Priority 1
Increasing the impact
of public spending
on inclusive growth
SOUTH AFRICA POLICY PACKAGE
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Priority 1
Increasing the impact
of public spending
on inclusive growth
SOUTH AFRICA POLICY PACKAGE
Contents
Realigning public spending to meet the country’s pressing needs and make service delivery
more efficient and supportive of growth 1
Drivers of inefficient public spending 1
Three priorities for making public spending more efficient 5
Priority 1: Creating fiscal space for present and future public spending 6
Action 1: Coordinate and consolidate social programs, with a focus on results 7
Action 2: Partner with the private sector 7
Priority 2: Allocating public resources to loosen binding constraints to inclusive growth 8
Action 3: Improve public investment management 8
Action 4: Spend smarter on programs to enhance the employability of people disadvantaged in the labor market 9
Priority 3: Upgrading the public sector’s delivery capacity 10
status meritocracy
Action 5: Professionalize the public sector to build a high- 10
Action 6: Improve monitoring mechanisms 11
Action 7: Accelerate digitalization of public services 12
Action 8: Incentivize the performance of subnational governments 13
Annex table A1 Ranking of measures through the “FIT” filter of feasibility, impact, and timing 15
Notes 17
Figures
1 The fiscal multiplier has been declining since 2010 2
2 Fiscal accounts have deteriorated since 2009 2
3 Budget allocations privilege consumption at the expense of investment compared with global standards, 2019 2
4 Public investment is below the world average and well below the level in fast- growing economies, 2019 3
5 Value for money in social sectors is low in relation to the rest of the world, 2020 3
6 Most governance indicators have weakened over the past two decades, 2000–2021 4
7 Subnational governments are responsible for the largest share of public spending 4
8 A guiding framework for prioritizing policies for improving the efficiency of public spending 5
iii ■
Realigning public spending to meet the country’s
pressing needs and make service delivery more efficient
and supportive of growth
It is hard to ignore the chorus of voices in South Af- Drivers of inefficient public spending
rica calling for radical reforms of the state to ensure Nearly all countries use public spending as a major
better use of public resources.1 The government’s policy instrument to influence the economy and
ability to deliver basic social services and infrastruc- improve living conditions. While demonstrating
ture services has been eroding over the past de- country analyses show
causality is difficult, cross-
cade, while a threefold increase in the ratio of public that a 1 percent increase in public spending can lift
debt to GDP has narrowed the fiscal space to fund economic growth by nearly a percentage point (the
such services. How far and fast South Africa can go “fiscal multiplier”), with, however, significant varia- The government’s
in redefining the role of the state to address these tions depending on initial conditions and the nature
ability to deliver
challenges remains unclear. As this process unfolds, of the spending increase.4 There is also a wealth of
the country may want to consider reviewing similar empirical evidence that sound expenditure policy basic social and
experiences in Canada,2 Europe, and Central Asia. can diminish economic and social disparities, pro- infrastructure
services has been
Meanwhile, policymakers cannot afford to re- mote equity, and reduce poverty while preserving
main inactive.3 To guide them in making public growth objectives.5
spending a more effective policy instrument for In South Africa, public spending has not deliv- eroding, while a
economic progress, this note proposes a focus on ered the desired impact on long- term economic threefold increase
three mutually reinforcing priorities: spend more growth and poverty alleviation. Analysis by the
wisely and efficiently so that the public debt trajec- Reserve Bank of South Africa found that, over the in the public debt
tory does not become unsustainable; leverage pri- past decade and controlling for other variables, in- has narrowed the
vate resources to increase the financing needed to creases in public expenditures have no longer been
fiscal space to
rebuild infrastructure and support better and more associated with growth in output.6 The fiscal multi-
coordinated job-related programs to reduce unem- plier even turned negative in the late 2010s (figure fund such services ■
ployment; and improve the public sector’s service 1), and poverty (at the upper middle- income inter-
delivery capacity by further professionalizing public national poverty line of $6.85 per person per day),
administration, strengthening program monitoring at 61.6%, is well above what would be expected at
and evaluation, and accelerating digitalization. South Africa’s level of development.
These three priorities apply to all levels of gov- Three complementary factors help explain why
ernment, not just the central government. South public expenditures have not supported economic
Africa’s fiscal system devolves many important growth and poverty reduction in South Africa.
spending responsibilities to subnational govern- First, the gradual narrowing of fiscal space due
ments, autonomous agencies, and state-owned to high current expenditures and high and growing
enterprises (SOEs). Unless their performance also debt- service payments means that fewer public re-
improves, central government spending is unlikely sources are available for capital and social spending
to become more efficient or to have a stronger im- programs that are likely to have the greatest impact
pact on inclusive growth. on inclusive growth. Public debt surged from 24%
1■
Figure 1 The fiscal multiplier has been declining Figure 2 Fiscal accounts have deteriorated since
since 2010 2009
Fiscal multiplier Public debt Fiscal balance
(percent of GDP) (percent of GDP)
1.5 80 4
1.0 60 0
0.5 40 –4
0.0 20 –8
–0.5 0 –12
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Source: T.J. Van Resburg, S. de Jager, and K. Makrelov, 2021,
“Fiscal Multipliers in South Africa after the Global Financial Source: National Treasury and World Bank.
Crisis,” SARB Working Paper, South African Reserve Bank.
Figure 3 Budget allocations privilege
of GDP in 2008 to almost 75% at the end of 2023 consumption at the expense of investment
(figure 2), increasing the risk of debt distress and compared with global standards, 2019
pushing up interest rates.7 This has further nega-
Public investment (percent of GDP)
tive consequences for economic growth because
it can crowd out financing for the private sector.8 12
Rising public debt can also prevent demand from
responding to increased public spending as con- 10
sumers increases their savings in anticipation of the
future tax increases that will be needed to pay off 8
the rising public debt (the Ricardo- Barro effect).9
Acknowledging this risk, the government has lim- 6
ited public expenditure growth after the pandemic,
especially by containing the wage bill. However, this 4
■ Public spending has also created new challenges since contained
has not been public spending could negatively affect the aggre- 2
gate demand, reducing growth, which will make in
fully aligned with turn fiscal consolidation even more difficult. 0
South Africa
the country’s
0 5 10 15 20 25 30
Second, public spending has not been fully aligned
Government consumption (percent of GDP)
needs as public
with the country’s needs. Public consumption has
been favored over public investment (figure 3), lead- Source: International Monetary Fund’s Investment and cap-
consumption has ing to an infrastructure crisis (see policy note 2) that ital stock data set and World Bank’s World Development
been favored over is strangling economic growth.10 South Africa has in- Indicators.
vested 3%–5% of GDP per year less than fast- growing
public investment countries in East Asia and six times less than China expenditures during fiscal year 2023/24,11 well below
over the past two decades (figure 4). In addition, the more than 20% allocated in Malaysia, Singapore,
just 11% of the budget was allocated to economic and Thailand. The misalignment of public spending
■ 2 Priority 1: Increasing the impact of public spending on inclusive growth
growing economies, 2019
Figure 4 Public investment is below the world average and well below the level in fast-
Percent of GDP
Less than 2.55
2.55–3.51
3.51–4.60
4.60–6.66
More than 6.66
No data
Source: International Monetary Fund’s Government Finance Statistics.
