Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698927641814.pdf (South Africa)
2021 Pre-budget Briefing | P a g e The Parliamentary Budget Office (PBO) has been established in terms of the Money Bills Amendment Procedure and Related Matters Act (Act 9 of 2009).

The PBO prov ides independent, objective and professional advice and analysis to Parliament on matters related to the budget and other money Bills.

The PBO supports the implementation of the Act by undertaking research and analysis for the Finance and Appropriations Committees.
Director: Dr Dumisani Jantjies Authors: Rashaad Amra, Fatsani Banda, Dumisani Jantjies, Seeraj Mohamed, Nelia Orlandi, Mmapula Sekatane and Siphethelo Simelane Enquiries: norlandi@parliament.gov.za Ref.

no.

21/2/2 (February 2021) To obtain additional copies of this document, please contact: Parliamentary Budget Office 4th Floor Parliament Towers 103-107 Plein Street Parliament of the Republic of South Africa Tel: +27 021 403 2360 Fax: +27 403 3153 Email: pboinfo@parliament.gov.za 1 | P a g e Contents 1.
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Purpose .......................................................................................................................... 3 Introduction ................................................................................................................... 3 Policy progress and outlook ....................................................................................... 4 3.1.
Progress on the 2020 priorities..................................................................................... 4 3.2.

Policy outlook................................................................................................................ 6 4.

Focus of the budget for 2021....................................................................................... 8 4.1.

Towards Improved Health Services............................................................................ 8 4.2.
Towards economic growth and job creation ......................................................... 12 4.3.

Towards improved Local government service delivery: The District Development Model (DDM) ...................................................................................... 16 5.

Macro and socio economic factors informing budget decisions ....................... 18 5.1.

The global economy .................................................................................................. 18 5.1.1.
Global economic outlook ......................................................................................... 19 5.2.

Domestic economy .................................................................................................... 20 5.2.1.

Effect on employment................................................................................................ 22 5.2.2.

Effect on revenue........................................................................................................ 24 5.2.3.
Economic outlook ...................................................................................................... 25 6.

Revisions to the fiscal framework ............................................................................. 26 6.1.

Effect on borrowing costs .......................................................................................... 28 7.

National and Provincial Expenditure ....................................................................... 29 7.1.
National departments ................................................................................................ 29 7.2.

Provinces...................................................................................................................... 31 8.

Local government revenue and expenditure ........................................................ 32 8.1.

Revenue ....................................................................................................................... 32 8.2.
Expenditure.................................................................................................................. 33 9.

Summary ...................................................................................................................... 34 2 | P a g e 1.
Purpose The purpose of the pre-budget analysis report is to prepare Members for the deliberations on the budget prior to the tabling on Budget day w hen the Minister of Finance introduces the National Budget, the Div ision of Revenue Bill, the Appropriation Bill and sev eral tax proposals.

2.
Introduction The Parliamentary Budget Office has been established to assist the Committees of Finance and Appropriations w ith the implementation of the requirements of the Money Bills Amendment Procedure and Related Matters Act, w hich includes, amongst others, to ensure: • An appropriate balance betw een revenue, expenditure and borrowing • • • Adequate prov isioning for spending on infrastructure development, ov erall Reasonable debt lev els and debt interest cost That the cost of recurrent spending is not deferred to future generations capital spending and maintenance The finance and Appropriations Committees are further required to: • Consider the short, medium and long -term implications of the fiscal framework, • on economic growth and the dev elopment of the country Take into account economic and public finance factors including extra- budgetary funds, and contingent liabilities This report includes a summary of the progress made w ith policy implementation and the Presidential policy priorities, (as presented by the President during the State of the Nation Address) for future planning and funding.
I t further prov ides Members of Parliament w ith an assessment made of progress w ith the implementation of the immediate interv entions for the implementation of the Economic Reconstruction and Recov ery Plan (ERRP) and the current situation in prov iding health services in support of addressing the Cov id-19 pandemic.
I n addition to the policy matters, the report prov ides an update on the global and domestic economy, w hich informs planning and budgeting decisions on policy priorities, and rev enue and expenditure estimates.

Expenditure trends in a current financial year giv es an indication of institution’s ability to spend.

To guide future budget decisions, progress w ith the implementation of the 2020 Budget is also included.

3 | P a g e 3.

Policy progress and outlook 3.1.


Progress on the 2020 priorities The outbreak of the Cov id-19 pandemic in March, 2020, found a v ulnerable South African economy.

I n fact, at the time that the pandemic reached our shores, the South African economy had experienced two consecutive quarters of a recession.

As a result, the Cov id-19 pandemic deepened the economic crisis.

Many people lost their jobs, many hav e gone w ithout income for extended periods, and many are going hungry ev ery day.
To contain the spread of the v irus, gov ernment also had to take extraordinary measures to support ordinary South Africans, assist businesses in distress and protect people’s liv elihoods.

