Question NW2839 to the Minister of Finance

Reply:

(a) National Treasury initiated the process of stopping and re-allocation at the end of the second quarter of the 2022/23 municipal financial year, 31 December 2022 and conducted an analysis of the conditional grants performance.

The reasons that informed National Treasury to stop R2.7 billion transfers of conditional grants are:

• Anticipation that a municipality shall substantially underspend the allocation or any programme; and
• Serious or persistence material breach of the Division of Revenue Act.

This decision was considered to safeguard the allocations against possible misuse of the funds and prevent funds from being utilised for operational activities.

1. (b) (i) The grants that were affected are:

Capital grants:

• Water Services Infrastructure Grant 5B;
• Regional Bulk Infrastructure Grant 5B;
• Public Transport Networks Grant (PTNG);
• Urban Settlements Development Gran
• Informal Settlements Upgrading Partnership Grant;
• Neighbourhood Development Partnership Grant 5B
• Integrated National Electrification Programme 5B;
• Municipal Infrastructure Grant; and
• Integrated Urban Development Grant.

Capacity Grants:

• Rural Roads Asset Management System; and
• Energy Efficiency and Demand-Side Management Grant.

1. (b) (i) The effect of the stopped funds are:

• The affected municipalities would not be able to implement their full budgeted plan against their programmes;
• Municipalities have to reprioritise the remaining funds against committed and shovel ready projects;
• National Treasury has an opportunity to reallocate the stopped funds (The entire R2.7 billion was reallocated to fast spending programmes between best performing municipalities) to other fast-moving projects in other municipalities; and
• Persistent non-compliance to the Act and anticipated underspending implies that transferred funds may lead to fiscal dumping and possible conditional grants misuse

2. National Treasury used the second quarter reports (Section 71 of MFMA) for the period ending 31 December 2022 and the monthly DoRA reports (Section 10 of 2022 DoRA) received from the transferring officers as a benchmark to decide on municipalities that are underperforming against their allocations.

A benchmark between 40 and 45 per cent against the total allocation was used in determining the list of the proposed municipalities which were considered for stopping after six months into the financial year.

3. The stopping process in terms of Section 18 of DoRA is purely performance based. This section stipulates that National Treasury may in its discretion or at the request of a transferring officer stop the transfer of schedules 4, 5 or 6 allocation if it is anticipated that a municipality shall substantially underspend on the conditional grants that are partially or fully funded by the allocation in the respective financial year.

National Treasury invokes the stopping and reallocation section in the DoRA on an annual basis as part of the monitoring work on the performance of municipalities. When this opportunity arises, municipalities that have improved on their performance and have lost their fund previously are given preference on the reallocation of the allocation in terms of section 19 of DoRA.

4. The National Treasury used the second quarter reports (Section 71 of MFMA) for the period ending 31 December 2022 (mid-year) and the monthly DoRA reports (Section 10 of 2022 DoRA) as submitted by Transferring Officers (national departments administering conditional grants). These reports were used to determine, which municipalities were underspending against their conditional grants and earmarked for stopping of a portion of their conditional grants, i.e., municipalities that had expenditure of less than 40 per cent (for municipalities with allocations of less than R100 million) and 45 per cent (for municipalities with allocations of more than R100 million) of their allocations as at mid-year of the 2022/23 municipal financial year.