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### INTRODUCTION: purpose, scope, objectives
- Institutional arrangements of Ministries of Finance (MoFs) can impact the effectiveness of achieving macro-fiscal objectives and longer-term fiscal stability.
- Focus: internal structures of selected African MoFs pursuing Medium-Term Fiscal Frameworks (MTFFs), targets, strategies, and fiscal rules.
- Study examines variance in size of Macro-Fiscal Departments (MFDs) in a 16-country eastern and southern Africa sample.
- Objectives:
  - Review institutional arrangements for the macro-fiscal function in MoFs of the 16 countries listed in Annex 1.
  - Assess strengths and weaknesses in performing macro-fiscal functions.
  - Discuss main challenges and possible policy solutions for strengthening macro-fiscal management.
- Methodology: survey of macro-fiscal function in the 16 countries; analysis of macro-fiscal forecasts; data verified via IMF AFRITAC participants. The January 2018 cut-off applies to the database.

*Source: wpiea2021030-print-pdf - INTRODUCTION*

### II. Key components and outputs of the macro-fiscal function
- Principal task: prepare an MTFF that:
  - Lays out medium-term fiscal projections.
  - Specifies fiscal policies needed to achieve medium-term fiscal objectives.
  - Provides an analysis of fiscal risks.
- Three main macro-fiscal functions identified:
  - Macroeconomic and fiscal forecasting (may include DSA).
  - Policy analysis (macroeconomic, fiscal, tax).
  - Fiscal risk analysis.
- Ten sub-functions (enumerated in source; nine explicitly listed then 10. Monitoring debt):
  1. Macroeconomic forecasting (annual and medium-term; GDP and inflation most important).
  2. Medium-term fiscal framework (prepare or collate MTFF components).
  3. Revenue forecasting (tax and non-tax revenues).
  4. Expenditure forecasting (aggregate 3-year forecasts; Budget Department coordinates detailed annual estimates).
  5. Debt projections and debt sustainability analysis.
  6. Fiscal policy analysis (strategy, fiscal rules).
  7. Fiscal risk analysis (SOEs, PPPs, financial institutions, local governments, environment; public sector balance sheet tool).
  8. Monitoring macroeconomic developments (in-year reports).
  9. Monitoring the fiscal framework (assess tracking vs forecasts; identify breaches).
  10. Monitoring debt (ascertain causes of variations from fiscal and debt targets; coordinate MTFF/debt strategy, fiscal risk statements, in-year reports, end-year outcomes).

### Institutional arrangements: models and cross-country patterns
- Three main organizational arrangements (outside Africa):
  - Single MoF unit performs all macro-fiscal functions.
  - Various MoF departments perform specific functions collaboratively.
  - Two or more ministries/agencies perform functions with MoF coordination.
- Independent fiscal bodies complement MFDs; rarely prepare official macro-fiscal forecasts used in budgets.
- In the 16-country sample (January 2018):
  - Single MoF division performing most functions: Eritrea*, Kenya, Lesotho*, Mauritius, Rwanda, Tanzania, Uganda, Zimbabwe.
  - Several MoF departments: Mozambique, Namibia, Seychelles, Zambia.
  - MoF + planning/economy ministry: Ethiopia, Madagascar, Malawi, Zanzibar.
  - Note: *= Fiscal risk analysis not yet performed by the MFD; macro-fiscal functions exclude DSA and debt monitoring.
- Observation: most countries with comprehensive MFD outputs adopted the “single division within the MoF” model to facilitate coordination.

### Distribution of sub-functions within MoFs
- Typical allocations:
  - Macroeconomic projections, MTFF, fiscal risk analysis: performed by MFDs in most countries.
  - Debt projections and monitoring: typically Debt Department or debt management office.
  - Revenue projections: prepared in MFDs in 8 of 16 countries; elsewhere by Tax Policy Unit or revenue agency.
  - Expenditure projections: Budget Department prepares detailed/expenditure estimates in half the countries; MFD prepares aggregates in others.
- Note: Mozambique counted expenditure forecasting to both MFD and Budget Department (17 observations for 16 countries).

### Staff, budgets, seniority, and turnover
- Staff numbers (2018):
  - Nine of 13 MFDs had less than 15 professional staff; Mauritius had 3, Lesotho 13.
  - Mozambique, Kenya and Uganda: 22 to 30 professional staff.
  - Tanzania’s Policy Analysis Department: 61 professionals (outlier).
- Regression finding: number of staff correlated with country population but not number of functions.
- Budgets (early 2018, 10 countries with data):
  - Ethiopia, Kenya, Mauritius, Rwanda, Uganda: MFD annual budget share < 1 percent of MoF budget.
  - Other countries: MFD share generally in 1 to 3 percent range.
- Turnover:
  - Annual turnover up to 45 percent (Namibia and Seychelles).
  - Moderately high turnover: Eritrea, Lesotho, Malawi, Zambia, Zanzibar, Zimbabwe.
  - Lower turnover: Ethiopia, Kenya, Mauritius, Rwanda, Uganda.
  - Vacancies: number of staff positions often exceeds filled staff due to vacancies.
- Seniority and pay:
  - Head of MFD salary similar to Debt Managers in many countries.
  - Budget Director and Accountant General often paid higher; Accountant General may head independent office with different remuneration.

### Legal framework and fiscal transparency
- 15 of 16 countries have laws underpinning annual budget and PFM systems; Eritrea is the exception.
- Substantive recent legal changes in: Kenya, Rwanda, Tanzania, Uganda.
- Kenya’s Public Finance Management Act 2012 requires:
  - Medium-term fiscal strategy (Budget Policy Statement) and progress report (Budget Review and Outlook Paper).
  - Publication of reports on fiscal risks (annually) and pre-/post-election fiscal update reports.
- Uganda requires a Charter of Fiscal Responsibility adopted soon after elections; Parliament approves multi-year fiscal objectives.
- Kenya, Rwanda, Tanzania laws: Government may change MTFF fiscal aggregates yearly; Parliament reviews MTFF but laws do not explicitly require parliamentary approval for MTFF (except Uganda).

### Fiscal rules and fiscal frameworks (Annex 2 summary)
- Fiscal rule definition: long-lasting numerical limits binding at least three years with legislative basis (Lledó et al., 2017).
- Country-level (2018) parliamentary-approved fiscal rules in 4 of 16 countries:
  - Kenya: PFM Act 2012 Article 15 (development borrowing only for development expenditure; at least 30 percent of total expenditure to development).
  - Mauritius: Public Debt Management Law (2008, amended 2017) public debt ≤ 60 percent of GDP by FY2020/21.
  - Mozambique: Five-year Plan (2015–19) fiscal targets treated as limited-duration fiscal rules (e.g., deficit and revenue/GDP targets).
  - Uganda: Charter of Fiscal Responsibility 2016 quantitative targets for 2016/17–2020/21 (fiscal balance ≤ 3 percent of GDP by FY2020/21; public debt NPV < 50 percent of GDP).
- Namibia and Seychelles: medium-term fiscal objectives set by Government but not parliamentary-approved; thus not fiscal rules.
- Credibility concerns: frequent changes to medium-term deficit targets undermine MTFF credibility; example: Kenya’s total expenditure revised up by more than 9 percent on average over the last decade.

