What's the future of MTEF?

[Napodano]

In the last years several practitioners have voiced their concern that perfromance-based budgeting is too a sophisticated tool for an initial budget reform process, especially in developing and transition countries. Some of them advocate a 'back-to-basic' strategy by which the main economic items are efficiently controlled and managed.

What is your take on this?

To start the debate I provide a link of an MTEF brief prepared by OPM in 2000 aptly titled:
"Medium Term Expenditure Frameworks: panacea or dangerous distraction?"
http://siteresources.worldbank.org/INTPEAM/Resources/OPMMTEFReview.pdf

[STONE]

This could be lively!  Thanks for the reminder, I have been meaning to go back to that paper and refresh my memory.  I'll also contact the author and see if he wants to contribute and to see how his views have developed in the last ...decade. 

[STONE]

We might ask first what is an MTEF?

The origins of the Medium Term Expenditure Framework go back I think, at least, to the preliminary work done in the World Bank leading up to the production of the Public Expenditure Management Handbook.

But we also have Medium Term Fiscal Frameworks MTFF (harder to pronounce as a word then "emteff", but then that was never going to win a prize for beauty of expression) that was intended to catch the fact there's more to budgets than just the expenditure side - also why we have gone from PEM - public expenditure management to PFM - public financial management.  We have Medium Term Budget Framework - MTBF.  I once internet searched MTBF (can we advertise here? or do we have to use Blue Peter like terms - sorry for the parochialism) and came up with references to an IT concept called Mean Time Between Failure, which I thought might support the anti-MTEF camp, but there it is.

The Government of Albania, very helpfully in my view, translated MTEF into PBA Programi Buxhetor Afatmesem, which mirror translates into English as Medium Term Budget Programme - MTBP.

We might also ask what its past has been. 

The complaints about "too sophisticated" are often heard when, as many have experienced in the past, it has been a case of 'persuading' a Government that an MTEF is good for them - difficult to start and implement but somehow worth it in the end (whenever that might be).  They have been less frequent once MTEFs became a requirement under the Poverty Reduction Strategy and, as I believe, when recent and future members of the EU were required to have them.

In my view the "MTEF" has lost its original meaning and is now a term that is used to mean something like programme performance budgeting in a medium term context - but we are unlikely to hear PPBMTCs tripping of tongues.

I'll go back to the panacea - distraction piece and think a bit more.

[Martin Johnson]

I think many practitioners would agree that many of the environments they come across are characterised by policy, planning and budgeting systems that are opaque and sometimes plain impenetrable, with little in the way of planning and lip service links to policy. Think of that budget book that pops up here and there, sometimes a foot thick in all its volumes (printed on infeasably thin paper) with mind boggling detail showing planned spending on stationary and other crucial-to-know items for the lowest administrative level covered. One can only guess the links to policy and wonder at what all that detail of spending is meant to deliver. But it does offer control ... and when commentators begin to suggest that MTEF approaches to planning and associated performance influenced budgeting are too complicated, what getting back to basics effectively means is good old line item control (nothing wrong with that of course) but with a random walk towards both outputs and whatever policy goals and objectives that decision makers cross their fingers will be achieved.

At the end of the day, if public services are to be delivered as intended, there is no short-cutting the fact that policy must be costed at some point in broad terms and then that costing must be tested in the much more detailed environment of annual and medium term budgeting and set against the real resource constraints of budget allocations. If the required outputs cannot be delivered as intended in the time planned, then adjustments must be made and the implications for policy understood. There is nothing really complicated about this of course. Detailed, yes. Complex, no. As we have discovered plainly in Albania, once the rules of the game are established in the form of systems and procedures, the detailed work that is then required depends almost exclusively on determined and consistent management. Good systems that do not work are that way not because of complexity but because of the attendant requirement for good old fashioned management.

That being said, 'emteff' all too often falls foul of being a distraction ... largely because the acronym tends to be regarded as a panacea among a seemingly large body of people who seem to confuse reform with achievement ... but that is for another post.

[petagny]

I fear that the ‘MTEF’ at least as a piece of terminology might have been fatally wounded on several counts:

Firstly, it has been too closely associated with a prescriptive donor agenda and has become intimately linked to the PRSP (or its equivalent). I think of the MTEF as a largely value-free process reform that could, in theory, be used to implement ‘pro-rich’ policies just as easily as ‘pro-poor’ policies. Although we may prefer some version of the latter, I do not believe that this association has necessarily served us well in assisting governments with the introduction of the MTEF approach. Now unfortunately, the ‘MTEF’ is seen, both by partner governments and many advisors, as part of the package of donor stuff’running parallel to the normal business of government.

