Country Case Study 2: Assessment of Burkina Faso s MTEF - PDF

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Country Case Study 2: Assessment of Burkina Faso s MTEF Geert Jennes with Albert de Groot ECORYIS Netherlands Economic Institute(NEI) Macro and Sector Policy Division Overseas Development Institute London
Country Case Study 2: Assessment of Burkina Faso s MTEF Geert Jennes with Albert de Groot ECORYIS Netherlands Economic Institute(NEI) Macro and Sector Policy Division Overseas Development Institute London May 2003 This study forms part of a multi-country study assessing the design and application of the mediumterm expenditure framework (MTEF) as a tool for poverty reduction in selected African countries. It was commissioned by the Africa Policy Department of the Department for International Development (DFID) U.K. in collaboration with the European Commission DG Dev Contents Contents 2 Abbreviations & Acronyms 4 1. Background When/Why was the MTEF introduced? Key Features of the approach to implementing the MTEF 5 2. The MTEF Process and Organisational Framework The MTEF process and calendar Political engagement The role of Parliament 8 3. MTEF Structure and Coverage Time-frame and out year estimates Comprehensiveness and classification 8 4. Basis and Process of Setting Resource Projections Forward projections and aggregate estimates Basis and Process of Setting Aggregate Limits and Broad Allocations MTEF Allocations and Expenditure Limits Revisions during the preparation process The role of donors in determining allocations Revisions to the framework Links to performance targets Policy, Planning, the MTEF and Budgeting Treatment of new policy proposals Drivers of policy change Basis and Process of Organisational Expenditure Planning MTEF preparation Organisational expenditure ceilings Costing and priority sectors The MTEF and the Budget Execution Revisions during budget execution The MTEF and the Poverty Reduction Strategy Integration of Poverty Reduction Strategy Processes and the MTEF/Budget The MTEF and Local Government Local Government autonomy Matching of authority and accountability Quality of Information Conclusions & Recommendations 22 Annex 1: List of people and institutions consulted 24 Bibliography 25 Annex 3: Formal responsibilities of selected MEF Directions 27 Annex 4: Economic budget classification in Burkina Faso 28 Annex 5: GoB s expenditure cycle 29 Tables Table 1: Revenue FCFA 12 Table 2: Real GDP Growth 12 Table 3: MTEFs, budgets and outturns in Burkina Faso ( ) 17 3 Abbreviations & Acronyms CB Circulaire Budgétaire CID Circuit Informatisé de la Dépense DAF Direction des Affaires Financières (of each LM) DCCF Direction Centrale du Controle Financier (MEF) DCMP Direction Centrale des Marchés Publics (MEF) DGB Direction Généraledu Budget (MEF) DGEP Direction Générale Economie et Planification (MEF) DGTCP Direction Générale du Trésor et de la Comptabilité Publique (MEF) EPA Etablissement Public a caractère Administratif FCFA Franc de la Communauté Financière Africaine FY Fiscal Year GoB Government of Burkina Faso IAP Instrument Automatisé de Prévision LdF Loi de Finances (Finance Law) LdFR Loi de Finances Rectificative (Supplementary Finance Law) LdR Loi de Règlement (Budget Execution Law Closure of Accounts) LM Line ministry MEBA Ministère de l Enseignement de Base et de l Alphabétisation MEF Ministère de l Economie et des Finances PB Program Budget PDDEB Plan Décennal de Développement de l Education de Base PEM Public Expenditure Management PETS Public Expenditure Tracking Survey PIP Public Investment Program PRGB Programme de Renforcement de la Gestion Budgétaire PRGF Poverty Reduction and Growth Facility (of the IMF) PRSC Poverty Reduction Support Credit (of the World Bank) RDP Revue des Dépenses Publiques (PER) SIP Sectoral Investment Program STC-PDES Sécretariat Technique de Coordination Programmes de Développement Economiques et Sociaux (MEF) TA Technical Assistance TOFE Tableau des Opérations Financières de l Etat (summary table on Consolidated Operations of Central Government) UEMOA Union Economique et Monétaire Ouest-Africaine (WAEMU) 4 1. Background 1.1 When/Why was the MTEF introduced? The MTEF was introduced in 2000, on the occasion of the 2001 budget preparation. It is meant to provide a framework for GoB s program budgeting system. By determining for all LMs budgetary ceilings that are in line with macroeconomic and financial equilibria, the credibility of program budgeting was to be improved. From the preparation of the 1999 budget onwards, program budgeting has been introduced in 6 Line Ministries (LMs), i.e. Ministère de l Enseignement de Base et de l Alphabétisation (MEBA), Secondary and Higher Education and Research, Health, Agriculture, Transport, and Justice. From 2002 onwards, all LMs are required to apply program budgeting. The GoB and the World Bank have organised a MTEF workshop end of April 2000, during which the World Bank presented a new projection model named BKF. Immediately thereafter, GoB started preparing the MTEF for all