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December 12, 2011

Liberia Budget Reflection Workshop: Laying the Foundation for a Medium-Term Budget Framework

Posted by Kubai Khasiani, Steve Gurr, and Florence Kuteesa

Liberia is set to introduce a medium-term budget framework starting July 2012. The government of Liberia—with support of a joint team of IMF staff and the UK ODI’s Budget Strengthening Initiative—conducted a workshop in August 2011 to discuss implementation issues and challenges, chart a way forward, and obtain commitment from the various government institutions and stakeholders. The workshop was attended by officials from a wide variety of government institutions and generated lively debates as participants came together and candidly shared their experience. A set of recommendations was agreed at the end of the workshop, which would enhance cooperation and political commitment from all parties and facilitate the consultative process.

The introduction of a medium-term budget framework (MTBF)[1] by the government of Liberia, starting in the fiscal year 2012/13 budget, is stipulated in the 2009 Public Financial Management Act. The provisions of the Act set new challenges for the Ministry of Finance (MoF), line ministries, and development partners. The reform implication(s)—such as mandates and responsibilities of the various actors, and coordination perspectives—formed the focus of a five-day budget process reflection workshop held in Monrovia during August 29 and September 2, 2011. The workshop, organised by the MoF and facilitated by a joint IMF /ODI[2] technical assistance team, allowed an exchange of views between representatives of the ministries responsible for finance and planning on the one hand, and spending agencies on the other, on the potential challenges and prerequisites for a sustained reform implementation. The workshop was attended by 175 officials from the MoF, the Ministry of Planning and Economic Affairs (MoPEA), as well as line ministries and agencies across the government of Liberia.

Participants shared their experiences and perspectives on existing budgetary practices guided through a discussion of the different budget process components. These components are: external aid coordination, public sector investment planning, sector planning and budgeting, and budget execution and monitoring. The main challenges in adopting the new reform were also identified, namely: consolidating ownership of the budget process; transitioning to new roles and responsibilities; and formulating the best strategies for moving the reform forward.

An effective and well coordinated the MoF is critical to a successful introduction of budget reforms. There was a general consensus that both MoF and MoPEA had to address existing impediments that undermine a coherent budget management process and the consequential resource allocation inefficiencies. The discussion elaborated the current weaknesses—policy gaps, institutional weaknesses, lack of reliable fiscal aggregates, coordination issues, and the urgent need for MoF and MoPEA to provide coordinated policy guidance on expenditure prioritization and resource allocation.

The workshop underscored the importance of close working relationships between the central and line ministries. Participants noted that current budget choices continue to be influenced by the degree of political power wielded by the different spending agencies, or by undesirable compromises designed to avoid political conflicts. As a result, expenditure prioritization and resource allocation decisions are not always made on a rational basis. Such frustrating practices are not restricted to Liberia alone, but are common in countries with weak inter-governmental cohesion.

Poor cohesion within line ministries or sectors is often used by ministries of finance to justify their lead role in centralizing budget decisions. This should instead form part of the reason for introducing and sustaining budget reforms. Recent international experience shows that despite the substantial investment made in budget preparation reform by developing countries over the last decade these undesired and often persistent practices have mitigated the achievement of the desired benefits.

There was constructive discussion on the scope and efficacy of the budget preparation process, including the need to improve budget documentation. Representatives from MoF singled out the mixed quality of budget submissions from ministries and agencies (M&As) as the major hindrance to efficient resource allocation. For example, some budget submissions lack sufficient information and strategic guidance on expenditure prioritization and resource allocation. The sector representatives acknowledged this shortcoming which was attributed to capacity deficiencies related to the existing traditional approach to budgeting.

The participants acknowledged the inadequacy of the existing budget calendar which does not provide adequate time for key processes to deliver quality input for budgetary decision-making. For example, it was recognized that assigning only two weeks for M&As to complete the budget submission constrains constructive engagement of policy makers or operational managers in the decision-making process. In addition, the current practice of allotting a 30 minute-budget hearing session for each ministry with the National Budget Committee frustrated policy discussions and building consensus on critical policy decisions. It was agreed that the budget calendar would have to be revised to provide for early Cabinet engagement to guide policy decisions and allow sufficient time for quality consultation within a sector or line ministry.

Quality and strategic orientation of budget submissions requires the strengthening of the planning and budgeting function at a sector or M&A level. It was generally agreed that the planning and budgeting function was underdeveloped in most line ministries and government departments. Consequently, incremental budgeting is the norm and the process is handled by accounting staff and financial managers with insufficient attention given to policy analysis, prioritization and preparation of medium-term estimates. It was agreed that an immediate priority should be for the MoF to identify and build capacity for a group of budget analysts in the budget directorate. These officials should in turn be seconded to support budget reform in the M&As as an immediate (stop-gap) measure. The medium-term solution should be the establishment of fully-fledged structures to support the planning and budgeting function in each M&A.

Closing the workshop, the Minister of Finance and the Deputy Ministers in charge of administration in all line ministries commended the findings and endorsed the recommendations. These are designed to achieve the following: (i) improved coordination of the budget process within and between central fiscal and macroeconomic agencies (MoF and MoPEA); (ii) enhanced political engagement at the M&A level to set priorities and make critical resource allocation decisions; (iii) a revised budget calendar that provides for early Cabinet involvement in the framing of budget strategy, and enhance the strategic direction and effectiveness of the consultative process; and (iv) strengthened institutional structures and capacities within MoF, MoPEA, and M&As. In particular, the policy makers stressed the need to improve execution and performance monitoring of the budget in order to enhance its credibility.

The government of Liberia has, since the workshop, registered good progress with the reform agenda. Measures taken include recruitment of a multi-disciplinary technical team to spearhead the MTEF reform—this group draws membership from MoF and MoPEA and is based in the MoF’s budget directorate. The team has eight senior staff representing key departments in the central ministries namely: MoF, MoPEA, and the Civil Service Agency. The team is scheduled to undertake an MTEF orientation program in Kenya facilitated by the Kenya Institute of Administration in January 2012. Collaborative efforts between MoF and MoPEA are also underway to implement a coordination mechanism required to support the overall reform agenda including recently introduced initiatives. The initiatives include: (i) sector planning and budgeting; (ii) public sector invest planning (PSIP); (iii) aid coordination; and (iv) building structures and capacity for medium-term planning and budgeting.

[1] As the most basic expenditure structure within the MTEF, the MTBF is considered a precursor to the full implementation of an MTEF and consists of forward expenditure estimates aggregated by sector or ministry, with the objective of allocating resources to the nation’s strategic priorities and ensuring that these allocations are consistent with overall fiscal objectives.

[2] ODI in this context refers to the Budget Strengthening Initiative under the UK Overseas Development Institute.

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An interesting insight into whats happening with the PFM in Liberia. In most other DMCs, the challenges include: forecasting the revenue and expenditure, estimating the fiscal envelop and assessing macro-fiscal impacts of the budget. In all these casees: database is inadequate to make any sensible forecasts and to conduct any macro-fiscal analysis and forecasting; Lack of technical skills to develop macro-fiscal framework to support any useful analysis and forecast and to appraise the PIPs to ensure value for money investments.

These aspecte must be carefully addressed for any successful planning and implementation of the PFM.

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