The Medium Term Budgetary FrameworkThe Medium Term Budgetary Framework

CourseCourse: Performance Based Budgeting in : Performance Based Budgeting in GovernmentsGovernments

VenueVenue: Civil Service College, Singapore: Civil Service College, Singapore

13 October 200813 October 2008

Team Members:Team Members:Mohammad Nurul Islam, Deputy Secretary, MoPMohammad Nurul Islam, Deputy Secretary, MoP

Md. Rezaul Karim, Deputy Secretary, MoPMd. Rezaul Karim, Deputy Secretary, MoPGautam Kumar Ghosh, Deputy Secretary, MoEGautam Kumar Ghosh, Deputy Secretary, MoEMd. Rizwanul Huda, Sr. Asstt. Secretary, MoFMd. Rizwanul Huda, Sr. Asstt. Secretary, MoF

Shirajun Noor Chowdhury, Sr. Asstt. Secretary, MoFShirajun Noor Chowdhury, Sr. Asstt. Secretary, MoFDelwar Hossain, Assistant Chief, MoFDelwar Hossain, Assistant Chief, MoF

Country Case Presentation: BangladeshCountry Case Presentation: Bangladesh

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The Economy & the Budget of BangladeshThe Economy & the Budget of BangladeshSome Geographic, Social, and Economic Indicators:Some Geographic, Social, and Economic Indicators:

Capital: Capital: DhakaDhaka Area: Area: 147,570147,570 Sq. Km Sq. Km Population: Population: 140.60 million140.60 million (2007) (2007)Population (annual growth rate): Population (annual growth rate): 1.41%1.41% Density of Population (per Sq. Km.): Density of Population (per Sq. Km.): 953953 (2007) (2007) Per capita national income: Per capita national income: US $ 599US $ 599 (2007) (2007) GDP growth at constant price: GDP growth at constant price: 6.2%6.2% Agriculture as share of GDP: Agriculture as share of GDP: 20.87%20.87% (2007) (2007) Export as share of GDP: Export as share of GDP: 18%18% (2007) (2007) literacy rate (age 7+):literacy rate (age 7+): 52.552.5 (2006) (2006) Life Expectancy: Life Expectancy: 64.564.5 (2007) (2007) People below the poverty line: People below the poverty line: 40% national, 43.8% rural, 28.4 urban40% national, 43.8% rural, 28.4 urban (HIES 2005) (HIES 2005)

Budget at a Glance (2008-09):Budget at a Glance (2008-09):

Non-Development Expenditure: Non-Development Expenditure: US $ 10.06 BillionUS $ 10.06 Billion Development Expenditure: Development Expenditure: US $ 4.22 BillionUS $ 4.22 Billion Total Expenditure: Total Expenditure: US $ 14.28 BillionUS $ 14.28 Billion Total Revenue as % of GDP: Total Revenue as % of GDP: 11.1711.17 Total Expenditure as % of GDP: Total Expenditure as % of GDP: 17.2717.27 Budget Deficit as % of GDP: Budget Deficit as % of GDP: 6.16.1 Net External Financing as % of GDP:Net External Financing as % of GDP: 2.42.4 Net Domestic Financing as % of GDP:Net Domestic Financing as % of GDP: 3.73.7

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The key Differences between the The key Differences between the MTBF and the Traditional BudgetMTBF and the Traditional Budget

The MTBF The MTBF integrates both recurrent and investment expenditureintegrates both recurrent and investment expenditure rather than the two traditional budgets of development and non-rather than the two traditional budgets of development and non-development.development.

Traditionally a budget has been formulated for 1 year - the MTBF Traditionally a budget has been formulated for 1 year - the MTBF introduces a multi-year time horizon for budget planning - in Bangladesh introduces a multi-year time horizon for budget planning - in Bangladesh that is that is 3 years3 years..

MTBF brings together the policy planning and budgeting processes. MTBF brings together the policy planning and budgeting processes. Resource allocation is linked to the policies and priorities of the Resource allocation is linked to the policies and priorities of the Ministry. Ministry. TheThe traditional budget approach is incremental i.e. a percentage traditional budget approach is incremental i.e. a percentage added to last year’s allocation.added to last year’s allocation.

