Are Medium Term Expenditure Frameworks (MTEFs) really the universal cure for public expenditure management problems? Today, MTEFs are often proposed as a solution not only to the inadequacies of planning and budgeting systems but also to the broader performance problems of government. This research by Oxford Policy Management questions whether such a sophisticated mechanism is really the best place to start in reforming public expenditure management systems.
Donors and lenders, including the Department for International Development and the World Bank, support MTEF as the logical mechanism around which to structure the design of government-wide instruments of budget support, but identifying the essential components of a successful MTEF is not easy. Despite their theoretical popularity, there are few established medium term frameworks. Experience in OECD countries suggests that stringent conditions have to be fulfilled before the full benefits of medium term frameworks can be realised. These conditions are unlikely to be fulfilled in most developing countries. However, even the basic acceptance of the principles of medium term budgeting may improve the realism of sector budgets. This is a significant gain for many developing countries where a large gap between stated policies and actual resources leads to ad hoc spending cuts in budget implementation.
Experience shows that:
- Budget reforms are only sustainable if they demonstrate early benefits to key players in the process. The introduction of any form of medium term framework must bring improvements in the predictability of organisational funding
- Improved predictability relies on reducing the gap between forecast and actual revenues, thereby reducing the need to cut expenditures during the budget year
- Technical improvements to revenue and debt forecasting are key to giving public sector managers the budget predictability they need to manage effectively
- They can also highlight situations where revenue estimates are being inflated in order to avoid hard budget decisions
- Improvements in the costing of policies and programmes will take longer to achieve
- They require a fuller information base and cannot be delivered without the active involvement of sector ministries.
Successful budget reforms depend on introducing and sustaining appropriate incentives for ministries to support the changes. Furthermore:
- If ministers, parliamentarians and budget holders are not held to account, no gains can be made from attempts to link budget outcomes to policy objectives
- If the bulk of aid financing is not reflected in the budget, integrating the recurrent budget with the domestically financed component of the development budget is just an academic exercise
- Trying to achieve transparency in the allocation of resources to specific activities is futile where overall sector policies are unclear, inconsistent or unrealistic
- Experience from developing countries tends to support the use of more narrowly focused Medium Term Budget Frameworks, although extended MTEF initiatives can encourage consistency among different aspects of budgetary reform and add a performance focus to budgetary initiatives
- The application of output-focused budgeting allows a more informed debate over strategic priorities and resource allocation across and within sectors
- Implementing a rigorous extended MTEF absorbs a large amount of technical and human resources to ensure that the prescription is the right one and that activities are focused where the real problems lie.
