Appropriation Bill [B4-2020]: FFC & Parliament Budget Office inputs

Meeting report

Financial and Fiscal Commission on financial and fiscal impact of COVID-19

Prof Daniel Plaatjies, Chairperson: Financial and Fiscal Commission (FFC), took the Committee through the introduction to the presentation.

Mr Chen Tseng, Research Specialist: FFC, took the Committee through the background of the presentation, with the macroeconomic and fiscal policy outlook. He described the financial situation pre-COVID-19 and the recession that would occur due to COVID-19 in terms of the decline of gross domestic Product (GDP) growth, the fiscal deficit and the government debt trajectory. He explained the health shock of COVID-19 on the economy, and the needs that must be prepared for.

Dr Mkhululi Ncube, Manager: FFC, took the Committee through the revenue and expenditure proposals, the risks of the 2020/21 fiscal framework, the implications of the lockdown on the economy, the government’s economic response to COVID-19 and recommendations for broader reform in the government’s response, such as reprioritisation.

(See attached presentation)

Parliamentary Budget Office on 2020 Appropriation Bill

Dr Seeraj Mohamed, Deputy Director: Parliamentary Budget Office (PBO), briefed the Committee on the background to the development of the 2020 appropriations; the changes to the economic landscape since the tabling of the 2020 budget; the impact of COVID-19 on the economy and the budget; an overview of public expenditure; the structure of the 2020 appropriations; unforeseen and unavoidable expenditure; disaster relief funds and programmes available to respond to the COVID-19 pandemic; authorisation required for reprioritisation, changes to conditions and outputs, and preliminary provisions and possibilities for reprioritisation within the 2020/2021 allocations.

(See attached presentation)

The Chairperson asked the Members for engagement on the presentations.

Discussion

Mr D Ryder (DA, Gauteng) acknowledged and agreed with the Chairperson’s comment that the budget was subject to change, but said that it still needed to be given a fair chance. He emphasised that the National Council of Province’s (NCOP’s) constitutionally prescribed role was not to be a rubberstamp for the National Assembly (NA). Section 68 of the Constitution prescribed what they needed to do with legislation and section 75, 76 or 77 Bills. The South African Reserve Bank appeared to be lagging with their projections for GDP growth, and the National Treasury seemed to have taken a much bigger contraction of 16.1%. That was quite a large variance. What was realistic, from the FCC’s point of view?

The original projections for COVID-19 in South Africa were along the lines of 300 000 deaths. The Department of Health had revised those projections to around 40 000 deaths, with some experts revising it further down to 10 000 deaths over the medium term. Was the response to the health shock as extreme as one thought it was three months ago? In March, when the first lockdown was initiated, we were all cautious based on the information we received, and it seemed then that the health response was necessary. Considering the latest figures, was that health response still as necessary, or did we need to realign ourselves more closely to an economic stimulus to ensure that the economy was provided with the protection that was needed? Should the health shock be our biggest focus?

He commented that revenue was an important aspect, and the South African Revenue Service (SARS) had stated that their revenue collection had shown a massive downturn. Considering that companies were closed, profits would not be made, fewer taxes would be paid by companies, people were becoming unemployed so there would not be people paying tax in their private capacities either. Revenue was under massive pressure. The debate on the Public Sector Wage Bill was going to continue, as was noted in the presentation. The Congress of South African Trade Unions’ (COSATU’s) approach to this had not been very pliant or pliable, but they had indicated that they would participate in negotiations going forward. In the current financial year, however, we were facing major problems.

The backbone of the economy was in mining, quarrying, manufacturing and agriculture which would come through in due course because of the cyclical and seasonal nature of agriculture. He asked for clarification of agriculture being included in the first column on slide 14 of the presentation. A reprioritisation of R130 billion of funding sources was minor compared to the revenue impact that would be seen. There needed to be more than just R130 billion of the existing budget reprioritized, as a scaling down of the budget was needed, based on the much lower revenue collection projections. One could not afford to borrow more money, especially with the downgrade.

