The TA provided the Government with the general MTFF and MTEF models, together with detailed explanatory notes on the basic concepts and workings of the models. The Excel-based spreadsheet MTEF has also been converted into a database model (in Access software), which is a simpler, more standardized, and better tool for data management of large cumulative annual data. A strategy and manual for implementation of a government-wide MTEF was likewise submitted to the MOF.
The MTEF is an analytical tool that would assist the Government in budget preparation. The methodology used for developing MTEF has been the baseline/forward estimates approach. It means that as a first step, government expenditures are projected over the medium term (typically 3 years) on the basis of existing expenditure levels. The projection is adjusted for projected inflation and pay increases, projections of the numbers of beneficiaries of public services9 and commitments for future spending that have already been made by the Government.
As a second step, and at the start of a new budget preparation cycle, ministries and agencies can request the MOF for additional funding in order to reduce underfunding of existing policies or to fund new policies. Such requests have to be fully justified. If approved, the baseline/forward estimates are adjusted accordingly. The MTEF is a moving process: every year, the MTEF is rolled forward 1-year and reprioritized.
Indicative MTEFs for the education and health subsectors (that is, primary education and expansion of rural health infrastructure) were developed and presented to the Government. The basis of the MTEFs is the cost of implementing sector programs (at the subsector level) over the medium term according to existing government policies at existing service levels (i.e., the baseline). The MTEF and the procedures for updating and revising it are firmly anchored in the budget preparation process and the overall spending ceiling (derived from MTFF), which lays out the parameters for budget preparation….
TA 4627 also developed a budget preparation model that included a revised budget calendar, revised content of the budget circular, and new budget request templates.
More importantly, the TA provided useful advice on the revisions to the draft Budget Law, the draft Implementation Decree, the budget nomenclature system and chart of accounts, and budget preparation procedures...
The outputs generated by TA 4627 were effectively used to inform the Lao PDR’s fiscal planning and budget policies. Institutional measures were also recommended to ensure more effective capacity for managing the MTFF and MTEF. In particular, the TA continued capability development that includes appreciation and applied skills in basic macroeconomics (and basic economics in general) and in basic principles of public expenditure management. Similarly, the need for interagency coordination with respect to the macroeconomic framework was identified, and it was suggested that this could be developed through the establishment of a formal committee process.
Given the gains achieved by TA 4627, a follow-through TA amounting to $1.1 million funded under the Asian Development Bank’s TA Special Fund will be initiated in 2008 for a more extended implementation of the models developed under the TA across line
Further according to ADB;
Overall Assessment and Rating: The TA was highly successful in providing the methodological foundation for the MTFF and MTEF aimed at strengthening LAO PDR's budget management processes, (and the subsequent adoption of the MTEF). This was viewed as a positive response to the weaknesses in expenditure planning. The flexibility in TA implementation enabled having the budget basics in place to facilitate future implementation of an MTEF as a basic tool for fiscal planning. TA’s efforts culminated in encapsulating MTEF in the Implementing Decree of the Budget Law, the legal framework for the strategic management of the Budget. The TA also contributed to the drafting of the associated implementing decree and the study of policy options to reform the fiscal transfers system.
Major Lessons: One of the key lessons learned in the implementation approach and progress in Lao regarding the introduction of MTEF is to be flexible and respond to government’s requirements during implementation. The pace of implementation of a project needs to take into account the institutional environment. In Lao PDR, the institutional environment mitigates against a rapid pace of project implementation. Basic skills building should ideally precede implementation of projects such as this one, and an assessment of existing institutions and their capacity is a crucial first step. In the absence of an experienced national fiscal management specialist, a full-time international consultant should be on site. To conclude, the potential for implementing planning and budgeting reforms is there, but the implementation process is likely to remain slow and must take into account progress in reforms in other elements of public finance management, institutional constraints and the need for basic skills development.
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