Supplementary Estimates 2000/2001

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Finance Standing Committee

08 June 2000
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Meeting report

FINANCE PORTFOLIO COMMITTEE
9 June 2000
SUPPLEMENTARY ESTIMATES 2000/2001: BRIEFING BY THE DIRECTOR-GENERAL OF FINANCE

Documents handed out
Slide Presentation of Supplementary Estimates 2000/2001 - text outline

SUMMARY
The Director-General of Finance gave a presentation on the allocation of R622 million left unallocated in the 2000 Budget. The money has for the most part been allocated towards the Poverty Relief programme, the Integrated HIV/AIDS strategy and to post-flood reconstruction. She also discussed reasons for under-expenditure and suspensions of funds. Ms Ramos emphasised that the main constraint on the disbursement of funds was the lack of capacity for planning and implementation. and how this affected the allocation of funds. A number of steps have been made to improve the effectiveness of spending:
- The Department of Finance is requesting quarterly progress reports in a standard format.
- The format of these reports focuses on expenditure, outputs and the impact of the spending.
- Departments have to provide an earlier identification of problems. They will need to provide some explanation of the problem and suggestions for remedial action.
- A "Technical Committee" is being established between the Treasury and relevant departments to build up capacity in key areas such as project management.

MINUTES
Allocation of funds
Ms Ramos gave a presentation on the allocation of funds left unallocated in Budget 2000. Of these previously unallocated funds R547 million has now been allocated towards Poverty Relief and a further R75 million has been allocated towards an integrated HIV/Aids strategy. R129 million has been set aside for any necessary adjustment to the budgets of the Departments of Health, Public Works and Welfare. In light of the damage caused by the floods R227 million has been allocated to post-flood reconstruction. Most of this money has been earmarked for the Northern Province and Mpumulanga.

Allocation of Poverty Relief Funds
The Poverty Relief allocation process tried to ensure that funds would be allocated where they would be effectively and efficiently spent. The process began in April 2000 with a request for progress reports and bids. A committee of officials from Finance, State Expenditure, the Presidency and Labour then met in May to scrutinise previous spending, analyse progress reports and evaluate business plans. After the committee had extensive interaction with the departments concerned, recommendations where made to Cabinet via MINCOMBUD. Cabinet gave final approval to the spending plans on 1 June.

Reasons for unallocated amounts and suspensions
Ms Ramos discussed a number reasons why some funds have remained unallocated or have been suspended. Firstly some departments had not completed their planning cycle. For instance the Welfare department had not finalised its plans and so it would be likely that extra funds directed to them would remain unspent. Secondly while some projects show promise they are as yet untested and so it would be prudent to let these programs prove their feasibility and value before further funding is allocated. A related reason given for holding back on funding was that it was thought that some projects that where already running needed more time to prove their feasibility and value. For instance some projects run by the Ministry of Environment and Tourism would continue at present funding levels until they had sufficiently proven themselves. Finally in some departments significant funds from previous years had still to be spent. The existence of these rollover funds pointed to a lack of capacity by these departments to effectively spend funds allocated to them. Departments that had requested to roll over previously unspent funds into the new financial year where the Departments of Health, Housing and Public Works. Therefore in light of past expenditure and received plans it would have been imprudent to allocate more funds to these areas

Reasons for under-expenditure
A number of reasons where given for under-expenditure in previous years. For instance in previous years the finalisation of where funds would be allocated had occurred late into the year. Departments had underestimated the time that they would need to plan effectively. Some departments had only started spending late in the financial year and so had funds left unspent at the end of the year. Ms Ramos said that in order to achieve effective financial control, complex disbursement mechanisms had been implemented. Although these where implemented for good reason, they did slow down the spending of funds.

Lack of capacity in some government departments
Ms Ramos emphasised that the main constraint on the disbursement of funds was the lack of capacity for planning and implementation. For one there was generally an underestimation of the time needed for planning. So while departments would provide a business plan, it would not be sufficiently detailed to actually be implemented. Thus further work was needed before implementation and spending could commence. Ms Ramos said that the capacity for program management differed widely across different departments. So the Department of Water, which displays excellent project management skills, is able to effectively implement a large number of projects. Therefore it receives a large amount of funding while not needing to roll over funds. Ms Ramos emphasised that the lack of project management skills in some departments is one of the major challenges for the future.