There needed to be more emphasis placed on food security going forward, especially considering unemployment rates and the burden on the state.  If one did not incentivise farmers and make farming easier in this country, one would need to import more food, which passed the costs on to the consumer. The government could bear some of those costs by incentivising farmers, and by facilitating farmers, getting emerging farmers the support they have been asking for in their meetings, tying in the issue of land redistribution and assistance and training going forward, and this would ensure that the food insecurity problem would be solved. There was a need to support existing farmers and the proven commercial farmers and ensure that it was cheap for them to farm so that food prices go down.

With the reprioritisation of the budget, following the lost ten years, the country had this massive budget deficit and growing debt. There had been a number of recognised approaches presented to the Committee, such as the rights-based approach and the equity-based approach, which all have to inform these things. The basis of the matter was the essential versus the non-essential. One had to look at what was survival and absolutely essential. The government had not addressed the revenue shortfall. It had not released bandwidth to the technology companies around the country. It had been talking about it for eleven years. It was a good way of producing income for the government, but it would make our lives much easier if we had sufficient bandwidth and this economy was enabled to embrace a new technology. The cost of data and its effect on releasing bandwidth had been mentioned in the presentation. He requested that the PBO circulate the slide in the presentation that needed to be corrected to the Committee, as he would like to share it with Members of other committees.

Mr M Moletsane (EFF, Free State) directed his questions to the PBO. With budget reductions and expenditure, were there any mechanisms in place to ensure that the budget cuts were not going to have any impact on service delivery? What were the PBO’s recommendations for the 2020 Appropriation Bill, to ensure that the proposed allocations provided a meaningful response?

Mr Y Carrim (ANC, KZN) commented that the recovery of the South African economy depended in part on the global circumstances and global recovery. Although the COVID situation may be somewhat different as countries retreat to their insularity and their borders, with their primary focus on their own national economies, what were the projections for recovery globally? He acknowledged that no predictions could be entirely correct. The Organisation for Economic Cooperation and Development (OECD) had stated that the world economy would contract by 12% -- in preparation for the supplementary budget, how would we fare against other similar, developing, middle income countries’ recoveries? It was said that South Africa’s economy would experience a fall of between 5% and 12%, and some predict possibly even as much as 20%.

He expressed hope that Mr Ryder was correct in his prediction that the COVID deaths would be far fewer than originally projected. A health advisor in America, Dr Fauci, had stated that he was horrified with all his experience, having dealt with the earlier Sars epidemic, at how pervasive this pandemic was. Normally a virus would take six months to travel, but this virus travels within one month. Dr Fauci had stated the virus was here to stay. We do not know how many people were going to die, but even if five people died of COVID-19, it was bad enough. He said that as a Committee, they should not agree to the view that they should over-focus on the economy at the expense of lives. The matters could not be polarised. If there was a dead workforce, how was the economy going to function? The strategy must be to find a balanced relationship between the two. Even if there were a minor number of deaths, it did not detract from the need to focus on the health sector. The country could not endure such a health crisis and not revamp the entire health sector and move steadily but consistently and progressively towards a national health insurance system, although it would be a herculean task considering where the public health sector hospitals were situated.

Mr Z Mkiva (ANC, Eastern Cape) commented that the two institutions had followed the same trajectories with the recommendations they proposed. They had not addressed the current challenges and the effect of COVID-19 on the economy. The recommendations had been made in a piecemeal fashion by saying, for example, that money must be deducted from certain areas and put into others. Was that approach sustainable? Were the institutions being objective or appeasing Parliament? Could they be more objective in stating the state’s central role, given the fact that the economy was performing at a low level and that this suggested, for instance, that there was a collapse of the free market system, which implied the need for the state to be at the centre to ensure the economy was more effective for its citizens? He requested detail from the institutions on the matter of infrastructure. They had stated that new infrastructure was unnecessary, yet in his view it was always necessary as South Africa was a predominantly rural country and there was a great need for infrastructure in rural communities. That need was going to be increased, considering that there would be changes in how matters of the economy were approached. For instance, it was suggested that the communities must return to agricultural activity, as that would create food security for the country. However, the institutions had not addressed the high likelihood that we would run out of funding for agriculture any time soon. In conclusion, he said he foresaw the total collapse of the capitalist system, and the state needed to take a central role in running the economy. He asked for the institutions to comment on that sentiment.

