Cape Town - National Treasury is currently working with other state departments to develop a funding mechanism and recovery plans for municipalities that are in financial distress.
In the medium term budget policy statement (MTBPS), Finance Minister Malusi Gigaba said some municipalities have managed financial challenges well, but others face liquidity problems, including an inability to meet their payment obligations to Eskom, water boards and other creditors.
In June, now suspended Eskom CFO Anoj Singh said municipal debt to Eskom was expected to escalate to close to R10bn. At the end of the 2016/17 financial year, municipalities owed water entities R3.7bn at the end of March this year.
Gigaba said indebted municipalities need to rectify governance and management problems, focus on collecting revenues owed to them, and eliminate wasteful and non-core spending.
Provinces and municipalities will receive a 43.2% and 9.2% allocation of the national budget over the next three years.
Nearly 80% of provincial budgets are spent on health, basic education and social welfare. Compensation of employees however is the largest category of spending in provincial budgets, accounting for 60.9% of expenditure in the first half of 2017/18.
As for municipalities, the allocation for public transport, which funds the improvement of urban public transport systems, will be amended and stricter conditions for spending will apply.
Where cities fail to demonstrate that they have financially sustainable plans for public transport networks, allocations will be cut.
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