Agriculture Public Expenditure Workshop Module 5

STRENGTHENING NATIONAL COMPREHENSIVE AGRICULTURAL PUBLIC EXPENDITURE IN SUB-SAHARAN

AFRICA

Agricultural Public Expenditure Training WorkshopAccra, Ghana

(April 13 -14, 2011)

MODULE 5SPECIALIZED STUDIES:

SECTORAL MEDIUM TERM EXPENDITURE FRAMEWORK (MTEF)

CONTENTS

I) BACKGROUND

II) OBJECTIVE/SCOPE

III) METHODOLOGY

IV) DATA SOURCES

V) PROCESS

VI) TA TEAM

VII) TIMELINE

I) BACKGROUND

• SSA countries are working to strengthen the link between ag. policies, strategies and budget processes and allocations (with support from CAADP processes)

• CAADP is supporting post-compact strategy, focusing on assisting Govts. to translate sector strategies into medium term investment plans (MTIPs)

• MTEF development comprise a specialized study, and builds on other backward-looking components (Basic Ag. PER, PETS, IE), and is a forward-looking tool to promote coherence

• MTEF has three main elements: – projections of the aggregate resource envelope or budget ceilings for the

medium term provided from the MoF– bottom-up cost estimates of the sector programme– a political and administrative process that integrates and reconciles the two

• Unlike the other specialized studies, the role of MTEF TA is to provide technical advise and expertise of a Govt-led process.

• There are template TOR for MTEF (A5.1), to help ensure a checklist of key items for soundness, country consistency and comparisons, and which draw for their methodology on various relevant reports, including (excerpts of others in Annex 5):

– Practitioner’s Toolkit for AgPERs (WB/DFID)– Public Expenditure Management Handbook (WB)– Linking the PRS with National Budgets

– Also see A5.2, A5.3, A5.4, A5.5

Background Objective/Scope Methdology Data Sources Process TA Team Timeline

II) OBJECTIVES AND SCOPE:

Objectives:• To assist selected governments in sub-Saharan Africa to

strengthen their agriculture sector programming and budgeting and the effectiveness of their public expenditure in the sector through formulating an agriculture sector MTEF.

• To support the CAADP Post-Compact process in enhancing the draft MTIP, and to assist selected and eligible governments to take the next step through establishing an operational agriculture sector MTEF.

• To provide hands-on training and shepherding of key MOA counterparts in formulating and institutionalizing the MTEF as part of enhanced MOA budget processes, and promoting performance-based budget allocations and execution for the agricultural sector.


Scope:

Country/Sectoral Context

• Decision by govt. to formulate a sectoral MTEF is part of a policy decision to shift in planning and budget processes towards a a medium-term budget perspective, within a macro-economic framework which projects the resources available to government.

• MTEF process also implies the adoption of a planning mechanism which comprises the allocation of budget ceilings (by MOF) to each sector, the formulation of sound sector investment plans, a process to monitor programme effectiveness and, in its most comprehensive form, includes a shift to performance based ‐budgets.

• It is important that the MTEF exercise is fully integrated into the budget process.

• It is recognized that these country/sectoral prerequisites may be evolving, and the MTEF specialized exercise can build on and further promote them for the participating country.


MTEF Budget Coverage:

• It should represent consolidated government expenditure in the sector, including both capital and recurrent budgets.

Country Selection: should meet key prerequisites -

• MoF has provided the necessary overall framework for task.

• Country circumstances are appropriate for an MTEF to be an element of the PFM system, already initiated the process of establishing a medium-term planning and budget system, and agriculture is included as one of the sectors.

• An economy-wide public expenditure review has been conducted recently, together with an AgPER.

• MoA has actively engaged with DPs with a view to moving towards programme support.

• MOA has a signed CAADP country compact/agric strategy and a sound sector investment plan (at least in draft form).


Sector Investment Plan….a key link:

• A vital element of a sector MTEF is a sound, multi-year sector investment plan (MTIF)

• CAADP Country Roundtable Process– Signing of country compact/agric sector strategy– Progress in Post-Compact Stage, focusing on

translating agric strategy into a MTIP• Sectoral MTEF task to be carried out in countries with

adequate progress in MTIP• Role of TA team, with donor working group, will review

and enhance the MTIP and focus on assisting government to take the next step by establishing sectoral MTEF.


Institutional Scope:• Institutional scope of agricultural sector, as defined

by COFOG, and scope of the MTIP, may determine the institutions which will participate in the sectoral MTEF.

• In most cases, MOA will be the main entity to be covered; an early decision will be needed to include and support other relevant sectoral ministries.

• MOF (and Planning, if existing) will be a key collaborator in the task.