Mr E Njandu (ANC, Western Cape) commented that the Committee had an oversight role to hold the executive accountable. He asked the PBO for three to five concrete steps that needed to be put in place by the government to ensure proper management of state resources during the COVID-19 crisis.

Mr S du Toit (FF+, North West) asked for clarity regarding their proposal that the government should consider the following balance sheets: the assets of the Public Investment Corporation (PIC), the Government Pension Fund (GPF), the Unemployment Insurance Fund (UIF) and the South African Reserve Bank foreign exchange reserves. The FFC had welcomed economic transformation, which was a great concern. It was unwise to focus on the current growth model in which the government attempted to transform the economy, instead of stimulating the economy for simultaneous stabilisation and systematic growth. The FFC estimated that 12 million job losses would be incurred during this time as a result of COVID-19, but a large part of these job losses were a result of the current lockdown regulations that were imposed by the government as a result of this radical economic transformation. It was not sustainable for the government to proceed with this current model, since it would not be able to carry all the UIF and social grants payouts that would be needed as a result of the job losses.

The Chairperson commented that the Committee was providing ideas as to how the National Treasury should approach the budget with the COVID-19 situation in mind. She directed her first questions to the FFC. The presentation had talked about the unhealthy composition of the expenditure and the need to rethink some of the budget cuts which had impacted on certain departments such as peace, security and public administration. What specific departments did the Commission think needed to be reviewed with reducing budget cuts? The Committee was currently in the process of dealing with the 2020 Appropriation Bill which had been presented earlier this year, but it had other matters to tend to, so this engagement would assist the Committee in that scenario. Given that the arrear growth of 7.4% was higher than the expenditure growth in some government departments, which specific measures did the Commission propose for the government to take in order to stabilise the government debt without taking resources away from social programmes, which affect the most disadvantaged and vulnerable sector of our country?

There had been talk about retirement packages and the matter of the review of the Wage BIll and the Public Service Coordinating Bargaining Council (PSCBC). Was it working? How could the Committee assist with this? When we had public hearings, COSATU had made inputs. It was the assumption with the Wage Bill that it was something the Committee could not decide on. It needed to be revised and with the three term agreement, the employer and employees needed to come to an understanding. However, as an oversight body, the Committee needs a view from the FFC on this question – did it think retirement packages would work? The Minister had encouraged early retirement, but we were now faced with this pandemic and we need the services of those who had retired.

The Commissioner spoke about projected reduction in revenue in the 2020/2021 budget period, and the preliminary assessment report indicated an under-recovery of about R9 billion in April 2020, reflecting a year-on-year decline of 8.8%, and corporate tax and specific excess annuities were among the tax revenue under-recovery in the same period. What were the specific measures that the Commissioner would propose for the government to get the economy back on track while at the same time fighting the scourge of the pandemic? What did the Commission think had not been considered by the government in its response to save lives and the economy against COVID-19?

Her next questions were directed at the PBO. The presentation had addressed the budget reduction and expenditure cuts on specific programmes to manage the growing debt. Does the PBO have any specific programme to be cut in mind, and what would be the criteria in identifying such programmes? Were there mechanisms that could be put in place to ensure that such budget cuts did not have negative impacts on service delivery? What should be done in order to stabilise the debt levels, and had the government done enough to keep the debt levels manageable? The presentation had addressed the broad impact of COVID-19 on the South African economy.