The social and economic relief package was introduced in April last year, and is said by gov ernment to be the largest intervention of its kind in the history of South Africa.
I t identified measures w orth a total of R500 billion [about 10% of Gross Domestic Product (GDP)] to prov ide cash directly to the poorest households, to prov ide wage support to w orkers and to prov ide various forms of relief to struggling businesses.
 18 million people received additional grant payments • This grant lifted more than 5 million people abov e the food poverty line  More than R57 billion in w age support has been paid to ov er 4.5 million w orkers through the Special UI F TERS scheme  More than R1.3 billion has been provided in support mainly for small- and medium- sized businesses  Ov er R70 billion in tax relief w as extended to businesses in distress  Around R18.9 billion of the R200 billion allocated for loans hav e been approv ed for 13 000 businesses through the loan guarantee scheme The Economic Reconstruction and Recovery Plan I n October 2020 the President presented the Economic Reconstruction and Recovery Plan (ERRP) in Parliament.
The reconstruction and recovery plan for the South African economy is aimed at stimulating equitable and inclusiv e growth.
Progress has since been made in the implementation of the ERRP: A massive rollout of infrastructure throughout the country   The dev elopment of an infrastructure investment project pipeline worth R340 billion in netw ork industries such as energy, w ater, transport and telecommunications The launch of tw o major human settlements projects that w ill prov ide homes to almost 68 000 households in the Gauteng prov ince 4 | P a g e  Progress is being made on sev eral major w ater infrastructure projects: • Phase 2A of the Mokolo and Crocodile Riv er project, and the uMkhomazi Water Project  The I nfrastructure I nvestment Plan identifies roads projects w orth R19 billion cov ering the spine of the South African road netw ork • Resources hav e been committed from the fiscus to support the construction • and rehabilitation of the N1, N2, and N3 highw ays These infrastructure projects will lead to the rev ival of the construction industry and the creation of much-needed jobs  The R100 billion I nfrastructure Fund is now in full operation • The Fund w ill blend resources from the fiscus w ith financing from the private sector and dev elopment institutions I ts approv ed project pipeline for 2021 is v aried and includes the Student Housing I nfrastructure Programme, w hich aims to prov ide 300 000 student beds • • Another approv ed project is SA Connect, a programme to roll out broadband to schools, hospitals, police stations and other government facilities A massive increase in local production  Key to this plan
 is a renew ed commitment from gov ernment, business and organised labour to buy local  All social partners w ho participated in the dev elopment of the ERRP agreed to w ork together to reduce reliance on imports by 20 per cent ov er the next fiv e years  Cabinet approv ed the SMME Focused Localisation Policy Framew ork w hich   identified 1 000 local products Through the implementation of the poultry master plan, the industry has inv ested R800 million to upgrade production • South Africa now produces
 an additional one million chickens every week The sugar master plan w as signed during the lockdown, w ith a commitment from large users of sugar to procure at least 80 per cent of their sugar needs from local grow ers • Through the implementation of the plan, 2020 saw a rise in local production and a decline in imported sugar, creating stability for an industry w hich employs some 85 000 w orkers  Since the signing of the clothing, textile, footwear and leather masterplan in Nov ember 2019, the industry has inv ested more than half a billion rand to expand local manufacturing facilities, including SMMEs An employment stimulus to create jobs and support livelihoods  The Presidential Employment Stimulus is one of the most significant expansions of public and social employment in South Africa’s history 5 | P a g e • By the end of January 2021, ov er 430 000 opportunities hav e already been supported through the stimulus  • A further 180 000 opportunities are currently in the recruitment process The National Youth Dev elopment Agency and the Department of Small Business Dev elopment had to be put on hold due to the coronavirus restrictions • I t nev ertheless managed to reach its target of 1 000 businesses by I nternational Youth Day on 12 August 2020 This prov ides a firm foundation for our efforts to support 15,000 start-ups by 2024 • The rapid expansion of our energy generation capacity  I n December 2020, gov ernment and its social partners signed the
 historic Eskom Social Compact, w hich outlines the necessary actions to be taken, collectively and as indiv idual constituencies, to meet the country’s energy needs now and into the future  Ov er the last year action w as taken to urgently and substantially increase generation capacity in addition to w hat Eskom generates: • The Department of Mineral Resources and Energy will soon be announcing the successful bids for 2 000 megaw atts of emergency power The necessary regulations have been amended and the
 requirements clarified for municipalities to buy pow er from independent pow er producers.
Systems are being put in place to support qualifying municipalities • • Gov ernment w ill soon be initiating the procurement of an additional 11,800 megaw atts of pow er from renewable energy, natural gas, battery storage and coal in line w ith the I ntegrated Resource Plan 2019 3.2.

Policy outlook The State of the Nation Address (SONA) identified priorities for gov ernment action to build a new and more equal economy and a better, more just society.
The President identified four ov erriding priorities for government for the year 2021:  Defeat the coronavirus pandemic The President noted that the pandemic w ill be defeated by: • I ntensifying prevention efforts and strengthening the health system • Undertaking a massiv e v accination programme to sav e liv es and dramatically reduce infections across the population The success of the v accination programme w ill rely on active collaboration between all sectors of society.
 Accelerate economic recovery I mplement the Economic Reconstruction and Recovery Plan to driv e growth.

6 | P a g e  Implement economic reforms to create sustainable jobs and drive inclusive growth Ov ercome poverty and hunger, joblessness and inequality.

 Fight corruption and strengthen the state There is improv ed cooperation and sharing of resources between the respective law enforcement agencies, enabling a more integrated approach to inv estigations and prosecutions.
The implementation of the National Anti-Corruption Strategy, which lays the basis for a comprehensive and integrated society-wide response to corruption hav e started.

Members of the National Anti-Corruption Adv isory Council w ill be appointed shortly, w hich is a multi-sectoral body that w ill ov ersee the initial implementation of the strategy and the establishment of an independent statutory anti-corruption body that reports to Parliament.
Other pronouncements by the President includes:  State Ow ned Enterprises To support the reform process, the Presidential State Ow ned Enterprises Council has outlined a clear set of reforms that w ill enable SOEs to fulfil their mandate for growth and dev elopment.

Ov erarching legislation for state-ow ned companies w ill be tabled in Cabinet this financial year and Parliament in the next the financial year.
A centralised SOE model is being implemented this financial year, w hich w ill ensure a standardised gov ernance, financial management and operational performance framework for all SOEs.

The mandates of all SOEs are being re-ev aluated to ensure that they are responsive to the country’s needs and the implementation of the National Dev elopment Plan.

 Crime Gov ernment is taking steps to continue to stop crime and deal w ith those responsible in terms of the law .
Task teams hav e been set up in a number of prov inces to deal w ith extortion and v iolence on sites of economic activity.

Government is fast-tracking the implementation and capacitation of the Border Management Agency to curb illegal immigration and cross-border crime.

 Gender-Based Violence Ending gender-based violence is imperative for a society rooted in equality and non- sexism.

The National Strategic Plan on Gender-Based Violence was launched in April last year.
Three key pieces of legislation w ere introduced in Parliament last year to make the criminal justice system more effective in combatting gender-based v iolence.

7 | P a g e  Extending the period for the Special COVI D-19 Grant of R350 by a further three months.
This has prov en to be an effective and efficient short-term measure to reduce the immediate impact on the liv elihoods of poor South Africans  Extending the COVI D-19 TERS benefit until 15 March 2021 only for those sectors that  hav e not been able to operate The National Treasury w ill w ork with its partners and stakeholders on improv ements to the loan guarantee scheme so that it better addresses the realities of SMMEs and other businesses as they striv e to recover 4.
Focus of the budget for 2021 4.1.

Towards Improved Health Services According to Statistics South Africa life expectancy at birth for 2020 is estimated at 62.5 years for males and 68.5 years for females (target of 66.6 years by 2024, APP NDH).

South Africa, how ever, continues to face a quadruple burden of disease comprising of pre-transitional diseases, the emerging chronic diseases, injuries, and HI V/AIDS.
Deaths due to non-communicable disease, such as hypertension, diabetes and cancer, account for almost 65 per cent of all natural causes of death.

To address the remainder of the burden caused by communicable diseases, a sustainable dev elopment goal w as set to target an end the epidemics of AI DS, Tuberculosis (TB) and Malaria (Communicable diseases) by 2030.
The Annual Performance Plan (APP) of the National Department of Health (NDH) identified that better health outcomes and impacts can be achiev ed only by ensuring that a high proportion of people receive care that is effective.
I mproving coverage and quality of care w ill require system-wide action, which includes:  Reliable clinical care aligned to norms and standards as set out by the Office of Health Standard Compliance (OHSC)  A system that is positiv ely perceived by patients (31% of complaints are in terms of w aiting times, 29% on patients care and 26% are in terms of staff attitude) The National Department of Health (NDH) leads and coordinates health services to promote the health of all people in South Africa through an accessible, caring and high quality health system based on the primary health care approach.
The Department implemented its mandate w ith an adjusted budget allocation amounting to R58.1 billion or almost 6 per cent of the total allocations per v ote in 2020/21.

