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Botswana: Technical Assistance Report-Introducing a Medium-Term Expenditure Framework

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by International Monetary Fund. Fisc Dept.
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Botswana: Technical Assistance Report-Introducing a Medium-Term Expenditure Framework by International Monetary Fund. Fisc Dept.

EXECUTIVE SUMMARY The Government of Botswana has committed to introduce a Medium-Term Expenditure Framework (MTEF) by 2016. The MTEF will provide a more explicit linkage between National Development Plan (NDP) priorities and budget allocations by adopting a medium-term budgeting horizon. The design characteristics of the MTEF need to be chosen carefully to meet specific fiscal consolidation objectives of the 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 of GDP 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: • Three-year aggregate expenditure ceilings - 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; and • 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. To support the commitment to the resource allocations approved under the MTEF, a number of prioritization, 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 the 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. Further improvements would include: (i) broadening the coverage of the framework; (ii) incorporating balance sheet dynamics; and (iii) systemized assessment of past forecast errors to improve the credibility of the forecasts.

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Ebook Details
Pages: 21
Size: 2.8 MB
Date published:   2014
ISBN: 9781498397506 (DRM-EPUB)

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Nonfiction > Business & Economics > Money & Monetary Policy
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