What was the PBO’s view on the government’s intervention to save lives against COVID-19, and what specific measures would the budget office advise the Committee to take to ensure the economic situation was not worsened? What was its view on the R4.4 billion set aside for the assistance of state-owned entities (SOEs), and what would be the best alternative ways of recapitalising  SOEs with a minimum cost to the state, but yielding tenable results? What were the five concrete steps that needed to be put in place by the Department to ensure proper management of state resources and to avoid wasteful and fruitless expenditure before the budget was approved? What was the PBO’s overall perspective and its analysis or recommendations to the Committee on the 2020 Appropriation Bill to ensure that the proposed allocation provides meaningful responses to COVID-19 without losing the fight against addressing the triple challenges of poverty, unemployment and inequality? It was the responsibility of this Committee, the government, every leader and the community to ensure we close the inequality gap.

FFC response

Prof Plaatjies urged the Committee to read through the full narrative of the presentation that had been provided, as it articulated clearly the basis for some of the recommendations which the Members queried. He provided context for the high unemployment rate in South Africa, owing to inequality, which was incomparable to some other countries. While job losses had been greatly affected by the COVID-19 crisis, he emphasised that the way forward with the global situation was uncertain. There were many predictive models that attempt to project how the global economy would fare relative to the South African economy. The FFC’s view on the situation was informed by the expert advice and models provided by the epidemiologists, which needed to be followed. Their view on the health response to the crisis was informed by their health experts, which justified the need to increase expenditure in the health sector to deal with the crisis.  It was unfortunate that the current debate around the matter in South Africa currently was of a binary nature, between either responding to the economy or to the health crisis. He commented that South Africa was experiencing a human crisis when it comes to COVID, and a human crisis was about health. If people were not healthy, those people could not contribute to the economy in a meaningful way and it impacted South Africa’s human development index.

Another challenge was that South Africa’s sovereign rating had been downgraded, which would impact its finances, the fiscal space SA was in and its borrowing capabilities. It was important to look at economic growth, the strength of the country, institutional strength, the nature of its decision making, the productivity that those decisions bring to society, how it rebuilt its fiscal strength -- specifically its tax buoyancy and revenues -- and how it manages the domestic political risks that were affecting South Africa as a whole. These were the things rating agencies looked for, and what SA needed to look at to alleviate the difficult situation it was in. With the health shock, the global situation was that until there was a vaccine to deal with COVID-19 effectively, which would determine South Africa’s progress, then testing, tracing, quarantine and overall surveillance would have to happen. We were in winter now and do not know what is going to happen. Some of South Africa’s epidemiologists had stated that we need to focus on the outcomes of what would happen in August and September. We were in uncertainty, and were in a difficult situation collectively as a society.

The FFC did not put an ideological position on the role of the state, because that was not their role, as they were not elected public representatives. For this reason, they could not state whether a capitalist, communist or socialist trajectory or greater state involvement was needed. The FFC provided a pragmatic proposal on what action to take going forward. The presentation had provided a standard measure to determine the reprioritisation. There was a case that needed to be made for the closing of certain programmes so that those resources could be used to respond to the three crises we were currently dealing with: a crisis inherited during the apartheid years around inequality and poverty, the COVID-19 crisis and the crisis around the South African economy. The presentation proposed that in these difficult circumstances, there was a need to expand public spending by investing in those new opportunities that increase productivity in South African society and contribute to secure employment. One should look at those economic growth activities and invest in them.

There was also a need to prioritise innovative ideas and bring new economies into this space so that the people of this country could become more productive and employed. Part of that was the need to invest in the expanding digital economy. There was a new way of looking at the retail economy in South Africa. There was a need to look at the digitisation of health services and education. Some children were learning in classrooms that were beyond their capacity of around 60 learners -- and sometimes even more than that. With the COVID-19 crisis, one could not uphold that structure any more, and education as an activity needed to be re-evaluated. There was a need to look at how children and their families were protected from a further spread of the virus. As a result, classrooms needed to change, and that was the investment that needed to be made. Schooling needed to change, and the way it was done. Gauteng was ahead with rolling out iPads to schools. There was a need to follow suit, but the cost of data must also be decreased. That was what the FFC was stating with the role that the state needed to play.

