Public Expenditure Review Workshop December 1-2, 2010 The Planning and Budget Process 1 Andrew Bird Mokoro Consultants.

Public Expenditure Review WorkshopDecember 1-2, 2010

The Planning and Budget Process

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Andrew BirdMokoro Consultants

Overview• Strengthened planning and budgeting architecture:

• Reinstatement of NDP process• More realistic and strategic approach to budget planning• MPSA budgets now activity based

• But, in practice, reforms not sufficiently linked:• NDP sector action plans not linked to the budget• Insufficient analytical work to guide resource allocation• Medium-term focus of the budget remains weak

• Issues over the transparency of the Planning and Budgeting Processes

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Lessons of International Experience

• Review and evaluations have raised questions about:• The realism and rigidity of national planning exercises and their

ultimate usefulness.• Whether MTEF reforms have resulted in improved budget

outcomes.• Whether the necessary conditions are in place for successful

implementation of performance oriented budgeting initiatives.

• Main lessons:• Proceed gradually and stepwise – similar reforms in advanced

economies have often taken over 10 years.• Learn from experience – if things are not working, find out why and

implement changes

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1. National Development Plan

and Strategy

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Reinstatement of the NDP Process

• PRSP in 2000 marked return to medium-term economic policy and planning.

• 2006 National Vision 2030 to be operationalised though five year development plans and annual budgets.

• Fifth National Development Plan 2006-10 more realistic than predecessors emphasising:• macroeconomic stability,• improved economic governance,• administrative and regulatory reforms, and• improved public service delivery.

• Broad based consultative process in preparing NDP.

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Issues

• Difficult to link to the budget planning process:• No multi-year fiscal framework .• Used different sector classification to the budget• Analysis tended to be reflective, policy prescriptions and

program plans not sufficient developed.

• No process for updating and adapting strategies and plans to reflect changes in economic circumstances and the government priorities.

• FNDP quickly became outdated and less relevant in guiding government decision-making.

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Recommendations

• SNDP an opportunity to address weaknesses of FNDP:• Include 5 year fiscal accounts projection within which the NDP

proposals have been developed.• Better elaborated sector strategies and priorities that link to

NDP objectives.• Fully costed sector action plans linked to resource allocations

that are consistent with the fiscal accounts projections.

• Introduce process for regular review and updating of NDP linked to the MTEF/Budget process:• NDP strategy review and update at beginning of each year• Updating and rolling forward of sector action plans as part of

integrated NDP/MTEF/Budget Process.

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2. Medium-Term Expenditure

Framework

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Zambia’s MTEF Process• Comprehensive and unified Budget

• Includes nearly all fiscal actions • Single budget process for capital and current spending

• Two stage MTEF process, that reflects practice in many countries• Strategic phase leading to Green Paper

• Medium-Term Macro-Fiscal Framework• Review of sector programmes and priorities (SAGs)• Resource ceilings for budget implementation

• Budget formulation phase – ABB• MPSA Budget Framework Papers• ABB submissions

• Consultations at key stages in process:• MTEF/Budget Cabinet Consultation Paper• Green Paper• Finalisation of draft Budget

• Budget now approved by Parliament by beginning of FY.10

Issues• No formally agreed MTEF and budget planning calendar

• MTEF and budget process starts late leafing insufficient time for analytical work

• Little input from MPSAs during the strategic phase• Little guidance for sector reviews, SAGs not functioning effectively.

• Outer year resource ceilings lack credibility and have failed to bring a medium-term perspective to MPSA budget planning• MPSAs continue to plan their budgets for a single year.

• Procedures for capital investment management problematic• Project selection/appraisal procedures fail to exclude wasteful projects• Commitments for on-going capital investment projects not tracked by

MoFNP or fully taken into account in setting resource ceilings.

