POLICY AND BUDGET ANALYSIS

1. POLICY AND BUDGET ANALYSIS Dr Kay Brown and Julia de Bruyn Public Finance 22 June 2007

2. Budgeting is a political exercise; it starts with political choices about the priorities and then ends with political choices about which programmes and projects get funded (and at what level they be funded) based on those priorities.

3. Critical Budget Process Dates for the 2008 MTEF

4. National Treasury: technical role • Provide the overarching macroeconomic framework proposal (forecasts revenue, expenditure, debt, inflation targeting band, changes to tax policy etc.) • Provide the overall Division of Revenue proposal 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 • Make recommendations to Budget Council and MINCOMBUD (who in turn make recommendations to Cabinet and Extended Cabinet)

5. Timelines for the technical part of the budget process • Issue the treasury budget guidelines (June) • Contains all the instructions with timelines for the departments to follow for the 2008 MTEF • What information we want, by when and the format thereof – August • Finalisation of the criteria for measuring and making recommendations – mid August to beg Sept • MTEC hearings (technical committee of officials chaired by NT – also representatives of Presidency (Policy Unit), DPSA, DPW, DPLG, chairs of DG clusters) - September • MTEC sub-committees (personnel, infrastructure, concurrent functions, clusters of depts, individual departments) - September

6. Format for budget bid and evaluation criteria • Title of bid and amount requested per year • Summary • Evidence for and quantification of problem • Strategic significance • Evaluation of existing and recent interventions • Effectiveness of solution and option appraisal • Detailed costing • Specification of deliverables • Administration plan • Implementation plan • Risk analysis • Monitoring and evaluation framework • Recommendation • Annexures

7. What information? Department: to provide evidence of: • Past performance • Repriorisation exercise • New and up-scaled spending proposals (with indications of remedial action, where needed) Budget analysts: to provide evidence to MTEC or MTEC sub-committees on EVALUATION of the above 3 elements

8. Past performance • Financial and non-financial information which best describes the policy objectives and plans of spending programmes and an assessment of whether the objectives and targets have been achieved thusfar. • Data sources: • use the previous year’s Estimates of National Expenditure (ENE), • the Strategic Plan • the Annual report of the department

9. Repriorisation exercise: • Resources should be reprioritised from low priority programmes and activities towards higher priorities and activities. For example: • in Corrections, an investigation into the impact of the rehabilitation programme may result in change in the ratio of inside-prison programmes to outside-prison support programmes from 80:20 to 60:40 • This is a complex exercise e.g. what happens to the persons running the project that gets shut down? Can they be “absorbed” in another section/retrained etc.? • This exercise also entails identifying excess funds from discontinued activities/functions, non-recurrent once-off activities and efficiency savings. It also includes leveraging alternative sources of funding.

10. Determine the current MTEF baseline • What is the growth in current baseline? Check this wrt to the total budget, the programme, the sub-programme or even by key project. Is it below/above sector specific inflation or CPIX inflation? • Make the adjustments and then determine the “outer year of the MTEF”. • This baseline exercise is very important and merits more attention – as does that of assessing past performance.

11. New and up-scaled budget requests • Given the already strong growth in budget baselines, the hurdle for recommending funding requests will be higher (this should always be the case but is normally only also the case when the funding envelope is small) • Departments will need to demonstrate that current budgets are indeed being utilised efficiently and effectively before new funding is considered. Sometimes Depts may simply be allowed to retain baseline if they undertake additional activities. • If depts still believe they have a strong case for additional resources, then the following information should be submitted: • Detailed costing of the policy proposal • Spending plans over the MTEF • Legislative plans where applicable • Administrative plans (includes resources like personnel, accommodation and other administrative costs) and • Implementation plans.

12. MTEC specialised sub-commitees and bidding • Conditional Grants to Provinces – various approval phases and types of funding recommendations • IDIP – and the introduction of the planning cycle earlier • Capital Budgets Committee – Mega, Large and small projects • Cluster Budgeting – interdepartmental projects in the Criminal Justice Sector

13. So what happens to budget requests? • Bids not funded: • Funded in previous MTEF’s • Not directly linked to stated priorities • Not properly planned and costed • Evidence of underspending and/or unwise spending • Bids funded, but at less than the level requested • Good plan, phase in period longer (as capacity increases) • Do some more research – request in next MTEF • Consider new implementation options • Bids fully funded

14. Interaction with departments • Budget analyst’s on-going job description: • Reviewing current spending and service delivery trends (monthly/quarterly) • Reviewing past financial year performance • Providing financial management advice • Recommending approvals ito PFMA and Treasury Regulations • Engaging on policy development and policy implementation • Engaging on capacity building, monitoring and evaluation • Budget analyst skills: economics, financial management and social policy, specialists in Health, Safety and Security etc, also have good understanding of cross cutting issues like poverty, gender, and technical skills in M&E, project management, law, and accounting etc.

15. National Treasury: In-year monitoring and reporting (IYM) Main focus is on : Expenditure and Service Delivery monitoring for: • national departments: undertaken by the Public Finance division • provincial departments (and to a lesser extent local government): undertaken by the Intergovernmental Relations

16. National departments: IYM • Responsibility of Public Finance division • Focus on the details of departmental expenditure: • Main division of vote (programme and sub-programme) • Economic classification • Earmarked funding • Specific projects e.g. 2010 Soccer World Cup • Cash flows, suspense accounts etc. • Not public documents • In some cases supplemented by quarterly reporting on economic classification by programme and vote analysis of: • - distribution of post levels, vacancies per occupation • - type of infrastructure and project stage, per province • - management and policy issues • Data challenges remain

17. Purpose of IYM • Public Finance receives the report and reviews it (verify expenditure, ask the dept for explanations etc.) • Focus on actual results against initial projections (variances) • Alert managers to potential problems and to where remedial action is required • Suggest solutions for the problems • Reports serve as an oversight tool to Treasury and a management tool to depts • Feeds into the Budget Process • Helps decision making at political level • Use report to advise the DG of NT/ MoF of any problems and action required

18. Example of Evaluation of budget requests Criteria 1 - 3 must be satisfied if an initiative is to be considered Measurement Criteria: 1. Is it clear that the initiative contributes to the government policy priorities? (Yes = 2 and No = 0) 2. Has the department provided credible service delivery information with initiative submitted? (Yes = 2 and No = 0)

19. Evaluation of budget request (cont.) • Is the initiative aligned to the core functions? (Yes = 2 and No = 0) • Have alternative policy options been considered? (Yes =1 and No = 0) 5. Has the department undergone a thorough reprioritisation with a view to fund part of the initiative from within budget? (Yes = 1 and No = 0) • Is the costing / initiative realistic? (Yes = 1 and No = 0) • Has the department consistently under-spent its budget (by a margin of more than 3%) over the last 2 - 3 years? (No = 1 and Yes = 0) • Has the effect on other entities/individuals been considered? (Yes = 1 and No = 0) • Are the risks manageable? (Yes = 1 and No = 0) 10. Has there been adequate political involvement in the budget formulation process? (Yes = 1 and No = 0)

20. Going forward - Policy Reviews • - currently bids for funding are assessed within the existing policy paradigm • - there must be a process by which this paradigm can be evaluated • - capacity on a range of aspects is necessary for policy reviews to reach proper conclusions • - the process must ideally be government run and Treasury led • - the process must be broadly consultative • - perhaps 2 year budgeting will better allow government resources to be dedicated to these reviews?