### Forecasting tools, data practices, and coverage
- Forecasting tools:
  - IMF financial programming framework used by 12 of 16 countries for forecasting main macroeconomic accounts.
  - All 16 countries use Excel spreadsheets for fiscal forecasting.
  - Twelve countries rely exclusively on Excel; three use EViews+Excel.
  - Ten of 16 rely heavily on email and USB drives rather than file-sharing servers.
  - Development and recurrent costs for tools and training are significant; Uganda example: built three economic models using EViews and a proprietary CGE package over five years.
- Coverage:
  - Recommended forecasts: real and nominal GDP (and components), inflation, exchange rate, key commodity prices/volumes over medium term (3–5 years).
  - Absence of certain forecasts often due to poor data quality or unavailability (e.g., national accounts not produced in Malawi; proxies in Eritrea).
  - Labor force surveys uncommon; unemployment forecasts generally not possible.

### Production and publication of forecasts (Table 3 coding preserved)
- Codes: 0 Not produced; 1 Internally produced; 2 Published; 3 Published for less than three years.
- 1-year and 3+ years forecasts for Revenue, NGDP, RGDP (selected entries preserved):
  - Eritrea: 1 1 1 | 0 0 0
  - Ethiopia: 2 2 2 | 3 3 3
  - Kenya: 2 2 2 | 2 2 2
  - Lesotho: 2 2 2 | 2 2 3
  - Malawi: 2 2 2 | 2 1 1
  - Mauritius: 2 2 2 | 2 2 2
  - Madagascar: 2 2 2 | 3 3 3
  - Mozambique: 2 2 2 | 3 3 3
  - Namibia: 2 2 2 | 2 2 2
  - Rwanda: 2 1 2 | 2 1 1
  - Seychelles: 2 2 2 | 3 3 2
  - Tanzania: 2 2 2 | 3 3 3
  - Uganda: 2 2 2 | 2 2 2
  - Zambia: 2 2 2 | 2 2 2
  - Zimbabwe: 2 2 2 | 3 3 3
- Source: authors’ database from official documents in January 2018. NGDP = nominal GDP, RGDP = real GDP.

### Forecast quality and performance (2012/13–2018/19 and related samples)
- Revenue forecasts:
  - Average forecast error (bias) positive in all but three countries → majority optimistic.
  - Some countries (Tanzania, Lesotho, Kenya, Zimbabwe) have average forecast errors exceeding 1 percent of GDP.
  - Average absolute error ranges: < 0.5 percentage point of GDP (Mauritius) to > 3 percentage points of GDP (Lesotho).
- Nominal and real GDP forecasts:
  - Performance diverse; nominal GDP bias lower than revenue and real GDP biases, implying conservative price forecasts.
- Medium-term (2–3 year) revenue-to-GDP forecasts:
  - Tend to be optimistic with higher absolute average errors than one-year forecasts.
- Countries with relatively good performance (low average absolute and average error): Rwanda, Madagascar, Ethiopia, Mauritius, Uganda.
- Recommendation: analyze organizational and technical frameworks in better-performing countries to identify contributory factors.

### Regression analysis linking MFD characteristics to forecast errors (panel, 14 observations)
- Selected results (Table 5):
  - Dependent variables: Average Error (ppt) and Average Absolute Error (ppt)
  - Constant: 0.619 (0.680) for Average Error; 1.472 (0.610) for Average Absolute Error
  - Number of staff (Figure 2): 0.022 (0.012)* for Average Error; 0.018 (0.009)* for Average Absolute Error
  - Turnover rate (Figure 4): 0.033 (0.019) for Average Error; 0.048 (0.016)** for Average Absolute Error
  - Number of publications (Figure 12): -0.156 (0.101) for Average Error; -0.223 (0.102)* for Average Absolute Error
  - Software other than Excel: 0.878 (0.494) (insignificant in average error; weakly positive with absolute error)
  - R2: 0.36 for Average Error; 0.57 for Average Absolute Error
- Notes: Figures in brackets are standard errors. ** indicates significance at the 5 percent level; * at the 10 percent level.
- Caution: small panel size and limited statistical strength → tentative conclusions.

### Outputs of MFDs and publication practices (Box 1: 12 key macro-fiscal outputs)
- Annual outputs (1–6):
  1. Annual budget strategy describing annual fiscal objectives, targets and policies.
  2. Annual budget projections (at least central government).
  3. Impact of new revenue and expenditure policies.
  4. Fiscal risks in the annual budget.
  5. Mid-term review of fiscal strategy.
  6. End-year review of fiscal strategy implementation.
- Medium-term outputs (7–12):
  7. Medium-term budget strategy describing medium-term objectives, targets and policies.
  8. Medium-term fiscal projections (at least central government).
  9. Alternative medium-term fiscal projections.
  10. Medium-term impact of new revenue and expenditure policies.
  11. Fiscal risks over the medium-term.
  12. Debt sustainability analysis (at least once a year).
- Findings:
  - Over half of the 16 countries prepare eight or more of the 12 documents.
  - None publish all 12 documents; maximum produced internally is 11 (Mozambique).
  - Nine countries were not regularly publishing a fiscal strategy describing medium-term targets and policies.
  - Six of 16 countries had not begun to produce even a rudimentary fiscal risk statement in early 2018.

### Main challenges reported by MFDs
- Inadequate coordination and overlaps:
  - Poor internal coordination within MoF and with other agencies → incomplete/untimely data and inconsistencies (e.g., differing inflation assumptions).
- Insufficient capacity and high turnover:
  - Difficulty recruiting, training, retaining quantitative-skilled staff; salary differentials drive resignations.
- Tools and data constraints:
  - Complexity and maintenance problems with forecasting tools, often consultant-built; no evidence that increased sophistication improves accuracy.
- Lack of commitment and political interference:
  - Political decisions can derail budgets and MTFF objectives → optimism bias in forecasts.

### Policy orientations and proposals to strengthen macro-fiscal function (ten areas)
- Recognize macro-fiscal analysis importance:
  - Give MFD clear mandate and status comparable to Budget, Debt Management, Accountant General; consider functional reviews.
- Ensure ongoing staff training:
  - Emphasize on-the-job peer training; strengthen spreadsheets, analytical reporting, writing for policymakers, presentations; use IMF online training and AFRITAC workshops.
- Examine incentives for motivating staff:
  - If higher salaries infeasible, focus on non-salary incentives, simpler tools, and opportunities for technical exposure to senior management.
- Enhance data quality and coverage:
  - Improve national accounts, price indices, central government fiscal data, subnational and extrabudgetary coverage; collect PPP contract data for fiscal risk analysis.
- Improve internal and external coordination:
  - MFD should proactively consult Budget, Revenue, Debt, Accountant-General, central bank, and statistics office; consider inter-ministry working groups and MOUs for data exchange.
- Develop forecasting tools compatible with IT and skills:
  - Prioritize simplicity and modularity; avoid large incomprehensible models; focus on revenue modules and aggregate expenditure consistent with MTFF targets.
- Improve macroeconomic and fiscal forecast quality:
  - Conduct and publish forecast performance reviews; consider independent fiscal institutions or external reviews.
- Develop fiscal risk analysis:
  - Start with sensitivity analysis; deepen analysis and mitigation strategies as capacity rises.
- Improve political commitment to MTFF and annual budget targets:
  - Use MFD analyses to quantify populist budget impacts; illustrate benefits of top-down budgeting; engage Ministers and public.
- Revise legal framework:
  - Amend PFM laws to require MFD outputs (medium-term budget strategy, MTFF, forward-looking budget documents, fiscal risk statements) and strengthen transparency/accountability.

