ESTHER MBUGUA

MEDIUM TERM EXPENDITURE FRAME WORK (MTEF)

Medium term expenditure frameworkIntroductionThe Medium Term Expenditure Framework (MTEF)

defines a three-year rolling macroeconomic framework, which outlines the overall resources

It also forms the basis for setting of national priorities and expenditure prioritization.

MTEF was introduced in Kenya in 1997 after the government and the World Bank carried out a Public Expenditure Review (PER)

The review identified various weaknesses in public expenditure management that had led to a decline in :

credibility of the budgetary process,

Medium term expenditure frameworkDeclining quality of public investmentsThe MTEF budget approach has four main objectives: 1.Creating a macroeconomic environment that will

attract both foreign and domestic private investors by:

Ensuring that public resources are efficiently utilizedCreating and supporting the potential for high

growth of incomesSupporting efficient production

2)Creating and sustaining fiscal discipline (through a medium term rolling forecasting)

Medium term expenditure framework3. Equitable resource allocation and operational

efficiency

4. Provide continuity to the budget process The rationale for the adoption of the MTEF process is

to ensure efficiency in budgeting and an equitable reduction on the share of the GDP that goes to public expenditure

In Kenya's case, it was to reduce from 27% in 1997 to a target of 25%.

The MTEF process requires a restructuring such that the government revenue is concentrated on a focused range of functions that promotes the growth of a vibrant private sector

Medium term expenditure frameworkThe vibrant private sector will then

contribute to the generation of the so much needed resources

Medium term expenditure frameworkMTEF processThe MTEF Budget Cycle(Kenyan Context)The introduction of the MTEF budget process in

Kenya led to the creation of various work groups

An MTEF secretariat was created to coordinate the budget programs

A Macroeconomic Work Group (MWG) was created followed by the creation of eight Sectoral Work Groups (SWG)

Medium term expenditure frameworkThe various ministries and work groups were

aligned to the (SWG’s)1.The MTEF budget is preceded by a National

Development plan that spells out the broad macro economic policies

2.The Macro Economic Work group (MWG) prepares a medium term fiscal strategy that sets out • The optimal levels of aggregate revenue and

expenditures• Financing deficits

3.The Treasury issues budget guidelines to the various accounting officers

Medium term expenditure frameworkThese guidelines include

The composition of the SWG’sThe MTEF calendarThe fiscal strategy over the medium termThe sectoral resource ceilingsOther budget preparation information

4.This is meant for the ministries and government agencies to effectively participate in the budget process through their respective sectoral work groups

5.The SWG’s prepare sector reviews and come up with reports outlining:

Medium term expenditure framework Their overall missions, objectives and

strategies in a prioritized format Then the sectoral ceilings are issued, These

ceilings take to consideration the following factors

The overall available resources The national objectives(often revolving

around): Economic growth Poverty reduction Historical resource allocation

Medium term expenditure frameworkOn-going project commitmentsDonor commitmentsGovernment contribution to Donor funded projects5.Upon receipt of the SWG’s proposals, the MTEF

secretariat organises sectoral hearings where by the SWG”s present their respective sector reports and receive comments from the public

6.This then enables the treasury to come up a medium term expenditure frame work to facilitate inter sectoral allocations

7.The sectoral resource ceilings are then confirmed and are presented to the cabinet for discussion

Medium term expenditure framework8. They are then forwarded to the ministries to

prepare itemized budgets which are forwarded to treasury for consolidation and submission to parliament for approval through the traditional budget process

When the sectoral ceilings are issued, they take to consideration the following factors

The overall available resources The national objectives(often revolving around :

Economic growth Poverty reduction

Historical resource allocation

Medium term expenditure frameworkMTEF PerformanceTo be able to measure performance, the

expenditure ceilings should be backed by sustainable revenues

They should also include enforcement mechanisms (to facilitate timely monitoring of outcomes)

Budget flexibility The definition of the sectors and class

identification of the expenditures should be based on purpose and not on the nature of expenditure

Medium term expenditure frameworkThe process requires: A Top-Down approach on resource

identificationA Bottom-Up approach on costs and

expenditures both in the current and medium term

Medium term expenditure frameworkIssuesThe MTEF budget process assumes that the various

sectoral managers have the autonomy to manage and make decisions that maximize results (this is not always the case)

It is difficult to assess national strategy because the sectors are categorized broadly (e.g. Trade, Tourism and Industry being lumped together). As a result, the mandates of the SWG’s are vague and not clear

The SWG’s are not able to improve on the intra sectoral allocations . Ideally, they should be able to shift resources with in their own departments to ensure adequate funding for high priority progrms

Medium term expenditure frameworkEffectiveness of the MTEF budget process is

also hampered by the limited time allocated for the preparation of the budget hence the budget is not prepared in details.(many times it is prepared with unrealistic estimates e.g)

Over estimated capacityUnder estimated costs

Performance of MTEF in Kenya Resource allocation and implementation is

flawed by:Lack of a comprehensive development strategies

that are based on realistic national resource constraints

Excessive size of the government spendingFailure to achieve aggregate fiscal discipline Poor quality of public expenditureWeaknesses in the planning and budgeting

process that have contribute to its poor performance (these weaknesses include):

Medium term expenditure framework

Forecasting abilityLack of medium-term perspective;Failure to cost future resource requirementsToo many supplementary budgetsExcessive political interference in budgeting

Failure of expenditure controls by line itemIncremental recurrent budgeting especially

on on-going programmes resulting in redundant and rising programme implementation costs;

Medium term expenditure frameworkDelays in issuing resources due to unforeseen

changes in revenue,Emergency expenditures and unplanned

activities Inadequate provision for the recurrent

implications of development projectsFunding of recurrent activities through the

development budget to attract donor funding at the expense of accountability and transparency

Discrepancies between development estimates and public investment programmes;

Medium term expenditure frameworkPoor quality of development projects due to

poor targeting, (high per unit costs and low completion rates)

Weak accounting systemsInadequate and at times lack of monitoring

and evaluating systems Failure to develop management

information systems.