Typical issues with MTEFs

Some of the issues with MTEF development in Cape Verde;

Some progress has been made in the preparation of the sectoral MTEFs, but this process is still in its infancy. International technical assistance and training is being provided to the MFPA and sector ministries, in order to help them develop the global and the sectoral MTEFs. Four ministries have started the elaboration o f the MTEFs: Health, Education, Agriculture, Fisheries and Environment, and Social Protection. The Ministries o f Education and Agriculture, Fisheries and Environment, and Social Protection already have a first draft. The MTEF on Health i s behind schedule and that is primarily the result o f lack o f capacity and shortage o f human resources at the sectoral level. Coordination on the MTEF exercises between DGO, DGP and the sectors has improved but needs to be strengthened. A lack o f reliable information on the revenues’ forecast and on donor financed projects, prejudices the budget preparation and slows down the implementation o f the MTEF.

The 2006 budget was linked to the PRSP and to the MTEF. The four ministries that have produced MTEFs prepared the 2006 budget in accordance with their MTEFs. This is an important improvement but is still in a very early stage. Regarding the alignment with the PRSP programs and sub-programs, they are now linked to the budget and the SIGOF functionalities allow for their management in a coherent way. The 2006 budget has been prepared in a decentralized way with line ministries, directly entering data on the SIGOF system and it has also been prepared for investment by program and sub-program. Moreover, sectors are shifting progressively to a results-based management approach.

Overall the implementation of the MTEF has not been properly conducted, undermining the effectiveness of this instrument. The preparation o f the sectoral MTEFs overlapped with the preparation o f the global MTEF and the interaction between the two processes was insufficient. The global MTEF set ceilings which were not respected as truly upper limits and, as a result, the global MTEF was revised to accommodate the revised ceilings. Furthermore, PRSP and MTEF are not in line, as again the preparation started at about the same time, and thus PRSP does not emerge from the MTEF. This complicates the budget preparation and execution as there is not a clear and consistent directive. In order to use the MTEF as an instrument that defines the overall fiscal strategy, the global MTEF has to work as a top down envelope setting hard budget constraints that define line ministries spending plans. Without a hard budget constraint, derived from the global MTEF, trade-offs between sectors/ministries are not faced and policy is not disciplined by availabilities.

The foregoing suggests that the Government has yet to develop a coherent vision of how a MTEF should be developed, and the role it can play in supporting the Government’s fiscal strategy, ensuring that allocations to sectors and ministries reflect political priorities, and that projects and programs are adequately and reliably funded through the budget. It will be especially important for the Government to develop a sound MTEF based on the budget process in the years ahead, to maximize the development value of public spending, but also to put the country in a better position to manage any future external shocks, given the central role o f the fiscal policy in adjustment in Cape Verde.

The linkage between government departments and donors is strengthening. A first memorandum o f understanding was agreed upon in February 2005, and signed in April 2005 by the Budget Support Group, consisting o f the World Bank Group, the European Union and the Kingdom o f the Netherlands. A revised version is being prepared and two new donors are joining the support group: the African Development Bank and Spain. The DGP is the liaison between the various departments and donors.