Transcript Annual Budget Process - Parliamentary Monitoring Group

Select Committee on
Finance
Annual Budget Process
And
Sector Analysis
09 July 2014
Content Adviser: Esther Mohube
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Structure of the presentation
Annual Budget Process
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What is a budget?
Legal Framework
Role Players in Budget Cycle
Budget Cycle
Where are we now?
Documents for budget oversight
Sector analysis
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Global economic developments
Developments in the SA economy
SA Policy pronouncements
What are the Implications?
Emerging trends
What must the Committee do?
Conclusion
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Annual Budget Process
Purpose of the presentation is to give a broad overview of the
annual budget process
A budget is:
– A planning tool that translates policy into service delivery through the
allocation of scarce resources.
– The process of how revenue raised by national government will be allocated
to national, provincial & local governments.
– The budget is a process through which choices have to be made about
competing priorities.
– The budget can potentially act as a powerful tool for redistribution &
development in society & can enhance the stability of the country’s
economy.
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Legal Framework
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SA legal fiscal oversight framework comprises of the Constitution, PFMA, MFMA,
the Money Bills Act, DORA & Appropriation Bill
Constitution
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Public Finance Management Act (PFMA)
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Mandates Parliament or legislative organs of state to scrutinise & oversee Executive actions to ensure
accountability
Oversight mandate: Sections 55, 92 , 114 & 133
Oversight processes: Sections 213, 214 & 215
Passed to regulate the financial management of both the national and provincial spheres of government
Objective is to ensure transparency, accountability & sound management of the revenue, expenditure,
assets & liabilities of all public institutions.
Section 27 (1): The Minister must table the annual budget for a financial year in the NA before the start of
the financial year. The MEC for finance in a province must table the provincial annual budget for a
financial year in the provincial legislatures
Municipal Finance Management Act (MFMA)
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Regulates local government finances
Objective is to ensure sound & sustainable management of the financial affairs of those institutions which
fall within the local government sphere.
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Legal framework (cont.)
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The Money Bills Amendment Procedure & Related Matters Act
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Provides for a procedure to amend money bills before parliament
Prior to 2009, Parliament could not amend Money Bills
Act was enacted in 2009 to give effect to the Constitution
Section 77 (3) of the Constitution…..“An Act of Parliament must provide for a
procedure to amend money Bills before Parliament”.
Sections 4 (1) & 15 of the Act provides for establishment of Finance &
appropriations committees & the PBO, respectively
The Act sets out statutory reporting requirements in relation to MTBPS, Fiscal
Framework, Division of Revenue, Appropriations & the BRRR
Section 4 (2) gives Committees on Finance powers and functions to consider &
report on:
– Macro-economic and fiscal policy
– Fiscal framework and revenue proposals
– Reports on actual revenue published by NT
Recommendations from Finance Committees may include proposals to amend the fiscal
framework
Section 7(4) provides that the Minister of Finance must report to both Houses at the time of
tabling the budget how the budget responds to the recommendations of all four Committees
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Legal Framework (cont.)
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Intergovernmental Fiscal relations (Act No. 97 of 1997)
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Promotes co-operation between the three spheres of government on fiscal, budgetary
& financial matters; and
Prescribes a process for the determination of an equitable sharing & allocation of
revenue raised nationally.
Mandating Procedures of Provinces (Act No. 52 of 2008)
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Provides for a uniform procedure in terms of which provincial legislatures confer
authority on their delegations to cast votes on their behalf
As required by the Sections 65 (2) & 77(3) of the Constitution
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Role players in the budget cycle
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Portfolio Committees, Finance and Appropriations Committees,
SCOPA
Provincial Departments
National Treasury
Auditor-General
Public Entities
Constitutional entities
Financial and Fiscal Commission
Civil Society (public hearings)
Parliamentary Budget Office
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Budget cycle and milestones
December to
February
September to
November
SONA
National Budget
Budget Review
ENE
Fiscal Framework report
Division of revenue Bill
Appropriation Bill
MTBPS
BRRR Reports
Fiscal Framework report
Annual Reports
Mid-year
continuous
monitoring
Section 32 reports
Quarterly Expenditure &
Performance Reports
Quarterly
engagements with
Provincial
Treasuries
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Budget Cycle (cont.)
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SA uses a three-year rolling budget, the MTEF system that is informed by key
government priorities, strategic plans of departments & the fiscal stance.
