151 municipalities in South Africa on the brink of collapse: Treasury

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While 151 municipalities are on the brink of collapse, 43 have already collapsed and need urgent intervention to save them, National Treasury told parliament on Wednesday.

Senior Treasury officials painted a bleak picture when they appeared before Parliament’s standing committee on appropriations.

MEPs informed about the underspending of the local government in relation to the program to improve the management of municipal taxes and about the progress of the implementation of the Integrated Financial Management System (IFMS).

In a summary, the Treasury’s deputy director general for intergovernmental relations, Malijeng Ngqaleni, said local government finances are increasing debt and creditors.

Elaborating on the unsavory state of affairs, Sadesh Ramjathan, local government budget analysis director at National Treasury, said that out of the country’s 257 municipalities, only 58 presented unfunded budgets for fiscal year 2022/23.

“This immediately suggests that 98 municipalities plan to spend more than the revenue they have raised, which may include inability to meet financial obligations. There are 175 municipalities that we have identified that are in financial distress, and these are municipalities that may be on the brink of crisis,” he said.

A total of 219 municipalities met Section 138 and 140 triggers – suggestive of financial difficulties and eminent service failure crises.

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In addition, 151 municipalities are considered “bankrupt and insolvent” and unable to pay creditors and third parties, including the South African tax authorities and pension funds.

“The group that will receive attention are the 43 municipalities in crisis, who are considered to be outside the section 154 support and need corrective intervention to save them. National Treasury directs this process, in collaboration with the provinces,” said Ramjathan.

He said the fourth quarter results of the 2021/22 fiscal year reiterated the bleak state of affairs.

The country’s municipalities, he said, are owed R255 billion from customers.

“In turn, creditors – including Eskom and water boards – owe just under R90 billion. You would agree that these numbers do not paint a good picture for local government.”

At the heart of the failure to collect what is owed and pay for services received is “revenue management failures”.

These failures, Ramjathan said, cut across the entire revenue value chain, with both political and administrative leadership failing to enforce proper implementation of policies and legislation and encouraging the culture of paying for services consumed.

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He said this has been perpetuated by weak controls.

Municipalities, he said, cannot expect to generate revenue if they do not provide reliable services and improve local government revenue generation to become self-sufficient.

To achieve this, Ramjathan said municipalities should ensure that revenue sources are optimized.

In addition, Treasury said councils should introduce initiatives aimed at improving efficiencies within the revenue value chain.

Ramjathan said several setbacks, including the COVID-19 pandemic and procurement delays, are also contributing to revenue collection.

He said Treasury has also had to pull the plug on issuing transversals for smart prepaid meters.

“The problem with local government is much bigger than funding. We had to ensure that the projects and initiatives are carefully chosen and focused on the areas with the greatest impact,” he said.

Performance

Despite the challenges, Treasury said some progress and achievements have been made.

“Economic and financial viability studies were conducted in the Northwest, Gauteng, the Eastern Cape and the Northern Cape. This exercise has informed us about the potential revenue that can be obtained from prospects and clients,” said Ramjathan.

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Treasury has developed a user-friendly rate determination tool with guidelines and methodology to help municipalities determine cost-reflective rates in phases.

Other tools include the Budget Review Tool to address the high level of liability that goes to creditors.

“A tool has been developed to reconcile the valuation roll with the billing system to ensure completeness of revenue,” Ramjathan said.

In addition, Treasury introduced a revenue monitoring masterclass to help crisis-ravaged municipalities with best practice procedures and processes to optimize and improve the revenue base.

Ramjathan said it is critical that catalytic projects are identified. According to him, these will have the greatest impact on the revenues of municipalities.

Ngqaleni said a many of the challenges local governments face stem from governance and weak governance, which has a significant impact on their ability to absorb even the support given.

“In a way, that limits the interventions because it’s the factors that affect the work we do that we can’t do much about,” she said.


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