South Africa’s Provincial Equitable Share: An Assessment of Issues and Proposals for Reform

The design of any system of transfers is a complex matter, and in practice very few countries are able to get it right, especially at the start of a process of decentralized system of finance. It is quite obvious that South Africa has made great strides in the design of its transfer system, primarily comprised of: an unconditional grant distributed by formula, the “Provincial Equitable Share” (PES); a system of conditional grants; and several other non-conditional transfers. In this report we focus exclusively on the analysis of the existing PES transfer and also on possible options for its reform. Our report consists of three main parts. We first summarize the main features of the PES. We then focus on what may be lacking with the current system. We finish with options for reform.