On av erage, the Department transfers almost 93 per cent, of the allocated amount, to other institutions of w hich almost 89 per cent is transferred to provinces in the form of conditional grants, to deliv er services on behalf of the NDH.
At a prov incial lev el, the Member of the Executiv e Council (MEC) responsible for prov incial public health serv ices must ensure the implementation of national health 8 | P a g e policy and health serv ices norms and standards in his or her prov ince.

Provinces receive a PES specific for health purposes as w ell as health conditional grants to prov ide provincial health services and to implement national health policies.
Table 1 show s that 36 per cent of provincial budgets are allocated to provincial departments of health.

I t further show s that prov inces hav e spent 44.7 per cent of their health budgets in the first six months of the financial.
Table 1: Health expenditure per Province, 2020/21 financial year I n the 2019/20 financial year, the NDH allocated conditional grants to prov inces to prov ide for: • • • • • • • • • National tertiary services HI V, TB, malaria and community outreach Human Papilloma Virus v accine Health facility revitalisation Health Professional Training and Dev elopment Grant (Direct Grant) National Health I nsurance Grant: Personal Services Component National Health I nsurance Grant: Non Personal Services Component National Health I nsurance Grant: Health Facility Rev italisation Component Human Resources Capacitation An analysis of the performance of the Health Conditional Grants in 2019/20 show s that: The National Tertiary Service Grant:  Underspending due to delays in deliv ery of equipment.
A rollov er was requested  All performance outputs have exceeded the targets 9 | P a g e R millionTotal Adjustedbudget Health budgetHealth budget as % of total Adjustedbudget Actual spending April to SeptemberEastern Cape85 406 28 135 32.9%51.9%Free State39 055 12 477 31.9%44.3%Gauteng146 389 60 277 41.2%46.0%KwaZulu-Natal140 005 53 140 38.0%46.2%Limpopo71 609 23 227 32.4%47.1%Mpumalanga53 579 16 776 31.2%44.5%Northern Cape18 450 5 761 31.2%48.1%North West45 895 14 483 31.6%47.3%Western Cape72 791 27 857 38.3%46.6%Total 673 179 242 133 36.0%44.7%Source: National Treasury HIV, TB, Malaria and Community Outreach Grant (Direct Grant)  Under-spending of 0.8 per cent (due to: NHLS and ARV inv oices not paid by KZN, misallocation of expenditure by FS & GP)  Under-performance on TB, HI V and Malaria targets The Health Facility Revitalisation Grant (Direct Grant)  Underspending of 3.0 per cent of the transferred amount is reflected  Only three of the fiv e planned new facilities w ere completed due to poor performance, w hich caused delays in completion of some capital projects.
The Department indicated that additional regular monitoring and ov ersight tools will be implemented to ensure adequate project execution National Health Insurance Grant: Health Facility Revitalisation Component (Indirect)  There w as under-spending of 22 per cent on the original budget allocated for the NHI Grant caused by inv oices that w ere received late  The conditional grant also underperformed on the completion of new facilities (2 of the planned 6 completed); facilities maintained (39 of 45 planned) and only two of the planned 10 facilities w ere upgraded or renovated and refurbished Health Professional Training and Development Grant (Direct Grant)  Almost the full transferred amount for the conditional grant w as spent  The recruitment of specialists and other staff w as slow .
The reason for the slow recruitment w as due to the need to obtain approv al from Prov incial Treasury or Premiers’ Offices for these appointments in some prov inces  This is the only grant that show s the number of administration staff (of 23) as an output Full expenditure w ithout performance raises questions about the credibility of the budget and w hether there was efficient expenditure of the funds.
I f such a relatively small grant, w ith only 4 outputs, requires 23 administrativ e staff members, other conditional grants might then require much more.

The cost of administration should play a crucial role in structuring the funding of a sector.
Human Papilloma Virus  There w as underspending of 19 per cent on the original budget allocated for this grant  The planned v accination of 80 per cent of 9-year old girls w as almost met (76.7%) This conditional grant has been merged w ith the HI V, TB, Malaria and Community Outreach Grant (Direct Grant).
10 | P a g e National Health Insurance Grant: Personal Services Component (Indirect)  The department spent 13 per cent of this budget  No district lev el observations for psychiatric services, clinical psychological services and forensic mental services were provided  There w as no spending on General Practitioner Contracting (Capitation) The reason giv en for not contracting priv ate health professionals w as non- compliance of health professionals to supply chain management requirements.
A capitation model w as, how ever, dev eloped but w as not implemented due to capacity challenges to implement the reimbursement model.

I n future the contracting of health professionals will be decentralised to the Prov incial Departments of Health.
National Health Insurance Grant: Non Personal Services Component (Indirect)  The Department has spent only 64 per cent of the original budget allocated for this conditional grant  The Department performed or ov er-performed on the planned outputs  381 731 more patients w ere enrolled in the chronic medicines dispensing and distribution (CCMDD) programme Although a phased implementation of national health insurance is planned, the performance outputs or the budget for this grant should be rev iewed.
Such rev iew will ensure the implementation of the different health systems (stock, dispensing, registration, etc.)

that are required for the implementation of a proper national health serv ice and to prev ent under-spending or over budgeting for services that are already prov ided by the health sector.

One of the central aspects of the 2017 National Health I nsurance White Paper is the establishment of the National Health I nsurance Fund as a public entity.
Funds were reprioritised to the National Health I nsurance programme for establishing a capacitated unit w ithin the department.

This unit w ill be transferred to the new entity once it is created.

Prior to the formation of the National Health I nsurance Fund, national health insurance w ill largely be funded through the national health insurance indirect grant, w hich is managed and spent by the national department on behalf of prov inces.

The grant w as initially comprised of three components.
The non‐personal services component funds initiativ es to strengthen the health system in preparation for national health insurance.

These include information systems, the ideal clinic initiativ e, the centralised dispensing and distribution of chronic medicines, including antiretroviral drugs, and the piloting of the national quality health improv ement plan.
11 | P a g e The second component w as allocated tow ards a personal serv ices component to contract priv ate general practitioners to provide primary health care services in their ow n practices.

The allocations and scope of the component has been significantly narrow ed, and has been changed to a direct conditional grants (National Health I nsurance Grant) to prov inces.
These reallocations include funding for the contracting of general practitioners to do session w ork in public primary health care facilities, and to strengthen the provision of mental health and oncology services.

The third part of the national health insurance indirect grant w as the health facility rev italisation component.

This component remains the same although the ideal is to merge this conditional grant w ith the direct Health Facility Rev italisation Grant (see abov e).
Human Resources Capacitation (HRC) Grant (now merged w ith Health Professional Training and Dev elopment Grant (Direct Grant)  Ov er-expenditure as w ell as ov er-performance on this conditional grant w as due to the statutory obligation to place medical interns for completion of their studies 4.2.
Towards economic growth and job creation The South African Economic Reconstruction and Recovery Plan (ERRP) is planned to be implemented in three phases:  I mmediate: focuses on the protection of the supply base and liv elihoods  Medium-term: focuses on recovery of the economy  Long-term: focuses on growing and transforming the economy The Presidential Coordinating Committee (PCC) w ill receive monthly reports on the implementation of the plan.

