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MKUKUTA/PER Consultations 2007 DPG session MKUKUTA/PEFAR 22 May PEFAR 2007 Components PEFAR 2006 LGA May consultations Core analysis Budget outturn September consultations Scenarios analysis Planning/ budgeting PEFA parastatals Sector/LGA analysis CPAR parastatals 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