Public Sector Governance and Accountability Series: Budgeting and ...

22 Anwar Shah
size of the subnational share is a result of the intergovernmental process
and political decision making, weighing the macroeconomic outlook, fiscal
policy, and priorities against the competencies of the various spheres. The
distribution between provinces is based on a proportionate formula.
Creating a credible budget process. The budget process allows government
to involve various role players who provide political and technical advice
when faced with tradeoffs between competing spending priorities.
Reforming the budgeting institutions. The MTEF operates at the center of
the South African budget reforms, and frames, in the final instance, all
policy discussions in the country. The MTEF system is as much about the
structures, institutions, and rules of the budget process as it is about the
sets of three-year plans that result. Fiscal policy targets are generally
determined in the absence of any detailed expenditure bids. The budget
framework presents a comprehensive and transparent picture of all
revenue and expenditure in general government. All bids competing for
the same envelope of available funds are considered together within an
overall hard budget constraint. The macroeconomic assumptions are
credible and are published in the prebudget statement and debated in
public forums. The system makes no differentiation between an MTEF
and the annual budget process, and the MTEF is also the only avenue to
funding for spending ministries. Spending departments start their budget
preparation from their existing funding baseline. A contingency reserve
plays an important function in providing flexibility and protecting stability
in the MTEF (and thereby its credibility) against uncertainty. The budget
submission format encourages departments to focus on maximizing the
alignment of policy and budgets over time by making changes at the
margin. Treasury-led medium-term expenditure committees assess
whether there is a clear link between budget proposals, broad policy
priorities, and key sector challenges; whether new funding is required;
whether the department is able to implement the plan over the MTEF
period; and whether the expected outputs are clearly defined. The cabinet
makes the final decisions. The MTEF system uses key sets of budget
preparation and reporting documentation to extract strategic information
for decision making, to ensure commitment to decisions made, and to
encourage accountability. Changing the format of budget documentation
has been an important aspect of the budget reform process.
Implementing a new framework for public financial management and
reporting. The new legal framework for public financial management
shifts the onus of managing the use of resources from central control to
the managers of spending departments and agencies. The legislation