These reports are, how ever, not av ailable to Parliament.
To determine the progress with the implementation of the immediate interv entions on priority areas, the quarterly performance data on the implementation of Annual Performance Plans of lead departments w ere consulted on their contributions to the priority areas:  Ensuring energy security: The Department of Mineral Resources and energy is the lead department in improv ing energy supply security.
The department planned to, amongst others, to dev elop sev eral framew orks for the transition to a low carbon economy, municipal infrastructure asset management, an integrated energy plan as w ell as legislation to improv e the electricity policy and a regulatory framework.

A draft national energy regulatory bill has been submitted to the State Law Adv iser.

The planned output for the dev elopment of an integrated energy plan and others hav e been postponed due to lack of resources (Softw are and Human).
Another reason for not achiev ing some of the other planned outputs are, delays in procurement of a serv ice provider for the task.

12 | P a g e  Industrialisation/growing the productive economy: The Department of Trade, I ndustry and Competition is the lead department in grow ing the productive economy.
The Department has discontinued the planned approv al of: • Financial support to100 enterprises/projects • Support to retain 2500 jobs from approv ed enterprises/projects • Support for 1 500 new jobs from enterprises/projects • R3 billion of projected investments to be leveraged from projects/enterprises • Export Dev elopment and Support (EDS) inclusiv e of women, youth and people w ith disabilities (WYPD) to Companies The Department has, how ever produced several analysis reports on public interest matters, such as the reports from the competition commission.
I t is not clear w hether the Department’s interventions addressed the needs of the ERRP such as the: • Sustainable increase in state procurement from local manufacturers in strategic v alue chains • Div ersion of firms in distress from closure/retrenchments • I mproved turnaround times and inv estor confidence rankings  Employment protection and stimulation through mass public employment interv entions.
The Departments of Public Works; Env ironment, Forestry and Fisheries; Higher Education; Basic Education; Agriculture, Land Reform and Rural Dev elopment; Sport, Art and Culture are all leading departments on interventions to protect and stimulate employment.
 Infrastructure that meets NDP 2030 intermediate targets are mainly lead by the Departments of Transport, Communication and Digital Technologies, and Water and Sanitation • The Department of Transport committed to dev elop and inv est in affordable public transport, protect and sustain commuter rail transport infrastructure.
The Department has allocated R2.25 billion to improv e the public transport network infrastructure and serv ices that function optimally and are accessible, safe, conv enient, affordable, w ell managed and maintained.

The Department also committed to inv est in rural and municipal road maintenance in the first six months of the financial year.
I n terms of the progress made the Department reported that:  A report on a National Household Trav el Surv ey was developed  An initial draft of the High-Speed Rail (HSR) Corridor Framew ork was dev eloped 13 | P a g e   An Analysis Report on the PRASA Modernisation Programme, as at end of September 2020, a total of eight (8) new trains (against a targeted 15 for the period under review) w ere provisionally accepted for delivery Targets to report on the rev ision of the Public Transport Funding Model dev eloped, the Rolling Stock Fleet Renew al Programme, PRASA Rail Operations and the number of rail safety occurrences reported were rev ised and the Department of Transport (DoT) Annual Performance Plan w as re-tabled in July 2020 Preliminary analysis on prov incial road maintenance showed that the Free State and Northern Cape rehabilitated 276 329 m2 of surfaced roads, re- grav elled 86.84 km of grav el roads; bladed 26 287 km of grav el roads and did blacktop patching on 94 665 m2   Although a Quarterly Analysis Report on the jobs created through the Deep Rural Roads Maintenance Programme w as not compiled, a report on job creation through the SANRAL Road Maintenance Programme was compiled  Virtual bilateral progress engagements w ere conducted w ith the cities operating integrated public transport networks  A total of 522 old taxi v ehicles w ere scrapped against a target of 350 per quarter • The Department of Communication and Digital Technologies is responsible for an interv ention to implement digital migration and committed to subsidise 4.7 million indigent households in the first phase of implementation.
A monitoring report w as dev eloped on the implementation of the Broadcasting Digital Migration Programme.

No numbers w ere, how ever, indicated in the quarterly performance report.

The monitoring report is not av ailable to Parliament.
• The Department of Water and Sanitation is responsible for bulk w ater infrastructure, w hich they indicated that are not fully funded  The completion of construction tender ev aluations for bulk raw w ater projects w ere not ready for implementation by the end of the second quarter as planned; therefore, the construction contracts w ill also not be aw arded by the third quarter as planned  I mmediate Macro-economic interventions and enablers for economic growth are mainly lead by the National Treasury, Departments of Justice and Constitutional Dev elopment, Higher Education, Employment and Labour, Human Settlements, Small Business Dev elopment and Public Service and Administration • The Department of Justice and Constitutional Dev elopment committed to take immediate steps to implement the anti-corruption strategy and to fight illicit economic activ ities 14 | P a g e  Most of the targets for conv iction rates w ere achiev ed by the second quarter of 2020/21  Delays w ere experienced in high v alue cases.
Justice recovered R2.6 million (target R350 million) and R500 000 (Target R600 million) w orth of freezing orders w ere obtained for corruption or offences relating to corruption in the second quarter of 2021/22 • Department of Employment and Labour continues to protect w orkers through the UIF  I n the second quarter of 2020/21, 405 523 w ork-seekers were registered on the Employment Serv ices of South Africa database against a target of 187 500, w hile 43 881 employment opportunities w ere registered and 18 971 employment opportunities w ere filled by registered w ork seekers • The Department of Human Settlements is mandated to prov ide decent housing and integrated human settlements and committed to interv entions in the form of gap housing products.
The prov ision of Human Settlements is mainly funded through prov incial and local gov ernment conditional grants.

 The quarterly performance report (QPR) on the Annual Performance Plan mainly reflects progress on research, and monitoring and ev aluation reports of the respective programmes.

Outputs in terms of gap housing could not be detected in the QPR.

The QPR does not reflect any progress on service delivery performance.
 A quarterly performance assessment report w as compiled on the number of households that received financial assistance and purchased units through the Finance Linked I ndividual Subsidy Programme (FLI SP), w hile a report on the subsidies allocated to approv ed beneficiaries is outstanding for quarters one and tw o.

• Department of Small Business Dev elopment committed to use current resources to review and integrate government support for formal and informal SMMEs, start-ups and cooperatives.
 A report on the 10 000 competitiv e SMMEs and Co-operatives supported has not been compiled  Most of the financial support to SMMEs, informal businesses and cooperatives w as div erted/reprioritised to new ly-developed Cov id-19 Relief programmes To date, R316 million of the R513 million has been disbursed, and supported the maintenance of 23 254 jobs in the economy  15 | P a g e  Green economy • The Department of Env ironment, Forestry and Fisheries is leading the interv entions that w ill make an impact on the green economy.
These interv entions relate to w aste management and climate change.

 Outputs are reflected in the APP and progress is reported as part of the QPR.

Although the lockdow n had an effect on the progress, progress has been made in programmes such as chemicals and w aste management.

 Agriculture and food security is mainly funded by conditional grants on a prov incial level.