### Summary conclusions
- MFDs are crucial for macro-fiscal stability; considerable diversity exists across the 16 countries in functions, structure, size, status, and legal frameworks.
- Forecast performance is variable; tends to be better in smaller MFDs with lower turnover and greater transparency in publishing outputs.
- Institutional recommendations:
  - Merit in establishing MFD as single MoF department with wide mandate to improve coordination.
  - Recognize MFDs as key MoF departments with status comparable to Budget, Treasury, Debt Management, Accountant General.
  - Improve coordination with planning/statistics agencies and central banks.
- Capacity and incentives:
  - Recruitment and retention challenges require ongoing training and nonfinancial incentives.
  - Adjust MFD staffing and internal salary structures relative to mandated functions and outputs.
- Accountability and credibility:
  - Periodic postmortems of macroeconomic and fiscal forecasts (in-house or external) to mitigate bias and build credibility.
- Fiscal risk analysis:
  - Start rudimentary analyses where absent and deepen as capacity permits.
- Legal reforms:
  - Amend PFM laws in some countries to require MTFFs, fiscal risk statements, and other core MFD outputs to enhance comprehensiveness and transparency.

*Source: wpiea2021030-print-pdf - INTRODUCTION*

### INTRODUCTION __________________________________________________________________________________ 5

### INTRODUCTION

### Purpose and scope
- Institutional arrangements of Ministries of Finance (MoFs) can impact the effectiveness of achieving macro-fiscal objectives and longer-term fiscal stability.
- The paper focuses on internal structures of selected African MoFs as they pursue new approaches to fiscal management, including extensions of fiscal planning beyond the annual budget year through Medium-Term Fiscal Frameworks (MTFFs), targets, strategies, and in several cases fiscal rules.
- Several African countries have reorganized MoFs to strengthen macro-fiscal management, establishing macro-fiscal departments (MFDs) or locating the MFD in a ministry of economy or planning.
- The study examines variance in the size of MFDs in a 16-country sample of eastern and southern African MoFs.

### Objectives
- Review institutional arrangements for performing the macro-fiscal function in the MoFs of the 16 African countries listed in Annex 1.
- Assess the strengths and weaknesses in performing macro-fiscal functions in these countries.
- Discuss the main challenges and possible policy solutions for strengthening macro-fiscal management in eastern and southern African MoFs.

### Structure of the paper
- Section II: Key components and outputs of the macro-fiscal function.
- Sections III and IV: Institutional and organizational arrangements for the macro-fiscal function outside Africa and in the 16 African countries.
- Section V and Annex 2: Legal framework, fiscal rules and medium-term budget targets for the 16 countries.
- Sections VI and VII: Macroeconomic and fiscal forecasting performance and outputs of MFDs of the 16 countries.
- Section VIII: Challenges identified by MFDs and options for strengthening performance.
- Section IX: Conclusions.
- Three other annexes support the analysis.

### Methodology and data sources
- The paper draws on a survey of the macro-fiscal function in the 16 countries and an analysis of their macro-fiscal forecasts.
- The 16 countries were selected because all were invited to an IMF-sponsored regional workshop on the macro-fiscal function held in Dar es Salaam in January 2018.
- The IMF’s technical assistance centers (AFRITAC East and AFRITAC South) invited MoF participants to make presentations and verify data.

### Notes and definitions
- The term MoF is used generically to indicate the functional responsibilities of a “Ministry of Finance”; in some countries, two or more ministries and/or central government agencies perform MoF functions.
- For simplicity the term MTFF is used throughout rather than the term medium-term budget framework (MTBF).
- The United Republic of Tanzania is treated as two “countries” in the paper: mainland Tanzania and Zanzibar, because Zanzibar has separate governance arrangements and a separate public financial management system.

### Prior literature and gap addressed
- To the authors’ knowledge, there are no cross-country studies on the performance of the macro-fiscal function in the MoFs of African countries.
- CABRI (2015b) examined allocation of MoF functions across institutions; this paper instead focuses narrowly on the macro-fiscal function within MoFs to help fill that knowledge gap.

### Acknowledgements and responsibility
- The authors acknowledge contributions from multiple IMF staff and AFRITAC participants; any remaining factual errors are the authors’ responsibility.

---

### II. THE KEY COMPONENTS AND OUTPUTS OF THE MACRO-FISCAL FUNCTION

### Principal task
- A principal task of any MFD is to prepare a MTFF, which:
  - Lays out medium-term fiscal projections.
  - Specifies fiscal policies needed to achieve medium-term fiscal objectives.
  - Provides an analysis of fiscal risks.
- Compliance with fiscal rules, where adopted, is an integral component of the MTFF.

### Three main macro-fiscal functions identified
- Macroeconomic and fiscal forecasting, which may include debt sustainability analysis (DSA).
- Policy analysis (including macroeconomic, fiscal, and tax policy).
- Fiscal risk analysis.

### Ten sub-functions (overview)
- The paper identifies 10 sub-functions often undertaken by MFDs. The listed sub-functions in the source are as follows:

1. Macroeconomic forecasting.
   - Preparation of annual and medium-term forecasts for macroeconomic variables central to the budget and fiscal policy-making processes.
   - Most important forecasts typically for GDP (and its components) and inflation.
   - Forecasts or assumptions may also be made for exchange rates, interest rates, commodity prices and other variables needed for the budget process and government fiscal policy documents.
   - Forecasting may be done by the MFD or by a forecasting working group.

2. The medium-term fiscal framework.
   - MFDs are either responsible for preparing all fiscal forecasts, particularly the medium-term fiscal forecasts, or bringing together components of the MTFF prepared by other units or departments.

3. Revenue forecasting.
   - MFDs are often responsible for preparing forecasts of tax and non-tax revenues.
   - MFDs are independent from the MoFs’ revenue collection agency, which may also make detailed tax forecasts.

4. Expenditure forecasting.
   - MFDs often produce forecasts of total government expenditure over a three-year period, consistent with the MTFF.
   - The MoF’s Budget Department coordinates the detailed expenditure estimates of each annual budget.

5. Debt projections and debt sustainability analysis.
   - MoF debt management offices are often tasked with this function, but MFDs are also well-placed to forecast debt and undertake DSA given familiarity with macroeconomic forecasts and the fiscal framework.

6. Fiscal policy analysis.
   - With a medium-term perspective and assessments of the economic cycle and debt sustainability, MFDs advise on fiscal policy strategy, including the setting of fiscal rules in some countries.

7. Fiscal risk analysis.
   - Increasingly, MFDs are tasked with analyzing fiscal risks, including risks from macroeconomic developments and forecast errors.
   - MFDs coordinate information from other ministries and agencies on risks from state-owned enterprises, public-private partnerships (PPPs), financial institutions, local governments, and the environment.
   - The public sector balance sheet is one tool MFDs in advanced countries are developing to assist with this analysis.

8. Monitoring macroeconomic developments.
   - MFDs may produce in-year reports on domestic and international macroeconomic developments and their implications for the macroeconomic outlook and fiscal forecasts.

9. Monitoring the fiscal framework.
   - MFDs are usually responsible for assessing whether fiscal outcomes are tracking consistently with fiscal forecasts, and identifying whether fiscal policy targets or fiscal rules would be breached.

(Note: the source text states there are 10 sub-functions but enumerates the nine items above within the provided extract.)

