MTBF: South African Experience

1. MTBF: South African Experience Ekram Ahmed Project Director DMTBF Project

2. Study tour to South Africa • Background • SA follows a mixture of developing and developed economic policies and processes • SA is a leading country in financial management reform • A pioneer in introducing MTBF • A team of GoB officials visited SA in 2005 to gain experience in SA MTBF • Visit to SA in 2011 to see the progress/change made during last 6 years after the earlier visit

3. Principles of PFM reforms in SA • Comprehensiveness and integration • Political oversight and a focus on policy priorities • Using information strategically • Changing behaviour by changing incentives • Ensuring budget stability and predictability while facilitating change at the margin

4. Spheres of government Constitution • Establishes three distinct but interrelated spheres of government, each with an elected executive • Assigns powers and functions to each of the three spheres • Forces spheres to cooperate in the delivery of concurrent functions • Assigns revenue sources by sphere • 1 national budget, 9 provincial budgets and almost 300 municipal budgets • Executives decide on where to allocate resources

5. Functions of the spheres • National Government: • Delivers policing, foreign affairs, defence, higher education • Makes policy • Sets priorities through legislation, norms and standards of political statements • Provinces: • Deliver school education, health, social welfare • Generally fund national priorities • Municipalities: • Deliver water, sanitation, refuse removal • Have more autonomy on what their resources are spent on

6. Aspects of Budget Reforms Budget must meet three functions • Spending, Taxation and Borrowing must support economic objectives • Resources must be allocated to where political priorities are • Budget and Budget information must be tools to improve quality and effectiveness of spending

7. Budget submissions review process • MTEF starts in June-July with baseline analysis • Information sessions over the MTFC and Capital Planning guidelines including key dates are held throughout July of earlier. • By end of July, projects from Public Entities and department with detail supporting documents are submitted to each line Ministry of consolidation. • Budget submission from line Ministry are then submitted to National Treasury for evaluation. • Recommendations from the PPP unit and PF are submitted to the Medium Term Expenditure Committee (MTEC) for consideration. • Minister’s Committee on the Budget (MinComBud) considers MTEC recommendations for submission to Cabinet • Cabinet considers MinComBud recommendations for endorsement • February Minister of Finance tables budget in Parliament

8. Role-players in the budget process Role-players in the Executive • Medium Term Expenditure Committee (MTEC) • Minister’s Committee on the Budget (MinComBud) • Cabinet • Extended Cabinet • Departments • Required by the Constitution and Intergovernmental Fiscal Relation Act: • - Financial and Fiscal Commission (FFC) • - Provincial governments - the Budget Council • - Organised local government - the Budget Forum • - Various intergovernmental forums exist at both the executive and official level to give effect to the constitutional imperative for cooperative governance • Relevant entities and donors • Legislatures • - Portfolio Committees, Finance Committees, Appropriations Committees • - National Assembly • - National Council of Provinces • Provincial Legislatures

9. Aspects of budget reform • Stabilising intergovernmental system • Legislated frameworks, not specifics • Integrating intergovernmental system and annual budget process • Predictable and transparent allocative process • Intergovernmental forums to improve allocations • Use of formulae to maximise transparency and predictability

10. Aspects of budget reform • Adopting a multi-year budget framework and a top-down budget process • Fiscal policy drives expenditure envelopes • Central role of budget framework • Credible macro-assumptions and revenue targets • MTEF process, the annual budget process • Disciplined top-down process • Counting forward projections • Use of contingency reserve

11. Aspects of budget reform • Focus on the margin and outer years • Political oversight of the budget process • Aligning strategic policy development and budgeting at sector level • Using budget documents strategically • A considered budget process

12. Aspects of budget reform • A new framework for public financial management and reporting • Responsibility of individuals and ensuring checks and balances • Financial responsibility of executive authority • Legal underpinning for the role of Treasuries in the budget process • Systematic in-year monitoring, management and reporting

13. Aspects of budget reform • Shortening budget cycle • Providing for, but limiting, in-year flexibility • Setting clear sanctions • Internal control framework and regulating support for accounting officers • Providing for effective cash management • Mindful implementation

14. Aspects of budget reform • Improving the classification system • New economic reporting format • Improved quality of functional classification • Improved programming classification • Mindful implementation • Improving budget management for service delivery • Measurable objectives and output performance measures

