MTEF: What it means and why it matters

Joy EruraneOctober 24, 202314 min

The acronym MTEF may sound technical, and many citizens tend to ignore it. But it should not be so because the document lies at the heart of the annual budget, which determines how better or worse our lives get as Nigerians

You must have heard and read about MTEF in the last few days. That is if you keep up with the news aside from gossip, entertainment, and sports, etc.

This week, at OrderPaper Nigeria, we’re focusing on the Medium-Term Expenditure Framework (MTEF). Why? Because we are all anticipating the annual budget for 2024. Given Nigeria’s current fiscal situation, characterised by the rising inflation, insane oil prices and huge public debt, citizens hope for strategic plans to manage the country’s public finance and ease economic hardship.  The Medium-Term Expenditure Framework (MTEF) is that critical planning process, before the annual budget can be created. 

Hold on, it may sound complicated but we’ll be breaking down the complexities for you. 

In Nigeria, fiscal planning is critical for sustaining economic growth and development.  Hence, the Medium-Term Expenditure Framework (MTEF) was introduced in Nigeria in 2003 as part of the country’s efforts to improve fiscal planning, transparency, and accountability in the process of budget creation.

Here is what it means…in practical terms

Medium-Term Expenditure Framework (MTEF) is a budgeting and financial planning tool that helps  the government to plan its expenditure and resources over a medium-term period; three years. For instance, if a family has goals and wants to plan how they’ll spend their income for a period of three years, they can use a strategic tool, say a budget spreadsheet(titled, Family Financial Plan Framework), to properly make these plans, stating how they will get money, how they’ll spend it and so on. In this case, the government uses the MTEF to plan its spending and resources. 

In Nigeria, the Medium-Term Expenditure Framework (MTEF) is a legal requirement under the Fiscal Responsibility Act (FRA) 2007. This Act formalised the use of the Medium-Term Expenditure Framework (MTEF) to promote a more strategic approach to government spending. 

Using a family situation, the family members all agreed that planning the way they’ll spend money and make money, for a period of three years, is the right way to go to achieve their goals. Hence, it becomes a rule to always plan their income, spending and savings, so as to always achieve planned goals. 

Forerunner to the budget…

As earlier stated, the Medium-Term Expenditure Framework (MTEF) serves as the foundation for the annual budget preparation in Nigeria, by outlining the government’s revenue and expenditure projections over the medium-term, helping to guide the formulation of the federal budget. In essence, the Medium-Term Expenditure Framework (MTEF)  must be created before the annual budget, is to be derived from this. 

Here, as this is now a rule for the family, the family will make sure that the budget spreadsheet as a strategic tool for planning. always helps them to arrive at their budget for every year. 

Medium-Term Expenditure Framework (MTEF)  includes detailed macroeconomic assumptions such as oil price, exchange rate, and GDP growth. These assumptions significantly impact budget estimates.

E.g. The budget spreadsheet will contain facts like inflation – which will affect the value of their money, changes in cost of living, changes in income etc, as all these will affect the sum of the budget estimated at the end of the day.  

The 2024-2026 Medium-Term Expenditure Framework (MTEF) is out and we sighted some figures, but before going further, let’s break down the requirements of the Medium-Term Expenditure Framework (MTEF) as stated by the Fiscal Responsibility Act (FRA) 2007. That is, what the strategic tool will contain. 

Preparing the MTEF…

The Fiscal Responsibility Act (FRA) 2007 mandates that the Federal Government after consulting the states, needs to create and present a Medium-Term Expenditure Framework (MTEF) plan for how they’ll spend money for the next three years (2024-2026) and this plan must be shared with the National Assembly for approval, at least four months before the next financial year. 

Just as the government is mandated by the act to always create an MTEF, the rule set by the family, mandates them to always create a budget spreadsheet for the next three years. 

Process of Approval…

The National Assembly reviews the plan and can make changes, if necessary, before approving it, through a resolution from each House of the National Assembly. Each family member properly vet the plans and make inputs if they deem fit. This is to ensure everyone is onboard with the family budget planning processes and there’s transparency. 

Content of the MTEF…

The plan includes:

i) Macro-Economic Framework

The MTEF must include a Macro-Economic Framework detailing the macro- economic projections used to analyse economic performance. This includes projections for key economic variables and factors that influence the economy like economic growth rate, inflation, exchange rates, and interest rates, etc (what’s the GDP going to look like? What’s the level of inflation etc), for the next three financial years, with evaluation and assumptions about the economy. 

