Medium Term Expenditure Frameworks (MTEFs) are receiving renewed attention in the context of the formulation of Poverty Reduction Strategy Papers (PRSPs). Conceptually, MTEFs are the ideal tool for translating PRSPs into public expenditure programmes within a coherent multiyear macroeconomic and fiscal framework. But do MTEFs work in practice? With a view to drawing preliminary lessons from experience, this paper from the World Bank undertakes a comparative assessment of the design and impact of MTEFs on public finance and economic management in nine African countries. Based upon this assessment, it offers recommendations and practical guidelines for improving both design and implementation of MTEFs, and sets out a framework for further evaluation.
The MTEF is intended to facilitate a number of important outcomes. Improved macroeconomic balance, including fiscal discipline, is attained through good estimates of the available resource envelope, which are then used to make budgets that fit squarely within the envelope. MTEFs aim to improve inter-, and intra-sectoral resource allocation by effectively prioritising all expenditures (on the basis of the government’s socio-economic programmes) and dedicating resources only to the most important ones. A further objective of the MTEF is greater budgetary predictability, which is expected as a result of a commitment to more credible sectoral budget ceilings. Moreover, to the extent that budgetary decision making is more legitimate, greater political accountability for expenditure outcomes should also be ensured. The MTEF also endeavours to make public expenditures more efficient and effective, essentially by allowing some ministries greater flexibility in managing their budgets in the context of hard budget constraints and agreed policies and programmes.
The limited quantitative evidence shows, thus far, that MTEFs are not yet unambiguously associated with their objectives. Other conclusions from the study are:
- In terms of the macroeconomic balance, with the possible exception of Uganda, there is no evidence that MTEFs have made a significant impact
- In terms of resource allocation, there is some limited and qualified evidence to suggest that MTEFs are linked to reallocation to a subset of priority sectors
- With respect to budgetary predictability and consistency, there is no support for the assumption that MTEFs are associated with greater discipline and less deviation
- There is some indication that MTEFs, if designed properly, may be successful in building some pressure for greater political accountability.
MTEFs alone cannot improve the situation in countries in which other key aspects of budget management, notably budget execution and reporting, remain weak. Other implications:
- A comprehensive, detailed diagnosis of budget management systems and processes precedes MTEFs, in order to ensure appropriate design of reform programmes
- In countries with a weak capacity, in which a full-fledged MTEF cannot be introduced all at once, the overall reform programme should be sequenced and phased in its MTEF-specific components
- The MTEF should be integrated with the budget process from the start, with the MTEF outer year projections published as part of the budget document
- Although each country’s situation is distinct, MTEF reforms are best managed by a set of overlapping, mutually reinforcing organisational structures, some of which should be specifically established to handle MTEF
- The political and institutional dimensions of MTEF reform must be explicitly addressed if the reform is to go forward.
