FFC Framework for assessing Conditional Grants 16 March 2010 Financial and Fiscal Commission 1

Overview of Presentation 1.Background 2.Performance measures – financial and non- financial 3.Monitoring and evaluation mechanisms and capacity 4.Conclusion and way forward 2

1- Background (1) Conditional grants are the main fiscal tool of national policy. Between 2005/06 and 2009/10, the share of provincial and municipal revenue derived from conditional grants rose from 11.8% to 19.1% for provinces and from 7.7% to 14% for local governments. Over the past ten years, it has been usual for the rate of under-spending (or over-budgeting) on conditional grants to be higher than that indicated for unconditional grants or own-raised revenue. This may indicate learning and establishment costs (for new grants) and/or the burden of additional and repetitive reporting requirements. 3

1- Background (2) Principles in the use of conditional grants  To address national priorities i.e infrastructure grants, school nutrition programme and HIV/AIDS grant  To deal with the horizontal and vertical fiscal spillovers or externalities i.e national tertiary services grant, health professionals training grant Types of grants  Conditional grants – Transferring Government specifies the purpose, conditions, or both  Matching and non-matching  Unconditional grants – No constraints on how it is spent 4

1- Background (3) Proliferation of grants ◦ On reviewing the purpose and necessity of various grants, the Commission has frequently advised on the likelihood of replication between grants. ◦ In the 2010 Division of Revenue Bill, at least three new grants to provinces and one new grant to municipalities were introduced; whilst two local grants have been discontinued. Last year, five new grants were added to the local sphere. ◦ Many grants, intended to be transitional (as in initiating a new policy), often persist for many years. Consistency in design of grants There are varying interpretations of the criteria. 5

1- Background (4) Many capital grants do not follow through on the recurrent implications such as maintenance and operations This is the basis for several Commission recommendations seeking to establish linkages between the Equitable Shares and capital grants (e.g. MIG and LES). Some grants are disconnected in that they cut across programmes. This may reflect a lack of consultation between disbursing national and receiving sub-national departments. Criteria for allocating conditional grants ◦ The horizontal division between provinces / municipalities is usually based on measures such as total population, population in poverty or size of the economy, depending on objectives of grant. ◦ Future budgets can be made either according to an independent costing of planned outputs (as indicated in a business plan), or based on inflationary adjustments. 6

2- Performance measures (1) There is a need to contextualise financial and non- financial data Criteria for allocating future budgets is not clear. ◦ Need for reliable financial costing model Many conditional grants either lack or have inconsistent measures of non-financial performance e.g. how is ilima Letsema different from Comprehensive Agriculture Support Programme? Parliament should monitor and enforce non-financial reporting mechanisms. 7

2-Performance measures (2) Departments should, at least, require or provide measures of the number of beneficiaries and of physical inputs such as staff, buildings and other goods and services. It is also important to provide measures of socio- economic impact (e.g. contribution to employment generation, skills enhancement, productivity and economic growth). 8

3- Monitoring and evaluation – mechanisms and capacity Challenges in conducting effective monitoring of grant performance: Staff and skills to evaluate and monitor performance Systems and capacity problems Availability of non-financial data. What informs MTEF allocations? Accountability of public funds Monitoring requires appropriate non-financial mechanisms in place. 9

4- Conclusions and way forward (1) ◦ The Financial and Fiscal Commission will beginning this year report to Parliament regularly on its assessment of the Section 32 reports as they are tabled by the National Treasury and national departments. To this end the Commission expects to add value through the development of a framework of assessment that is more comprehensive:  Grant performance to the original stated goals  Periodic evaluation of grant effectiveness and impact  Periodic assessment of the design of the grants and conditionality 10

4- Conclusions and way forward (2) Extensive consultation with national departments on reported variances between budgeted and actual figures. Further, it will seek to evaluate grant design and allocation criteria in respect of accepted FFC recommendations. 11

STRATEGY TO ENHANCE LOCAL GOVERNMENT REVENUE Thank you 12