MTBF: South African Experience

Ekram AhmedProject DirectorDMTBF Project

Study tour to South AfricaBackground

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 MTBFA team of GoB officials visited SA in 2005 to

gain experience in SA MTBFVisit to SA in 2011 to see the progress/change

made during last 6 years after the earlier visit

Principles of PFM reforms in SAComprehensiveness and integrationPolitical oversight and a focus on policy

prioritiesUsing information strategicallyChanging behaviour by changing incentivesEnsuring budget stability and predictability

while facilitating change at the margin

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

Functions of the spheres

National share

Provincial Share

Local Share

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

Aspects of Budget ReformsBudget must meet three functionsSpending, Taxation and Borrowing must

support economic objectivesResources must be allocated to where

political priorities areBudget and Budget information must be tools

to improve quality and effectiveness of spending

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

Role-players in the budget processRole-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

Aspects of budget reformStabilising intergovernmental system

Legislated frameworks, not specificsIntegrating intergovernmental system and

annual budget processPredictable and transparent allocative processIntergovernmental forums to improve

allocationsUse of formulae to maximise transparency and

predictability

Aspects of budget reformAdopting a multi-year budget framework and

a top-down budget processFiscal policy drives expenditure envelopesCentral role of budget frameworkCredible macro-assumptions and revenue

targetsMTEF process, the annual budget processDisciplined top-down processCounting forward projectionsUse of contingency reserve

Aspects of budget reformFocus on the margin and outer yearsPolitical oversight of the budget processAligning strategic policy development and

budgeting at sector levelUsing budget documents strategicallyA considered budget process

Aspects of budget reformA new framework for public financial

management and reportingResponsibility of individuals and ensuring

checks and balancesFinancial responsibility of executive authorityLegal underpinning for the role of Treasuries

in the budget processSystematic in-year monitoring, management

and reporting

Aspects of budget reformShortening budget cycleProviding for, but limiting, in-year flexibilitySetting clear sanctionsInternal control framework and regulating

support for accounting officersProviding for effective cash managementMindful implementation

Aspects of budget reformImproving the classification system

New economic reporting formatImproved quality of functional classificationImproved programming classificationMindful implementation

Improving budget management for service deliveryMeasurable objectives and output performance

measures

Way Forward for PFM reformMore stable public finance environmentImproved political involvement and oversightImproved policy environment and improved

performanceGreater transparency

ChallengesStrengthening the planning, budgeting and

reporting linksImproving capacity throughout the systemImproving parallel systemsReforming the financing of specific servicesIncreasing the planning and budgeting horizonIntegrating donor financing into the budgetImproving intergovernmental coordination

furtherImproving municipal financing and budgeting

1997 1

998 1999

2000

2001

2002

2003

2004 2005

MFMA

SCOA

Publication of Section 32 & CG information, MTSF

Estimates of National Expenditure & Provincial Budget Statements 1 & 2

Public Finance Management Act

Medium Term Budget Policy Statement Intergovernmental System

Medium Term Expenditure Framework

National Expenditure Survey & IGFR & MinComBud

Publication of Quarterly Performance Information

Measurable objectives

SP tabled

AR tabled

• Accounting Reform• Procurement Reform

Improving Operational& allocativeefficiency

• 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

• 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

• 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

• 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).

April

May

June

July

Aug

Sept

Oct

Policy review Departmental planning Parliament

And budgeting

Review, evaluate and decide on newmajor policyproposals

Departments prepare budget,including detailed spending

plans for new proposals

Division of RevenueAct passed

Propose fiscal and budgetframework and division

of resourcesIntergovernmental and

technical forums

Sector and focused budgethearings

Appropriation Billand Revenue Bills

passed

Table Medium TermBudget Policy Statement

Executive/s considerframeworks and divisionof resources

Nov

Dec

Jan

Feb

March

Policy review Departmental planning Parliament

And budgeting

Cabinet approvesnew MTEFallocations

National Budgettabled (includes

response to BRRR

Provincial budgets are tabled (14 days

after National budget is tabled)

Strategic Planstabled

Departments revisemedium term plans andfinalise budget inputs

Portfolio committeessubmit BRRR

reports, adopt fiscal framework, pass

Money Bills

Adoption of fiscalframework

• 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.

IMPACTS

OUTCOMES

OUTPUTS

ACTIVITIES

INPUTS

Manage towardsAchieving these

results

Plan, budget implement and

monitor

The developmental results of achieving

Specific outcomes

The medium-term results for specificBeneficiaries that are the consequence

Of achieving specific outputs

What we aim to change?

What we wish to achieve?

The final products, or goods and services produced for delivery

What we produce of deliver?

The processes of actions that use a range of inputs to produce the desired outputs and

ultimately outcome

What we do?

