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    FM Assignment

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    Jotham Shumba
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    FM Assignment

    Uploaded by

    Jotham Shumba
    8 views10 pages
    assignment

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    FM ASSIGNMENT

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    assignment

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    8 views10 pages

    FM Assignment

    Uploaded by

    Jotham Shumba
    assignment

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 10

    Table of Contents

    Question 1

    1.1
    Evaluate the importance of the supplementary budget as presented by the
    Minister of Finance on the 24 of June 2020.

    1.2

    Critically discuss the spending priorities of the 2020 Supplementary Budget.

    Question 2

    Evaluate the revised fiscal framework for 2020/21.

    Question 3

    Critically discuss the zero based budgeting approach as a strategic budget


    reform that could improve public finances.

    Question 4

    Evaluate the impact of the Covid-19 on the fiscal framework.


    Question 1

    1.1

    Introduction

    The supplementary budget presented by Minister of Finance, Tito Mboweni on


    24 June 2020, was of utmost importance for South Africa in the midst of the
    COVID-19 pandemic. The Minister acknowledged the fast-evolving nature of
    the pandemic and the need for the country to adapt quickly to protect its
    citizens. He highlighted the measures that South Africans have taken, such as
    wearing masks, washing hands frequently, and maintaining social distancing,
    as crucial in saving lives and flattening the curve of the virus (Mboweni, 2020).

    The Minister also noted the economic impact of the pandemic, with South
    Africa's economy projected to contract by 7.2% in 2020. As a result, the
    supplementary budget included various measures to support the economy
    and mitigate the impact of the pandemic, such as increased healthcare
    spending, additional social grants, and tax relief for individuals and
    businesses (Mboweni, 2020).

    Furthermore, the supplementary budget also included measures to address


    the country's long-term structural challenges, such as the high debt-to-GDP
    ratio and weak economic growth. These measures included reducing
    government spending, implementing structural reforms, and improving the
    efficiency of state-owned enterprises (Mboweni, 2020).

    Conclusion

    Overall, the importance of the supplementary budget presented by the


    Minister of Finance lies in its ability to provide support for the country during a
    time of crisis and uncertainty, while also addressing long-term structural
    challenges. It reflects the government's commitment to protecting the health
    and well-being of its citizens and supporting the economy during this
    challenging time.

    1.2

    Introduction

    The 2020 Supplementary Budget Review outlined the government's response


    to the COVID-19 pandemic through a relief package worth R500 billion, aimed
    at mitigating the impact of the pandemic on the economy and households.
    The budget aimed to provide temporary support to those most affected by the
    restrictions on economic activity, and to ensure efficient and effective use of
    the funds, without waste.

    The budget allocation prioritized funding for healthcare, social protection, and
    economic support. The healthcare sector received R21.5 billion for medical
    supplies, equipment, and health services, while R50 billion was allocated for
    social grants to support vulnerable households. The budget also allocated
    R100 billion for job creation, support to small and medium-sized enterprises
    (SMEs), and relief for firms affected by the pandemic. Other priorities included
    funding for education, infrastructure, and public employment programs.

    The government secured funding for the relief package by drawing down
    surplus funds from institutions such as the Unemployment Insurance Fund
    (UIF) and reallocating resources from existing programs. However, some
    critics have argued that the budget could have been more ambitious in terms
    of its funding priorities and the scale of the relief package. For example, some
    have argued that the budget should have allocated more funds for healthcare
    and education, while others have called for more support for informal workers
    and low-income households.

    Conclusion

    In conclusion, the 2020 Supplementary Budget Review outlined a


    comprehensive relief package aimed at mitigating the impact of the COVID-19
    pandemic on the economy and households. The budget allocation prioritized
    funding for healthcare, social protection, and economic support, and the
    government secured funding by drawing down surplus funds and reallocating
    resources from existing programs. However, the budget could have been
    more ambitious in terms of its funding priorities and the scale of the relief
    package.
    Question 2

    Introduction

    The revised fiscal framework for 2020/21, announced in response to the


    COVID-19 pandemic, aimed to provide support for the economy and
    households while ensuring fiscal sustainability. Table 2.3 in the Main Budget
    framework document shows the adjustments made to the 2020/21 Budget.

    The revised fiscal framework included a substantial increase in government


    spending, with total spending increasing from R1.8 trillion to R2.2 trillion. The
    budget also included a significant increase in the budget deficit, which rose
    from 6.8% to 14.6% of GDP, and a sharp increase in government borrowing.

    To finance the increased spending, the government drew down on its cash
    balances, including the use of R95 billion from the Unemployment Insurance
    Fund (UIF), and borrowed extensively from both domestic and international
    markets. The budget also included measures to reduce spending, including a
    reduction in the public sector wage bill, a freeze on non-critical vacancies, and
    a reduction in the goods and services budget.

    The revised fiscal framework has been subject to some criticism, with
    concerns raised about the sustainability of the increased deficit and debt
    levels, as well as the potential impact on inflation and interest rates. Some
    critics have also questioned the prioritization of spending, arguing that more
    support should have been provided for small businesses and vulnerable
    households.

