20
Beyond the Annual Budget
links are quite weak between poverty reduction strategy papers (PRSPs), which are a limited form of national strategy, and budget allocations (World Bank 2007). The lack of a national strategy is a significant gap in the design of MTEFs and a potential obstacle to their effectiveness.
Specific Design Issues Several design issues have to be addressed in implementing MTEFs. Countries have options when it comes to determining the key features of their MTEFs.
Coverage Which levels of government should be included and what categories of spending should be constrained? Broad coverage is the most effective because it ensures that all spending is subject to scrutiny and prioritization under an MTEF. A central government MTEF only covers central transfers to subnational governments. Ideally, a government-wide MTEF should cover subnational governments that have substantial budgetary responsibilities, but this may not be feasible when subnational governments have a significant degree of spending autonomy, at least with regard to using an MTEF for making decisions about general government spending as a whole. However, larger subnational governments should be encouraged to adopt their own MTEFs. Moreover, for analytical purposes at the national level, attention should always be paid to the size, structure, and efficiency of general government spending. There is a tendency to frame the debate about the appropriate coverage of an MTEF in terms of what is and is not nondiscretionary spending. Thus some governments exclude interest and entitlements from MTEF coverage because of their nondiscretionary nature. Others exclude a wider range of spending (for example, aid-financed spending, capital spending). However, in principle, all spending programs (at the relevant level of government) should be covered, and attempting to distinguish discretionary from nondiscretionary spending misses the point: the larger the share of total spending that is excluded from scrutiny under the MTEF, the larger the potential fiscal discipline and efficiency gains that are forgone. Moreover, the distinction between discretionary and nondiscretionary spending can be manipulated to lessen scrutiny. It is also the case that some spending, while fixed in the