Sunday, 3 December 2017

On Medium-term Expenditure Framework & Fiscal Strategy Paper (FSP) —by Ceejay Ojong


Ceejay Ojong|3 December 2017 

The failure to link policy, planning and budgeting is the single most important cause of poor budgeting outcomes in developing countries (Public Expenditure Management Handbook: World Bank, 1998). 

It is within this context that current international best practice on sound public budgeting and expenditure management points to Medium Term Fiscal Framework (MTFF) and Medium Term Expenditure Framework (MTEF) as the panacea for rational planning and managing of a nation's or a State's finances in an integrated manner within a medium term perspective. 

In defining a medium term framework as an operational concept, three levels of development can be distinguished:
 
- A Medium Term Fiscal Framework (MTFF) is the first, necessary step toward an MTEF. It typically contains a statement of fiscal policy objectives and a set of integrated medium-term macroeconomic and fiscal targets and projections.

 - A Medium Term Budget Framework (MTBF) builds on this first step by developing medium term budget estimates for individual spending agencies (MDAs). The objective of an MTBF is to allocate resources to the nation's or State's strategic priorities and ensure that these allocations are consistent with overall fiscal objectives. This gives some degree of budget predictability to spending agencies (MDAs), while ensuring overall fiscal discipline. In essence, MTBF is the most basic type of MTEF.

- A Medium Term Expenditure Framework (MTEF) develops the approach further by adding elements of activity and output based-budgeting to the MTBF framework. 

These methods seek to improve the value for money of public spending, in addition to reinforcing fiscal discipline and strategic prioritisation. 

While MTFF/MTEFs can no doubt assist in improving budget processes and outcomes through greater clarity of policy objectives, predictability in budget allocations and comprehensiveness of coverage, as well as transparency in the use of resources; improving budget outcomes however requires a focus on some real problems including the facts that :

i) It is difficult to instil confidence in medium term projections where releases of budget funds are unpredictable.

ii) No gains can be made from attempts to link budget outcomes to policy objectives where key officials that include Ministers/Commissioners, Legislators and Chief Accounting Officers (budget) are not held to higher standards of accountability.

 iii) Where there is large incidence of 'off-budget' spending such as aids and debts and power projects as in Nigeria, integrating the recurrent budget with the domestically financed component of the capital budget becomes a mere academic exercise.
 
iv) It could prove futile to attempt to achieve transparency in the allocation of resources to specific activities where overall sector policies are unclear, inconsistent or unrealistic. 

v) Where there is no deliberate move to programme budgeting from traditional line item or incremental budgeting, it would be difficult to justify and track the effectiveness of the development outcomes of budget expenditure.

vi) Absence of clearly defined performance action plan with concrete milestones and measurable performance indicators that are tied to a robust monitoring and evaluation mechanism could be a critical limiting factor for efficiency and effectiveness of budget outcomes, etc.

Overall, incurring high transaction costs in governance without improving budgetary outcomes and efficiently delivering desired public services, as well as proper tracking of the results achieved with public spending only indicates the existence of an elaborate fiscal facade. 

The economy as a result becomes constrained from growing and developing at its full capacity and potential. This could lower human development indices, arrest poverty-reduction, and increase rent-seeking activities, unemployment and insecurity as well as generating and sustaining a sense of dissatisfaction and distrust towards governance by the citizenry. 



Ceejay Ojong 
Is an Economist, Chartered Accountant and Public Financial Management expert writes from Abuja - Nigeria. Contact: ceejayojong@yahoo.com



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