*Source: wpiea2021030-print-pdf - INTRODUCTION*

### 10. Monitoring debt. Whereas managing the portfolio of debt is typically the responsibility of

### 10. Monitoring debt. Whereas managing the portfolio of debt is typically the responsibility of

### Monitoring debt and MFD responsibilities
- MFDs monitor debt developments to enable them to ascertain the causes of variations from the established fiscal and debt targets.
- MFDs are often given responsibility for coordinating or preparing some or all of:
  - The medium-term fiscal (and debt) strategy document and projections.
  - (with the Budget Department) The annual budget strategy document, and especially its alignment with the MTFF.
  - A fiscal risk statement.
  - In-year reports of recent macro-fiscal developments.
  - Reports on annual fiscal outcomes compared with the MTFF’s first-year fiscal targets.
- In many advanced countries, nearly all the above reports are prepared and published annually; several reports may be updated at least once during the year (often at the mid-term budget review). Other reports (long-term fiscal sustainability analyses, reports on compliance with fiscal rules, pre- or post-election reports) are prepared by MFDs in some countries.

### Institutional arrangements for the macro-fiscal function (outside Africa)
- Three main organizational arrangements (Fainboim and Lienert, 2018):
  - A single MoF department or unit performs all key macro-fiscal functions (may include broader fiscal policy analysis).
  - Various MoF departments perform specific macro-fiscal functions collaboratively, with all functions inside the MoF.
  - Two or more ministries or government agencies perform macro-fiscal functions, with some oversight and coordination by the MoF.
- Independent fiscal bodies complement MFDs by analyzing fiscal policies, preparing alternative projections and costings, and reporting on compliance with fiscal rules. Some support parliament (Parliamentary Budget Offices—PBOs), others act as fiscal councils.
- It is rare for an independent fiscal body to prepare the official macro-fiscal forecasts used in the Government’s annual budget; rare exceptions include the United Kingdom’s Office of Budget Responsibility, Belgium’s Planning Bureau and the Netherland’s Bureau for Economic Policy Analysis.

### Organizational arrangements for the macro-fiscal function in 16 African countries
- The section reviews organizational arrangements, MFD size and budgets, and MFD staff salaries across 16 African countries.
- Historical context: many African countries historically had separate recurrent and development budgets coordinated by planning ministries; recent reforms have integrated public investment plans into MTFFs and budgets, and some planning ministries have been merged into MoFs (example: Ethiopia’s “super-ministry” created in 1991 and de-merged in 2012).
- In early 2018, medium-term macroeconomic and fiscal forecasting, fiscal policy analysis and fiscal risk analysis were performed by a single MoF department in eight of the 16 countries (Table 1).
- Madagascar, Zambia, and Zanzibar did not have a specific MoF unit dedicated solely to macro-fiscal issues in 2018.
- In 2018, Zambia’s macro-fiscal functions were shared between the MoF’s Budget Department, the Cabinet Office of the President, and the MoF’s Economic Management Department (the latter prepared the macroeconomic forecasts).
- In the survey, planning ministries prepared official macroeconomic projections in four countries: Ethiopia, Madagascar, Malawi, and Zanzibar. (Subsequent to the survey, in 2019, Madagascar moved from column 3 to column 1.)

Table 1. Organizational Arrangements for Macro-Fiscal Functions (paraphrased)
- One main MoF division or department performs most macro-fiscal functions: Eritrea*, Kenya, Lesotho*, Mauritius, Rwanda, Tanzania, Uganda, Zimbabwe.
- Several MoF Departments perform macro-fiscal functions: Mozambique, Namibia, Seychelles, Zambia.
- MoF department(s) plus a planning/economy ministry perform macro-fiscal functions: Ethiopia, Madagascar, Malawi, Zanzibar.
- Note: *= Fiscal risk analysis is not yet performed by the MFD. Macro-fiscal functions exclude debt sustainability analysis and debt monitoring.

- Observation: Most of the 16 countries with a reasonably comprehensive set of MFD outputs have adopted the “single division within the MoF” model for MFDs, which facilitates coordination of sub-functions. Organizational choices reflect demands on MFDs, context (size, resourcing, position in budget process), and political decisions.

### Distribution of macro-fiscal functions within MoF departments
- Key points:
  - Macroeconomic projections, medium-term fiscal framework, and fiscal risk analysis (when prepared) are performed by MFDs in most of the 16 countries.
  - In nearly all countries, the MoF’s Debt Department (or “debt management office”) prepares the debt projections and monitors debt.
  - Revenue projections are prepared in the MFDs in half of the 16 countries. In a few countries, a Tax Policy Unit prepares or collates revenue projections.
  - Expenditure projections (aggregate and detailed) are prepared or collated by the Budget Department in half of the countries, and by the MFD in the other half.
- Note: For expenditure forecasting there are 17 observations for 16 countries because Mozambique attributed expenditure projection work to both the MFD and the Budget Department. Independent forecasts by central banks, revenue authorities and parliamentary budget offices are not included.

- Finding: Low turnover of the MFD’s forecasting team improves forecasts; no convincing evidence that one organizational arrangement for forecasting outperforms another based on the limited sample.

### Staff and budgets of macro-fiscal departments
- Staff numbers vary enormously, reflecting variation in responsibilities.
- In 2018:
  - Nine of the 13 MFDs had less than 15 professional staff; staff numbers ranged from three in Mauritius to 13 in Lesotho.
  - MFDs in Mozambique, Kenya and Uganda had 22 to 30 professional staff.
  - Tanzania’s Policy Analysis Department had 61 professionals and is an outlier.
- Regressions of number of staff against functions and a country’s population showed significance of country population but not the number of functions.
- Proportion of total MoF staff in the MFD varies across countries (survey responses from 12 countries).
- Budgets:
  - In five of the 10 countries with data in early 2018 (Ethiopia, Kenya, Mauritius, Rwanda, and Uganda) the share of the MFD’s annual budget was less than 1 percent of the MoF’s budget.
  - In the other countries the share was generally in the 1 to 3 percent range.
  - Strengthening MFDs by recruiting/training more staff is relatively low cost in budgetary terms.
- Staff turnover:
  - Annual turnover can be up to 45 percent (Namibia and Seychelles).
  - Moderately high in Eritrea, Lesotho, Malawi, Zambia, Zanzibar and Zimbabwe.
  - Lower in Ethiopia, Kenya, Mauritius, Rwanda and Uganda.
  - Turnover arises because MFD-trained staff have skills valued by banks, investment funds and international institutions; salary differentials drive resignations.
- Vacancies: Number of staff positions often exceeds appointed staff because of vacancies.

### Positioning of the MFD within Ministries of Finance
- MFDs can be a department within a directorate, or a division/unit of a department; MFD director seniority varies.
- Examples:
  - Mauritius: Public Financial Management and Budgeting Directorate includes a small Macro-Fiscal Unit (MFU) of three staff; total of 25 professional staff perform core MoF functions.
  - Uganda: Ministry of Finance, Planning and Economic Development restructured in 2016; Macroeconomic Policy Department is within the Economic Affairs Directorate.
  - Kenya: Directorate of Budget, Fiscal and Economic Affairs houses the MFD (“Macro and Fiscal Affairs Department”) employing 29 professional staff, divided into three divisions: Macro, Fiscal and Tax Units. Kenya’s MFD incorporates a tax unit rather than a separate Tax Department.
- Relative remuneration:
  - Head of MFD usually receives a salary similar to Debt Managers in many countries.
  - The Budget Director and especially the Accountant General are paid higher salaries in many countries; the Accountant General often heads an independent office with a different remuneration structure.
  - General pattern signals MFDs are less-important departments in several of the 16 countries.

