Posted by Teresa Dabán
Since late 2007, the Council of Ministers of Central America, Panama and Dominican Republic (COSEFIN) is supporting the adoption of Medium-term Expenditure Frameworks (MTEF) in the region. To that end, COSEFIN established in early 2008 a regional Working Group on MTEFs issues. The Working Group is composed of high-ranking officials from the budget and planning areas and has been granted autonomy in developing its strategy and work agenda. Since its inception, and with the assistance of the Fiscal Affairs Department of the IMF, the Working Group has made important progress. The chief achievemens include: (i) identification of the main challenges for the adoption of MTEFs in the region; (ii) delineation of country-specific strategies for implementing an MTEF; and (iii) outlining of a regional strategy to increase awareness of the benefits of MTEF and monitoring their implementation in the region.
What are the goals of the Working Group on MTEF issues for the Central American region?
The Working Group aims to develop country-specific and regional strategies for the adoption of MTEFs in the region, build consensus on the key reforms needed to adopt an MTEF, and identify technical assistance (TA) needs. The MTEF initiative supplements COSEFIN regional Working Groups on tax coordination and statistics harmonization, which have been operating the last few years, also with Fund support. Building on those positive experiences, COSEFIN invited the Fund to participate in the discussions on MTEF issues, provide TA for the implementation of the Working Group’s recommendations, and support the coordination with donors. To date, the Working Group has held two meetings with the assistance of Fund staff. The government of Honduras, which is leading this regional initiative, hosted both meetings, which took place on August 4-5, 2008 and April 23-24, 2009. The Working Group’s next meeting will take place in the Dominican Republic in the second half of 2009.
What is the composition and governance structure of the Working Group?
COSEFIN’s original instructions only mandated the creation of a Working Group on MTEF issues comprising high-ranking officials. On February 23, 2009, COSEFIN appointed one or two high-ranking officials per country, of the budget and planning areas, as permanent members of the Working Group. In addition, COSEFIN entrusted the Working Group with the authority to: (i) decide on the Working Group’s agenda and calendar of meetings; (ii) take actions to step up efforts to reach out to donors; and (iii) provide inputs for the design of the TA program of the forthcoming Central American Regional Technical Assistance (CAPTAC-DR).
What has been donors’ reaction so far?
The international community has been very supportive of the activities of the Working Group. They have attended to the Working Group’s meetings and provided it financial support, including for the provision of IMF’s technical assistance. One of the most active donors has been Spain, which is is also the major contributor to CAPTAC-DR, which is scheduled to be open in June 2009 in Guatemala City. This regional technical assistance center (RTAC) is the 7th RTAC that the IMF has opened around the world in recent years to provide more region-focused TA in the macroeconomic, fiscal, financial sector and statistical areas. The CAPTAC-DR is expected to be become instrumental in supporting the Working Group’s meetings and supporting implementation of its recommendations.
What have been the main achievements of the Working Group on MTEF issues to date?
The MTEF Working Group has made progress on the following three fronts:
1. Identification of the main challenges for the implementation of MTEFs in the region. At the country level, the main challenges include the existing macroeconomic vulnerabilities, extensive use of earmarking mechanisms, and significant public financial management (PFM) weaknesses. At the regional level, the main challenge arises from the existing differences between the PFM systems of COSEFIN countries. On one hand, Nicaragua has already implemented some of the building blocks of an MTEF, while Costa Rica is taking the first steps and Guatemala and El Salvador could advance quickly. On the other hand, Honduras, Panama, and the Dominican Republic would need to substantially upgrade their PFM systems in order to reap the full benefits of an MTEF.
2. Delineation of country-specific strategies for the gradual adoption of an MTEF. Countries that are at a more advanced stage of the MTEF implementation (e.g., Nicaragua) could focus on expanding the coverage of the MTEF to the entire central government, adopting a sectoral view, formulating and costing medium-term sectoral strategies and implementing a system to monitor outputs and outcomes. Countries that are still at an initial stage (e.g., Costa Rica) could focus on consolidating their medium-term macrofiscal frameworks and budget classifications, broadening budget coverage and strengthening their budget processes. For the other countries, reforms should focus, in a first stage, either on introducing a multiannual perspective in the legal framework (e.g., El Salvador and Dominican Republic), or on implementing the existing legislation (e.g., Guatemala and Honduras), or even introducing a modern legal framework for financial management (Panama). As regards investment planning, all countries should upgrade, and integrate into their budget processes, their public investment systems. To implement these reforms, COSEFIN countries would need TA from donors, and especially from the forthcoming CAPTAC-DR.
3. Outlining a regional strategy to increase support for, and monitor, the adoption of MTEFs in the region. The Working Group has advised that COSEFIN could enact a regional resolution, which could include: (i) a statement on the benefits of adopting an MTEF; this could help to increase awareness of the need to remove existing budget rigidities (e.g. earmarking mechanisms) and illustrate how an MTEF could offer more efficient ways to allocate resources among priority programs; (ii) a tentative regional implementation calendar, including relevant benchmarks, for the adoption of MTEFs by COSEFIN countries; and (iii) the development of regional diagnostic and monitoring mechanisms to monitor MTEF implementation at the regional and country levels. These efforts would complement the IMF Fiscal Affairs Department’s assistance to promote interaction among the Working Group members. A practical outcome of which has been the creation of a webpage for the dissemination of the Working Group activities.
What are the next steps?
Looking ahead, the Working Group’s prospects look positive. The strategic orientation and self-governance structure of the Working Group are getting consolidated. In addition, the forthcoming opening of the CAPTAC-DR will increase the amount of TA resources available to support the Working Group’s activities. In particular, the Public Financial Management resident advisor of CAPTAC-DR, whose recruitment is expected to be completed in the next few months (see post of April 27), will assist with the organization of the Working Group’s regular meetings and the implementation of its recommendations, with the support of Fund staff.
