Medium-Term Fiscal Frameworks and Fiscal Risks

09/10/2018 - 09/14/2018 at Sandton, Johannesburg, South Africa

Robust macroeconomic and fiscal forecasts are crucial to developing a sustainable fiscal strategy and ensuring greater predictability of budget allocations. In most countries medium-term macro-fiscal forecasts are presented as part of their Medium-Term Fiscal Framework (MTFF). The MTFF encompass the top-down specification of the aggregate resources envelope and is also the foundation for developing a sound medium-term budget framework (MTBF) and annual budget. In terms of the three main goals of Public Financial Management (aggregate fiscal discipline, strategic allocation of resources, efficient service delivery), the focus of the MTFF is on maintaining aggregate fiscal discipline and fiscal sustainability. The MTFF is the appropriate vehicle to explore the boundaries to the set of fiscal and macroeconomic policies that are consistent with continued financial stability and fiscal sustainability.

More than 15 years ago, many countries in sub-Saharan Africa embarked on a program of budgetary reform, an important element of which was a medium-term budget framework (MTBF). The objectives of this reform were to enhance fiscal discipline, achieve a better alignment of resource allocation with national priorities, and improve the certainty of funding, both internal and external, over the medium term. The progress of these reforms, in six selected countries, is assessed by a recent IMF Working Paper. It assesses the effectiveness of MTBFs in achieving improved fiscal discipline, resource allocation, and certainty of funding, as well as wider economic and social criteria such as poverty reduction and more efficient public investment. The authors recommend developing countries to focus on building their capacity in macro-fiscal forecasting and analysis. This will allow the authorities to table a credible MTFF that creates the base for a credible medium-term budget framework.