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

238 Salvatore Schiavo-Campo
reflect changing circumstances will tend to be across the board and ad hoc,
focused on inputs and activities that can be cut in the short term. But often,
activities that can be cut more easily are also more important, such as major
public investment expenditures. A typical outcome of isolated annual budgeting
under constrained circumstances is defining public investment expenditure
in effect as a mere residual. Finally, by illuminating the expenditure
implications of current policy decisions on future budgets, a government can
evaluate cost-effectiveness and determine whether it is attempting more than
can be financed.
The multiyear framework must have, among other things, political
involvement and a clear link to the budget preparation process. A good
example is provided by South Africa’s experience, after a false start in the
mid-1990s (see box 8.1).
Four pitfalls should be avoided. First, a multiyear expenditure perspective
can itself be an occasion to develop an evasion strategy, by pushing
expenditure off to the future years. Second, a multiyear expenditure perspective
could lead to claims for increased expenditures from line ministries,
because new intentions are easily transformed into entitlements as soon as
they are included in the projections. Third, as is the case for any good budgeting
practice, a multiyear expenditure perspective should not be pushed
BOX 8.1 The Link between the MTEF and Budget Preparation
in South Africa
The initial experience with a medium-term expenditure framework (MTEF)
in South Africa, started in 1994, lacked political involvement, and had no
clear link with the budget preparation process. Taking these shortcomings
into account, beginning in 1997 the government merged the MTEF and
budget processes, which now include the following coordinated activities:
Initial policy review. The review takes place from May to September
(the fiscal year begins in March) and includes the following critical steps:
—May: The cabinet considers spending priorities.
—June–July: Technical committees of national, provincial, and local
governments meet.
—July–September: The macroeconomic and fiscal frameworks are
revised.
—September: A cabinet meeting considers and approves the macroeconomic
and fiscal frameworks.