with the country’s needs is also evident within sec- Figure 5 Value for money in social sectors is low The positive
in relation to the rest of the world, 2020
tors, as discussed in the next section.12
impact on
Third, the declining capacity of the public sector
to efficiently deliver public goods and services has
Human Capital Index score inclusive growth
lowered the value of South Africa’s fiscal multiplier. 1.0 has been curbed
by technical,
Even when the government has allocated adequate
resources to the right sectors, the positive impact
on inclusive growth has been curbed by technical, 0.8 institutional, and
institutional, and human resource deficiencies in human resource
the public sector. This is illustrated by the low value
for money in social sector spending, despite ample 0.6
deficiencies ■
budget allocations (figure 5). These weaknesses
have resulted in the capture of public funds by the
private sector and connected individuals, as em- 0.4
phasized in recent government reports.13 This de- South Africa
terioration of institutions and accountability mech-
anisms is reflected in the decline in South Africa’s 0.2
0 5 10 15 20 25
Worldwide Governance Indicators over the past
Education and health spending (percent of GDP)
two decades (figure 6).14 This decline is especially
prominent in government effectiveness, quality of Source: World Bank, World Development Indicators database.
regulations, and control of corruption.15
Such spending inefficiencies are found across responsible for 78% of public spending, including
all levels of government, including subnational gov- the provision of most social services (provinces) and
ernments and SOEs. Subnational governments are a large share of basic infrastructure (municipalities)
Priority 1: Increasing the impact of public spending on inclusive growth 3■
(figure 7). As of 2021, 165 of 257 municipalities Figure 6 Most governance indicators have
were classified as dysfunctional, including 30 that weakened over the past two decades, 2000–2021
were under provincial or national administrative
Score
control.16 Similarly, the mismanagement of several
SOEs responsible for infrastructure services is well 0.8
documented.17 These enterprises have failed to
develop and maintain the country’s infrastructure
■ The poor have been networks, especially in energy (Eskom) and trans- 0.4
disproportionately port (Transnet and PRASA). Those failures have
generated direct losses to the economy, estimated
penalized by at 2%–3% of GDP growth in 2023 alone.18 They 0.0
the degradation have also resulted in successive bailouts that have
in public
drained public resources and cost around 6–7 per-
centage points of GDP between 2009 and 2023. –0.4
infrastructure The inefficiency in South Africa’s public spending 2000
and social has disproportionately hurt the poorest segment of 2021
the population. Granted, the generous allocation of
services caused
–0.8
Voice Political Government Regulatory Rule of Control of
public resources to social protection (around 4% of and stability/ effectiveness quality law corruption
by inadequate
accountability No
GDP) has reduced poverty and inequality.19 But this violence
maintenance positive contribution must be weighed against the
regressive effects of the suboptimal use of public Source: World Bank, Worldwide Governance Indicators
and investment resources. The poor have been disproportionately (https://www.worldbank.org/en/publication/worldwide
penalized by the degradation in public infrastruc- governance-indicators/interactive-
- data-access).
ture and social services caused by inadequate
maintenance and investment because they lack
Figure 7 Subnational governments are responsible for the largest share of public spending
a. Public spending is decentralized to provinces and b. Subnational governments and state enterprises are
municipalities, while revenue collection is not, 2022/23 responsible for 85% of public investment, 2023/24
Percent Percent
100 50
17.3 21.3 49
0.5
82.2
40
75 27.1
36
30
50
51.6
20
25 15
10
0 0
Revenue Spending Central Subnational State-owned
enterprises
Central Provinces Municipalities
Source: Calculated by authors using National Treasury data.
■ 4 Priority 1: Increasing the impact of public spending on inclusive growth
the financial resources to switch to private services that public resources are available to meet current
grid energy solutions or private schools
(such as off- and future needs? How should public resources be
and hospitals). Furthermore, the reduced impact allocated to address the country’s most important
of public spending on economic growth has con- needs and yield the highest returns to growth and
strained the emergence of new enterprises, espe- to poverty and inequality reduction? How can the
cially micro and small firms, thus reducing demand public sector’s delivery capacity be strengthened?
for unskilled and medium- skilled labor. A menu of eight actions is proposed to support
the three priorities. Several actions build on initia-
Three priorities for making public tives already launched by the government (such as
spending more efficient incentives for subnational governments and SOEs
South African policymakers have introduced sev- to spend better and the digitalization of public
eral initiatives to improve the efficiency of public services), while others, often inspired by success-
spending. Since 2019, Operation Vulindlela, a joint es in other countries, are more disruptive. All the The proposed
initiative of the Presidency and the National Trea- proposed actions prioritize the short term to create
actions prioritize
sury modeled after service delivery units globally, momentum for further reforms. They are comple-
has pushed for critical policy reforms in electrici- mented by some of the recommendations in policy the short term
ty, digital communications, water, transport, and notes 2 and 4 that call for a smaller public footprint to create
momentum for
immigration.20 Similar institutional fixes led to the in the economy and the opening of infrastructure
creation of the Presidential Climate Commission in markets to private operators while reinforcing the
2020, the Presidential Youth Employment Interven- regulatory role of the state. further reforms ■
tion in 2020, the National Energy Crisis Committee To ignite the transformation in public spending,
in 2022, and the creation of the position of minister policymakers could focus initially on a subset of six
of electricity in 2023, among other measures. How- reforms under the eight proposed actions. These
ever, international evidence reveals that such paral- reforms are assessed as the most politically and
lel units and structures often face resistance within technically feasible, impactful, and timely as they
public administration, which can feel threatened by do not require large changes in the legal framework
the parallel arrangements.21 (see table A1 in the annex). While the most desir-
The authorities could adopt a more compre- able actions would ideally meet all three criteria,
hensive approach to address the factors behind tradeoffs are likely to arise:
the inefficiency of public spending. An overarching 1. Coordinating and consolidating active labor mar-
analytical framework of three priorities is proposed ket programs. For example, there are more
to guide interventions (figure 8). The three priori- than a hundred active labor market programs
ties respond to the following three questions: How at the national level offered by some 20 gov-
can the government create fiscal space to ensure ernment departments.
Figure 8 A guiding framework for prioritizing policies for improving the efficiency of public spending
Action 1: Coordinate and consolidate social programs, with a focus on results
Priority 1: Creating fiscal space for
present and future public spending Action 2: Partner with the private sector
Maximize the impact Priority 2: Allocating public resources Action 3: Improve public investment management
of public spending on to loosen binding constraints to
inclusive growth inclusive growth Action 4: Spend smarter on programs to enhance the
employability of people disadvantaged in the labor market
Action 5: Professionalize public service to build a high-status meritocracy
Priority 3: Upgrading the public Action 6: Improve monitoring mechanisms
sector’s delivery capacity Action 7: Accelerate digitalization of public services
Action 8: Incentivize the performance of subnational governments
Priority 1: Increasing the impact of public spending on inclusive growth 5■
2. Linking the Covid-19 Social Relief Distress labor unions. Hiring new staff requires the autho-
grant with active labor market programs to en rization of the National Treasury and the Depart-
hance employability and support job creation ment of Public Service and Administration, at least
and labor productivity in the longer term. for the 2024/25 financial year. To slow the rise in
3. Making the Head of Public Administration debt service costs, plans call for reducing borrow-
responsible for ensuring transparent and ro- ing by controlling the fiscal deficit, seeking more
bust processes for hiring and managing all top financing on concessional terms, and improving
managers. debt management. These actions will take time to
4. Introducing a unified national ID standard t o have a noticeable impact because of built-in rigid-
prepare for a digital ID that will improve ac- ities in many expenditures. In addition, controlling
cess to social and financial services and data. the wage bill while improving public service deliv-
5. Incentivizing the uptake of the e-procurement ery necessarily involves tradeoffs. Further wage
system (eTenders) for procuring entities across bill reforms are likely to erode service delivery in
levels of government by introducing financial core labor-intensive activities such as education,
and nonfinancial rewards. health, and justice and security.23 Thus, wage bill
6. Scaling up the contract-based approach piloted consolidation may need to accommodate greater
in the electricity sector to other sectors (water, front-line service delivery requirements and be ac-
waste, education, health) and other levels of companied by recruitment reforms, which are the
government t o incentivize them to improve focus in this note.
