MTBF International Experience

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MTBF International Experience Introduction
to the MTBF projectbyFarooq Khan
MTBF Forum, Lahore22 October 2004
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Objectives for this session

• To summarise the international experience based
  on the Study Tour to UK and South Africa in
  March, 2004
• To provide progress update on federal MTBF project

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The Study Tour to United Kingdom and South Africa

• Tour led by Additional Secretary, Budget Wing,
  Finance Division
• Representatives of Finance Division, Planning
  Development Division, Health Division and
  Population Welfare Division

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The United Kingdom situation

• Unitary state moving towards greater devolution
• Proactive role by HMT (Her Majestys Treasury)
• Public Expenditure Reforms backed by full
  political support and are part of a wider public
  sector reforms since 1998 (spearheaded by Blair
  Government) announced through Economic and Fiscal
  Strategy Report
• Sense of continuous improvement

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The United Kingdom Key Reforms

• Financial management systems are advanced and
  making extensive use of technology
• Reforms are moving towards more advanced features
  like Resource Accounting Budgeting (full
  accrual based accounts)
• WGA (Whole Government Accounts)
• The new budget regime is establishment of
  Department Expenditure Limit (DEL) spending which
  includes most departmental programme expenditure
  and is planned and controlled on a three year
  basis through the Spending Review Process
  involving departments having greater flexibility
  by ceilings and are fixed through Annually
  Managed Expenditure (AME) which is reviewed twice
  yearly as part of budget and pre-budget process

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The United Kingdom Key Reforms

• Firm and fixed DEL plans are set for three years
  going forward, and are reviewed every two in
  biennial Spending Reviews. To enable spending
  programmes to be planned over the medium term and
  to avoid wasteful end of year spending, the new
  regime allows end-year flexibility (EYF) that
  is,departments can carry forward any unspent
  into future years
• Spending departments are allowed to move funds
  from current to capital budgets
• The overall spending envelope available is
  determined by Governments fiscal rules
• PSA (Public Sector Agreements) between the
  Treasury and line departments are agreed and
  publicly announced
• Accountability for outputs and outcomes in with
  reference to the stated agreed parameters.

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South African Situation (I)

• After the transition to majority rule in 1994
  health services underwent a massive
  re-orientation away from tertiary health care for
  white urban elite to primary health care for a
  largely black rural population
• South Africa has a federal structure with wide
  disparity between provinces in terms of
  population, income, fiscal capacity and
  rural/urban mix
• South Africa is a middle income country
• - with a relatively small well educated urban
  elite
• - large rural population
• National consensus on health care policy
• Weak accounting systems and IT support is weak as
  compared to the UK.

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1. Need for consensus on roles and
responsibilities in public finance

• The focal point of information is the Public
  Finance Management Act 1999
• Act sets out in a very compact and clear form the
  roles and responsibilities of the various players
  at both federal and provincial level
• Act is accompanied by very clear and well written
  Treasury Regulations

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2. Need for Agreed Program Structure

• South Africa like UK is moving from a unitary
  control to a more devolved set-up . The center
  retains effective influence
• Basic program structure discussed and agreed
  between all three levels of government, federal,
  provincial and district
• Federal role is principally policy coordination
  and administration of a limited number of
  federal grants in aid for provinces with
  limited resources or for national activities
  carried out in a provincial context

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3. Informative Budget Statement

• The budget statement contains lots of management
  information
• Information on program and sub-programs
  objectives and rationale
• Historical information on program costs over the
  last 4 years
• Budget revisions for the current year
• Estimates and forward estimates over the three
  year time horizon of the MTBF

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4. Nature of Estimates

• Estimates are at a broad major object level
  leaving departments considerable discretion to
  re-allocate resources
• South Africa has invested time and effort in
  helping managers to understand the classification
• Example Reference Guide to the New Economic
  Reporting Format
• Estimates contain both qualitative and
  quantitative information

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5. Service Delivery Measures

• South Africa has begun to develop service
  delivery measures
• Limitations of financial reporting system make it
  unrealistic to expect any strong ability to link
  resource use to outcomes for some time to come

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6. Role of the Chief Financial Officer

