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The MTEF Was Introduced in Ghana to Provide a Tool for Better Deficit

The MTEF Was Introduced in Ghana to Provide a Tool for Better Deficit

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Published by Kaizer David-angelo

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Published by: Kaizer David-angelo on Nov 08, 2010
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What is MTEF?

MTEF is a transparent planning and budget formulation process within which the Cabinet and central agencies establish credible contracts for allocating public resources to their strategic priorities while ensuring overall fiscal discipline. The process entails two main objectives: the first aims at setting fiscal targets, the second aims at allocating resources to strategic priorities within these targets.

“Allocation to strategic priorities” requires determination of government wide priorities by the Cabinet collectively and portfolio-wide priorities by Ministries individually. Transparency requires that the priorities of the Cabinet are explained in a Budget Policy Statement whereas the priorities of individual ministries are explained in their Corporate Plans. The medium-term expenditure frame work is a comprehensive approach to budget preparation that integrates investment and recurrent expenditure into a unified three year rolling budget. The MTEF is based on a planning exercise that combines top-down funding discipline and a decision-making process in which all government agencies participate. It clarifies the procedures, cost and potential outcomes of resource allocations thus requiring policy makers to base their choices on comparisons of cost and benefits.

It was recognised that there was scope for improving the links between policy making. The Government of Ghana (GOG) decided in 1996 to introduce a medium term expenditure framework (MTEF) to improve the contribution of the budget to sustainable development and. The introduction of the MTEF was one component of a broader Public Financial Management Reform Program (PUFMARP). Furthermore. and spending on. the old budgetary process did not link the achievements of the objectives of Ministries Departments and Agencies (MDAs) to the level of available resources. in central agencies and at the political level. planning and budgeting systems and processes at the district and sector level. more particularly. and to identify priority objects of expenditure. low priority activities were accorded the same level of fiscal importance as high priority activities. In terms of budget outcomes. As a result. there was little attempt to re-prioritize activities as resources declined. In . 1994 and 1995 had revealed that the policy objectives and priorities spelled out in the government’s development plans did not find expression in the annual budgets. to the realisation of Vision 2020. The overarching objective is to improve the contribution that government makes to development outcomes.The MTEF was introduced in Ghana to provide a tool for better deficit management through realistic revenue projections. Public Expenditure Reviews (PERs) undertaken in 1993. the MTEF is therefore intended to contribute to: • • • more stable fiscal policy improved allocation of resources to. strategic priorities more efficient and effective delivery of services to citizens Prior to its introduction in 1998. Moreover.

which indicate the total resources to be available for the forthcoming three years.e. under the MTEF process. both recurrent and development expenditures and both donor and Government of Ghana) expenditures and is apportioned between the various cost centers (i. The MTEF process stipulates ceilings for MDAs in the broad sectors of Administration. Infrastructure Services. The top down process of allocating resources to MDAs is guided by a policy review process.g. this made it difficult to evaluate the cost effectiveness of expenditures. The . Divisions. Prior to the MTEF.. where. Regions. Social Services and Public Safety. the level or place where the budget is prepared and managed: Departments. Following the policy hearings.e. provision of extension services) but only types of expenditure (e. the classification of the budget did not indicate the purpose of expenditures (e. Economic Services. outputs and activities. the MDA’s review their strategic plans and policies in the context of the total resource envelope. It is a top down process because the Ministry of Finance (MoF) estimates the total resources available and cabinet decides how these resources should be allocated between the five broad sectors based on government priorities. MTEF can also be described as a bottom up because MDAs in the preparation of their Strategic Plans estimate the actual requirements or inputs needed to realize their sectoral objectives. MDA’s now use a strategic planning approach to define their mission. objectives....addition.g. which had nothing to do with new approved policy issues under the national development framework. sectoral ceilings are developed and communicated to all MDAs in the Budget Guidelines. and Agencies). travelling). However. The indicative ceiling MDA for the three-year period includes total (i. including donor resources. program proposals from the sector ministries tended to be mere extensions of past programs. The MTEF Budgeting Process In Ghana The MTEF process in Ghana is both a top down and bottom up process.

Prior to the MTEF a substantial portion of donor funds were not captured in the budget. It also improved the budget capacity to plan and budget more strategically for the medium term. In addition to the early expansion of its budget coverage other developments include preparation of mission statements for all MDAs the basing of budgets estimates on an explicit costing of the activities required to meet the MDAs objectives and the withdrawal of the ministry of finance from involvement in the details associated with incremental budgeting by MDAs. The MTEF process in Ghana has yielded some notable achievements. the intention was to restrict the introduction of the costing part of the MTEF process to three pilot Ministries: Health. the response of the MDA’s was presumably so enthusiastic that this component was extended to all Ministries. the Government of Ghana moved the budget process from an incremental regime to an explicit focus on costing of activities and policies. Accomplishments of the MTEF in Ghana MTEF approach to budgeting in Ghana has been encouraging. It is a crucial step in Government’s effort to translate its policies into action and to reverse some of the long established procedures and habits of managing public finance in Ghana.overall goal. fit into the national goals and objectives as articulated by the NDPC. The initiative has also transformed the MoF’s role from detailed control of line items to one of ensuring that MDAs allocate and use their resources in line with their stated objective and priorities. all ministries were trained to produce three year estimates and all Ministries prepared their 1999 expenditure estimates in the MTEF format. Consequently. It has been associated with an increased coverage of donor funds in the budget. The . mission and objectives of an MDA must however. Originally. Education and Roads and Transport. Costing of Activities In line with MTEF. However.

Besides issues relating to poor coordination. This may persist in the absence of effective monitoring and coordination between the planning and budgetary institutions. this was accomplished through the merger of the Budget Division (responsible for the recurrent budget) and the Investment Policy Analysis Division (responsible for the development budget). In conclusion. Operationally. this process has resulted in increased emphasis by MDAs on performance through the achievement of objectives and production of outputs. For instance. Challenges of Ghana’s MTEF On the other hand. The links between policy objectives set out in the medium term development plan and the budget priorities accosted by MDAs tend to be superficial. the subsequent training of the MDAs by the facilitators only lasted three days. the MTEF has also experienced constraints. time consuming and not easily internalized by the implementing bodies. . the MTEF process in Ghana has had other problems. This issue raises the question of whether the process is worth the effort particularly in the context of unpredictable resource flows and limited human resource capacity. The training period for the MTEF process was also inadequate. This has nurtured a participatory approach to budgeting. the new initiative has facilitated the devolution of responsibility for budget preparation and management down to the cost center level.Development and Recurrent Budgets have been integrated as a result of MTEF. While it took approximately three weeks to train the facilitators of the MTEF process. weaknesses in quantifying the resource envelope and resource constraints relating to costing discussed above. Concurrently. the process has been described as very technical.


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