for the Pacific (PFTAC); Sanjesh Naidu is with the Pacific Office of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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