Managing Public Expenditure - CMI

Multi-year Budgeting and Investment Programming
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c. Conditions for preparing a sound PIP
The PIP should be prepared jointly with the budget, and framed by expenditure ceilings specified for
each of the forward years. Preparing a PIP needs to start with a medium-term budget framework, that shows
annual expenditure estimates divided up according to: (i) line ministry; (ii) “investment” (including
current expenditures financed through externally financed projects) and other expenditures; (iii) domestic
and external sources of finance. Ceilings for expenditures financed by external resources can be flexible.
Nevertheless, this flexibility should be limited, since the impact of the PIP on both the costs of debt service
and the financing needs for domestic counterparts should be taken into account.
As discussed in Chapter 5, presenting separate initial ceilings for capital expenditures has both
advantages and disadvantages, depending on the sector concerned and the nature of the investment
project. To avoid solidifying the preparation of sectoral budgets, joint analyses of current and capital budget
are required at each stage in the preparation of the PIP. When preparing the PIP and the budget a certain
degree of flexibility is needed in reallocating resources among current and capital spending. This requires
full unification of the PIP and budget processes.
d. What can be implemented in transition countries
In most aid-dependent countries, new policies are generally financed through donors’ aid programmes.
As a result, the PIP can be used as an instrument to review these new policies, and to programme in advance
aid-financed expenditures. In this respect a fully-fledged PIP, as described above, fits less well the context of
transition countries and middle income economies, which rarely prepare a PIP, than aid-dependent countries.
Transition countries that do not currently prepare a rolling investment programme should consider
improving their budgetary management of investment projects (e.g. by making estimates of the forward
costs of ongoing projects and programmes), and strengthening their methods of preparing and selecting
projects within line ministries. They should also focus their multi-year investment programming on those
areas where such an exercise is most crucially needed. For example, candidate countries for membership
of the EU have to programme the uses of EU pre-accession funds.
Some transition economies still face an overhang of uncompleted capital investment projects. This
requires special investment reviews and ruthless screening of ongoing projects, using the screening
criteria discussed above. But an exercise of this kind is very different from preparing a rolling investment
programme.
However, those countries that already prepare a PIP may want to continue doing so, provided they
refine and streamline the PIP process and improve their budgetary management of investment according
to the points suggested above. There is a case for PIPs in countries that only have annual budgeting. When
a significant share of the budget consists of aid-financed projects, preparing a PIP can establish a useful
link between the preparation of the budget and the negotiations with donors, provided the pitfalls mentioned
earlier are avoided. Every “partial” multi-year expenditure programme should be part of a multi-year budget
framework that is properly designed. This applies both to investment projects as well as to sectoral budget
programmes.
6. Organisational arrangements for screening projects
Line ministries, which are responsible for preparing the budgets for their sector, should also be
responsible for preparing, screening and selecting projects within any overall spending limit set by the