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8/2/2019 Korean Case - MTEF
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PUBLIC FINANCE
Korea Case - MTEFMAY 1, 2012
YOUNG KYU KANGSENIOR PUBLIC SECTOR SPECIALIST
WORLD BANK PRMPS
8/2/2019 Korean Case - MTEF
2/21
Contents
Why Korea?
- Fiscal Consolidation and Uniqueness
Features of Korean MTEF
- MTEF introduction- Relationship with other PFM
Lessons from Korean MTEF
- Ownership
- Going Public- Continuous updating
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Fiscal Consolidation has been and will be restoredquickly after Global Financial Crisis
Why Korea?FISCAL CONSOLIDATION
MTEF is the critical tool for restoring Fiscal Consolidationwhile supporting national agenda such as Green Growth
-6
-4
-2
0
2
4
ConsolidatedFiscal Balance
ManagerialFiscal Balance*
Source: 2011-2015 NFMP, MOSF
* MFB=CFB-Balances of 4social insurance fundssuch as National PensionFund2011-2015 NFMP
% of Fiscal balance/GDP
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Big Bang, not platform approach
Why Korea?UNIQUENESS
Introductionstyle
MTPF (stage 3)MTEF stage
Due to Koreas sound PIM system and the simultaneous
introduction of PBB and MTEF, not only was Big bang
reform possible but also the jump of MTEF stage fromMTFF to MTPF
Sound fiscal consolidation was key factor to overcomefinancial crisis in 1997 and 2008
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Features of Korean MTEF- Introduction stages -
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Budget Office initiated MTEF introductionby persuading stakeholders
To consider future expenditure needs inSocial Welfare and the need to allocate
resources strategically MTEF (with Top-down budgeting, PBB)
Without specific fiscal reforms for decades,the reforms happened from 2004-2007
By empowering budget formulationauthority to LMs and appealingdecentralization to the public and politicalstakeholders
Features of Korean MTEF?1. MTEF INTRODUCTION
Who
Why
What
When
How
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Ref: Incentives to stakeholders
Budget Office
Internal Staff
President
Assembly
LineMinistries
-Transparency(aligned with the philosophyof political regime)
-Strategic ResourceAllocation
-Fiscal consolidation-Transparency
The Public/Experts
-Control(Tool for supportingnational agendas fiscally)
-Empowerment(BO will respect LMs budgetrequest within the ceiling)
-StrengtheningPolicy initiatives
(while empowering
budget authority toLMs)
-FiscalConsolidation
-Certainty in budget allocation
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As MTEF was introduced, Top-Down Budgeting wasrequired, and these two reforms initiated PBB
Fiscal Reforms closely connected with each other andfunction harmoniously
MTEFTop-Down
PBB(PART/In-Depth Study)
IntegratedFMIS
(from Bottom-up)
Changes in budget Calendar
Annual budgeting
Features of Korean MTEF2. RELATIONSHIP WITH OTHER PFM
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Lessons from Korean MTEF- Operation stages -
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The President and Cabinet endorse MTEF
Budget authority
- maintain MTEF even in Global Financial Crisis
- try to keep fiscal balance target and fiscal support fornational agenda as envisaged in MTEF by restructuringexpenditures through prioritization*
* Ineffective Program by PART result will be cut by 10%
comparing with last years budget
System itself does not verify success,
Ownership does matter
Lessons from Korean MTEF1. OWNERSHIP
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(Trillion Korean Won, % of GDP)
Source: MOSF NFMPs
Category MTEF 2010 2011 2012 2013 2014 2015
Revenue 2011-2015(A) 314.4 344.1 375.7 395.8 415.3
2010-2014(B) 290.8 314.6 342.9 365.1 390.9
2009-2013(C) 287.8 309.5 337.6 361.7
Gap(A-C) 4.9 6.5 14.0
Expenditure 2011-2015(D) 309.1 326.1 341.9 357.5 373.1
2010-2014(E) 292.8 309.6 324.8 337.7 353.0
2009-2013(F) 291.8 306.6 322.0 335.3
Gap(D-F) 2.5 4.1 6.6
Consolidated 2011-2015(G) 0.4 1.3 2.3 2.4 2.5
Fiscal 2010-2014(H) -0.2 0.4 1.3 1.9 2.5
Balance 2009-2013(I) -0.4 0.2 1.2 1.9
Gap(G-I) 0.2 0.1 0.4
Ref: Comparison of last 3 MTEFs
-Conservative Revenue forecast-Increase in expenditure is well below that of revenue-With this effort fiscal balance is getting better than last MTEF
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MTEF and annual budgeting proceduresinvolve participation from both experts and thepublic through public hearing or discussion on
major fiscal agenda while making MTEF Give Justification to MTEF
When MTEF is submitted to the Assembly it is
informed to the public Play a constraint to the stakeholders
Lessons from Korean MTEF2. PARTICIPATION AND GOING PUBLIC
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Since the introduction of MTEF in 2004, whenever thereare challenges in MTEF, Budget office amends and updatesMTEF
- Example 1: Some LMs announced new plan withoutcoordination with MTEF, and the completion of MTEF was