III) METHODOLOGY(a) Overall process: Key steps in formulating sectoral MTEF/see Table

– Development of a macroeconomic/fiscal framework *– Development of sector programme **– Development of sector expenditure framework **– Definition of sector resource allocation *– Preparation of sector budget **– Final political approval **

* Refers to responsibility of MOF; **refers to responsibility of MOA

(b) Development of an Agriculture Sector Programme: Formulation of a MTIP is key element in operationalizing a MTEF. Five key elements in the process are:

(i) Sector Investment Plan:

• TA team to review adequacy of draft MTIP, focusing on portions in line with agreed scope of sectoral MTEF


Table: Six Stages of MTEFSTAGE CHARACTERISTICS

I. Development of Macroeconomic/Fiscal Framework

• Macroeconomic model that projects revenues and expenditure in the medium term (multi-year)

II. Development of Sectoral Programs

• Agreement on sector objectives, outputs, and activities • Review and development of programs and sub-programs • Program cost estimation

III. Development of Sectoral Expenditure Frameworks

• Analysis of inter- and intra-sectoral trade-offs • Consensus-building on strategic resource allocation

IV. Definition of Sector Resource Allocations

• Setting medium term sector budget ceilings (cabinet approval)

V. Preparation of Sectoral Budgets • Medium term sectoral programs based on budget

ceilings VI. Final Political Approval • Presentation of budget estimates to cabinet and

parliament for approval Source: PEM Handbook (World Bank, 1998a: 47-51), adapted.

• Criteria to review and enhance soundness of MTIP:– Consistent with the sector strategy – Aligned with the national poverty reduction strategy

goals, particularly rural poverty reduction and food security

– Evidence-based, built upon evaluations of the performance of different sub-sectors and services

– Prepared following consultations with key actors – Prepared in close collaboration with Development

Partners and based on realistic projections of external resource availability

– Prepared with an explicit financing role for the private sector

– Fully costed, based on sound assumptionsBackground Objective/Scope Methdology Data Sources Process TA Team Timeline

ii) Indicative Financing Plan• Senior MOA management to decide on the scale, and

modality for financing the plan• TA team to help develop a financing strategy to close gap • MOA to decide whether to propose moving towards a

programme-based approach (PBA), or to follow a traditional project approach

iii) Sector Programme Costing: Need to assess the extent to which the costing of the investment plan is realistic. This will involve:

• Examination of cost consistency across sub programmes‐• Adequacy of standard costs applied (ex.: O&M costs)• Incorporation of reasonable physical and price

contingencies


iv) Role of Donors:• Close collaboration with DPs is vital • DWG should be engaged in the process from outset• The sector MTIF should build upon commitments

made by DPs when signing the CAADP country compact, and should aim to enhance the harmonization of donor assistance to the sector

v) Decentralized Units: Important to account for countries with substantial fiscal decentralization. Actions include:

• Enhance sub-national investment plans• Adopt a “partial” MTEF• Ensure decentralized units consider relevant factors


(c) Devt. of Agric Sector Expenditure Framework

• Purpose of MTEF: To strengthen link and coherence between policy/strategy and budget and introduce “results” orientation to agric budget.

• Proposed scaling-up funding for agric sector to be based on performance assessment and sound MTIP/proposals.

• Sectoral MTEF usually for 3 year period.• MTEF to be based on consolidation of all projected

public expenditures in the sector on the basis of investment plan proposals for new programmes, together with on-going programmes, including recurrent and capital expenditure.


(c) Development of an Agriculture Sector Expenditure Framework (cont.)

Review sector options: As sector MTIP is being formulated, TA team to emphasize identification and analysis of options or tradeoffs between different investments, based on following key actions: Using available sectoral Computable General Equilibrium or other

econometric modeling, identifying the main sources of growth in the sector, trade offs between different sub-sectors, inter linkages ‐ ‐between agriculture and the rest of the economy, and the effects of alternatives upon households

Deriving lessons from the sector AgPER, from PETS, and IEs, in order to evaluate:

Capital budget Recurrent budget Individual sub programmes and expenditures‐

Reviewing programmes & projections of expenditures at lower levels At this stage, MOA, with the TA support, can review/decide (with

MOF) on a series of investment options for programmes and expenditure items.


(d) Preparation of an Agriculture Sector Budget

• MOA/TWG to complete and reach consensus (internal) on sectoral MTIP and MTEF.

• TWG to discuss with MoF the identified “financing gap” between projected agriculture sector expenditure and the MTEF budget ceilings issued by MoF.

• TA team to assist the MoA TWG and Management reconcile the sector investment components with the announced budget ceiling, including a strategy for prioritizing options and closing the financing gap, and reaching consensus.