### Legal framework
- Fiscal transparency laws may require macro-fiscal outputs to be submitted to parliament, MTFFs and/or numerical fiscal rules; such laws favorably impact MFD work and status.
- Amended PFM laws or regulations are desirable to boost macro-fiscal orientation of the MoF; secondary legislation can establish the MFD and specify mandate and structure.
- In the sample, 15 of the 16 countries have adopted a law underpinning their annual budget and PFM systems; Eritrea is the exception.
- Only Kenya, Rwanda, Tanzania and Uganda have made substantive changes to public finance laws in recent years, providing a solid legal basis for macro-fiscal functions; in the other 12 countries there is scope to improve legal provisions for MFD outputs (notably fiscal transparency and publication of MTFFs).
- Kenya’s Public Finance Management Act 2012 requires: (a) a medium-term fiscal strategy: the Budget Policy Statement; and (b) a progress report on fiscal strategy implementation: the Budget Review and Outlook Paper. Kenya and Uganda laws require publication of reports on fiscal risks (annually), and pre- and post-election fiscal update reports.
- The four countries’ laws adopt a “fiscal framework” approach (similar to Australia and New Zealand) relying on:
  - “(i) legislated broad principles that guide the formulation of fiscal policy; (ii) detailed articulation of rolling budget plans and fiscal projections over short, medium, and long horizons; (iii) effective budget mechanisms and procedures designed to minimize deficit biases; and (iv) strong transparency requirements and public oversight” (p12, IMF, 2009).
- Variants:
  - Kenya, Rwanda, and Tanzania laws allow the Government to change the MTFF’s fiscal policy aggregates every year.
  - In Uganda, a Charter of Fiscal Responsibility must be adopted soon after elections; Uganda’s Parliament is the final authority for approving multi-year objectives for fiscal aggregates.
  - For Kenya, Rwanda and Tanzania, Parliament reviews the MTFF and may make recommendations, but laws do not explicitly require Parliament to approve the MTFF.

Table 2. Legal Requirements for MTFFs in Four African Countries (summary)
- Kenya: Year adopted 2012; Title of MTFF document: Budget Policy Statement; Projection period: Medium-term; Frequency of update: Annual; When Minister initiates an update: Final approving authority: Government (Cabinet).
- Rwanda: Year adopted 2013; Title: Budget Framework Paper; Projection period: 3 years; Frequency: Annual; Final approving authority: Government (Cabinet).
- Tanzania: Year adopted 2015; Title: Plan and Budget Guidelines; Projection period: Not less than 3 years; Frequency of update: Not stated in the law; Final approving authority: Government.
- Uganda: Year adopted 2015; Title: Charter of Fiscal Responsibility; Projection period: Medium-term; Frequency: Annual; Final approving authority: Parliament.
- Sources: Selected articles of: Kenya Budget Act 2012; Rwanda: Organic Law on State Finances and Property, 2013; Tanzania Budget Act, 2015; Uganda PFM Act 2015.

### Macroeconomic and fiscal forecasting: tools and coverage
- MFDs forecast/assume key macroeconomic parameters (real and nominal GDP, inflation, exchange rate) that feed into fiscal forecasts and debt sustainability analysis.
- Forecasting tools:
  - Considerable use of the IMF’s financial programming framework: 12 of the 16 countries use this framework for forecasting the four main macroeconomic accounts.
  - Financial programming frameworks contain more information than MoFs typically need (e.g., detailed monetary sector forecasts).
  - All 16 countries use Excel spreadsheets for forecasting fiscal variables.
  - Twelve countries rely exclusively on Excel; three countries use a combination of EViews and Excel.
  - Most countries (10 out of 16) rely heavily on email and USB drives for maintaining and sharing files rather than file-sharing servers.
  - Development and recurrent costs for building/maintaining forecasting tools are significant, especially with multiple software platforms and training needs.
  - Uganda built three economic models using EViews and a proprietary computable general equilibrium package over five years, illustrating significant resource/time needs for multiple software packages.
- Coverage:
  - Fiscal Transparency Handbook (IMF, 2018) recommends forecasts for real and nominal GDP (and components), inflation, exchange rate, key commodity export prices/volumes as appropriate, extending over the medium term (three to five years) and applied uniformly.
  - Most surveyed countries forecast key macroeconomic variables; absence of certain forecasts often reflects poor data quality or unavailability (examples: national accounts not produced in Malawi; proxies used in Eritrea).
  - Labor force surveys are uncommon; unemployment forecasts are generally not possible.
- Table 3: Production and Publication of Forecasts by Country (summary—codes preserved)
  - Codes: 0 Not produced; 1 Internally produced; 2 Published; 3 Published for less than three years.
  - Table entries for 1 year and 3 or more years forecasts for Revenue, NGDP, RGDP:
    - Eritrea: 1 1 1 | 0 0 0
    - Ethiopia: 2 2 2 | 3 3 3
    - Kenya: 2 2 2 | 2 2 2
    - Lesotho: 2 2 2 | 2 2 3
    - Malawi: 2 2 2 | 2 1 1
    - Mauritius: 2 2 2 | 2 2 2
    - Madagascar: 2 2 2 | 3 3 3
    - Mozambique: 2 2 2 | 3 3 3
    - Namibia: 2 2 2 | 2 2 2
    - Rwanda: 2 1 2 | 2 1 1
    - Seychelles: 2 2 2 | 3 3 2
    - Tanzania: 2 2 2 | 3 3 3
    - Uganda: 2 2 2 | 2 2 2
    - Zambia: 2 2 2 | 2 2 2
    - Zimbabwe: 2 2 2 | 3 3 3
  - Source: Authors’ database constructed from official budget or budget framework documents in each country in January 2018.
  - Note: NGDP is nominal GDP, RGDP is real GDP.

### Quality and performance of macro-fiscal forecasts
- MFDs and forecasting working groups are focusing on improving quality and accuracy; five of the 16 countries have conducted IMF fiscal transparency evaluations (Kenya, Mozambique, Rwanda, Tanzania, Uganda).
- Summary findings:
  - Annual revenue forecasts:
    - Average forecast error (forecast bias) is positive in all but three countries, indicating most countries are optimistic.
    - Some countries (Tanzania, Lesotho, Kenya and Zimbabwe) have average forecast errors that exceed one percent of GDP.
    - Average absolute error ranges from less than half a point of GDP (Mauritius) to over 3 percent of GDP (Lesotho).
  - Annual forecasts of nominal and real GDP:
    - Performance is diverse. Nominal GDP forecast errors reflect a combination of real GDP forecast errors and GDP deflator forecast errors.
    - Bias in nominal GDP forecasts tends to be much lower than in revenue and real GDP forecasts, implying a conservative bias in price forecasts.
  - Medium-term (two- to three-year-ahead) forecasts:
    - Two- to three-year-ahead forecasts of revenue-to-GDP tend to be optimistic, with higher absolute average errors than one-year forecasts.
    - Macroeconomic forecast errors are more mixed; some countries use simple reversion-to-trend rules for outer years.
- Improvement targets:
  - Underlying optimism bias is a useful target for improvement.
  - High mean absolute errors suggest revenue forecasts might be improved with enhanced forecasting methods and tools (though errors can reflect one-off economic shocks).
- Countries with relatively good performance:
  - Rwanda, Madagascar, Ethiopia, Mauritius, and Uganda stand out with both a low average absolute error and low average error.
  - Suggestion: scope to analyze organizational and technical frameworks in these countries to identify contributory factors to better performance.
- Practices to improve forecasting:
  - Some countries assess accuracy/quality of budget forecasts (example: Kenya’s MFD analyzes macro-fiscal forecast quality and publishes a Statement of Fiscal Risks as an annex to its annual Budget Policy Statement).