LMs at once. The MTEF was thus not phased in or piloted by sector. However the MTEF becomes more refined every year. 1.2 Key Features of the approach to implementing the MTEF Officially, the MTEF is owned by the GoB. If this is the case, it seems to be particularly owned by the Ministère de l Economie et des Finances (MEF) as opposed to LMs. The same seems to hold for program budgeting, which the MTEF is meant to give a financial framework. Some say the MTEF has been pushed through by the World Bank. One could say the MTEF is currently being internalised, but at least within one core LM, i.e. the Ministry of Health, there seems very little knowledge about what an MTEF is. GoB s agenda of improving the MTEF is included as an annex to the World Bank s PRSC I document (of July 2001). More generally, UNDP s PRGE program provides technical assistance in the field of overall Public Expenditure Management. The World Bank is in the process of setting up a PEM Trust Fund with other donors, into which the GoB could tap for capacity building as needed. 2. The MTEF Process and Organisational Framework 2.1 The MTEF process and calendar 1. Consultation workshop between MTEF Committee and civil society 1 /donor community on budgetary priorities, PRSP and PRGB. The Programme de Renforcement de la Gestion Budgétaire (PRGB) was adopted by GoB in September 2001 and aims at addressing deficiencies in budget formulation, execution, monitoring, control and auditing. 2. Technical workshop amongst MTEF Committee members: the various MEF departments concerned ( régies (revenue departments), DGB (Budget), DGTCP (Treasury), STC-PDES (macroeconomic policy), DCCF (Financial Control), and DGEP (Planning)) (see annex 3 for overview of roles of MEF departments) and LMs: Preparation of the projections for the macroeconomic framework: Preparation of the global envelope. 1 Civil society in Burkina Faso only includes universities and some NGOs. 5 Preparation of the base case budget scenario. Preparation of total envelope to be distributed (budgetary space). (In 2002, this stage occured in February, within the framework of the PRGF Review, which also took place at that time. 3. First distribution of the overall envelope among titres 2 (i.e. along the lines of the economic budget classification in Burkina Faso; see annex 4 for an elaboration) and subsequently among LMs/sectors by MEF on the basis of budgetary priorities. 4. Subsequent feedback workshop between MTEF Committee and civil society/donor community. Donors consistently inquire on the link between the MTEF and the PRSP. The workshop leads to some rather small adjustments to the MTEF envelopes. (March) 5. Submission to and adoption by Cabinet of the distribution of the envelope. (April) 6. Publication of the Circulaire Budgétaire (CB), signed by the President, and cruciallyincluding the MTEF as an annex. All MTEF projections listed under 2) are included in the CB (May). 7. Preparation of avant-projets de budget ( pre-draft sectoral budgets) by LMs (covering the next FY only), based on their respective program budget (PB) (covering 3 years). (between May and end July; 20th of June in 2002) 8. Arbitrage by the Budget Commission (MEF and LM concerned), i.e. a reconciliation exercise between the avant-projets de budget and the available resources and policy priorities. (end July) 9. Arbitrage by the Cabinet, subsequent final discussion of LM s avant-projet de budget between the LM in case and MEF, and final arbitrage by Cabinet. (August and September) 10. Vote and adjustment of sectoral objectives by Parliament. Parliament regularly increases the budget amounts, benefiting LMs such as Health, but also Security, as the latter has suffered much from the structural adjustment era. 3 The changes made by Parliament however would not be substantial. 11. On the basis of the final amounts voted by Parliament, LMs should adjust their objectives included in their PBs (rolling character of PBs). However, as GoB s program budgeting is still mainly a paper exercise, line ministries merely adjust their expenditures, not their objectives. Apart from that, non-approved projects are generally postponed to the next years to come. The MTEF process is thus fully integrated with the annual budget process, as the MTEF envelopes are included in the subsequent CB, to be respected by the respective LMs during the drafting of their 'avant-projets de budget'. Thus far the MTEF has always been prepared with a delay. In 2000, publication of the CB has been delayed to allow for the inclusion of the MTEF sectoral ceilings. The latter had been provided right before the date the avant-projets de budget of the LMs had to be handed in at MEF. However, the Budget Commission still used these ceilings as a basis for its arbitrage. In 2001 again publication of the 2002 CB has been delayed to allow for inclusion of the MTEF as an annex. Between 1995 and 2000, LMs had on average only 42 days instead of the legally provided 90 days to prepare their annual avant-projets. 