15. Way Forward for PFM reform • More stable public finance environment • Improved political involvement and oversight • Improved policy environment and improved performance • Greater transparency

16. Challenges • Strengthening the planning, budgeting and reporting links • Improving capacity throughout the system • Improving parallel systems • Reforming the financing of specific services • Increasing the planning and budgeting horizon • Integrating donor financing into the budget • Improving intergovernmental coordination further • Improving municipal financing and budgeting

17. Accounting Reform • Procurement Reform Publication of Quarterly Performance Information Improving Operational & allocative efficiency MFMA Measurable objectives SCOA SP tabled Publication of Section 32 & CG information, MTSF AR tabled Estimates of National Expenditure & Provincial Budget Statements 1 & 2 Public Finance Management Act National Expenditure Survey & IGFR & MinComBud Medium Term Expenditure Framework Medium Term Budget Policy Statement Intergovernmental System Budget Reforms in SA 1997 1998 1999 2000 2001 2002 2003 2004 2005

18. Stage 1: Workgroups make recommendations on the proposed budget baselines and non-recurrent expenditure for the Medium Term Expenditure Framework (MTEF) by function (disaggregated by votes within a function) and by economic classification • Align current budgets to the outcomes identified for each department • Examine the following areas to identify funding that can be reprioritized: - Non core service delivery expenditure items • - Underperforming or non-performing programs! projects! entities • - Surpluses housed at entities • - Revenue raising! cost recovery efforts • Stage 2: Workgroups make recommendations on the MTEF additional expenditure proposals by departments in their submissions to the National Treasury • Ensure that the recommendations proposed to the MTEC fall within the available spending envelope for the particular sector that is within the net change indicated for the sector MTEC Process

19. MTEF and Program budgeting approach • To ensure that: • - multi year budgeting, with 3 year framework • - enhance consultation and cooperation with stakeholders • - budget process, starting from allocation of division of revenue • - political oversight is enhanced and focus is on key policy priorities • - top-down budgeting discipline • - budget stability and predictability • - reprioritization over time • - value for the money spent • - planning, budgeting, reporting and policy are aligned to get better • service delivery within budget • - information is used strategically to improve public policy, funding choices and enable accountability

20. Reasons for introducing the MTEF • Prior to the introduction of the MTEF and the program budgeting approach: • - There was little political oversight over budgeting • - No transparency about the budget process • - Poor information systems, inadequate to inform the • budget process • - Hidden spending • - Lack of accountability by public sector managers • - Lack of macroeconomic and fiscal sustainability • - Spending not aligned across departments • - Resources not appropriately allocated to priorities

21. Provide the overall Fiscal Framework based on the macroeconomic forecast. • Propose the Division of Revenue between the 3 spheres based on the above and decisions made at a political level on priorities. • Provide the technical guidelines for budget submissions. • Conduct the evaluation of those budget submissions. • Ensures that submissions reflect key government priorities. • Maintains on going communication with other central government • departments. • Make recommendation to Budget Council and Minister’s Committee on the Budget (who in turn make recommendations to Cabinet and Extended Cabinet). National Treasury’s role

22. Key milestones (1) Policy review Departmental planning Parliament And budgeting April May June July Aug Sept Oct Review, evaluate and decide on new major policy proposals Departments prepare budget, including detailed spending plans for new proposals Division of Revenue Act passed Propose fiscal and budget framework and division of resources Appropriation Bill and Revenue Bills passed Intergovernmental and technical forums Executive/s consider frameworks and division of resources Sector and focused budget hearings Table Medium Term Budget Policy Statement

23. Key milestones (2) Policy review Departmental planning Parliament And budgeting Nov Dec Jan Feb March Cabinet approves new MTEF allocations Portfolio committees submit BRRR reports, adopt fiscal framework, pass Money Bills Departments revise medium term plans and finalise budget inputs National Budget tabled (includes response to BRRR Provincial budgets are tabled (14 days after National budget is tabled) Strategic Plans tabled Adoption of fiscal framework

