Medium Term Expenditure Frameworks or MTEFs are now recognised as key elements to effective budget management and to successful Poverty Reduction Strategies (PRSPs). MTEFs are said to enable the harmonisation of the competing short-term imperatives of macroeconomic stabilisation with the medium and longer-term demands of effective service delivery, policy-making and planning. But do MTEFs really deliver? This report by the Overseas Development Institute (ODI) analyses the experience of implementation of MTEFs and the links established with PRSPs.
Although there is still a long way to go in the implementation of MTEFs in the context of PRSPs, a clear progress is evident. MTEFs have facilitated the implementation of PRSPs and have been strengthened in the process. Also, MTEFs appear to have been a positive driving-force for broad public expenditure management (PEM) reforms, which continue to constrain poverty reduction efforts. The report brings together the experience of implementing MTEFs in the context of PRSPs in Albania and eight countries from across Africa.
A positive impact of MTEFs and PRSPs is the emergence of a strategic phase to budget preparation. This phase requires and enables political engagement of various government departments, contributing to the development of a credible budget. If country officials recognise and provide political support to the implementation of MTEFs, the institutionalisation of improvements is more likely. The case studies show that MTEFs require or benefit from:
- Country-specific demand. Basic budget discipline must be established before attempting to implement MTEF and PRSP processes, and reform requirements need to be properly sequenced.
- The existence of a central agency coordinating budget expenditure.
- Realistic revenue and expenditure estimates to enhance strategic decision-making and management. Extra-budgetary funds and quasi-fiscal activities should be included in a comprehensive budget.
- Top-down budget ceilings that reflect aggregate resource constraint and strategic sector priorities. These have to be sufficiently fixed to be credible and sufficiently flexible to adapt to changing conditions.
- The establishment of sector working groups that help strengthen the links between policy, planning and budgeting.
- Performance based budgeting systems to ensure the effective and efficient use of resources.
The implementation performance of governments and the practices of donors needs to change and improve to provide real support to the MTEF and PRSP processes. Recommendations for donors include:
- Continue to focus on developing a coherent and integrated process of policy making, planning and budgeting. The breakdown of MTEF and PRSP reforms into an excessive number of projects should be avoided.
- Establish an initial strategic phase in which the different government departments define policy priorities and based on a realistic appreciation of resource availability, jointly generate the budget.
- Involve all relevant stakeholders in the different points of the budget cycle, but understanding the need for governments to make budgetary choices.
- Manage expectations by promoting transparency amongst stakeholders. In the case of MTEFs, expectations related to funding and the pace of budgetary improvements need to be targeted.
- Manage expectations about how quickly the PRSP can become the overarching policy framework and how quickly it will impact on poverty reduction.
