PFM blog

SA's lean times require a fit public sector

2 November 2015

Since its introduction in 1997, the medium-term budget policy statement (MTBPS), a precursor to the budget, has become a key indicator of government’s intentions.

The MTBPS has, perhaps, become more important than the budget, in that it provides the premise for a dialogue leading up to the February budget. The students that broke through the gates of Parliament while Minister Nene was delivering his speech must have known this.

In an environment of slower growth and continuing structural weaknesses, coupled with growing inequality and social unrest, the need for constructive dialogue will be critical. We can expect two issues to dominate the dialogue; doing more with less, and deciding if further trade-offs and shifting of funds need to be undertaken. Over the next four months (leading to the February budget), the sage advice from Minister Nene, when he delivered the MTBPS speech on 21 October 2015, will need to be heeded: “My point is that the proposals in our medium term budget projections are only the more quantifiable instruments of our transformation. There are deeper and more profound currents. It is in the quality of our services, and the integrity of our engagements, that we have the most powerful levers of social change.”

The capability of government departments to apply the “deeper and more profound currents” will come into focus.

A recent conference co-hosted by CABRI, the National Treasury, and the Overseas Development Institute identified four areas of capability that are critical for the public service. These include, analytical capability (the ability to understand and analyse information to inform decisions); delivery capability (the ability to produce goods and services to get things done); coordinative capability (the ability to orchestrate the activities of different actors in pursuit of a common objective); and regulatory capability (the ability to control the production of particular services delivered by others). All of these were highlighted in the 2015 MTBPS – with Minister Nene making special note of needed improvements around regulatory and delivery capability.

The Minister placed emphasis on “the quality and integrity of governance” as “critical elements” in achieving outcomes, enhancing state capacity, reforming the financial management and procurement systems, and addressing issues of institutional reform and public sector training. The next three years continues the trend in freezing government employment, thus indicating the need for improved capability among members of the public service to deliver goods and services for the benefit of citizens and the wider economy. In addition, the MTBPS is very clear that the central objective of the fiscal outlook for the medium term is to stabilise debt. If this is indeed the intention, then more will definitely need to be done with less. Doing more for less in the education sector will require hard, often unpopular, decisions to be taken to find and eliminate inefficiencies in the way that tertiary institutions are subsidised, including the management of the National Student Financial Aid Scheme. An even sharper focus will need to be on the glut of wasteful subsidies being ploughed into state-owned enterprises.

Addressing backlogs in social development and access to services - while maintaining prudent financial and fiscal management is a fine balance that government has to maintain. Even though education and skills development account for the largest portion of spending, government needs to make choices between higher education and early childhood development. There is then also the trade-off between education and health, and other strategic priorities from the National Development Plan. Increasing the government subsidy to tertiary institutions should not be at the expense of other pro-poor and transformative programmes, nether can it result in greater public debt that future generations will need to pay.

Both Cole and Stott worked in the Budget Office of the National Treasury

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