The traditional budget focuses on inputs only. Under the medium term The traditional budget focuses on inputs only. Under the medium term framework the framework the outputoutput and outcomeand outcome expected expected from the budget from the budget allocation is considered. allocation is considered.

Under MTBF line ministries are given Under MTBF line ministries are given enhanced authorityenhanced authority to allocate to allocate funds according to their specific needs.funds according to their specific needs.

44

Background and Timeline of PFM Reforms in BangladeshBackground and Timeline of PFM Reforms in Bangladesh

1990

1989 – 1990Committee on

Reforms in Budgeting and Expenditure

Control

1993 – 2002 Reforms in

Budgeting and Expenditure

Control Project

2009 - ? PFM Vision

2003 - 2009 Financial

Management Reform Project

1995 2000 2005 2010

Experience tells us that maintaining impetus for the reform process is key

– minimise the “gaps”

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MTBF - BackgroundMTBF - Background

The 1The 1stst phase of public financial phase of public financial reforms in Bangladesh, which reforms in Bangladesh, which originated from the CORBEC report in originated from the CORBEC report in 1989 focused on 1989 focused on technical technical improvements, improvements, examples:examples: Computerisation and consolidation of Computerisation and consolidation of

financial data;financial data; New classification of accounts;New classification of accounts;

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MTBF - BackgroundMTBF - Background

The 2The 2ndnd phase of public financial phase of public financial reforms focused on reforms focused on improvements to improvements to resource management, resource management, through:through:• Macro modelling, debt management;Macro modelling, debt management;• Strengthening the linkage between Strengthening the linkage between

policy planning and budgeting;policy planning and budgeting;• Devolution of responsibility for planning Devolution of responsibility for planning

and budgeting to the line ministries;and budgeting to the line ministries;• Increased focus on monitoring and Increased focus on monitoring and

evaluation both internal and external. evaluation both internal and external.

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Debt Management

Institutional support for the

Comptroller and Auditor General

Systems based financial auditing

TreasuryManagement

Macro economic

framework

Institutional support for the planning and

budgeting process

andissues

Budget Call notice support

Gender

poverty

Performance Monitoring

Budget Management Committees

Ministry Planning Functions

auditInternal

Support to District & Upazilla

Accounting Offices

Computerisation of the accounting

system

Institutional support for the Controller

General of Accounts

Systems maintenance

Social performance

auditing

Entity based auditing

Operational Components of the Financial Management Operational Components of the Financial Management Reform ProgrammeReform Programme

Component 1

Component 3

Component 2

Component 4

TrainingCapacity Building

InformationTechnology

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MTBF MTBF The Main FeaturesThe Main Features

A medium term outlook to budget A medium term outlook to budget planning – 3 yearsplanning – 3 years

Linking policy priorities to resource Linking policy priorities to resource allocations – NSAPR to budgetallocations – NSAPR to budget

Emphasizing the efficient use of Emphasizing the efficient use of limited public resources limited public resources

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The Objectives of MTBF in Summary:The Objectives of MTBF in Summary:

Operationalising the NSAPR;Operationalising the NSAPR;

Enhancing line ministries capacity to Enhancing line ministries capacity to formulate policy and programmes;formulate policy and programmes;

Delegating more responsibility for budget Delegating more responsibility for budget setting;setting;

Performance measurement;Performance measurement;

The Objectives of MTBFThe Objectives of MTBF

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Success Achieved: MTBF ApproachSuccess Achieved: MTBF Approach

RESOURCES OUTPUTSACTIVITIES

NSAPR/National Policy Documents

Macro economic forecasting

OUTCOMES

PRIORITIES

Ministry Objectives

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Success Achieved: MTBF Approach (Cont.)Success Achieved: MTBF Approach (Cont.)

