National Treasury 2021/22 Annual Performance Plan; with Deputy Minister

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Finance Standing Committee

04 May 2021
Chairperson: Ms N Abraham (ANC) (Acting)
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Meeting Summary

Video: Standing Committee on Finance

Annual Performance Plans

The Standing Committee on Finance held a virtual meeting to discuss the Annual Performance Plan (APP) of National Treasury. With the Deputy Minister Present, Treasury presented their priorities – the most imminent was defeating the COVID-19 pandemic in South Africa. The pandemic had fomented challenging economic conditions. Managing debt and securing investments were key issues to be targeted through fiscal policy and Operation Vulindlela, which was being monitored by Treasury. R4.350 billion had been set aside for vaccinations at the time of the meeting, though this would likely need to be augmented for Treasury to reach the short-term target of 40 million South Africans vaccinated.

Some Members criticised the timeline and neglected commitments of Treasury in establishing a State Bank. Attention was drawn to the functioning of the Public Investment Corporation (PIC) Board. Questions were also raised about catalytic projects and the prioritisation of rural development, the nature and scope of Treasury research, filling Treasury's critical vacancies, pension fund reform; the vaccination programme funding and incoming Bills from Treasury.

Meeting report

The Chairperson noted an apology from the Minister who was attending a cabinet meeting. As the Chairperson was unwell and would be leaving to see a doctor, Ms Abraham was asked to take over as Chairperson.

Opening remarks by Deputy Minister
Deputy Minister David Masondo said that in the State of the National Address, the President clearly articulated the priorities of Government. They needed to defeat the Coronavirus Pandemic, which would also liberate the country from added economic stress, so that they could focus on economic recovery. Through the Fiscal Policy, they were working very hard to ensure they alleviated debt and debt-service costs, which negatively impacted investments as they were drawn through the same pool of savings from hard-working South Africans. Debt was not in the interest of economic recovery and took from investments of the private sector. As such, they could not continue to ‘mop’ up savings through government borrowing. They would work to ensure capacity to extract revenue and to implement structural reform through Operation Vulindlela. They would also establish the State Bank. Setting up the State Bank had taken time because of consultation with other departments and clusters, though Treasury was seeing positive progress.

National Treasury 2021/22 Annual Performance Plan
Mr Dondo Mogajane, Treasury Director-General, said a key area was to transition expenditure from consumption through spending and investment. This would be seen through strategies such as Operation Vulindlela and the Zero-based Budgeting. Another priority was managing debt. They needed to contribute to advancing South Africa’s interest in regional integration and international cooperation.

Ms Laura Mseme, Treasury Chief Director: Strategic Planning, Monitoring and Evaluation, continued the presentation.

Programme One: Administration
Support foundations undergirded the core work done by Treasury. They would ensure ICT was enhanced in Treasury, especially given the work environment with the COVID-19 pandemic. An unqualified audit was a key target. Treasury’s work was reliant on highly skilled personnel. As such, training and development was a robust budget focus for their highly skilled work. Gender-related matters was also part of the agenda in all realms, including advice to the DG.

Programme Two: Economic Policy, Tax, Financial Regulation and Research
Treasury would focus on continuing policy research, economic forecasting, monitoring external vulnerabilities. This was a key partnership with Treasury ensuring a significant distributing reach of the research produced. This also provided economic forecasting, utilised ahead of the Budget Speech every year.

Programme Three: Public Finance and Budget Management
There would be three reforms for enhancing provincial and local fiscal frameworks. Additionally, five township economic development strategies would be implemented. 36 infrastructure plans would be produced and had increased in priority across planning instruments. 20 catalytic projects in metros and rural towns would be identified and approved. Treasury had undertaken an impact study on public procurement and financial management, assessing the impact of training down.

Programme Four: Asset and Liability Management
Treasury would continue oversight of state-owned enterprises and debt obligations.

Programme Five: Financial Systems and Supply Chain Management Systems
The ExCo (Executive Committee) had identified key areas of critical vacancies. Work would be done to ensure governance and compliance across programmes. Treasury would effect 16 capacity development programmes, which would be assessed. There was significant progress with the Integrated Financial Management System (IFMS), with governance documents having been approved. Treasury would be rolling the generic template of the IFMS into sites in 2021 – meaning IFMS would be in its implementation phase. Treasury would implement 21 transversal contracts.

Programme Six: International Financial Relations
100% of indicators were delivered in the previous year. This Programme's work and effort in the face of COVID-19 was commendable. Three country partnership framework reports were being developed.

Programme Seven: Civil and Military Pensions, Contributions to Funds and other Benefits
Treasury would require that 99% of benefits are paid within required turn-around time and to ensure good governance.