*Source: wpiea2021030-print-pdf - 10. Monitoring debt. Whereas managing the portfolio of debt is typically the responsibility of (IMF publication).*

### Annex 5). The analysis includes: a table of deviations of actual outcomes from forecasts; a

### wpiea2021030-print-pdf - Annex 5). The analysis includes: a table of deviations of actual outcomes from forecasts; a

### Forecast performance and errors
- Forecast performance analyzed for revenue (non-grants), nominal GDP growth, and real GDP growth for 2012/13–2018/19 (or 2012/13–2017/18 for some series).
- Figures reported (by country) include:
  - Figure 6. Average Error of Non-Grants Revenue Forecasts (2012/13–2018/19, percent of GDP)
  - Figure 7. Average Absolute Error of Non-Grants Revenue Forecasts (2012/13–2018/19, percent of GDP)
  - Figure 8. Average Error of Nominal GDP Growth Forecasts (2012/13–2018/19, percent)
  - Figure 9. Average Absolute Error of Nominal GDP Growth Forecasts (2012/13–2018/19, percent)
  - Figure 10. Average Error of Real GDP Growth Forecasts (2012/13–2017/18, percent)
  - Figure 11. Average Absolute Error of Real GDP Growth Forecasts (2012/13–2017/18, percent)
- Country labels used across charts include: MOZ, RWA, MWI, MDG, MUS, ETH, UGA, ZMB, SYC, NAM, ZWE, KEN, LSO, TZA, and others as shown in the figures.
- Source: Authors’ database constructed from official budget or budget framework documents in each country. Note: See Annex 4 for exceptions and clarifications for these charts.

### Regression analysis of forecast performance against MFD characteristics
- A panel regression was run on average forecast errors and average absolute forecast errors for revenue against MFD characteristics (14 observations).
- Table 5 (selected results):
  - Dependent variables: Average Error (ppt) and Average Absolute Error (ppt)
  - Constant: 0.619 (0.680) for Average Error; 1.472 (0.610) for Average Absolute Error
  - Number of staff (Figure 2): 0.022 (0.012)* for Average Error; 0.018 (0.009)* for Average Absolute Error
  - Turnover rate (Figure 4): 0.033 (0.019) for Average Error; 0.048 (0.016)** for Average Absolute Error
  - Number of publications (Figure 12): -0.156 (0.101) for Average Error; -0.223 (0.102)* for Average Absolute Error
  - Software other than Excel (Section VI): 0.878 (0.494) reported (insignificant in average error, weakly positive with absolute error)
  - R2: 0.36 for Average Error; 0.57 for Average Absolute Error
- Notes:
  - Figures in brackets are standard errors.
  - ** indicates significance at the 5 percent level, * indicates significance at the 10 percent level.
  - Authors caution small panel size and limited statistical strength; conclusions are tentative.

### Outputs of Macro-Fiscal Departments (MFDs) and publication practices
- Key budget documents and MTFF outputs emphasized as central to credible budgeting; 12 major macro-fiscal outputs identified (Box 1) across annual, medium-term, and fiscal risk topics.
- Box 1: 12 Key Macro-Fiscal Outputs (listed categories preserved)
  - Annual fiscal strategy and projections:
    1. Annual budget strategy describing at least the annual fiscal objectives, targets and policies.
    2. Annual budget projections, at least for central government.
    3. The impact of new revenue and expenditure policies.
    4. Fiscal risks in the annual budget.
    5. Mid-term review of the fiscal strategy.
    6. End-year review of fiscal strategy implementation.
  - Medium-term fiscal strategy and projections, including debt:
    7. Medium-term budget strategy describing at least the medium-term fiscal objectives, targets and policies.
    8. Medium-term fiscal projections, at least for central government.
    9. Alternative medium-term fiscal projections, to illustrate the impact of different assumptions or policies.
    10. The medium-term impact of new revenue and expenditure policies.
    11. Fiscal risks over the medium-term.
    12. Debt sustainability analysis, at least once a year.
- Findings on production and publication:
  - Over half of the 16 countries prepare eight or more of the 12 documents.
  - None of the 16 countries publish all 12 documents; maximum published internally is 11 (Mozambique).
  - Nine countries were not regularly publishing a fiscal strategy document describing medium-term fiscal targets and policies.
  - Variation exists between internal production and public publication: some countries publish all internally prepared documents; others do not publish several internally produced documents.
- Extended set of macro-fiscal documents (Table 4) covers in-year, annual, medium-term, and long-term documents; production/publication patterns vary by country.
- Fiscal risk analysis: in early 2018, six of the 16 countries had not begun to produce even a rudimentary fiscal risk statement.

### Main challenges faced by MFDs in the 16 countries
- Top reported challenges (Figure 13 summarizes across 16 countries):
  - Inadequate coordination and overlaps:
    - Poor internal coordination within MoF and with other agencies; leads to incomplete or untimely data for MFDs and potential inconsistencies (e.g., differing inflation assumptions between revenue and expenditure forecasts).
  - Insufficient capacity and high turnover:
    - Acute difficulty recruiting, training, and retaining staff with quantitative skills; salary differentials inside and outside MoF drive turnover.
  - Tools and data constraints:
    - Complexity and maintenance problems with forecasting tools (often developed by external consultants); no evidence increased sophistication improves accuracy (see regression results).
  - Lack of commitment and political interference:
    - Political decisions can derail annual budgets and MTFF objectives, contributing to optimism bias in forecasts.

### Policy orientations and proposals to strengthen the macro-fiscal function
- Ten areas for government action (summarized from the source):
  - Recognizing the importance of macro-fiscal analysis:
    - Give MFD a clear mandate and status comparable to Budget, Debt Management, and Accountant General’s Departments; consider functional reviews.
  - Ensuring ongoing staff training:
    - Emphasize on-the-job peer training and strengthen programs on spreadsheets, analytical reporting, writing for policymakers, and presentation; use IMF online training and AFRITAC workshops.
  - Examining incentives for motivating staff:
    - Where higher salaries are infeasible, focus on non-salary incentives, simplifying tools, and opportunities for technical presentation to senior management.
  - Enhancing data quality and coverage:
    - Prioritize improvements in national accounts, price indices, central government fiscal data, and coverage of subnational and extrabudgetary fiscal operations; collect data for fiscal risk analysis (e.g., PPP contracts).
  - Improving internal and external coordination:
    - MFD should proactively consult Budget, Revenue, Debt, Accountant-General, central bank, and national statistics office; consider inter-ministry working groups and memoranda of understanding for data exchange.
  - Developing forecasting tools compatible with IT and skills:
    - Prioritize simplicity and modularity; avoid large-scale incomprehensible models; focus on revenue modules and aggregate expenditure consistent with MTFF targets.
  - Improving the quality of macroeconomic and fiscal forecasts:
    - Conduct and publish forecast performance reviews; consider independent fiscal institutions or external reviews.
  - Developing fiscal risk analysis:
    - Start with sensitivity analysis of macro-fiscal forecasts; deepen analysis and mitigation strategies as capacity improves.
  - Improving political commitment to MTFF and annual budget targets:
    - Use MFD analyses to quantify budgetary impacts of populist choices and illustrate benefits of top-down budgeting; engage Minister and public where possible.
  - Revising the legal framework:
    - Amend PFM laws to require MFD outputs (medium-term budget strategy, MTFF, forward-looking budget documents, fiscal risk statements) and strengthen transparency/accountability.