Secondly, the MTEF and performance-oriented budgeting have in many cases become almost synonymous. Certainly, introducing a strong performance-orientation to budgeting is almost impossible outside a medium term framework, but an MTEF can, potentially, achieve a lot without a strong performance dimension.  Look back at the World Bank’s 1998 Public Expenditure Management Handbook; although the MTEF is seen as having a potential impact on aggregate fiscal discipline, on strategic resource allocation and on the efficiency and effectiveness of public spending, the lower down this list one goes, the more important accompanying changes in other institutional processes become, i.e., changes outside the budgetary system. In my view, the downfall of the MTEF in many countries has been a premature focus on the performance dimension in conditions where accompanying institutional changes in these other areas are unlikely to materialise any time soon. A lot can be achieved by focusing on the aggregate fiscal discipline and strategic resource allocation dimensions, i.e. creating an environment in which prioritisation can realistically be expected to take place. And, quite frankly, what chance is there of successfully implementing performance-oriented budgeting if a basic process of top-down, medium term ceiling setting at the aggregate and sector/ministry level is not already institutionalised?

Thirdly, the ludicrous notion of ‘sector MTEFs’ – as opposed to a whole of government approach – has sown a lot of confusion and, in some countries, it might be difficult to step back from this. Not much different from this are the extended pilots in certain key sectors, which never gain credibility because the roll-out of the full MTEF always seems to be somewhere over the horizon.

Is it therefore time to rebrand the ‘emteff’ and restrain our ambitions so that they are more in line with the capacities and political realities of client governments?

[russcraig7]

the ludicrous notion of ‘sector MTEFs’ – as opposed to a whole of government approach – has sown a lot of confusion and, in some countries, it might be difficult to step back from this. Not much different from this are the extended pilots in certain key sectors, which never gain credibility because the roll-out of the full MTEF always seems to be somewhere over the horizon.

As a sector specialist I feel very strongly about those who insert MTEFs into sector programs and even projects without a clear understanding of the havoc they are creating. This is especially so if you are trying to combat an MoF that is not at all willing to move a muscle to help. I remember on one memorable occasion in a southern African country pointing to the Minister of Finance's signature on the bottom of a project document, above which was the promise to provide all necessary support to the sector from the Ministry of Finance and its Budget Department. The Budget Director in the MoF to whom I was talking, and who refused any help or support, looked me straight in the eye and said the Minister did not know what he was signing

As I find myself once again in such a position in Nigeria I have been reflecting on what might help. To be fair there is a a parallel process working this time in state finance and planning ministries to set up the central ministries side of things but unfortunately they seem to have a rather different timetable.
Our solution is to treat the MTEF process as more a costed planning exercise than a financial one for the present so that the MTSS document is in effect a three year rolling plan with individual departmental costed annual work plans emerging from it. We will use an estimated sector ceiling to force some realism if the central agencies are not yet able to provide such information and we will at least report on the MTSS to budget transition process.

But in the end you always run into a disconnect when you get to the end of the sector MTEF process and are faced with an unreformed input based annual budget format with no recognition of activities or even programs that are not organisationally based. Once the activity costs are translated into budget input items and debated [and perhaps altered up or down] very rarely is there any translation back so that effects on planned activities are known. Still we are assured that the format will change in a year or two [or maybe three].

[KLRao]

Experience at Sub-national level in country like India is that though Program (Scheme) based budget is in vogue,  each department presents schemewise demand for funds for approval of legislature, yet most of times it is nothing more than an incremental approach, with the departments essentially making changes in each line item of all schemes to arrive at resource requirement for next year.

Further, the control of legislature is dimished as there is a division between Plan and Non-Plan expenditure, where schemes are classified as Plan and Non-Plan Schemes. Non-Plan schemes are not subjected to annual ritual of budget preperation in the strict sense as that of Plan Schemes, in other words more than 40 to 50% of the budget is just done in a manner which is devoid of any discussion and further the Plan Expenditure as has been presented to Legislature does not present any outputs and outcomes that are planned to be achieved. Given this scenario, MTEF tries to bring in focus on multi year budgeting with at least trying to establish as logical link between outlays and outputs and then to outcomes.

Hence, given the need for ensuring value for money being spent by governments at various levels, MTEF could emerge as a tool for moving towards outcome budget, its a step in that direction. But in India since it is perceived as reform pushed by funding agencies, its utility is yet to reach to the acceptable level. For this to happen localization of the tool is imperative.     