Strategic phaseStrategic phase Resource Allocation phase

Budget Call Circular I

Issued October

Budget Call Circular II

Issued February

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The Strategic PhaseThe Strategic Phase

Provide a direction for the ministryProvide a direction for the ministry Inject a sense of purpose into the Inject a sense of purpose into the

ministries activitiesministries activities Decide WHO we are, WHAT we do, Decide WHO we are, WHAT we do,

and WHERE we are goingand WHERE we are going Provide a 3 year projection of total Provide a 3 year projection of total

aggregate budget allocation – aggregate budget allocation – development and non-developmentdevelopment and non-development

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Budget Call Circular I – Ministry Budget Budget Call Circular I – Ministry Budget Framework (MBF) - Contents:Framework (MBF) - Contents:• Mission Statement to reflect the

management’s vision of what the ministry seeks to do and become

• The medium term strategic objectives• The key activities • Key performance indicators• Targets against which performance can be

measured• Prioritisation of the use of resources• Assess the poverty and gender impact of the

strategies• Initial allocation of aggregate development and

non-development resources for 3 years

The Strategic PhaseThe Strategic Phase

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Budget Call Circular IIBudget Call Circular II• The MBF (BCCI) will be evaluated by FD and

PC. Based on this evaluation, and considering any changes in macro economic trends the ministry resources ceilings may be slightly revised,

• Within the revised ceiling the ministry must undertake a detailed allocation of resources,

• The resources are applied to achieve the targets and KPIs contained in the MBF

Detailed Resource Allocation PhaseDetailed Resource Allocation Phase

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Once the budget has been set the Ministry has an Once the budget has been set the Ministry has an obligation to turn it into action;obligation to turn it into action;

One key element of this is to compare actual One key element of this is to compare actual performance against what was expected;performance against what was expected;

This requires the regular production of This requires the regular production of performance reports for discussion at performance reports for discussion at management level;management level;

Periodic ReportsPeriodic Reports• ADP monthly reviewADP monthly review• CGA/CAO monthly financial informationCGA/CAO monthly financial information• Departmental performance informationDepartmental performance information

Annual ReportsAnnual Reports• Ministry Wide AccountingMinistry Wide Accounting• Entity Wide AuditEntity Wide Audit

Budget Implementation Budget Implementation and Monitoringand Monitoring

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RESOURCES OUTPUTSACTIVITIES

NSAPR/National Policy Documents

Ministry Objectives

Performance Measurement

OUTCOMES

ECONOMY EFFICIENCY EFFECTIVENESS

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Who’s who in MTBF (Line Ministry)Who’s who in MTBF (Line Ministry)

BudgetMgt.

Branch

Secretary

BMC

BWGJoint Sec./

Chief

Dy. Sec./Chief

Sr.

/Ass

tt. S

ec

Sr.

/ Ass

tt. C

hie

f

-Leads the process as Principal Accounting Officer-Acts as president of BMC

- Consists of Addl.Secs/ Jt. Secs, Organizational Heads, Representatives of FD, PC, IMED & CAO- Budget Approval authority within Line Ministry

-Consists of organizational representatives and representative from FD, PC- Assists BMC with necessary support for decision making

- Coordinates the process

-Does the groundwork-Collects and compiles information-Drafts MBF with budget allocation

- Guides the process - Acts as member secretary of BMC- Presides BWG

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Budget Management CommitteeBudget Management Committee

The Chairperson of the BMC – SecretaryThe Chairperson of the BMC – Secretary

RESPONSIBILITIES:RESPONSIBILITIES: Managing the Managing the entireentire budget Revenue and budget Revenue and

Development of the ministry/division;Development of the ministry/division; Developing a Developing a strategic planstrategic plan to guide budget to guide budget

management;management; Preparing a Preparing a medium term budgetmedium term budget within the within the

Resource Ceiling;Resource Ceiling; Monitoring Monitoring the the performanceperformance of the ministry of the ministry

in both financial and output terms;in both financial and output terms; Preparing and publishing Preparing and publishing annual report(s)annual report(s) on on

the financial and non-financial performance of the financial and non-financial performance of the ministry/division;the ministry/division;

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Working Groups and BMC Working Groups and BMC Sub CommitteesSub Committees

Budget Working Group (BWG)Budget Working Group (BWG)

• To To assistassist the Budget Management the Budget Management Committee (BMC),Committee (BMC),

• The BWG has The BWG has specific terms of specific terms of referencereference but i but it is t is not a decision not a decision making bodymaking body. Key . Key role is to prepare role is to prepare MTBF related reports MTBF related reports for the BMC,for the BMC,

• The chairman of the BWG is the The chairman of the BWG is the Member Member Secretary of the BMC. Secretary of the BMC.