The national department included indicators in the APP that can be used to monitor food security.
The monitoring of progress w ith the implementation of conditional grants w ill, how ever, be more useful.

• The Department of Agriculture Land Reform and redistribution is committed to improv e the quality supply and market linkages w ith institutional markets and to upscale production schemes, create additional jobs and support new farmers and SMMEs.

  The lockdown due to the cov id-19 pandemic affected most of the targets for rural dev elopment, land redistribution and capital projects.
Targets w ere not achieved or mov ed to the remainder of the financial year.

The loss of technical adv isors influenced the progress in Agricultural Production, Health and Food Safety.

 Reviving the tourism sector • To be able to rev ive the sector the Department of Tourism is committed to increase the div ersity of South African tourism products and domestic holiday trips.
Although the Department does not report directly on the number of domestic and international holiday trips; they are in the process of dev eloping a concept document for the dev elopment of a National Tourism Analytics System Framew ork.
Other indicators that could be useful to monitor the progress w ith the revival of the tourism sector are:   The Department ensures the maintenance of infrastructure in SANParks They finalised the terms of records for the appointment of a Serv ice Provider to dev elop project concepts for five community-based tourism projects at:  A Domestic Tourism Scheme w as implemented in Drakensberg, Kw aZulu- Natal on 10-11 Nov ember 2020 4.3.
Towards improved Local government service delivery: The District Development Model (DDM) The DDM aims to accelerate, align and integrate serv ice delivery in the local sphere of gov ernment to address the triple challenges of pov erty, unemployment and 16 | P a g e inequality.

I t is an interv ention of gov ernment focusing on the municipal districts and metropolitan spaces.

These impact areas w ill be subject to joint planning, budgeting and implementation.
The DDM necessitates the localisation of the Medium Term Strategic Framew ork (MTSF) to the districts in alignment to their specific dev elopment needs and challenges.

A district approach is also an adv antage to strategically coordinated responses to serv ice deliv ery, dev elopment and disaster management in the context of each districts specific circumstances.
The first pilot sites of the district-based coordination model w ere: • OR Tambo District Municipality in the Eastern Cape • eThekw ini Metro in Kw aZulu-Natal • Waterberg District Municipality in Limpopo I n 2020, the gov ernment expanded the DDM roll-out to 23 new districts and planned to reach 44 districts and all eight metros by the end of 2020, draw ing on lessons from the three pilot districts.

Government plans to conclude all 52 districts by August 2021.
Current progress on the roll-out of the DDM are: • The establishment of District Hubs in OR Tambo and Waterberg • The completion of Profiles in relation to all 52 spaces cov ering situation analysis • A gap analysis in relation to departmental budgets and spending in the 3 pilot sites The establishment of a Programme Management Unit (PMU) The appointment of political champions • • • Engagements w ith v arious stakeholders outside government and the preparation of a stakeholder management and communication plan that needs to be finalised and implemented in a focused manner To draft guidelines for the dev elopment of ‘One Plans’ • 17 | P a g e I t has become ev ident that some gov ernment role players hav e different understandings w ith regard to the intent of the DDM and concerns about introducing new approaches.
Findings from a monitoring report by the Department of Planning, Monitoring and Ev aluation has, how ever, indicated that communities w hom hav e suffered spatial disadv antage have been exposed and more v ulnerable to the current disaster (Cov id-19 pandemic), e.g., particularly w ith regard to access to water, shelter, economic activity, spatial mapping of the Cov id-19 outbreaks, health interv entions, and health system readiness (w ard profiles).
The principles of the DDM enabled gov ernment to implement a differentiated approach to Covid-19that could be further strengthened based on the lessons learnt.

Future monitoring across the 52 intergov ernmental impact zones w ill include reports on gender based violence.

5.

Macro and socio economic factors informing budget decisions 5.1.

The global economy The World economy is expected to contract by about 4.3 per cent this year, primarily due to the effects of the coronavirus.
Figure 1: Economic growth estimates and forecasts for South Africa, the world emerging markets and developing economies Annual percentage economic growth (2018 and 2019 actual, 2020 estimate and 2021 and 2020 forecast) 6 4 2 0 -2 -4 -6 -8 2018 2019 2020e 2021f 2022f South Africa World Advanced economies Emerging market and developing economies Source: SARB 18 | P a g e The w orld economy – including both overall product and trade in goods and services is expected to rebound in 2021, how ever, this is dependent on the ability of gov ernments to manage the Cov id-19 and its effects on the economy.
There exists considerable risks and uncertainties to the outlook emanating from the corona v irus crisis, including second and further w aves of the v irus and successful rolling out of the v accines, w hich w ould further affect economic activ ity.

Therefore, w hile projected, global economic grow th is positiv e for 2021.

Sev eral risks indicate the need for continued fiscal action by gov ernments.
There is the added risk that unev en rollout of the v accine increases inequality across countries and w ithin countries and raises the possibility of increased social and political instability.

Large-scale fiscal stimuli helped ease suffering, but are generally unlikely to have supported longer-term inv estments and creation of new jobs.

The global economy may; therefore, face a low er grow th phase unless there is continued support for household income, jobs and inv estment.
There is also heightened risks of financial market stress and crises.

Many developing countries have had to increase debt.

Unless there is debt relief and forgiveness for developing and lesser developed countries, the likelihood of a debt crises and contagion is high.
Further, the huge financial liquidity created by dev eloped country central banks (through measures such as quantitative easing) has led to under-pricing of risk and bubbles in financial markets in both dev eloped and developing countries that increase systemic risks and the possibility of domestic and possibly global financial upheav als.

5.1.1.
5.1.1.

Global economic outlook There now exists a common v iew and the emergence of a broad consensus amongst international agencies about the need for continued fiscal support to address the impact of the Cov id-19 pandemic.
The United Nations 2021 World Economic Situations and Prospects w arns that “A premature embrace of austerity w ill inev itably w eaken the speed and quality of the recovery and undermine resilience to future shocks.” According to the World Bank 2021 World Economic Outlook, key immediate policy priorities are:  limiting the spread of the v irus;  prov iding relief for vulnerable populations; and  ov ercoming v accine-related challenges.
The World Bank also sites that: “As the crisis abates, policy makers need to balance the risks from large and grow ing debt loads w ith those from slow ing the economy through premature fiscal tightening.” This v iew is similar to that expressed in the United Nation’s 2021 World Economic Situation and Prospects that also w arns about moving tow ards fiscal consolidation and austerity too hastily and says: “Austerity measures almost alw ays cut back social sector spending on health and education and public 19 | P a g e serv ices ….”.
The World bank in the 2021 WEO points to preparing for a post-pandemic w orld, but also preparing for future health risks.

To confront the adv erse legacies of the pandemic, it w ill be critical to foster resilience by:  Safeguarding health and education  Prioritising investments in digital technologies and green infrastructure  I mproving governance, and  Enhancing debt transparency 5.2.
Domestic economy The effects of the coronavirus pandemic and measures introduced to curb its spread, in South Africa and across the w orld, sev erely harmed the South African economy during 2020.

