Questions and Replies

Reply:

a) National Treasury is currently working on the detail execution plan for Eskom’s debt that will incorporate mechanisms that will not negatively impact the fiscus. As announced by the Minister of Finance in his Medium-Term Budget Policy Statement, the details of this plan will be announced at the Budget 2023.

b) Details of the various elements of the Eskom debt relief package, including mechanisms to tackle arrear debt, cost reflective tariffs, cost optimisation, and unbundling, amongst others, will be tabled at the Budget 2023, following the necessary approvals.

National Treasury is also engaging with the relevant stakeholders to ensure that the debt solution that will be implemented will turn Eskom into a sustainable entity that will not rely on the fiscus.

Reply:

•  

a) Illicit Cigarettes

(i) 01 April 2020 to 31 March 2021

The unit conducted 432 interventions during the period and has had 284 detentions of 91,790,304 cigarettes valued at R72,686,107.77

The unit has achieved 322 seizures of 89,356,949 cigarettes to the value of R102,878,429.40

(ii) 01 April 2021 to 31 March 2022

The unit conducted 102 interventions during the period and has had 106 detentions of 190,795,489 cigarettes valued at R273,527,115.63

The unit has achieved 97 seizures of 81,241,405 cigarettes to the value of R92,071,583.81

Illicit Tobacco

(iii) 01 April 2020 to 31 March 2021

The unit conducted 30 Illicit Tobacco interventions during the period and has had 9 detentions of 207,036 units valued at R5,240,665.00

The unit has achieved 7 seizures of 1,240 units (combination of weight in kg’s and boxes) Illicit Tobacco to the value of R19,282.00

(iv) 01 April 2021 to 31 March 2022

The unit conducted 45 Illicit Tobacco interventions during the period and has had 13 detentions of 536,774.50 units (combination of weight in kg’s and boxes) valued at R55,951,740.00

The unit has achieved 3 seizures of 23,039 units (combination of weight in kg’s and boxes) Illicit Tobacco to the value of R110,762.00

•  

b) Illicit Alcohol

(i) 01 April 2020 to 31 March 2021

The unit conducted 56 Illicit Alcohol interventions during the period and has had 43 detentions of 227,292.53 units (combination of liters/ bottles & cans) valued at R9,376,353.83

The unit has achieved 25 seizures of 25,146,924.25 units of Illicit Alcohol to the value of R8,931,872.30

(ii) 01 April 2021 to 31 March 2022

The unit conducted 39 Illicit Alcohol interventions during the period and has had 35 detentions of 578,304.17 units (combination of liters/ bottles & cans) valued at R19,491,172.39.

The unit has achieved 11 seizures of 12,730.25 units of Illicit Alcohol to the value of R6,915,339.00

Summary of the above data.

Period	01 April 2020 to 31 March 2021
Illicit Industry	Number Interventions	Detentions	Seizures
		Number	Quantity	Value	Number	Quantity	Value
Illicit Cigarettes	432	284	91,790,304	R72,686,107.77	322	89,356,949	R102,878,429.40
Illicit Tobacco	30	9	207,036 units	R5,240,665.00	7	1,240 units	R19,282.00
Illicit Alcohol	56	43	227,292.53 units	R9,376,353.83	25	25,146,924.25 units	R8,931,872.30
Period	01 April 2021 to 31 March 2022
Illicit Industry	Number Interventions	Detentions	Seizures
		Number	Quantity	Value	Number	Quantity	Value
Illicit Cigarettes	102	106	190,795,489	R273,527,115.63	97	81,241,405	R92,071,583.81
Illicit Tobacco	30	9	207,036 units	R5,240,665.00	7	1 240 units	R19,282.00
Illicit Alcohol	39	35	578,304.17 units	R19,491,172.39	11	12,730.25 units	R6,915,339.00

Reply:

With respect to historical spending on the detailed areas previously requested, the National Treasury previously provided a very detailed spreadsheet on each of those areas. This spreadsheet is attached again for your information. We are somewhat uncertain from your question, what further information you are seeking. With respect to beneficiary numbers for each of these services, these data are held by the line departments responsible for each of these services, e.g. the Department of Human Settlements for the number of houses built, or the Department of Higher education and Training for the number of NSFAS beneficiaries. You will need to approach the relevant departments for this information. However, with respect to the number of social grant beneficiaries historically, we are able to provide some information, as attached in the second accompanying spreadsheet.

Reply:

1. In March 2022, government responded to the escalating fuel prices by implementing a package of short-term measures comprising temporary fuel levy relief, release of strategic stocks and structural adjustments to fuel prices to assist consumers and vulnerable households. A temporary reduction in the general fuel levy of R1.50 per litre was implemented from 6 April 2022 until 31 May 2022 to provide limited short-term relief to households from rising fuel prices following the Russia/Ukraine conflict. The revenue foregone of R6 billion will be recouped through the sale of a portion of the strategic crude oil reserves held by the Strategic Fuel Fund (SFF) and will not have an impact on the fiscal framework.

Government extended the temporary fuel levy relief for a two-month period consisting of a continuation of the relief of R1.50 per litre for the first month, from 1 June 2022 to 6 July 2022, and a reduction in the relief for the second month to 75c per litre of fuel from 7 July 2022 to 2 August 2022. This temporary relief was withdrawn from 3 August 2022 and the revenue foregone from the extension of the relief is estimated at R4 billion. Unlike the previous announcement, this is expected to have an impact on the fiscal framework as it will not be funded through a sale of strategic oil stocks. The extension of the fuel levy relief will be accommodated in the current fiscal framework in a manner that is consistent with the fiscal strategy outlined in the Budget and to be dealt with in the October 2022 MTBPS.

Government remains committed to the fiscal framework outlined in the 2022 Budget and any further relief should be done in a fiscally neutral manner or it would undermine government’s efforts at consolidation. Due to the tight fiscal position, there is limited space to fund additional tax relief.

As announced in May 2022, the Department of Mineral Resources and Energy (DMRE) has also taken further measures to help reduce fuel prices in a more sustainable manner. The DMRE removed the demand side management levy of 10c per litre applied to 95 unleaded petrol sold inland effective from 1 June 2022. After a review and consultation by the DMRE, it is proposed that the basic fuel price is also decreased by 3c per litre in the coming months.

Government intends to continue with consultations and proposals to remove the price cap on 93 ULP, which will partially deregulate the market and introduce more competition to lower pump prices. A review on the Regulatory Accounting System (which includes the retail margin, wholesale margin and secondary storage and distribution margins) will be completed by the DMRE to assess the potential to lower margins over the medium term.

Government continues to monitor the impact off the Russia/Ukraine conflict and zero-COVID policies in some countries, which continue to have an impact on energy and food prices and result in supply chain shocks, with the aim of investigating further measures to make households and businesses less vulnerable to such shocks.

2. Section 5(1)(a) of the Road Accident Fund Act (1996) stipulates that Road Accident Fund (RAF) is funded by means of Road Accident Fund levy, as contemplated Customs and Excise Act (1964). The funds collected, subject to any deductions in the Customs and Exercise Act, is a direct charge against the National Revenue Fund, for the credit of the RAF. With the levies earmarked in law, the revenue for the RAF is protected.

3. A general principle in public finances is earmarked funds for expenditure should be avoided, as it is inefficient and could be wasteful. Earmarked funds also limit budget flexibility in the delivery of priorities. It is only under exceptional circumstances that funds are earmarked and the general practice in South Africa is that all taxes revenues are deposited into the National Revenue Fund for general use.

Section 213(1) of the Constitution provides for a National Revenue Fund into which all revenue received by the national government must be paid, except money reasonably excluded by an Act of Parliament. Money is only withdrawn from the National Revenue Fund, in terms of Section 213(2) through an Act of Parliament.

With taxes and levies funding general budget programmes, in terms of Section 213 of the Constitution, it is impossible to list detailed projects funded through the general fuel levy for specific projects.

Reply:

1. In terms of Regulation 1 of the Preferential Procurement Regulations, 2017 (PPRs, 2017), price is defined as including all applicable taxes less all unconditional discounts. Furthermore, Regulations 6(1) and 7(1) of the PPRs, 2017 state that the formula must be used to calculate points out of 80 or 90 for price (as per definition in the PPR) in respect of tenders with a Rand value equal to or above the prescribed threshold, which price should be inclusive of all applicable taxes.

Therefore, the price used for evaluation of tenders is the price inclusive of all applicable taxes as per regulation 6(1) and 7(1). All applicable taxes certainly will include Value Added Tax (VAT), where applicable, and any other taxes as may be imposed through legislation.

Arising from a simple reading of the definition of price and the provisions of regulation 6(1) and 7(1) as stated above, price used for evaluation of tenders must be total price, inclusive of all applicable taxes. Such “all inclusive” price is what makes the evaluation comparative. There is no breakdown required to indicate the types of taxes that each supplier is paying. Everyone has a right to bid and to be awarded a bid if they comply with all applicable laws.

It is important to emphasize that as a procurement principle, organs of state may not interfere with a price submitted by a bidder. This includes adding / subtracting VAT from the price submitted by a bidder.

It should be stressed that mandatory registration for VAT is a legislative requirement once enterprises exceed a particular threshold in sales within a 12-month period. Other enterprises may elect voluntary registration for VAT even if they do not meet the mandatory threshold for registration. Institutions are encouraged to contact the South African Revenue Services for guidance on VAT registration requirements, should they so require.

2. Enterprises that by legislation are not required to register for VAT may not be unfairly penalized or advantaged in the evaluation and award of tenders on the basis of not being registered as VAT vendors. In other words, if an enterprise is not required by law to register as a VAT vendor, and in submitting a bid or price quotation thus does not include VAT in its price, an organ of state may not subsequently add VAT to the price submitted by the bidder. In a similar vein, the organ of state may not remove VAT from the bids of other bidders for evaluation purposes.

