Filling a $9 billion hole- an MTEF for New York?

One way to save New York's finances;

Years of decisions dictated by political expediency have led to a chronic budget imbalance that threatens our short-term solvency and long-term economic health.

Fortunately, Lt. Gov. Richard Ravitch has put forward a plan to provide sorely needed oversight and discipline. He proposes to create a financial review board that would certify the budget only if it’s balanced. The board would employ a smart, multiyear strategy that would weigh significant cuts in spending against limited borrowing. And it would require Albany to adopt generally accepted accounting principles, the standard bookkeeping rules used in business.

According to the report, 'The State needs a multi-year financial planning process directly linked to the annual budget process.'

Another suggestion;

Finally, our short-term cash crunch would be eased if the state refinanced the interest rates on its tobacco-settlement bonds. Given current low long-term interest rates, this is preferable to Lt. Gov. Richard Ravitch’s plan, under which the state would borrow $2 billion a year over three years for operations, leading us down a perilous road of annual borrowing.

Related: Citizen's Budget Commission

The ideal macro-fiscal policy department?

IMF gives some suggestions for institutional strengthening of Armenian Ministry of Finance;

The Armenian authorities are taking steps to establish a strategic, coordinated, and multi-year approach to macro-fiscal policy. Recent measures include strengthening public financial management systems, further institutionalizing the MTEF, and adopting performance-based budgeting over the next few years. In the last few months, macroeconomic projections and analysis have been strengthened with the use of fiscal impulse indicators for macro-fiscal analysis during the budget preparation. However, macrofiscal policy-making could benefit from a more elaborated analytical approach within an enhanced and supportive institutional environment.

28. Many countries have relied on strong macro-fiscal policy departments to strengthen their policy framework. Best international practice suggests that an effective macro-fiscal policy department should “own” its country’s fiscal framework by helping:

-Develop the fiscal framework, through forecasting, analysis, and monitoring of other
short- and medium-term fiscal policy developments;
-Monitor the implementation of the fiscal framework, by assessing budget execution and by linking it to developments in other macroeconomic areas such as growth and inflation; and
-Protect the fiscal framework, by advising the Minister on emerging near and mediumterm risks; flagging the need to undertake corrective actions; and identifying possible alternatives.

29. The core tasks of the department should be well coordinated and carried out in close cooperation with other units within the Ministry of Finance, and relevant institutions with related responsibilities. The value added of the department would come from adopting a topdown or big-picture perspective, thus helping the work of other units in related areas:

- By performing macroeconomic analysis the department should ensure an internally consistent macroeconomic framework.

- By performing fiscal modeling, forecasting and impact analysis, the department should develop multi-year fiscal projections under the baseline of unchanged policies that allows to superimpose the impact of any expected or potential policy change, all of which could be included in budget documents. This task requires sound fiscal forecasting to examine the linkages from the real, monetary, and external sectors into the fiscal sector.

- By aligning all aspects of fiscal policy toward the achievement of the government’s economic objectives, the department should help create a consistent framework in which policies and objectives are clearly linked. The appropriate path for the fiscal aggregates within a specific time horizon can be chosen to attain objectives such as macroeconomic stability, medium-term growth, poverty reduction, and fiscal and debt sustainability. The impact of these targets on macroeconomic stability can be examined through macroeconomic analysis, while the appropriateness of the fiscal path’s financing implications can be assessed through debt and fiscal sustainability analysis. Once a consistent set of policies is determined, revenue, expenditures and debt targets can be refined. A macro-fiscal policy department plays a key role in assessing this consistency, and also in identifying fiscal risks associated with the proposed policies, through the examination of alternative scenarios and stress tests.

- By monitoring fiscal performance, the department should analyze in-year budget outcomes—financing, revenues, and expenditures; help explain deviations of outturns from plans; assess the implications of such deviations for end-year forecasts; and determine whether some in-year corrective measures are required. It should also participate in the design of such corrective policies from the analysis of their impact on the short- and medium-term. Close coordination with other departments is required to avoid duplication.

Related;
Armenia MTEF

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.

An MTFF for Suriname

The mission welcomed the authorities’ interest in establishing a medium-term fiscal framework (MTFF) and encouraged them to move as fast as feasible on this front.

• Staff proposed that fiscal discipline over the medium term be anchored on a debt target of no more than 20–25 percent of GDP when revenues are at trend. This would allow some room for debt to temporarily rise when commodity revenues were unusually low, without threatening sustainability. The authorities found this ceiling somewhat restrictive, and preferred a ceiling of some 30 percent.

• Staff indicated that an MTFF should also include a target for the non-mineral balance. The authorities explained that setting a formal target for this would require changing legislation, which could take time. They will consider the staff’s recommendation to appendix). Staff also indicated that it would be advisable to supplement the MTFF by a ceiling on expenditure growth, especially since the debt ceiling is non-binding and formal adoption of a target for the non-mineral balance may take time.