The South African economy, already in a technical recession at the start of the pandemic, experienced a record-high contraction in the first quarter of the 2020/21 financial year, compared w ith the prev ious quarter (52% - seasonally adjusted and annualised), and the same quarter in the prev ious year (17%).
This w as largely due to stringent lock-down measures imposed by government from the end of March 2020, w hich sev erely restricted economic activ ity.

Ov er the second fiscal quarter of 2020/21, the economy again experienced a large contraction (6%) compared w ith the same period in the prev ious year.

Over the first half of the 2020/21 financial year, the economy contracted by 7.9 per cent compared w ith the same period in the prev ious financial year.
Figure 2: A deep and unprecedented recession The effects of continued anaemic economic performance in the period preceding the break-out of the pandemic, combined w ith the debilitating effects of the pandemic, hav e contributed to w idespread job losses, increasing pov erty, hunger and inequality, as w ell as a w orsening of South Africa’s fiscal position.
20 | P a g e Figure 3: Quarterly expenditure on Gross Domestic Product, 2019 to 2020 quarter 3 Real quarterly expenditure on key components of Gross Domestic Product in R billions (2010=100) 600 500 400 300 200 100 0 -100 Household consumption General government Gross fixed capital formation Net exports (X-M) Large declines in real household consumption and inv estment were key drivers of the drop in GDP during 2020.
These large declines occurred in an economy that was already struggling w here GDP per capita and real inv estment declined since 2015.

Trends in household income, consumption and indebtedness indicate that household consumption w as in line w ith an increase in real disposable income in the third quarter of 2020, despite rising unemployment and low consumer confidence.
In general, the av erage lev el of household consumption w as 7 per cent low er in the first three quarters of 2020 than in the corresponding period in 2019.

Household consumption expanded by 69.5 per cent from the second to third quarter of 2020, hav ing contracted by more than 50 per cent in the second quarter of 2020.
Figure 4: Quarterly change in household consumption Source: StatsSA 21 | P a g e Figure 5: Quarterly change in household debt Source: StatsSA Household debt decreased in the third quarter of 2020 follow ing an unprecedented increase in debt in the second quarter.

Household debt as a percentage of nominal disposable income decreased from 86.5 per cent in the second quarter of 2020 to 75.7 per cent in the third quarter, as the increase in household disposable income exceeded the increase in debt.
Consumers that w ere more than three months in arrears increased betw een the second and the third quarter of 2020, from 22.9 per cent to 23.75 per cent.

According to the General Household Surv ey of 2019, social grants remain a v ital safety net for households.

Gov ernment’s COVI D-19 response included increased social assistance through a 6-month increase in existing social grants and a Social Relief of Distress (SRD) grant.
To further assist households the President announced the extension of the Social Relief of Distress (SRD) grant until the end of April 2021.

Ov erall, recent improv ements in household consumption, income & debt lev els are good but the impact of the pandemic w ill hav e a long lasting and damaging impact on household incomes and finances over a long period.
For example, consumers that w ere more than three months in arrears increased between the second and the third quarter of 2020, from 22.9 per cent to 23.75 per cent.

Therefore, continued extra fiscal support to poor household w ill be essential to support w ellbeing of households and grow aggregate demand for more jobs, inv estment & grow th.

5.2.1.
5.2.1.

Effect on employment The most recent data av ailable from the Quarterly Economic Surv ey (3Q 2020) indicates that the economy shed about 665 000 (6.5%) formal non-agricultural jobs ov er the first half of the 2020/21 fiscal year.

The largest losses w ere recorded in the 22 | P a g e trade sector (176 000 – 7.8%) and the financial and business services sector (163 000 – 7%).
The most recent data from the Quarterly Labour Force Survey (3Q 2020) estimate job losses of 1.9 million ov er the first half of the fiscal year, w ith the employment rate increasing to a record high of 30.8 per cent (broad definition: 43.1%).

Figures 6 and 7 show s the employment losses in the formal sector and the quarterly employment performance.

Figure 6: Large employment losses in the formal sector Figure 7: Record-high unemployment and job losses 23 | P a g e 5.2.2.
Effect on revenue The large and unprecedented contraction in the economy w as immediately ev ident in the fall in gov ernment rev enue.

Over the first fiscal quarter, main budget revenue contraction w as 25 per cent compared w ith the same quarter of the prev ious year and larger than the contraction in nominal GDP ov er the quarter (14.8%).
The large fall in main budget rev enue reflects a reduction in collection across all revenue sources, primarily the contractions in v alue added tax (28.1%), corporate income tax (27.5%), and personal income tax (11.2%).

Figure 8: Large revenue contraction The fall in rev enue collection also reflects the effect of the suite of tax relief measures introduced in the 2020 Draft Disaster Management Tax Relief Bill and 2020 Draft Disaster Management Tax Relief Administration Bill.
These include the four-month deferral of employees’ tax liability (w hich w ould hav e reduced the PI T collected betw een April and July 2020, and increased thereafter), as w ell as the broadening of eligibility criteria for deferral of prov isional tax liabilities, (w hich w ould hav e delayed some CI T collections).

The ov erall annual decline in main budget rev enue collected over the second fiscal quarter w as large (12.6%), but low er than the first quarter decline (25%).
The smaller annual decline in v alue-added tax collected (4%), reflects a partial return to normal economic activ ity with the “opening up” of the economy ov er the quarter, following the stringent lockdown measures imposed over the previous quarter.

Ov er the third fiscal quarter, main budget rev enue collected increased compared w ith the prev ious year.
A strong rebound in VAT (12%) and CI T (14%) collected contributed to the ov erall increase, w hilst the third consecutive contraction in PIT collections (3.3%) reduced the total rev enue collected.
24 | P a g e Figure 9: Job-losses and compensation contraction contribute to fall in PIT On a year-to-date basis (April – December 2020) main budget rev enue contracted by 10 per cent, a smaller contraction than projected for the complete 2020/21 financial year in the 2020 Medium Term Budget Policy Statement (MTBPS) of 17 per cent.
Large losses in formal sector employment (665 000 ov er 1H 2020/21) combined w ith an ov erall decline in employee compensation suggest weakness in PI T collections is likely to continue.

The effects of the modified national level 3 lockdown early in 2021 on rev enue growth is still to be seen.

5.2.3.
5.2.3.

Economic outlook The June 2020 Special Appropriations Budget, followed by the 2020 MTBPS in October, projected a large economic contraction ov er the current fiscal year relativ e to the Budget 2020 projections, w ith a gradual partial recov ery expected over the medium term.

I n-line w ith the large economic contraction and the attendant revenue contraction, the country’s fiscal outlook w as projected to w orsen considerably.
The MTBPS presented a main budget deficit projection of ov er -14 per cent for 2020/21, an unprecedented increase from the 2020 Budget projection of -6.8 per cent.

Accordingly, gross debt w as projected to exceed 90 per cent of GDP by 2022/23.

Economic and fiscal data av ailable suggest that the outcome for 2020/21 could be marginally better (less-w orse) than projected in the Special Appropriations Budget and MTBPS.
This is supported by the most recent updates to grow th projections for the current years, showing an upw ard revision (marginally smaller contraction).

