Through their multi-annual approach, MTBFs promote fiscal discipline and increase accountability and transparency of fiscal policy-making, making them a key element of national fiscal frameworks.
What are medium-term budgetary frameworks (MTBFs)?
Medium-term budgetary frameworks (MTBFs) are defined as those fiscal arrangements that allow the government to extend the horizon for fiscal policy making beyond the annual budgetary calendar. Although the approval of the annual budget law remains the key step in which important decisions on budgetary policy are adopted, most fiscal measures have budgetary implications that go well beyond the usual yearly budgetary cycle. As a result, a single year perspective provides only a limited basis for sound fiscal planning. MTBFs usually cover the preparation, execution, and monitoring of multiannual budget plans and contain both expenditure and revenue projections as well as the resulting budget balances.
In general, medium term budgetary objectives included in an MTBF represent a weaker form of commitment than a pure rule incorporating binding targets. However, they may help ensure fiscal discipline by making more apparent the impact of current policies on the government balance in the coming years. Likewise, the existence of an MTBF may facilitate monitoring by providing a reference trajectory against which budgetary developments can be assessed over time. Overall, a well-designed MTBF should reflect the impact of past budgetary commitments as well as the future cost of new policy measures.
Finally, strong MTBFs can efficiently complement through their multi-annual focus the introduction of other institutional reforms such as an expenditure rule or top-down budgeting.
Sherwood, M., Medium-Term Budgetary Frameworks in the EU Member States, European Commission, European Economy Discussion Paper 21, December 2015.