• CFOs appointed at both federal and provincial
  levels
• Positions are well paid and seem to have
  attracted competent and experienced people
• Regulations require CFO to report directly to
  Secretary
• Despite competitive salary and benefits package
  it has been difficult to find and retain good
  people

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Study Tour Lessons learnt

• Comprehensive Report on Study Tour
• MTBF is not simply about filing in a different
  set of forms stating objectives/goals
  unconnected with spending progress
• MTBF is about continuous and deepening budget
  reforms
• Wider set of reforms required in order to
  implement MTBF covering
• Resource forecasting
• Budget preparation
• Budget execution
• Participation and oversight by central
  ministries
• Financial management and reporting
• Compliance.

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MTBF Project - Pakistan

• Strengthening the
• Medium Term Budgetary Framework

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The purpose of the MTBF project

• To improve transparency and accuracy of
  Pakistans federal budget process and to put in
  place the building blocks of an MTBF providing a
  sounder basis for linking policy and
  expenditures.

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Five Outputs

• Increased understanding in MoF and MoPD and
  selected pilot ministries (MoH and MoPW) of MTBF
  benefits, objectives and techniques, and
  increased commitment to fully implement an MTBF
• Enhanced capacity of MoF and selected pilot
  ministries to implement an MTBF
• Improved budgetary systems and procedures at
  Federal level, in a way consistent with a full
  implementation of an MTBF
• Building blocks for an MTBF are in place in MoF
  and in the selected line ministries
• Improved linkages between federal and provincial
  work on MTBF.

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Timing and Counterparts

• Project started in March 2003 with slight delay
• Duration 30 months, covering three budgets
• Consultancy inputs by PricewaterhouseCoopers (UK)
• Counterparts
• Ministry of Finance (MoF), lead counterpart
  Additional Secretary, Budget Wing
• Two Pilot Ministries Health and Population
  Welfare
• Others Central Board of Revenue, Expenditure
  Wing of MoF, Planning Development Division,
  Economic Affairs Division.

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Timing and Counterparts

• Steering Committee headed by Finance Secretary
• Two sub-committee formed to review
• - Funds release mechanism
• - Economic forecasting function.

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Progress to Date

• Divided into two phases
• Conceptual Stage (April 2003 June 2004)
• Implementation Stage (July 2004 to date)

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Conceptual Stage

• Resulted in 15 Technical Notes
• Detailed analytical studies on various aspects
• Wider sensitization of Pilot Ministries
• Progress on Funds Release sub-committee

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Implementation Stage

• WEF July 2004
• Team restructured more hands on
• Working Groups established to monitor the project
  on day to day basis
• Detailed implementation plan
• Work proceeding as per work plan
• In order to ensure resource availability Budget
  Ceiling Committee established
• Budget Ceiling to be finalized shortly

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Implementation Stage

• Work in process on developing BCC especially for
  two pilot ministries on MTBF basis
• MTBF guidelines being developed
• BCC to consist of guidelines, budget ceilings and
  forms
• A medium term planning and budgeting exercise
  kicked off in MoPW

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Implementation Stage

• The medium term planning budgeting exercise in
  MoPW had the following objectives
• Align expenditure with Population Policy of
  Pakistan
• Cover FY 2005-08
• Plan / prioritize and re-prioritize activities
• Cost activities and initiatives
• Link budgets to outputs
• Exercise with full participation of MoF and PD
• Currently the results are being analyzed

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Implementation Stage

• Improving the financial management capacity is
  one of the major objectives during implementation
  stage
• Initial work on establishment of Financial
  Management Unit in MoH in progress
• Financial Management Application being developed
  for MoH
• At Section Officer to monitor current and
  development budget
• At DFA to track funds release
• Financial Management reporting for Principal
  Accounting Officer

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Implementation Stage

• MTBF web site developed and can be assessed on
• www.geocities.com/mtbfproject
• FAQs editing in progress will be published
• Work progressing as per work plan

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Way forward

• Issuance of BCC
• Highest level commitment at Federal Level
• Pilot Ministries seeing benefit from MTBF
  process
• Lessons being learnt for roll-out

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MTBF Project

• THANK YOU