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

Country Case Study: South Africa 517
allocate funding to new spending priorities. This percentage is small for the
budget year (the first year of the three-year medium-term period) but increases
in the outer years, when policy and macroeconomic uncertainty is larger. In
the budget year, the contingency reserve is allocated in the adjustment budget,
is tabled six months after the start of the fiscal year, and is used to cover the
balance of revenue shortfalls or expenditure overruns on the fiscal framework.
During budget planning, the contingency reserve plays a key role in making
available additional resources for new expenditure, which come from the
drawdown of the contingency reserve and changes to the macroeconomic
forecast. Thus, the contingency reserve has an important function in providing
flexibility and stability and in protecting against uncertainty in the MTEF
(and thereby protecting its credibility).
Political oversight of the budget process
Deciding and agreeing on the best allocation of scarce resources to fund government’s
many social, economic, and political goals is the main purpose of
the budget process. The setting of these goals is a political matter. Tradeoffs
between these goals within the resource ceiling are equally political,
although technical work can identify policy options and make clear what the
consequences of tradeoffs are likely to be. The South African budget process
applies this principle through several mechanisms, thereby ensuring appropriate
political oversight of the budget process and ensuring that policies are
made within the context of budget constraints.
The budget policy process begins with the identification of national policy
priorities by the national cabinet. These priorities are expressed in a spending
priorities memorandum, which provides a basis for departmental planning
and budgeting. Ministerial letters are also exchanged between the minister of
finance and spending ministers on major policy drives, signaling the direction
of sectoral policy early in the budget process. (Spending departments are
required to get information to their ministers in time for this letter.) This procedure
creates the opportunity for the National Treasury to engage in bilateral
discussions with departments at an early stage, when critical spending pressures
and major policy considerations exist, to undertake a more rigorous
examination of the economic and fiscal implications over the medium- to
long-term period. This procedure is formalized in the joint discussion of
expenditure estimates between National Treasury teams and departments.
The Ministers’ Committee on the Budget is another critical vehicle
through which overall political oversight of the MTEF process is realized.
It is a formal subcommittee of the cabinet that considers policy changes
with budgetary implications, as well as all main budgetary decisions, before