1. Building Budget Credibility Collaborative Africa Budget Reform Seminar. 1st to 3rd December 2004 FARM INN, Pretoria, South Africa

2. Outline • Background • Ownership of Priorities • Predictability of Resources • Budget Should Deliver with Minimum deviations • Lessons Learnt

3. Background • PEAP defines government macroeconomic and poverty policy objectives: Economic Management, Enhancing production, Competitiveness, and Incomes, Security, Conflict resolution and Disaster Management, Good Governance, Human development • A credible budget should be consistent with agreed PEAP priorities and deliver projected targets.

4. Building budget credibility • Institutionalisation of a harmonised framework to sustain a credible budget through: • Identification and consensus and priorities (Ownership) • Link Budget with agreed priorities(Assurance) • Predictability of resources (Trust) • Deliverance of budget with minimum deviation. • A framework that promotes synergy between policies, legislation and processes

5. Ownership of Priorities • Participatory approach: strategic role by stake holders thru SWAP, working groups • National consultations take 18 months at national , sectoral and local government levels • Action oriented research, studies on sector specific,institutional and cross cutting issues (operational efficiency, equity) • Outcomes of studies inform the decision making process • Revision of PEAP ever three years

6. Trust level 1: Linking National Budget to Agreed Priorities • Poverty focused & equity concern in policies and programmes • Outcome & Output Orientation • MTEF • Budget Consultations at national, local government and sector levels • Parliamentary involvement (Budget Act 2001) • Donor sub groups and PER

7. Sector Wide Approach (SWAP) • Identification and agreement of Priorities , targets and monitorable indicators by all stake holders • Promotes intra-sectoral linkages and synergy within the sector • Strategic allocation of resources • Facilitates monitoring and minimizes transaction cost on behalf of the donors • Minimize on duplications and wastage

8. MTEF • The MTEF resource envelope is consistent with macroeconomic objectives • The MTEF is three year rolling expenditure framework, it prioritizing the expenditures within constrained resources. • It enhances fiscal discipline and provides strategic allocation of resources. • The MTEF operationalises the PEAP and SWAP at both center and local government levels. • MTEF provides sectors with predictable and stable projection of budget resources.

9. May 15 April 1 June 15 The Consultative Budget Process Parliament Submission of Indicative Plan/MTEF Budget Speech Cabinet Approval of BFP/MTEF Final Budget Approval Cabinet • National Budget Workshop • Indicative Sector Ceilings • Budget & SWG Guidelines Compilation of National BFP And Updated MTEF Finalisation of Budget Allocations/MTEF MFPED PER Inter-ministerial Consultations Preparation of Sector BFP and Revised MTEF Allocations within the Ceiling Preparation of Detailed Budget Estimates Line Ministries/ Spending Agencies/ SWGs/Donors Apr - June Oct - Dec Jan - Mar

10. Sectoral Shares in the MTEF: 1994/5-2005/6 Education PA Security Health Interest JLO Agric. Water

11. PAF Expenditures 1997/98-2005/6 Other (Land Reform, Adult 900 Literacy, Restocking, LGDP) Accountability 800 Rural Roads 700 Agricultural Extension and Exports Safe Water and Sanitation 600 PHC 500 Universal Primary Education Shs Bn 400 300 200 100 0 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 (Pre-PAF)

12. Trust Level 2: Predictability of Resources • Fiscal Policy Objectives • Forecasting Resource envelope • Improving resource predictability • Execution of the Budget with minimum deviations

13. Fiscal policy objectives • Economic growth (7%). To fund the public goods and services needed to run a modern state and meet the objectives identified in the PEAP • Low inflation (no more than 5%). To maintain a fiscal stance which is consistent with macroeconomic objectives. To avoid unsustainable public debt • Competitive exchange rate • Foreign exchange reserves at least 5 months of imports • Growth in private sector credit. To raise domestic revenues in a manner which does not distort incentives for the private sector or discourage work and investment

14. Resource envelope • MTEF = Total Inflows (Tax and non tax revenues + donor inflows) – Total outflows ( external debt servicing) - (domestic arrears payments) . • MTEF distributes the resources into sectoral and institutional allocations • Improving resource predictability

15. Composition of Resource Envelope

16. Domestic Revenues: % of GDP 1992/3-2003/04 (stagnating growth)

17. Enhance Non Tax revenues as % of Domestic Revenue and %GDP

18. Donor Commitment verses outturn (Budget Support in US$ millions)

20. Budget should Deliver (Financial front) • Fiscal discipline by maintaining the agreed budget domestic deficit thru: • Manage expenditures within realized resources (cash budgeting). • Cut expenditures to match underperformance of domestic revenues. • Reduce foreign reserves to match under disbursements of donor funds • Supplementary expenditures are approved by parliament • Ring fencing of priority expenditures • Enhance financial management, monitoring and accountability

21. Budget should Deliver (physical performance front) • Periodic monitoring of the PEAP (Poverty assessment; House hold integrated surveys, demographic survey, integrity survey,National Service Delivery Survey) • Annual Budget Performance Report • District and sector reports on PEAP targets • National Integrated Monitoring and Evaluation System

22. Lessons learnt • Homegrown responding to Emerging Issues • Substantial investment in awareness raising and capacity and institutional building or restructring • Budget a Potential but Not sustainable Means to All Political Aspirations: role of Govt Intervention and Balancing spending between social and productive sectors. • Targeted and Cost effective consultations versus bottom up approach. • Measures to counter political interference (necessity for ring fencing the poverty priority programmes) • Clarity on Principles of collaboration

23. THANK YOU