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

504 Alta Fölscher
On the positive side, the reforms facilitated the disciplined implementation
of fiscal policy aimed at setting the economy on a renewed growth
path. The first few years after transition were still marked by relatively high
deficits and a steady increase in public debt (to almost 50 percent in fiscal year
1996/97). The period from 1997 to 2000 saw fiscal consolidation (in tandem
with other macroeconomic reforms), which stabilized the level of debt and
reduced the budget deficit to contribute to lower interest rates; improve fiscal
sustainability; and free resources for social, developmental, and infrastructure
expenditure. Simultaneously, the overall burden of tax was reduced,
lowering the costs of investment and job creation while releasing household
spending power. Since 2001, a more expansionary fiscal stance has been
adopted, which reaps the benefits of the consolidation period. These gains
would not have been possible without the establishment of a functional
intergovernmental system, introduction of medium-term expenditure planning,
and improvements in public financial management.
Despite these macrofiscal successes, the improvements in public service
delivery envisioned when the MTEF was introduced in the late 1990s have
not materialized consistently. Although significant inroads into service backlogs
were made in some sectors (see box 15.1), other areas, such as the integrated
justice sector, administrative services to citizens, land reform,
education, and health service delivery, have been the subject of much public
debate and criticism.
Also, although overall budget credibility improved markedly after the
implementation of a medium-term budget framework and public financial
management improvements, recent years have seen increasing underspending
as the implementation capacity of government departments has not
grown in tandem with growth in funding. In both fiscal years 1995/96 and
1996/97, fiscal outputs for consolidated national and provincial spending
showed up to 20 percent underexpenditure. In fiscal year 1997/98, the first
year of a block unconditional transfer to provinces, this output swung to
over 10 percent overexpenditure. This shift, however, was reversed and
stabilized at less than 2 percent in fiscal year 1998/99, the first year of the
MTEF. At the end of fiscal year 2005/06, expenditure ran at 99.5 percent of
budget (while revenue was at 100.2 percent). However, the aggregate spending
number masks significant underspending in some sectors.
By and large, the reforms that have occurred since 1997 put in place the
foundations for modern public finance management in South Africa. With
improved basic budget and financial management, a better base is in place
from which to investigate improved ways of financing certain public services,
such as social security payments. Frameworks for public-private partnerships