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Cape Town - South African consumers may start to feel the effects of reduced levels of service delivery and efficiency from their local municipalities, according to Marc Joffe, Director of Global Credit Ratings (GCR).
Persistent municipal tax hikes and record-high fuel prices have placed increasing pressure on consumer affordability and resulted in local municipalities being under immense pressure to collect from their outstanding debtors.
Government is struggling to meet their own revenue targets and this may bode negatively for grant transfers to municipalities, which continue to make up a sizeable portion of municipal revenues.
According to Joffe municipal service delivery depends to a large extent on the strength of municipalities' broader economic environment.
He said the severe pressures on the South African economy are in some instances translating into major cash flow and operational challenges for local municipalities.
This is likely to impact on their ability to deliver basic services and fund new infrastructure in the near future.
It is exacerbated by increased migration into various urban areas. Most of the migrants are consuming municipal services, but are not able to afford municipal services, given that they are unemployed.
“Consumers are struggling to meet both their municipal and non-municipal related obligations. Where this is the case, usually the first payments to be missed are for rates and taxes as there is little short term impact," said Joffe.
"On the other hand, government has confirmed that the relatively weak economic environment is hurting its own revenue collections."
Government transfers to municipalities may need to be re-assessed, according to Joffe. Most municipalities are reliant on government funding to deliver basic services and fund certain infrastructural development.
This would likely see many municipalities experience cash flow challenges, which could see various operational expenditure and capital projects scaled back,” he says.
Joffe explained that many municipalities now have to reassess or reprioritise their expenditure projections in light of possible revenue shortfalls.
Furthermore, increased focus will need to be applied to reigning in wasteful or unauthorised expenditure by municipalities, which has run into billions of Rands in recent years.
Joffe also noted that while it is unclear as to how government intends addressing the shortfall regarding its revenue expectations, the possibility of further tax hikes would likely have dire consequences for an already ailing economy and financially strained consumer.
“Unfortunately, for its financial stability, the municipal sector is heavily reliant on a positive turn for the economic environment in South Africa," said Joffe.
"Given the current environment, the outlook for local municipalities is of some concern.”
- Fin24
Persistent municipal tax hikes and record-high fuel prices have placed increasing pressure on consumer affordability and resulted in local municipalities being under immense pressure to collect from their outstanding debtors.
Government is struggling to meet their own revenue targets and this may bode negatively for grant transfers to municipalities, which continue to make up a sizeable portion of municipal revenues.
According to Joffe municipal service delivery depends to a large extent on the strength of municipalities' broader economic environment.
He said the severe pressures on the South African economy are in some instances translating into major cash flow and operational challenges for local municipalities.
This is likely to impact on their ability to deliver basic services and fund new infrastructure in the near future.
It is exacerbated by increased migration into various urban areas. Most of the migrants are consuming municipal services, but are not able to afford municipal services, given that they are unemployed.
“Consumers are struggling to meet both their municipal and non-municipal related obligations. Where this is the case, usually the first payments to be missed are for rates and taxes as there is little short term impact," said Joffe.
"On the other hand, government has confirmed that the relatively weak economic environment is hurting its own revenue collections."
Government transfers to municipalities may need to be re-assessed, according to Joffe. Most municipalities are reliant on government funding to deliver basic services and fund certain infrastructural development.
This would likely see many municipalities experience cash flow challenges, which could see various operational expenditure and capital projects scaled back,” he says.
Joffe explained that many municipalities now have to reassess or reprioritise their expenditure projections in light of possible revenue shortfalls.
Furthermore, increased focus will need to be applied to reigning in wasteful or unauthorised expenditure by municipalities, which has run into billions of Rands in recent years.
Joffe also noted that while it is unclear as to how government intends addressing the shortfall regarding its revenue expectations, the possibility of further tax hikes would likely have dire consequences for an already ailing economy and financially strained consumer.
“Unfortunately, for its financial stability, the municipal sector is heavily reliant on a positive turn for the economic environment in South Africa," said Joffe.
"Given the current environment, the outlook for local municipalities is of some concern.”
- Fin24
