South Africa Free State Province 2014

Summary assessment
Little progress on achieving structural reform and eliminating deep-seated rigidities in the budget system continues to severely hamper the efforts to ease the development conditions and economic opportunities in the province. As the economy recovers, the national authorities   face the key task of restraining the growth in public expenditures, especially the public sector wage bill, in order to contain public sector debt at prudent levels, and without structural remedy and fiscal rules the province fails in its efforts to create more fiscal space and ease the business environment for enabling a more engaging private sector.
The results of the PEFA assessment indicate that the Provincial Treasury has exercised its roles and powers in the prescribed framework, by adopting fiscal policy on a prudent manner and in strict adherence to the treasury regulations. On the aggregate, it pursued restraint and control in the use of public resources, with overspending rates maintained at a low range. However, the control over the implementation of the provincial budget is contrasted by large mismatches in the distribution of public resources across departments, not strategically responding to the policy priorities and challenges noted in the PGDS. Fundamental deficiencies in budgetary planning remain largely unresolved in the province, not addressing the costing and better standardising of key development programmes and functional structures in the budget so that it allows to the drafting of more realistic budgets, the alignment of budget items and activities to expected development results, the rationalisation and reallocation of staff resources in programmes of greater need, and the prioritisation of essential expenditure and elimination of waste.
The modest increase of local funding has not been accompanied by more meaningful reform measures to penalise infractors and collect high unpaid bills to the Provincial Treasury.
Increases in expenditure have essentially been spurred by large increases in public wages and pension bills buffered with capital projects and purchases of goods and services remaining at historically low levels. Clearly, large increases in public compensations were not commensurate with the efficiency and productivity gains in basic service delivery thus reflecting more the need to adopt performance and programme budgeting, as prescribed by the National Treasury. Administration of direct cash transfers and capital projects, on the other hand, had confronted a severe deficit of capacity at local level not necessarily resulting in services benefitting the targeted beneficiary population and not improving the access of population to economic opportunities in a meaningful manner.
The institutionalisation in the use of BAS across the provincial government constitutes a major milestone in PFM reform, thus resulting in substantive improvement of financial planning, automation of financial controls, and simplifying, processing and reporting of financial transactions. Clearly, the budget preparation process is another major success of PFM reforms over the years which had led to a more active and transparent dialogue between the province and the national government throughout the budget process in recent years. Other reforms and other internal controls, however, are lagging in areas such as procurement and human resource management. PFM, as a result, is required to contribute more to enable an improved efficient service delivery, particularly in regard to the formation and recruiting of skilled personnel, the rewarding of more budget against performance, the adoption of commitment calendars to form part of the commitment controls and match the cash disbursal plans, and the timely procuring of key resources in priority programmes and districts in dire need.                

Note by PEFA Secretariat: The 2014 PEFA South Africa - Free State Province Assessment had not been subject to PEFA Secretariat review and quality assurance process