Amongst other allocation increases, there would be an increased allocation to the Land Bank, as well as for the Integrated Financial Management System (IFMS) which was in the implementation phase. There were critical vacancies which would see employees increase to ensure Treasury could deliver on their mandate.

Discussion
Ms N Abraham (ANC) took over as Chairperson, opening the meeting for discussion.

State Bank, IFMS Operation Vulindlela, Catalytic Projects,
Mr K Morolong (ANC) said the State Bank plans and framework were commendable efforts. They had been dealing with this for some time. He asked what was the status of the IFMS? What was the timeline for completion? And why did it not appear in the APP? He asked Treasury to provide detailed geography for the 20 planned Catalytic Projects. Under which programme was the Government Technical Advisory Centre (GTAC)? Operation Vulindlela seemed to be important work for Treasury implementing reform – why did it not appear in the APP? Was there a reason for this?

COVID-19 Vaccinations, Departmental Research, Gender-Based Violence
The Chairperson asked about the broad framework the Committee was given. She referenced the Deputy Minister’s comments on COVID-19. The Committee was interested in the Vaccination Programme’s progress and financing. On external vulnerabilities, did this include municipalities? She wanted Ms Mseme to expand on this for context. They were also interested to know what the research section of the Treasury was engaged in. The Committee was interested in the work being carried out and would like to be kept abreast of this. Finally, the Chairperson appreciated the work done on gender-related matters under Programme One. In view of the escalation of gender-based violence, especially in rural areas, she asked for an update on what they were doing differently. If the 20 Catalytic Projects would take place in metropoles as indicated, where did rural development fit in?

Treasury response
Gender-Based Violence
DG Mogajane spoke about the funding of anti gender-based violence efforts. They had taken the national budget focus and updated the funding to suit the programme, which was why they had set up a focus group. They took their cue from the programme which was led by the Department of Women, Youth and Persons with Disabilities. Departments had made sure they were mainstreaming this work in all government programmes. If the Committee wanted further details on what exactly they were doing in rural areas, they could provide this in writing.

IFMS, GTAC
Ms Mseme replied that the IFMS quarterly indicators were on page 76 of the APP. GTAC had established its own separate planning and reporting process. Historically, GTAC was part of the APP although they had since matured and expanded in their capabilities. GTAC did specific project work for Treasury, such as the Municipal Finance Improvement Programme (MFIP) and The Jobs Fund – these indicators were in the APP.

Operation Vulindlela
Treasury was monitoring Operation Vulindlela, which was not in Treasury’s APP and would be included in the following financial year. The team was led by the DDG: Economic Policy, who was the link between Treasury and the Presidency. Treasury and the Presidency were jointly responsible for Operation Vulindlela. Treasury was monitoring Vulindlela’s operations in two ways:
1 – Monitoring Operations as they related to Treasury’s responsibilities i.e setting up, financing and resourcing the offices.
2 – Core business operations falling under Treasury’s ambit would also be monitored and added to their APP going forward.

In the interim, they would report on Operation Vulindlela as they had committed to report on the progress with the State Bank establishment, given that it was a joint function between Treasury and the Presidency.

Ms Mseme noted that specific monitoring of indicators would form part of Treasury’s quarterly reporting. They would provide evidence on indicators in reports, including providing the Committee with the previous research papers, which were also on the Treasury website.

Vaccination Funding
DG Mogajane replied they were on track with Vaccination Funding. They had set aside over R4 billion (R4.35 billion) for this public good, which they would ensure would be provided for. There were no challenges in this regard. They would augment funding allocations where it became necessary. Further Johnson and Johnson (J&J) vaccines would be arriving within the next two weeks. The Pfizer vaccines had already arrived and were being tested at the time of the meeting – all was on track with this rollout. They would watch closely if they needed to augment this.

Catalytic Projects, Rural Development
Ms Malijeng Ngqaleni, Deputy Director General: Intergovernmental Relations, said they were running programmes aimed at supporting and catalysing cities, towns and metros. This was aligned with the Development Framework and Fiscal System to be key drivers of economic growth in the programmes run by government. There was a clear consciousness about the differences between urban and rural areas. Understanding the challenges and opportunities of these areas was key to unlocking what needed to be done. Government had a Ministry of Rural Development and Agriculture, which was an intentional effort to develop rural areas – though much improvement was needed. There were also infrastructure programmes targeted at addressing backlogs in all areas of basic services. If all of government’s work towards rural areas was put together, there was in fact a very large amount being spent on rural areas. Comparatively, high taxes were being collected in the cities to fund themselves. Another observation with rural development was the urbanisation of poverty. Poor people were flocking to informal settlements, which reflected the failures of managing urbanisation that led to further poverty. Programmes were being run in cities and towns to ensure that urbanisation was not a curse, but a method for improving efficiency. The Urban Development Framework articulated the catalytic programmes, which ultimately meant that cities would focus and direct financing from the private sector, co-ordinate it across government spheres and drive development. Cities had not yet recovered from the legacy of Apartheid, and so they needed to support them in unlocking development for all. With the Department of Cooperative Government and Traditional Affairs (COGTA), they had identified intermediate cities. They had also reformed a grant to target and drive investment capacities in cities, towns and metros – this would bring greater value of expenditure by government.