3. The onus, therefore, rests on the bidder to consider what the “including all applicable taxes” entails when determining the bid/ quotation price and to factor such information into the price submitted by that bidder in the quotation or tender document.

4. Please see response to questions 1 and 2 and above

Reply:

Yes, as I communicated to the Honourable Member in my letter dated 2 June 2022, there is no requirement in terms of the Public Finance Management Act 1 of 1999 (PFMA) for the Minister of Finance to grant approval or provide concurrence in respect of the Takatso transaction. In terms of Section 54(2) of the PMFA, the Minister of Finance is only required to note the intention of the Department of Public Enterprises (DPE) to dispose the majority of Government’s shareholding of SAA by selling the Government’s stake in South African Airways SOC Ltd (SAA). Section 54(2) of the PFMA only finds application where a public entity concludes any of the transactions mentioned under the section. Section 54(2)(c) would apply in an event whereby SAA was seeking to dispose a significant shareholding in any of its subsidiaries or was seeking to acquire a significant shareholding in another company. The disposal of a majority shareholding in SAA was already approved by Cabinet and no further approval, concurrence or noting is required from the Minister of Finance in terms of the PFMA.

However, following perusal of the document that the DPE shared with the department in relation to some of the terms and conditions entered into between the DPE and the preferred Strategic Equity Partner, NT took the opportunity to make suggestions to the DPE with some of the terms and conditions of the agreement. We continue to engage with the DPE in relation to the disposal of 51% of Government’s shareholding in SAA.

Reply:

The mechanism to ensure efficient and effective spending of allocations exist in law. Disaster relief grants are appropriated on the budgets of Vote 3: Co-operative Governance and Vote 33: Human Settlements. The allocations to provinces and municipalities are conditional grants in terms of the Division of Revenue Act. The Division of Revenue Act sets out the responsibilities of the National Transferring Officer related to planning, implementation and monitoring. In addition, the accounting officers of these departments’ responsibilities are set out in section 38 of the Public Finance Management Act. Amongst others, accounting officers are responsible for ensuring the efficient and effective spending of resources, and must take appropriate and effective steps to prevent unauthorised, irregular and fruitless and wasteful expenditure.

Accounting officers reporting responsibilities are set out in section 40 of the Public Finance Management Act and section 71 of the Municipal Finance Management Act. Section 12 of the Division of Revenue Act sets out the responsibilities of the receiving officer in relation to funds received from national government.

Reply:

(1)(a)(b) Detailed in the table 1 below is the cost for the Legislatures broken into compensation of employees for MPLs as well as other officials, political support and operational costs for the 2022/23 financial year. A cost to the Legislatures in terms of political support amounts to R675 million. In terms of operational costs (goods and services as well as payments for capital assets) an amount of R1.1 billion has been set aside. The total main appropriation for the Legislatures amounts to R4 billion.

(2) The National Treasury does not have this information readily available in its possession, therefore, we recommend that this type of information be requested from Provincial Legislatures and Provincial Treasuries.

 

Reply:

1. The World Bank loan was disbursed under the South Africa Covid-19 emergency response project. As such the proceeds will only be used to fund South Africa’s vaccine rollout strategy which includes retroactively funding the delivery and distribution plan as of January 2021

2. The terms of the loan were agreed upon before disbursement. The funding rates are concessional based on a 6-month Euribor reference rate plus a 0,47% spread as well as a grace period of 3 years after which the loan will be repaid for 13 years. This is cheaper than any funding the sovereign could achieve in debt capital markets for equivalent tenor loans.

Reply:

National Treasury has encouraged municipalities to enforce its credit control and debt management policies and bylaws. This implies that if any organ of state neglects to honor their payment arrangement for services rendered by municipalities within the legislative timeframe of 30 days as per the PFMA and MFMA, the municipal, by law, must proceed to terminate or restrict the services to those customers (including government departments and businesses) with immediate effect.

Even if the customer questions the accuracy of the bill issued by municipalities, which may be a valid concern, it is not acceptable behavior not to honor the payment for services knowing very well that services have been consumed. In some cases, dependent on the specific credit control and debt management policy, the customer may have to pay first before any dispute is resolved.

There are number of initiatives that government is undertaking to address systemic challenges in the management of revenue as well as guidance issued to assist municipalities which are summarized and articulated in an Annexure A to this response.

Annexure A:

Section 38(1)(f) of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA) read together with Treasury Regulation 8.2.3, requires accounting officers of departments to settle all contractual obligations and pay all money owing, including intergovernmental claims, within 30 days or other period agreed with the creditors or suppliers.

Municipal liquidity and/ or cash flow is a complex challenge underpinned by various matters not only related to arrears owed by government departments and/ or businesses.

Smart metering solution - to improve revenue collection in municipalities, the National Treasury is exploring a SMART solution with the Department of Minerals and Energy and the Department of Trade and Industry to, through the Office of the Chief Procurement Officer (OCPO), issue a transversal tender for national roll out. It is envisaged this will transform the current backward-looking culture of payment for municipal services and property rates taxes to a forward-looking pre-paid payment solution of a consolidated municipal bill (for both services and property rates) also as it relates to organs of state and businesses. Unless funding can be facilitated, this will be a medium to longer term initiative to be funded from municipal own resources.

Organs of state debt - during the latter part of 2021, Government’s Multi-disciplinary Revenue Committee (MdRC) (as an organs of state consultation platform) initiated the Department of Public Works’ collection of information from all national organs of state on debt owed to municipalities and the reasons for them not paying. The project is delayed due to organs of state’s late or incomplete information. It is our understanding that the Department of Public Works is embarking on a similar project for provincial organs of state.

To ensure all government consumers of services are billed, a coordinated resolution is underway to correct the ownership of 80 000 government properties identified as registered to the incorrect government owner in the Deeds Office. This problem directly relates to the establishment and disestablishment of departments across 6 administrations since 1994. This has been stated by numerous organs of state as preventing them to pay the respective municipalities for property rates and services. This is unfortunately a costly and time-consuming process. The National Treasury will be engaging the Deeds Office to explore legal options to fast-track these corrections and more cost-effective ways to affect such going forward.

A project is also underway to assist municipalities to ensure that their valuation rolls agree to the asset registers of the Department of Public Works for all organs of state. It is anticipated that a nationwide reconciliation of this nature will provide a further list of variance properties that needs to be corrected in the Deeds Registry by the Department of Public Works and / or other organs of state. The second part of this project involves a long-term project to individually correct every property at the relevant Deeds Office on a case-by-case basis as mentioned above.

Reply:

Yes. The Minister of Finance is responsible for administering the Municipal Finance Management Act (MFMA) in all the 257 municipalities in the country. The National Treasury in collaboration with the Eastern Cape Provincial Treasury continue to perform the monitoring and oversight role to Makana Local Municipality in terms of the MFMA.

In addition, the municipality is currently placed under intervention in terms of Section 139 (1) and (5) of the Constitution because of a crisis in its financial and service delivery affairs. This is a mandatory intervention by the Eastern Cape Provincial Executive; however, the Municipal Finance Recovery Services unit in the National Treasury has drafted the Financial Recovery Plan for this intervention as is required in all mandatory interventions.

The financial recovery plan was prepared in July 2021 and handed to the municipality for implementation. The recovery plan is monitored by the National Treasury and the Eastern Cape Provincial Treasury.

Reply:

No, there were no loan requests made or granted at the recent International Monetary Fund / World Bank Spring Meetings held in Washington DC. Loan requests are typically not discussed at the Spring Meetings.

Reply:

1. No, the Financial Action Task Force (FATF) does not generally operate by issuing warnings to a country or focusing on specific incidents. I refer the Honourable Member to the Mutual Evaluation Report on South Africa (MER) (http://www.treasury.gov.za/publications/other/Mutual-Evaluation-Report-South-Africa.pdf) that the FATF published in October 2021, which is the core (and only) document that guides its assessment of South Africa’s performance or effectiveness with regard to the prosecution of financial crimes, particular its assessment of Immediate Outcomes 2 (on international co-operation), 6 (on financial intelligence), 7 (on money laundering investigations and prosecutions) and 8 (on confiscation). The Mutual Evaluation report does conclude that money laundering cases relating to state capture had not been sufficiently pursued in the past (up to November 2019 when the FATF assessment team came to South Africa for an onsite evaluation), and that cases referred to the National Prosecuting Authority by the Special Investigating Unit, were not being dealt with expeditiously.

The Mutual Evaluation report also identified that money laundering activities, in particular, major proceeds of crime generating offences, were being investigated and prosecuted to some extent, but only partly consistent with South Africa’s risk profile, and that wider money laundering activities by organized crime syndicates, including from those outside of South Africa, were not being sufficiently identified and targeted in the context of South Africa’s role as a regional financial hub.

2. FATF does not generally set any conditions against a country, and follows a specific methodology (https://www.fatf-gafi.org/media/fatf/documents/methodology/FATF%20Methodology%2022%20Feb%202013.pdf) to follow-up on a country’s deficiencies as identified in the mutual evaluation report that it has adopted for a country. As you are aware, South Africa received a very poor ratings assessment in its 2021 mutual evaluation, and as a result, has been placed in an enhanced follow-up process, which involves more frequent reporting to the FATF, until South Africa has addressed all the deficiencies that were identified. South Africa was also placed in a one-year observation period (from October 2021 to October 2022). The methodology FATF follows is outlined in various documents adopted by FATF, and are all available on its website.

To avoid a FATF greylisting, South Africa would need to demonstrate to the FATF that it has addressed the deficiencies that were identified both in relation to technical compliance (the adequacy of Anti-Money Laundering and the Combating of the Financing of Terrorism (AML/CFT) legal frameworks) and effectiveness (the implementation of the AML/CFT frameworks). South Africa needs to demonstrate to the FATF that it has made sufficient progress in addressing the 20 (out of 40) technical deficiencies that were identified, and show significant progress in addressing all 11 immediate outcomes deficiencies on effectiveness. The FATF Plenary in February 2023 will determine whether South Africa has made sufficient progress or not and whether to greylist South Africa.

3. No, it is not the sole responsibility of the FIC to address the deficiencies, but for Government as a whole to do so. Aside from Cabinet, responsible government departments and agencies include the National Treasury, the FIC, the South African Reserve Bank, the South African Revenue Service, the Prudential Authority, the Financial Sector Conduct Authority, the Department of Social Development, the Department of Trade, Industry and Competition, the Special Investigating Unit, the Companies and Intellectual Property Commission, the State Security Agency, the Department of Justice and Constitutional Development, the National Prosecuting Authority, the South African Police Service’s Directorate for Priority Crime Investigation (HAWKS), the Department of Home Affairs and the Department of International Relations and Co-operation. Cabinet has mandated the National Treasury to lead and co-ordinate all the above-mentioned departments and agencies, and hence the Director-General of National Treasury chairs an Interdepartmental Committee on AML/CFT that comprises all these departments and agencies.

Reply:

Yes, Cabinet has put in place a process for government to consult all relevant players to not only discuss the consequences of a grey-listing by the Financial Action Task Force (FATF), but what steps to take to prevent it. Such consultations have included the banking sector, but also many other stakeholders, in both the private and public sector.

Such consultations have been coordinated and led by the National Treasury, in its capacity as the chair of the Interdepartmental Committee on Anti-Money Laundering and the Combating of the Financing of Terrorism (AML/CFT) that was established by Cabinet. The Committee includes officials from the Financial Intelligence Centre, the South African Reserve Bank, the South African Revenue Service, the Prudential Authority, the Financial Sector Conduct Authority, the Department of Social Development, the Department of Trade, Industry and Competition, the Special Investigating Unit, the Companies and Intellectual Property Commission, the State Security Agency, the Department of Justice and Constitutional Development, the National Prosecuting Authority, the South African Police Service’s Directorate for Priority Crime Investigation (HAWKS), the Department of Home Affairs and the Department of International Relations and Co-operation. to address the deficiencies that were identified in the Mutual Evaluation report.

The Honourable member should note that the Mutual Evaluation Report (MER) on South Africa (http://www.treasury.gov.za/publications/other/Mutual-Evaluation-Report-South-Africa.pdf) published by the FATF in October 2021 did not identify weaknesses that relate to the prosecution of financial crimes only, but a variety of weaknesses in the country’s AML/CFT system. Some of the weaknesses relate to the availability of beneficial ownership information, weaknesses in confiscation, weaknesses in investigations, weaknesses in the generation of financial intelligence information and weaknesses in the implementation of targeted financial sanctions for terrorist financing and proliferation financing. Such consultations have already assisted the government in the drafting of the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Bill [B18-2022] that we I have just introduced in Parliament at the end of August 2022.

National Treasury has engaged with the Banking Association South Africa (BASA) and its member banks since the publication of the Mutual Evaluation report on the potential impact of a greylisting. The discussions have centred around the country’s efforts to avert a FATF greylisting as it could have adverse consequences for the country, including for trade and transactions with other countries. In particular, in the worst scenario where a country does not take remedial steps to address the deficiencies identified in the mutual evaluation report, domestic banks risk losing critical correspondent banking relationships with overseas banks, and more likely to be exposed to significant fines and penalties from overseas regulators, limiting or increasing the cost of doing business with foreign trading partners.

Reply:

No, there is no intention to amend the mandate of the Land and Agricultural Development Bank of South Africa (Land Bank) which is derived from Land Bank Act, Act No. 15 of 2002, in line with its eleven objects. The objects of the Land Bank are as follows:

1. Equitable ownership of agricultural land, in particular the increase of ownership of agricultural land by historically disadvantaged persons.
2. Agrarian reform, land redistribution or development programmes aimed at historically disadvantaged persons or groups of such persons for the development of farming enterprises and agricultural purposes.
3. Land access for agricultural purposes.
4. Agricultural entrepreneurship;
5. The removal of the legacy of past racial and gender discrimination in the agricultural sector.
6. The enhancement of productivity, profitability, investment and innovation in the agricultural and rural financial systems.
7. Programmes designed to stimulate the growth of the agricultural sector and the better use of land.
8. Programmes designed to promote and develop the environmental sustainability of land and related natural resources.
9. Programmes that contribute to agricultural aspects of rural development and job creation.
10. Commercial agriculture.
11. Food security.

Based on the objects of the Land Bank, the Bank can achieve its objects or mandate by providing financial services to a wide range of farmers utilising wide range of instruments to wide range of clients including micro financing. Microfinancing will therefore only be provided to the agricultural sector if such financing supports the objectives of the Land Bank.

Reply:

a) Electric Vehicles

In the 2021/22 financial year, South Africa imported electrical vehicles to the value of R478.0 million. Customs duties (including ad valorem duties) and VAT on imports declared amounted to R78.4 million and R52.9 million, respectively.

b) Hybrid Vehicles

In the 2021/22 financial year, South Africa imported hybrid vehicles to the value of R1 096.0 million. Customs duties (including ad valorem duties) and VAT on imports declared amounted to R136.5 million and R110.3 million, respectively.

The cumulative customs value of imports of both vehicle classes in the 2021/22 financial year was R 1 573. 9 million, whilst the Customs duties (including ad valorem duties) and VAT on imports declared amounted to R 214.9 million and R 163.2 million, respectively.

Imports of Electric and Hybrid Vehicles, 2021/22

Reply:

(1) Process followed by Land Bank to recover on default loan:-

a) At inception the accounts are managed by the Bank’s Post Investment Management Services Department (PIMS). So immediately upon default, PIMS team engages the clients with a view of providing compressive assistance to those struggling clients. Such assistance includes restructuring and forbearance measures once the cause/s for default has/have been established.

b) Once all of the aforementioned measures have failed and there is nothing else that the Bank could do to further assist those struggling clients, and as the last resort, the account is then transferred to Legal Department for further management of the client. This is when the legal process commences in order to recover monies owed to the Bank. Even after the commencement of the legal process, the struggling clients can still approach Land Bank and make proposals for consideration by Land Bank with a view of resolving the matter and avoid the legal route because the legal process, as you may be aware, can be protracted and expensive.

(2) Whether the National Treasury has put measures in place in order to support struggling commercial and emerging farmers who are struggling to honour their loan repayments; if not, why not; if so, what are the relevant details;

Reply: No. National Treasury has not received any request for intervention on this matter for consideration.

(3) (a) what is the average interest rate that farmers at the bank had to pay for their loans,

See the average client interest rates from April 2018 to July 2022:

b) how does the interest compare with the commercial bank loans?

We do not have access to this information and are therefore unable to provide the average interest rates of commercial banks.

c) what measures has the National Treasury put in place to ensure that the interest rates are affordable for farmers who are struggling and yet provide food security?

i) National Treasury has not received any request for intervention on this matter for consideration.

ii) However, part of the R7bn of the capital injection allocated to the Land Bank is meant to support the bank for deployment for the financing of the Banks new development portfolio, and the use of this capital at nominal cost of funds will enable affordable financing by the Bank.

Reply:

(1)(a)(i) One. National Treasury is currently on a hybrid working arrangement for purposes of decongestion. Any employee needed physically in the office is instructed to do so. This is to accommodate the current refurbishment project which is underway in both the two buildings (40 Church Square and 240 Madiba Street building). 40 Church Square building, a government owned building which was previously the South African Reserve Bank building, built between 1934 and 1935 is undergoing infrastructure upgrade, following recent infrastructure failures that resulted in it not being fully conducive to 100 % occupancy.

(1)(a)(ii) One employee has special permission to work from home.

(1)(a)(iii) Due to ill-health.

(1)(b) All employees will return full-time in the office upon the completion of the refurbishment project. The one employee will continue working from home until such time that her health condition has improved.

(2) No

Reply:

1. No, National Treasury has not received any complaint alleging irregular appointments at the Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector including Organs of State.

The complaint that we received related to the escalating costs of the Commission, and hence the Minister of Finance requested the Minister of Justice and Correctional Services to audit the costs of the Commission, the investigators, and legal services costs.   The proposed audit was not a forensic audit, rather a review to determine whether the costs incurred for investigators and legal services derived value for money. Such an audit review will inform the cost structure for any future Commission established by the President.

2. Details on the audit (which is still in process) can be sourced from the Department of Justice and Constitutional Development.

 

Reply:

I can only answer for funds committed by National Treasury to KwaZulu-Natal for disaster relief, and what portion of these funds have been transferred. I cannot answer for the funds that are committed by the province or municipalities from their equitable share and budget allocations.

(i) Immediate disaster response grants from national government

Disaster relief funds are available from four Schedule 7 grants in the 2022 Division of Revenue Act. These funds are limited to immediate relief – not envisaged to fund repair and reconstruction of damaged infrastructure and are intended to assist all provinces and municipalities. Following a disaster, the Provincial Disaster Management Centre (PDMC), coordinates and verifies submissions from provincial departments and municipalities due to a disaster that are funded through the disaster response grants. Applications are subsequently forwarded to the National Disaster Management Centre (NDMC), which conducts its analysis and verification. A similar approach is followed for funding requests from the emergency housing grants, with provincial departments of human settlements required to send applications to the national Department of Human Settlements (DHS). If satisfied with the applications, the NDMC and DHS make recommendations to the National Treasury for the approval. Once approval is granted, funds are disbursed to provinces and municipalities, who can use the funds immediately.

 

Applications for funding from the four disaster response grants did not reach the National Treasury until mid-June 2022, the latest reaching the National Treasury on 27 July 2022. Of the R1 billion (announced? Source??), R674.1 million has been approved to date, to fund immediate response by the KwaZulu-Natal (KZN) Department of Human Settlements and several municipalities in KZN and the Eastern Cape. Of the R674.1 million approved to date, R547.7 million is for KZN. Below is a breakdown of the R1 billion, showing the amounts requested, approved, and transferred to date.

Table 1: Funds for immediate relief in 2022/23

Table 2 outlines the immediate disaster response funding approvals by province. Of the R674.1 million approved to date, R547.7 million is for KZN.

Table 2: Disaster relief grant approval and transfers by province

Why the total approved amounts have not all been transferred

Provincial Emergency Housing Grant (PEHG)

The KZN province requested R342.1 million to fund the provision of 4 983 Temporary Residential Units (TRUs). Only R325.8 million could be approved as this was the baseline for this grant in 2022/23. The balance (R16.3 million) of the requested amount is awaiting conversion of R120 million from the Municipal Emergency Housing Grant which currently has R158 million available.

The approved funds is being transferred in tranches. R140 million was transferred to the KwaZulu-Natal Department of Human Settlements in June 2022, the balance will be transferred once the province has spent at least 80 per cent of the first tranche. As at the end of August 2022, the province has only spent R53 million, or 38 per cent of the funds transferred; and has delivered only 1 076 TRUs across all districts in the province.

There have been no further requests for funding by KZN from this grant.

Municipal Emergency Housing Grant (MEHG)

No MEGH applications were received for KZN municipalities. Funding requests for KZN municipalities were submitted by the KZN department of Human Settlements and have been approved through the PEHG.

One MEGH application has been submitted to National Treasury and approved to date,
R16.6 million to fund 258 temporary residential units in Alfred Nzo District Municipality in the Eastern Cape. Only R8.3 million has been transferred to date. The second tranche will be transferred when the municipality spends at least 80 per cent of the 1st tranche. To date, the municipality has not yet reported any expenditure on the first transfer made to it.

(ii) Reprioritisations

Over and above the funding approved from the emergency response grants, R4.6 billion in reprioritisations has been approved and disbursed to date. Of this amount R4.4 billion was for the KZN Department of Human Settlements, KZN department of Transport and municipalities in KZN. This comprises of reprioritisations within conditional grants and transfer advancements.

Table 3: Reprioritisations

(iii) Post-disaster repair and recovery

The responsibility of repairing infrastructure damaged by disasters lies with the municipality or line department responsible for the infrastructure that is damaged. If the province or municipality does not have sufficient resources then national government is approached to intervene.

The repair of infrastructure and other damages that falls outside the category of immediate needs are funded through an adjustments budget or annual budget, depending on the timing of the disaster and submission to National Treasury. This funding is appropriated in terms of section 30 of the Public Finance Management Act which allows the Minister of Finance to table an adjustments budget for, amongst others, unforeseeable and unavoidable (U&U) expenditure. Decisions around unforeseeable and unavoidable expenditure are taken by a committee of Cabinet, chaired by the President. Once the decisions are taken, the Minister of Finance will table an Adjusted Appropriation Bill and the Division of Revenue Amendment Bill, as part of the Medium-Term Budget Policy Statement.

(b) Projects to be funded by the approved funds

The R325.8 million approved from the PDRG will fund the provision of 4 983 temporary residential units in KZN. Of these, 3 000 are for eThekwini Metropolitan Municipality, accounting for R196 million of the funds approved. A breakdown of how much will be spent in each district/municipality is provided in Table 4.

Table 4: Breakdown of PDRG approval for KZN

The R331.7 million approved from the MDRG and transferred to several municipalities in KZN and the Eastern Cape will fund the repair of municipal infrastructure including water and sanitation, roads, and storm water infrastructure. Of this amount, KZN municipalities account for R221.9 million (this is the total amount the KZN municipalities applied for) as shown in the Table 5 below.

Table 5: KZN MDRG approvals

The balance (R109.8 million) of the approved amount is allocated to several municipalities in the Eastern Cape for the same purpose.

Not included in the table above is eThekwini Metro’s application of R185 million from this grant, for the repair of water and sanitation, roads and storm water infrastructure. This is provisionally approved and is awaiting the conversion of the Provincial Disaster Response Grant, which remains upsent as no applications for funding from this grant have been received. The conversion of this grant needs to be done through publication of a Gazette. National Treasury is in the process of issuing this Gazette, only then can the funds be transferred to eThekwini Metro.

(c) Reporting and monitoring of expenditure and the procurement process

Funding to respond to this disaster will be subject to the necessary procurement and reporting conditions. Provinces and municipalities are required to spend funds in line with the applicable allocation conditions and reporting requirements as outlined in the 2022 Division of Revenue Act. The National Treasury has also issued further guidance on the monthly reporting of disaster relief expenditure in terms of the respective Standard Chart of Accounts for each sphere.

The need for increased pro-active governance measures with regard to supply chain management and procurement processes during this time is paramount. Organs of state have been advised to consider using their internal audit committees to undertake audits of procurement to respond to the effects of the damage caused by the 2022 April floods.

In recognising that the budget is responding to an extraordinary event and that the normal course of ex-post auditing may be inappropriate, the Auditor-General is also conducting real time audits across the planning and implementation value chain. These audits provide management with real time information, allowing for a real-time response to the audit findings by accounting officers and authorities.

Reply:

No, there were no loan requests made or granted at the recent International Monetary Fund / World Bank Spring Meetings held in Washington DC. Loan requests are typically not discussed at the Spring Meetings.

Reply:

1. and (2): I have not attended a meeting outside the structures of the Government to determine the deployment of personnel in public sector positions.

Reply:

It is unlikely that Sasria will request another capital injection in the short term (two years) subject to claims due to perils insured by SASRIA not exceeding a loss ratio of 58% over that period and the reinsurance arrangements remaining the same. Therefore, in the event that an event similar to one of July 2021 occurs in addition to a loss ratio of 58%, SASRIA may need capital injections of approximately R100 million for a loss of R5 billion, R2,7 billion for a loss of R10 billion and R8,4 billion for a loss of R15 billion. This excludes any assistance that SASRIA might require to provide large corporates with an additional cover of R1 billion over and above the current limit of R500 million. SASRIA had to withdraw from providing this additional R1 billion cover due to expensive reinsurance costs that made it commercially unsustainable to give this cover. Treasury and SASRIA are working hard to find solutions to this matter as it is key to unlock further investment in infrastructure by the Private Sector.

Reply:

1. NATIONAL TREASURY

National Treasury does not have any payments and therefore no commercial contracts relating to suppliers that are registered in the Russian Federation.

2. ASB

Accounting Standards Board has no contracts with Russia.

3. CBDA

The CBDA has not concluded any commercial contracts with (i) the government of the Russian Federation and/or (ii) any other entity based in the Russian Federation since 1 April 2017;. if not, our position in this regard is that the cooperative sector is not driven by external demands to engage commercially with the government of the Russian Federation.

4. DBSA

(a/b) (i) None

(ii) None

(ii) (aa) None

(ii) (bb) N/A

(ii) (cc) N/A

(ii) (dd) None

(ii) (ee) N/A

5. FIC

(b) The Financial Intelligence Centre (FIC) did not conclude any commercial contract with:

1. the government of the Russian Federation and/or
2. any other entity based in the Russian Federation since 1 April 2017 and does not intend to engage or conclude any contract with the Russian Federation in the foreseeable future.

(aa) N/A

(bb) N/A

(cc) N/A

(dd) N/A

(ee) N/A

6. FSCA

a) There are no commercial contracts concluded by the Financial Sector Conduct Authority with the government of the Russian Federation or with entities based in the Russian Federation since 1 April 2017.

7. GEPF

The GEPF did not conclude any commercial contracts with the government of the Russian Federation or any other entity based in the Russian Federation.

The rest of the question falls away.

8. GPAA

The GPAA, have no commercial contracts(i), with the government of the Russian Federation or any other Entity based in the Russian Federation (ii) since 1 April 2017.

9. GTAC

GTAC has had no contracts with the government of Russia or any entity based in the Russian Federation since 1 April 2017.

10. IRBA

The Independent Regulatory Board for Auditors (IRBA) has no commercial Contracts with the Russian Federation and/or any other entity based in the Russian Federation.

As an audit regulator, the IRBA has taken a neutral stance on the conflict, but we recognise the risks and impact of the conflict on our registered auditors that audit South African companies that do business or are affiliated with companies that operate in Russia and Ukraine.

11. LANDBANK

(b) (i) & (ii) Neither Land Bank nor its subsidiaries have concluded any commercial contracts with the government of the Russian Federation or any other entity based in the Russian Federation since 1 April 2017 or prior to that date

Land Bank does not actively seek to conduct business with international companies unless there is a very specialized service that is needed and there are no local companies that can provide these services. These instances are extremely rare.

Should an international company choose to participate in an open competitive process being conducted by Land Bank, Land Bank will treat them as fairly and transparently as any other provider and ensure that all governance processes are followed in line with the prescripts of the PFMA

12. OPFA

The Office of the Pension Funds Adjudicator confirms that it has not concluded any commercial contract with the Russian Federation and/or any entity based in the Russian Federation since 01 April 2017.

13. PIC

The PIC did not conclude any commercial contracts with the government of the Russian Federation or any other entity based in the Russian Federation.

The rest of the question falls away.

14. SARS

SARS do not have commercial arrangements with any companies in the Russian Federation. It should be noted that the SARS register is based on the awards made to service providers’ disclosures and their company registration at CIPC. SARS does not have sight of the ownership status or controlling entities.

15. SASRIA

Sasria has not concluded any commercial contracts with (i) the government of the Russian Federation and/or (ii) any other entity based in the Russian Federation since 1 April 2017.

16. TAX OMBUD

The Office of the Tax Ombud does not currently have or any intention to enter into commercial contracts with the government of the Russian Federation and /or any other entity based in the Rusian Federation since 1 April 2017

Reply:

No, the National Treasury does not receive and / or keep this information. The municipalities’ compliance with set SCM legislation and prescripts is tested and reported by the Auditor General.

Section 116 of the MFMA prescribes the way contracts/agreements must be established and provides the responsibilities of the Accounting Officers on the management of these contracts. The section further provides for the modification/amendment of a contract with conditions set in the provision.

Section 84 (3) of the Municipal Systems Act (MSA) provides that:

“When a municipality has entered into a service delivery agreement it must—

(a) make copies of the agreement available at its offices for public inspection during office hours; and

(b) give notice in the media of—

(i) particulars of the service that will be provided under the agreement;

(ii) the name of the selected service provider; and

(iii) the place where and the period for which copies of the agreement are available for public inspection.

These provisions are such that compliance can only be demonstrated through hard copy evidence at the municipalities.

Section 75 of the MFMA also requires that the Accounting Officer must place on the website of the municipality all supply chain management contracts, amongst other documents. Therefore, the evidence of compliance can only be tested at the municipalities through audit processes.

As such National Treasury does not receive and/or keep this information. The municipalities’ compliance with set SCM legislation and prescripts is tested and reported by the Auditor General.

Reply:

1. The South African Reserve Bank (SARB) and National Prosecuting Authority (NPA) do not generally comment on state ongoing investigations. However, as per the publicly available information, the NPA obtained provisional preservation orders over the bank accounts of Mr Louis Liebenberg and his company Tariomix during July 2021 based on allegations of money laundering and that he was running a Ponzi scheme.

2. The National Treasury does not have the power to request such information from SARB or NPA.

3. Not applicable.

Reply:

The National Treasury does not have information on the number of municipal employees doing business with the State, as such cases are not reported to the National Treasury. However, the National Treasury has data from Central Supplier Database which has been compared to payments data (Basic Accounting System) from the National and Provincial Departments. The following number of individuals (municipal employees) are linked to businesses that have been paid through BAS by National or Provincial Departments:

Financial Year	Number of Officials
2019/20	1086
2021/21	890
2021/22	657

It must be noted that the data above is based purely on identity number matches and has not been interrogated further to ascertain whether there is any wrongdoing.

Reply:

The North West province has four districts namely, Ngaka Modiri Molema, Bojanala Platinum, Dr Kenneth Kaunda and Dr Ruth Segomotsi Mompati Molema District municipalities. These districts receive grant allocations in terms of the annual Division of Revenue Act (DoRA) in accordance with the powers and functions allocated to them in terms of section 84 of the Municipal Structures Act and Regulations (Act No. 117 of 1998). Therefore, various districts and local municipalities in North West would have different powers and functions allocated to them in terms of the Structures Act. These powers are in the main the powers to provide the water, sanitation, roads, refuse, and electricity services.

In the North West province, Bojanala Platinum and Dr Kenneth Kaunda districts municipalities have no powers and functions to provide services for water, sanitation, refuse, roads and electricity, while Dr Ruth Segomotsi Mompati and Ngaka Modiri Molema districts municipalities are delivering these services on behalf of their local municipalities.

It is therefore important to distinguish and note that the local municipalities in the Bojanala Platinum and Dr Kenneth Kaunda districts are the ones responsible for delivering these services, while the other two districts in the North West province, Dr Ruth Segomotsi Mompati and Ngaka Modiri Molema districts municipalities are responsible for both receiving and spending the DoRA allocations on behalf of their local municipalities.

Through the principle of delegated and non-delegated responsibility, the Provincial Treasury is directly responsible to support these municipalities to ensure that tabled budgets are assessed and adopted in time and to ensure that municipalities consider the recommendations provided to them for various Council’s considerations. Only Rustenburg and Mahikeng local municipalities are non-delegated and remains a direct responsibility of National Treasury whilst the rest of the local and district municipalities are under a direct support of the Provincial Treasury.

The Provincial Treasury has been providing support to the municipalities in distress through placing various support skills and capacity support in those municipalities. A number of deployees through the National Treasury’s Municipal Finance Improvement Programme (MFIP) continues to support in the affected municipalities. Further, National Treasury continues to identify struggling municipalities through the process of Invoice Verification Process (IVP) wherein, payments and transfers of grants can only be made to the municipalities only after the work done and invoiced has been verified by both National Treasury (PT) and DCoG (MISA). On an annual basis, National Treasury and DCoG agree on a list of municipalities that are placed under these micro-management support.

In exceptional circumstances or persistent and material breach of the measures on prudent financial management, National Treasury may consider exploring the feasibility of utilising other organs of state to deliver these services on behalf of the municipalities that are in distress. These measures are, the utilisation of the district municipality to be a delivery vehicle against a municipality in distress to avoid conditional grants misuse or vice versa, wherein, the local municipality is considered to assist its district.

Reply:

(a)(b) According to our records, 17 Municipalities have failed to table their 2022/23 MTREF budgets on time. They are listed below together with the explanation provided to the National Treasury.

a) Municipality	b) Reasons
Nelson Mandela Bay NMA	Council did not sit/non-compliance letter
Mangaung MAN	Council did not meet quorum
Kopanong FS162	Council did not sit/non-compliance letter
Dihlabeng FS192	Council did not sit/non-compliance letter
Nama Khoi NC062	Community Consultation was not concluded by 31 May
Khai-Ma NC067	Community Consultation was not concluded by 31 May
Namakwa DC6	Community Consultation was not concluded by 31 May
Ubuntu NC071	Financial System related challenges
Renosterberg NC075	Not having staff in the office due to non-payment
Thembelihle NC076	Community Consultation was not concluded by 31 May
Siyathemba NC077	Community Consultation was not concluded by 31 May
Siyancuma NC078	Financial System related challenges
Dawid Kruiper NC087	Financial System related challenges
Sol Plaatje NC091	Community Consultation was not concluded by 31 May due to late submission of the IDP
Phokwane NC094	Community Consultation was not concluded by 31 May
Bitou WC047	Bitou Municipality did not approve the budget process plan in August 2021. It was only approved in December 2021 and the strategic session was only held in March 2022 hence the request for extension to better align the budget with the IDP.
Laingsburg WC051	The Municipality failed to comply with the provisions of section 14(1) of the Municipal Budget and Reporting Regulations which states that an annual budget and supporting documentation tabled in a municipal council in terms of section 16(2) of the MFMA must be in a format in which it will eventually be approved by the Council. The reason for non-compliance with the submission of the budget in the prescribed format is because the financial system settings were not such that the budget schedules could be generated from the system.

The Honorable member will recall that the National Treasury as a routine, consolidate this information for all 257 Municipal, verify the information and formally table a consolidated report to this effect in Parliament annually. All the previous reports are hosted on the National Treasury’s website on the following link:

http://mfma.treasury.gov.za/Media_Releases/mbi/2020/2020MTREF/Pages/tablingdates2020.aspx

Once the formal process has been concluded for this cycle, the updated report will once again be tabled in Parliament.

Lastly, municipalities have until 30 June 2022 to formally adopt their 2022/23 MTREF budgets hence it may be premature for me to make a statement in this regard at this stage.

Reply:

In the excel workbook attached as Annexure A, is the information requested. Kindly note that prior to 2015, classification of the social wage was at a high level classification of Housing, Education, Health and Social Development. It is therefore not possible to provide the lower level detail for the years prior.

In the workbook attached, the responses to Questions a, h and I are in the first tab, titled A, H and I. The responses to the rest of the questions are in the tabs titled B, C, D; and E, F, G (combined).

Reply:

In the excel workbook attached, is the information requested. Kindly note that prior to 2015, classification of the social wage was at a high-level classification of Housing, Education, Health and Social Development. It is therefore not possible to provide the lower-level detail for the years prior.

In the workbook attached, the responses to Questions a, h and I are in the first tab, titled A, H and I. The responses to the rest of the questions are in the tabs titled B, C, D; and E, F, G (combined).

Reply:

In the revenue year 2021/22, the Health Promotion Levy (colloquially referred to as the sugar tax) contributed a total of R 2,259,832,000.00* in the revenue collections that were reported by the South African Revenue Service. The R 2,259,832,000.00* collected reflects R2, 182,323,000.00* in domestic levy and R77, 510,000.00* in an import levy. Overall the FY2021/22 collections represent a growth of 6.92% on the FY2020/21 collections of R2, 113,606,000.00 (R2, 046,177,000.00 domestic levy and R67, 429,000.00 in import levy).

* All figures for FY2021/22 are preliminary pending auditing processes.

Reply:

The work of the NDB is guided by its General Strategy. The first General Strategy was for the period 2017 to 2021. The Bank has recently approved its second General Strategy for the period 2022 to 2026. The National Treasury commented and contributed to the finalization of the Bank’s second General Strategy.

The Bank has not yet finalized its policy on member country partnership plans. This policy will set out the relationship between the Bank and its member countries.

The Honourable Member can access the Bank’s General Strategy on the Bank’s website (https://www.ndb.int/about-us/strategy/strategy/).

Reply:

Information on projects funded by the New Development Bank are listed on the Bank’s website. The Honourable Member and members of the public are encouraged to visit the New Development Bank website to obtain information on the work of the Bank https://www.ndb.int/projects/list-of-all-projects/.

The originator of any project that is funded by the Bank has to ensure that consultation occurs with the relevant stakeholders.

The National Treasury, in general, strongly supports the disclosure policies of information to institutions and entities in which it is a shareholder and has done so with the NDB.

Reply:

The Tribunal outcomes were issued to the Accounting Officer of OR Tambo District Municipality. No steps will be taken against the municipal officials by the National Treasury as the National Treasury does not have jurisdiction in the disciplining of any organ of state employees or officials. OR Tambo District Municipality will be required to take action against any transgressions of its employees.

The National Treasury are able to monitor to ensure that necessary actions are taken against the implicated officials.

Reply:

The Honourable Member should note that the Municipal Finance Management Act (MFMA), vests financial governance, accountability and responsibility for a municipality with the municipal council and its administration. This includes appointment of relevant and appropriate skills, ensuring proper internal controls are implemented and to prevent the incurrence of unauthorised, irregular, fruitless and wasteful expenditure (UIFW).

Specifically, section 62 of the MFMA provides that the accounting officer of a municipality is responsible for managing the financial administration of the municipality, and must for this purpose ensure internal controls, take all reasonable steps to ensure that unauthorised, irregular or fruitless and wasteful expenditure and other losses are prevented, amongst others.

The National Treasury has issued cost containment regulations that elaborate on the process to be followed and measures to be implemented by municipalities on the use of consultants with the objective of reducing reliance thereon. The Regulations requires a thorough needs assessment to be undertaken to demonstrate the need for appointing a consultant. In cases where consultants are appointed, a municipality must ensure the transfer of skills by consultants to municipal officials are included in all contracts.

A number of MFMA Circulars have been issued and officials trained in implementing their financial management responsibilities, including regulating a set of minimum requirements. These address all financial management disciplines, including revenue management, asset management, expenditure management and liability management.

Additionally, the National and Provincial Treasuries, have collaborated to render support to municipalities in various ways, both technical, financial and at knowledge sharing platforms. The issuance of the UIFW reduction strategy documents, preventative controls and assistance in preparation of support plans for implementation by municipalities are geared to address these financial challenges. Furthermore, all municipalities are required to assess their Budget and Treasury Office capability, capacity and competencies in financial management and to implement corrective measures to address gaps and audit findings. These have been communicated in MFMA Circulars available on the National Treasury website. Training has been provided and will continue in the use of these tools, interpretation of accounting standards, preparation of annual financial statements and disclosures to municipal officials.

Reply:

(1) (a)

Backlog cases are defined as cases older than 60 days

Retirements of Public Servants
Current Backlog as of 31 March 2022	1 345

(1) (b)

Pension Payouts for Retired Public Servants	no	%
Retirees Paid within 60 Days	29 855	88,78
TOTAL Retirees Paid	33 627	100,00

(1) (c) (i) (ii)

Year	Paid within 30 Days	Total Paid
	no	%	100%
Retirement Claims 2019/20	21 905	64,27%	34 081
Retirement Claims 2020/21	13 255	47,41%	27 956
Retirement Claims 2021/22	20 485	60,92%	33 627

(2) (a)

The GPAA has implemented the following initiates to improve the pay out of pension benefits:

• Improved staff capacity to deal with claim volumes given the constraints the department had faced under the Covid-19 regulations;
• System enhancements were done, where all retirement exit claims now pass through an automated process first allowing for reduced human intervention;
• Validations conducted in advance to further reduce unnecessary delays in the processing of claims. These validations include amongst others bank verifications of particulars and identification verifications with Department of Home Affairs;
• Reintroduction of member and employer department engagements under the required Covid-19 protocols. These engagements include Retiring Member Campaigns specifically focused on public servants who will soon retire, Human Resources forums with Employer Departments and Webinars;
• The establishment of a consultative forum between the Department of Public Service and Administration (DPSA), GPAA and GEPF to deal with matters relating to the submission of exit claims by employer departments.

(2) (b)

In addition to the above, the GEPF has implemented the following initiatives:

• Hosted retirement member workshops on a regular basis. During these workshops the discussions and interactions focus on the requirements and responsibilities of members and departments when retirement is applied for. These workshops were conducted virtually in most cases but have now returned to physical format following the easing of lockdown restrictions.
• Set up mobile offices to execute its outreach initiatives and ease the burden of engagement for members who are located in remote or rural areas; and
• Developed educational videos which explain how members should complete the required exit forms and detail all the documentation required when a member exits.

The initiatives have resulted in varied success. In 93% of the cases, the GEPF is able to pay the retirement claims within 60 days from receipt of correct information. The initiatives have led to a reduced number of cases where documentation is sent back for correction. The initiatives have also resulted in more cases where employers provide the correct and complete documentation within 30 days. It is important to note that though there have been administrative delays in payments for some retirement benefits, this does not represent the majority of the cases. The majority of retirements are being paid within the 60 day period as per the GEP Law.

Reply:

• While the National Treasury has not specifically done a full cost analysis evaluating the impact that load shedding has had on GDP since 2008, various analyses have been undertaken over the past few years to assess the impact of the electricity constraint on economic activity.
• To understand the impact of electricity shortages on factor productivity, investment and potential growth, the National Treasury uses analytical tools such as its macro-structural model (which is also used for the macroeconomic forecast) as well as a computable general equilibrium (CGE) model.
• This macro-econometric analysis generally builds on detailed energy modelling conducted by institutions such as the CSIR and is always supplemented by secondary research, data from Eskom’s Medium-Term System Adequacy Outlook as well as consultations with key stakeholders in the energy sector.
• Some of this analytical work has focused specifically on the economic impact of load shedding, which has been published in several editions of the Budget Review as macro-fiscal scenarios that inform the budgeting process. This includes:
  • • The 2019 Budget Review quantified the impact of a decline in Eskom’s average energy availability factor to between 65 and 70 per cent for 18 months. As a consequence, GDP growth was anticipated to weaken to 0.2 per cent in 2019 relative to the baseline forecast of 1.5 per cent (which is equivalent to a loss in GDP of R40 billion in real terms).
    • The 2015 Budget Review estimated growth to decline by 1 per cent in 2015 should there continue to be a deterioration in electricity availability.
• Beyond assessing the impact of load shedding on the economy, several studies on the evolution of electricity supply and economic growth have been conducted as part of the National Treasury’s Southern Africa - Towards Inclusive Economic Development (SA-TIED) programme. These studies are available on the SA-TIED website (https://sa-tied.wider.unu.edu/climate).
• National Treasury takes into account the energy constraint when generating its macroeconomic forecasts, and frequently reviews its outlook for load shedding based on the most recent information at its disposal.

Reply:

(1)(a)(b)(i)(ii)(aa)(bb)(cc) The attached annexure provides the detail of the number of municipalities over the past five years that did not pay or partially paid salaries per province per year. It further distinguishes which municipalities within the two categories did not pay for one month or two to six months or more than six months.

(2) No, the Minister will not make/issue a statement in this regard, the onus rests with the Municipal Council to ensure all financial obligations are honoured timeously. The design of the Local Government Fiscal System does not allow any Organ of State to “bail-out” a municipality should they find themselves in this position. This by implication means that a municipality is required by law to adopt a funded budget as per section 18 of the Municipal Finance Management Act, 2003 (ACT NO. 56 of 2003), MFMA. A funded budget will consist of any financial obligation due by the municipality which includes salary obligations.

Reply:

The National Treasury is monitoring the impact of the global and domestic economic developments on the fiscal framework. This is part of the macro-fiscal planning process that takes place every quarter which involves updating the macroeconomic and revenue forecast. The impact of the Russia-Ukraine war will be included in the updated macroeconomic forecast and framework that will be published in the 2022 MTBPS.

Reply:

Kindly note that National Treasury Instruction Note 3 of 2021/2022 paragraph 6 states that, should an organ of state opt to restrict the contractor and or any other persons from obtaining a business with the public sector, the relevant institution must:

• Inform the contractor or person(s) of the intention to impose a restriction, provide the reasons for such decision and the envisaged period of restriction.
• Allow the contractor and or person (s) to provide reasons why the envisaged restriction should not be imposed.
• Consider any reasons submitted by the contractor and or person in terms of two bullets;
• Inform the National Treasury such imposition of the name of the restricted person(s), the reasons for restriction, the period of restriction and the date of commencement of restriction ( date, month and year).
• National Treasury will then consider the submission by an Accounting Officer/Authority then list the affected contractor and or person (s) to provide reasons.

Summarily: Government institutions that utilized services of such a contractor and or person (s) must follow the National Treasury Instruction Note 3 of 2021/2022 paragraph 6 and finally send the submission to the National Treasury; without that submission National Treasury would not be able to finalize any restriction of suppliers.

Reply:

The monitoring of performance by the National Treasury was conducted within the Framework for Strategic Plans and Annual Performance Plans. This framework was issued by the National Treasury in 2010 in order to guide institutions’ short and medium term planning. The Framework provided a standardised approach to strategic and annual performance planning; and promoted accountability for performance and service delivery, and alignment between the planning, budgeting and reporting processes.

To improve government-wide planning and to align planning with other government processes, the National Planning Commission (NPC) and the Department of Performance Monitoring and Evaluation (DPME) was established in 2009 in order to facilitate country-level long-term development planning through the NDP, outlines key policy trade-offs and sets out the sequence of decisions required to achieve the objectives, mobilise stakeholders and harness resources towards the implementation of the NDP, monitoring and evaluation for improved service delivery. In order to operationalize these functions, the planning and quarterly performance reporting function was transferred from National Treasury to the Department of Planning, Monitoring and Evaluation (DPME). DPME can report on progress against programmes and projects using the Electronic Quarterly Performance Reporting System. However, National Treasury is responsible for tracking expenditure /spending performance on appropriated funds. National Treasury has access to the Quarterly Performance Reporting data on a quarterly basis.

Reply:

a) The R1 billion mentioned by the President refers to funds that are provided for in the 2022 Division of Revenue Bill (and are not new monies), namely disaster relief funds (for immediate response) through the Provincial Disaster Response Grant and the Municipal Disaster Response Grant. These grants are allocated R144 million and R371 million respectively in 2022/23. A further R501 million is available for this financial year in the form of provincial and municipal Emergency Housing Grants. These funds, amounting to just over R1 billion, are available shortly after Treasury receives an application from the National Disaster Management Centre (NDMC) and / or the national Department of Human Settlements (DHS), which are responsible for administering these grants. NDMC and DHS submit their applications to National Treasury once they have verified the submissions received from the province(s) and municipality(ies) concerned. To date, National Treasury has not received any applications from the NDMC or DHS.

b) In addition to immediate relief grants, state organs can reprioritise their budgets and existing conditional grants for emergency relief, reconstruction and recovery. For example, the Human Settlements Development Grant to provinces already allows for the construction of houses. Additional resources are also available through the contingency reserve, which will become available after the Appropriations Bill is passed. Another option is to use the Reconstruction and Development Programme (RDP) fund, which mainly consists of donor disbursements through various financing agreements, plus interest accrued on capital of related development projects. Therefore, since the full cost of emergency relief, reconstruction, and recovery is yet to be determined, it is difficult to determine whether the sources discussed above are adequate.

Reply:

Treasury Bills (T-bills) are held by every commercial bank in the country that holds a banking license since they form part of the High-Quality Liquid Assets (HQLA) which are required by the Prudential Authority. These assets allow banks to meet their short-term liquidity requirements and can be used as collateral for central bank operations, as well as benchmarking for pricing financial assets. The same banks may hold both T-bills and bonds on behalf of clients in their stockbroking or wealth management units. For the latter reason, it would be impossible for the National Treasury (NT) to determine what rate investors bought the bonds at and who the clients are.

Long term loans are bought by the 9 primary dealers in the primary market on behalf of insurers, asset managers, hedge funds and others on a weekly basis. These bonds are then traded in the secondary market where they are bought and sold by different entities. The 9 primary dealers are:

1. ABSA
2. HSBC
3. NEDBANK
4. CITIBANK
5. STANDARD BANK
6. INVESTEC BANK
7. DEUTSCHE BANK
8. RMB
9. JP MORGAN

To qualify as a primary dealer, applying banks are required to comply with capital adequacy requirements as well as additional NT requirements. These banks would buy these bonds at different rates on a weekly basis and distribute these bonds in the secondary markets both on exchange and over the counter which also impacts the rates at which the bonds trade. The interest rates and amounts at which the bonds are auctioned in the primary market are available on the NT website on a weekly basis. The amount that each bank buys in the auction are not public information since this information is sensitive for the ongoing auction process. There are no terms associated with each bond purchase except the obligation to pay the interest rate and principal when it is due on NT’s part.

The ultimate holders of the bonds can categorized as follows:

1. Monetary Institutions

a) Banks

b) SARB

2. Insurers

a) Long Term Insurers

b) Short Term Insurers

3. Pension Funds

a) PIC

b) Private self-administered pension funds

c) Official Pension Funds

4. Other Financial Institutions

a) Unit Trusts

b) Participation Mortgage bond schemes

c) Financial Public enterprises

The details of the ultimate holders are not recorded by NT. It is in the secondary market where these bonds bought and sold by various institutions. The JSE, STRATE and the institutions themselves would be best placed to provide details in terms of the quantity of bonds they hold. Market data systems like Bloomberg and Reuters would also provide details for the reported market.

It is worth remembering is that these institutions would themselves be holding these bonds on behalf of individual investors or policy holders who cannot be legally disclosed as per FICA and POPIA act. The holdings change regularly owing to the needs of each category of holder. It is therefore impractical for NT to quantify how much each institutional holder owns at a point in time or what interest rate they are receiving.

Retail bonds are held by individual investors whose names cannot be disclosed. Retail bond interest rates are available on the retail bonds website along with the terms and conditions of each retail bond.

The National Treasury publishes monthly detailed information on outstanding bonds, redemption dates, redemption amounts, and coupon rates, which can be found on the National Treasury's investor website.

Table 7.5 of the 2022 Budget Review reflects the international financing institution borrowings. The table provides information on the institution, disbursement date, interest rate, terms (years), grace period (years), and amount (billion). From the table, the borrowing has only been long-term in nature, with no short-term loans being entered into.

Reply:

Treasury Bills (t-bills) are held by every commercial bank in the country that holds a banking license since they form part of the High-Quality Liquid Assets (HQLA) which are required by the Prudential Authority. These assets allow banks to meet their short-term liquidity requirements and can be used as collateral for central bank operations, as well as benchmarking for pricing financial assets. The same banks may hold both t-bills and bonds on behalf of clients in their stockbroking or wealth management units in both discretionary, non-discretionary and segregated income portfolios. For the latter reason, it would be near impossible for the National Treasury (NT) to determine what rate investors bought the bonds at and who the clients are.

Long term loans are bought by the nine primary dealers in the primary market on behalf of insurers, asset managers and hedge funds on a weekly basis. Furthermore, these bonds are then traded in the secondary market where they are bought and sold by different entities. The nine primary dealers are:

1. ABSA
2. HSBC
3. NEDBANK
4. CITIBANK
5. STANDARD BANK
6. INVESTEC BANK
7. DEUTSCHE BANK
8. RMB
9. JP MORGAN

To qualify as a primary dealer, applying banks are required to comply with capital adequacy requirements per the banks act as well as additional NT requirements. These banks would buy these bonds at different rates on a weekly basis and distribute these bonds for a turn in the secondary markets both on exchange and over the counter which also impacts the rates at which the bonds trade. The interest rates and amounts at which the bonds are auctioned in the primary market are available on the NT website on a weekly basis however, the amount that each bank buys in the auction is not public information since this information is sensitive for the ongoing auction process. There are no terms associated with each bond purchase except the obligation to pay the interest rate and principal when it is due on NT’s part.

The ultimate holders of the bonds can categorized as follows:

1. Monetary Institutions

        (a) Banks

        (b) SARB

2. Insurers

(a) Long Term Insurers

(b) Short Term Insurers

3. Pension Funds

(a) PIC

(b) Private self-administered pension funds

(c) Official Pension Funds

4. Other Financial Institutions

(a) Unit Trusts

(b) Participation Mortgage bond schemes

(c) Financial Public enterprises

The details of the ultimate holders are not recorded by the NT since the NT’s purview is the primary market. It is in the secondary market where these bonds bought and sold by various institutions. The JSE, Strate and the institutions themselves would be best placed to provide details in terms of the quantity of bonds they hold since they transact both on and off-exchange. Market data systems like Bloomberg, Reuters would also provide details for the reported market.

It is worth remembering is that these institutions would themselves be holding these bonds on behalf of individual investors or policy holders who cannot be legally disclosed as per FICA and POPIA act. The holdings change regularly owing to the needs of each category of holder. For example, insurers would buy long term debt to meet long term obligations however they may need to liquidate short- and medium-term bond holdings if claims rose suddenly. Pensions funds would rebalance their portfolios regularly based on the investment mandate of their portfolios and whether or not they are managing an external portfolio. For this reason and many others, it is impractical for NT to quantify how much each institutional holder owns at a point in time or what interest rate they are receiving since they would hold bonds along the yield curve.

Institutions also frequently engage in interest rate swaps to manage their risk which would transfer those rates to other entities. Retail bonds are held by individual investors whose names cannot be disclosed. Retail bond interest rates are available on the retail bonds website along with the terms and conditions of each retail bond.

The National Treasury publishes monthly detailed information on outstanding bonds, redemption dates, redemption amounts, and coupon rates can be found on the National Treasury's investor website. The same details can be found in the SARB’s quartely bulletin.

http://investor.treasury.gov.za/pages/default.aspx

Table 7.5 of the 2022 Budget Review reflects the international financing institution borrowings. The table provides information on the institution, disbursement date, interest rate, terms (years), grace period (years), and amount (billion). From the table, the borrowing has only been long-term in nature, with no short-term loans being entered into.

Reply:

In setting out to answer the posed questions, it is important to explain some principles as they guide how SARS approach their work with regards to collection of tax revenues that are due.

Firstly, SARS collects all revenue that is due to the fiscus without fear or favour. SARS does so regardless of the taxpayer profile due to the fact that its debt collection processes are indifferent to the taxpayer since they are primarily informed by the law. This neutral approach is crucial for the integrity of the tax system. SARS therefore cannot compromise this principle of apply the law without fear or favour under any circumstance. All forms of outstanding taxes constitute non-compliance, taxpayers are provided instruments in law to remedy their non-compliance. The approach of treating a taxpayer’s non-compliance irrespective of who the taxpayer is, applies regardless of the amounts involved.

SARS manages the collection of all outstanding revenues in line with the provisions of the tax administration laws. Firstly, SARS will seek to collect all revenues that are due by engaging the defaulting taxpayers, these taxpayers may approach SARS to enter into a deferred payment arrangement where the full debt cannot be settled at once. The deferral of payment (i.e. instalment payments) arrangements are in line with Section 167 and 168 of the TAA, this is a governed process where a governance structure makes such decisions pursuant to considering a number of taxpayer factors. Secondly, taxpayers may approach SARS to request for the compromise on the portion of the tax revenues that are due in line with the provisions of Section 200 of the TAA, once again this is a governed decision by a duly appointed structure. Thirdly, taxpayers may approach SARS to request for the suspension of the payment of tax revenues that are due but disputed, in line with Section 164 of the TAA. Fourthly, in circumstances where the tax debt remain outstanding after engagement efforts, SARS may appoint other parties (involuntary third party appointments – TPAs) in line with Section 179 of the tax administration act (TAA) to collect such outstanding revenues, these include employers, banks, other entities that hold monies that are due to the owing taxpayer. This process is clearly articulated in law in terms of steps that SARS must follow before triggering this instrument.

In instances where debt collection methods as per the above fail, SARS may, where economical feasible and justified, attach assets of taxpayers in an effort to collect revenues from the sale of such assets through securing a civil judgement (section 172 of the TAA) and writ of execution.

SARS will use a combination of the above instruments and others to ensure that due tax revenues are collected, against the above backdrop I then turn to provide the specific responses to the questions posed:

(1)(a)(aa)(aaa) Entities and Individuals that owe SARS in the range of R10 million and R20 million are:

1. 1,234 entities with a total amount in outstanding debt of R17,041,074,608.00 and
2. 242 individuals with a total amount in outstanding debt of R3,417,727,564.00. (The reported amounts include the capital debt, interest, penalties and additional tax)

(bbb) Entities and Individuals that owe SARS in the range of R20 million and R50 million are:

1. 784 entities with a total amount in outstanding debt of R24,257,828,448.00 and
2. 126 individuals with a total amount in outstanding debt of R3,693,222,592.00. (The reported amounts include the capital debt, interest, penalties and additional tax)

(bb) Entities and Individuals that owe SARS outstanding debt above R50 million are:

1. 498 entities with a total amount in outstanding debt of R129,059,637,995.00 and
2. 72 individuals with a total amount in outstanding debt of R14,828,653,526.00. (The reported amounts include the capital debt, interest, penalties and additional tax)

(b) The ageing of the amounts owed (by individuals as well as entities/companies in line with the above ranges in as per the below table, segregated in time intervals of three months.

2) SARS is pursuing strategies to ensure that taxpayers are clear and certain about their obligations, additionally, SARS is working to ensure that it is simple and easy for taxpayers to meet tax obligations. Where taxpayers still fail to meet their obligations SARS will always seek to ensure that it enforces its laws responsibly without fear or favour as mentioned earlier.

The above said, in the course of tax administration, tax debt arises from a number of different scenarios which includes the submission of returns without payment, audit assessments, etc. Depending on the origination of the debt, such debt can accumulate due to interest, penalties and additional taxes. Furthermore, debt could be as a result of a single assessment resulting in large amounts of debt being added into the debt book. SARS follows a prescribed debt collection process on all taxes overdue. However not all instances of enforcement (e.g. deferral of payment arrangements, third party appointments, etc.) readily lead to all debt being collected timeously, such that some debt remains in the books whilst collection steps are ongoing. SARS legal collection steps will include issuing a final demand and appointment of third parties, civil judgments, personal liability, writ of execution, etc. which may give way to the attachment of assets as explained earlier. SARS also considers criminal proceedings against taxpayers on the basis of the tax debt owed. Each debt case would however be treated on its own merits however SARS always seek to ensure that all due debt is collected on-time as far as practically possible and that the enforcement actions are applied consistently, taking into account the facts of each case.

It is important to note that SARS has initiated an overall review of the current end-to-end debt management process with the first phase to be completed in April 2022. The improvements in terms of how SARS account for and manages the collection of debt will be progressive over the next 12 to 24 months in line with SARS’ strategic plan commitments.

Reply:

The price threshold for official vehicles for members of the executive is reviewed regularly and considers different criteria. Among these are budget constraints, the changing market price of vehicles, the practical requirements of executive members to fulfill their portfolio responsibilities, as well as safety and reliability, including for travelling in difficult terrain. The Guide for Members of the Executive (“the Guide”) confers powers to the Minister of Finance to determine any annual adjustments to the threshold. The National Treasury maintains a transversal contract for the purchase of official vehicles for use by the executive which should be used by government departments. This contract allows for vehicles to be purchase directly from the manufacturer where the vehicle is new. This ensures superior value-for-money compared to purchasing vehicles from dealers.

Paragraph 2.6 of the Guide states the following: “The price for the purchase of official vehicles shall not exceed R700 000-00, inclusive of VAT, security upgrades and maintenance plans. The limitation on the cost of the vehicle must be adjusted annually by the Minister responsible for Finance, in consultation with the Ministers responsible for Police, Transport and State Security”.

In the period since the finalization of the Guide, National Treasury Instruction no. 6 of 2019/2020 was issued, stating in paragraph 3.1 that the threshold for the procurement of official vehicles for members of the executive is revised from R700 000 to R800 000.00 inclusive of VAT and security features. Paragraph 3.3 of the said Instruction further provides that it is the responsibility of each department to ensure confirmation of the price of security features is obtained from the South African Police Service prior to finalization of the vehicle purchase.

The above is the most recent instruction note issued in this regard, and ongoing reviews will continue to be undertaken.

Reply:

(1)(a)(i) There were 106 municipalities that adopted unfunded budgets. The attached Annexure A provides the list of municipalities per province that adopted unfunded budgets for the 2020/21 financial year.

(1)(ii) There was no intervention introduced during this period, however, National Treasury and Provincial Treasuries have institutionalised processes to guide municipalities. During the window of opportunity, 31 March and end of May of each year, Treasuries assess the budgets of municipalities, this is referred to as the Benchmark process. During this process, municipalities whose budgets are assessed to be unfunded are advised to correct this position before adoption. Unfortunately, some municipalities ignore this advice and continue to adopt unfunded budgets. Those that adopt unfunded budgets are requested to correct this position during the adjustments budget period by the end of February of the following year. Once the unfunded budget is adopted, this is the only legal opportunity to rectify the position.

In addition, the National Treasury targets the 2nd instalment (December of each year) of the Equitable Share allocation to ensure compliance with Section 18 of the Municipal Finance Management Act (MFMA) and address unfunded budgets.

If a municipality is not able to achieve a funded budget position within a year or two due to the extent of the problem, such as high Eskom debt, the National Treasury has created an opportunity for municipalities to adopt a credible funding plan that will ensure that the funding position is improved. The implementation of these plans is monitored through quarterly reports submitted by municipalities.

Furthermore, the National Treasury also circulates annually, a document that compares the original budget, adjusted budget and the outcomes as per the Annual Financial Statements, in essence this exercise highlights that municipalities are simply “living beyond their means” when it reflects a deficit position.

To date, the resolution emanating from the Budget Council and Budget Forum, which forms the political platform for discussing and addressing municipal matters, was not to accept the adoption of an unfunded budget by any municipality.

(1)(b) After the 2020/21 adjustments budget process, 105 municipalities were recorded to have unfunded position with 5 additional municipalities undetermined. The detail of the unfunded list is in the attached Annexure A.

2. The attached Annexure A shows that 112 municipalities adopted unfunded budgets for the 2021/22 financial year. Many municipalities that adopted an unfunded budget during the adjustments period (2020/21) of the previous year are found to have adopted an unfunded budget for the 2021/22 year (main budget). During the preparation of the new budgets, municipalities often increase their expenditure budget and not align it to realistic anticipated revenue to be collected by them. On the other hand, some municipalities base their budgets on a collection rate far beyond their capability. When the National or Provincial treasuries undertake their assessment of the budget based on previous years audit outcomes, the budget is assessed to be unfunded.

3. The Minister of Finance usually refers to the funding position of municipalities in the Budget Speech and it is published in the Budget Review and the Medium Term Budget Policy Statement. Due to the importance of adopting a funded budget, addressing unfunded budgets is a standing item on the agenda of Budget Council and Budget Forum, which is the political platform in the municipal context.

Reply:

In terms of section 160(d) of the Constitution, it is the mandate of the municipal council whether or not to approve borrowing. The National Treasury’s responsibility when a municipality decides to incur borrowing is set out in Section 46 of the Municipal Finance Management Act. In terms of that section, the National Treasury must submit written comments or representations in respect of the proposed borrowing. The National Treasury looks at a number of issues, including affordability, when providing written comments to municipalities. The National Treasury does not support instances where the borrowing is unaffordable for the municipality. Therefore, the municipality must have financial stability, and the planned borrowing must have been budgeted for before considering any borrowing.

Also, as emphasised in the Original Borrowing Policy framework passed by Cabinet in 2000, financiers/lenders are encouraged to perform their own due diligence assessments to ascertain a municipality’s creditworthiness. Financiers/lenders whose capital is at risk have both the incentive and the means to limit or deny credit if they doubt the sustainability of a proposed borrowing.

a) Project finance is part of the many funding mechanisms that have been identified in the 2017 Updated Policy Framework for Municipal Borrowing as mechanisms that are permissible within our current legislative framework. Municipalities can utilise project-based financing to fast-track infrastructure development; however, such a financing choice should be solely based on the strength of the municipality’s finances or the credibility of the assumptions and arrangements that inform the project package. Besides borrowing, municipalities may consider other funding mechanisms such as public-private partnerships to enable them to finance projects. In these types of transactions, the private party assumes the financial responsibility, amongst others, for the implementation of projects.

It is important to note that the updated policy emphasises that only creditworthy municipalities should borrow based on the strength of their balance sheets whilst encouraging responsible borrowing and lending. Therefore, municipalities deemed non-creditworthy (lack fiscal discipline and sustainable financial management; have no resources or capacity to repay the debt) should not borrow. This is further cemented by the principle of non-guarantee of municipal debt by neither provincial nor national government, as reflected in the updated policy and in section 51 of the Municipal Financial Management Act (MFMA). Incurring a loan when a municipality is not in the financial position to repay the loan will add to a municipality’s financial problems.

Municipalities have not pursued project loan financing but rather use general loans to finance various projects. This is mainly due to the capability of these municipalities in preparing bankable projects that would attract financing and the financial support required for project preparation activities. To assist metropolitan municipalities with funding for project preparation, the Programme and Project Preparation Support Grant was established in 2021 to institutionalise an effective and efficient system of developing a pipeline of investment projects that would be financed by an array of financing instruments, including project-based loans. To this end, National Treasury will allocate R1.1 billion to metropolitan municipalities over the 2022 MTEF to support project preparation.

b) In addition, to assist some of the municipalities facing financial difficulties, National Treasury has institutionalised the Municipal Financial Recovery Services with the core objective of identifying and resolving financial challenges, with the City of Tshwane and Mangaung being part of the programme. Through the success of the Municipal Financial Recovery Service and other initiatives around revenue management, National Treasury hopes to achieve strengthened operating performance for some metropolitan municipalities, thus allowing them to access the market and pursue mechanisms such as project-based loan financing.

Reply:

The Republic of South Africa has no exposure to the Russian Federation in respect of a loans, grants, donations and other forms of support.