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

In recent years many developed countries have moved to develop their annual budget process in astrategic multi-year framework. While a common feature of multi-year budgeting approaches is theinclusion of revenue forecasts and expenditures estimates for two or three years beyond the currentyear, multi-year budget practices vary substantially between countries. This paper reviews multi-yearbudgeting practices in six developed countries (Australia, Austria, Germany, New Zealand, the UnitedKingdom and the United States) and attempts to draw some lesson from this experience for thepotential use of multi-year budgeting by developing and transitional countries. We draw five lessons forthe budget processes of developing and transitional economies: (1) a multi-year dimension could be avaluable fiscal policy and management tool for developing and transitional countries; (2) the approachchosen in each developing or transitional economy should reflect the country’s policy objectives, itsunique budget institutions and traditions, and its administrative capabilities; (3) the introduction of amulti-year budget dimension is a gradual process; (4) the multi-year budget should be used toencourage the constructive involvement of line ministries in the budget process; and (5) the usefulness ofthe multi-year budget approach will crucially depend on the reliability and accuracy of the medium termbudget estimates.