24. Should be 5-year plan aligned to broader government strategic-ideally aligned to • the electoral cycle. • Should ideally not be changed over the 5-year period unless there are significant • policy changes relating to the mandate or the service delivery. • Amendments: (1) a new plan can be tabled in the next tabling period or (2) an • annexure to the Annual Performance Plan. • Strategic Plans do not replace the need for long-term planning or other more • specific plans should be used to priorities and plan the progressive • implementation of its other plan. • Focus on strategically important issues. • Part A: strategic overview, vision, mission, values and the strategic goals over a • 5-year period. • Part B: strategic objectives, resource implications and the risks. • Part C: links to other plans e.g. long-term infrastructure plan, conditional grants, • review of public entities, ppp’s. Strategic Plans

25. The developmental results of achieving Specific outcomes Manage towards Achieving these results IMPACTS What we aim to change? The medium-term results for specific Beneficiaries that are the consequence Of achieving specific outputs OUTCOMES What we wish to achieve? The final products, or goods and services produced for delivery OUTPUTS Plan, budget implement and monitor What we produce of deliver? The processes of actions that use a range of inputs to produce the desired outputs and ultimately outcome ACTIVITIES What we do? The resources that contribute to the production and delivery of outputs INPUTS What we use to do the work? Performance Information Framework Concepts

26. Annual Performance Plans • Aim to link the plans, budgets and the performance of an institution. • Presents program performance indicators and targets-to achieve goals • & objectives over MTBF. • Part A: recent developments in the operational environment & link • budget - for achieving strategic goals and objectives. • Part B: strategic objectives, performance indicators & targets for • programs/subprograms. • Part C: budget for infrastructure projects, changes to conditional grants, public entities and ppp’s. • Quarterly performance reports will be expected based on the quarterly • targets set in the APPs. • APPs will inform Annual Reports.

27. Improve quality of basic education. • A long and healthy life for all South Africans. • All people in South Africa are and feel safe. • Decent employment through inclusive economic growth. • A skilled and capable workforce to support an inclusive growth path. • An efficient, competitive and responsive economic infrastructure network. • Vibrant, equitable, sustainable rural communities with food security for all. • Sustainability human settlements and improved quality of household life. • A responsive, accountable, effective and efficient Local Government system. • Environmental assets and natural resources that are well protected and continually enhanced. • 11. Create a better South Africa and contribute to a better and safer Africa and world. • An efficient, effective and development oriented public service and an empowered, fair and inclusive citizenship. Government’s 12 Outcomes

28. Oversight By Parliament, provincial legislature or municipal council Policy development Identify desired impacts Assess and adjust Strategic planning Operational planning and budgeting End-year reporting INSTITUTION Implementation and in-year reporting Monitor and take corrective action Set targets and allocate resources Planning, budgeting and reporting cycle Specify performance indicators

29. Medium Term Strategic Framework President’s State of the Nation’ address National Plans and Planning Frameworks Programme of Action Sectoral Strategies and other plans Provincial Growth and Development Strategy Premier’s State of the Province’ address Strategic Plan Annual Performance Plan Information from district Office Local Government IDPs Developing SPs and APPs in context

30. Budget Development Strategic Planning Develop/Revise Measures and Budget Programme Structures Develop Performance Projections/Targets Revise targets and Estimate performance Report and Asses Performance Budget Implementation Performance Monitoring Strategic Planning and Performance Budgeting

31. Strategic Plan Annual Performance Plan Part A: Whole department/ Public entity Part A: Whole department/public entity Part B: Strategic Objectives Part B: Programs / sub-programs Part C: Links to other plans Part C: Links to other plans Annexures: Other relevant information Annexures: Revisions to Strategic Plan (if any) Strategic Plan Vs. Annual Performance Plan Updated Situational Analysis Vision Mission Values Strategic Goals Revisions to legislative and other mandates Legislative And other mandates Primarily SMART Impact and Outcome Statements with 5-Year Targete Overview of Budget and MTEF estimates Situational Analysis Contextual Environment Institutional Capacity Programme purpose SMART Annual and MTEF Targets for Strategic Objectives Programme purpose Strategic Objectives Reconciling Performance Targets and Budget Resource Considerations Programme Performance Indicators with SMART Annual and Targets For each Programme (and selected sub-Programme) For each Programme (and selected sub-Programme) Primarily SMART Output Statements with 5-Year Targete Quarterly targets for indicators (if possible) Risk management Links to the long term infrastructure plan Links to the long term infrastructure plan Conditional grants Conditional grants Public enitites and PPPs Public enitites and PPPs

