PI-16. MEDIUM-TERM PERSPECTIVE IN EXPENDITURE BUDGETING
ABOUT THE INDICATOR
This indicator examines the extent to which expenditure budgets are developed for the medium term within explicit medium-term budget expenditure ceilings. It also examines the extent to which annual budgets are derived from mediumterm estimates and the degree of alignment between medium-term budget estimates and strategic plans. It contains the following four dimensions and uses the M2 (AV) method for aggregating dimension scores:
• Dimension 16.1. Medium-term expenditure estimates
• Dimension 16.2. Medium-term expenditure ceilings
• Dimension 16.3. Alignment of strategic plans and medium-term budgets
• Dimension 16.4. Consistency of budgets with previous year’s estimates
IMPACT ON BUDGETARY OUTCOMES
A medium-term perspective on budgeting supports aggregate fiscal discipline by establishing forward year estimates that provide the baseline for future budget allocations. This promotes greater predictability in budget allocations and expenditure planning and prioritization and enables the government, parliament and public to track expenditure policy decisions. The implications of policies often extend well beyond the current budget year and a mediumterm perspective allows the effects on future years to be more apparent. A medium-term perspective can also provide a more useful framework for managing incremental changes in resource allocation.
INDICATOR MEASUREMENT GUIDANCE
16:1. Expenditure policy decisions have multiyear implications and should be aligned with the availability of resources in the medium-term perspective. The resulting expenditure estimates
must be consistent with the fiscal aggregates determined through a fiscal strategy (considered in PI-15. Fiscal strategy). They also need to be consistent with revenue projections and ongoing expenditure policy budgetary requirements (considered in PI-14. Macroeconomic and fiscal forecasting).
16:2. The estimates for the years following the budget year in a medium-term budget should provide a fiscal constraint in accordance with the fiscal strategy, as well as providing the basis for the future year’s budget allocations at an aggregate and ministry level. The medium-term budget estimates should be updated annually, building on the previous year’s budget and estimates, through a process that is transparent and predictable. Expenditure policy proposals submitted to the government should be aligned with the policy objectives set out in approved and costed strategic plans.
Dimension 16.1. Medium-term expenditure estimates
DIMENSION MEASUREMENT GUIDANCE
16.1:1. This dimension assesses the extent to which medium-term expenditure estimates are prepared and updated as part of the annual budget process. The preparation of medium-term estimates is intended to strengthen fiscal discipline and improve predictability of budget allocations. Medium-term estimates should be disaggregated by high-level administrative, economic, and program or functional classification. The administrative classification should identify the relevant budget head of appropriation—for example, the ministry or department. To provide ministries and program managers with the flexibility to manage and respond to budgetary pressures within their expenditure ceilings, disaggregation by economic type may be at the 2-digit GFS (equivalent) classification only (as applied under PI-2.2 Expenditure composition outturn by economic type).
16.1:2. The presentation of estimates of expenditure for the budget year and the two following fiscal years at the first level of the functional classification is sufficient for an A score (with other requirements met).
Pillar Four: Policy Based Fiscal Strategy and Budgeting