25 | P a g e Table 2: Revised GDP growth outlook 6.

Revisions to the fiscal framework The large economic contraction ov er the current fiscal year has significantly w orsened South Africa’s fiscal position, as anticipated in the June 2020 Special Appropriations Budget and the 2020 MTBPS.
The significant decline in revenue collection combined w ith large nominal GDP contraction saw the main budget reach a deficit of 15.6 per cent over the first half of the current fiscal year, close to the MTBPS annual projection of a 14.6 per cent deficit.

Figure 10: Fiscal performance as at end December 2020 Falling rev enues and the attendant increase in borrowing, have increased the share of rev enue directed tow ards servicing debt.
Ov er the first half of the current fiscal year, 23 cents of ev ery rand w as consumed by debt serv ice costs.

26 | P a g e Based on the actual outcomes for the first nine months of the current fiscal year, and historical monthly rev enue profiles, the PBO’s In-year revenue and expenditure model estimates main budget rev enue higher than projected by gov ernment in the 2020 Special Appropriations Budget and MTBPS for the current year (2020/21).
Revenue outcomes to-date combined w ith the marginal improv ement in nominal growth projections translate into an improv ed (less-w orse) rev ised estimates of the main budget deficit and net debt as a share of GDP.
Whilst this suggests a low probability of further fiscal slippage ov er the current fiscal year and a possible improv ement relativ e to the MTBPS, economic and fiscal projections in times of crisis and uncertainty are radically more uncertain, and sensitiv e to the v agaries of the global economy and the future trajectory of coronav irus.
Figures 11 and 12 show the main budget deficit and the improv ement in the debt outlook Figure 11: Main budget deficit Figure 12: A marginal improvement in the debt outlook 27 | P a g e 6.1.

Effect on borrowing costs South Africa’s borrowing costs, w hilst moderating in the second half of 2020, are still elev ated relative to prev ious years, and higher than most emerging market peers, reflecting investor perception of elevated risk.
However, it is w orth noting that there is a marked improv ement in borrowing costs for bonds w ith maturity of 10 years or less for January 2021 compared to January 2020 and SA bond auctions remain relatively w ell subscribed.

Figure 13 show s the bond auction performance at a 10-year fixed rate.

Figure 13: Moderation in borrowing costs since early 2020 Gov ernment borrowing costs have been on a continued upw ard trajectory over the last 18 months.
Figure 14 show s the yield on gov ernment 10-year bonds in comparison w ith other emerging markets.

28 | P a g e Figure 14: SA still considered riskier than most other EMs Figure 15 show s the av erage monthly yield betw een January 2020 and January 2021.

Figure 15: Yield curve shows moderation compared with mid 2020 7.

National and Provincial Expenditure 7.1.

National departments Total expenditure by v ote amounts to R732.2 billion or 71.4 per cent of the total budget of R1 025.3 billion for 2020/21.
This performance is in line w ith the expenditure trend reflected in the first nine months of the 2019/20 financial year.

29 | P a g e Table 3: National expenditure per vote as at end December 2020 Source: National Treasury The Department of Health is responsible for providing health services to South Africans and plays a piv otal role in managing the Cov id-19 pandemic.
The department has spent R42.3 billion or 72.9 per cent of the adjusted budget of R58 billion in the first nine months of the financial year.

Gov ernment reprioritised funds amounting to R3.4 billion specifically for Cov id-19 related needs.

I ndications of possible underspending (approximately R124.4 million) on consultants and adv isory services will be reprioritised for the procurement of Cov id-19 vaccines.
The Department of Social Dev elopment ensures protection against v ulnerability by creating an enabling env ironment for the prov ision of a comprehensive, integrated and sustainable social dev elopment service.

The original budget of R197.7 billion was adjusted during the 2020/21 financial year by R33.1 billion, w hich resulted in an adjusted budget of R230.8 billion.

Of this amount R220.

6 billion is allocated for social assistance.


Table 4 show s the amounts per grant as w ell as the number of beneficiaries per month.

The department has spent 76.7 per cent of the adjusted budget, w hich is R20 billion abov e the projected expenditure for the first nine months of the financial year.
This higher than projected expenditure w as mainly due to a higher number of eligible beneficiaries of the R350 special Cov id-19 social relief of distress grant that came into effect from May 2020 (third quarter NT report).
30 | P a g e 2019/20R thousandRevised estimatesTotal Year to datePercentage of total Percentage of total 1The Presidency572 920 331 429 57.8%72.5%2Parliament2 015 845 1 595 421 79.1%74.8%17Higher Education and Training94 094 944 87 412 821 92.9%91.2%18Health58 052 596 42 294 941 72.9%73.9%19Social Development230 807 298 176 197 651 76.3%68.9%20620 976 511 907 82.4%76.4%25Justice and Constitutional Development18 666 284 12 230 607 65.5%70.2%27Office of the Chief Justice 1 188 121 749 718 63.1%69.2%29Agriculture, Land Reform and Rural Development15 247 613 9 759 381 64.0%77.3%31Employment and Labour3 299 305 2 330 505 70.6%73.6%32Environment, Forestry and Fisheries9 937 801 5 982 537 60.2%64.7%33Human Settlements29 079 019 18 340 388 63.1%63.1%36Small Business Development2 277 803 2 066 740 90.7%83.5%38Tourism1 426 860 800 545 56.1%78.1%39Trade, Industry and Competition9 273 272 5 101 022 55.0%62.0%40Transport57 354 735 42 399 666 73.9%75.4%41Water and Sanitation16 994 291 9 805 923 57.7%64.0%Total appropriation by vote1 025 349 737 732 199 382 71.4%71.4%2020/21Women,Youth and persons with Disabilities Table 4: Social Assistance per grant for 2020/21 Source: National Treasury Expenditure on most of the remainder of the departments in table 3 are departments that also hav e a role in the implementation of the ERRP discussed in section 4.2 above.
I n addition to the abov e Cov id-19 related support expenditure in the relevant departments, a total of R57.3 million w as paid out by the UI F. A total of 13 447 006 employees w ere linked to 1.5 million companies received TERS payments (Chief Executiv e Officer, Adv Andy Mothibi, Special I nv estigating Unit report to the Committee on Labour).
These numbers could, how ever, not be v erified w ith the in- year monitoring report (second quarter) and quarterly performance reports are not av ailable on the Department of Planning, Monitoring and Ev aluation’s database.

7.2.

Provinces Table 5 show s prov incial expenditure for the first six months of the 2020/21 financial year.
Total spending on a prov incial level amounts to R300.8 billion or 44.9 per cent of the main budget of R669.7 billion and 44.8 per cent of the adjusted budget of R673.2 billion.

