More than half of the country’s 257 municipalities are bankrupt or insolvent and unable to pay creditors or even service workers’ pensions, finance minister Enoch Godongwana said.
Speaking at the Chris Hani District Municipality’s economic development and investment summit in the Eastern Cape on Thursday, Godongwana said more than 150 municipalities are bankrupt or insolvent, with unfunded budgets the primary catalyst for financial distress.
The situation is compounded by the political dysfunction in many municipalities, he added.
Municipalities fail to spend scarce financial resources in a sound and responsible manner in line with financial regulations and are therefore unable to deliver the basic services guaranteed by the constitution and the bill of rights, he said.
Several municipalities had underbudgeted for infrastructure maintenance, resulting in potholes in roads, burst sewer pipes, and an overall decline in service delivery, he said.
Given their poor performance in this regard and a lack of funding, Godongwana said, the National Treasury was considering allowing municipalities to “front-load” such expenditure: they would be able to spend in one year the total amount allocated over three years in terms of the medium-term expenditure framework.
The lack of service delivery means factories, plants and small businesses are closing down and retrenching workers because they cannot rely on the timely provision of electricity and water. Roads have fallen into disrepair because councils misspend their budgets and lack the technical skills to maintain critical infrastructure. Police stations are understaffed, and under-resourced, hospitals cannot afford to hire nurses and doctors and are stretched to breaking point, while people are losing faith in the promises of democracy, Godongwana said.
“Without the capacity and desire to spend money wisely, the opportunities to crowd in further investments into local projects will be squandered.”
Financial distress
Godongwana raised the spectre of violent protests arising from economic distress, pointing to last July’s rioting in KwaZulu-Natal, which, while driven by criminal elements, also found fertile ground in the desperate economic situation faced by many people.
The latest State of Local Government Report found 175 municipalities in financial distress, up from 66 in 2010/2011.
“Over a quarter of them, according to the auditor-general, are at significant risk of not being able to continue operating as going concerns,” he said. “The situation has worsened in the last five years, and it is no coincidence that this ... coincides with the dramatic slowdown of economic growth nationally.
“There is also, sadly, a growing lack of political will to adhere to both the letter and principle of the fiscal architecture that governs local financial management and promotes transparency and rationality.
“Municipal and senior managers must be freed from political interference and allowed to perform their fiduciary responsibilities. Those appointed to these positions must be qualified and should be accountable to the communities they serve.”
To achieve this, national and provincial governments are spending billions of rand in capacity-building programmes, he said. The Treasury is using the Municipal Finance Management Act to tighten oversight and monitoring, and to instil forms of accountability.
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