Income support should also be re-evaluated. SA had the social grant system, but there were other opportunities that were needed in order to bring social relief to families. This was not the social relief as defined in the Social Assistance Act. There was a need for social relief to families, communities and businesses. When the FFC spoke about social protection, it was asserting that the state must play a central role in social protection. The state needed to invest in productive spending to be able to protect families, communities and the economy.

When the FFC raised the matter of infrastructure, it was not saying infrastructure spending must be cut, but rather, because of the dire need for fiscal resources, the infrastructure plans needed to be reviewed. There was infrastructure planning at the pre-feasibility stage and those still in the procurement system. Those plans needed to be reviewed and those fiscal resources needed to be invested in dealing with firstly the human crisis, and secondly the economic crisis. That was also a role for the state to perform. Effectively, the FFC was also proposing that there was a need for a greater role for the state to perform.

The wage bill matter had been pushed back because the COVID-19 crisis had seen an increase in the demand of health care professionals and related staff, as well as teachers. SA was going to need more social welfare workers to assist in dealing with the consequences of COVID-19. Compounded with the fact that there was going to be a need for greater public spending, this suggested that the whole conversation on the wage bill would need to take a backseat for government to redefine what ought to be the shape and size of the public service in relation to the constitutional and administrative functions of the state, and the role of the state in social and economic infrastructure and services. Those were the criteria that one must look at when determining the role of the state in public services.

Regarding retirement packages and people taking early retirement, the financial sector and the value of people’s investments had also been affected by the COVID-19 crisis. The policy of people taking early retirement packages had had to be put on hold, as they needed to factor in whether their savings would be able to stretch beyond their retirement. Those were key questions people were asking and the key aspects the economy needed to address.

Mr Tseng said that the South African Reserve Bank's estimate of the contraction of the economy by 6.1% had been posted on 14 April. The basis of that prediction had been the monetary stimulus, specifically around the repo rate cuts and as a monetary stimulus to the economy. That estimation was reasonable, given the timing of it, because monetary stimulation was faster than fiscal stimulus. In both economic and empirical evidence, it could be seen, for example, that mortgage repayments immediately decrease and liquidity in the markets makes the flow much faster and therefore stimulates the economy. In that sense, the prediction was reasonable. Whether it lagged at present, given the wide variances in the uncertainty of the current situation by various predictions, it spoke for itself as to why it was only one of the many estimates that were publicised. Many of these estimations were done by international institutions rather than through South Africa’s own analysis and data. With the health response, it was a specialist field, specific to the health sector. Looking globally, who would be responsible if South Africa should fall into a situation like Brazil or America if it slackened on this point with this balance? It was a delicate balance, and this was an unprecedented crisis. It was not a binary discussion.

With the stabilisation of the debt, whether the public sector should come to the fore, the budget cuts and how the government controls its spending, the stance of FFC was that the more the government was able to reprioritise within some limits, the less the economy was exposed to external risks or a sustainability crisis. As useful as the debt to GDP measure was, of greater importance was the behind the scenes variables, specifically the GDP growth, the exchange rate, and the cost of borrowing, which was the main reason why the sustainability of debt was a problem. Closest to the government’s control of fiscal credibility was how it was able to constrain expenditure and control the deficit, because that would send a strong signal to rating agencies of whether SA was able to sustain and maintain that fiscal credibility when it was appropriate.