their overall financial performance. The government will have to do more to create
■ To increase fiscal The proposed actions give special attention to fiscal space as the pressures on capital spending
savings in the social spending for three interconnected reasons. and social spending mount. As highlighted in poli-
First, because social spending absorbs about half cy note 2, South Africa’s infrastructure needs are
short-term, the of South Africa’s public budget, it will be hard to enormous, both to redress current shortcomings
government can achieve large efficiency gains without improving and to adapt to climate change. Social expenditures
cut or consolidate
the quality of social spending. Second, budget al- are also projected to increase, especially in educa-
locations to education and health are high by in- tion, where increases are needed to accommodate
redundant or ternational standards yet have failed to achieve a the growing number of students and improve the
nonperforming commensurate impact on human capital (see figure quality of education. For example, in basic educa-
5). Third, most of the recommendations for the so- tion, the challenge is to build some 20,000 new
programs cial sectors also apply to other sectors, including classrooms and increase the teaching workforce
and develop infrastructure, another major challenge (see policy by about 25,000 to prepare for the estimated ad-
partnerships note 2). ditional 1.2 million learners expected to enter the
school system by 2030. Without creating more fis-
with the private Priority 1: Creating fiscal space for cal space, the government cannot afford to pay for
sector to deliver present and future public spending these education system needs. Similar challenges
Creating fiscal space is at the center of the apply to health and social protection.
public services Medium-Term Fiscal framework presented by the In the short-term, the government can consid-
Minister of Finance in the budget speech deliv- er two types of actions on the expenditure side to
ered in February 2024. The two main levers are increase fiscal savings. First, it can cut or consoli-
the wage bill, which at 12% of GDP is 5 percent- date redundant or nonperforming programs, which
age points above the average in Organisation for raise administrative costs and prevent economies
Economic Co-operation and Development (OECD) of scale. Second, it can develop partnerships with
countries, and the expected increase in debt-ser- the private sector to deliver public services, as is
vice payments.22 To rein in wage increases, the Na- already under way in some infrastructure sectors,
tional Treasury has gained power and discretion to such as telecommunication and electricity, and is
bargain with labor unions using the legal room cre- beginning in social sectors in some provinces, in-
ated by a recent judicial decision that went against cluding in education and health.
■ 6 Priority 1: Increasing the impact of public spending on inclusive growth
■ Action 1: Coordinate and consolidate social alignments, and the role of government. For com-
programs, with a focus on results mercial entities in which the state is a minority
stakeholder, privatization might also offer financial
Several government-supported programs in South gains, but such programs may require time to be-
Africa are not well coordinated and do not track come politically acceptable.
results effectively. For example, there are oppor- Partnerships with the private sector can achieve
tunities to consolidate more than 100 active labor lower costs and higher quality as well if the partner-
market programs offered by some 20 govern- ship contracts are well defined and private provid-
ment departments at the national level, with no ers commit to high levels of accountability. Public-
overarching strategy or system to monitor progress private partnership agreements could be directed to
or evaluate job-related outcomes. Another example sectors that need the greatest support, in exchange
is early childhood development programs, which for enhanced autonomy for the private provider and
require the engagement of multiple departments with exit clauses built into the contracts in case the
across tiers of government. Coordination is widely provider proves unable to meet performance tar-
acknowledged to be weak, limiting effectiveness. gets. Public-private partnership are being developed
There are also numerous early-grade reading pro- in several infrastructure sectors, as discussed in pol-
grams that have been implemented over the last icy note 2, and could be extended to social sectors.
two decades, some of which have been evaluated. There is very little private provision of education in
But these interventions have not gone to scale and South Africa: in 2021, only 6% of primary school
are not integrated into the routine practices of the students were enrolled in private schools, against
education system. There seem to be multiple pro- 18% in Brazil and 45% in India. Partnering with the
grams in some areas that are not coordinated and private sector would also be in line with the govern-
that lack sufficient empirical data on outcomes to ment’s objective to expand technical and vocational
support continuing them or taking them to scale. education (TVET) programs, where quality and cov-
And even when data on outcomes are available, erage could be improved through workplace-based
there are no well thought out and clearly articulat- and technology-based learning.
ed plans for scaling up and sustaining the programs, Quick measures could include:
particularly financially. • Scaling up private provision in education, learn-
ing from the experience of Western Cape and
■ Action 2: Partner with the private sector Gauteng Provinces. Western Cape Province has
had success experimenting with the Collabo- As well as
When properly structured, partnerships with the ration Schools model, in which a public school
contributing
private sector can improve the quality of service partners with an experienced nonprofit school
delivery, increase access, and relieve some of the support organization that provides intensive financial
fiscal pressure. As well as contributing financial support to teachers and principals through train- resources,
private providers
resources, private providers can bring new exper- ing, additional resources, performance monitor-
tise and competencies in the delivery of services. ing, and regular feedback.24 The Western Cape
Several countries use alternative service delivery Education Department oversees the perfor- can offer new
mechanisms to improve programs and services. mance of the nonprofit organization, holding it expertise and
Prompted by concerns for the public interest, serv- accountable as part of the public school system.
ice quality, client orientation, and human resource Public-private partnerships are less common in competencies,
management, Canada has encouraged public sec- higher education (TVETs and universities), but lower cost, and
tor managers to explore creative ways of delivering some of the best training institutions in Kazakh-
higher quality in
services outside of the public sector, such as public- stan, Malaysia, and Morocco are organized as
private partnerships, outsourcing, and contracting public-private partnerships.25 service delivery ■
out of services. All proposals must pass a public • Expanding workplace-based learning opportuni-
interest test, which covers the key dimensions of ties for unemployed youth in small and medium en-
affordability, external partnerships, jurisdictional terprises. The current system of workplace-based
Priority 1: Increasing the impact of public spending on inclusive growth 7■
learning has several shortcomings. Little training ■ Action 3: Improve public investment management
is directed to people without work experience
who are seeking such experience, and numerous The first-best solution to improve public investment
bureaucratic barriers prevent smaller companies management would be to shift some resources
from participating (about 80% of businesses are from current spending to capital spending, as South
not participating). Initiatives such as the Youth Africa is clearly an outlier is this area (see figure 3).
