Browsing by Author "Pakkies, Letsepa"

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    Fiscal sustainability and the South African financial management challenge at national government level
    (Stellenbosch : Stellenbosch University, 2016-12) Pakkies, Letsepa; Mortimer, Len; Stellenbosch University. Faculty of Economic and Management Sciences. School of Public Leadership.
    ENGLISH SUMMARY : The South African government is confronted with hard choices on how to harness financial management reforms while reducing costs associated with financial misconduct. The purpose of this thesis is to assess the credibility of national government budgets. The objective of this study involved providing an analysis of the three budgetary outcomes: levels of fiscal discipline, strategic prioritisation, and operational efficiency. The study found that while the budget acts as a key policy statement of the government, public expenditure management (PEM) acts as an instrument of government policy. It is used by the South African government to collect taxes and fund its projects, and emphasises the efficient and effective use of resources. The study further suggests that there are three mutually exclusive, complementary and interdependent basic budget outcomes of public expenditure management, namely financial discipline, allocative efficiency, and operational efficiency. In addition to these budget outcomes, accountability and transparency are secondary outcomes that are critical for public expenditure management. The research further attempted to highlight that the South African government is borrowing money to pay for current spending, a practice the researcher deems an unsustainable spending regime. The rigorous planning process of the Medium-Term Expenditure Framework (MTEF) is meant to ensure that allocations are made to government’s priority areas such as education and health. Budget allocations are reflective of government’s strategic priorities and the current broad policy framework, known as the National Development Plan (NDP). The shifting of funds in-year, known as virements, is counterproductive in view of the fact that funds are shifted from priority areas. Excessive spending in March coupled with under-spending by national government departments signifies weak financial controls and bad spending practices. The study concluded that financial misconduct is rampant in government and the situation is exacerbated by the absence of consistent and appropriate sanctioning of officials. The study also concluded that there is a requirement for institutions similar to the National Treasury, institutions that will ensure fiscal sustainability and prudential fiscal management.
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    Measuring fiscal sustainability and its determinants in South African municipalities
    (Stellenbosch : Stellenbosch University, 2022-04) Pakkies, Letsepa; Ajam, Tania; Burger, Johan; Mortimer, Len; Stellenbosch University. Faculty of Economic and Management Sciences. School of Public Leadership.
    ENGLISH SUMMARY: African municipalities; the analysis also examines their ability to pay off long-term debts and to meet the current obligation. The composition of spending and how to improve efficiency are also studied. This study adopted a quantitative research approach. A combination of descriptive and correlational research and the data envelopment analysis (DEA) model was used. The documents and data analysed were published by the National Treasury; the Reserve Bank of South Africa; Statistics South Africa; the Auditor-General South Africa; and the municipal annual reports. The findings indicated that several municipalities were administratively intense. Over time, costs for the administrative component of municipal functions surpassed the service delivery spending. In addition, the research study finds that employee costs were the fastest growing item in municipal budgets and became the biggest budgetary pressure facing municipalities. Furthermore, inefficiency has largely nullified the impact of funding to local government, which was intended to improve service delivery. These trends must be reversed to attain economies of scale. Municipalities must change the composition of their expenditure and prioritise their service delivery. Municipal organisational structures should be fit-for-purpose, and functional duplications should be reduced. This dissertation is divided into four distinct but complementary papers. Each paper constitutes a chapter. There are also two general chapters, and the entire dissertation thus consists of six chapters. Paper I (Chapter 2) adopts a modification of the definitions of “sustainability” as formulated by Blanchard, Chouraqui, Hagemann and Sartor (1990) and by Hagist & Vatter (2009). The concepts of Auerbach, Gokhale and Kotlikoff (1991) are also included. The paper proposes a new model for measuring the fiscal sustainability of municipalities. This model accounts for demographic changes, performance of local economies and financial management at the municipal level. This paper assesses the sustainability of the supply of goods and services offered by South African municipalities. It examines their solvency (ability to pay off long-term debts), liquidity (ability to meet current obligations), and the composition of spending. The economic circumstances surrounding each municipality are also examined. The resultant indicators provide valuable data about the state of municipal finances. They can be used to assess the action needed to be followed at present to ensure the long-term fiscal sustainability of municipalities. For practical purposes, the proposed model is then applied to seven South African metropolitan municipalities. The last part of the paper proposes various approaches to close the fiscal gap. Paper II (Chapter 3) examines the scale effects and the determinants of administrative intensity within South African municipalities. Regression analysis, a form of predictive modelling technique, was performed. The results revealed that the spending by functions in municipalities is administratively orientated, with insufficient economies of scale. Regarding the determinants of administrative intensity, capital transfers and growth in the population were shown to be the most influential factors in determining the administrative costs of municipalities. Moreover, the findings indicated that the more own-source revenues a municipality has, the better it manages its finances. The results from the second model indicated that several municipalities were administratively intense. These findings are consistent with the further analysis in the third model, which show that, over time, the administrative component of municipal functions have surpassed service delivery spending. This trend must be reversed to attain economies of scale. Paper III (Chapter 4) examines the influence of personnel management regarding municipal finances. The sources were budget documents published annually by the municipalities, data from Statistics South Africa and annual financial statements audited by the South African Auditor-General. The analysis found that there is fundamental systemic incoherence within the present constellation of the composition of municipal spending. The most substantial budgetary pressure facing South African municipalities is the rising share of personnel expenditure. This expenditure has increased markedly over the last 12 years, without proportional increases in productivity or in the number of people employed at municipalities. The study found that these increases are considerably higher than in other spheres of government. They have a negative bearing on local government's ability to manage and fast-track service delivery. This excessive spending on personnel has impacted smaller municipalities the most. Such expenditure diverts resources away from service delivery requirements, which also causes tension with the policy objectives of local government. This situation has created substantial cost pressure on municipal budgets. In some municipalities, particularly rural ones, this cost pressure eclipsed other service delivery expenditure to the extent that it undermined the coverage and quality of services offered. There is, therefore, a need for local government to limit increases in employee costs. Paper IV (Chapter 5) examines the efficiency with which district municipalities that provide water and sanitation services deliver on those services. It analyses the expenditures and outputs attributable to these functions, using the DEA technique as applied to cross-sectional data for 2015–2016. The sample included 19 high service responsibility municipalities with water and sanitation functions. Among the 19 municipalities, 12 were found to be inefficient and spent a high proportion of their operational expenditure on municipal administration. Furthermore, using an instrumental variable approach, this study examined the determinants of variation in water and sanitation service efficiency. These drivers were identified as fiscal autonomy, value of assets and number of households within each municipal jurisdiction. The challenge is that municipalities already spend significantly more than they should on administration costs maintaining large administrative components, crowding out service delivery and investment expenditures. This scenario makes these municipalities fiscally unsustainable over time, as the asset base is highly dependent on grants and their asset management practices are below the required levels. If high service responsibility municipalities are to be efficient and sustainable, local government should do the following: create cost-savings measure, divert resources to frontline services and promote improved governance for the long-term sustainability of public finances.