Public Sector Governance and Accountability Series: Budgeting and ...

Budget Methods and Practices 129
about the structures, institutions, and rules of the budget process as it is
about the multiyear plans that result.
An MTEF becomes unglued quickly if fiscal discipline is lacking, if there
is macroeconomic instability, or if forecasts for key macroeconomic variables
and revenue collection targets are unrealistic, thereby preventing the formulation
of an accurate resource envelope within which to operate. Part of the
failure can also be explained by the inadequacy of supporting institutions and
by the technical demands placed on staff members. If MTEFs are to result in
better spending and service delivery, they need to be well integrated with, and
complemented by, improvements in other public policy and management
processes. A critical reform is that of the budget classification system: it must
provide a program view of spending for planning that is linked to an administrative
and line-item view for implementation purposes. MTEFs operate best
when budgets are developed using a program budgeting methodology.
However, the rules of the MTEF system itself determine the contribution
it can make, particularly regarding the link between planning and
budgeting. The MTEF system can ensure over time that a higher proportion
of public funds is spent on priority programs if (a) within the resourceconstrained
framework approach marginal changes in resource availability
are maximized and used to force tradeoffs between and within spending
areas and (b) the medium-term perspective is used to phase out the least
important spending programs and activities and overcome spending rigidities.
In this context, the MTEF approach provides a feasible alternative to
incremental line-item budgeting.
If this shift in approach is to be effective, fiscal policy targets and the fiscal
framework must be determined first, in order to provide a transparent framework
for planning. This framework disciplines the formulation of subsequent
spending options and makes tradeoffs explicit. A further determinant of the
success of an MTEF rests on the cooperation and buy-in from spending ministries.
When there are few incentives for ministries to coordinate activities or
assist in the planning exercise, or if ownership from the political level is not
strong, the potential benefits of an MTEF are compromised.
The introduction of an MTEF raises the demand for technical competence
not only for the ministry of finance but also for the staffs of line ministries.
Budgeting Methods to Expose Choices on the Ground
In recent years, different countries have applied different mechanisms
within MTEFs to improve the quality of information used to make resource
allocations. An important aspect of this trend is the introduction of program