Download Bhutan MTEF - World Bank

Public Expenditure Management
and the Medium-Term Fiscal
Framework
Workshop on
Bhutan Public Expenditure Management
August 16-20, 2004
Christian Eigen-Zucchi
The World Bank
1
What is an MTFF?
Typically consists of integrated
macroeconomic and revenue projections,
and a policy commitment to a set of
strategic fiscal policy goals.
An MTFF is a first step of an MTEF in
moving the budget process from a needs
basis to an availability basis – determines
the aggregate resource envelope.
2
Going Back to the Three Objectives of Public
Expenditure Management Systems…
Macro-fiscal discipline and stability
Avoid public finance crises or the need for major
adjustments
Support economic growth and macroeconomic stability
Strategic allocation of resources
Match government policy with programs, objectives
(allocative efficiency).
Technical efficiency
Getting the most from each ngultrum spent
3
Macroeconomic Projections
In order to develop sound revenue forecasts,
some key macroeconomic variables need to
be projected
GDP growth
Inflation
Power sales
Tourist arrivals
Others?
4
Bhutan: PEM Workshop Exercise (August 2004)
Illustrative Medium-Term Macroeconomic Framework (2003/04-2006/07)
2001/02
2002/03
Output and prices:
Nominal GDP at factor cost (millions of Nu)
Real GDP Growth
CPI (annual percent change)
2003/04 2004/05
(in percent)
2005/06
2006/07
25733
6.5
3.2
29282
7.6
2.3
32,796
7.0
5.0
36,895
7.5
5.0
41,692
8.0
5.0
47,320
8.5
5.0
-5.5
-5.3
-10.7
-11.0
-6.0
-4.5
-1.8
-4.0
5
5
5
10
5
10
5
5
5
5
2,171.2
2,127.9
-2.0
1,978.4
-2.4
2298
8
2137
8
2482
8
2308
8
2681
8
2492
8
2895
8
2692
8
6087
10.9
8.5
7.6
339
18.4
6574
8
9.1
7
359.1
18.3
7100
8
10
7
400
20
7668
8
10
7
420
20
8281
8
11
7
440
20
Balance of payments (in percent of GDP):
Current account balance (incl. grants)
(In percent of GDP)
Export growth (percent)
Import growth (percent)
Memorandum items:
Sales of Chukha Hydropower
(percent change)
o/w exports
(percent change)
Revenue from electricity sales
Tourist arrivals
(percent change)
Tourist receipts ($ million)
(percent change)
Gross foreign reserves (millions of US$)
(In months of imports)
2,027.3
5490
7.9
316.6
20.2
5
A Robust Multi-year Projection
of Revenues
Base revenue projections on the forecasts of
key macroeconomic variables.
Build from the bottom up.
Seek coherence across agencies.
Refine and improve methodology over time.
6
Summary of the National Revenue Forecast for Financial
Year 2004-2005
Nu. in millions
Source of Revenue
Amount
A Tax Revenue
I. Direct Tax
Corporate Tax
Business Income Tax
Personal Income Tax
Other Tax Revenue
3,575.486
2,054.895
1,039.294
435.254
134.502
445.845
II. Indirect Tax
Sales Tax
Export Tax
Excise Duty
Import Duty
Other Tax Revenue
1,520.591
634.186
0.973
739.439
141.174
4.819
B
Non Tax Revenue
Admin. Fees & Charges
Capital Revenue
Revenue from Govt. Dept
Dividend
Transfer of Profit
Other Non Tax Revenue
Total
2,226.204
163.396
60.611
42.013
1,502.930
218.935
238.319
5,801.690
Percent
62
36
18
8
2
8
26
11
0
13
2
0
38
3
1
1
26
4
4
100
7
Commitment to Fiscal Path
Choose fiscal targets deemed consistent
with:
Desired macroeconomic path (inflation,
external accounts, available finance).
Overall strategic policy goals (such as size of
government as a share of GDP, pillar of 9FYP
of fostering private sector led growth).
8
Bhutan: PEM Workshop Exercise (August 2004)
Illustrative Medium-Term Fiscal Framework (2003/04-2006/07)
BHUTAN: GOVERNMENT BUDGET SUMMARY
2000/01
2001/02
Particulars
Outcome
Revenue & Grants
Domestic Revenue
Grants
From India
From Others
Expenditure and net lending
Total Expenditure
Current expenditure
Capital expenditure
Net lending
Current Balance (excluding grants)
Overall Balance (including grants)
Outcome
2002/03
2003/04
2004/05
Rev.
Rev.
Bgt.
Est.
Est.
Est.
38.5
22.1
16.5
9.9
4.5
34.1
21.3
12.9
5.3
6.0
28.7
17.5
11.3
4.5
5.9
33.3
19.3
14.0
7.0
6.6
34.6
21.3
13.3
8.3
5.0
49.6
47.5
19.7
27.9
2.0
2.4
-11.1
39.6
39.3
18.1
21.2
0.3
3.1
-5.4
37.4
37.2
16.6
20.6
0.3
0.9
-8.7
37.6
37.3
17.5
19.9
0.3
1.9
-4.3
40.3
40.0
18.2
21.8
0.3
3.1
-5.7
62.6
29282
74.7
69.5
31884
?
?
32814
Memorandum Item
Total government debt (percent of GDP)
Foreign debt (percent of GDP)
48.7
Nominal GDP at factor cost
22549
(In Million Ngultrums)
54.7
25733
2005/06
Proj.
2006/07
Proj.
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9
Commitment is Essential
The key to the credibility of the targets is the
extent to which expenditure adjustments would be
made to compensate for any revenue shortfalls.
If no adjustments would be made, then the targets are
purely notional, and not likely to be met.
If serious spending adjustments would be demanded of
the line ministries in the event of a revenue short-fall,
then the targets become meaningful (AP example).
10
Step 1. Macroeconomic and public sector envelopes
Macroeconomic Estimates
Revenue Estimates
Fiscal Policy
Expenditure Estimates
(current services)
Expenditure Estimates
(current law, normatives)
All in multi-year context
•Affordable/sustainable
Fiscal Envelope
•Monetary and Fiscal
Policy
•Debt and Deficits
•Aid flows
11
The MTFF process gives…
A more predictable resource envelop over a
medium-term horizon.
For example, the overall balance target, say a deficit
equivalent to 5% of GDP, combined with a revenue
forecast equal to 35% of GDP, yields an aggregate
fiscal envelop for spending of 40% of GDP.
A commitment from the Government to follow a
sustainable fiscal policy.
Key step in moving budgeting from a needs to an
availability basis.
12
Capacity is a Significant Issue
Technical
Staff skills
• policy analysis, macro forecasting, budget
examination
Policy
Capacity to enforce hard budget constraints
Commitment to a continuous process of
improvement
13