Employment Services turnkey model or the Cen- However, this resource shift could be difficult to
ter of Specialization approach implemented in achieve in the short term. As highlighted earlier, any
selected public TVET institutions demonstrate savings on recurrent spending (such as the wage
the feasibility of placing unemployed youth in bill) should be used to consolidate the fiscal deficit.
small and medium enterprises in South Africa. In addition, the rigidity of many recurrent spending
The lessons are that learner registration proce- items, especially the wage bill, makes it difficult to
dures should be simplified for small and medi- shift public funds in the short term.
um enterprises and that efficient monitoring and The second-best solution is to improve the effi-
funding systems are needed to enable small and ciency of capital spending. If the government can-
medium enterprises to participate. not spend more, it must spend better. This could
• Developing technology-based learning to increase be achieved by reducing the fragmentation in in-
relevance and cost-efficiency in post-school stitutions and processes that inhibits the coordi-
education and training systems and improve ac- nation, selection, implementation, and monitoring
cess for learners in remote rural areas. The use of capital projects and by streamlining processes
of technology in education has barely been ex- in subnational governments, which account for
plored in South Africa, particularly in TVET in- three-quarters of public investment.
stitutions. Technology can enable more efficient The authorities could consider two measures in
use of physical infrastructure while also provid- the short term:
ing simulated practical experience. For exam- • Establishing a centralized gateway for priority cap-
ple, horticulture programs at the Swiss Federal ital projects above a certain threshold (for exam-
Institute for Vocational Education and Training ple, above R5 billion, or $250 million). The gov-
use virtual reality glasses to enable students to ernment recognizes the institutional complexity
create and implement landscape designs and to of the public investment landscape.26 In a highly
simulate seasonal effects on their virtual land- decentralized and delegated environment, over
■ Dealing with the scape. Such simulation technologies can also 700 public institutions operate multiple paral-
infrastructure help bridge the gap between theoretical learning lel systems for strategic projects. This system
in the classroom and the skills needed in profes- comes with immense costs, generates confu-
crisis requires sional settings. sion, adds complexity, and requires multiple
higher capital entities to administer. To create a more stream-
Priority 2: Allocating public resources
and maintenance
lined and transparent framework for identifying
to loosen binding constraints to and prioritizing strategic infrastructure projects,
spending, inclusive growth South Africa could follow the direction taken
while reducing Two of the major challenges facing South Afri- by countries like the Republic of Korea, New
ca—inadequate infrastructure and high unemploy- Zealand, and the United Kingdom, which have
unemployment ment—require the more efficient allocation of pub- established a central project information man-
requires allocating lic resources. Dealing with the infrastructure crisis agement (PIM) unit with oversight of strategic
resources requires higher capital and maintenance spending. public sector projects.27 Bringing together a few
Reducing unemployment requires allocating re- existing units/entities will encourage a stronger
to programs sources to programs that improve the employability portfolio approach to PIM, particularly for large,
that improve of workers in South Africa. The authorities can con- strategic infrastructure projects, and help cre-
sider the following two actions to better align public ate a center of excellence by gathering exper-
employability spending with these two challenges. tise under one roof. Projects above a threshold
■ 8 Priority 1: Increasing the impact of public spending on inclusive growth
would undergo a rigorous gateway review (such past 10 years. The employability of the labor force,
as the one announced in the Medium-Term in particular, remains extremely low.
Budget Policy Statement), with support from Part of the inefficiency of social and labor mar- Part of the
one institution or through a reconfiguration of ket programs stems from their fragmentation, rais-
inefficiency
existing units. A crucial remaining question for ing the stakes for consolidation, as recommended
the authorities is how to embed this centralized above. Building on the vast literature on this topic, associated with
gateway mechanism in the high-level decision- including some by the South African government, social and labor
market programs
making process. Countries have adopted differ- the following three additional actions can be con-
ent solutions. sidered to enhance the impact of these programs
• Reducing the administrative burden associated with on the employability of workers, especially youth: stems from their
conditional grants to subnational governments. As • Linking the Covid-19 Social Relief Distress grant to fragmentation,
of 2023, provinces and municipalities had to deal active labor market programs. Under the Covid-
with more than 42 different grants (24 for the 19 Social Relief Distress grant, South Africa raising the stakes
provinces and 18 for the municipalities). Many provides unconditional income support (R350 for consolidation ■
grants have overlapping purposes, and some are per person) to about 8 million adults who can
for relatively small amounts (12 grants provided work. Introduced in 2020 to mitigate the impact
less than $25 million a year to all subnational gov- of the Covid-19 pandemic, the grant was ex-
ernments). Reporting requirements generally dif- tended to 2025. As many other middle-income
fer across programs as well, adding to the admin- countries have done, South Africa could tie part
istrative burden. Having a large number of grants of the grant to the participation of beneficiaries
increases transaction costs; limits the absorptive in job-counseling services. Panama gradual-
capacity of local governments, especially in small ly scaled down its Covid-19 response program
and poor areas; increases the potential for misuse; by increasing job-search requirements for ap-
and slows execution. To ease the administrative plicants. In Denmark and Finland, employment
burden on subnational governments, the central services and social assistance are often located
authorities can reduce the number of grants (for at the same job centers and are coordinated to
example, the provinces received six grants for the support clients who need both income and em-
education sector alone) and harmonize reporting ployment assistance. South Africa could reform
requirements. Grants can also include conditions the Employment Services system by providing
that reinforce planned PIM reforms (for example, counseling services to job-seekers and by link-
through mandatory gateway reviews supported ing the databases of the Department of Social
by centralized institutional arrangements). Development and the Employment Services
system.
■ Action 4: Spend smarter on programs to enhance • Using wrap-around approaches to improve the
the employability of people disadvantaged in the labor effectiveness of active labor market programs.
market South Africa’s active labor market programs
could follow the direction of programs in sev-
South Africa is among the highest spending coun- eral middle- and high-income countries. For
tries on social protection and active labor market example, Bosnia and Herzegovina and the Unit-
programs. The country spends around 4% of GDP ed Kingdom provide integrated wrap-around
on noncontributory social assistance alone, com- services to work-seekers and vulnerable house-
pared with a world average of about 1.5%. This holds that face multiple barriers to employment,
level of spending has been part of the social con after an initial comprehensive assessment of
tract between the state and its citizens since the their needs. South Africa has experimented with
end of Apartheid and is justified by the high levels this approach in the Basic Package of Support
of entrenched poverty, inequality, and unemploy- pilot program for vulnerable youth, which is
ment.28 While there have been some successes, complemented by ongoing rigorous evaluation.
most outcomes have been disappointing over the Another comprehensive approach, though on
Priority 1: Increasing the impact of public spending on inclusive growth 9■
a small scale, is the Jovenes model applied in implement given the multiplicity of views (and vest-
several Latin American countries, which com- ed interests) in South Africa.
bines technical and workplace behavior training However, there are several opportunities to accel-
(three months), apprenticeships (three months), erate the state capacity- building agenda. Proposed
life coaching (six months), career guidance, below are four actions that can produce short- term
transport vouchers (and childcare stipends for results while laying the foundation for more compre-
women), and job placement through publicly fi- hensive future reform. To produce tangible results,
nanced nongovernmental organization–private these actions need to be implemented at all three
sector partnerships.29 levels of government (central, provincial, and local),
• Developing microentrepreneurship programs, w hich as well as in autonomous agencies and SOEs.
