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Building Budget CredibilityBuilding Budget Credibility

Collaborative Africa Collaborative Africa Budget Reform Seminar.Budget Reform Seminar.

11stst to 3 to 3rdrd December 2004 December 2004

FARM INN, Pretoria, FARM INN, Pretoria, South AfricaSouth Africa

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OutlineOutline

BackgroundBackground Ownership ofOwnership of Priorities Priorities Predictability of Predictability of RResourcesesources Budget Should DeliverBudget Should Deliver with Minimum with Minimum

deviationsdeviations Lessons LearntLessons Learnt

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BackgroundBackground

PEAP defines government macroeconomic PEAP defines government macroeconomic and poverty policy objectivesand poverty policy objectives: Economic : Economic Management, Enhancing production, Management, Enhancing production, Competitiveness, and Incomes, Security, Competitiveness, and Incomes, Security, Conflict resolution and Disaster Conflict resolution and Disaster Management, Good Governance, Human Management, Good Governance, Human developmentdevelopment

A credible budget should be consistent A credible budget should be consistent with agreed PEAP prioritieswith agreed PEAP priorities and deliver and deliver projected targetsprojected targets ..

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Building budget credibilityBuilding budget credibility

Institutionalisation of a harmonised Institutionalisation of a harmonised framework to sustain a credible budget framework to sustain a credible budget through:through:

Identification and consensus and priorities Identification and consensus and priorities (Ownership)(Ownership)

Link Budget with agreed priorities(Assurance)Link Budget with agreed priorities(Assurance) Predictability of resources (Trust)Predictability of resources (Trust) Deliverance of budget with minimum deviation.Deliverance of budget with minimum deviation.

A framework that promotes synergy A framework that promotes synergy between policies, legislation and between policies, legislation and processesprocesses

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Ownership of Ownership of PrioritiesPriorities

Participatory approach: strategic role by Participatory approach: strategic role by stake holders thru SWAP, working groupsstake holders thru SWAP, working groups

National consultations take 18 months at National consultations take 18 months at national , sectoral and local government national , sectoral and local government levelslevels

Action oriented research, studies on sector Action oriented research, studies on sector specific,institutional and cross cutting specific,institutional and cross cutting issues (operational efficiency, equity)issues (operational efficiency, equity)

Outcomes of studies inform the decision Outcomes of studies inform the decision making processmaking process

Revision of PEAP ever three yearsRevision of PEAP ever three years

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Trust level 1: Linking National Trust level 1: Linking National Budget to Agreed Priorities Budget to Agreed Priorities

Poverty focused & equity concern in policies and programmes

Outcome & Output Orientation MTEF Budget Consultations at national,

local government and sector levels Parliamentary involvement (Budget

Act 2001) Donor sub groups and PER

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SeSector Wide Approach (SWAP)ctor Wide Approach (SWAP) Identification and agreement of Priorities ,

targets and monitorable indicators by all stake holders

Promotes intra-sectoral linkages and synergy within the sector

Strategic allocation of resources Facilitates monitoring and minimizes

transaction cost on behalf of the donors Minimize on duplications and wastage

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MTEF MTEF The MTEF resource envelope is consistent with

macroeconomic objectives The MTEF is three year rolling expenditure

framework, it prioritizing the expenditures within constrained resources.

It enhances fiscal discipline and provides strategic allocation of resources.

The MTEF operationalises the PEAP and SWAP at both center and local government levels.

MTEF provides sectors with predictable and stable projection of budget resources.

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The Consultative Budget ProcessThe Consultative Budget ProcessParliament

Cabinet

Line Ministries/

Spending Agencies/

SWGs/Donors

MFPED

National Budget Workshop-Indicative Sector Ceilings-Budget & SWG Guidelines

Preparation of SectorBFP and RevisedMTEF Allocationswithin the Ceiling

Cabinet Approval of BFP/MTEF

Inter-ministerial Consultations

Compilation of National BFPAnd Updated MTEF

Submission of IndicativePlan/MTEF

Finalisation of BudgetAllocations/MTEF

Final Budget Approval

BudgetSpeech

Preparation of DetailedBudget Estimates

Oct - Dec Jan - Mar Apr - June

PER

April 1 June 15May 15

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Sectoral Shares in the MTEF: 1994/5-Sectoral Shares in the MTEF: 1994/5-2005/62005/6

0%

5%

10%

15%

20%

25%

30%

1994/ 95 1995/ 96 1996/ 97 1997/ 98 1998/ 99 1999/ 00 2000/ 01 2001/ 02 2002/ 03 2003/ 04 2004/ 05 2005/ 06

Sh

are

of

Bu

dg

et

(%)

Education

Health

Security

PA

Interest

JLO

Agric.