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Recommendations 1:An Integrated NDP, MTEF and Budget Calendar

• Expand MTEF/Budget Consultation Paper to include review of NDP cross-cutting strategies and priorities (Feb)

• SAGs review and update NDP/MTEF sector action plans (May)

• Update macro-fiscal framework (end May)

• MTEF/ Budget Green Paper finalised (end June)

• Budget guidelines and resource ceilings issued (July)

• MPSAs prepare detailed budget proposals (end Aug)

• Budget hearings (end Sep)

• Update macro-fiscal framework (end Sep)

• Draft budget finalised and sent to National Assembly (Oct)

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Recommendations 2:Strengthening the Technical Basis of the MTEF

• Strengthen capacities for macro-fiscal analysis• Updated macro-economic forecasts at key points in MTEF/Budget cycle• Review of fiscal policies and priorities

• Revitalise SAGs and provide guidance and instructions for reviewing and updating NDP/MTEF sector action plans:• Incorporate policy and strategy developments• Review implementation progress• Initiatives/measures to improve program effectiveness and efficiency• Updated action plan consistent with macro-fiscal framework.

• Progressively increase credibility of outer year resource ceilings

• Include forward spending commitments on capital investment projects as Annex to the Budget

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Integrated NDP/MTEF/Budget Calendar

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Parliament

Ministries, Provinces and Other Spending Agencies

Update Macro –Fiscal Framework

(Macro forecasts; aid forecasts; aggregate

MTEF ceiling)

Ministry of Finance and National Planning

Cabinet Cabinet

Approval of Green Paper

Green Paper provided to

National Assembly

Budget Guidelines Issued to

Ministries

MPSAs Prepare Detail-ed Budget Proposals (Budget Framework Paper and Detailed Budget Estimates).

MOFNP/MPSA Budget Hearings

Finalisation of Draft Budget and MPSA

Budget Estimates

Final Update of Macro-Fiscal Framework

Cabinet Approval of

Draft Budget

Draft Budget Approved by

National Assembly

Preparation of NDP Strategy/MTEF

Consultation Paper (Sets out NDP/Budget issues and priorities

for next 3 years)

NDP Strategy /Budget

Consultation Paper discussed

Finalisation of MTEF and

Budget Green Paper

NDP Action Plan/MTEF Sector Spending Reviews (Review and roll forward of NDP Action Plan and MTEF

sector spending plans)

MoFNP/SAG Review

Meetings

Jan-Mar

Jan-Mar Apr-Jun Jul-Sep

Apr-Jun

Oct-Dec

Jul-Sep Oct-Dec

3. Preparation of MPSA Budgets

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Activity-Based Budgeting

• ABB introduced in 2000 replacing previous line-item budgeting process• Utilises two tier classification breaking down spending

allocations by program and activity• Outputs identified at program level and included with targets in

the budget estimates.

• ABB seen as having:• Improved transparency of the budget (both officials and

Parliamentarians)• Made it less easy to divert resources to other activities

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Issues• Risk of strategic focus and management of the budget is

being undermined:• Excessive number of programs/activities.• Overly detailed breakdown of expenditures by economic item

• Inconsistencies in the basis under which ABB has been applied in different ministries (Large variations in the number of programs).

• Some major Economic items shown as programs and activities (personal emoluments, utility costs, capital projects)

• Excessive number of outputs and indicators but output information not used in budget presentation and monitoring.

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Recommendations

• Undertake a detailed review ABB implementation to:• facilitate a more strategic approach to budget planning• develop a consistent institutional ly or functionally linked

classification of programmes and activities that links to the NDP• reduce the complexity of budget preparation• introduce a stronger budget monitoring element

• Streamline the use of the economic classification in the budget• distinguish between control items to be shown in the budget;• and accounting items that would only be used in recording

expenditure

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4. Transparency Issues

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• Stakeholder Consultation: Stakeholder consultation does take place, but formal processes often not working effectively (e.g. through the SAGs). Consultation around the Budget is often informal and at too late a stage in the process.

• Internal Transparency: Compressed deadlines reduce MPSA engagement in planning and budgeting processes. Undermines link between MPSA inputs and final plans and budgets.

• External Transparency: Zambia scored 36 out of 100 in the 2010 Open Budget Survey, ranked 60 out of 94 countries surveyed. Classified as providing minimal information about the budget.

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Improving Transparency• Formally adopt, publish and implement an annual

planning and budgeting cycle setting out the key processes, outputs and deadlines.

• Identify key documentation to be placed in the public domain and establish deadlines for its publication on the MoFNP website.

• Look at how the format, content and presentation of public documents can be improved to make them less impenetrable and make them more widely accessible.

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