are largely absent in South Africa. Operating suc-
cessfully in more than 80 low- and middle-income ■ Action 5: Professionalize the public sector to build
countries, these programs complement govern- status meritocracy
a high-
ment social assistance schemes with job-relat-
ed supports, helping beneficiaries use their re- Building a professional, high- status bureaucracy
sources for productive endeavors and become is a critical step for a country that aspires to high-
self-sufficient. Colombia’s Jefes y Jefas de Hogar income status. In response to the disturbing evi-
and Kenya’s Hustler Fund are directed to adults dence presented in reports of the Department of
■ Measures to and youths in poor households, providing them Public Service and Administration and the Judicial
accelerate with a bundle of services (training and coach- Commission of Inquiry into Allegations of State
ing, savings schemes, business preparation, Capture, Corruption, and Fraud in the Public Sector
state capacity investment grants, and so on) over a discrete (the Zondo Commission), the government adopted
building need to period (18–24 months) to start or expand viable the Framework Towards the Professionalization of
be implemented
microenterprises. Impact evaluations indicate the Public Sector in 2022.30 Recent efforts have fo-
that these programs have sustainable impacts cused on legislative reforms to harmonize standards
at all three levels on employment and earning outcomes, especial- of employment across levels of government, delin-
of government, ly for youth and women. eation of the political/administrative interface, and
extension of the Public Service Commission’s over-
as well as in Priority 3: Upgrading the public sector’s sight to provincial and municipal governments.31
autonomous delivery capacity While recognizing that building a new profes-
agencies and State capacity has severely deteriorated in South sional bureaucracy will take time, the authorities
Africa. The causes for this deterioration are diverse, can consider several measures to accelerate this
state enterprises ranging from the declining technical capacity of process:
staff in several strategic departments, subnational • Making the Head of Public Administration respon-
governments, and SOEs to the deliberate misuse sible for ensuring transparent and robust processes
of public resources through misguided human re- for hiring and managing all top managers, w hich
sources policies and corruption. Corruption has could reduce political interference in hiring and
had a corrosive effect on South Africa’s public in- management practices for senior public servants.
stitutions, in particular on accountability institu- This role for the Head of Public Administration
tions and the management and oversight of SOEs, would draw a new line of administrative and
as documented by the Commission of Inquiry into operational accountability between senior pub-
State Capture. On the 2023 Corruption Percep- lic servants (director generals) and the Head of
tions Index, South Africa dropped below the global Public Administration, who would play a key role
average, scoring 41 out of 100 (where 0 is highly in appointment processes and discipline manage-
corrupt and 100 is very clean), reflective of per- ment for director generals, replacing the current
ceived stagnation in the fight against corruption. practice of presidential ministerial approvals.
Addressing these challenges requires a comprehen- • Expanding the role of the Public Service Com-
sive agenda, but that will take time to develop and mission, an independent body established by the
■ 10 Priority 1: Increasing the impact of public spending on inclusive growth
Constitution, in reviewing key public sector ap- are directed to institutions based on the number of
pointments across all three levels of government students enrolled, which reinforces the country’s
and SOEs. As a starting point, independent tech- commitment to accessibility but is a poor predictor
nical experts can integrate the multiple selection of institutional performance. The development of in-
panels for senior appointments, including heads novative interventions has been discouraged by the
of departments, municipal managers, and SOE absence of clear, measurable, and shared definitions
board members. Many OECD countries have of targets and of the rigorous monitoring and evalu-
centralized recruitment for senior civil servants. ation systems needed to convince policymakers to
For example, in Australia, a Public Service Com- continue and scale up innovative programs.32
missioner is a full participant in the Senior Exec- The projected fiscal consolidation process esca- Ongoing budget
utive Service recruitment process, and experts lates the urgency of improving monitoring mecha-
cuts, stagnating
from the Australian Public Service professions nisms in education and training systems. Ongoing
are systematically included in recruiting panels. budget cuts, combined with stagnating graduation graduation
• Enhance anti-corruption efforts and public integ- rates and rising national demand for highly educat- rates, and rising
national demand
rity management by reducing fragmentation and ed workers, make it increasingly important to en-
gaps in the financial disclosure framework across sure the efficient use of limited public resources for
institutions and levels of government. This includes education. for educated
removing gaps in the coverage of high-risk offi- The following three measures are aimed at im- workers make
cials, extending the disclosure form to address proving the monitoring of education and training
unjustified wealth, strengthening enforcement programs, but the principles of just- in-time report- it increasingly
and sanctions mechanisms, and establishing the ing, agility, and ex post corrections are relevant to important to
foundations for automated verification process- other sectors as well:
ensure the
es and public access to disclosures. A thorough • Instituting regular national learning assessments
review of the decentralized institutional frame- and functional school- based assessments in basic efficient use of
work for disclosure, verification, and sanctioning education. South Africa’s annual national assess- limited public
is also needed to introduce a uniform, central- ment of grades 3, 6, and 9 was discontinued in
ized approach to electronic disclosure that ad- 2015. Western Cape Province is currently the
resources for
dresses gaps in oversight and inconsistency in only province that still conducts annual assess- education ■
the application of regulations and the issuing of ments. Reinvigorating annual learning assess-
sanctions. ments is vital for tracking systemwide learning
performance. Improving learning through time-
■ Action 6: Improve monitoring mechanisms ly interventions and effective planning requires
accurate and timely data on learning outcomes
Experience demonstrates that appropriate mon- not only at the end of each grade but as learn-
itoring mechanisms significantly improve public ers progress through a grade.33 Thus, national
sector performance. To be efficient, monitoring learning assessments need to be complemented
mechanisms must be agile and transparent, results by a system for continuously assessing student
must be shared publicly, and measures must be in- learning and recommending remedial actions to
cluded that reinforce good outcomes and penalize ensure that all students are on track. The School
bad ones. Monitoring mechanisms in South Africa’s Based Assessment, which is currently used only
public administration need critical improvements. as a tool for promoting students from one grade
Consistent with this note’s focus on the social sec- to the next, could be transformed to serve this
tors, the education system can illustrate the urgency continuous assessment role.
of implementing good monitoring mechanisms. The • Moving toward performance- based funding and
absence of a regular national assessment of stu- instituting tracer surveys for higher education. As
dent performance has impeded the optimal use of budgets for higher education shrink, govern-
resources for students and teachers who need fur- ments in several countries are using performance-
ther support. At the higher education level, finances based funding to align their objectives with
Priority 1: Increasing the impact of public spending on inclusive growth 11 ■
those of higher education institutions and to Although the South African government has
ensure that limited public funds are used more begun its digital transformation, digitalization is
productively. Higher education institutions must not progressing as quickly as in the most advanced
ensure that students complete their training countries. South Africa was ranked well behind
and graduate with the skills to be successful in global leaders (Estonia, Finland, and Korea) and re-
a dynamic economy. Having performance- based gional leaders (Rwanda) on both the World Bank’s
funding systems in place is particularly impor- GovTech Maturity Index and the UN’s Online Serv-
tant as more private providers enter the educa- ice Index in 2022.35 Its slow digitalization is further
tion and training market. Most European coun- evidenced by the limited number of online services:
tries and states in the United States have used only 120 public services are available online today
performance- based funding for higher educa- against a target of 255. Although the e- government
tion for decades. South Africa could learn from service portal (www.eservices.gov.za) is visited by
them. At a minimum, South Africa could institute 300,000 users monthly —a reasonable number —
■ The slow tracer surveys in all universities and TVETs to satisfaction is low.
