Budget reform:making it happen

Owen BarderUnited Kingdom

Reform in the real world

Budget problems in the real worldBudget Reform and the MTEFKey steps in introducing the MTEFLessons

South Africa is different

Apartheid inequality distortion of public services

Human capital & financial administrationNew quasi-federal structureCo-operative governance

Budget problemsin the real world

Unrealistic budgets unaffordable, undeliverable, deferred

No link to behavior no buy in, cash controls, hidden budget, overspending,

link to policy proposals

Allocation doesn’t reflect priorities no choice, short termist, distorted, enclaves

Spending inefficient low productivity, poor management, corruption, poor planning

Unrealistic budgets unaffordable, undeliverable, deferred

No link to behavior no buy in, cash controls, hidden budget, overspending,

link to policy proposals

Allocation doesn’t reflect priorities no choice, short termist, distorted, enclaves

Spending inefficient low productivity, poor management, corruption, poor planning

Budget problemsin the real world

Elements of budget reformMedium Term Expenditure FrameworkBudget Policy StatementNew intergovernmental systemPublic Financial Management ActImproved financial management Wider public sector

Budget Reform White Paper

MTEF: rapid success

First plan April 1997MTEF published March 1998Compare eg Malawi since 1994Compare South Africa 1994-96

First MTEF 1994-1996

Spreadsheet modelSectoral analysisCross-sectoral linksCabinet away-daySank without trace

Why did it fail?

No political buy-inNo emphasis on choiceNo link to budgets No link to budget processToo technical

MTEF 1998

Persuaded Government Treasury, Cabinet, Departments

3-year spending plans all departmentsAnalysis to improve over timeMTEF replaced budget process

Persuasion

Three goals of budget aggregate fiscal discipline allocative efficiency technical efficiency

MTEF delivers all three especially the first two …

Target the message

Persuading CabinetPolitical control of the budgetBetter prioritizationChoices at budget stageMore certainty: better planningMore deliveryMore cooperativeLess central interferenceCheaper borrowingMore spending“State of the art”

Persuading DepartmentsMore cooperativeLess central interferenceChoices at budget stageMore certainty: better planningMore money (borrowing costs; unspent funds)Better prioritization

MTEF 1998

Persuaded Government3-year spending plans all departmentsAnalysis to improve over timeMTEF replaced budget process

Benefits of 3 year plans

Better prioritisationBetter planningTransparent and credibleFinancial disciplineMore spending & deliveryAffordable policy development

Immediate

Benefits of analysis

Identify choices & quantifyLink to outputs and outcomesAccountabilityBenchmarkingBetter outcomes

Over time

MTEF 1998

Persuaded Government3-year spending plans all departmentsAnalysis to improve over timeMTEF replaced budget process

Replacing the process

Every department involvedCompeting for same resources3 year horizon for everythingRenaming eg committeesMTEF to Cabinet, not BudgetIncreased financial discpline

LessonsObtain political commitment

emphasise empowerment, choice, delivery involve in process

Keep it simple 3 year plans for each department get out of the detail

Make it matter replace budget process link to financial discipline plans as baselines

Did it succeed?

Too early to tell© Zhou En Lai

Did it succeed?

Political buy-inReprioritisationBudgets matterDisciplined policy-makingBetter analysisCo-operative governance

How to do Budget Reform

Obtain political commitment Keep it simple Make it matter

After the break: how SA does the MTEF

The MTEF in practice

The MTEF in practice

What is the MTEF?Affordable totalsPutting the budget togetherLessons

South Africa is different

Quasi federal structureCooperative GovernanceGood administrative capacity

What is the MTEF?

growth and inflation revenues, deficit and spending debt interest costs division between tiers of government spending plans by department statement of main outputs contingency reserve

Three year projections of:

Available Funds}Spendingallocations}

MTEF process

Agreeing affordable totals Identifying policy optionsBuilding consensus

MTEF process aimed at:

Affordable totals

20%

22%

24%

26%

28%

30%

32%

34%

94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02

DeficitRevenue

% GDP

Affordable spending

0

5

10

15

20

25

30

35

40

1989

/90

1990

/91

1991

/92

1992

/93

1993

/94

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

0

50

100

150

200

250

300% GDP R billion

Getting totals right

Keep projections simpleMake public fiscal commitmentsDecide totals before allocations

Building consensus

ReviewTeams

Ministers’Committee

Cabinet

Implications of baselinesPolicy options

Recommended allocationsPolicy choices

Treasury

Affordable totalsMenu of choicesRecommendations

MTEF

BaselinesMembership

Review teamsWhat?

Health, Education, Welfare, Crime, Personnel, Infrastructure

Who? Treasury, line departments, subnational government, consultants

What? expenditure trends implications of baseline costed policy options benchmarking

Review teams

Unique to South AfricaCooperative governanceBetter understanding

Treasury of policy challenges Departments of financial implications

Consensus buildingOngoing work programmes

Ministerial Committee

Powerful minorityIdentifies optionsEvaluates proposalsRecommends to Cabinet

Cabinet

Forum for competing policiesImplications of plansMenu of policy optionsCollective agreementMost important decisions

Timetable

Apr

June

July

Aug

Sept

Oct

Departments submitbaselines

MTEF ReviewTeams identifyspending trends

and policyoptions

Otherdepartments

plansevaluatedMinComBud

discusses priorities

Officials discussbudget proposals

Treasury updatesprojections

MinComBudhearings

Timetable

Oct

Nov

Dec

Jan

Feb

Mar

Spending totalsproposed

Cabinet agrees totalspublished in MTBPS

Departmentsallocate funds Budget documents

prepared

Cabinet approvesallocations

Treasury summaryof policy options

MinComBud discussesallocations

Budget

Implementation lessonsInclude, but controlListen to departmentsInvolve politicians throughoutAvoid information overloadDecide totals firstDon’t over-prescribeFocus on prioritiesPromote transparency

Contact information

Owen Barderemail: owen@owen.org

Department of Finance, South AfricaPrivate Bag X115, 0001 Pretoria, South Africawebsite: http://www.finance.gov.za/

The End

Owen Barder