January, Cabinet Lekgotla discusses the government priorities for the next
financial year
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February, the President presents the SONA, the Minister of Finance introduces
the National Budget and money Bills
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March & June, Parliament passes the Division of Revenue Bill & Appropriation
Bill. These bills confirm the allocation of funds to each vote.
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September to November, the NA submits BRRR reports, Finance Committees
adopt the fiscal framework
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BRRR provides an assessment of the department’s service delivery performance
given available resources.
MTBPS sets out the budget policy framework for the next 3 years
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Where are we now ??
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As the peoples’ representative, Parliament:
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Approves or amends the budget.
Ensures budget matches the nation’s needs with the resources available.
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Committee approved the fiscal framework in March 2014, following the tabling of
the National Budget in February 2014
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Committee continuously monitor the finances of provincial departments
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Through Quarterly engagements with the Provincial Treasuries, next engagement
on the 2013/14 budget expenditure & performance
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Next fiscal framework report will be tabled & considered in November 2014
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Documents for budget oversight
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Key documents that are relevant:
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State of the Nation Address
Sector relevant documents
National Budget documents
Division of Revenue Act of 2014
Budget Review
Estimates of National Expenditure (ENE)
Appropriation Bill
Minister’s speeches and presentations to committees
Auditor General and SCOPA reports
Reports of other relevant institutions (FFC)
Legislation (PFMA, Money Bills Act, MFMA etc.)
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Sector Analysis
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Global economic developments
Region / country
Percentage
IMF
Advanced economies
Emerging markets and developing
countries
Sub-Saharan Africa
South Africa
2013
2014 2015
2014
2015
Change
GDP projections: January 2014 GDP projections: April 2014
3.0
1.3
4.7
4.9
1.9
3.7
2.2
5.1
6.1
2.8
3.9
2.3
5.4
5.8
3.3
3.6
2.2
4.9
5.4
2.3
3.9
2.3
5.3
5.5
2.7
-0.1
0.0
-0.2
-0.7
-0.5
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Global economic developments (cont.)
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IMF Global economic prospects January 2014
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Economic activity improved & world trade strengthened in 2013
Economic growth, 3 % in 2013
Driven by export rebound in emerging market economies
IMF expected growth to increase from 3 % in 2013 - 3.7 % in 2014 & 3.9 % in 2015
On account of recovery in advanced economies
SSA was expected to remain the fastest growing region
SA economy to grow at 2.8 % in 2014 & 3.3 % in 2015
IMF Global economic prospects: April 2014
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Economic activity strengthened, expected to improve further in 2014 & 2015, supported
by advanced economies
World GDP is expected to grow at 3.6 % (slightly revised by 0.1 percentage points) in
2014 & 3.9 % in 2015 (unchanged)
Key drivers include reduction in fiscal tightening, except in Japan and still highly
accommodative monetary policy
SSA growth forecast to increase from 4.9 % in 2013 - 5.4 % in 2014 & 5.5 % in 2015
SA economy expected to grow at a rate of 2.3 % in 2014 (revised down) & 2.7 % in
2015
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Recent developments in the SA economy
Region / country
Percentage
2014
2015
GDP projections: Dec to Feb 2014
2014
2015
Change
GDP projections: April to June 2014 forecast
2014 2.7
2.3
-0.5
2.0
3.0
-0.7
IMF
World Bank
2.8
2.7
3.3
3.4
OECD
SARB
2.7
2.8
2.8
3.4
3.3
3.5
2.5
2.1
1.8
3.2
3.1
2.8
2.8
2.7
2.7
3.5
3.2
3.2
1.7
1.9
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3.0
2.9
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-0.2
-0.7
-1.0
-1.1
-0.8
???
2.7
3.3
2.0
3.0
-0.7
BER
Fitch
Standard & Poor's
National Treasury
Average
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Developments in the SA economy (cont.)
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NT Economic growth prospects: February 2014
– Growth rate1.9 % in 2013
– NT projected GDP of 2.7 % in 2014 & 3.2 % in 2015;
– Drivers of growth:
• New power plants & transport infrastructure;
• Stronger global recovery expected to support exports;
• Growth in sub-Saharan Africa will promote expanded trade & investment.