implementation of track student completion and employment out- The slow implementation of the digital agenda
comes. Digital systems should be leveraged for reflects budgetary challenges as well as technical
the digital agenda this purpose. and governance problems. The budget allocation
reflects budgetary • Focusing on programs that demonstrate results to information and communication technologies
challenges as
and can be scaled up. South Africa has tried a shrank 5% in real terms between 2016/17 and
range of interventions to improve public sector 2020/21, with a lower share directed to developing
well as technical delivery capacity. Still lacking is the collaborative and digitizing government services and functions
and governance leadership needed to identify the priority prob- for the public.36 Public digital services are frequent-
lems to be addressed and glean the lessons from ly disrupted by technical problems, including elec-
problems domestic programs and those in other countries. tricity blackouts, and by the inadequate technical
There have been numerous exercises to doc- knowledge and skills of civil servants. The State
ument the plethora of interventions in active Information Technology Agency, the key agen-
labor market programs, early childhood devel- cy responsible for digitalization of the public sec-
opment, parenting programs, and early grade tor, is beleaguered by governance and operational
reading programs. The next step is to appoint a challenges.37
team of leaders to assess the evidence on which Accelerating the use of digital solutions in four
programs show the greatest promise and map areas could increase transparency, speed transac-
out ways to integrate the most robust interven- tions, and improve intergovernmental coordination.
tions into the day-to-day functioning of related These solutions would build on several pilot pro-
programs. jects in South Africa and successful experiences in
other countries:
■ Action 7: Accelerate digitalization of public services • Developing real- time dashboards to track major
infrastructure projects across levels of govern-
Governments across the world are using new digital ment. A real-time snapshot of how investments
technologies to improve public services. The digita- in water, transport, energy, and telecommunica-
lization of decision processes reduces transaction tions are performing would be a big step toward
costs for public administration and for individuals improved decisionmaking and collaboration
and businesses. Shared digital platforms create inside and outside of government. Experience
economies of scale and improve policy decisions with South Africa’s major infrastructure invest-
using just-in-time and collaborative data. Digital ments for the World Cup and New Zealand’s
solutions have also reduced human interference in Infrastructure Commission shows that simple,
processes, narrowing opportunities for corruption straightforward reporting to decisionmakers
and improving accountability through more trans- can reduce obstacles. Relevant information
parent reporting mechanisms.34 could also be disclosed to the public in an easily
■ 12 Priority 1: Increasing the impact of public spending on inclusive growth
accessible format to increase transparency and ■ Action 8: Incentivize the performance of
accountability to taxpayers on how their money subnational governments
is being spent.
• Introducing a unified national ID standard to pre- South Africa’s quasi- federal fiscal system devolves
pare for the introduction of a digital ID for access- key infrastructure and social spending responsibil-
ing social and financial services. The draft Nation- ities to subnational governments, in line with the
al Identification and Registration Bill of 2022 subsidiarity principle of public finance.38 However,
aims to introduce a unified national ID standard limited technical capacity, especially in poor and iso-
that will contribute to the development of a dig- lated provinces and municipalities, and rising gover-
ital ID for use in areas such as healthcare, social nance challenges have led to the deterioration of
protection, and financial services. Public consul- local services. Many subnational governments suf-
tations on the draft bill were held in early 2023, fer from the politicization of cadre deployment, the
and the bill is awaiting submission to Parliament. incursion of vested interests into decisionmaking,
• Incentivizing the uptake of the e-procurement sys- and the poor organization of delivery processes
tem (eTenders) for procuring entities across levels across departments.39 The lack of transparent, just-
of government. An e- procurement system to in-time, independent monitoring systems has also
track supply chain management/procurement reduced the accountability of local managers and
stages that meets interoperability and data shar- policymakers, as highlighted earlier.
ing standards is critical to improving the trans- Along with limited technical capacity and weak
parency and efficiency of public spending across governance, subnational governments have few
levels of government. All tender opportunities incentives to improve performance due to the un-
and contract awards should be published on balanced fiscal decentralization of responsibilities
the eTenders system. Bangladesh and Rwanda between expenditures and revenues. Subnational
used incentives to roll out their e- procurement governments are responsible for almost 80% of na-
systems fairly quickly. Incentives included team tional public expenditures, but they collect less than
bonuses for meeting e- procurement targets, the 20% of national public revenue. Provinces and most
provision of new information technology equip- municipalities are highly dependent on transfers of
ment to units, and awards for top achievers. about $30 billion a year from the central govern-
• Introducing digital tools and shared data platforms ment to finance their activities.40 This dependence
in strategic sectors, including machine learning reduces the accountability of local governments
and artificial intelligence. For example, the de- and relaxes fiscal discipline as their expenses are
ployment of a fully interoperable national health financed by national rather than local taxpayers. Introducing a
information system that provide access to digi- The International Monetary Fund estimates that
performance-
tized health records for all patients and connects this expenditure– revenue imbalance increases the
healthcare providers and patients could dramati- fiscal deficit by 1 or 2 percentage points of GDP.41 based element
cally improve the quality of services. Similarly, an Balancing the spending and revenue responsi- to subnational
transfers will
open logistics platform with standardized data bilities of local governments could improve their
formats available to shippers and transporters accountability and fiscal performance. South Africa
would be a critical tool for reducing information could follow the model of several countries with de- strengthen
asymmetry in logistics and sharing just- in-time centralized fiscal systems that have achieved such performance
data on road and port conditions and waiting balance, including Canada, Iceland, Sweden, and
lines, as China and India have done, for example. Switzerland. But this will take time because political incentives for
As the logistics platform evolves, it could pro- consensus is required to amend the constitution. local authorities
vide electronic solutions for paying multiple fees A more immediate solution is to introduce a
in the short term
and custom duties and for submitting requested performance- based element to subnational trans-
regulatory documents through a unified portal fers. Subnational authorities have few incentives and pave the way
rather than separately through different agen- to perform better since they will receive transfers for future reforms ■
cies and local governments. from the National Treasure even if they perform
Priority 1: Increasing the impact of public spending on inclusive growth 13 ■
poorly. The central government has implemented • Scaling up the performance- based approach used
several initiatives to remedy this situation, such as for public transport grants to other earmarked
those used in other middle- income countries, in- transfers (20% of total transfers), which are di-
cluding Brazil. rected mainly to infrastructure services. Public
The government could scale up these recent transport grants are determined partly on the
initiatives and complement them with additional basis of measurable outcomes.42 The authorities
performance- based measures. These measures expect to extend this approach to the water and
will not immediately turn around the poor service energy sectors and to funds for building resil-
delivery performance of subnational governments, ient infrastructure. The challenge is to define
which will require deeper reforms at the local level measurable outcomes and to ensure that local
and in the design of fiscal decentralization. Howev- governments have the technical capacity to im-
er, they will strengthen performance incentives for plement the targeted programs. Technical assis-
the local authorities in the short term and pave the tance might be required to support implementa-
way for future reforms. tion, including the use of management contracts
• Adding a performance- based element to the eq- where appropriate.43
uitable formula for nonearmarked transfers (80% • Scaling up the contract- based approach piloted in
hich is currently based solely
of total transfers), w the electricity sector to other sectors and levels of
■ One lesson on the needs and capacity of each subnational government t o incentivize them to improve their
after a year of government. Making this adjustment is relatively overall financial performance. In May 2023, the
easy technically but harder politically because National Treasury offered to clear municipalities’
implementation underperforming local governments are like- arrears with public electricity supplier Eskom
of the contract- ly to oppose it, and an efficient and transpar- conditional on meeting a set of performance
based approach to
ent monitoring and evaluation mechanism will indicators. By early 2024, more than 70 mu-
be needed as well. Some countries have been nicipalities had accepted this contract, totaling
incentivize financial able to add a performance element to transfers R56.7 billion or 96.9% of total municipal debt. To
performance by applying them to the incremental increas- further incentivize participating municipalities,
es in transfers rather than to their total value the 2024 budget introduced a new conditional
is the need to (reducing losses for underperformers) and by grant of R2 billion to fund the rollout of smart
include conditions focusing on simple outcome measures. To illus- prepaid meters over the next three years to im-
related only to the trate, imagine that the value of unconditional prove municipal electricity tariff collection. One
transfers to a subnational government increas- lesson after a year of implementation is the need
most important es from R585 billion in 2023/24 to R600 billion to include conditions related only to the most
objectives in 2024/2025. Applying a performance- based important objectives because of the limited ca-
measure to the incremental increase only would pacity of municipal authorities and to tailor them
because of the mean that R15 billion would be allocated based to the structural constraints in the sector. This
limited capacity on performance. The central government could contract- based approach could be applied to
of municipal further incentivize subnational governments by other sectors and extended to provinces, which
offering technical assistance to help them im- are also cash constrained and in arrears with in-
authorities prove their performance. frastructure service providers.