[Martin Johnson]

Very interesting to hear the India view expressed in this way. Given the shared heritage, it is unsurprising that your experience of  India could have been written for either the federal government or any of the provincial governments in Pakistan. When I first started working on Pakistan, some 12 years ago, I was fascinated by the incredible inertia in the budget. It was, and in many ways still is, largely as you have described in India.

I have been fascinated ever since by the approach of officials, practitioners and donors alike to the budget as a tool for effecting change. The discussion almost always focuses exclusively on the plan (or development) budget, which is, of course, smaller than the non-plan component of the budget. The approach and associated discussion is almost as if the non-plan budget does not exist. The reason for this, of course, is precisely as you have described for India - the overwhelmingly incremental nature of the non-plan budget the shape for which was cast decades ago and which procedure effectively requires perpetuation of. Therein lies the trap that has been there for years ... since the only discretionary expenditure (in terms of budget preparation at least) lies on the plan side, the non-plan side would get little or no attention or pressure for change and was, thereby, encouraged to fossilize. But it does not have to remain like this, of course.

Determined and well intentioned reform can and does change things. But it requires a range of factors to be in place and an approach that will work in the circumstances in which it is to be applied. You have put your finger on one of the factors - localisation of the tool. There are others - an understanding of why reform is needed in the situation under consideration, what reform would be expected to deliver and the kind of reform that can deliver being three of them.

What must be avoided at all costs is the panacea approach as Lawson has warned (as referred to by Stone above). If I had a Pound for every time I have heard donors, practitioners and officials suggest that this or that government 'has an MTEF', I would indeed be rich beyond the dreams of avarice. I have heard that phrase used about the federal government in Pakistan on a regular basis since 2003. It was only in 2009, however, that the federal government decided to throw its weight properly behind MTEF reform, thereby giving the reform a real chance of success. Two of the other factors you will require in India are patience and realistic expectations. Now that the federal government in Pakistan has shown its determination to properly design and implement its own MTEF, what this means in practice is that it has now got over the first hurdle of reform and can start the real work of change management that a reform of this nature requires. 

[Martin Johnson]

....  Now, having noted that there is little discretionary expenditure in terms of budgeting, what about in terms of spending ... ? Does the Executive have legal cover for reallocating between votes (and even for increasing expenditure beyond that sanctioned by Parliament) through an ex-post approval process (i.e. Parliament giving approval to such reallocations only after they have occurred, usually after year-en)?

[KLRao]

Yes, since the executive is involved in the nitty gritty of day to day spending form which Legislature is 'far away', usually at least at Sub-national level there are at least two to three times 'reallocation'; rather I would say most of times it is additional allocation is sought from legisalture through what is known as 'Supplementary Budget', which is approved in the course of the financial year.

Another interesting aspect that has been observed in India, where the Cosntitution is Federal in Structure with Unitary features, where there is division of Subjects ( Education, Defence etc) between Union Govt and Sub-national Govt. ( Union List, State List and Consurrent List), Union Govt. has been implementing large ticket schemes at Sub-national level and often the resources do not flow through Sub-national level legislature, but flow directly from Union Govt. Ministries to specially created Societies at the Sub-national level (eg. many popular schemes in Health, Education, Rural Development, Urban Development have this structure).

Such flows are recorded as Off-Budget and are not subject to Legislative control at Sub-national level though they are implemented by Societies which are under the control of Sub-national Executive. This creates possibility of funds being spent without proper legislative oversight. These schemes are better costed and structured than any of the other schemes and are better oucome oriented. Most of these schemes have at least structurally followed demand driven planning process wherein the plans are formulated at Local level, in some cases even at the beneficiary level, village level, the lowest unit of administartion wherein citizen comes into contact with Government.
 
Given all these complexities, yet through Mission mode approach, in India many sub-national governments have achieved great results. One such example is Krushi Mahastov (  visit at http://agri.gujarat.gov.in/) wherein during the Sowing season (this year from 16 May to 14 June) more than 1 lakh government employees stay in around 18,000 villages and help farmers in sowing right seeds and also ensuring all the farmers get benefits from Schemes that are targeted at them. There are many such examples which has resulted in India breaking out of what is known as 'Hindu Growth Rate' of 3.5% GDP to more than 8%.     

I agree with you about having patience, i have experience of formulating and implementing atleast 6 MTEFs over last four years and i do see a change in terms increase in the level of acceptability of MTEFs.

[Napodano]

The future of MTEF and other PFM 'innovations' of the last decade are well presented in a new IMF book titled
Public Financial Management and Its Emerging Architecture

More info and a 1-hour video for the lauch of the book with big caliber pannelists at
http://www.imf.org/external/np/exr/bforums/2013/pfm/index.htm