2 This first distribution of the overall envelope among titres appears e.g. in the MTEF to have been guided by the principle of increasing the share of investment expenditures in general in total expenditures. An exception to the parallel principle of containing recurrent expenditures was made for social and rural development sectors, in which both investment and recurrent expenditures were allowed to increase. 3 The Ministry of Security is in charge of domestic security, including the police force etc. It is a LM that is different from the Ministry of Defence. 6 2.2 Political engagement The key player in the MTEF/budget process, as well as in the PRSP and HIPC processes, is MEF, i.e. STC-PDES, together with DGB. STC-PDES, with a staff of only some 24 people, has simply been overwhelmed with responsibilities during recent years. MEF is also the principal player in the PRSP process (DGEP for political vision ( Burkina Faso Perspectives 2025 ) and STC for technical implementation). 4 Other important PRSP players are civil society and the donors. Many more participants take part in the PRSP process than in the MTEF process. The process of political engagement looks like: 1. The President s signature is attached to the MTEF. LMs respect their sectoral ceiling as provided by the MTEF while preparing their sectoral budgets. This is the major progress so far achieved by the introduction of the MTEF. Before LMs practised blue-sky budgeting, while the amount allocated in the actual budget was in the end only a fraction of the requested amount. The President also signs the CB 5. This is another document of political importance. E.g. the 2003 CB requests LMs to take better control of dépenses de transferts courants, i.e. allocations scolaires et bourses, recurrent costs of finalised investment projects, and subsidies to Etablissements Publics a caractère Administratifs (EPAs). 2. During the MTEF process Cabinet determines upfront which LMs are authorised to propose new policy measures, through the method used to estimate their envelopes. Indeed, the first distribution of the envelope among sectors made by MEF is submitted to and adopted by Cabinet. The eligible LMs themselves can then specify these new policy measures. Also, the LMs avant-projets de budget are submitted to an arbitrage by Cabinet. 3. As to the role of the Minister of Finance, he intervened when an overoptimistic growth rate of 10% was set by STC-PDES during the preparation of the 2000 MTEF and the establishment of the resource envelope for the 2000 PRSP. Also, the Minister of Finance presides over the Budget Committee, which checks i.e. if the LMs avant-projets de budget do not underestimate their services votés. By services votés is meant the level of service provision resulting from past policy, with past expenditure corrected for inflation and recurrent expenditure of investment projects finalised during the first years to come. The services votés include salaries but exclude recruitment. The relevance of the MTEF is much limited by the high amount of services votés i.e. by the current practice of incremental budgeting. This is because, by definition, determining ceilings and allocating budgetary space only make sense with respect to those expenditures that are not inevitable. The Budget Committee further implements an arbitrage, e.g. by lowering the investment budgets proposed by LMs that did not succeed in spending their previous year s investment budget. 4. As noted above, it is Parliament rather than Cabinet that tends to modify LM envelopes determined under the leadership of MEF, hence creating an (additional) gap with the resources that can realistically be expected to become available. 5. After the June 2002 elections, the MTEF has been reviewed as a consequence of the changed composition of government. 4 In June 2002, to adjust to new political power relations as a consequence of the elections held, MEF has been split into a Ministry of Finance and Budget, and a Ministry of Economy and Development, each with a different minister in charge. It is not expected that this split will have major consequences for the budgetary and the MTEF process. 5 This is exceptional in sub Saharan Africa. 7 6. The recurrent phenomenon of credit freezes during budget execution shows that decision makers, i.e. Cabinet and MEF as opposed to individual LMs-, do not feel bound by the ceilings in the annual budget and the MTEF. (see question 8.2 for an elaboration on credit freezes) i.e. the problem is that ceilings are not conservative enough. During budget execution, for various LMs the ceiling appears to lie at a lower level than predicted by the MTEF or even the annual budget. These credit freezes, mainly caused by a consistent overestimation of revenue collection, are a major shortcoming of the MTEF and the budget system in general in Burkina Faso. The 1 st and 4 th steps in the annual MTEF cycle reflect broader consultations regarding fiscal policy and/or resource allocation around the MTEF process. They consist of consultation/feedback workshops between the MTEF Committee and civil society/donor community on budgetary priorities. (see above; question 2.4) So these come relatively early on in the process. As said, these workshops lead to some minor adjustments to the MTEF envelopes. 