Implementation of new reporting procedure
A new standard for reporting was introduced in April of this year. These reports will form the basis for future objective evaluations of the impact of spending. Presently there is large variation in the completeness and quality of reporting. As a result a comprehensive standardised overall report is not yet possible. Currently the Ministry of Finance is requesting that quarterly progress reports be submitted.

Outputs and Impact of 1999/2000 allocation
Ms Ramos said that last years' projects had had an especially positive effect on women and the rural poor. The impact of last year's projects were:
● The delivery of infrastructure such as roads, water pipes, craft centres and irrigation schemes especially in the rural areas.
● The provision of more than 37 000 short-term jobs and the creation of 2000 permanent jobs.
● The provision of skills such as bricklaying, baking, welding and small business skills.
● The provision of start-up capital and support for individuals and communities to start their own businesses.
● The provision of services to communities such as waste removal, crèches and the cleaning of alien vegetation.
● The provision of a space in which different departments, NGOs, CBOs and the private sector can work together towards common goals.

Process for finalisation of allocations for 2001/2002, 2002/03 and 2003/04
It is proposed that the process should start earlier than it presently does. Planning will start in July of this year and should be completed by November. Therefore the department expects that the bulk of allocations next year will be made in the budget. All allocations in future will be made for a three-year period. This will provide for more certainty and the more effective spending of funds. Priority will be given to integrated and co-operative projects. There is some evidence of some overlap and duplication of the work that different departments are doing. So there is a need for a strong central focus.

Steps to improve effectiveness of spending
A number of steps have been made to improve the effectiveness of spending:
The Department of Finance is requesting quarterly progress reports in a standard format. The format focuses on expenditure, outputs and the impact of the spending. Departments have to provide an earlier identification of problems. They will need to provide some explanation of the problem and suggestions for remedial action. Ms Ramos suggested to the committee that they should also request quarterly reports from the different departments.
A "Technical Committee" is being established between the Treasury and relevant departments. The technical committee will build up capacity in key areas (such as project management) and will facilitate the sharing of information between the different departments and between the different departments and the Treasury. The Department is currently exploring options such as greater use of the Independent Development Trust. Standard formats are going to be requested for business plans.

Process regarding HIV/AIDS allocation
Cabinet approved a special allocation for HIV/Aids in November 1999. The money was set aside to provide an effective and integrated response to the HIV/Aids problem. This money would be allocated in addition to existing allocations. A committee has been established with the Department of Health as convenor. Children and youth are the focus of spending. The social service departments must draft plans and facilitate interaction with the provinces.

The Integrated HIV/Aids Plan
The plan focuses on rolling out life skills and providing HIV/Aids education in primary and secondary schools. Spending will focus on increasing access to voluntary counselling and testing for HIV/Aids. Alternative community-based models of care will be the developed and piloted. Further spending on the community outreach/public campaign that links HIV/Aids initiatives. Feedback on progress will be provided after adjustment estimates or in approximately six months time.

Discussion
Mr Davies (ANC) asked about those departments that had had initial estimates cut since they could not spend their money. Since there was obviously a need for their services, what initiatives were being taken to help those departments develop the capacity to effectively spend money.

Ms Ramos said that sometimes you can see where the need is. The problem is that unless the departments plan properly they cannot spend the money allocated to them and therefore the need is not addressed. The Treasury itself does not have the capacity to go into the departments and do the planning.
The Treasury asks departments:
● Where will you spend the money
● What mechanisms are in place to deal with any difficulties
● What will the department do if it cannot spend the money

Mr John Du Plessis of the Department pointed out that a meeting on 26 July plans to bring departments together in a committee to share information and knowledge. The Independent Development Trust (IDT) is assisting departments such as the Department of Welfare for whom it acted as a distribution agency. The Treasury is in discussion with the IDT since not equipped to help departments spend their money effectively.

Mr Turok (ANC) asked if there was a trade-off between cutting the deficit and spending money on these projects. He also asked what degree of follow-through does the department do especially in relation to donor funding (in terms of how much is spent). Do donor countries want to know where their money goes?

Ms Ramos said that the budget deficit is now under control and there is a downward trend in expenditure. This downward trend includes the expenditure in the supplementary estimates. In fact the deficit is coming down faster than expected. Furthermore as a consequence of the declining deficit there are less interest payments. As a result of the success in decreasing the deficit, the fiscal objectives have changed. Now the funds are available but the government lacks sufficient capacity to spend the money effectively and efficiently within a single year. Ms Ramos emphasised that this lack of capacity to effectively spend the money was the big challenge facing the government. Therefore there is no trade-off between the spending on Poverty Alleviation and decreasing the deficit. She said that spending on poverty relief should and does take place at a community level.

