There are, however, two main factors that influence the PFM of the central government in South Africa:
1. The concurrent role of the central government with the provincial governments: The central government is responsible for regulation, policy and planning, revenue administration, cash and debt management, consolidated financial reporting and monitoring and evaluation. The provincial governments are responsible for delivering on the effectiveness of the strategically allocated funds of the central government; and for service delivery. These concurrent roles lead to a somewhat shared role of PFM as well. Consequently an assessment of the PFM systems, procedures and practices of central government are more a measure of the legal and regulatory framework, the main institutional arrangements, the level of aggregate fiscal discipline achieved. This assessment of the central government is not provided much opportunity to measure service delivery. For example the Department of Health is directly responsible for managing three medical laboratories. All hospitals and clinics are operated directly by the provinces. Consequently, a full picture of the strategic allocation of resources and efficient service delivery will only emerge when PEFA assessments have been applied to the provinces;
2. The implementation of transverse computerized systems: The central government has implemented a number of transverse computerized systems that operate on country wide networks that facilitate the full country wide roll out of a number the PFM systems. These include the revenue administration systems for income tax, VAT and customs duties; the BAS which provides computerized accounting across all Departments and PERSAL which is the system used to manage payroll. The two systems together provide an opportunity for the integration of cash management and debt management.
(i) Aggregate Fiscal Discipline
With respect to aggregate fiscal discipline, South Africa’s well developed debt strategy, and comprehensive transparent management of debt; effective fiscal risk assessment and oversight of public enterprises; credible three year fiscal forecasts (revenue, net borrowing and debt service, and expenditure) that serves as the basis for top-down budgetary discipline; well managed budget releases and a comprehensive and effective commitment control process all point to the ability to deliver strongly on aggregate fiscal discipline. This is further strengthened by a strict commitment control system supported by an effective cash management system. However, there remain some concerns with respect to the accrual of expenditure arrears, commitment reporting and procurement management.
(ii) Strategic Allocation of Resources
South Africa has in place a number of important steps towards achieving a budgetary process that is fully capable of the strategic allocation of resources. However, there are still a number of important steps that are not fully implemented including the development of sector strategy fiscal frames and full costings of the sector strategy elements with a more direct link to the medium term expenditure framework. The budget classification in South Africa is well capable of supporting a policy based budgeting process and thus provides a necessary input for achieving the strategic allocation of resources. South Africa issued the Medium Term Policy Framework to serve as its national development framework which includes a clear articulation of its development policy objectives. The effectiveness of the central government’s success in allocating resources strategically, followed by disciplined budget releases in accordance with such strategic considerations will still rely upon provincial governments to deliver on such strategy as well as the incorporation of effective monitoring and evaluation to inform and continue evolving and refining strategy.
Particularly important to assessing the impact of policy objectives is the tracking of resources received by front line service delivery units such as primary schools and primary health care facilities. The consolidation of Provincial Budget Statements with their detailed reports on primary school and primary health care receipts of cash and kind by the National Treasury into the Provincial Budgets and Expenditure Review presents a sound basis to better manage the achievement of effectiveness.
(iii) Efficient Service Delivery
The concurrent arrangements between the central government and the provincial governments on public finance places little focus on service delivery within the central government’s operations. However, significant contributions to efficient service delivery can be made through effective monitoring of transfers to frontline service delivery units to guide policy and inform the strategic allocation of resources. This, as indicated above is presented annually in the Provincial Budgets and Expenditure Review. There are areas that South Africa has had much success in contributing to efficient service delivery. These include the successful collection of revenues which provides a sound basis for achieving the efficient delivery of services; and also there have been considerable efficiency gains that have arisen as a consequence of South Africa’s successful integration of cash and debt management both with respect to efficient liquidity management, as well as, with respect to the market response to sound debt management with the subsequent reduction in the cost of money to government. One factor that appears to have adversely affected the efficiency of service delivery has been some areas of concern in procurement and non salary expenditure management.
II. Prospects for reform planning and implementation
South Africa has evolved its reform approach away from a comprehensive integrated approach centered on a single integrated strategy, with emphasis on sequencing and coordination, to a more incremental one. Implicit in the approach of PFM reform in the first decade or so was a focus on three broad stages or platforms. These were: achieving fiscal discipline, the efficient delivery of services, and the strategic allocation of resources. The incremental approach appears to work because the main fundamental changes to the PFM have already been achieved and the focus is now more on capacity development rolled out to the provinces and municipalities. It can remain effective in delivering on improvements because it has already made the major transition to a reformed PFM system and is now focusing upon continuing improvements of the reformed systems informed by the lessons learned through the decade long reform experience.
The commitment to continuing improvements in PFM in South Africa has political championship at the very highest levels through the Minister for Finance. Implementation oversight and monitoring is the responsibility of the National Treasury’s Heads of Division. Coordination of the reform efforts is the responsibility of the Budget Office.
The Special Functions Division that includes the PFMA Implementation Unit has been playing a particularly important part in drawing lessons from experience on the legal and regulatory framework and coordinating its evolution.
The Government of South Africa has embarked upon a number of very successful PFM reforms over the last decade and a half or so. The reform agenda focused upon:
• The establishment of a legal and regulatory framework to strengthen and improve upon the transparency, comprehensiveness and credibility of the budget, debt management and external scrutiny and oversight;
• A focus away from input controls to delivered outputs supported by improved financial reporting and public and parliamentary access to budget and fiscal documents, and the introduction of Audit Committees to better hold budget managers accountable;
• A better alignment of policy, planning and budgeting;
• A move to a multi-year budgeting framework to allow the re-allocation of resources to new priorities;
• The improvement of debt management through the introduction of suitable institutional arrangements; taking over the responsibility for funding decisions from the South African Reserve Bank; reforming the money market; integrating cash and debt management, diversifying the debt portfolio and restricting the proportion of foreign debt; and establishing a risk management function;
• The revenue administration with respect to the improvement of revenue collections and promoting education, service and enforcement;
• Strengthening the independence and the effectiveness of the office of the Auditor-General;
• The reform initiative in local government was implemented through the Municipal Finance Management Act (MFMA), which became effective in July 2004 and whose implementation is supported by the annual Division of Revenue Act. The National Treasury has developed a phased implementation strategy of financial and technical support for local government based around the MFMA, which takes into account the diverse capacity of municipalities for implementing the reforms.
The early phases of PFM reform were premised upon the issuance of detailed reform strategy, which while largely adhered to was never passed as a white paper. With the substantial achievements in PFM reform over the last decade and a half, as attested to by the results of the PEFA assessment, continuing PFM reform is probably better characterized as a process of strengthening and improving rather than a process of full reform.
Quite distinct from the early period of reform which saw the introduction of new laws, changes in institutional arrangements, the introduction of new budget systems; the current phase of reform is characterized by amendments to the law, the improvement (and replacement) of existing computerized systems, continue to improve upon program structure and descriptions, improving the specification, measurement and monitoring of output targets and continue broadening the scope of the consolidated financial statements.
This approach to reform is consistent with the adopted philosophy of allowing managers to manage and holding them accountable for results. Hence specific improvements are carried out by divisional heads with fewer requirements for careful coordination with other divisions since the improvements at this stage are incremental. This appears to work because the main fundamental changes to the PFM have already been achieved.
Posted by Davina Jacobs
