The Effect of Medium-Term Expenditure Frameworks (MTEFs) on Budget Performance in Kenya
DOI:
https://doi.org/10.47604/ijfa.3490Keywords:
Budget Execution Rate, Medium-Term-Expenditure Frameworks, Budgeting Practice, Public Budget PerformanceAbstract
Purpose: The primary aim of this study was to examine the effect of Medium-Term Expenditure Frameworks (MTEFs) on budget performance in Kenya. Specifically, the study sought to determine whether the adoption and implementation of MTEFs have contributed to improving fiscal discipline, enhancing budget execution rates, strengthening revenue collection efficiency, and promoting overall credibility in public financial management. By applying econometric analysis to Kenya’s budget data over the period 2012/2013–2023/2024, the study aimed to assess both the short-run and long-run effects of MTEFs on budget outcomes, thereby providing empirical evidence to inform fiscal policy reforms and enhance the effectiveness of budgetary frameworks in the country.
Methodology: The study adopted a quantitative research design to investigate the effect of Medium-Term Expenditure Frameworks (MTEFs) on budget performance in Kenya. Secondary time-series data spanning the fiscal years 2012/2013 to 2023/2024 were utilized, with the Budget Execution Rate (BER) serving as the proxy for budget performance. MTEFs and other fiscal policy variables were specified as explanatory factors within the econometric framework. The Johansen cointegration approach was employed to examine the existence of long-run equilibrium relationships, while the Vector Error Correction Model (VECM) was applied to capture short-run dynamics and adjustment processes. To ensure the validity and robustness of the estimations, diagnostic procedures—including stationarity testing, optimal lag length determination, and checks for normality, serial correlation, and heteroscedasticity—were conducted. This methodological approach provided a rigorous framework for disentangling both the long-term and short-term effects of MTEFs on budget execution outcomes in the Kenyan context.
Findings: The Johansen cointegration analysis established that MTEFs have a positive and statistically significant long-run effect on the Budget Execution Rate (BER), with a coefficient of +0.32 (p = 0.031). This implies that over time, the adoption and effective implementation of MTEFs enhance budget execution by improving fiscal discipline, strengthening expenditure prioritization, and aligning resource allocations with actual spending. In the short run, however, the Vector Error Correction Model (VECM) results revealed that MTEFs exert a negative and statistically significant effect on budget execution. Across the first three lagged periods, the coefficients ranged between –0.73 and –1.01, with p-values ranging from 0.002 to 0.026, indicating that immediately following MTEF reforms, budget execution performance tends to decline.
Unique Contribution to Theory, Practice and Policy: This study makes a threefold contribution. Theoretically, it refines public finance and institutional theories by demonstrating that Medium-Term Expenditure Frameworks (MTEFs) exert a dual effect—undermining budget performance in the short run due to transitional inefficiencies but enhancing fiscal discipline and budget credibility in the long run. Practically, the study provides evidence-based insights for budget practitioners, highlighting the need to strengthen institutional capacity, procurement systems, and absorptive mechanisms to minimize short-term disruptions when implementing MTEFs. At the policy level, the findings emphasize the importance of sustaining MTEF reforms despite early setbacks, while embedding adaptive mechanisms such as phased rollouts, stronger fiscal linkages, and improved cash management to optimize long-term budget performance in Kenya.
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