Limpopo's messy affair
NATIONAL government had to take emergency measures towards the end of last year because technically, the Limpopo province was bankrupt.
SINKING SHIP: Limpopo premier Cassel Mathale. Picture by Elijar MushianaOn November 22 last year it became clear that the province would not be able to pay teachers, doctors, nurses, social workers, service providers and other public sector employees.
Throughout last year, National Treasury had cautioned the Limpopo treasury that the province would not have sufficient cash to finance its 2011/12 budget obligations.
The province has been spending beyond its means. This has to stop.
Currently the province faces a potential shortfall of R2bn at the end of this financial year. National Treasury will have to restructure the province's finances in order to find savings of R2bn to cover the shortfall.
The Limpopo treasury had an overdraft of R757m at the South African Reserve Bank in November last year. The province wanted to increase the overdraft facility by R1bn.
Once National Treasury received the request from the province to increase its overdraft facility, officials undertook a careful due diligence and came to the conclusion that without a Section 100 (1)(b) intervention the province would not be on a sound financial footing.
As explained by the director-general of the National Treasury in his letter of response to the province: "unless there is urgent action taken by the province to address these issues, the Limpopo Treasury is likely to preside over a serious failure of public systems and process for service delivery".
Limpopo had also requested an additional R500m on its overdraft facility from a commercial bank. The bank refused this request and terminated the facility.
Why has this situation come about in Limpopo? The province has large, accumulated unauthorised expenditure which has grown from R1.5bn in 2009 to R2.7bn last year.
Accruals in the form of unpaid expenditure grew to R500m in March last year.
Officials from national government are in Limpopo to ensure that the provincial government is placed on a sound financial footing; that it is able to exercise proper financial management, ensure fair and transparent procurement and deliver appropriate services to our people.
Cabinet's decision to intervene in the province's financial management demonstrates our belief that clean administration and efficient service delivery are critical to achieving and sustaining a better life for all.
By December last year the provincial treasury management function had collapsed. There was no proper cash management system and the budget section of the treasury appeared dysfunctional.
This is an edited version of Gordhan's briefing