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Time line for Budget Preparation under Time line for Budget Preparation under MTBF ProcessMTBF Process

Ju

ly

Au

g

Se

p

Oc

t

No

v

De

c

Ja

n

Fe

b

Ma

rch

Ap

ril

Ma

y

Ju

ne

FD Initial Ceiling

BCCI

Final Ceiling

BCCII

Finalizing ADP

Budget Compilation and Approval

LM

FD

LM

PC

FD

LM = Line Ministry

PC = Planning Commission

FD = Finance Division

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MTBF Line MinistriesMTBF Line Ministries

Year 1 (2005-06): 4 Pilot MinistriesYear 1 (2005-06): 4 Pilot Ministries• Ministry of EducationMinistry of Education• Ministry of Social Welfare Ministry of Social Welfare • Ministry of Women and Children’s AffairsMinistry of Women and Children’s Affairs• Ministry of AgricultureMinistry of Agriculture

Year 2 (2006-07): 6 additional MinistriesYear 2 (2006-07): 6 additional Ministries• Ministry of Primary and Mass EducationMinistry of Primary and Mass Education• Ministry of Health and Family WelfareMinistry of Health and Family Welfare• Local Government DivisionLocal Government Division• Ministry of Fisheries and LivestockMinistry of Fisheries and Livestock• Ministry of Water ResourcesMinistry of Water Resources• Ministry of CommunicationsMinistry of Communications

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MTBF Line MinistriesMTBF Line Ministries

Year 3 (2007-08): 4 additional MinistriesYear 3 (2007-08): 4 additional Ministries• Ministry of Science and ICTMinistry of Science and ICT• Rural Development and Cooperatives DivisionRural Development and Cooperatives Division• Ministry of Environment and ForestMinistry of Environment and Forest• Ministry of Food and Disaster ManagementMinistry of Food and Disaster Management

Year 4 (2008-09): 2 additional MinistriesYear 4 (2008-09): 2 additional Ministries• Ministry of ShippingMinistry of Shipping• Ministry of LandMinistry of Land

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Total Budget & the MTBF MinistriesTotal Budget & the MTBF Ministries

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Gaps in PFM ReformGaps in PFM Reform Involving senior officials in the MTBF process that is lack

of ownership (what Finance Secretary is doing now by visiting line ministry with FD senior officers to motivate them in the process)

Updating financial and administrative powers in line with MTBF process

Insufficient training for MTBF related officials in the line ministry

Absence of regulations for retention of trained/experienced officials

No manual for MTBF process Consultant driven and dependent Lack of holistic approach

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Challenges FacedChallenges Faced

Frequent transfer of key staff Avoiding duplication of other existing

processes e.g. ADP preparation, review Strengthening the BMC role in budget

implementation and monitoring Moving from input monitoring to output

and finally outcome monitoring Availability of timely monitoring

information – both financial and output but especially outcome

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Continue to extend the process to more Continue to extend the process to more line Ministries; line Ministries;

Review and refine the process every year;Review and refine the process every year; Institutional change at line ministry levelInstitutional change at line ministry level Strengthen the performance reporting Strengthen the performance reporting

systems in the line Ministries:systems in the line Ministries:• More effective Key Performance More effective Key Performance

Indicators;Indicators;• Data collection and analysis;Data collection and analysis;• Impact evaluation;Impact evaluation;

Next steps?Next steps?

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Improvements in the efficiency and Improvements in the efficiency and effectiveness of Government’s effectiveness of Government’s delivery of services will depend on delivery of services will depend on building the policy analysis and building the policy analysis and financial management skills within all financial management skills within all of the Ministries. of the Ministries.

Next steps?Next steps?

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THANK YOUTHANK YOU