National Treasury Ad Hoc Joint Committee on Economic Governance and Management Cape Town, 15 November 2005

2 Constitution South Africa’s Constitution is one of the most progressive Advocates transparency and accountability Chapter 13 on Finance establishes: -The role of the Treasury -Independence of the Reserve Bank -Reporting to Parliament and to the provincial legislatures -Equitable shares and allocation of revenue between national, provincial and municipal budgets -Procurement -Remuneration of persons holding public office

3 Legislative context Chapter 13 of the Constitution defines role of Treasury Intergovernmental Fiscal Relations Act –Establishes Budget Council and Forum –Spells out intergovernmental budget process and role of FFC Public Finance Management Act –Treasury regulations Municipal Finance Management Act Numerous pieces of financial sector legislation

4 PFMA Give effect to Section 216 of Constitution Shift away from compliance towards accountability and management Uniform treasury norms and standards GRAP Uniform expenditure classifications Annual Reports and Strategic Plans Legal basis for 3 year budgets ( improve policy implementation and service delivery e.g CSG)

5 Policy priorities discussed by Cabinet Budget documentation Division of Revenue Bidding process (MTEC) Cabinet approvalBudget Day Fiscal framework Political scrutiny of departmental allocations (MinComBud) Main steps in budget process MTBPS

6 Parliamentary budget process Minister tables MTBPS in Oct/Nov …spelling out main budget priorities Joint Budget Committee holds hearings on MTBPS and prepares report Division of Revenue Bill and Appropriation Bill tabled in February Division of Revenue Bill referred to NCOP Division of Revenue Bill approved by both houses Appropriation Bill processed by National Assembly

7 Budget documentation Budget legislation –Division of Revenue Bill –Appropriation Bill –Adjustment appropriation Bill –Revenue laws Other budget documentation –Budget Speech –Medium term budget policy statement –Budget Review –Estimates of National Expenditure –Intergovernmental Fiscal Review –Estimates of National Revenue –People’s Guide

8 Parliamentary oversight PFMA and Treasury Regulations requires strategic plan and annual report Strategic plan and ENE chapters spell out: –Aim of each department/vote –A purpose for each programme –Outputs, measurable objectives and targets for each programme Annual report requires reporting against these measurable objectives –Parliament should work with depts to improve measurable objectives Section 32 monthly and quarterly reports

9 Recent External Reviews of the SA Economy and Economic Management IMF Article IV review African Development Bank and OECD African Economic Outlook

10 IMF Article IV On 2 September 2005, the IMF Executive Board concluded the Article IV consultation with South Africa. The report concluded that SA’s near-term economic outlook was favourable: Macroeconomic performance was strong in 2004 and early Growth was supported by a continuation of sound policies and a favourable external environment. CPIX inflation has remained within the official 3-6 percent target band since September Higher level of reserves and sound macro policies have contributed to a further decline in sovereign risk spread. Fiscal deficit fell to 1.5% of GDP in 2004/05, from 2.3% a year earlier. Challenges remain, including persistent high unemployment, widespread poverty, large wealth disparities and a high incidence of HIV/AIDS. The Board supported the authorities’ approach to addressing these problems.

11 African Economic Outlook Published by the African Development Bank and the OECD in mid-May 2005 The report found that: Fiscal and monetary policies have been sound. With low inflation, little indebtedness and a strong currency, SA is in a favourable position to tackle its social ills, most crucially the pervasive unemployment. Government is increasing social spending and public works programmes, while continuing to foster investments in physical and human capital.

12 Macro Policies support for sustainable development Created space for increased social spending Budget deficit down from 9.5% in 1993 to over 1% in 2003 Public Sector debt down from 60% of GDP to 36% - reduced the cost of borrowing for both government and private sector. Release more money in the economy Inflation stable 3-6% target Creates certainty in the economy Reduction in tax both PIT and CIT (PIT R78billion and CIT R10billion over past years)

13 Sound Transparent and Predictable economic policies Budget Reform process PFMA Budget documentation

14 Status of SA Public Finance Management

15 PERFORMANCE ASSESSMENT OF STAFF Policies & Priorities Medium Term Budget Process Statement of Service Delivery LEGISLATURE/ COMMUNITY EXECUTIVE AUTHORITY (Outcomes) Performance Agreement ACCOUNTING OFFICER (Outputs) SENIOR MANAGERS Performance Agreement STRATEGIC PLANS Outcomes/Outputs SERVICE DELIVERY IMPROVEMENT PROGRAMME (Outputs) BUDGET (Outputs) PERFORMANCE REQUIREMENTS DELEGATIONS FINANCIAL STATEMENTS/ ANNUAL REPORT REVIEW AND ASSESSMENT INTEGRATED FINANCIAL MANAGEMENT SYSTEM - Compilation of medium term budgets and costing of outputs - Accounting system (accrual) - Creditor, Debtor, Stock and Asset Systems - Human Resource Management System - Management information system (Financial and non-financial) IN-YEAR MANAGEMENT AND REPORTING (Financial & non- financial) INTERNAL CONTROL ASB - GRAP - GAAP PFMA: FINANCIAL MANAGEMENT MODEL

16 Fight Corruption and Money Laundering Key legislation such as Prevention and Combating of Corrupt Activities Act Financial Intelligence Centre – comply with highest international standards Asset register for accounting officers – financial disclosure of assets PFMA requirement for risk assessments and fraud prevention plans National Public Service anti corruption hotline

17 Regional Integration SADC finance and Investment Protocol Committee of Central Bank Governors Southern African Customs Union Common Monetary Area African Development Bank

18 Conclusion South Africa has very high standards and high compliance Much of what we do transparent and in public domain Good compliance and governance mechanisms Various Ombuds Public participatory processes through parliament

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