Many of the matters centred on how SA as a country understood economic restructuring through reorganising institutions, with the way it did things and the activities it performed. This did not focus only on the public sector, although that was what the purpose of the presentation was. The private sector equally performs their own restructuring, such as working from home, the way they transact and engage with their customers have also changed. In the public sector it was about how we affect the budget cuts. The budget cuts were not just a blanket binary approach. It was about how we reprioritize certain activities, such as with infrastructure. It was not about cutting back infrastructure as a whole but for example, between water sanitation, refuse infrastructure, basic services infrastructure, or basic needs infrastructure such as health, versus luxuries, airports and other activities that need to be restructured because of COVID-19. COVID-19 was meant to give us the opportunity to localise a lot of the production chain processes and value chain processes in South Africa, which was something the government should focus its attention on.

Mr Ncube responded to the question on the recovery of the economy.  SA was in uncharted territory and projections were difficult to make. Initially it was estimated that the recovery would be quick, and there would be what was called a v-shaped recovery process but as projections were updated presently, it was predicted that there nay be a delayed recovery because of many changes domestically and internationally. Looking at the international trend, a quick recovery in 2020 was becoming more elusive because globally, economic growth was on the decline. In the United States, they predict that their economy may contract by 8%. Only China may recover towards the end of the year. It would also depend on the stimulus packages in other countries and how effective those were, not only what was done in South Africa. SA would be specifically affected by the countries it traded with and only China, as one of its big import markets, was showing a bit of recovery. SA’s recovery also depended on its structural reform.

Prof Plaatjies commented on Mr Ryder’s question about food and agriculture. The FFC agreed that the state needed to redefine its role in terms of agriculture and food security. They needed to look at incentivising farmers, especially emerging farmers and commercial farmers, and determine how to create a productive element such as food availability and food security for South Africa. The cost of food was inflating due to COVID-19. When it came to agriculture, access to food, food security and the entire value production chain needed to be looked at. There needed to be greater investments and incentives in that environment.

Mr Mohamed addressed the global economy matter, and how South Africa compared to other developing countries.  The United Nations had released the World Economic Situation and Prospects Report, which looked at the effects of COVID-19 at the end of April. Their estimates were that the world GDP growth would decrease by -2%, that of developed countries would be -5%, developing countries would be at -0.7%, for Africa as a whole it would be -1.6%, and for sub-Saharan Africa would be -3,5%. At the end of April, the International Monetary Fund (IMF) had done a report on sub-Saharan countries which showed the impact on oil producing countries and countries that were dependent on other commodities and resources, including South Africa, and countries that were dependent on tourism. It was shown that for the countries dependent on oil and commodities, they saw a decline in their GDP growth of -3%. For the countries more dependent on tourism it was -5%. For the countries that were not dependent on resources, commodities or tourism, of which there were very few, there would be positive growth. There were going to be these different kinds of effects. A large part of sub-Saharan Africa’s decline was going to be linked to the decline in South Africa.

He confirmed that Mr Carrim’s assertion was correct -- that South Africa’s recovery was going to depend on what was happening in the global economy. There was an insularity occurring. With China, as they brought more production online, they had increased exports but were not increasing their imports as much, and other countries that were dependent on China’s exports were not importing as much. Although China’s economy was rebooting from the COVID-19 crisis, this was still what they were experiencing. This would possibly be the same situation with South Africa’s economy. The idea that if the economy was reopened, even if there were health effects, people were going to be better off was not a binary trade-off, contrary to the manner in which the FFC had framed it. The two were interlinked. South Africa was going to be affected by its neighbouring countries’ economies as fairly large customers of ours, trade partners and economic partners, but also the rest of the world. The demand for SA’s mining and mineral exports would likely be lower. Many companies around the world were likely to have a high inventory of those goods, given the drop in demand.

The effects of second wave impacts also had to be considered. The way businesses were having to close down if there were a few infections may be the trend if it was decided to reopen the economy. One would see impacts on businesses and their ability to grow, especially in factories, mines, hospitals and those kinds of areas where a few infections could cause businesses to close down for up to 14 days. It was difficult then to estimate the impact of opening up or maintaining a more controlled process of opening up the economy. There was also an argument around herd immunity, with claims that the more places that were reopened led to a small percentage of those people getting infected, and eventually herd immunity would develop. The research had shown that over the next two years, or however long took to develop a vaccine, most countries were unlikely to develop herd immunity. The number of infections that one would need within a specific time for that to happen was not going to be enough. It was inevitable that there would be waves of infections. One had to be fairly careful in that sense.

