CHAPTER FOUR: ECONOMIC GOVERNANCE AND MANAGEMENT __________________________________________________________________________ affects nearly 30% of the population. The major obstacles to economic growth and poverty reduction are structural. They are the rigidity of the production machinery and structure, low investment, and limited diversity in exports – which are dominated by cotton. This situation makes the economy very vulnerable to external shocks and weakens the country’s balance of payments. The country also experiences other constraints, particularly with regard to land issues, the legal protection of businesses, taxation and customs tariffs, the management of public utility services, and the development of infrastructure. These barriers considerably affect the competitiveness of enterprises. 398. In conclusion, it should be pointed out that the government faces two key challenges that need to be addressed: (i) improvement in the overall and sectoral competitiveness of the economy to provide a macroeconomic framework for promoting development; and (ii) eradication of poverty and improvement of the quality of life of the population. Box 4.2: Current practice in developing the MTEF in Benin The MTEF method of budget preparation started in 2002. First, the General Directorate of Economic Affairs (DGAE), in consultation with the General Directorate of the Budget (DGB) and the permanent secretariat of the National Development and Poverty Reduction Committee (CNDLP), presents guidelines that indicate, for the medium term, the government’s objectives with regard to economic growth, inflation, tax pressure and budget deficit. The guidelines define the macroeconomic framework of the government’s policy and analyse recent developments both at the national level and in light of the economic policies of countries in the subregion. They give an estimate of the resources expected by Benin for the next three years so as to assess expenditure projections within reasonable limits. Based on these guidelines, the sectoral allocations are determined according to criteria like: (i) increasing the relative proportions to priority sectors; and (ii) limiting the increases in allocations according to their absorptive capacity. In order to apply these criteria, the data on effective expenditure by ministries play a very important role. After this stage of determining sectoral allocations, the expenditures in the initial overall allocations are discussed and reviewed. The process ends with the compilation of proposals from all the sectoral ministries to prepare the country’s MTEF, which is then sent to the government for approval. Consequently, it could be said that the MTEF preparation is a repetitive process that could be divided into six phases:  Phase 1: Macroeconomic framework and estimates of mobilisable resources.  Phase 2: Preparation of preliminary sectoral budget ceilings.  Phase 3: Discussions and review of the sectoral budget ceilings.  Phase 4: Approval of ministerial ceilings and mechanisms by the government.  Phase 5: Finalisation of CDS-MT.  Phase 6: Finalisation of the MTEF and approval by the government. The government’s ultimate goal is to make the MTEF a tool for budgetary discipline and for forecasting the financing of sectoral policies. The MTEF also makes it possible to rationalise 147