Provincial Treasury Budget Policy Speech: MEC Mlungisi Mvoko, 28 March 2023
Honourable Speaker Deputy Speaker Honourable Premier
Members of the Executive Council
Honourable Members of the Provincial Legislature Director-General
Heads of Departments
Chief Executive Officers of our Public Entities Traditional and Religious leaders Distinguished Guests
Ladies and Gentlemen
Good day.
Introduction
Honourable Speaker, it is in the interest of the country and that of the Eastern Cape that we become efficient and effective in the utilisation of the public funds.
The fiscal environment we are operating under leaves no room for wastefulness and or imprudence.
Our triple challenges of unemployment, poverty and inequality are exacerbated by the persistent power outages, recurring natural disasters and the geopolitical conflicts.
As Provincial Treasury, we however remain resolute in carrying out our mandate of providing a strategic and technical leadership in the allocation, management and utilisation of financial resources for socio-economic development in the province.
This mandate is an important cog of our service delivery imperatives.
The 6th term of government administration has experienced a good story of progress recently in governance. This must be accompanied by good quality service to our important stakeholder, the poor and vulnerable. We no longer accept excuses but accountability.
Our plans for 2023/24 set out how the Provincial Treasury intends to implement the priorities it set out in the 2020-2025 Strategic Plan towards realising that goal.
Our 2020 to 2025 strategic focus is embedded on the following key strategic priorities:
Fiscal Consolidation
Supply Chain Management Reforms
Infrastructure Support, and;
Provincial and Municipal Governance and Accountability
Fiscal Consolidatin
Honourable Members, the sluggish economic performance and low economic growth forecasts for the country requires the department to institute measures that promote fiscal sustainability in the province. This path has enabled the Province a fiscal space to fund its priorities, although within limits.
The Fiscal Consolidation Strategy will continue to focus on budget expenditure ceilings, managing the wage bill, implementing cost containment measures and enhancing provincial revenue.
Cost containment measures continue to form the basis of our Fiscal Consolidation Strategy to stabilise provincial finances especially during this period of constrained economic activity. These cost containment measures are implemented through prioritisation of funds for key service delivery areas rather than on non-core items, whilst also improving governance and oversight in the province.
The introduction of zero based budgeting and expenditure reviews further help align spending with strategic outcomes and service delivery priorities, and eliminate inefficiencies on expenditure whilst strengthening allocative efficacy
We will continue to monitor wage bill spending ceilings through various measures, including ensuring that personnel appointments are authorized centrally on PERSAL in line with Provincial Coordinating Monitoring Team (PCMT) approvals.
There has been a steady progress in the generation of revenue in the Province, although a lot still needs to be done to reach our potential. We are in this regard providing needed support to departments that are driving our strategy to enhance and increase provincial revenue.
Our support involves supporting these departments with revenue generation implementation plans through fora engagements such as CFO Forum meetings, Ad-Hoc meetings and engagement with institutions such as the Road Accident Fund.
The Study we instituted on revenue enhancement projected that the Province can collect up to R7 billion annually, by 2030.
Our medium term targets show that we are chasing those projections, with revenue of R26.1 million in 2023/24, R37.4 million in 2024/25 and R37.5 million in 2025/26 set to be added on the baseline.
The Department of Public Works and Infrastructure will lead this journey because of the lease income from properties that were awarded to the private sector investors and property developers. Further to this, the leasing space on state- owned properties in respect of telecommunication sites and the installation of billboards and digital screens have resulted in the increase.
The Province must also find innovative ways of collecting the revenue through the Departments of Health and Transport. These departments are encouraged to use electronic systems to process revenue.
Honourable Speaker, we are enroute to finalising the rationalisation project. We are now dealing with capacity constraints in dealing with complex issues of amalgamating entities, development of new business cases, establishment of new enabling legislations and application process for listing of new entities in the PFMA.
We have in this regard requested the services of GTAC to support the affected departments to drive the rationalisation project to its logical conclusion. We will work with Office of the Premier (OTP) towards a provincial steering committee to support and oversee progress on the implementation of this project.
The resolution on recapitalisation of Eastern Cape Development Corporation has reached finality as both the shareholder department and board approved a new business strategy for ECDC. Subsequently, there has been reasonable funding that has been channelled to ECDC based on plans. We will monitor the implementation of the newly established Economic Development Fund that will be spearheaded by ECDC from this year.
We are awaiting final submission for the application of Eastern Cape Rural Development Agency (ECRDA) to be listed as 3D in the PFMA.
