MKUKUTA/PER Consultations 2007

DPG session MKUKUTA/PEFAR

22 May

PEFAR 2007 Components

PEFAR 2006 LGA

Sector/LGA analysis

Core analysisMay consultations

September consultations Scenarios analysis PEFA parastatals CPAR parastatals

Budget outturn

Planning/ budgeting

Main messages from PEFAR core analysis

• Rising aggregate expenditure, high level of aid dependency, expenditure needs for sustained growth raise urgent questions of medium and long term expenditure strategy

• Government has invested heavily in instruments and processes for strategic allocation – Budget Guidelines/MTEF, SBAS – but these are not yet working effectively for strategic planning or as a base for dialogue and accountability

Key challenges for medium term budget strategy

• Aggregate and recurrent expenditure continues to rise (28% GDP), posing serious question on sustainability

• Major increase in external financing (from 6% to 12% GDP over past five years), need for a medium and long term strategy for reducing aid dependency

• Effective absorption of aid will depend on making critical strategic choices on expenditure composition

• Need to plan for– increased investment expenditure, appropriate balance between

development/ recurrent,– major focus on growth promoting expenditure, esp infrastructure

investment,– medium term strategy on wage bill underpinning public service

reform

Medium term expenditure planning - how well does the steering work?

Observations from budget preparation in FY07• MDA budget requests highly unrealistic (on

average 150% above available resources, no link to previous year’s decision on MTEF year 2)

• ‘Priority investments’ in Budget Guidelines weakly aligned with existing sector plans (eg transport)

• MDA initial submissions prepared in excessive detail (eg ) absorbs scarce planning capacity, distracts from key strategic decisions

How well does the steering work?(part 2)

• Lack of early consistent policy direction: late preparation of Budget Guidelines, key changes between BG and MTEF (eg implementation of consolidation of allowances in wage bill)

• Three years after introduction of Strategic Budget Allocation System still no reporting on actual expenditure by main MKUKUTA categories (objective, target, activity)

• Track record on external financing projections shows deviation of 4-5% GDP, FY07 projections still heavily skewed to existing commitments

Problems with the MTEF

Existing MTEF has the following weaknesses• Absence of clear Cabinet/political decision on strategic

priorities early in the cycle • MDAs begin detailed budget submissions without

guidance on resource constraints and strategic priorities• Excessively detailed budget classification for early

submissions• Uncertainty on external financing within the resource

envelope• Lack of a clear, user friendly published summary of the

MTEF as a base for accountability• Lack of reporting on MKUKUTA/MTEF actual

expenditure

Strengthening the MTEF

• Scenario analysis – early guidance on resource envelope,– greater clarity on external financing,– focus on key programs at MKUKUTA

objective/target level– public debate on strategic allocation

Reporting on MKUKUTA expenditure

• Since 04/05, SBAS has been GOT chosen means of translating MKUKUTA into expenditure plans and budget (objective, target, activity)

• GBS Annual review October 06 – GoT committed next PEFAR will be based on SBAS reports

• Assuming reports available shortly, analysis will be carried out prior to next GBS annual review

• Analysis should combine assessment of outturn with review of classification structure – consultation with DP working groups will be important

Key issues local government

• LGAs heavily dependent on central government transfers: more than 90 per cent of funding comes as transfers

• Tracking of funds to LGAs through different channels is difficult

• Transfer of development funds to LGAs is a challenge

• Balance between PE and OC transfers questionable

Scenario analysis

• Objectives

• GoT perspective, rrelation to budget process

• Implications for DPs/ DP working groups

Objectives

• Strengthen GoT capacity to translate the MKUKUTA into a realistic MTEF

• Improve the transparency and dialogue on moving from broad MKUKUTA objectives to resource constrained strategic priorities

• Provide a framework for integrating external financing into the MTEF, addressing predictability issues on medium term aid

GoT perspective

• Must be fully integrated with budget process, directly linked to subsequent development of detailed Budget Guidelines

• Budget Guidelines Committee should provide oversight to ensure link to budget process

• Keep it simple : simplest option might be existing MTEF resource as base case, second scenario maps spending plans based on trend actual external financing

• DP /consultant technical support can be useful for background analysis, but scenarios must be firmly rooted in MDA spending plans

Proposed work program for DP working groups

• June : Background note on resources and issues for scenario analysis

• July-September – reference group for sector issues on scenario

development,– analysis of MKUKUTA/SBAS expenditure reports,

comments on revised SBAS categories for scenarios/BG

– Group review of proposed MTEF financing projections, update of results matrix

• September : Participate in consultations on GoT MTEF scenarios

Background note on resources and issues

• Inventory/assessment of existing resources on which sector scenarios can be based (MKUKUTA costing, sector expenditure plans, other existing/ongoing sector analysis)

• Summary of key issues in the sector for enhancing base case (existing MTEF) and developing scaled up scenario