32. National Treasury issue Treasury Guidelines for the preparation of the MTEF budget process in May/June of each year. • The guidelines amongst other things stipulates the submission dates and also start and end dates of the budget process. • Flexibility has been provided in the budget period in order to accommodate Parliament's unique budget process which include consultation with the Minister of Finance and National Treasury, this is not the case with national and provincial departments. • The following process is followed with respect to Parliament's submission to the National Treasury: • Parliament meet with Public Finance in a program meeting in May/June where Parliament submit its request for baseline adjustment; • Public Finance assess and evaluates the request for additional funding and make recommendations to the Minister of Finance; • Minister of Finance meet with the Speaker of Parliament and Chairperson of the NCOP to consider recommendations in August/September; Consultation with Minister of Finance and National Treasury

33. Consultation with Minister of Finance and National Treasury cont. • Minister of Finance approves the recommendations for additional funding and informs Public Finance; • Public Finance submit the recommendations to MTEC Committee and MinComBud; • Parliament submit the database including the additional request for funding; • Allocation letters are issued in November in preparation for the Estimate of National Expenditure (ENE); • ENE database an chapter first drafts are submitted in December and second drafts submitted in January; • ENE process finalized beginning of February and Minister of Finance tables his/her budget speech in February including the tabling of the Appropriation Bill and Division of Revenue Bill.

34. In 2009 Parliament passed the Financial Management of Parliament Act, (Act No.10 of 2009). • The Act aims to: • Promote and maintain a high standard of professional ethics in the financial management of Parliament; • Promote the efficient, economic, and effective use of resources allocated to Parliament; • Ensure the transparent, accountable and sound management of the revenue, expenditure, assets and liabilities of Parliament. • Chapter 3 : Planning and Budgeting deals with the following: • Submission and preparation of Strategic Plan; • Submission and preparation of Annual Performance Plan; • Submission and preparation of the Annual Budget; • Consultation with the Finance Minister and National Treasury with regard to the Budget. Role of Parliament

35. National Treasury’s interaction with line departments • Budget analysts from the National Treasury work closely with institutions throughout the Budget process depicted above to assist them in finalizing their budget submissions • The Budget Office in the National Treasury are the coordinators of the budget process and issue budget guidelines and templates for expenditure estimate submissions at different stages in the budget cycle • Public Finance and Intergovernmental Relations Divisions in National Treasury contains Budget analysts who liaise with departments, assist them in the preparation of expenditure estimates in accordance with guidelines issued and monitor budgets and policies • Each department has a Finance/Budget Division with their own staff complement • These departmental staff members communicate with relevant Treasury units during the budget process

36. PFMA implementation plans included performance management • PFMA gave departments responsibility to spend within approved • budgets and against policy/performance commitments • PFMA requires measurable objectives by program • VFM is arguably the hardest thing to achieve through the budget • NT has no direct say in how a department spends its money or how services are delivered, and cannot impose sanctions for poor spending • Our philosophy has been that if we force departments to report on performance alongside spending, then parliament, the public, the media can play a role in improving the quality of spending • - It's all about accountability, which is not a financial management issue • but a political issue • • Many budget reforms deal with reporting on performance in some way - Parliament not always equipped to deal with these reports • The value for money agenda is an area where we have made progress, this is the area where the Treasury spends most of its resources and is the area of major focus in budget reform agenda The Value for Money Agenda

37. Performance Information • Using various indicators in conjunction with financial information, it is then only possible to assess optimality of resource allocation • Different levels of indicators are useful for different purposes • For our concerns the following indicators will be of use: crime rates, cases to court, number of police officers, number of officers having completed specific training courses • Optimal resource mix may differ from one geographical area to another

38. Past Performance • Considers financial and non-financial information which best describes the policy objectives and plans of spending program and an assessment of whether the objectives and targets have been achieved thus far. • Data sources: • - use the previous year's Estimates of National Expenditure (ENE) • - the Strategic Plan • - the Annual Report of the department

39. Performance Information Framework • Framework provides for: • - Structures, systems and processes required for performance information • - Roles and responsibilities for performance information: • Departments, Presidency, National & Provincial treasuries, Stats SA and Public Service and Administration, among others • - Promoting accountability and transparency by providing Parliament, with timely, accessible and accurate performance information • - Standardizing terminology on performance information

