Sunday, May 16, 2021

New framework will force govt to deal with under-spending problem

In his 2015/16 budget speech, Minister of Finance and Development Planning, Kenneth Matambo said that as part of the Public Finance Management Reform Program that was adopted in July 2010, government will implement the Medium Term Expenditure Framework (MTEF) in the 2015/2016 financial year to strengthen management of public finance spending. However, for the project to be successful, government will need to rein in its perpetual under-spending problem.

The International Monetary Fund has advised Botswana to solve its persistent under-spending problem which is not compatible with the MTEF.

In 2013, at the request of the Ministry of Finance and Development Planning, a five-person team from the Fund’s Fiscal Affairs Department visited Botswana to assist authorities in building consensus on the key principles and technical processes required to foster implementation of an MTEF reform strategy.

The report out of this exercise says that other than 2008/9 and 2009/10, when stimulus spending saw large upward revisions in development spending, the development budget has been underspending by an average 15 percent (1.5 percent of GDP) since 2005/6.

“This underspending is symptomatic of a number of problems including a mis-sequenced costing process, which sees investment projects included in the budget before they are accurately costed, resulting in overbudgeting in the early years, and cost over-runs and delays in the later years,” says the IMF, adding that “if not urgently addressed, underspending will constrain the credibility of the MTEF.”

MTEF refers to a top-down estimate of aggregate resources available for public expenditure consistent with macro-economic stability; bottom-up estimates of the cost of carrying out policies, both existing and new; and a framework that reconciles these costs with aggregate resources. It brings together policy-making, planning, and budgeting early in the budgeting cycle, with adjustments taking place through policy changes.

The Fund says that the introduction of an MTEF has the potential to facilitate aggregate fiscal discipline; foster better expenditure prioritisation by lengthening the time horizon for budget decision-making and increasing the scope for shifting expenditures towards high priority areas; and, increase certainty in public spending.

The Fund further states that forecasts of revenue and expenditure have traditionally varied significantly from the budget, with the government usually returning surpluses larger than originally forecast in the budget.

“Revenues are persistently underforecasted, with an average error of 3.6 percent of GDP, whilst expenditures usually underperform, with an average error of 2.8 percent of GDP. These variances necessitate significant within-year adjustments to the budget whilst excess revenues can create pressure for new spending requests to be financed.”

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