The Treasury is following through on spending in the different departments. For instance it does not look like the Department of Public Works is able to spend the money assigned to it. The Treasury needs to evaluate whether there is something wrong with the design of the projects and so on.

Mr Andrew (DP) noted that the format of progress reporting focuses on expenditure, output and its impact. He asked if this type of information was going to be available to Parliament in the future? With regards to the HIV/Aids panel, were the costs incorporated into the original budgetary estimates and if not, are they included in the supplementary estimates?

Ms Ramos said that the representatives from the Treasury have been put in place to help departments report to Ministers. She pointed out that nothing stops Parliament from requesting quarterly reports from Departments. Parliament could also ask the departments to explain any difficulties that they are having. Ms Ramos said that there was no indication that more funds where needed for the integrated HIV/Aids Strategy.

Mr John Du Plessis commented that there was a problem with a secondary allocation of funds. The difficulty is that other departments see it as a second chance after the budgetary process to get funds allocated to them. Furthermore the process by which funds are allocated is highly involved and complex. For these two reasons bidding for allocations was not open to all 32 departments and nor would it be in the future.

Ms Taljaard (DP) asked if new public sector-private sector partnerships have occurred in any of the departments and furthermore is the Finance Department looking at new opportunities for such partnerships.

Ms Ramos replied that the Department was getting advice from other governments such as the UK that had had experience with private/public sector partnerships. She said that especially in the UK the experience had been that few of these partnerships had actually worked. The main problem was that the private sector partners tended to take all the returns while the government took on all the risk. So for public/private sector partnerships to succeed the government and the private sector partner had to share both the risk and the return.

Dr Rabie (NNP) asked on what basis the different amounts where allocated to Education, Health and Welfare in the integrated HIV/Aids strategy.

Mr Du Plessis said that the allocations tabled where not an accurate indication of where the money was going. For instance the community outreach money was still under the Health Department. He said that the intention was that most of the money should go towards the Life Skills Programme.

Mr Chiba (ANC) asked when the department expected to receive its first quarterly reports.

Ms Ramos replied that the department had already received the first report and that some of the information presented to the Committee had been based on this.

Ms Joemat (ANC) asked if local government would be penalised for the weakness of not having good infrastructure. What is the Department doing to assist them?

Ms Ramos said that the objective was not to penalise local government but if there was no capacity, projects would not be implemented. Funds have been set aside at all levels of government to improve financial management. She noted that project management skills are few and far between. She said that the committee that had been established (as discussed by John Du Plessis) was attempting to identify where problems are and then provide support. Ms Ramos said that the Treasury was cautious of making money available that does not get spent or gets spent badly. The Treasury is thus first asking departments: if there is no capacity, how will you build capacity?

Dr Koornhof (UDM) asked about the three departments singled out for rollovers.

Mr Du Plessis replied that the Transport Ministry requested rollovers because they had a seven-month planning cycle. This was due to the nature of co-ordinating and planning road construction rather than any lack of capacity. This long period between planning and spending meant that some of their spending would happen in the new year.

The Public Works rollover was due to substantial under-spending on their community-based programme. There had been problems trying to get communities to decide what they wanted from the government. Ms Ramos suggested that this under-spending was possibly not due to a lack of capacity but rather indicative of processes that needed time to happen.

Mr Nair (ANC) noted that a major problem seems to be a lack of capacity and that the movement of staff into the private sector compounds this lack of capacity. Furthermore he noted that it was odd that staff that leave should not be rehired as consultants.

Ms Ramos noted that there was a rule that people that took voluntary severance packages could not work in government as consultants. A related problem was that staff especially in the information technology sector would leave the public service (without a severance package) and enter the private sector. They would then join a private firm that had an often lucrative consulting contract with the state. These previously employed staff would then return to their previous area of employment within the State but now in the employ of the consulting firm. Ms Ramos concluded by saying that the Treasury is aware of the problem and is attempting to rectify it.

Ms Taljaard noted that Statistics SA is working on poverty indices. She asked to what extent these will be used in quarterly progress reports.

Ms Ramos replied that poverty indices would be incorporated as much as possible to try and understand impact of expenditure on income levels, for instance. Ms Ramos did note though that poverty indices had in the past been inconsistent and unreliable. There were too many questions around them to rely on them wholeheartedly.

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