■ 14 Priority 1: Increasing the impact of public spending on inclusive growth
Annex table A1 Ranking of measures through the “FIT” filter of feasibility, impact, and timing
Feasible Impactful Timely Total
Priority 1: Creating fiscal space for present and future public spending
Action 1: Consolidate and coordinate 1. Cutting 60–80 small social programs 2 2 2 6
social programs (National Treasury proposal), merging some
departments, and closing some units
2. Consolidating and coordinating active 3 3 2 8
labor market programs and early childhood
education programs
Action 2: Partner with the private 3. Scaling up private provision in education 3 2 1 6
sector 4. Expanding workplace-based learning 2 2 2 6
opportunities for unemployed youth in small
and medium enterprises
5. Developing technology- based learning to 2 2 2 6
efficiency in
increase relevance and cost-
post-school education and training systems
and improving access for learners in remote
rural areas
Priority 2: Allocating public resources to loosen binding constraints to inclusive growth
Action 3: Improve public investment 6. Establishing a centralized gateway for priority 3 2 2 7
management capital projects above a certain threshold
7. Reducing the administrative burden 2 2 2 6
associated with conditional grants to
subnational governments
Action 4: Spend smarter on programs 8. Linking the Covid-19 Social Relief Distress 3 3 2 8
to enhance the employability of grant with active labor market programs
people who are disadvantaged in the 9. Using wrap-around approaches to improve 2 2 3 7
labor market the effectiveness of active labor market
programs
10. Developing microentrepreneur programs 2 2 3 7
Priority 3: Upgrading public sector delivery capacity
Action 5: Professionalize public 11. Making the Head of Public Administration 3 2 3 8
service to build a high-
status responsible for ensuring transparent and
meritocracy robust processes for hiring and managing all
top managers
12. Expanding the role of the Public Service 3 2 2 7
Commission in reviewing key public sector
appointments across all three levels of
government and state enterprises.
13. Enhancing the financial disclosure framework 3 2 2 7
by removing gaps in the coverage of high-
risk officials, extending the disclosure form
to address unjustified wealth, strengthening
sanction mechanisms, and establishing the
foundations for automated verification
processes and public access to disclosures.
Priority 1: Increasing the impact of public spending on inclusive growth 15 ■
Feasible Impactful Timely Total
Action 6: Improve monitoring 14. Instituting regular national learning 2 2 2 6
mechanisms assessments and functional school- based
assessments in basic education
15. Moving toward performance- based funding 2 2 3 7
and instituting tracer surveys for higher
education
16. Focusing on programs that demonstrate 2 2 1 5
results and can be scaled up
Action 7: Accelerate digitalization of 17. Developing real-time dashboards to track 2 2 2 6
public services major infrastructure projects across levels of
government
18. Introducing a unified national ID standard to 2 3 3 8
prepare for the introduction of a digital ID for
accessing social and financial service
procurement
19. Incentivizing the uptake of the e- 2 3 3 8
system for procuring entities across levels of
government
20. Introducing digital tools and shared data 2 2 2 6
platforms in strategic sectors, including
machine learning and artificial intelligence
Action 8: Incentive the performance 21. Adding a performance- based element to the 1 3 1 5
of subnational governments equitable formula for nonearmarked transfers
22. Scaling up the performance- based approach 2 3 2 7
used for public transport grants to other
earmarked transfers
23. Scaling up the contract- based approach 3 2 3 8
piloted in the electricity sector to other
sectors and levels of government
Source: Authors.
Note: The scores range from 1 to 3, with 1 being the lowest. The actions with the highest score are highlighted in yellow.
■ 16 Priority 1: Increasing the impact of public spending on inclusive growth
Notes
1 Key policy priorities for the Medium-Term Budget challenging given the gradual loss of appetite from
Policy Statement, presentation by the National Trea- nonresidents for public debt. While nonresidents
sury to Cabinet, September 2023. held about 40% of public debt in 2019, this propor-
2 For the Canadian experience, see J. Bourgon, 2009, tion declined to 25% in 2023.
“Program Review: The Government of Canada’s Ex- 9. The Ricardo-Barro effect, also known as Ricardian
perience Eliminating the Deficit, 1994–99: A Cana- equivalence, is an economic theory that suggests
dian Case Study,” Institute for Government. that when a government tries to stimulate an econo-
3 This note focuses on spending-side reforms, while financed government spend-
my by increasing debt-
acknowledging that broader challenges are not ing, demand remains unchanged because the public
covered. Fiscal policy also includes debt and reve- increases their saving to pay for expected future tax
nue policy and management, but the government increases that will be needed to pay off the debt.
has faced fewer challenges in these areas than in 10. Throughout this note, “public investment” refers to
spending. consolidated government spending on gross fixed
4. See International Monetary Fund, 2015, “Policy capital formation. This distortion would be even
Paper on Fiscal Policy and Long-Term Growth,” bigger if the expenses financed through municipal-
June; and N. Batini, L. Eyraud, L. Forni, and A. ities’ own resources were included. In 2023, capital
Weber, 2014, “Fiscal Multipliers: Size, Determinants, spending represented only 12% of the consolidated
and Use in Macroeconomic Projections,” Technical municipal budget, or around 0.4% of GDP.
Notes and Manuals, Fiscal Affairs Department, In- 11. The International Monetary Fund’s Government Fi-
ternational Monetary Fund, September. nance Statistics classification defines economic ex-
5. In Spain, for instance, the net effects of govern- penditures as general economic, commercial, and
ment taxation and public spending reduced the labor affairs; agriculture, forestry; fishing and hunting;
Gini coefficient (a standard measure of inequality) fuel and energy; mining, manufacturing, and construc-
significantly, from 0.45 to 0.25. G. Gomez Bengoe- tion; transport; communication; other industries, R&D
chea, 2020, “The Welfare State in Spain: An Impact related to economic affairs; economic affairs.
Assessment,” Commitment to Equity (CEQ) Working 12. B. Moreno-Dodson,2008, “Assessing the Impact of
Paper Series 95, Tulane University, Department of Public Spending on Growth: An Empirical Analysis
Economics. for Seven Fast Growing Countries,” World Bank Pol-
6. T.J. Van Resburg, S. de Jager, and K. Makrelov, 2021, icy Research Working Paper No. 4663, July.
“Fiscal Multipliers in South Africa after the Global 13. See , for example, https://www.statecapture.org.za/.