The slow est spending province was North West at 43.0 per cent and the highest spending prov ince was the Eastern Cape at 47.2 per cent.
31 | P a g e Total second SupplementaryadjustmentsAdjustedNumber of beneficiariesAchieved R thousandAppropriationappropriationappropriationappropriation 2020 ENEend SeptemberOld Age83 105 596 – –83 105 596 3 800 000 3 711 723 War Veterans1 797 – –1 797 47 47 Disability24 390 083 – –24 390 083 1 000 000 1 067 242 Foster Care4 965 276 80 819 –5 046 095 326 380 374 274 Care Dependency3 568 568 – –3 568 568 157 871 158 186 Child Support69 765 229 15 120 330 –84 885 559 13 000 000 12 938 440 Grant-in-Aid1 632 230 – –1 632 230 311 056 263 640 Social Relief of Distress407 000 10 272 733 500 000 11 179 733 Total187 835 779 25 473 882 500 000 213 809 661 Table 5: Provincial expenditure per province as at end September 2020 Source: National Treasury Table 6 show s prov incial expenditure for the first six months of the 2020/21 financial year per sector.
The social sector has only spent 42.1 per cent of the prov incial budget for social dev elopment, Education w as at 44.9 per cent, w hile the Health sector was on par w ith the notional benchmark of 50 per cent for the six months of the financial year.

Table 6: Provincial expenditure per sector as at end September 2020 Source: National Treasury 8.

Local government revenue and expenditure 8.1.


Revenue Municipalities rely on tw o main sources of rev enue: Ow n rev enue and I ntergovernmental fiscal transfers.

Local gov ernment is generally self-financing deriv ing an av erage of 73.0 per cent of total real operating rev enues from own rev enue collection.

Intergovernmental fiscal transfers contribute on av erage 27.0 per cent to total municipal rev enue.
The fiv e-year period under consideration, 2015/16 to 2019/20, seems to show that local gov ernment does hav e the ability to collect 32 | P a g e 2019/20R millionMain budgetAdjustedbudget Actual spending April to SeptemberActual spending April to SeptemberActual spending April to September Eastern Cape85 908 85 406 40 590 47.2%51.8%Free State39 055 39 055 17 681 45.3%48.3%Gauteng142 367 146 389 62 596 44.0%46.2%KwaZulu-Natal138 182 140 005 62 350 45.1%47.2%Limpopo72 796 71 609 32 473 44.6%48.1%Mpumalanga54 019 53 579 23 954 44.3%48.7%Northern Cape19 147 18 450 8 646 45.2%49.4%North West46 513 45 895 19 990 43.0%46.4%Western Cape71 664 72 791 32 543 45.4%47.9%Total669 652 673 179 300 822 44.9%48.0%2020/212019/20R millionMain budgetAdjustedbudget Actual spending as at end SeptemberPercentage spent as at end SeptemberActual spending as at end SeptemberEducation272 271 270 877 122 136 44.9%48.8%Health225 406 242 133 113 386 50.3%49.5%Social development24 094 23 701 10 136 42.1%46.6%Other functions147 881 136 468 55 164 37.3%44.3%Total669 652 673 179 300 822 44.9%48.0%2020/21 rev enue.
Relative to gov ernment grants and subsidies, municipal ow n rev enue has been steadily increasing ov ertime.

8.2.

Expenditure Local gov ernment expenditure driv ers are remuneration of employees and material and bulk purchases.

When combined these items account for more than 60 per cent of the total operating expenditure.
Figure 16: Composition of local government expenditure 100% 80% 60% 40% 20% 0% 2015/16 2016/17 2017/18 2018/19 2019/20 Material and bulk cost Other expenditure Contracted services Employee cost Depreciation Finance charges Costs related to contracted services has also been increasing along w ith depreciation expenditure.
Other expenditure, w hich has been the third largest expenditure item, has decreased significantly over the period under consideration.
Challenges of local government ability to collect revenue and to prioritise spending:  All aspects of the rev enue management v alue chain need completeness for: I ntegrity of billing information • • Accuracy of billing systems • Ability to collect  Under-pricing of services • I nappropriately structured municipal taxes and tariffs • Ov erly generous rates rebates, exemptions and discounts  Underspending on repairs and maintenance • Deteriorating reliability and quality of serv ices • Spending on non-priorities I ncreasing the future cost of maintenance and refurbishment  • Excessive sponsorships for music festiv als, beauty pageants and sporting ev ent • Excessive catering for meetings and other ev ents • Excessive councillor and staff perks 33 | P a g e 9.
Summary Gov ernment has made progress in implementing the Social and Economic Relief Package introduced in April 2020.

I t is, how ever, ev ident that more support is still required to support households, SMMEs and the economy at large.

Although it is difficult to determine the progress made w ith the implementation of the ERRP, giv en that interv entions are capital in nature and requires more time to measure, immediate outputs from gov ernment departments contributed to the impact that is required.
I n an effort to improv e services on a local gov ernment level the District Development Model has been piloted in three districts (Waterberg, OR Tambo and EThekw ini ), and DPME is still to prov ide an ev aluation of the outcomes of the pilots.

I n the interim gov ernment plans to implement the DDM across the country.
A challenge for the implementation of the DDM is that some of the gov ernment role players still lack total understanding or appreciation of the goals and objectives of the district development model Due to the important role of the Health sector in managing the needs of the Cov id-19 pandemic, the PBO did an analysis of the performance on health conditional grants for the 2019/20 financial year.

The analysis show s underspending in some of the grants and a mixed outcome in performance.
The effect of Covid-19 on the economy and financial position of countries shows that: • There are generally positiv e sentiments around the global economic outlook, how ever the role of the fiscus in stimulating the economies remain important over the medium term • As countries continue to fight the pandemic and its socio and economic impact, public debt is expected to increase ov er the medium term, and therefore public debt should be used for productive expenditures to stimulate economic growth • Large declines in South African real household consumption & inv estment w ere key driv ers of the drop in GDP during 2020 • The outlook for the SA economy seems to hav e improv ed marginally since the • • tabling of the MTBPS (notw ithstanding increased uncertainty) I t w ill take more than 4-years for the SA economy to recover to pre- Coronavirus lev els I n-line w ith expectations, rev enue collection fell significantly compared w ith the prev ious year over the first tw o quarters.
However, 9 months tax rev enue collections outperformed expectation • The 2020 Supplementary Budget and MTBPS show ed a substantial increase in the borrowing requirement for the 2020/21 fiscal year 34 | P a g e Progress with the implementation of the 2020/21 budget inclusiv e of reprioritisation to address the requirements of the Cov id-19 pandemic show s: • Gov ernment spending for the 9 months of the financial year is, on av erage, in line w ith prior year patterns • Slow spending in Tourism, Trade, I ndustry and Competition, Water and Sanitation • Faster spending experienced in Parliament, Higher Education, Women Youth and Persons w ith Disabilities • Possible underspending in Health (approximately R124.4 million) on consultants and adv isory services will be reprioritised for the procurement of Covid-19 v accines • A higher than estimated expenditure in social dev elopment ov er the first nine months of the financial year w as mainly due to a higher number of eligible beneficiaries of the R350 special Cov id-19 social relief of distress grant • As expected, 6 months expenditure of prov inces is slightly slow er than the prior year in the same period.
Health has seen slightly higher spending than the prior year • Cov id-19 and related lockdown affected local government’s performance, with low rev enue collection and further slow spending in infrastructure and capacity building 35 | P a g e