2.3 The role of Parliament The budget is voted by Parliament within the budget-objet logic, as this is the nomenclature in which it is proposed to Parliament. The MTEF nor the PBs are transmitted to Parliament. Not even the Loi de Finances (annual Budget Law; LdF) is disseminated, apart from some newspaper articles on it. Dissemination of MTEF information to all departments involved in budget preparation or involved in projections, as well as inclusion of a summary of the MTEF in the LdF would be desirable. 3. MTEF Structure and Coverage 3.1 Time-frame and out year estimates The time-frame covered by the MTEF is 3 years. The out-year expenditure estimates of the MTEF are very approximate. For non-priority LMs or LMs without a good PB, they only comprise a cost estimate of the services votes. For LMs with a developed PB, it is possible to calculate the costs more precisely. 3.2 Comprehensiveness and classification The MTEF covers all LMs, priority ones as well as non- priority ones. The MTEF does not include most donor resources, nor does the annual budget. If the MTEF would include budget support, envelopes for recurrent expenditures could be larger. The MTEF does not cover local governments expenditures either. MTEF was not able to include sector level HIPC resources. I.e. the MTEF document itself shows that HIPC resources are included per LM but are not allocated by titre. However MTEF makes an attempt to include HIPC resources. It shows how substantial HIPC resources within GoB s budgetary process are: Within the baseline scenario of the MTEF, HIPC savings stand for 26, 28, and 28 bn FCFA out of total budgetary space amounts of 47, 51 and 72 bn FCFA for 2003, 2004 and 2005 respectively. Sectoral envelopes since MTEF present a quite high level of disaggregration, i.e. down to LM and titre level 6, contrarily to MTEF The MTEF uses the same nomenclature as the 6 As clarified in annex 4, titres distinguish between expenditures on economic criteria. 8 LdF, but the expenditure breakdown of the latter is much more refined. There is no difference in the treatment of the different LMs. 1) Expenditure side The MTEF breaks overall expenditure down into the 6 titres, but concentrates on envelopes per LM, which are also split up between the titres (mostly only 4, as the 2 titres for debt service only concern MEF). LM Titre The LdF on the contrary is organised mainly according to titres. Expenditures within each titre are then grouped per LM. To summarize: LdF: Titre Section (LM) Chapitre (agency within LM) Article (if under titre IV, e.g. maintenance) Paragraphe (e.g. 4wheel-drives) Avant-projet de budget based on the PB: e.g. MEBA 2003 avant-projet de budget 'Objectif' (e.g. increase gross enrolment from 41.25% in 1999 to 50.97% in 2003) Programme (e.g. maintenance) Activité (e.g. réfection de batiments endommagés ) 2) Revenue side MTEF: tax revenue income and profits goods and services international trade non-tax revenue capital revenue LdF: Titre tax revenue non-tax revenue capital revenue external grants external loans Chapitre (e.g. taxes on income and profits) Article (e.g. taxes on personal income) Paragraphe (e.g. tax on salary) In sum the main difference as to structure is between the PB on the one hand, and the MTEF and LdF on the other hand. The 2 latter budgets are still prepared according to the budget-objet logic (shown above schematically). This logic does not make use of the objectives-activities framework of the PB (e.g. increase gross enrolment), but just allocates resources to the different economic categories of expenditures of administrative entities (or objects of expenditure ), based on past experiences (e.g. maintenance of 4-wheel-drives of a certain agency within a certain LM). This results in the multitude of line items characterising the annual LdF. 9 4. Basis and Process of Setting Resource Projections 4.1 Forward projections and aggregate estimates To forecast macro-economic performance, GoB at this moment works with 2 models. The eldest is the Instrument Automatisé de Prévision (IAP). It is an accounting model, ill suited for MT projections, and it is built around the TOFE. The Tableau des Opérations Financières de l Etat (TOFE) is a key summary table on Consolidated Operations of Central Government in Burkina Faso. It is drafted by STC-PDES of MEF and extensively used by the IMF. IAP analyses the impact of economic policy on macroeconomic stability as well as on public finances. Though IAP does not fit the framework of national accounting, it is used to estimate economic growth over the medium term. The second model is the econometric BKF model, built for MT macroeconomic projections, which the World Bank has helped the GoB to establish in BKF consists of a number of behavioural equations on the basis of cha
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