The Department of Sports, Recreation, Arts and Culture (DSRAC) has reported to us that the resourcing of ECPACC within the department is forging ahead.
The two projects, ECRDA and ECPACC, are also going to be included in the GTAC work for finalisation of Rationalisation Project, including the amalgamation of Eastern Cape Liquor Board and the Eastern Cape Gambling Board into one regulatory entity.
Honourable Speaker, medico legal claims continue to pose a liquidity risk to our fiscus. The collaborative effort between Provincial Treasury, Health and the Office of the Premier is however doing all in its power to undo that fiscal risk, through implementation of the turnaround strategy on Health.
As this collective, we took time to analyse twenty-four (24) court judgements and we were able to obtain valuable information on where the system needs to improve. In trying to address the weaknesses identified from that review, the team has been working on drafting guidelines for Standard Operating Procedures (SOPs) for the following areas:
Incident Management Process;
Legal Response Process;
Long Term Patient Treatment Process; and
Medico Legal Claims Payment Process.
These SOPs will also tie up into the digital Health Management System (HMS2) enhancement project. The HMS2 is a software designed to handle electronic medical records, laboratory tests and their results and radiology images of patients.
The team has also done an Inventory check of documents on the HMS2 as part of e-liability check-up.
A project plan has been developed on the digitalisation of patient records to enable easy manipulation of data for trend analysis.
We have assisted in the enrolment of HMS2 at the following facilities: Cecilia Makiwane Hospital; Nelson Mandela Academic Hospital; Mthatha Regional Hospital; Bedford Hospital; Frontier Hospital; Butterworth Hospital; Madzikane Ka Zulu Memorial Hospital; St Patrick’s Hospital; Humansdorp Hospital and St Elizabeth Hospital.
Supply Chain Management Reforms
Madam Speaker, the recent promulgation of the Preferential Procurement Regulations of 2022, which have become effective on 16 January 2023, require departments to determine their own specific goals for preferential procurement that is aimed largely at supporting designated groups. These include women, youth, people with disabilities and military veterans.
In line with the confines of the Local Economic Development Procurement Framework, the Provincial Government will increase the support to these groups, with a special focus on youth, to ensure that 30% of the procurement spend is targeted to be spent on youth owned enterprises.
To improve procurement efficiencies, we will continue to identify a number of opportunities for transversal contracting, capacitation of suppliers on opportunities available to enable SMMEs to do business with government, including administrative support and registration on Central Supplier Database (CSD) and LOGIS.
We will intensify our efforts in monitoring the implementation of the procurement plans to eradicate delays in service delivery. We have continuously indicated that Departments need to start procurement process early to enable proper spending of resources.
We are also keeping a close eye into our database to deal with potential conflict of interest in instances where government employees attempt to do business with the state. When these cases are detected, we escalate them to their respective departments for consequence management.
Infrastruscture Support
Honourable Members, Provincial Treasury continues to provide support to infrastructure delivery in the province in line with the Provincial Infrastructure Strategy.
Ongoing support is being provided to departments to institutionalise Infrastructure Delivery Management System (IDMS) and implement the Framework for Infrastructure Delivery and Procurement Management (FIDPM). Provincial Treasury, working together with the Department of Public Works and Infrastructure as a coordinator of infrastructure projects, continues to monitor infrastructure budget performance in line with procurement plans to facilitate the removal of projects bottlenecks.
Departments are further supported to align infrastructure projects to the District Development Model to strengthen integrated infrastructure planning, procurement and delivery across the infrastructure value chain.
Provincial Treasury will continue to conduct hands on training on the IDMS for Infrastructure Departments in respect of the IDMS bidding requirements. Training of Infrastructure Departments and their Implementing
Agents on the Framework for Infrastructure Procurement and Delivery Management (FIPDM) will continue with the intention to improve the infrastructure co-ordination across the province.
Provincial and Municipal Governance and Accountability
Honourable Speaker, we will continue with the implementation of the Financial Management Accountability Framework to institutionalise discipline in the management of public resources and ensure that departments and entities move towards sustainable financial maturity.
Where breaches of the Framework standards are detected, we escalate them to Executive Authorities of departments. In this regard, we encourage Executive Authorities to implement consequence management where there is evidence of transgression.
The results of the 2021/22 audit shown considerable improvement, as the province managed to obtain 22 unqualified audit outcomes and three qualified audit opinions in the PFMA institutions.
The immediate goal is for the three departments, Health, Education and Transport, to attain unqualified audit opinions, while improving the ones that have findings on their unqualified outcomes.
