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Cape Town – Seventeen district municipalities were identified as being in financial distress, National Treasury’s state of local government and financial management report for 2016/17 revealed.
The report, which has been released since 2011, assesses the state of finances of 257 municipalities as part of Treasury’s commitment to transparency of public funds.
Those municipalities which are in financial distress are characterised by poor cash flow management and an increase in outstanding debtors and creditors, according to the report.
“It is cause for concern that district municipalities are financially distressed, given the role they have to play in empowering and capacitating local municipalities,” the report read.
A total of 128 municipalities are in financial distress. Among the municipalities included are The City of Tshwane in Gauteng, Mogale City in Gauteng, Matjhabeng in Free State, Govan Mbeki in Mpumalanga, Madibeng in North West, Beaufort West in Western Cape, and to name a few.
According to Treasury these municipalities have liquidity challenges, and are failing to deliver services, bill services and collect revenue. “Consequently, outstanding debtors are increasing and they are not able to maintain positive cash flows to pay creditors within the thirty days’ timeframe as legally prescribed.”
Treasury pointed out that an increase in municipal debt is prevalent among smaller municipalities, which struggle with “capacity, governance, institutional and operational inefficiencies”. These municipalities do not prepare funded and implementable budgets.
Last week Treasury told the Standing Committee on Public Accounts that part of the problem is that municipalities table unfunded budges. Director-General Dondo Mogajane explained that municipalities end up spending more than what is available to them.
“If you table an unfunded budget expect that you will have a problem. Expect that you will not meet your obligations,” he told the committee.
Treasury's deputy director-general of intergovernmental and fiscal relations, Majileng Mgqaleni explained that through government’s equitable share programme, allocations are made based on municipalities’ revenue raising capacity.
Government allocates funds to fill the gap between revenue raised and what the municipality cannot raise. But by tabling unfunded budgets, municipalities run into debt, Mgqaleni explained.
In the report Treasury indicated that it has introduced changes to the local government equitable share formula, announced multi-year allocations, and other reforms. “But as long as municipalities fail to practice sound financial discipline they will always argue that funding is inadequate,” Treasury warned.
Debt owed to municipalities
Other findings show at the end of the fourth quarter of 2016/17, total debtors amounted to R128.5bn, up R14.9bn from the previous year. This amount exceeds the total amount allocated to local government through direct and indirect grants from the national fiscus amounting to R111bn.
Households are the biggest contributors (64.8%) to municipal debt, but there is also wide-spread non-payment across all customer segments.
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