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Cape Town – The weakness in most municipalities is linked to political and administrative leadership, said Treasury’s Director-General Dondo Mogajane.
Treasury, along with Eskom, the department of Cooperative Governance and Traditional Affairs and the South African Local Government Association on Wednesday briefed Parliament’s Standing Committee on Public Accounts (scopa) on the municipal debt situation.
Eskom told the committee that municipal debt was worsening, having swelled to R13.88bn.
Treasury had engaged with municipalities to find out why they had failed to pay their creditors and “poor leadership and weak financial management” led to the mismanagement of finances and the escalation of debt, according to documents submitted by Treasury.
“Ineffective councils in some cases and governance structures are not in place - that contributes to the challenges,” said Mogajane.
Mogajane said that municipal debt owed to Eskom was a concern because it affects the power utility’s sustainability, which in turn impacts the SA economy.
He said it is important to balance approaches to solve problems. Parties must see and understand that in order for Eskom to succeed, it must be paid what is due to it as the board has financial responsibilities. “There is an obligation for municipalities to pay,” said Mogajane.
He acknowledged that poor performance of the economy may adversely impact the ability of municipalities to raise revenue, but in that the user-pay principle must not be lost. “If we lose that we will create a situation that is very challenging for a country to manage finances properly and for a country to be sustainable going forward.”
Mogajane suggested the “unthinkable” that Scopa take administrative and political oversight to a different level. He explained that provincial Scopas, treasuries, and mayors must come together to get to the bottom of accountability processes.
“The wheel will turn properly if the wheel of the intergovernmental system turns properly.”
Unfunded budgets
Some municipalities have tabled “unfunded” budgets, according to Mogajane. “If you table an unfunded budget expect that you will have a problem. Expect that you will not meet your obligations.”
Majileng Mgqaleni, Treasury's deputy director general of intergovernmental and fiscal relations, shared views that part of the problem is that local government is spending money it does not have, even though budgets have been cut at a national level.
Mgqaleni explained that through government’s equitable share programme, allocations are made based on municipalities’ revenue raising capacity. This means allocations from government are made to municipalities that can fill the gap between a municipality’s revenue raising powers and what it is not able to raise.
This means municipalities in rural areas would probably get twice as much allocated because revenue raising abilities are low.
However, a problem comes in when municipalities table unfunded budgets – and plan to spend more than they actually have, she explained.
According to Treasury’s submission, 60 of 62 defaulting municipalities in 2017/18 adopted unfunded budgets. For most of the municipalities their operating expenditure exceeded operating revenue. Many of the municipalities were being subsidised by the local government equitable share formula.
TV Pillay, Treasury’s chief director of the Municipal Financial Management Act, explained that Treasury in conjunction with CoGTA helps distressed municipalities with a financial recovery plan. But he added that the process could take long.
Pillay explained that implementation of the plan can be a challenge.
He added that Treasury is working in a collaborative way with CoGTA to assist distressed municipalities, which will have to do more to address governance, service delivery and financial management.
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