40. Monitoring and Evaluation System The Framework for Managing Performance Information provides guidance on Programme Performance Information which is part of the Government-wide Monitoring and Evaluation System (GWM&E) Evaluations Census and Survey Information Programme Performance Information

41. Performance Monitoring • Department of Performance Monitoring' under the President's Office is responsible for monitoring national outcome indicators (12 such outcome indicators have been set by the present government). • Line departments (ministries) are responsible for monitoring output indicators set for agencies working under them and have to report to the Treasury in prescribed format periodically. • Treasury centrally oversees the actual achievements against targets and reports to the Parliament on regular basis. • Auditor General's Office verifies authenticity and correctness of information sent to the Treasury by line ministries/agencies on achievement of performance of the output indicators.

42. In-year reporting on non-financial results • The purpose is to report on overall progress made with the implementation of • the department’s performance plan both on a quarterly and an annual basis. • QPR allows Accounting Officers to track progress against what has been • planned and what is actually achieved to service delivery outputs. • The Treasury Regulations have been amended to reflect the requirements of • the Framework. • Departments must submit a copy of their quarterly performance reports to • National Treasury & DPME within 30-60 days after end of each quarter. • Owing to weakness in many departments management systems, institutions • may in the interim revise their reported numbers for a given quarter in the • following quarterly performance report. Quarterly Performance Reports (QPR)

43. Formal requirement for end-year reporting • Ultimate accountability document in government. • Aligned with other planning document. • Provides information to legislatures so they can exercise proper oversight – • linked to what was originally planned in annual performance plans. • Records, reports and evaluates the past year’s performance • - Part A: Legislative Oversight Role • - Part B: Performance (Non-financial Data) • - Part C: Financial Statements – Auditors Report • - Part D: Human Resource Data • Publish information so that civil society can engage with government • meaningfully. • National Treasury provides ‘Guidelines for Annual Reporting’ Annual Reports

44. Monitoring performance information • Analyzing alignment and consistency between what is reported in the SP, • APP, QPR, Budget documents and Annual Reports. • Information reported for a 7-year period (i.e. 3-year history, current year • and MTBF). • In-year progress report during the AENE process. • Annual Report to reflect on what is reported in the plans and budget • documents. • Parliamentary portfolio committees analyze the Annual Reports and engage • with specific departments. • The Auditor General has started with Auditing of Performance Information - department then have to improve their processes.

45. Human Resource Management Business Intelligence/ Management Information System Procurement Management Module Supply Chain Management Finance Master Data Management Asset Management General Ledger Item Identification SAP PI Extended Asset Management Oracle Fusion Bank Interface Standard Chart of Accounts Inventory Management IFMS Hub - Glassfish Oracle DB2 NATIONAL TREASURYFinancial Systems Management State Of IFMS Project

46. IFMS Approach • Financial Management Reform (PFMA) • User requirement specifications • Institutional re-organization (Change management of SITA as PSI). • Architectural design

47. SUPPLY CHAIN MANAGEMENT OTHER SCM MODULES STORE MANAGEMENT HUMAN RESOURCE MANAGEMENT (Buy COTS) ASSET MANAGEMENT PROCUREMENT (Buy COTS) PAYROLL (Develop) Develop GENERAL LEDGER/ FINANCIAL MANAGEMENT (Develop) BUSINESS INTELLIGENCE / MIS (Develop) OTHER DEPARTMENTAL CORE SYSTEMS (Not part of IFMS) IFMS Summary Proposals

48. Lessons Learned • National Treasury, South Africa used a homegrown macroeconomic model composed of a group of supplementary models. • Parliament extensively participates in the budget formulation process through a committee system. • Citizen participation in the budget has been institutionalized in South Africa through an organization called ‘Nedlac’. • Initiate the process of replacing its old fashioned line budgeting with program budgeting to establish a more visible linkage between government’s policy. • Introduced a technical evaluation system for budget bids so that projects can be efficiently identified and funded accordingly.

49. Conclusion • Political commitment to budgeting and financial management reform is a must • Need a simple framework and transparent norms • Need comprehensive implementation • Making sure that PFM reform matters • Convince stakeholders about its seriousness • Strong central agency responsibility for reforms • Building capacity on demand and support its development • Early demonstration of success