• A well-managed natural resource fund (NRF) could help safeguard surpluses and accumulate financial assets as future mining projects come on stream. Staff stressed that an NRF should be fully integrated into the budget, with no independent spending authority. The authorities agreed that, since new large mining projects are not expected to come on stream in the near term, priority should be given to establishing an MTFF. Staff also pointed to the need to settle external arrears before starting asset accumulation in an NRF, and supported plans to normalize relations with creditors.

The mission urged better assessment of fiscal risks. Available public debt statistics cover only debt contracted or guaranteed by the central government. In addition, some state-owned enterprises are legally allowed to borrow without government guarantee, and reporting on their operations is incomplete. The mission recommended improving monitoring mechanisms and reporting their operations in budget documents. The authorities noted that cases of public enterprises borrowing with no government guarantee had been very rare, and that for external loans, creditors consistently asked for a government guarantee even for financially sound enterprises. They explained that a ministry of finance unit was already charged with monitoring public enterprises, although they were not yet in a position to comprehensively report these entities’ operations in budget documents.

Source:Suriname: 2008 Article IV Consultation - Staff Report


Related;
Suriname - Key Indicators

Governance in Suriname- IADB

Some IADB Projects in Suriname
Program for the Modernization of the Surinamese Tax Administration
Public Financial Management Assessment

Support for the Public Sector Investment System

Design of Pension Reform

Strengthening of Public Sector Management-USD 6,250,000
Road Map for Public Sector Reform
Institutional Strengthening of Debt Management
Advisory Services to the Central Bank of Suriname

For Discussion- MTEF in Laos

From the previous 4 posts whose advice was the most practical and realistic? Did the Loa government get value for money from the ADB technical assistance?

Links;
MTEF commitment from Loas Government
MTEF Advice for Laos- IMF

MTEF Advice for Laos- World Bank
MTEF Advice for Laos- Asian Development Bank

MTEF commitment from Loas Government

The Loas government's commitment in 2004;

A strict Medium-Term Expenditure Framework (MTEF) will preside over revenue and expenditure management, and define the country’s financial possibilities. A well-mastered MTEF is also a guarantee for strengthened macro-economic management and thus poverty eradication.

From the Joint Assessment of PRSP;

More work is needed in developing a medium-term expenditure framework (MTEF). In particular, the MTEF needs to be extended to cover recurrent expenditures and linked to the budget process—if it is to become an effective policy tool, as forward expenditure estimates now focus exclusively on the public investment plan. Another priority is to strengthen the information on public expenditure allocations—for both economic and functional expenditure classifications—as this is crucial if the government is to effectively align available resources with its developmental priorities. Work is also needed on the expenditure policy analysis including costing of key policy objectives. Preliminary work is currently underway in this area, but is unlikely to be ready for the first annual report. Subsequent updates of the NGPES should also make use of planned expenditure tracking surveys, as well as data from existing surveys, such as the household survey, to examine the links between poverty and expenditure.

MTEF Advice for Laos- IMF

IMF recommended last year;

Developing a fully-fledged medium-term fiscal framework (MTF) that explicitly takes into account the level and nature of resource revenues and use it to frame the annual budgets. The MTF should include a specific quantitative path of fiscal consolidation at the level of both the overall and non-resource balances, and make adequate provisions for contingencies. Until the BoL develops further its set of monetary management tools, the MTF should continue to envisage an annual reduction in the domestic financing requirements to help control demand pressures….

The uncertainty surrounding resource revenues in general, and the finite nature of mineral revenues in particular, also argue in favor of a prudent use of such resources. It also underscores the need for making spending decisions on the basis of a medium term fiscal framework to take account of intergenerational considerations.

In another report;

Developing an integrated medium-term fiscal framework. The authorities agree that expenditure decisions need to be made in a multiyear context. Such a framework should account not only for the volatile nature and uncertainties associated with resource revenues, but should align expenditures to the priorities of the National Socio-economic Development Plan (NSEDP). It is important that future budgets include this type of framework.

What's a MTEF?

A medium-term expenditure framework (MTEF) consists of a top-down estimate of aggregate resources available for public expenditure consistent with macro-economic stability; bottom-up estimates of the cost of carrying out policies, both existing and new; and a framework that reconciles these costs with aggregate resources. It is called “medium-term” because it provides data on a prospective basis, for the budget year (n+1) and for following years (n+2 and n+3). MTEF is a rolling process repeated every year and aims at reducing the imbalance between what is affordable and what is demanded by line ministries. MTEF does this by bringing together policy-making, planning, and budgeting early in the budgeting cycle, with adjustments taking place through policy changes. It involves building domestic macro-economic and sector modeling capacity. Also, even if the whole of the Government’s budgeting system is not working well, each sector is better off managing itself with a medium-term perspective. A well implemented MTEF should: (i) link the Government’s priorities with a budget within a sustainable spending envelope; (ii) highlight the tradeoffs between the competing objectives of the Government; (iii) links budgets with the policy choices made; and (iv) improve outcomes by increasing transparency, accountability, and the predictability of funding.