### Summary and conclusions
- MFDs play a crucial role in achieving macro-fiscal stability; considerable diversity exists across the 16 east and southern African countries in functions, structure, size, status, and legal frameworks.
- Forecast performance:
  - Variable across countries; tends to be better in smaller MFDs with lower staff turnover and greater transparency in publishing macro-fiscal outputs.
- Institutional recommendations:
  - Merit in establishing MFD as a single MoF department with a wide mandate to improve internal coordination.
  - Recognition of MFDs as key MoF departments with status comparable to Budget, Treasury, Debt Management, and Accountant General Departments.
  - Improve coordination with planning/statistics agencies and central banks.
- Capacity and incentives:
  - Major recruitment and retention challenges; ongoing training and nonfinancial incentives necessary given limited salary increases.
  - Adjust MFD staffing and internal salary structure relative to mandated functions and outputs.
- Accountability and credibility:
  - Periodic postmortems of macroeconomic and fiscal forecasts (in-house or external) recommended to mitigate bias and build credibility.
- Fiscal risk analysis:
  - Begin rudimentary analyses where absent and deepen as capacity increases.
- Legal reforms:
  - Amend PFM laws in some countries to require MTFFs, fiscal risk statements, and other core MFD outputs to enhance comprehensiveness and transparency.

*Source: Authors’ database and survey results as presented in the document.*

### BIBLIOGRAPHY

### BIBLIOGRAPHY

### Key bibliographic entries
- Lists working papers, technical notes, journal articles, and reports relevant to macro-fiscal functions, medium-term fiscal frameworks, fiscal rules, fiscal transparency, fiscal councils, forecasting, and budget processes. Notable entries include IMF Working Paper Nos. 15/232, 17/203, 18/68; IMF Technical Notes TNM/18/04; IMF Policy Paper “The Functions and Impact of Fiscal Councils” (July 16, 2013); World Bank GET Note on expenditure ceilings; CABRI reports; International Budget Partnership Open Budget Survey 2015 and 2019; and country-specific IMF Country Reports and Fiscal Transparency evaluations.
- Coverage spans organizational arrangements of finance ministries, integrating infrastructure planning and budgeting, macro-fiscal forecasting frameworks, capacity-building for fiscal risks, independent fiscal institutions, fiscal rules, performance and programme-based budgeting in Africa, and medium-term expenditure frameworks.

### Selected topical emphases from the cited literature
- Evolution and organization of finance ministries and macro-fiscal functions.
- Medium-Term Budget Frameworks (MTBFs) and Medium-Term Fiscal Frameworks (MTFFs).
- Fiscal rules design and implementation, and their legislative basis.
- Independent Fiscal Institutions and Fiscal Councils: recent trends and performance.
- Fiscal transparency, public expenditure and financial accountability (PEFA).
- Forecasting performance, fiscal risk statements, and fiscal sensitivity analysis.

*Italicized source attribution: BIBLIOGRAPHY (from wpiea2021030-print-pdf)*

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### ANNEX 1. NAMES OF THE MACRO-FISCAL “DEPARTMENTS” OF MOFS

### Inventory of MoF units performing most macro-fiscal functions (as listed)
- Eritrea (ERI): Fiscal Planning Division
- Ethiopia (ETH): Fiscal Policy Department
- Kenya (KEN): Macro and Fiscal Affairs Department
- Lesotho (LSO): Department of Macroeconomic Policy and Management
- Madagascar (MDG): Service du Cadrage Macro-Economique
- Malawi (MWI): Macroeconomic policy section (within Economic Affairs Department)
- Mauritius (MUS): Macro-Fiscal Framework and Fiscal Risks Unit
- Mozambique (MOZ): Economic and Financing Study Unit
- Namibia (NAM): Economic Policy Advisory Services
- Rwanda (RWA): Macroeconomic Policy Division (of the Office of Chief Economist--OFE)
- Seychelles (SYC): Macroeconomic Forecasting & Analysis Branch
- Tanzania (TZA) (mainland): Policy Analysis Department
- Uganda (UGA): Macroeconomic Policy Department
- Zambia (ZMB): Economic Management Department
- Zanzibar (ZNZ): Department of Fiscal and Financial Policies
- Zimbabwe (ZWE): Fiscal Policy and Advisory Services Department

### Contextual notes
- Data refer to the situation in January 2018 for eight countries where the listed department performed most macro-fiscal functions.
- In four countries, macro-fiscal functions were shared with planning or economy ministries at the time of the survey.
- Subsequent organizational changes cited: Madagascar merged Ministry of Economy and Planning with Ministry of Finance (early 2019); Malawi formally separated Economic and Planning functions from the MoF in June 2020.

*Italicized source attribution: ANNEX 1 (from wpiea2021030-print-pdf)*

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### ANNEX 2. FISCAL RULES AND FISCAL FRAMEWORKS

### Definition and distinction
- Fiscal rule: long-lasting constraint on fiscal policy via numerical limits on budgetary aggregates; binding for at least three years and with a legislative basis (approved by Parliament) per Lledó et al. (2017).
- Fiscal targets: embedded in MTFFs; not fiscal rules if changed annually or every two–three years.

### Currency-union supranational rules and examples
- 14 francophone countries in west and central Africa: adoption of extensive fiscal rules to contribute to CFA franc stability; western zone “first tier” fiscal rules include gross debt (70 percent of GDP) and budget balance including grants (3 percent of GDP).
- East African Community (EAC) convergence criteria proposed for a currency union: ceiling of 50 percent of GDP for gross public debt in net present value (NPV) terms and a budget deficit rule of 3 percent of GDP (deficit includes grants). These targets were originally planned to become binding in 2021.
- Compliance note: in the four EAC countries in the sample, none complied with the fiscal deficit convergence criterion in 2017 and 2018.

### Country-level fiscal rules status (2018)
- Parliamentary-approved fiscal rules incorporated in legislation in 4 of the 16 countries:
  - Kenya: 2012 Public Financial Management Act (Article 15) requires that “over the medium term, the national government’s borrowings shall be used only for the purpose of financing development expenditure and not for recurrent expenditure.” Article 15 also contains a “second tier” fiscal rule: at least 30 percent of total expenditure will be devoted to development.
  - Mauritius: 2008 Public Debt Management Law, amended in 2017, specifies public debt shall not exceed 60 percent of GDP by FY2020/21.
  - Mozambique: parliament approved fiscal targets of its Five-year Plan for 2015-19; the Plan’s target for the fiscal deficit excluding grants (“less than 22 percent of GDP” by 2019) and for a revenue/GDP ratio of “32.5 percent of GDP by 2019” are considered fiscal rules of limited duration.
  - Uganda: Charter of Fiscal Responsibility 2016 specifies quantitative targets for 2016/17–2020/21; Parliament endorsed (1) fiscal balance (including grants) to be reduced to no greater than 3 percent of GDP by FY2020/21; and (2) public debt in NPV terms to be maintained below 50 percent of GDP. Because Parliament approved the Charter inclusive of numerical rules at the beginning of its 4-year mandate, Uganda’s targets are considered fiscal rules with a four-year duration.
- Namibia and Seychelles: Governments established medium-term fiscal objectives (Namibia: overall fiscal deficit “less than 3 percent of GDP” and debt “less than 35 percent of GDP”; Seychelles: “less than 50 percent of GDP by 2020/21”), but these targets were not formally approved by Parliament and thus are not considered fiscal rules.
- No fiscal rules adopted in the other eight countries of the sample.