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Economic growth prospects: Post February 2014
– SA economy contracted by 0.6 % in first quarter of 2014 (mining &
manufacturing sectors)
– Analysts, IMF, World Bank, Rating agencies, SARB, BER reduced SA
growth rates from December/January 2014 forecasts
– The 2014 forecast revised down by 0.7 percentage points, on average
– On average, SA economy forecast to grow at 2 % in 2014 & 2.9 % in 2015;
– During the MTBPS period, NT will determine its latest forecasts
– SA growth expected to be supported by stronger external demand
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Developments in the SA economy (cont.)
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Reasons for reduced growth forecasts
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Other economic developments
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All analysts cited prolonged platinum strike activity as the main reason
Electricity supply constraints,
Deterioration of the SA growth outlook (Slow GDP growth)
Risks posed by strike action on the fiscal consolidation path
Inflation rate expected to stay outside 3-6 % target range until 2015, currently 6.1 %
April 2014
Interest rates hiked by 50 b.p. in April 2014, likely to increase by 25 b.p.
Consumer spending environment constrained
Unemployment rate stood at 25.2 % Q1 of 2014, from 24.1 % in Q3 of 2013
Strike disputes in platinum mines have since been resolved as at June 2014
What does that mean??
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Economic environment has changed, recovery had been slow, outlook may have
deteriorated
SA economy continue to growth below potential, pointing to the economy’s
susceptibility to shocks
Economy not creating sufficient jobs to absorb new entrants in the labour market
These factors may have implications for the fiscus.
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What are the implications
Fiscal Implications
– Countercyclical fiscal policy response to global economic crisis resulted in
large budget deficit
– Deficit remained persistently high as revenue & growth forecasts were
repeatedly revised downwards
– Deficit was expected to narrow from 4 % of GDP in 2013/14 to 2.8 % of
GDP in 2016/17; assuming the economic growth & revenue collection pick
up pace
– Increased cost of borrowing for businesses & government;
– Increased debt servicing costs, but net national debt expected to stabilise
as a % of GDP in 2016/17
– Fiscal space has been eroded by rising debt.
– Limited scope for government to allocate additional funds
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SA policy pronouncements
NDP, Budget Review, SONA
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Government prioritised the accelerated implementation of the NDP
SONA acknowledged that the SA economy needs to grow at a faster rate, than the current
rate of 1.9 % in 2013
Measures to unlock economic growth potential include:
– Roll-out the infrastructure programme
– A wide range of job creation initiatives
– SMMEs
– Transformation of the energy sector
– Partnerships & collaboration between labour, business and the community
Fiscal policy
– In the Budget Review released in February 2014, Government remain committed to
maintain fiscal sustainability & keep its debt within manageable levels
– Fiscal consolidation path continues, the commitment to reduce the budget deficit
remain
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Trends emerging
Provinces
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Finances not properly managed
Budgets are not credible & projections are unreliable
Transfer payments to entities or implementing agencies not monitored & reported
correctly
Performance target setting is conservative
Planning for aligning financial & non-financial performance remained poor
Capacity to spend budget allocated not necessarily translating into service delivery
Municipalities
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Lack of capacity, financial management
General non-compliance with legislation & SCM processes
General improvement in 2012/13 AG audit outcomes but more needs to be done
High vacancy rates in critical positions
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What must the Committee do?
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The committee must exercise its powers and functions conferred to it
by legislation to:
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Influence budget policy decisions through effective implementation of the Money Bills
Act
Ensure compliance with legislation
Enhance financial health of provincial departments & entities
Conduct oversight visits to provinces & municipalities
Strengthen coordinated support to municipalities
Ensure value for money in services delivered
Seek for effective, efficient and economical delivery of services
The committee must continue its quarterly engagements with provinces
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In Conclusion
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SA economic outlook may have deteriorated, growth expected to be modest
Mining & manufacturing production sectors likely to continue to struggle
Scope for a Q2 growth rebound limited (strikes & consumer environment)
However:
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Platinum strike has been resolved by June
Overall GDP growth likely to recover in the second half of the year
New electricity capacity could provide the positive supply side shock which could help
growth
New ways to deal with labour market issues may assist
The current fiscal stance (modelled on growth forecasts of 2.7 % in 2014) may
have to be revised.
Economic uncertainty remain a key risk to fiscal sustainability
Given emerging trends, the SeCoF has a critical role to play in the management
of finances of provinces & municipalities
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THANK YOU
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