Presentation by Ronnie Downes at the 7th annual meeting of the MENA Senior Budget Officials held on 10-11 December 2014. Find more information at http://www.oecd.org/gov/budgeting

1. Medium-Term Expenditure Frameworks (MTEF): from Theory to Application
Ronnie Downes, OECD
Deputy Head, Budgeting & Public Expenditures, OECD
MENA-SBO, Abu Dhabi
10-11 December 2014

2. Why an MTEF?
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bridge between budget (short-term) and planning (medium-term)
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injects “resource realism” into national planning
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injects “fiscal realism” into national planning
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requires “performance and results” focus into annual budgeting
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requires “strategic medium-term” focus in annual budgeting
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promotes planning and (re-)prioritisation 1

3. Budgeting within fiscal objectives
OECD Principles of Budgetary Governance
Quality, integrity & independent audit
Performance, Evaluation & VFM
Comprehensive budget accounting
Effective budget execution
Alignment with medium-term strategic plans and priorities
Performance, evaluation & VFM
Transparency, openness & accessibility
Participative, Inclusive & Realistic Debate
Fiscal Risks & Sustainability
Capital budgeting framework

4. Year 0
Year 1
Year 2
Year 3
Savings on existing programmes
Fiscal space for new programmes
Expenditure
ceilings
MTEF Projections
Policy and Contingency reserve
Cost of existing programs and new initiatives
MTEF – a Generic Model

5. Issues in Designing an MTEF
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How many years does it cover?
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Usual practice is 3-5 years
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Is it based on current or constant prices?
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Usual practice is to update the baseline for price changes
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Does it have a contingency reserve?
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The reserve accommodates unforeseen events or policy changes
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How much spending detail does it include?
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Typically, allocations by major organization units or sectors
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Are allocations for future years guaranteed?
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No. Government prepares an annual budget in each future year covered by MTEF 4

6. Country example: Netherlands
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Expenditure limits agreed by each incoming government
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Objectives, Performance targets, Resources: all agreed at the same time
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Expenditure ceilings remain unchanged over the lifetime of the government
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Completely separate from revenues
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“fixed” rather than “rolling” expenditure ceilings
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Good for fiscal discipline, planning
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Bad for flexibility, reallocation of resources 5

7. Country example: UK
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“Spending Review” usually every 2 or 3 years
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Fixed ceilings
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Originally linked to “Public Service Agreements” (performance targets) – since discontinued
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Process is internal / not transparent
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Weakness: 3-year ceilings “locked in” upward spending (2007 Spending Review)
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Strength: new agreements help to “lock in” and secure the savings required under the austerity programme 6

8. Country example: Austria
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3-year rolling expenditure ceilings
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New year (year 4) agreed every year
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Unspent funds can be “carried over” until the following year
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Removes the “end year rush” to spend money
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Risk? Build-up of large, unspent reserves
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Part of overall reformed fiscal framework
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MTEF; Performance; Accruals budgeting 7

9. How to make MTEF effective?
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If MTEF is not used for budgeting, it is useless
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Many countries have an MTEF but do not base budget decisions on it
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MTEF must become the government’s budget process
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Some countries have an annual budget and a separate MTEF
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MTEF should be used by political leaders to set fiscal policy and spending priorities
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If MTEF is treated as a technical exercise, politicians will not pay attention to it
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MTEF should focus budgeting on policy choices
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If budgeting is used to control the details of spending, MTEF will not be of much value
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MTEF should be a rolling process: Last year’s decisions should be the starting point
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If the budget disregards medium-term decisions, MTEF will not be effective 8