introduction to mtef in korea doyoung min the world bank

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Public Expenditure AnalysisPublic Expenditure Analysis

The role of the stateThe role of the state

Public spending and budget deficit Public spending and budget deficit

Efficiency Efficiency

EquityEquity

Fiscal decentralizationFiscal decentralization

44

Public Expenditure ManagementPublic Expenditure Management

MTEFMTEF• Linking policy, planning and budgeting

Performance managementPerformance management

Integrated Financial management information Integrated Financial management information system (IFMIS)system (IFMIS)

Fiscal transparencyFiscal transparency

Medium-Term Medium-Term Expenditure FrameworkExpenditure Framework

66

Background of MTEFBackground of MTEF

Changing role of budgetingChanging role of budgeting• from control (spending) to management (policy)

Increasing difficulty of maintaining fiscal soundnessIncreasing difficulty of maintaining fiscal soundness

• slowed economic growth, built-in entitlement

Growing demand for public spendingGrowing demand for public spending• aging population, education, social welfare

Demand for more democratized and transparent Demand for more democratized and transparent budgeting processbudgeting process

77

Objectives of MTEFObjectives of MTEF

Integrating national policy priorities Integrating national policy priorities

into annual budgetinto annual budget

Providing medium-term perspective Providing medium-term perspective

on expenditure plan on expenditure plan

Enhancing operating efficiency with increasedEnhancing operating efficiency with increased

LMs’ discretion over their spendingLMs’ discretion over their spending

Strengthening feedback and accountabilityStrengthening feedback and accountability

mechanism by performance managementmechanism by performance management

88

International Experiences International Experiences (1)(1)

Coverage of Coverage of MTEFMTEF

Responsibility of Responsibility of economic economic

assumptionassumption

Multi-year cost estimate Multi-year cost estimate

for new spendingfor new spending

SwedenSweden 3 yrs MOF All spending items

UKUK 5 yrs CBO All spending items

AustraliaAustralia 4 yrs CBO All spending items

NZNZ 2 yrs MOF All spending items

NetherlandsNetherlands 4 yrs CPB All spending items

NorwayNorway varying MOF No

USAUSA N/A N/A All spending item

MOF: different part of MOF/Treasury, CBO: central budget office, MOF: different part of MOF/Treasury, CBO: central budget office, CPB: Central Planning BureauCPB: Central Planning Bureau

Source: OECD-World Bank Budget Practices and Procedures DatabaseSource: OECD-World Bank Budget Practices and Procedures Database

99

International Experiences International Experiences (2)(2)

Basis of setting Basis of setting spending limit for spending limit for

ministriesministries

Final decision on Final decision on ministries’ ministries’ spendingspending

Arrangement in Arrangement in congress to establish congress to establish total budget before total budget before

individual itemindividual item

SwedenSweden MTEF Prime Minister Yes

UKUK MTEF MOF No

AustraliaAustralia MTEF Cabinet No

NZNZ MTEF Cabinet No

NetherlandsNetherlands MTEF Cabinet Yes

NorwayNorway N/A Cabinet Yes

USAUSA Suggestion only President Yes

Source: OECD-World Bank Budget Practices and Procedures DatabaseSource: OECD-World Bank Budget Practices and Procedures Database

1010

Lessons from Lessons from International ExperiencesInternational Experiences

Integration of multi-year planning with annual budgetIntegration of multi-year planning with annual budget• MTEF and annual budgeting is ‘one’ process

Honest/realistic macroeconomic forecastingHonest/realistic macroeconomic forecasting

Separation of total budget from detailed programSeparation of total budget from detailed program

Clarification of new roles of MOF/line ministriesClarification of new roles of MOF/line ministries

Capacity building and incentives for MOF/LMsCapacity building and incentives for MOF/LMs

Development of feedback mechanismDevelopment of feedback mechanism

MTEF in KoreaMTEF in Korea

1212

Budgeting in the PastBudgeting in the Past

Centralized and itemized budgetingCentralized and itemized budgeting• Input control

High reliance on bottom-up approachHigh reliance on bottom-up approach

MPB’s deep involvement in program budgetingMPB’s deep involvement in program budgeting

Lack of macro perspectivesLack of macro perspectives

Separated, individual fiscal initiativesSeparated, individual fiscal initiatives

1313

Past Fiscal Reform EffortsPast Fiscal Reform Efforts

Strengthen linkage between formulationStrengthen linkage between formulation

and executionand execution

Bring in incentive system for expenditure savingsBring in incentive system for expenditure savings