Financial Crisis, SARB Working Paper, South African 14. World Bank, Worldwide Governance Indicators,
Reserve Bank, WP/21/07. /world
https://www.worldbank.org/en/publication
7. A detailed Debt Sustainability Analysis can be found -governance-indicators/interactive-data
wide -access.
in World Bank, Sustainable and low-carbon energy 15. This decline is corroborated by the Berggruen Gov-
transition development policy loan, 2023. ernance Index, which dropped 14 points over the
8. While this effect has not yet materialized in South same period.
Africa due to the depth of the domestic financial 16. National Treasury, 2022, “State of Local Govern-
sector, private sector financing can become more ment Finances and Financial Management,” June.
17 ■
17. The total cumulative amount of money spent on state- partnerships in the province, including models like
owned enterprise recapitalizations and bailouts from the charter schools in the United States or the acad-
2000/01 to 2019/20 is R187.4 billion or about $10 bil- emies in the United Kingdom.
lion. https://www.treasury.gov.za/publications/other 25 H.A. Patrinos, F. Barrera-Osorio, and J. Guáqueta,
/minansw/2020/PQ%201426%20-%20Schreiber 2009, “The role and Impact of Public-Private Part-
%20-%20NW1797E.pdf.. nerships in Education” (English), World Bank Group,
18. World Bank, 2023, “South Africa’s Economic Up- https://documents1.worldbank.org/curated/en
date,” December. /453461468314086643/pdf/479490PUB0Role101
19. Oosthuizen, Morné, 2021, “South Africa: Social As- OFFICIAL0USE0ONLY1.pdf.
sistance Programs and Systems Review” (English), 26 Stats SA, Capital Expenditure by the Public Sector,
World Bank Group, http://documents.worldbank 2022, p. 9101.
.org/curated/en/238611633430611402/South 27 See New Zealand’s Infrastructure Commission, Ko-
-Africa-Social-Assistance-Programs-and-Systems rea’s Public and Private Infrastructure Investment
-Review; World Bank, 2014 “South Africa Economic Management Center, and the United Kingdom’s In-
Update. Fiscal Policy and Redistribution in an Un- frastructure and Projects Authority.
equal Society.” 28 Nearly a quarter (23%) of South Africans rely on so-
20 See quarterly report for advancements of these re- cial grants as their main income source, and social
forms. https://www.stateofthenation.gov.za/assets grants make up, on average, 54% of household in-
/downloads/Operation_Vulindlela_Progress_Report comes (World Bank calculations using the General
_Q4_2023.pdf. Household Survey, 2022).
21 For a short review of delivery units in Africa, see 29 O. Attanasio, A. Guarín, C. Medina, and C. Meghir,
ht tps://blogs.worldbank.org /governance/four 2017, “Vocational Training for Disadvantaged Youth
-ways-delivery-units-africa-can-drive-change-and in Colombia: A Long-Term Follow-Up,” American
-improve-public-sector-performance. See also, for Economic Journal: Applied Economics 9(2): 131–43.
the experience in Malaysia, D. Iyer, 2011,“Tying Per- 30. Some 21% of the public sector’s 9,500 senior manag-
formance Management to Service Delivery: Public ers at national and provincial levels did not meet the
Sector Reform in Malaysia, 2009–2011, Innovations minimum competency requirements for the positions
for Successful Societies,” Princeton University. they occupied in 2022 (National Development Plan
22 Since the Covid-19 pandemic, the government has and State Capacity Conference, Nov. 7, 2022, Uni-
tried to limit increases in wages and other com- versity of KwaZulu Natal, available at https://www
pensations (resulting in a decrease of its share in .youtube.com/watch?v=zIKwH_ZNxuE&t=14228s.) A
noninterest expenditure to 37% of GDP over the study by the Public Service Commission also revealed
last three years), but designing a comprehensive that 57% of public servants indicated the use of un-
wage bill reform that has buy-in from all the stake- ethical practices in recruitment and selection, espe-
holders and is consistent with objectives and priori- cially for senior and middle management appointments
ties for public services delivery will take time. (Public Service Commission, 2022, “Ethics in Recruit-
23 M. Sachs, A. Ewinyu, and O. Shedi, 2022, “Public ment and Selection Processes in the Public Service”).
Services, Government Employment and the Bud- 31. These encompass the Public Service Amendment
get,” SCIS Working Paper 9, Public Economy Project, Bill, the Public Administration Management Amend-
Southern Centre for Inequality Studies, University ment Bill, and Public Service Commission Bill.
of the Witwatersrand, October. 32. South Africa has been a pioneer in testing different
24 There was recently some resistance to this public- interventions to support improvements in education
private partnership model by teachers unions and and training service delivery. However, many of these
civil society organizations, who claimed that it is interventions have been short lived and not taken to
inconsistent with the Constitution and the 1996 scale because of limited funding and the absence of
Schools Act. This claim was dismissed by the West- systematic monitoring and evaluation systems. Ex-
ern Cape High Court in July 2023, paving the way amples include several early grade reading interven-
for the expansion of various models of public-private tions introduced in the early 2000s, early childhood
■ 18 Priority 1: Increasing the impact of public spending on inclusive growth
development and parenting programs implemented Effectiveness of a Centralised ICT Procurement Sys-
by numerous nongovernmental organizations across tem,” Government Technical Advisory Center.
the country, and several government active labor 37. Address by Mlindi Mashologu, Director-General,
market programs. Some interventions benefited from Department of Communications and Digital Tech-
strong monitoring and evaluations systems. South nologies Deputy, at the Digital Government Work-
Africa, for example, has been a pioneer in effective, shop, September 2023. https://www.gov.za/news/
contextually relevant structured reading programs speeches/communications-and-digital-technolo -
that have been rigorously and independently evaluat- gies-digital-government-workshop-06-sep-2023.
ed to determine whether they have an impact on ear- 38. These include 8 metropolitan municipalities, 228
ly-grade reading outcomes. These interventions re- local municipalities, and 44 district municipalities.
main an exception and have been financed mainly by 39. See, for example, National Treasury, 2024, Reform-
nongovernmental parties, explaining why they have ing Metro: Trading Servicers and the Role of Incen-
not gone to scale and are not integrated into routine tives, March.
practice by the Department of Basic Education. 40. An exception is the eight large metropolitan mu-
33. One of the key factors helping Poland reform its ed- nicipalities that collect about two-thirds of their
ucation system and move from below OECD-aver- revenues.
age learning outcomes to one of the top-performing 41. L. Eyraud and L. Lusinyan, “2011, Decentralizing
countries in Europe was using reliable learning-level Spending More Than Revenue: Does It Hurt Fiscal
data to target reforms to the poorest performers. Performance?” IMF Working Paper, Fiscal Affairs
34. Of course, the introduction of new digital tools has Department, September.
also created new challenges linked not only to tech- 42. World Bank, 2022, “Performance-Based Fiscal
nical and financial capacity to implement them but Transfers for Urban Local Governments: Results
also to data protection and security. and Lessons from Two Decades of World Bank
35. https://www.worldbank.org/en/data/interactive Financing.”
/2022/10/21/govtech-maturity-index-gtmi-data 43. See National Treasury , 2021, “Concept Note: The
-dashboard. Importance of Management Contracts as an Inter-
36. D. Makoni and M. Mpofu, 2022, “ICT Expenditure vention to Improve the Management of Water Serv-
Review with a Focus on SITA Services: Assessing the ices in South Africa,” February.
Priority 1: Increasing the impact of public spending on inclusive growth 19 ■