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    Korean Case - MTEF

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    International Consortium on Governmental Financial Management
    This document summarizes key aspects of Korea's Medium Term Expenditure Framework (MTEF). It discusses why Korea introduced an MTEF, including the need for fiscal consolidation. It describes features of Korea's MTEF, including how it was introduced in stages and its relationship to other public financial management reforms. Finally, it outlines lessons learned, such as the importance of stakeholder ownership, public participation, and continuous updating of the MTEF.

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    Korean Case - MTEF

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    International Consortium on Governmental Financial Management
    182 views21 pages
    This document summarizes key aspects of Korea's Medium Term Expenditure Framework (MTEF). It discusses why Korea introduced an MTEF, including the need for fiscal consolidation. It describes features of Korea's MTEF, including how it was introduced in stages and its relationship to other public financial management reforms. Finally, it outlines lessons learned, such as the importance of stakeholder ownership, public participation, and continuous updating of the MTEF.

    Original Description:

    Young Kyu Kang, Senior Public Sector Specialist, World Bank

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    This document summarizes key aspects of Korea's Medium Term Expenditure Framework (MTEF). It discusses why Korea introduced an MTEF, including the need for fiscal consolidation. It describes features of Korea's MTEF, including how it was introduced in stages and its relationship to other public financial management reforms. Finally, it outlines lessons learned, such as the importance of stakeholder ownership, public participation, and continuous updating of the MTEF.

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    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    182 views21 pages

    Korean Case - MTEF

    Uploaded by

    International Consortium on Governmental Financial Management
    This document summarizes key aspects of Korea's Medium Term Expenditure Framework (MTEF). It discusses why Korea introduced an MTEF, including the need for fiscal consolidation. It describes features of Korea's MTEF, including how it was introduced in stages and its relationship to other public financial management reforms. Finally, it outlines lessons learned, such as the importance of stakeholder ownership, public participation, and continuous updating of the MTEF.

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    PUBLIC FINANCE

    Korea Case - MTEF


    MAY 1, 2012 YOUNG KYU KANG SENIOR PUBLIC SECTOR SPECIALIST WORLD BANK PRMPS

    Contents
    Why Korea?
    - Fiscal Consolidation and Uniqueness

    Features of Korean MTEF


    - MTEF introduction - Relationship with other PFM

    Lessons from Korean MTEF


    - Ownership - Going Public - Continuous updating

    Why Korea?
    FISCAL CONSOLIDATION

    Fiscal Consolidation has been and will be restored quickly after Global Financial Crisis
    % of Fiscal balance/GDP
    Source: 2011-2015 NFMP, MOSF

    4 2 0 -2 -4 -6
    2011-2015 NFMP

    Consolidated Fiscal Balance Managerial Fiscal Balance*


    * MFB=CFB-Balances of 4 social insurance funds such as National Pension Fund

    MTEF is the critical tool for restoring Fiscal Consolidation while supporting national agenda such as Green Growth

    Why Korea?
    UNIQUENESS Introduction style

    Big Bang, not platform approach

    MTEF stage

    MTPF (stage 3)

    Due to Koreas sound PIM system and the simultaneous introduction of PBB and MTEF, not only was Big bang reform possible but also the jump of MTEF stage from MTFF to MTPF Sound fiscal consolidation was key factor to overcome financial crisis in 1997 and 2008

    Features of Korean MTEF - Introduction stages -

    Features of Korean MTEF?