Department Research
Ms Boipuso Modise, Chief Director: Economic Policy, responded to matters on research and economic policy. Southern Africa – Towards Inclusive Economic Development (SA-TIED) was a collaboration between United Nations University World Institute for Development Economic Research (UNUWIDER), International Food Policy Research Institute (IFPRI) and government departments (including Treasury) and research organisations in Southern Africa. The research work areas were in six broad themes:
1 – Enterprise development for job creation and growth
2 – Public revenue mobilisation for inclusive development
3 – Macro-economic modelling for policy formulation
4 – Turning the tide for inequality
5 – Climate change and energy transitions as drivers of change
6 – Regional growth for Southern Africa’s prosperity.

Collectively, these thematic work streams produced high quality research and relevant policy solutions for South Africa’s issues, providing a regional perspective. The research articles that were published were publicly available, and they could share the link to them.

Further questions
Bills, Audit Action Plan, Rural Development
The Chairperson was interested to know what Bills would be ‘coming their way’ from Treasury, as it had been indicated that Departments should make known their legislative programme. She asked if the audit action plan was included in the APP. In view of the other underperformance in the audit, was there no plan for auditing, monitoring and implementation? On rural development, she asked for a commitment from Treasury to really transform rural areas, not necessarily to become cities, but to become economically vibrant on their own through enhancing infrastructure. Issues of informal "cities", for example, was the wrong place to start. Rather, the root cause was the absence of economic activity in rural areas. They did not necessarily want people to flock to urban areas when there was unused land in rural areas. Finally, although the filling of critical vacant positions was encouraging, it was key to know how close they were to clinching to entire complement of critical vacant posts.

Audit Outcomes
Mr G Skosana (ANC) asked about Treasury’s support to municipalities particularly on financial management. A challenge was favourable audit outcomes from municipalities – the majority of which were getting unfavourable audit outcomes. How far was this programme? Was it yielding any positive results? They wanted to see improvement in the near future.

Pension Fund Reform
Dr George (DA) asked for insights into pension fund reform. There had been much movement of late, especially with the difficult circumstances pension fund members were finding themselves in. Were there any plans or strategies on this aspect?

State Bank, PIC
Mr F Shivambu (EFF) said they were being told lies in Parliament, they were being made fools and being enslaved by Treasury. It was thus difficult to contribute in meetings. Two to three years prior, there had been commitments from Treasury on the State Bank and to table reports on this. This was problematic and it is being perpetuated because officials did not face repercussions for deliberately misleading the Committee. The Public Investment Corporation (PIC) Amendment Bill had specific directives for how it should be structured and led, however there was no PIC board that was compliant. The PIC boards always become dysfunctional, especially where individuals left and were not replaced. There was also an individual on the PIC Board that was also a member of the Discovery Board.

Treasury response
State Bank
DG Mogajane replied that the Minister and Deputy Minister would be better placed to respond to matters of the PIC board. The technical work they were doing was necessary in the lead up to a bank being established. They had had intensive discussions around big questions, with the Department of Telecommunications and Postal Services (DTPS) – though they needed guidance from Treasury. The memorandum was ready, they had done the work to the best of their ability, though key questions remain from the side of the Department of Communications, whether they should create a new state bank against the backdrop of other existing entities (Post Bank, Development Finance Institutions). Should these other entities be dissolved before creating a new bank? These options were in the memorandum. To the best of the DG's knowledge, the technical work had been done, although, as Mr Shivambu had said – there had not yet been a pronouncement of the State Bank with a board being established. When Treasury had finalised the matter, the Deputy Minister could respond. They would ensure honesty and respect with their communications with the Committee.

