Tuesday, March 9, 2021

Botswana to introduce medium-term expenditure framework by 2016

The International Monetary Fund (IMF) has revealed that the government of Botswana has agreed to a new expenditure review–a move which will pave way for the diamond rich nation to maintain expenditure discipline in a bid to meet government’s objective of reducing spending.

The IMF said the medium-term expenditure framework (MTEF) will be introduced by 2016 and it will link National Development Plan (NDP) priorities and budget allocations by adopting a medium-term budgeting horizon. However, the IMF warned that the design characteristics of the MTEF need to be chosen carefully to meet specific fiscal consolidation objectives of government.

The proposed model is aimed at maintaining expenditure discipline to meet the government’s objective of reducing spending to 30 percent of GDP from the current 36 percent and running budget surpluses in order to rebuild government reserves that had fallen significantly in recent years. An MTEF model based on a binding nominal expenditure ceiling covering
100 percent of government expenditure is appropriate.

The key features would include a three-year aggregate expenditure ceiling – fixed for the budget year (BY) and the first out-year (BY+1), but which may be adjusted in the second out-year, in recognition of the volatility facing Botswana’s economy. Another feature would be binding ministerial allocations for the budget year (BY); indicative allocations for first out-year (BY+1) and second out-year (BY+2)–constrained by the aggregate expenditure ceiling–to allow reallocation of spending from low- to high-priority areas.

The IMF said to support the commitment to the resource allocations approved under the MTEF, a number of prioritisation, control, and accountability arrangements need to be put in place. These arrangements form a key part of the MTEF and are required to:
(i) Increase the legitimacy of expenditure allocations;
(ii) Ensure that once the allocations are decided upon, they can be executed effectively; and
(iii) Demonstrate that the government is meeting its
previously stated commitments, and if not, state reasons for any deviations.
Some of these elements are in place, but they will require
strengthening and refinement. These include:
(i) The need to undertake more frequent forecasting rounds that cover the full range of macroeconomic, revenue and expenditure areas;
(ii) Building a margin for contingencies in the
outer years; and
(iii) A greater degree of political involvement in
prioritization between different spending areas in order to give the allocation legitimacy.
“Successful MTEFs require credible macro-fiscal forecasts, which inform the setting of aggregate expenditure ceilings. Botswana is strengthening its macro-fiscal forecasting capability. The government now has a coherent medium-term framework that can provide aggregate revenue, expenditure, and fiscal balance projections,” IMF warned.

Further improvements would include:
(i) Broadening the coverage of the
framework;
(ii) Incorporating balance sheet dynamics; and
(iii) Systemised assessment of past forecast errors to improve the credibility of the forecasts.

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