Relationship among GPRSP-1, MTEF, and the Budget

Relationship among GPRSP-1, MTEF, and the Budget

30. 
    To assess the alignment of the annual budget with the GPRSP-1,¹⁷ this review examines the relationship between the 5 stated goals of the GPRSP-1 and the 2005 and 2006 PIP (programming and execution). In this exercise, only investment data are analyzed for two reasons: the link between GPRSP-1 and the budget is mostly established through the PIP, and the way the budget is prepared did not allow relating changes in current expenditures to the GPRSP-1.
    
31. 
    The government did not have a comparable (one-to-one) programming framework for both the GPRSP-1 and PIP action plans, to analyze PIP expenditure in a more detailed manner in light of GPRSP-1 targets. Data for 2005 and 2006 concerning the projects and programs in the PIP implementation table were grouped under 5 categories associated with the 5 GPRSP-1 pillars. Total investments for each of the 5 pillars of the GPRSP-1 document are included in table 2.13.
    
32. 
    Overall, the financial programming associated with priority actions of the GPRSP-1 was very ambitious. For example, in a scenario of average annual execution of PIP of CVE 8.9 billion during 2002–04 (8.8 billion CVE in 2004), the GPRSP-1 program suggested the need for an investment budget of 14.2 billion CVE for 2005 (an increase of 61 percent with respect to 2004). This amount also is above the amount in the MTEF (CVE 13.5 billion).¹⁸ Furthermore, the budget allocation went beyond both MTEF and PRSP. The 2005 budget allocated CVE 16.5 billion to PIP (16 percent above the GPRSP-1 and 21 percent above the MTEF). As a result, the execution rate of PIP was only 73 percent, with the obvious implications of not completing, delaying, or cancelling planned projects.
    
33. 
    Annual budget allocations (and executions) per pillar were not consistent with the GPRSP-1 financial programming, indicating that the GPRSP-1 did not guide budget preparation. The GPRSP-1 financial programming suggested that infrastructure was a clear priority by allocating more than 60 percent of the resources to Pillar IV (Infrastructure).¹⁹ In both 2005 and 2006, infrastructure had the largest share (approximately 40 percent), however, not as high as intended under the GSPRS-1. On the other hand, GPRSP-1 financial programming indicated that no more than 1 percent should be allocated to Pillar I. Budget allocations and executions show otherwise. Pillar I received approximately 15 percent in 2005 and 2006. Moreover, allocations for Pillar III were approximately twice the allocations indicated in the GPRSP-1 in 2005, and three times larger in 2006.
    

34. 
    MTEF (2005-2007) and GPRSP-1 were not aligned. The authorities prepared the first global MTEF in 2004, which covered 2005–07, the same period as the GPRSP-1. However, these two were prepared on different tracks with very little coordination. While GPRSP-1 was prepared using pillars and objectives, the MTEF was prepared according to a classification that was a mix between administrative functions and objectives (for recurrent and investment budgets). In the case of the priority sectors, education and health (two of the few sectors in which comparison is possible), it should be expected that GPRSP-1 benchmarks should match MTEF projections. However, deviations are huge. MTEF projections for education and health deviate 40 percent and 100 percent, respectively, from the GPRSP-1 goals. It can only be assumed that that MTEF did not guide the GPRSP-1 preparation, and thus did not support the government’s fiscal strategy, which intended that allocations to sectors and ministries reflect political priorities and that projects and programs are adequately and reliably funded through the budget.
    

35. 
    It is difficult to correlate sectoral allocations between MTEF and annual budgets. The MTEF projects recurrent and investment budgets by a classification that matches neither the administrative classification of the budget nor the programs of PIP. While it is difficult to compare sectoral allocations, it is possible to compare total allocations for recurrent and investment budgets. Budget allocations consistently surpassed MTEF projections (table 2.15). This divergence is particularly concerning since, under a fixed exchange rate regime, fiscal policy remains the primary instrument of macroeconomic management. In sum, results suggest that the MTEF did not define the framework for public expenditure planning, for 2005, 2006, and 2007.
    

36. 
    There is not yet a legal framework for MTEF preparation, which may explain why the process is incipient. The current planning law dates from 1985 (Law 52/II). The draft of the budget planning law (approved by the Council of Ministers in April 2006) introduces the several planning instruments: the Economic and Social Development Plan (PDES), which will replaces the PND; the global MTEF; and the sectoral MTEFs.²⁰ After its first round of discussions, Government withdrew the law from the Parliament. Debate about critical concepts, such as decentralization and regionalization, brought about the decision to revise the draft law, which is expected to start being redrafted soon.
    
37. 
    In 2004 four line ministries started preparing sectoral MTEFs with international technical assistance (Health; Education; Agriculture, Fisheries and Environment; and Social Protection). Only Education finalized the MTEF with success. The difficulties in preparing the sectoral MTEFs resulted largely from lack of capacity, shortage of human resources at the sectoral level, and lack of coordination between the Budget General Directorate (DGO) and the General Directorate for Planning (DGP). Furthermore, the preparation of the sectoral MTEFs overlapped the preparation of the global MTEF, and the interaction between the two processes was inefficient. The global MTEF set ceilings that were respected as truly the upper limits. As a result, the global MTEF was revised to accommodate the revised ceilings.
    
38. 
    The authorities are currently finalizing the revision of the MTEF (2008-2010) which they plan to revise on a rolling basis. Furthermore, several sectors are preparing their sectoral MTEFs. To ensure the effectiveness of both the global and the sectoral MTEFs it is critical to move forward with the legislation that supports their implementation (Budget Framework and Budget Planning Law) and to build capacity at the sectoral level for MTEF preparation. Furthermore, adequate integration between MTEF and the budgetary process should be ensured. With regard to the GPRSP-1-2, we recommend that its priorities to be reflected into the annual budgets in order to achieve the proposed GPRSP-1-2 goals.