Bills
Ms Mseme replied Treasury provided in both the APP and presentation, a full list of legislation and strategies they were working on – although they did not expect all of these to come through Parliament in 2021. What was definite, was the Financial Sector Laws Amendment Bill, which was before Parliament, as well as the Appropriations and Adjustments Appropriation Bills, the Division of Revenue Amendment Bill, Rates and Monetary Amounts and Amendment of Revenue Laws, Tax Administration Laws Amendment Bill and Taxation Laws Amendment Bill. Treasury also expected the Public Procurement Bill to come through, but only in December 2021. The longer list (provided to the Committee and in the APP) was inclusive of all laws, bills and strategies they were working on across programmes.

Audit Findings
Monitoring the redress, mitigation and implementation of controls to ensure audit findings were not repeated was a key component of moving towards a clean audit. Treasury had implemented key processes to achieve this:
1 – Setting up a committee of senior Treasury officials, who carry the responsibility to ensure the implementation of the agreed-upon controls (with the Auditor-General) to ensure audit findings are not repeated. This committee met on a quarterly basis and received evidence about solving audit findings. This was reported back to the DG, EXCO and the Audit Committee. This is how Treasury was ensuring controls were implemented and audit findings were not repeated.

2 – Treasury had included the agreed mitigation measures for both internal and external audit findings in the Chief Director’s operation plans and the DG’s performance agreement. In this way, they had linked the planning, monitoring and reporting processes in an organisational way and individually making employees comfortable. They were confident that this would be effective towards their goal of a clean audit.

Critical Vacancies
Treasury was at 979 critical vacancies filled out of 1055. These had been identified within each division as critical. There was also an assessment across divisions to identify the organisation’s critical positions. There was thus a clear process to link the priority positions needing to be filled in each division (for service delivery) but equally across the organisation. They were filling positions in Programme Five, as well as areas of Economic Policy, Budget Office and other divisions required (including Inter-Government Relations and Policy and Legislation).

Accountability
DG Mogajane replied that there was a very fine line in the role of Treasury vis-à-vis the role of some national departments and sectors. Section 216 of the Constitution and PFMA expanded on the responsibilities of Treasury, which indicated that Treasury could only perform oversight of departments or sectors. The DG assured the Committee they were performing this oversight. Treasury had systems which had matured and had ensured they were able to track expenditure and enforce accountability with spending and allocations (as mandated by the PFMA and the Constitution). With the approval of implementing projects and programmes, day to day operations remained within the particular department in question. Sometimes Treasury officials were very thin on details from some departments and with others they were provided much detail. After budget votes had been passed, accounting officers of departments had the responsibility for implementation and efficient spending. Treasury also had analysts assessing expenditure taking place and robustly engaging with Departments based on whether they met their targets or not. Those departments would then appear before the Portfolio Committees.

Mr Ismail Momoniat, DDG: Tax and Financial Sector Policy, responded about Pension Fund reform. This was ongoing, though it was slower than what they wanted. The reason for this was largely due to continual discussions with NEDLAC. The key focus area had been published in the Budget Review and Medium Term Budget Policy Statement (MTBPS). An example of a key focus area was that from 1 March 2021, there was annuitisation of provident funds. Going forward, Treasury was engaging on the matter of early withdrawal, versus preservation. They linked the two, lest everything be withdrawn by pension fund members. The issues were complex and would take time to resolve and get agreement within NEDLAC. Linked to this, Treasury was assessing auto-enrolment, establishing a default fund for those without funds, continuing with consolidation, and better governance of group funds . Another ongoing matter was that Treasury had published all the changes to regulations which would enable more pension fund investment into infrastructure.

Further questions
Vaccinations
Mr Shivambu asked how many people could be vaccinated with the R4.3 billion allocation. He was concerned that they would not be able to reach more than 20% of the population, meaning they might take more than five years to vaccinate everyone in South Africa.

Financial Sector Summit
The Chairperson asked about the Financial Sector Summit which had been postponed several times. While she was aware of the difficulties of the pandemic, was the summit still on track?

Treasury response
Vaccinations, Financial Sector Summit
DG Mogajane replied they were aware that the R4.350 billion might not be enough. The set target was to vaccinate 40 million South Africa, whether this was achievable or not was debatable. There had been an indication that there might be a need to adjust and expand this allocation. At the time, R4.350bn was the most realistic estimation they had at the time. There were reserved funds, although Cabinet committed that the Vaccine was a public good and no person would not be vaccinated because of financial allocations. They hoped to finish the 40 million vaccinations within the 2021/22 financial year. The Financial Sector Summit was a NEDLAC process and not within Treasury’s control.

Mr Shivambu clarified that he was asking for the exact number R4.3 billion could vaccinate, not the intentions of Treasury.

DG Mogajane made an undertaking to provide written responses to Mr Shivambu after consultations.

The meeting was adjourned.
 

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