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Direct or Indirect Grants? A Case Study of Selected Grants (May 2016)

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Direct or Indirect Grants? A Case Study of Selected Grants (May 2016)

13th May 2016

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Provincial and local government conditional grants are important for funding infrastructure provision, and can be direct or indirect grants.

The share of indirect grants to direct grants is growing. Indirect grants are mostly used to fund infrastructure because, historically, municipalities have not performed well in developing infrastructure. With indirect grants, national government implements the infrastructure on behalf of municipalities that lack capacity.

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his may result in service delivery but carries the risks of weakened accountability and poor maintenance budgeting. To establish whether changing the form of conditional grants improves performance, the Financial and Fiscal Commission (the Commission) undertook a study to assess the funding and performance of specific education, health, sanitation and electricity-related conditional grants.

The study found that provinces and municipalities appear to be better than national government at ensuring grant funding is spent. The Commission recommends that indirect grants be used only as a last resort, that clear criteria for rescheduling conditional grants (from direct to indirect and vice versa) be developed, and that comprehensive capacity-building plans be developed in cases where indirect grants are used.

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Report by the Financial and Fiscal Commission
 

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