    1. MTEF INTRODUCTION
    Who

    Budget Office initiated MTEF introduction by persuading stakeholders


    To consider future expenditure needs in Social Welfare and the need to allocate resources strategically MTEF (with Top-down budgeting, PBB) Without specific fiscal reforms for decades, the reforms happened from 2004-2007 By empowering budget formulation authority to LMs and appealing decentralization to the public and political stakeholders

    Why

    What

    When

    How

    Ref: Incentives to stakeholders

    Budget Office

    -Strengthening Policy initiatives (while empowering budget authority to LMs) -Fiscal Consolidation

    -Transparency (aligned with the philosophy of political regime) -Control (Tool for supporting national agendas fiscally)

    President

    -Strategic Resource Allocation -Fiscal consolidation -Transparency

    Assembly The Public/ Experts

    Internal Staff
    -Empowerment (BO will respect LMs budget request within the ceiling)
    -Certainty in budget allocation

    Line Ministries

    Features of Korean MTEF


    2. RELATIONSHIP WITH OTHER PFM
    As MTEF was introduced, Top-Down Budgeting was required, and these two reforms initiated PBB
    Annual budgeting Top-Down
    (from Bottom-up)
    Changes in budget Calendar

    MTEF

    Integrated FMIS

    PBB
    (PART/In-Depth Study)

    Fiscal Reforms closely connected with each other and function harmoniously

    Lessons from Korean MTEF - Operation stages -

    Lessons from Korean MTEF


    1. OWNERSHIP The President and Cabinet endorse MTEF Budget authority
    - maintain MTEF even in Global Financial Crisis - try to keep fiscal balance target and fiscal support for national agenda as envisaged in MTEF by restructuring expenditures through prioritization*
    * Ineffective Program by PART result will be cut by 10% comparing with last years budget

    System itself does not verify success, Ownership does matter

    Ref: Comparison of last 3 MTEFs


    (Trillion Korean Won, % of GDP)

    Category Revenue

    MTEF 2011-2015(A) 2010-2014(B) 2009-2013(C) Gap(A-C) Expenditure 2011-2015(D) 2010-2014(E) 2009-2013(F) Gap(D-F) Consolidated 2011-2015(G) Fiscal 2010-2014(H) Balance 2009-2013(I) Gap(G-I)

    2010 290.8 287.8

    292.8 291.8

    -0.2 -0.4

    2011 2012 2013 2014 2015 314.4 344.1 375.7 395.8 415.3 314.6 342.9 365.1 390.9 309.5 337.6 361.7 4.9 6.5 14.0 309.1 326.1 341.9 357.5 373.1 309.6 324.8 337.7 353.0 306.6 322.0 335.3 2.5 4.1 6.6 0.4 1.3 2.3 2.4 2.5 0.4 1.3 1.9 2.5 0.2 1.2 1.9 0.2 0.1 0.4
    Source: MOSF NFMPs

    -Conservative Revenue forecast -Increase in expenditure is well below that of revenue -With this effort fiscal balance is getting better than last MTEF

    Lessons from Korean MTEF


    2. PARTICIPATION AND GOING PUBLIC MTEF and annual budgeting procedures involve participation from both experts and the public through public hearing or discussion on major fiscal agenda while making MTEF Give Justification to MTEF When MTEF is submitted to the Assembly it is informed to the public Play a constraint to the stakeholders

    Lessons from Korean MTEF


    3. CONTINUOUS UPDATING
    Since the introduction of MTEF in 2004, whenever there are challenges in MTEF, Budget office amends and updates MTEF - Example 1: Some LMs announced new plan without coordination with MTEF, and the completion of MTEF was threatened In 2008 the Budget office added prior coordination with MTEF rule in the National Fiscal Management Law - Example 2: Initially the Budget office allocated 5 year resource allocation on every project while making MTEF. This practice was not only time-consuming but also redundant between MTEF and annual budgeting from LMs Budget office only forecast major projects and fluctuating projects while treating other projects on lump sum Initial MTEF cannot be perfect

    Thank you
    Young Kyu Kang Senior Public Sector Specialist World Bank PRMPS ykang2@worldbank.org Office phone: 1 (202) 458-9451

    Ref: MTEF & Budgeting Calendar


    Month
    1 Before MTEF Introduction After MTEF Introduction MTEF Preparation (LMs)

