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Key messages from PEFAR 2007 25 May Challenges for medium & long term expenditure strategy due to: ◦ Rising aggregate expenditure; ◦ High aid dependency, constraints on absorption ◦ Strategic choices on expenditure for sustained growth & poverty reduction BUT GoT’s reform of strategic allocation systems has not yet delivered: ◦ An effective instrument for strategic planning and budgeting; or ◦ A transparent framework for dialogue and accountability Sustainability High aid dependency ◦ Aggregate & recurrent expenditure continue to rise (28% GDP) ◦ Need for medium & long term strategy to address major increase in external financing ⇧ from 6% to 12% of GDP over past 5 years Effective absorption of aid ◦ Requires making critical strategic choices on expenditure composition 30.0 28.0 26.0 24.0 22.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 Domestic revenue Total expenditure Recurrent expenditure ate es t im 20 06 /0 7 ac tu al 20 05 /0 6 ac tu al 20 04 /0 5 ac tu al 20 03 /0 4 ac tu al 20 02 /0 3 ac tu al 20 01 /0 2 ac tu al 20 00 /0 1 ac tu al 0.0 19 99 /0 0 % of GDP 20.0 External Financing (net) Appropriate balance between development/recurrent expenditures Translating the MKUKUTA growth objectives into specific growth promoting expenditure Develop medium term strategy on wage bill, underpinning public service reform and better service delivery Addressing these challenges will need more than good macroeconomic management. It will need….. Careful steering of the composition of public expenditure Broad based public debate on the important national choices ahead …….so how effective and transparent are the Government’s tools for steering public expenditure ? Highly unrealistic MDA budget requests Budget Guidelines “Priority Investments” weakly aligned with Sector Plans Key strategic decisions poorly reflected in the MDA initial submissions ◦ On average, 150% above available resources ◦ Not linked to previous year’s decision on MTEF year 2 ◦ In part due to excessive detail which absorbs scarce planning capacity Late release of Budget Guidelines results in a lack of early consistent policy direction Discrepancies between BG and MTEF ◦ e.g.: Implementation of consolidation of allowances in wage bill No reporting on actual expenditure by main MKUKUTA categories (objective, target, activity) in the last three years 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 Total External Financing, actual + projections 14.0 12.0 % of GDP 10.0 8.0 6.0 4.0 2.0 0.0 1999/00 2000/01 2001/02 2002/03 2003/04 Actual Donor Support MTEF Projection 05 2004/05 2005/06 MTEF Projection 07 MTEF Projection 04 2006/07 2007/08 2008/09 MTEF Projection 06 MTEF Projection 03 2009/10 Issue: Lack of reporting on expenditure by main MKUKUTA objectives and targets ◦ Despite use of SBAS since 04/05; and ◦ Government’s commitment to such reporting at the GBS Annual Review Oct 06 Next Steps: Analysis of reports to be carried out prior to next GBS annual review Review of classification structure Lack of clear user-friendly published summary of MTEF as a base for accountability Better accessibility to budget planning/execution documents For LGAs, difficulty in tracking funds due to various funding channels Challenges for medium & long term expenditure strategy due to: ◦ Rising aggregate expenditure; ◦ High aid dependency, constraints on absorption ◦ Strategic choices on expenditure for sustained growth & poverty reduction BUT GoT’s reform of strategic allocation systems has not yet delivered: ◦ An effective instrument for strategic planning and budgeting; or ◦ A transparent framework for dialogue and accountability