These projections are needed to properly estimate  revenue and expenditure.

In the family budget planning, to ensure the planning of income, spending and savings are reasonably estimated, they must include factors that affects these variables including inflation, a possibility of increase or decrease in income, etc. 

ii) Fiscal Strategy Paper (FSP) 

The Medium-Term Expenditure Framework (MTEF) must also include a Fiscal Strategy Paper detailing the government’s objectives, the policies of government as regards taxation, recurrent (non-debt) expenditure, debt expenditure, capital expenditure, borrowings, etc and the government’s economic, social and developmental priorities, all for the next three years. 

In the family budget planning, they must also detail their objectives (to buy a house, to save for school, etc), policies (where would we save? What’s the best investment plan that’ll give a better return?) and priorities ( home improvements, education etc)

iii) Expenditure and revenue framework

The Medium-Term Expenditure Framework (MTEF) must include an  expenditure and revenue framework with revenue and expenditure estimates in each year, for the next three years. It should detail how much money the government intends to make and spend each year, and  how much they want to spend on taxes. 

The revenue projections estimates for oil revenue, non-oil revenue, taxes, and other sources of income. As a country that relies heavily on oil, there should be diversification efforts and all projections should be realistic and based on the macroeconomic assumptions.

Expenditure projections categorise spending for capital and recurrent expenditures, in sectors such as education, healthcare, infrastructure, and defence.     

Here, the family states how much they want to earn, spend and save. For earnings, they look at the sources of salaries, any other side income expected etc. For spending, they categorise according to what they intend to spend on, housing, education etc. 

iv) Debt statement

Nigeria has a significant amount of public debt, about N87.38 trillion. The Medium-Term Expenditure Framework (MTEF) must include a statement about the government’s consolidated debts, its fiscal significance and how they plan to reduce/manage the liability. 

It explains the government’s debt management strategies and how it might take on new loans to finance important projects, while ensuring that the debt remains sustainable. 

Here, the family looks at existing loans, mortgages, loans on education, car loans, etc, how they plan to repay, and avoid increase in debt, which maintaining stability in their finances

v) Contingent liabilities

This is a risk assessment to show potential future financial liabilities that may or may not occur. The statement should describe these potential liabilities, their nature, the financial significance they carry and how the government intends to address them. 

This could include external factors such as global economic conditions and internal risks like political instability.

Here, the family details financial risks that may affect income. Including economic instability, job loss, expenses on health, etc. 

Aggregate Expenditure Limit…

This tells the limits of government spendings, set by the Fiscal Responsibility Act (FRA) 2007. The total expenditure and the total amount appropriated by the National Assembly, cannot exceed the estimated total revenue plus a deficit( which should not exceed 3% of the estimated Gross Domestic Product (GDP)). That means that the government cannot spend more than they expect to make and any deficit incurred should not exceed 3% of the GDP. 

However, in some cases, like threat to national security or threat to the supreme authority of Nigeria, the government might be allowed to spend more.

Here, to maintain financial stability, the family must ensure that what they intend to spend is not higher than what they intend to make and if at all it is higher, it shouldn’t be higher than 3% of the total amount of money they intend to make. However, critical situations probably related to health or any other emergencies, they can spend above this.

Preparation begins…. 

The Minister of Finance  is responsible for coordinating and developing the Medium-Term Expenditure Framework (MTEF). 

The Minister can conduct public consultations on the various aspects of the Medium-Term Expenditure Framework (MTEF)  including the Macro-economic framework, the Fiscal Strategy Paper, the Revenue and Expenditure Framework, among others. These consultations must be open to the public, the press and authorised representatives of organisations or citizens should have a voice in the planning process. This promotes transparency and accountability in the budgeting process.

Furthermore, the Minister will seek inputs  from relevant bodies  including the National Planning Commission, Joint Planning Commission, National Commission on Developmental Planning, National Economic Commission, National Assembly, Central Bank of Nigeria and other relevant statutory bodies and reflect their inputs when preparing the Medium-Term Expenditure Framework (MTEF).

Here, imagine the mother is the Finance Minister and the duty to create the budget spreadsheet is her responsibility. She will make sure she calls a family meeting, open to everyone, to voice their inputs on savings, spendings and income. This ensures transparency and accountability of the process. 

She can also seek advice from other extended family members, who have knowledge on this.

