Thursday, September 11, 2008

The Clash of Two MTEF Experts!

Over at IMF PFM blog two leading experts debate about the role of ceilings in medium-term budgeting;Bill Dorotinsky comes out as the more persuasive.

In essence, we are in heated agreement. Multi-year forward estimates/ceilings are useful -- call them what you will.

Here's a summary.

1 comment:

KL said...

Given that the MTEF has three critical objectives as said by Bill Dorotinsky: 1. Macrofiscal stability
2. Strategic allocation
3. Operational effeciency;
in more than 29 countries where MTEF has been tried it can be observed that the motivation was to bring in macrofiscal stability, without which the next two objectives cannot be attained and would not have any 'sanctity'. Given that the year to year allocations conveyed through ceilings are not adhered to due to lack of macrofiscal stability, the line department’s donot have incentive in preparing their yearly budget estimates scientifically given the uncertainty of the final budget allocations.
Given this scenario and the early stage experience at Sub-national level in India, the following five points are worth considering in deciding about the efficacy of ceilings:

1. Initial conditions at the time of introduction of MTEF should determine the goals that MTEF seeks to attain.
2. Most of the countries where MTEF has been taken up (90% of the cases during 1997-2001), the objective was macrofiscal stability hence the ceilings are critical in that sense in these cases.
3. In emerging economies, given the macrofiscal stability is not as severe as those in African countries where MTEF was introduced; the next two objectives are significant.
4. In the emerging economies (or at the Sub-national level in India) the focus should be on allocative and technical effeciency. As has been seen in India, for a long time after Liberalization in 1991, the agriculture sector has been neglected and which has seen a decline in investment from the state, which has adversely affected the sector and lead to agriculture distress and farmers suicide. With the intervention of the current Prime Minister a massive infusion of funds is taking place in the sector, which is a result of change in strategic allocation. Now the line department does not have the capacity to absorb the funds. This brings us to the last point.
5. After setting the sector strategies in place, the focus should be on technical efficiency. Here again there are lot of issues with regard to need for change in mind set so as to bring into focus service delivery aspects and realignment towards outputs.

Hence the initial conditions play a significant role in deciding about the efficacy of expenditure ceilings.