Water

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PAF Expenditures 1997/98-2005/6PAF Expenditures 1997/98-2005/6

0

100

200

300

400

500

600

700

800

900

1997/98(Pre-PAF)

1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06

Sh

s B

n

Other (Land Reform, AdultLiteracy, Restocking, LGDP)

Accountability

Rural Roads

Agricultural Extension andExportsSafe Water and Sanitation

PHC

Universal Primary Education

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Trust Level 2: Trust Level 2: Predictability of Predictability of ResourcesResources

FiscalFiscal Policy Objectives Policy Objectives Forecasting Resource envelopeForecasting Resource envelope Improving resource predictabImproving resource predictabilityility Execution of the BudgetExecution of the Budget with with

minimum deviationsminimum deviations

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FiscalFiscal policy objectives policy objectives Economic growth (7%). To fund the public goods

and services needed to run a modern state and meet the objectives identified in the PEAP

Low inflation (no more than 5%). To maintain a fiscal stance which is consistent with macroeconomic objectives. To avoid unsustainable public debt

Competitive exchange rate Foreign exchange reserves at least 5 months of

imports Growth in private sector credit. To raise domestic

revenues in a manner which does not distort incentives for the private sector or discourage work and investment

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Resource envelopeResource envelope

MTEF = Total Inflows (Tax and non MTEF = Total Inflows (Tax and non tax revenues + donor inflows) – Total tax revenues + donor inflows) – Total outflows ( external debt servicing) - outflows ( external debt servicing) - (domestic arrears payments) .(domestic arrears payments) .

MTEF MTEF distributesdistributes the resources into the resources into sectosectoral and institutional ral and institutional allocationsallocations

Improving resource predictabilityImproving resource predictability

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Composition of Resource EnvelopeComposition of Resource Envelope

0

500

1000

1500

2000

2500

3000

1992/93 1995/96 1998/99 2001/02

Total Revenue Domestic Revenue Grants

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Domestic Revenues: % of GDP Domestic Revenues: % of GDP 1992/3-2003/04 (stagnating growth) 1992/3-2003/04 (stagnating growth)

0%

2%

4%

6%

8%

10%

12%

14%

1992

/93

1993

/94

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

Domestic Revenues

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Enhance Enhance Non Tax revenues as % of Domestic Non Tax revenues as % of Domestic Revenue and %GDPRevenue and %GDP

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

2000/1 2001/2 2002/3 2003/4 2004/5

Domestic revenue GDP

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Donor Commitment verses outturnDonor Commitment verses outturn ( (Budget Support Budget Support in in US$ millions)US$ millions)

0

100

200

300

400

500

600

700

1998/99 1999/00 2000/01 2001/02 2002/03 2003/04

Projections Outturns

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Fiscal Deficit as % GDP

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Govt Expenditure Govt Revenue Fiscal Deficit

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Budget should Deliver Budget should Deliver (Financial front)(Financial front)

Fiscal discipline by maintaining the agreed budget domestic deficit thru:

Manage expenditures within realized resources (cash budgeting).

Cut expenditures to match underperformance of domestic revenues.

Reduce foreign reserves to match under disbursements of donor funds

Supplementary expenditures are approved by parliament

Ring fencing of priority expenditures Enhance financial management,

monitoring and accountability

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Budget should Deliver Budget should Deliver (physical performance front)(physical performance front)

Periodic monitoring of the PEAP (Poverty Periodic monitoring of the PEAP (Poverty assessment; House hold integrated assessment; House hold integrated surveys, demographic survey, integrity surveys, demographic survey, integrity survey,National Service Delivery Survey)survey,National Service Delivery Survey)

Annual Budget Performance ReportAnnual Budget Performance Report District and sector reports on PEAP District and sector reports on PEAP

targetstargets National Integrated Monitoring and National Integrated Monitoring and

Evaluation SystemEvaluation System

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Lessons learntLessons learnt Homegrown responding to Emerging IssuesHomegrown responding to Emerging Issues Substantial investment in awareness raising and Substantial investment in awareness raising and

capacity and institutional bcapacity and institutional building uilding or restructringor restructring Budget Budget a Potential but Not sustainable Means to a Potential but Not sustainable Means to

All Political Aspirations: role of Govt Intervention All Political Aspirations: role of Govt Intervention and Balancing spending between social and and Balancing spending between social and productive sectors.productive sectors.

Targeted and Cost effective consultations versus Targeted and Cost effective consultations versus bottom up approach. bottom up approach.

Measures to counter political interference Measures to counter political interference ((necessity for ring fencing the poverty priority necessity for ring fencing the poverty priority programmesprogrammes))

Clarity on Principles of collaborationClarity on Principles of collaboration

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THANK YOUTHANK YOU