BUDGET PREPARATION PROCESS

MTBF components:

• A strategic (‘top-down’) component which sets the overall framework for the budget and leads to the setting of medium term ceilings for each line ministry at the start of the annual budget preparation process.
• A line ministry (‘bottom-up’) component which reforms the budget preparation process within line ministries and helps build the capacity for line ministries to prepare and manage their budgets in a strategic way.

MTBF Process:

The MTBF involves preparation by line ministries of three-year expenditure estimates within the ceilings provided by the Ministry of Finance (for the recurrent budget) and by the Planning Commission (for the development budget). Each year, the MTBF process involves the rolling forward of the previous MTBF estimate by one year and the addition of a new outer year. As shown in the figure below, the MTBF and annual budget are not two separate processes; the annual budget represents the first year of the MTBF.

Relationship between the annual budget and the MTBF process (where t = year):

Details of MTBF system includes:

• Technical underpinnings of the strategic top-down component of the MTBF (the Financial Programming Framework - FPF). The FPF provides GoP with the ability to analyse alternative macroeconomic scenarios in a consistent manner;
• Medium Term Fiscal Framework (MTFF). Constructed using the FPF, the MTFF provides MoF with the ability to articulate fiscal policy objectives consistently and transparently with a range of stakeholders;
• Budget Strategy (BSP) process. The BSP provides a mechanism for better quality fiscal information reaching Cabinet, improved analysis of budgetary options, trade-offs and risks, and the basis for the setting of budget ceilings for federal line ministries
• Establishment of Macroeconomic and BSP Working Groups. These groups enable Government leadership, participation and ownership in respect of the above-mentioned instruments, and ensure a consistent understanding of macroeconomic issues to be shared across government.
• Procedures for setting budget ceilings; This ensures that strategic fiscal policy decisions made by Cabinet are translated into action in the form of budgetary allocations (ceilings) for federal ministries i.e. that policy decisions and budgetary allocations are linked
• Implementation of Output Based Budgeting (OBB) across all ministries/divisions of the federal government. The establishment of OBB and its reporting to Parliament (through the ‘Green Book’) represents a step change in transparency of the federal budget and the foundation for a move towards greater accountability for results.
• Several thousand Federal Government officers at all levels in the federal government have been taken through training in the MTBF procedures, including follow-up training. The establishment of induction and mid-career training on MTBF for public servants in the civil service training institutions is well-advanced.

Top-Down:

The ‘top-down’ component aims to strengthen the alignment of allocations through the federal budget to the strategies and priorities of the Government.

The ‘top down’ component has 3 elements:

• It is built on the Medium Term Fiscal Framework (MTFF), which is developed for reporting to the National Assembly under the Fiscal Responsibility and Debt Limitation Act (2005). The MTFF establishes available resources.
• A Budget Strategy Paper (BSP) which is prepared annually (in October and February each year) and provides an analysis of pressures on the budget and the options for sectoral expenditure in the light of government priorities. The BSP is prepared by Finance Division and the Planning Commission jointly.
• The setting of indicative budget ceilings for the recurrent and development budgets for each line ministry (initially the MTBF ministries) at the start of the budget preparation process – based on the analysis of the BSP.

The Purpose of 'Top-Down':

The prime purpose of the BSP is to provide an analytical and informed basis for the identification of strategic priorities, and the allocation of public resources through a system of indicative budget ceilings consistent with the agreed priorities at the sectoral and ministerial level. In addition, the BSP will provide a broader review of the budget management system and point to key issues in budgetary management which require attention with a view to improving both the resource allocation process and the effectiveness of budgetary spending.

Bottom Up

The “bottom-up” component of the MTBF works with selected line ministries to:

• Replace the traditional process for budget preparation, which is driven upwards by the spending units, with a top-down process within each line ministry whereby the senior management of the ministry direct the budget preparation process
• Strengthen the definition of the services (outputs) to be delivered by each ministry
• Identify the costs of delivering each service, initially by mapping the current allocation of expenditure onto outputs, thereby providing a ‘baseline’ cost-per-output

The aim is to strengthen budget preparation in line ministries by:

• Developing budget preparation procedures which help ensure that the strategic objectives of the line ministry are reflected in budgetary allocations
• Increasing the role of senior line ministry management in budget preparation as a way of strengthening their ownership of the budget and associated accountability
• Supporting complementary changes in the role of Finance Division (Expenditure Wing) during review and finalization of budgets prepared by line ministries
• Requiring budgets to be presented in a way that clearly identifies the current cost of each output (service delivered) to enable issues of efficiency and effectiveness of service delivery to be assessed

Budget Preparation under the MTBF:

The figure below illustrates the approach to budget preparation to be adopted under the bottom-up component: