Portfolio Committee on Science & TechnologyWorkshop

02 March 2011

devan.naidoo@treasury.gov.za

Chief Director – Economic Services, Public Finance

Aim and strategic objectives

• Advance economic growth and income redistribution.

• Prepare a sound and sustainable national budget and equitable division of resources.

• Strive to equitably and efficiently raise fiscal revenue, while enhancing efficiency and competitiveness of the South African economy.

• Sound management of government’s financial assets and liabilities.

• Promote transparency and enforce effective financial management.

• Develop and promote policies that lead to job creation.

2

Public Finance and Budget Management

3

• Maintain a sound fiscal stance to support growth and development in the context of the economic crisis.

• Budget co-ordination and process improvements focussed on aligning budgets with priorities, improving service delivery and ensuring better value for money.

• Improve the quality and quantity of measurable objectives and indicators

• Advise on the financial implications of sectoral policies and work with departments, sectors, provinces to ensure alignment of policies, resources and plans.

4

Legislative framework for financial oversight

• National departments are governed by the Public Finance Management Act 1 of 1999;

• Treasury Regulations regulate and enhance prudent financial management by departments; and

• The department’s respective legislative framework

5

The Budget Process

• Minister of Finance tables his budget speech in Parliament in February every year.

• The process starts with a Treasury circular around June/July every year inviting departments to submit their budget proposals for the Medium Term Expenditure Framework (MTEF) (three years ahead) to National Treasury.

• Departments are then invited to Treasury to present their proposal to MTEC( Medium Term Expenditure Committee).

• The committee is made up of representatives from the Presidency, Public Works, Public Service Administration and Treasury.

6

The Budget Process Continued.

• MTEC makes recommendations to MINCOMBUD (Ministers Committee on the Budget)

• This is a committee of Ministers who evaluates the recommendations of MTEC.

• MINCOMBUD also makes changes to the proposed budget allocations.

• These proposed allocations recommended by MINCOMBUD are submitted to Cabinet for approval.

• In November, allocation letters are issued to departments.

77

Budget Process Continued

• These allocations letters are used by departments to draft their Estimates of National Expenditure (ENE) chapter for the coming year.

• The final version of the ENE chapter is submitted to Treasury in February.

• The Appropriation Bill and the Division of Revenue Bills are also drafted.

• In his budget speech, the Minister of Finance tables in Parliament the ENE chapters, Appropriation Bill and The Division of Revenue Bills.

• Parliament then passes the Appropriation Act and Division of Revenue Act for that particular year to allocate resources to different government departments and spheres of government ie local, provincial and national.

8

The Budget Process Continued

• During the course of the year, departments submit funding request for additional funding to cover unavoidable and unforeseeable expenditure.

• This is done during the Adjusted Estimates of National Expenditure process (AENE).

• The Minister of Finance then announces the AENE budget during the delivery of the Medium Term Budget Policy Statement in October of each year.

9

Ensuring Accountability by the Department

• To ensure accountability by departments , any new transfers introduced or an increase in transfer payments by the department must be approved by Treasury.

• Treasury is also involved when new programmes are introduced by the department.

• To monitor the expenditure of the department monthly reports on expenditure are submitted to Treasury.

• These reports cover actual expenditure to date, programmes that are over or under spending, revenue generated as well as performance of earmarked funds.

Spending Priorities

10

• Enhancing the productive capacity of the economy, and investing in economic and social infrastructure to accelerate growth

• Rolling infrastructure plans that expand fixed assets – property, plant, equipment

• Enhancing job creation by supporting labour-intensive industries and expanding employment-creating government programmes.

• Investing in human development and maintaining a progressive social security net

11

Spending Priorities

• Enhancing the productive capacity of the economy, and investing in economic and social infrastructure to accelerate growth

• Rolling infrastructure plans that expand fixed assets – property, plant, equipment

• Enhancing job creation by supporting labour-intensive industries and expanding employment-creating government programmes.

• Investing in human development and maintaining a progressive social security net

12

Infrastructure

• Infrastructure grows revenue, improves efficiency and enhances services

• Regulatory capex – safety, health, environment

• Improving the quality of education, health and other social services; intensifying targeted anti-poverty initiatives.

• Improving the capacity and effectiveness of the state to deliver services, and enhancing safety and security

13

Process and Reporting

• Projects evaluated to ensure a rigorous approach

• Strategic planning• Economic growth and public sector spending• Budget process• MTEC discussions• Reporting against past performance• Baseline assessment and reprioritisation• Identification of non-recurrent expenditure

14

Baseline assessment and reprioritisation

• Slow spending programmes

• Underperforming programmes

• Efficiency savings

• Inflation-related adjustments

• Official development assistance

• Additional funding proposals

15

Funding proposals

• Compliance of submissions – the basis for making recommendations to MTEC regarding funding of new proposals

• Criteria used as a basis for assessment

• Indicate the ranking of any requests for additional funds

• Quantification of the problem

• Past and current interventions

16

Criteria

• Identified outputs over and above those already contained in the programme

• Detailed costing of all policy proposals• Departmental spending estimates over the MTEF• Legislative plans, administrative (support structure)

and implementation plans• A monitoring and evaluation plan to examine

whether objectives have been met• Risk analysis• Links to any other relevant programmes within the

department or across departments

17

Funding motivation

• Extension of existing projects or programmes

• New projects and programmes

• Past financials

• Forward financials

• Funding sources

18

Project concept note

• Project name and location• Type of project• Brief description of the project• Project stage• Estimated construction duration (months)• Estimated project cost• Needs analysis• Different options considered• Economic and social benefits• Funding sources considered

19

Identifying Costs

• Capital or construction costs

• Annual operating costs

• Non-quantifiable costs

20

Appraisal process

• Develop and formulate potential projects precisely and concisely

• Avoid badly planned projects (“white elephants”)

• Encourage identification of risks and formulation of mitigation strategies

• Promote transparency

• Policy, Legal and Regulatory Issues

21

Needs analysis

• Consistency with strategic objectives• The statistical trends and key indicators in the relevant area of

service delivery that point to the need or increased demand at this time

• The extent and urgency of the need and the consequences if the need is not met

• How are people/users currently coping?• The proportion of the need the request is intended to fulfil, and

how long it will be operational• The proposed outputs and outcomes. What will be built or

procured, how many people will it serve and for how long?• Demonstrate that the project/programme fits with the overall

departmental strategic plan or infrastructure delivery plan, which should also be supplied

22

Options analysis

• Identify and examine alternative ways of meeting demand

• Explain why the proposal under consideration was selected as the preferred option and why others were rejected

23

Cost-benefit analysis

• Estimate the equivalent money value of the benefits and costs of a project to society to establish whether it is worthwhile

• The build-up of all costs, present and future, and their underlying assumptions, including escalations due to inflation, exchange rates and tender estimation

• The estimates of all revenues

• The proposed/perceived economic and social benefits of the project or programme, present and future, and assumptions

• A net present value analysis on costs and revenues outlining all assumptions made, including financial and social discount rates

24

Lifecycle costs and affordability

• Discuss the operational implications of the infrastructure or capital acquisition on the budget of the department/entity in future years

• Is this affordable and sustainable?• What are the implications for other spheres of

government?• If funding is required for a public entity, demonstrate

why this should be funded by taxpayers and not the users

25

Implementation readiness

• Indicate the stage of the project (identification, feasibility, design, tender, construction, etc)

• State the proposed target date to begin construction and the estimated duration of construction

• Outline the implementation schedule

• Define the intended implementation agents (e.g. public works, own department, private sector) for the various stages (design, construction, project management, monitoring, etc.)

• Discuss the level of planning already undertaken/achieved and what still needs to be done

• Also indicate if there are other stakeholders

• Outline the risks and possible constraints faced in the delivery of the project

26

Funding and approvals

• State whether this type of infrastructure generates ongoing user revenue

• Does a trading account exist for this purpose?

• Discuss the funding sources that have been considered and outline the contributions from each

• If relevant, why was a public-private partnership not considered?

• List all approvals and permissions obtained for the project, including environmental impact assessments

2727

THANK YOU