The measures taken with COVID-19, such as the lockdown and social distancing, would create deadweight losses. These were losses that could not be recovered. Large parts of the economy had closed down and these losses would remain and would have to be recovered. These losses were related to GDP growth, value added tax, businesses being closed down and job losses. SA would need to work its way back up from that point. The pandemic and events like natural disasters were special and different from the global financial crisis. There was an argument that if countries did not move toward fiscal consolidation and austerity so quickly after the global financial crisis, but kept stimulating, the impacts of the financial global crisis would be much less. That argument was valid for SA’s responses for COVID-19, but it must also be considered that there were going to be deadweight losses that would be with the country during the medium term and the responses to that would have to take into account how it responded in the medium term and over the long term.

He responded on the role of the government, the size of the public sector and the Wage Bill. SA would have to consider its medium and long term planning carefully, because there was a global agreement that SA should not move to fiscal consolidation too soon but rather plan over time to bring the fiscal balance and debt under control. What had been learned was that fiscal consolidation becomes a constraint to growth. Even with the reductions in the budget and reprioritisation leading up to the 2020 budget, the debt to GDP had not reduced. SA needs to consider how it manages and increases some of the spending on social housing, water, health and education, and rather bring the level of debt under control over a longer period of time. Government should not be thought of in the same way as households, where one had to keep matching revenue and expenditure.

The government had a fairly large impact on the economy through its investments and government consumption, a lot of which was invested in community infrastructure, services and the efficiency of those services. If government and public sector corporations were taken together, one would be looking at about 30% of GDP. That money was important in the economy at a time when one expected to see a lot of job losses and businesses struggling. Debt stabilisation did not mean bringing the debt down to a certain level in a year or two, but should rather be thought of in the long term. There had been a global call for debt forgiveness in developing countries, so SA was not alone in this, and it needed to consider how it would be dealt with globally. Before the pandemic it was seen that people were responding negatively to the credit rating agencies. This also needed to be considered in SA’s response, as the credit agencies were not always correct and they were not the most sensitive institutions in times of hardship. There had been a global response to that which SA should take advantage of.

PBO’s response

An official from the Parliamentary Budget Office responded that at an interparliamentary meeting on the COVID-19 recovery, it had been stated that the role of government was to manage the consequences of the pandemic so that it would lead to recovery of the economy. One of the keystones of this recovery was government expenditure on economic and social infrastructure. It also had an important role in supporting household consumption, particularly lower income households. In response to the five points required by Mr Njandu, there was the matter of compliance with relevant provisions, particularly the supply chain and the Public Finance Management Act (PFMA). In recent reports, it had been seen that there had been a tendency by some local governments to abuse or override the supply chain management (SCM) processes, and if there was an area that should be improved, it should be within the compliance with provisions. There must also be proper support at the local and regional level for spending on infrastructure and helping local municipalities in ensuring they achieve this. The matter around SOEs was important, and there would not be a shortcut in dealing with the issue.  There needed to be a long, short and medium term approach to it. There needed to be a clear commercial mandate of what SOEs were, and it must be ensured that there was proper stability in the SOEs.

Mr Carrim suggested that if they had any further comments, the guest institutions could write to the Committee.

The Chairperson agreed.

Adoption of minutes

Mr Carrim moved adoption of the minutes of 27 May 2020.

Mr Njandu seconded.

Mr Carrim moved adoption of the minutes of 3 June 2020.

Mr Njandu seconded.

Mr Carrim moved adoption of the minutes of 5 June 2020.

Mr Mkiva seconded.

The meeting was adjourned.