1. Select Committee on Finance Provincial Budgets and Expenditure 4th quarter 2016/17 KwaZulu-Natal
National Treasury 1

2. National Treasury manages fiscal risks in the provincial sphere of government in the following ways:
Co-ordinating the provincial budget processes through;
Benchmarking provincial budgets, with a special focus on social services and concurrent functions
Monitoring and analysis of provincial spending including publishing expenditure reports quarterly including;
Conditional grants allocations, monitoring, reporting and rollover co-ordination
Compliance enforcement and interventions, including with holding and stopping funds in accordance with the Division of Revenue Act
Provincial visits - 1st Quarter spending and infrastructure visits
Briefing Finance Minister and MECs on fiscal risks in the provincial sphere through intergovernmental forums such as Budget Council;
Capacity building and training
Introduction

3. Adjustments to main budgets: 2016/173 3

4. Provincial aggregated budgets and expenditure as at 31 March 20174

5. KwaZulu-Natal Provincial Expenditure as at 31 March 2017

6. Are provinces controlling Personnel [Education and Health]?
31 March 2017, Education had increased personnel numbers by 187 [i.e. from to ] due appointments of temporary teachers at the beginning of the 2016 academic year due to the increased in leaner numbers.
Health also increased slightly by 46 from to by the end of the previous financial year, this mainly due to the appointment of medical practitioners and professional nurse.

7. Education - Learner and Teacher Support Material
The provinces underspent on LTSM. The budget in the current financial year was only to procure top-up material, the items was over budgeted for hence the under spending after procurement of the top-up material.

8. Health - Medicines and Medical Supplies
The above tables demonstrates an overspending on medicines and medical supplies. Whiles the pressure emanates from the service delivery demands, the accrual contribute significantly to the registered over expenditure as reported.
The adjustment on both items during adjustment budget was mainly to address the challenge of accruals from the previous financial year.

9. Health - Laboratory Services
The above table demonstrates an underspending of R42.2 million or 25.3 per cent by Health on laboratory services, it item was increased during the adjustment address the pressures as a result of accruals from the previous financial year.
As at 31 march 2017, the province had a contingent liability of R2.7 billion for NHLS. 17

10. KwaZulu-Natal Financial Management: 2016/17
Education Accruals: Capex (R363m), G/S (R519m)
Social Development: Transfers(R65m), Capex(R29m)
Agriculture: G/S(R68m)
COGTA: G/S(R693m)
Health: G/S(R1.2bn), capex (R72m)

11. Summary of observations and fiscal risks
Provincial overview:
Province underspent it’s allocated budget by R138 million mainly due non-filling of post in line with the moratorium on the filling of post.
With the exception of Health and Human Settlements, all other departments reflected an under expenditure for CoE.
Total accruals and payables not recognised increased significantly to R4.2 billion in 2016/17. Bulk of these accruals emanate from Education, Health, Transport and COGTA with a combined accruals of R3.5 billion.
The province has over collected against its adjusted Own Revenue target of R3 billion by R145 million mainly in motor vehicle license and financial transactions in assets and liabilities.
The cash balance has declined slightly from R3.5 billion at the beginning of 2016/17 financial year to R2.9 billion in March 2017 and this resulted in decline in interest revenue.
Education:
The department partially overspent its budget by R12 million. Compensation of Employees underspent by R291 million while the total headcount including educators (90 014) remained relatively unchanged during 2016/17.
The quality of Early Childhood Development (ECD) needs to be monitored since the department is continuing to reprioritise from this area.

12. Summary of observations and fiscal risks
Education (Cont.):
The excessive under expenditure of R217 million in Training and Development is worrying given its direct link to education outcomes.
The R86 million which was re-allocated late in 2016/17 from FS in terms of EIG has demonstrated that department has the capacity to process payments. However, the department does not apply the same urgency when they have to pay contractors. The department has admitted that there is a chronic delays in paying contractors on time due to lengthy internal SCM processes.
Health:
The department experienced severe financial pressures in the 2016/17 financial and reduced the intake of student nurses and community service staff in order to avoid huge over expenditure.
This resulted in growing discontent amongst health professionals with regards to poor working conditions and unavailability of tools of trade as revealed by The South African Medical Association during the recent protest.

13. Summary of observations and fiscal risks
Health (Cont.):
The department has also lost 352 Medical Practitioners between April 2016 to April 2017.
The department enforced savings on items such as National Health Laboratory Services, Agency and Support, Property Payments, Consumable Supplies and Payments for Capital Assets with a combined amount to R451 million have contributed to an increase in accruals.
In aggregate, Goods and Services overspent by R216 million mainly due to medicine which overspent by R492 million. This pressure was induced by an increase in numbers of patients placed on ARVs under the Universal Test and Treat (UTT) which has replaced the CD4 count threshold criteria. Moreover, the above average medical inflation and weak domestic currency also contributed towards over expenditure.
The department has deferred the procurement of essential machinery and equipment such as generators, laundry vehicles and EMS equipment which resulted in under expenditure of R196 million in payments for capital assets.

14. 2017 Tabled Provincial Budgets14

15. 2017 Provincial Fiscal Framework – KwaZulu-Natal15

16. 2017/18 Proportionate MTEF Budgets16

17. Compensation over the 2017 MTEF

18. Summary of key conclusions and Fiscal Risks over the 2017 MTEF
Growth in Own Revenue is declining in 2017/18 partly due to:
NDoH increasing the income scales which resulted in an increase in number of patients who qualify for free public health care.
Education:
The low growth over MTEF in transfers to non profit institutions is not adequate given that the department is funding schools below National norms and standards
The budget allocation of R251 million in 2017/18 for learner transport is inadequate, as more learners qualify for transport in the province. The learner transport function has been moved from Transport to Education; However, the budget is still with Transport. As such, both departments need to ensure smooth transition in order to avoid any potential disruption in the provision of learner transport.
Declining budget for LTSM is worrying given that the department does not have a good textbook retrieval policy in place.

19. Summary of key conclusions and Fiscal Risks over the 2017 MTEF
Health:
Budgets for Medicine and Agency and Support are declining over the MTEF. The higher than normal medical inflation and the burden of disease prevalent in the provinces will exacerbate the impact on the quality of care.
Medical students will be returning from Cuba in 2018 and are expected to exert pressure on the compensation of employees’ budget.
The department has only budgeted R120 million for Medico-legal claims in 2017/18 despite spending R251 million in 2016/17. The high contingent liability is at R10.4 billion.
The department is faced with an issue of completed facilities that cannot be commissioned. The Dannhauser and Jozini community health clinics are amongst other facilities that have been built without operational budgets.
COGTA:
COGTA has to fund 50 per cent of the payments of salaries to be made to Izinduna which were increased from a stipend of R15 600 per annum to a salary of R91 000 (for 3 100 Izindunas). The amount required was calculated at R252.3 million, R266.2 million and R million over the 2017 MTEF. This is a potential risk to the provincial fiscus
*On average, there are 14 students returning from Cuba per year over the 2017 MTEF. In total, there are 728 students in Cuba.

20. Thank You 20