Medium-Term Fiscal Frameworks: From Paper to Practice

In an increasingly complex fiscal landscape—characterized by rising debt burdens, uncertain macroeconomic conditions, and growing demands for public services—governments need tools to support long-term fiscal sustainability while maintaining flexibility and credibility. Medium-Term Fiscal Frameworks (MTFFs) have emerged as an essential instrument, offering a structured approach to align annual budgets with multi-year fiscal strategies and broader development goals.

A recent How-to-Note, How to Develop and Implement a Medium-Term Fiscal Framework, highlights that for MTFFs to be effective, they must be integrated into fiscal decision-making and reporting processes. Without political commitment and the necessary supporting institutional and technical arrangements, even well-crafted MTFFs risk becoming mere procedural exercises.

An MTFF is a set of institutional arrangements for prioritizing, presenting, reporting and managing fiscal aggregates (revenue, expenditure, balance, and debt) over a three-to-five-year period. It includes a fiscal strategy, medium-term projections of key macroeconomic variables and fiscal aggregates, and total expenditure ceilings that guide subsequent annual budgets.

The MTFF provides a top-down constraint, ensuring fiscal discipline in line with fiscal rules or other fiscal targets and translating these into annual budgets. It introduces a medium-term planning perspective that helps policymakers assess the sustainability of current policies, weigh trade-offs, and adjust spending decisions in line with national goals. Moreover, MTFFs contribute to enhanced transparency and accountability by clearly communicating government’s fiscal plans and performance.

There is no uniform model for MTFFs; each country designs its framework to reflect its specific context, capacity, and circumstances. Key design choices countries face include: the coverage (ideally comprehensive, should cover both current and capital expenditures and be aligned with fiscal rules and available data), the time horizon (typically three to five years), and the frequency of revisions (usually twice a year, balancing flexibility with credibility).

However, the core challenge lies in implementation. Some countries struggle to operationalize MTFFs due to political pressures and a focus on the short-term, weak integration with annual budgets, poor data quality, unrealistic projections, and limited institutional and technical capacity. The challenges can vary with the country context and the level of development, this Note provides county examples of MTFF implementation across all income groups.

Successful MTFF implementation requires a comprehensive approach that combines strong legal foundations, effective institutional arrangements, technical tools, and strategic communication. The paper discusses these key dimensions in detail and provides country examples of MTFF implementation across income groups and lessons learned.

The following 10 lessons can guide countries in building more effective MTFFs:

1. Secure high-level political commitment. Cabinet-level approval and alignment with national priorities help build ownership and continuity.
2. Establish strong institutional and technical foundations: A holistic approach is required, integrating legal frameworks, institutional structures, technical capacity, and communication strategies for effective implementation.
3. Use a sequenced, context-sensitive approach. A credible MTFF should precede the implementation of more detailed frameworks like the Medium-Term Budget or Expenditure Framework (MTBF/MTEF).
4. Embed MTFFs in legal frameworks: Legal backing ensures continuity and enforceability. High-level law can outline MTFF principles, while secondary legislation defines operational details.
5. Develop forecasting capacity over time: Capacity building can begin with basic tools and evolve toward more advanced forecasting models usually including baseline (no-policy change), analysis of policy measures and risk scenarios.
6. Improve data availability and quality: Reliable data enhances forecast accuracy. Improving data collection, promoting consistency, and establishing clear update schedules (typically twice yearly) bolster credibility.
7. Integrate the MTFF with the annual budget process: Strategic phases, dedicated units (e.g., macro-fiscal units), and coordination amongst stakeholders (departments of budget, revenue, macroeconomic, public investment, fiscal risks and statistics) are critical.
8. Create a communication strategy: Transparent communication with the public, investors, and markets builds confidence, especially during fiscal stress. Over time, disclosures should include risks and long-term projections.
9. Ensure monitoring and reporting Mechanisms: Comparing official forecasts with independent assessments, acknowledging forecasting errors, and explaining past deviations improve the MTFF’s credibility. Legislative bodies and independent fiscal councils play a key oversight role—provided they have reliable data and adequate resources.
10. Adopt a gradual, adaptive implementation path: Successful MTFF implementation is a gradual process that requires balancing technical, institutional, and political factors. Governments must commit to credible frameworks, build public and institutional support, and foster a culture of fiscal responsibility and transparency.

The real value of an MTFF lies in its implementation and use. Without effective integration into budgetary processes, political backing, and institutional support, the MTFF risks becoming a technical document with minimal impact on resource allocation or fiscal outcomes. For the MTFF to fulfill its potential, it must be embedded in the policymaking process, evolve with the country’s fiscal realities, and be supported by systems that ensure it informs decisions.

In conclusion, the MTFF is a critical instrument for managing fiscal policy in an increasingly complex global environment. By focusing on the lessons learned and adapting frameworks to their unique contexts, countries can develop more effective MTFFs that support long-term fiscal sustainability, enhance transparency, and improve accountability in fiscal decision-making.