threatened In 2008 the Budget office added prior coordination withMTEF rule in the National Fiscal Management Law
- Example 2: Initially the Budget office allocated 5 yearresource allocation on every project while making MTEF.This practice was not only time-consuming but also
redundant between MTEF and annual budgeting from LMs Budget office only forecast major projects and
fluctuating projects while treating other projects on lumpsum
Initial MTEF cannot be perfect
Lessons from Korean MTEF3. CONTINUOUS UPDATING
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Thank you
Young Kyu Kang
Senior Public Sector SpecialistWorld Bank PRMPS
Office phone: 1 (202) 458-9451
mailto:[email protected]:[email protected]8/2/2019 Korean Case - MTEF
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Ref: MTEF & Budgeting Calendar
1
2
3
4
5
6
7
8
9
10
11
12
Before MTEF Introduction After MTEF Introduction
- Budget Formulation(without ceiling)
- MOSF submit BudgetDraft to the Assembly
- Assembly Review
-BudgetFormulation(with ceiling)
-Submit tothe Assembly
-MTEF T/FTeam Work
-FinalizingMTEF
-Submit tothe Assembly
MTEF
Preparation (LMs)
MTEF Draft (BO)-Coordination(BO/LMs)-Cabinet Meeting-Ceiling informed to LMs
Budget Draftby LMs
- AssemblyReview
No official process-BO checks major on-going and new projectsinternally-LMs request next yearbudget on May 31
Month
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Ref: MTEF and Annual Budget Process 1
January 3 MOSF (Budget Office) sends the guideline for rollingMTEF to LMs- Guideline covers how and in what case resourcecan be increased
MOSFLMs
January 31 LMs request new MTEF plan to MOSF- Considering changes in Economic & Social situationand new national agenda, LM request new MTEF draftLMsMOSF
Feb - Apr MOSF makes MTEF draft through coordination with
LMs- MTEF T/F teams are organized and research is initiated onthe policy direction of resources allocation.
- Public hearing executed- Fiscal Strategic Cabinet Meeting endorse sectoralallocation & Ceilings to LMs while discussing fiscal and
national issues
MOSF/LMs
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Ref: MTEF and Annual Budget Process 2
Apr 30 MOSF (Budget Office) sends Budget call circularand the ceilings to LMs- Budget call circular covers economic condition forecast andresource allocation direction
- Next years expenditure in MTEF are set as ceilings(Ceilings for sectoral, entities and some major project)
MOSFLM
May - June LMs formulate their own budget draft- Considering changes in Economic & Social situationand new national agenda, LM request new MTEF draftLM
June 30 LMs request next year budget to MOSF- Considering the ceilings informed, LMs make budget draft
LM MOSF
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Ref: MTEF and Annual Budget Process 3
July-Sept MOSF settle the budget for each project withconsultation with LMs considering MTEF T/Frecommendation- Budget review committee in Budget office decide final
allocation- After MTEF introduction Budget office review only somemajor and important projects while checking whethernational agenda are properly supported(Ceilings for sectoral, entities and some major project)
- MTEF is finalized by adjusting with annual budget andreflecting MTEF T/F teams suggestions
- With MTEF introduction, the budget coordination periodwas shortened by a month whereas LMs Budgetformulation period extended by a month
MOSF/LM
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Ref: MTEF and Annual Budget Process 4
Oct-Dec 2 Assembly finalize budget through each standingcommittee and Budget committee
Assembly
December MOSF submit Budget Draft to Assembly- Under the finalized budget MOSF set disbursement planby matching revenue and expenditure scheduleMOSF/LMs
Oct 2 MOSF submit Budget Draft to Assembly forfinalization and MTEF for information
- With meetings with stakeholders like fiscal experts, LMsand local governments, Budget office finalize budget draft
MOSF
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Ref: Contents of Korean MTEF
Detailplan bysectors
- 16 areas (R&D, SOC, Social Welfare etc.) covered-Each sector consists policy direction and theannual size of resources-Major projects detail investment plan commented
Overview -Fiscal Policy direction and future goal-Economic forecast based on internal and externalconditions Growth rate forecast Revenue
forecast-Integrated Expenditure forecast consideringnational agenda and other policy supports-Government debt and Fiscal Balance forecasts-Ratio of tax against national income-Sectoral expenditure allocation plan
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How to decide fiscal envelopeINTEGRATION OF TOP-DOWN AND BOTTOM-UP
T/F teamsExternal expert
BudgetOffice
Economic PolicyBureau
TaxOffice
Economicforecast
Revenueforecast
Expenditureforecast
Growthforecast
Tax revenue forecast
FiscalTargeting
Ceilings
Line ministries
Expenditure requests