The resources that contribute to the production and delivery of

outputs

What we use to do the work?

• 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.

1. Improve quality of basic education.

2. A long and healthy life for all South Africans.

3. All people in South Africa are and feel safe.

4. Decent employment through inclusive economic growth.

5. A skilled and capable workforce to support an inclusive growth path.

6. An efficient, competitive and responsive economic infrastructure network.

7. Vibrant, equitable, sustainable rural communities with food security for all.

8. Sustainability human settlements and improved quality of household life.

9. A responsive, accountable, effective and efficient Local Government system.

10. 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.

12. An efficient, effective and development oriented public service and an empowered, fair and inclusive citizenship.

Specify performance indicators

Strategic planning

Implementation and in-year reporting

End-year reporting

Operational planning and

budgeting

Policy development

Oversight By Parliament, provincial legislature or municipal council

INSTITUTION

Identify desired impacts

Set targets and allocate resources

Monitor and take corrective action

Assess and adjust

Medium Term Strategic Framework

Local Government IDPs

Information from district Office

Strategic Plan

Premier’s State of the Province’ address

Sectoral Strategies and other plans

National Plans and Planning Frameworks

Annual Performance Plan

President’s State of the Nation’ address

Programme of Action

Provincial Growth and Development Strategy

Develop/Revise Measures and

Budget Programme Structures

Develop Performance Projections/Targets

Report and Asses Performance

Revise targets and Estimate performance

Budget Development

Budget ImplementationPerformance

Monitoring

Strategic Planning

Annexures: Revisions to Strategic Plan (if any)Annexures: Revisions to Strategic Plan (if any)Annexures: Other relevant informationAnnexures: Other relevant information

Part C: Links to other plansPart C: Links to other plansPart C: Links to other plansPart C: Links to other plans

Part B: Programs / sub-programsPart B: Programs / sub-programsPart B: Strategic ObjectivesPart B: Strategic Objectives

Part A: Whole department/public entityPart A: Whole department/public entityPart A: Whole department/ Public entityPart A: Whole department/ Public entity

Annual Performance PlanAnnual Performance PlanStrategic PlanStrategic Plan

VisionMissionValues

StrategicGoals

LegislativeAnd other mandates

Situational AnalysisContextual Environment Institutional Capacity

Primarily SMART Impact and Outcome Statements

with 5-Year Targete

Programme purpose StrategicObjectives

ResourceConsiderations

Risk management

Primarily SMART Output Statements with 5-Year

Targete

For

eac

h P

rogr

amm

e(a

nd s

elec

ted

sub-

Pro

gram

me)

Links to the long term infrastructure plan

Conditional grants

Public enitites and PPPs

Updated SituationalAnalysis

Revisions to legislative and other mandates

Overview of Budget and MTEF estimates

Programme purpose SMART Annual and MTEF Targets for Strategic

Objectives

Reconciling Performance Targets and Budget

For

eac

h P

rogr

amm

e(a

nd s

elec

ted

sub-

Pro

gram

me)

Links to the long term infrastructure plan

Conditional grants

Public enitites and PPPs

Programme Performance Indicators with SMART Annual and Targets

Quarterly targets for indicators (if possible)

• 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;

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.

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.

• 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

• 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

• 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

• 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

• 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

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)

Programme Performance Information

Evaluations

Census andSurvey Information

• 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.

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.

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’

• 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.

Supply Chain Management

Asset Management

Extended Asset Management

Inventory Management

Finance

General Ledger

Bank

Interface

Business Intelligence/

Management Information

System

Master Data Management

Item

Identification

Standard Chart of

Accounts

OracleDB2

IFMS Hub - Glassfish

Procurement Management

Module

Oracle

Fusion

Human Resource

Management

SAP

PI

• Financial Management Reform (PFMA)

• User requirement specifications

• Institutional re-organization (Change management of SITA as PSI).

• Architectural design

PAYROLL(Develop)

HUMAN RESOURCE MANAGEMENT (Buy

COTS)

ASSETMANAGEMENT

STOREMANAGEMENT

OTHERSCM

MODULES

PROCUREMENT(Buy COTS)

SUPPLY CHAIN MANAGEMENT

Develop

GENERAL LEDGER/ FINANCIAL MANAGEMENT

(Develop)

BUSINESS INTELLIGENCE /MIS

(Develop)

OTHER DEPARTMENTALCORE SYSTEMS(Not part of IFMS)

• 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.

ConclusionPolitical commitment to budgeting and financial

management reform is a mustNeed a simple framework and transparent normsNeed comprehensive implementationMaking sure that PFM reform mattersConvince stakeholders about its seriousnessStrong central agency responsibility for reformsBuilding capacity on demand and support its

developmentEarly demonstration of success