There are systems in place to address the root causes of the findings and internal control deficiencies.
Accounting Officers and governance structures must continue to implement Audit Improvement Plans for improved control environment to avoid non-compliance findings. They must themselves in this regard hold officials accountable for non-improvement in the audit outcomes, financial management breaches and for contravention of the SCM prescripts and other legislations.
The plan is to make all the CFOs of the departments with clean audits part of the provincial Audit Steering Committee where they can offer independent opinion to Treasury and the departments.
We await the finalisation of audit outcomes on municipalities for 2021/22 with keen interest, considering areas of improvement that we attained in the prior financial year.
Our major challenge is that municipalities are in different stages of maturity with respect to the internal controls. Sound financial management will form the foundation of a clean administration. This will further facilitate the successful budgeting, planning and implementation of both capital and operating projects.
Ongoing financial management support is being provided to provincial departments and municipalities (including mSCOA implementation in municipalities). Provincial Treasury support to municipalities is spatially referenced and aligned to district development model and municipal integrated development plans.
We are currently engaging with National Treasury on the issued template, which is the Municipal Annual Financial Statements Specimen that has been issued to accommodate the mSCOA Regulations. This will assist to usroll-out in the Province before the template is compulsory for the implementation by municipalities.
Provincial Treasury has commenced with monitoring triggers for financial problems in municipalities that lead to the development of Financial Recovery Plans (FRP) that focus on Financial Management, Governance, Human Resources, and Service Delivery.
Four municipalities; Amathole, Makana, OR Tambo and Enoch Mgijima are currently implementing their Financial Recovery Plans.
Of the 36 municipalities, 29 municipalities’ budgets were assessed to be funded. This is equivalent to 80 percent of the delegated municipalities in the province.
Contributing factors to unfunded budgets range from low collection rate, operating surpluses, above norm employee related costs, huge arrear debt, creditors that are in debt and tariffs for municipalities that are not cost reflective. The annual target for 2023/24 financial year is 34 delegated municipalities adopting funded budgets. However, the ultimate target is all 36 delegated municipalities in the province adopting funded budgets in line with section 18 of the MFMA.
Various interventions, including the implementation of credit control policies, improved spending on conditional grants, restructuring of debt owed, and development and implementation of budget turnaround plans are in place.
Various interventions ranging from appointment of Municipal Managers and Chief Financial Officers, early procurement, proper monitoring of procurement plans, District Infrastructure Forums, adherence to approved grant deadlines, to capacity building, are in place.
Budget and Programme Allocations
The following are the budget allocations that will drive our programmes in the 2022/23 financial year.
PROGRAMME
R
Programme 1: Administration
R193 712 million
Programme 2: Sustainable Resource Management
R84 642 million
Programme 3: Asset and Liabilities
R25 648 million
Programme 4: Financial Governance
R93 196 million
Programme 5: Municipal Finance Governance
R57 791million
Total
R454 989 million
We commit to use these resources economically to finance the commitments we have outlined above.
We commit to use these resources efficient and effective to finance the commitments we have outlined above.
Madame Speaker, as I take my off-ramp I must for reasons of provoking our class-consciousness for this particular purpose bring to the fore the citation from a Journal Peter G. Stillman had done in 1983 titled “Scarcity, Sufficiency and Abundance: Hegel and Marx on Material Needs and Satisfactions” he argues as follows:
“Hegel and Marx see scarcities as inherent, necessary, and constructive in the good societies each envisions. They see that human beings develop themselves and their culture by having needs, working to satisfy those needs, and in the process creating new needs that require new types of thought and action for their satisfaction. At the same time, since all needs cannot be pursued, human beings must reflect on which needs to try to satisfy; this reflection leads, Hegel and Marx think,
to concern not with the material and atomistic, but with cultural and social needs and their satisfaction. While Hegel and Marx differ in their assessment of nineteenth-century European civilization or capitalism, they agree that the pursuit of affluence as a primary goal is misleading and misguided, and they do imply some suggestions for treating contemporary ecological scarcities”.
I consider it safe to take my detour.
I wish to take this opportunity and thank Honourable Premier and the Portfolio Committee on Finance for guidance, my fellow MECs for their support, Head of Department Daluhlanga Majeke and his capable team for the sterling work they continue to do in the performance of our mandate.
Lastly, I wish to appreciate the support we receive from our stakeholders and the members of the public. Through that support, we strive to be a responsive government.
Thank you very much Madam Speaker.