• Key outputs of budgetary process:– Portfolio review of on-going projects– Estimated budgets for a set of capital investment projects or

programmes– Estimated budgets for modified (or retrofitted) on-going development

projects and programmes– Estimates of existing and future recurrent budget commitments– Sector budget to show full details for Yr. 1, projections for Yrs. 2+


(e) Recommendations• A “strategic phase” early in each budget planning cycle should

enable sector line ministry discussion with MoF on key issues • Streamline assembly of programmes from decentralised units

for inclusion in the overall sector MTEF • Enhance soundness of sectoral resource projections made by

MoF • Establish strategies/measures to enhance: the alignment and

performance of on-going project portfolio; PFM in the sector, in particular central and/or decentralized unit accounting, auditing and procurement procedures

• Identify measures to fully integrate the MTEF into the budget process and secure high level political engagement in the approval process, for sustainable MTEF use

• Enhance oversight mechanisms, especially a strengthened and operational sectoral M&E system


IV) SOURCES OF DATA & INFORMATION

• Official published budget-related documents will form the primary source of data

• Existing special studies on the sector as well as unpublished material should be used

• Focus group discussions with key officials (MOA, MOF, Planning), especially on agric budget

• Other sources (see TOR for details):– Official sources, including budget estimates, reports, sector reports– Relevant studies and “grey” sources, including donor, CAADP reports,

sector and project evaluations– Sources for reviewing sector outputs and outcomes, including:

• MoA and donor studies and reports• Project appraisal documents, mid-term reviews, Implementation

Completion Rreviews• Focus group discussions with project managers and teams• Sector models and/or impact assessments


V) PROCESS(a) Participating countries: request for assistance; meet key selection criteria

(b) Participatory Process:• Establish working partnership with key actors, and active counterparts• Establish a TWG to be responsible for work, with TA support• TA team to formulate “road map” for work and outputs• Ensure active SWG to provide oversight and guidance

(c) Key Stages: to be facilitated by TA team• Stakeholder briefing: agree on purpose, outputs/milestones• Inception Workshop: within 2 weeks of start, to review updated TOR,

scope, issues, milestones, counterparts and access to key information• Sector Working Group: to support and oversee the exercise• Technical Workshop: Within 1 month, to review initial progress• Draft Report Workshop: Within 5 - 7 months to discuss main

conclusions and recommendations• Facilitating/Managing Change (as part of TA role): manage

expectations, transition to MTEF, portfolio alignmentBackground Objective/Scope Methdology Data Sources Process TA Team Timeline

(d) Implementation Arrangements

• Overall responsibility and main role for preparing a sectoral MTEF will lie with key planning and budgeting staff of MOA, to be constituted as a technical working group/TWG

• Specialized study will provide hands-on TA support to TWG • A Steering Group (SG) of key stakeholders will provide “neutral”

oversight of the exercise and access to high level decision-makers• Exercise to require 1 year; to be timed with the budget cycle• TA team to carry out the IA, but with a role to support the TWG through

technical advise & expertiseo International Expert (1) : methodological & cross-country expertiseo Local Expert (1): country/sub-sector knowledge and analytical skills

• Important to engage donor working group in key aspects/phases, given its role

VI) TA TEAM: Role/Outputs (working with TWG)

• Help to launch the sector MTEF process• Advise on setting up the SWG, including its composition• Draw up the terms of reference of the SWG• Define the institutional scope of the MTEF• Commission technical working papers from the TWG & review

them• Evaluate the basis for costings and consistency of application• Review the sector investment plan• Identify capacity building needs and priorities• Facilitate the reconciling of the sector expenditure framework with

finally announced medium-term budget envelope• Assist in preparing briefs for budget hearings• Liaise with the donor working group• Formulate recommendations for enhancing the MTEF process


Main Reports and Data BaseReports:

• Inception report: within two weeks, focusing on key issues and scope

• Draft report: at least one month before conclusion of the exercise, which consolidates and presents recommendations

• Final report: within 12 months, incorporating comments on and discussion of the draft report

Data Base:

• During the assignment, the TA team, in collaboration with MoA and MoF, will establish a database

• Database will be used for capacity building purposes as part of a joint learning activity under the overall public expenditure programme.


VII) TIMELINE Estimated to require up to one year

Resources Required:• TA Consultant Team (1 senior international plus 1

national expert), each working about 12 weeks, within the timeframe of one year.

• MOA and MOF will be requested to provide one full-time counterpart or team equivalent for each consultant.

• Think tanks, universities and other local participants will be encouraged to participate, but not remunerated.


KEY REFERENCES/DOCUMENTS(See Annex 5 for selected excerpts)

A5.1: Template TOR for Sectoral Medium-Term Expenditure Framework

Development (June 2010)

A5.2: Medium Term Expenditure Frameworks: From Concept to Practice:

Preliminary Lessons from Africa (prepared by P. Le Houerou & R. Taliercio,

February 2002, World Bank): Excerpt: Table of Contents and Summary

A5.3: Formulation of a Sectoral MTEF: Frameworks for Aligning Policies and

Budgets and Country Examples

A5.4: Sectoral MTEF Framework: Example of Nicaragua’s Evolving ProRURAL

A5.5: Institutional and Sectoral MTEF: Suggested Financing Framework and

Strategic Elements

Relevant Website references include: www.worldbank.org/afr/agperprogram and web.worldbank.org/apea

http://www.worldbank.org/afr/agperprogram

Agriculture Public Expenditure Workshop Module 5

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mtef a5

mtef budget coverage

sectoral mtef

mtef exercise

mtef specialized exercise

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sector strategies