What is a Medium-Term Budget Framework?
Considered a Public Financial Management (PFM) “best practice”, the Medium Term Budgetary Framework (MTBF) approach has been implemented in various ways across countries. The common features of MTBFs are a multiannual horizon, its non-binding nature, and the inclusion of both revenue and expenditure projections.
The multiannual horizon is central to the concept of a MTBF as it allows for a better planning of fiscal policy. This is because it often takes more than a year for expenditure outcomes to come to fruition. In addition, the implications of a budgetary policy adopted under the annual budget law generally have implications that last well beyond the annual cycle. A longer time horizon provides more certainty, improves the coordination between the different levels of government, and allows for a better implementation of countercyclical policy.
The non-binding nature of MTBFs is another important aspect to consider. An approved government budget is legally binding while the medium term budgetary objectives included in a MTBF provides guidelines for future years.
The inclusion of both revenue and expenditure projections in the MTBF is also key, as it allows for a more comprehensive assessment of the government’s fiscal position. This is particularly important when considering the sustainability of public finances.
What are the Benefits of Medium Term Budgetary Frameworks?
The benefits of MTBFs include:
- Achieving government fiscal sustainability
- Improving the timeliness and quality of information for decision-makers
- Sequencing reform and budget formulation structures based on the country context
- Adjusting reform approaches based on risk management and mitigation
- Integration of Ministry, Department, and Agency (MDA) objectives with government goals, national development strategies, and the Sustainable Development Goals (SDGs)
- Integrating reform with institution through progressive activation
- Modernizing supporting technology architectures and functionality, particularly for FMIS
- Improving international assessments like Public Expenditure and Financial Accountability (PEFA), Public Investment Management Assessment (PIMA), Tax Administration Diagnostic Assessment Tool (TADAT), Debt Management Performance Assessment (DeMPA), and Open Budgets Index (OBI)
- Justifying the use of country systems by donors and country ownership over reform
How to Implement a Medium Term Budget Framework
One of the most important elements of PFM reform is improved support for MTBFs. However, the challenge that governments face is how to operationalize this MTBF good practice within the context of PFM reform. There are a number of key considerations for governments when operationalizing MTBFs:
The first is to ensure that the overall fiscal framework is supportive of the MTBF. This means that the legal and regulatory framework for budgeting, accounting, and reporting needs to be aligned with the requirements of the MTBF.
The second consideration is to ensure that the institutional arrangements for budget preparation, execution, and reporting are supportive of the MTBF. This includes ensuring that there is adequate staffing and capacity within the relevant government institutions to support the MTBF.
The final, and perhaps most important consideration, is to ensure that the IT systems and infrastructure are supportive of MTBF analysis and scenario planning.
The Importance of FMIS Interoperability to Successful MTBFs
Interoperability between government financial subsystems and the core Financial Management Information System (FMIS) means that integration is seamlessly automated, with no need for any manual interface processes. The potential for corrupt practises is therefore reduced. Through integration of metadata, such as the Chart of Accounts, organizational charts, budgets, programs and vendors are shared among financial applications, which in turn share controls such as commitments, obligations and segregation of duties.
MTBFs are an important tool for PFM reform. When designed correctly, it can help ensure fiscal discipline and improve the coordination of government action. However, the success of an MTBF is dependent on having a unified and interoperable Financial Management Information System (FMIS), such as the FreeBalance Accountability Suite™.
How the FreeBalance Accountability Suite™ Supports MTBFs and PFM Reform
The FreeBalance Accountability Suite™ was purpose-built to support MTBFs and PFM reform. It does this through:
- A unified and interoperable FMIS that shares metadata, such as the Chart of Accounts, organizational charts, budgets, programs and vendors
- Fiscal discipline controls such as commitment controls and the segregation of duties
- A flexible rules engine that allows for the easy adaptation as government policy evolves
- An intuitive user interface that is designed for the needs of government users
- Advanced reporting and analytics capabilities that support informed decision-making
- Unified integration with other key government systems, such as revenue management, treasury, procurement and civil service management.
- The ability to track progress against PFM reform milestones and objectives
- Progressive activation, through configuration, to adopt more advanced practices as capacity improves
The development and implementation of an effective MTBF can be a challenge for governments, but it is essential for sound fiscal management and PFM reform. By taking the time to consider the key operational considerations, governments can ensure that MTBF effectiveness to achieve government objectives and fiscal outcomes.
For more information on how FreeBalance can assist with the adoption of medium term budgetary frameworks and PFM reform, get in touch today.