Pilot performance-based budgetingPilot performance-based budgeting

Introduce double-entry accounting systemIntroduce double-entry accounting system

Improve aggregate expenditure controlImprove aggregate expenditure control

Introduce ex-ante evaluation system Introduce ex-ante evaluation system

for major projectsfor major projects

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Recent Fiscal Reform InitiativesRecent Fiscal Reform Initiatives 2003: Design and preparation of PEM reform2003: Design and preparation of PEM reform

• NFMP, Top-down, Performance management

2004: Implementation of a series of fiscal reform initiatives2004: Implementation of a series of fiscal reform initiatives• National Fiscal Management Plan

covers 5 years on a rolling basis includes General account, Special accounts, and Funds

• Top-down budgeting MPB gives sectoral ceilings to LMs

• Performance management Program budgeting

• Digital budget and accounting system

2005: Strengthen the link among reform initiatives2005: Strengthen the link among reform initiatives• FY06 budget prepared through new PEM system

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Korea’s MTEFKorea’s MTEF

NFMP + Top-downNFMP + Top-down

Benchmarked Swedish model Benchmarked Swedish model

MPB’s initiatives / ChampionMPB’s initiatives / Champion• Track-record: Economic Planning Board (1961-1994)

planning and budgeting functions reside under one roof

Strong leadership (President) was backed upStrong leadership (President) was backed up

Lack of Parliament’s participation Lack of Parliament’s participation

1616

New Budget Process New Budget Process (1)(1)

Stage I : Macroeconomic Forecasting andStage I : Macroeconomic Forecasting and Long-term Fiscal Management PlanningLong-term Fiscal Management Planning

• Forecast macro variables for fiscal policy purpose

• Consider social, political and international factors

• Strengthen MPB’s role consult with MOFE, Bank of Korea and

public/private research institutes strengthen MPB’s capacity of macroeconomic analysis and

institutional coordination

1717


Stage II : Fiscal Targeting, Budget Envelope, and Stage II : Fiscal Targeting, Budget Envelope, and Sectoral AllocationSectoral Allocation

• Fiscal targeting based on macro variables and policy objectives

• Set out budget envelop with updated cost estimates

• Sectoral allocation according to national policy priority, previous year’s performance information, and unexpected events

* Sectoral categories vary by country

Sweden(27), Canada(10), Norway(by Ministry)

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Stage III : Stage III : Cabinet MeetingsCabinet Meetings

• Prepared by MPB in consultation with President Budget envelop Sectoral ceiling Major national policies

• 2-day Cabinet meeting for consensus building

(held on April 30 and May 1 for FY06 budget)

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Stage IV: Line Ministries’ RequestsStage IV: Line Ministries’ Requests

• Line ministries prepare budget request within provided sectoral ceiling

In line with sectoral policy priority Increased discretion

• MPB’ guidelines for formulating budget proposal Tools for consistent budget presentation, analysis, statistics Gradual phase-out of interventional aspects

2020


Stage V: Review and DocumentationStage V: Review and Documentation

• MPB reviews LMs’ budget request checking the sectoral ceiling examine programs according to agreed sectoral priorities

• MPB’s active interaction with line ministries

• Sufficient involvement of the President in budgeting process

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Total Expenditure

SettingFor multi

years

MTEF ProcessMTEF Process

Sectoral Budget

Preparation

Macro-economic

forecasting

Sectoral Ceiling

Setting for multi years

Fiscal Target

New sectoral

demand for t+2

(priority/cost)

Annual Budget

Formulation

Updated costestimate of

existingpolicy/program

2222

Changes MadeChanges Made Medium-perspective on expenditure frameworkMedium-perspective on expenditure framework

• NFMP + annual budgeting

Focus on Performance ManagementFocus on Performance Management• Created Performance bureau

Organizational RestructuringOrganizational Restructuring• Matrix: Function and Sector

• Strengthened Strategic Planning role

Address budgetary basicsAddress budgetary basics• Budget and Accounting Reinvention Office• Introduce Program budgeting• IFMIS

2323

Challenges Remained Challenges Remained (1)(1)

Integration of NFMP to annual budget Integration of NFMP to annual budget • Annual budget should be the first year budget of NFMP

Macro-forecasting capacityMacro-forecasting capacity• MPB’s internal capacity building

• Cooperation between MPB and MOFE Bank of Korea, research institutes

• International cases: UK, Sweden, and France

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Challenges Remained Challenges Remained (2)(2)

Players’ willingness and commitment Players’ willingness and commitment • Understanding of PE and MTEF

MPB’s proper guideline for LMs

• Identification of new roles Autonomy and Accountability: MPB and LMs

Change of organizational culture in addition to Change of organizational culture in addition to organizational restructuringorganizational restructuring• Performance-oriented

• Comprehensive government reform including civil service system

introduction to mtef in korea doyoung min the world bank

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