    2
    3 4 5 6 7 8 9 10 11

    No official process
    -BO checks major ongoing and new projects internally -LMs request next year budget on May 31

    MTEF Draft (BO) -Coordination(BO/LMs) -Cabinet Meeting -Ceiling informed to LMs


    Budget Draft by LMs

    -MTEF T/F Team Work -Finalizing MTEF -Submit to the Assembly

    - Budget Formulation (without ceiling) - MOSF submit Budget Draft to the Assembly

    -Budget Formulation (with ceiling) -Submit to the Assembly - Assembly Review

    - Assembly Review

    12

    Ref: MTEF and Annual Budget Process 1

    January 3
    MOSFLMs

    MOSF (Budget Office) sends the guideline for rolling MTEF to LMs
    - Guideline covers how and in what case resource can be increased

    January 31
    LMsMOSF

    LMs request new MTEF plan to MOSF


    - Considering changes in Economic & Social situation and new national agenda, LM request new MTEF draft

    Feb - Apr
    MOSF/LMs

    MOSF makes MTEF draft through coordination with LMs


    - MTEF T/F teams are organized and research is initiated on the policy direction of resources allocation. - Public hearing executed - Fiscal Strategic Cabinet Meeting endorse sectoral allocation & Ceilings to LMs while discussing fiscal and national issues

    Ref: MTEF and Annual Budget Process 2

    Apr 30
    MOSFLM

    MOSF (Budget Office) sends Budget call circular and the ceilings to LMs
    - Budget call circular covers economic condition forecast and resource allocation direction - Next years expenditure in MTEF are set as ceilings (Ceilings for sectoral, entities and some major project)

    May - June
    LM

    LMs formulate their own budget draft


    - Considering changes in Economic & Social situation and new national agenda, LM request new MTEF draft

    June 30
    LM MOSF

    LMs request next year budget to MOSF


    - Considering the ceilings informed, LMs make budget draft

    Ref: MTEF and Annual Budget Process 3

    July-Sept
    MOSF/LM

    MOSF settle the budget for each project with consultation with LMs considering MTEF T/F recommendation
    - Budget review committee in Budget office decide final allocation - After MTEF introduction Budget office review only some major and important projects while checking whether national agenda are properly supported (Ceilings for sectoral, entities and some major project) - MTEF is finalized by adjusting with annual budget and reflecting MTEF T/F teams suggestions - With MTEF introduction, the budget coordination period was shortened by a month whereas LMs Budget formulation period extended by a month

    Ref: MTEF and Annual Budget Process 4

    Oct 2
    MOSF

    MOSF submit Budget Draft to Assembly for finalization and MTEF for information
    - With meetings with stakeholders like fiscal experts, LMs and local governments, Budget office finalize budget draft

    Oct-Dec 2
    Assembly

    Assembly finalize budget through each standing committee and Budget committee

    December
    MOSF/LMs

    MOSF submit Budget Draft to Assembly


    - Under the finalized budget MOSF set disbursement plan by matching revenue and expenditure schedule

    Ref: Contents of Korean MTEF

    Overview

    -Fiscal Policy direction and future goal -Economic forecast based on internal and external conditions Growth rate forecast Revenue forecast -Integrated Expenditure forecast considering national agenda and other policy supports -Government debt and Fiscal Balance forecasts -Ratio of tax against national income -Sectoral expenditure allocation plan - 16 areas (R&D, SOC, Social Welfare etc.) covered -Each sector consists policy direction and the annual size of resources -Major projects detail investment plan commented

    Detail plan by sectors

    How to decide fiscal envelope


    INTEGRATION OF TOP-DOWN AND BOTTOM-UP
    Economic Policy Bureau
    Growth forecast

    Tax Office
    Tax revenue forecast

    Budget Office

    Economic forecast

    Revenue forecast Fiscal Targeting

    T/F teams
    External expert

    Expenditure forecast

    Ceilings

    Expenditure requests

    Line ministries

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