Multi-Year Budgeting: A Review of International Practices and Lessons for Developing and Transitional Economies

Abstract

In recent years, many developed countries have moved to develop their annual budget process in a strategic multi-year framework. While a common feature of multi-year budgeting approaches is the inclusion of revenue forecasts and expenditures estimates for two or three years beyond the current year, multi-year budget practices vary substantially between countries. This article reviews multi-year budgeting practices in six developed countries (Australia, Austria, Germany, New Zealand, Great Britain, and the United States) and attempts to draw lessons from these experiences for the potential application of multi-year budget techniques by developing and transitional countries. We draw five lessons from the multi-year budget practices of developed countries that are relevant for developing and transitional economies: (1) a multi-year dimension could be a valuable fiscal policy and management tool for developing and transitional countries; (2) the approach chosen in each developing or transitional economy should reflect the country’s policy objectives, unique budget institutions and traditions, and administrative capabilities; (3) the introduction of a multi-year budget dimension is a gradual process; (4) the multi-year budget should be used to encourage the constructive involvement of line ministries in the budget process; and (5) the usefulness of the multi-year budget approach will crucially depend on the reliability and accuracy of the medium-term budget estimates.