    Conclusion

    Overall, the revised fiscal framework for 2020/21 represented a significant


    response to the COVID-19 pandemic, with a substantial increase in
    government spending aimed at mitigating the impact of the pandemic on the
    economy and households. However, the sustainability of the increased deficit
    and debt levels remains a concern, and the budget may require further
    adjustments in the future.
    Question 3

    Introduction

    Zero-based budgeting (ZBB) is a budgeting approach that requires justifying


    all expenses from scratch every budget cycle, unlike incremental budgeting,
    which starts from the previous year's budget. ZBB has been adopted as a
    strategic budget reform in several countries to enhance public finances. This
    essay will critically discuss ZBB as a strategic budget reform that could
    improve public finances.

    ZBB has several advantages that could improve public finances. Firstly, ZBB
    ensures that all expenses are justified, and funds are allocated according to
    priorities. This helps in identifying low-priority items and eliminating them, thus
    reducing the government's overall expenditure (Drury, 2015). Secondly, ZBB
    promotes transparency in budgeting since it requires justifying all expenses,
    which can help in reducing corruption and misappropriation of funds
    (Mashenene & Ngobeni, 2021). Thirdly, ZBB encourages participation and
    involvement of stakeholders, such as citizens, in the budgeting process. This
    helps in aligning the budget with the needs of the public, thus improving public
    finances (Bogdan, 2016).

    However, ZBB has some limitations that could hinder its effectiveness as a
    strategic budget reform. Firstly, the process of justifying all expenses can be
    time-consuming and resource-intensive, especially for large and complex
    organizations like the government (Drury, 2015). Secondly, ZBB may be
    challenging to implement since it requires a cultural shift in the organization's
    mindset, which can be resistant to change (Mashenene & Ngobeni, 2021).
    Thirdly, ZBB may not be suitable for all types of organizations, as some may
    have fixed costs that cannot be reduced, making it challenging to implement
    ZBB (Bogdan, 2016).

    Conclusion
    In conclusion, ZBB is a strategic budget reform that could improve public
    finances by ensuring that funds are allocated according to priorities,
    promoting transparency, and encouraging stakeholder participation. However,
    the process of justifying all expenses can be time-consuming, and ZBB may
    not be suitable for all types of organizations. Therefore, it is essential to
    consider the advantages and limitations of ZBB when deciding whether to
    adopt it as a strategic budget reform.
    Question 4

    Introduction

    The COVID-19 pandemic has had a significant impact on economies


    worldwide, including South Africa. This impact has been felt not only on the
    economy but also on the country's fiscal framework. This essay will evaluate
    the impact of the COVID-19 pandemic on South Africa's fiscal framework, with
    a focus on the reduction of domestic VAT and pay-as-you-earn in April and
    May of 2020. In-text references and a bibliography will be included to support
    the evaluation.

    Impact on the fiscal framework: The COVID-19 pandemic has had a severe
    impact on South Africa's fiscal framework. According to the 2020
    Supplementary Budgetary Review, the sharp reductions in collections for
    South Africa's two largest revenue items, domestic VAT and pay-as-you-earn,
    were evident in April and May of 2020 (National Treasury, 2020). This
    reduction in revenue can be attributed to the economic downturn caused by
    the pandemic, which led to reduced economic activity and job losses.

    Furthermore, the pandemic has resulted in increased government spending


    on healthcare, social protection measures, and economic relief efforts. This
    increased spending, coupled with the reduction in revenue, has widened the
    country's budget deficit. The National Treasury estimated that the budget
    deficit for the fiscal year 2020/2021 would increase from 6.8% to 14.6% of
    GDP (National Treasury, 2020).

    The widening budget deficit has also increased the country's debt levels. The
    National Treasury projected that the country's gross debt-to-GDP ratio would
    increase from 63.3% in 2019/2020 to 82.6% in 2020/2021 (National Treasury,
    2020). The increase in debt levels has raised concerns about the
    sustainability of the country's fiscal framework in the long term.

    Conclusion
    In conclusion, the COVID-19 pandemic has had a significant impact on South
    Africa's fiscal framework. The reduction in revenue due to the pandemic's
    economic downturn, coupled with increased government spending, has
    widened the country's budget deficit and increased its debt levels. In the long
    term, this may pose a challenge to the sustainability of the country's fiscal
    framework.
    References

    Mboweni, T. (2020). Supplementary Budget Speech by Tito Titus Mboweni,


    MP Minister of Finance. Retrieved from
    https://www.gov.za/speeches/minister-tito-mboweni-2020-supplementary-
    budget-speech-23-jun-2020-0000., [Accessed 02 April 2023].

    Makhaya, M. (2020, June 25). South Africa's COVID-19 response: A case of


    too little, too late? Brookings Institution. Retrieved from
    https://www.brookings.edu/blog/africa-in-focus/2020/06/25/south-africas-
    covid-19-response-a-case-of-too-little-too-late/, [Accessed 02 April 2023].

    National Treasury. (2020). Supplementary Budget Review 2020. Government


    of South Africa. Retrieved from https://www.treasury.gov.za/default.aspx,
    [Accessed 02 April 2023].

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