### Credibility and implementation issues
- Frequent changes to medium-term fiscal deficit targets undermine MTFF credibility.
  - Example: Last et al (2016) observed for Kenya that “total expenditure in an average year has been revised up by more than 9 percent on average over the last decade, bringing into question the credibility of the MTFF.”
  - For Tanzania, Lawson et al (2017) point to lack of credibility of the annual budget.
- Legal frameworks may not prevent governments from changing medium-term fiscal strategy annually; Kenya’s “golden rule” applies “over the medium-term,” which is not defined in law.
- Practical definitional problems: Kenya faces difficulties defining “recurrent” versus “developing” (investment) expenditures; reference to Germany’s 2009 change of Constitutional “golden rule” to an “overall balance” fiscal rule.

*Italicized source attribution: ANNEX 2 (from wpiea2021030-print-pdf)*

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### ANNEX 3. MEDIUM TERM FORECAST PERFORMANCE ANALYSIS

### Data and samples used for figures and notes
- Source: authors’ database constructed from official budget or budget framework documents in each country.
- Calendar and fiscal year sample notes:
  - 2013–18 calendar years used for Mauritius, Zimbabwe, and Zambia in some figures.
  - More limited samples used for Mozambique (2013–2017), Lesotho and Namibia (2012/13–2017/18).
  - Grants included in estimates for Zimbabwe where noted.
  - For nominal GDP growth forecasts, 2013–18 calendar years used for Mauritius, Zimbabwe, Madagascar, and Zambia; data for Uganda includes 2018/19. Corrections for historical forecasts were required due to rebasing in Zimbabwe (2017), Kenya (2014), and Seychelles (2014).
- Figures presented in the source (A1–A6) include:
  - Figure A1: Average Error of Medium-Term Non-Grants Revenue Forecast (2012/13–2018/19, percent of GDP).
  - Figure A2: Average Absolute Error of Medium-Term Non-Grants Revenue Forecast (2012/13–2018/19, percent of GDP).
  - Figure A3: Average Error of Medium-Term Nominal GDP Growth Forecasts (2012/13–2018/19, percent).
  - Figure A4: Average Absolute Error of Medium-Term Nominal GDP Growth Forecasts (2012/13–2017/18, percent).
  - Figure A5: Average Error of Medium-Term Real GDP Growth Forecasts (2012/13–2017/18, percent).
  - Figure A6: Average Error of Medium-Term Real GDP Growth Forecasts (2012/13–2017/18, percent).

### Countries highlighted in figure notes (examples)
- Mauritius (MUS), Zimbabwe (ZWE), Madagascar (MDG), Zambia (ZMB), Mozambique (MOZ), Lesotho (LSO), Namibia (NAM), Seychelles (SYC), Uganda (UGA), Kenya (KEN).

*Italicized source attribution: ANNEX 3 (from wpiea2021030-print-pdf)*

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### ANNEX 4. NOTES ON THE DATABASE PREPARED FROM THIS PAPER

### Data provenance and cut-off
- Data provided by country delegates to a regional conference on the macro-fiscal function held in January 2018.
- January 2018 cut-off date for information in the database; some changes occurred since then (example: mid-2020 update for Tanzania staffing).

### Specific methodological and data notes
- Figure 2: staff positions shown, not actual filled staff (example: Seychelles had four unfilled staff positions in a division; Figure 2 shows six staff positions though there were 10 total positions).
- Figures 6 and 7: 2013–18 calendar years used for Mauritius, Zimbabwe, Madagascar, and Zambia; more limited samples for Mozambique (2013–17), Zimbabwe (2013–17), Tanzania, Lesotho, Namibia, Seychelles, Malawi, and Ethiopia (2012/13–2017/18); grants included for Zimbabwe in estimates.
- Figures 8 and 9: 2013–2018 calendar years used for Mauritius, Zimbabwe, Madagascar, and Zambia; Uganda data includes 2018/19; limited sample for Zimbabwe (2013–2017); corrections due to rebasing in Zimbabwe (2017), Kenya (2014), Tanzania (2012), and Seychelles (2014).
- Figures 10 and 11: 2013–2018 calendar years used for Mauritius, Zimbabwe, Madagascar, and Zambia; limited sample for Tanzania (2013–17).

### Data responsibility
- Questions on the database can be directed to the authors, who take full responsibility for the integrity of the data, the figures, tables and analysis (regressions, etc.).

*Italicized source attribution: ANNEX 4 (from wpiea2021030-print-pdf)*

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### ANNEX 5. KENYA’S STATEMENT OF FISCAL RISKS

### Legal mandate and document
- Kenya’s 2012 PFM Act requires preparation of a Statement of Fiscal Risks.
- The 2018 Budget Policy Statement included a 16-page annex describing fiscal risks and analyses.

### Main components of the Statement (2018 Budget Policy Statement)
- Risks in Changes in Macroeconomic Assumptions:
  - Budgetary risks from (a) lower real GDP growth; (b) inflation instability; (c) exchange rate volatility; and (d) volatility of commodity prices on imports.
  - Included a table on Fiscal Sensitivity to Key Macroeconomic Variables, 2018/19.
- Assessment of Past Forecast Accuracy:
  - Included a table on Deviations in Macroeconomic and Fiscal Aggregates of projected and outcome data.

### Specific fiscal risks identified and measures or observations
- Sustainability of Public Debt: analysis shows Kenya’s debt is sustainable.
- State Corporations/State Owned Enterprises (SOEs):
  - Description of actions to strengthen corporate governance, including issuing a Code of Conduct and operationalizing audit committees.
  - Borrowing by State Corporations: those with strong balance sheets can contract debts only with relevant approvals from the line Ministry and the National Treasury to finance viable projects.
  - On-lending to State Corporations: Government may on-lend concessional loans to SOEs implementing strategic infrastructure projects.
- Unfunded Pension Liabilities: unfunded pension liabilities arising from early retirement ages are a fiscal risk; projected pension liabilities have yet to be quantified.
- Public Private Partnership (PPP) Projects: review of past PPPs and planned infrastructure PPPs across sectors.
- Natural Disasters: budget provides a contingency fund; unforeseen events could exceed the provision.
- Climate Changes: potential adverse impacts on tax bases and spending programs; fiscal instruments include disaster relief spending and flood insurance pay-outs.
- Acts of Terrorism: fiscal costs include declines in tax revenue and increased government spending on security and counter-terrorism.
- Technological Disaster: reliance on IT systems exposes government to cybercrime, and data corruption or loss.
- Liabilities of the financial sector via systemically important banks: fiscal risks related to the mandate of the Kenya Deposit Insurance Corporation.
- Devolved System of Government: significant risks from fiscal decentralization; statement summarizes County Governments’ main fiscal risks and proposed mitigation measures.

*Italicized source attribution: ANNEX 5 (from wpiea2021030-print-pdf)*

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_Source: https://www.imf.org/-/media/files/publications/wp/2021/english/wpiea2021030-print-pdf.pdf_