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

514 Alta Fölscher
At the same time as the top-down processes are completed to determine
the available expenditure envelope, individual spending departments revise
their forward plans, in accordance with their baseline funding envelopes of the
previous year, and prepare spending bids advocating for additional funding.
No adjustments are made to departmental ceilings at the beginning of the
process. Departments can fund new policies only if they are able to convince
the cabinet (or the provincial executive councils, in the case of provinces) to
allocate a share of nationally (or provincially) available additional funds
resulting from adjustments to the macroeconomic forecasts and fiscal targets
or if they can find savings within their existing spending baselines. This
practice of spending departments’ starting their budget preparation from
their existing funding baseline has the merits of imposing planning discipline
and providing a stable medium-term funding and policy horizon. Forcing
spending departments to live within their baselines, while holding them
accountable for delivering on policy priorities, creates incentives to improve
the quality of the forward projections.
In the system, flexibility around available additional funds and policy
changes is least in the budget year, given existing policy and spending commitments,
but increases toward the outer years because of a larger contingency
reserve that can be allocated and because spending that is nondiscretionary in
the short term, such as personnel costs, can be shifted over the medium term
(for example, by restructuring a program or phasing in new priorities). In this
way, South Africa has been able to reduce personnel spending as a percentage
of revenue since the introduction of the MTEF, thus creating critical fiscal
space for complementary inputs and investment spending.
For each budget round, baseline funding decisions have already been
discussed for the bulk of spending in the first two years of any medium-term
framework (those having rolled over from the previous year) and, particularly
for the first year, the rule is to allow only minor changes. These factors
shift the focus of discussions in the budget process to the use of funds in the
outer year. Parliament is also increasingly centering its discussions on the
outer years, when it can influence funding decisions more than in the year
on which it is actually voting.
Evidence indicates, however, that the system of forcing tradeoffs against
policy objectives over the medium term grows less robust lower down the
allocation chain. For example, a weakness in the South African system is that
in most cases at the departmental level, the available medium-term financing
information is not consistently used to improve planning and implementation
performance. At the end of the day, in managing programs and implementing
projects on the ground, officials still very much operate in annual