 

Time limits…

The Minister must present the Medium-Term Expenditure Framework (MTEF) to the Federal Executive Council (FEC) before the end of the second quarter of each financial year, for consideration and endorsement. This timing ensures that the government’s financial planning is in place, in advance of the next fiscal year. 

The Medium-Term Expenditure Framework (MTEF) only takes effect after the National Assembly approves it. The required legislative approval is to ensure that it aligns with the broader fiscal and economic goals of the country, to further help in transparency. The Annual Budget can then be derived from Medium-Term Expenditure Framework (MTEF)

Here, the family sets a deadline for submission of the budget spreadsheet, typically before the start of a new year, so as to ensure they’re  planning ahead of time for effectiveness. When it is submitted, every member of the family must acknowledge it and approve it collectively, before it commences. It also helps the family avoid impulse buying and frivolous expenditures like the federal government often has in the annual budgets

Publication of Medium-Term Expenditure Framework in the Gazette

Once approved by the National Assembly, the Medium-Term Expenditure Framework (MTEF)  is made public through publication in the Gazette. This ensures the document is accessible to the general public, to enhance transparency and accountability.

Here, the family members must ensure that it is placed somewhere around the house for everyone to see. 

Adjustments to the Medium-Term Expenditure Framework 

The President can make adjustments to the Medium-Term Expenditure Framework(MTEF), however, the corrections are limited to correcting errors or significant changes in fiscal indicators.

Here, the head of the family can make corrections for errors, or corrections  because of a change in the family’s financial situation( like a job loss, etc) 

A Brief on the 2024-2026 Medium-Term Expenditure Framework (MTEF)

Macroeconomic Projections

In the 2024-2026 Medium-Term Expenditure Framework, key parameters are projected as follows:

Crude Oil Price Benchmark

The assumed crude oil price benchmark is expected to decline from $75 per barrel in 2023 to $73.96 per barrel in 2024 and further to $69.90 per barrel in 2026. This projection is important as it affects revenue from oil exports, which is our major source of income in Nigeria  

Exchange Rate 

The exchange rate is projected to move to N700/$ in 2024, with expectations of strengthening to 665.61/$ in 2025 and 669.79/$ in 2026. This is in contrast to the official market’s closing rate of N778.80/$ — black market’s rate is currently above N1,000/$. This indicates the efforts of government to stabilise the exchange rate

Economic Growth Rate 

The Gross Domestic Product (GDP) growth rate is anticipated to increase from the 2023 projection of 3.75% to 3.76% in 2024 and further to 4.78% in 2026.

Inflation 

Inflation is expected to rise to 21.40% in 2024 but gradually decrease to 18.69% by 2026, from 17.16% in 2023. This shows that the government aims to control inflation within this range, which is essential for price stability and overall economic health.

 

A Brief on the 2024-2026 MTEF

Federal Government Revenue 

The projected 2024 Federal Government Revenue is N16.96 trillion, expected to increase to N17.98 trillion by 2026, which is a significant increase from N11.05 trillion in 2023. 

Approximately N6.95 trillion of the revenue estimated for 2024 is projected to come from oil-related sources, while N10.01 trillion is anticipated from non-oil sources. Diversifying revenue sources is vital to reduce dependence on oil income

Federal Government Expenditure 

The Federal Government’s estimated aggregate expenditure is expected to reach N26.01 trillion in 2024, rising to N29.46 trillion in 2026, compared to the 2023 estimate of N22.65 trillion. A substantial portion, about N8.25 trillion, is allocated for debt servicing.

Fiscal Deficit  and Deficit Financing

The budget deficit is projected to be N9.05 trillion in 2024 and increase to N11.48 trillion in 2026, a decrease from the N11.60 trillion budgeted in 2023. This represents approximately 53% of total Federal Government revenues and 3.83% of the estimated GDP, which is higher than the limit stipulated by the Fiscal Responsibility Act (FRA) 2007. This indicates the necessity for strategic measures to manage the deficit for fiscal sustainability.

The Medium-Term Expenditure Framework (MTEF) strategically helps the government decide where the money comes from, where it goes, and how it can be used wisely for a better Nigeria. The 2024-2026 Medium-Term Expenditure Framework (MTEF) highlights various economic and fiscal challenges and opportunities for Nigeria. If the government is able to manage revenues from crude oil, stabilise exchange rate, curb inflation and improve diversification efforts, it will pave a way for fiscal sustainability and sustainable economic growth.

Joy Erurane

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