Households, businesses and government departments owe cash-strapped municipalities a combined R294.7bn, raising doubt about the financial viability of councils bedevilled by issues of service delivery.
Data released by the National Treasury on Monday shows a regression in payments made to the country’s 257 municipalities.
The amount of debt owed to councils increased by R39bn from the third quarter of the 2021/22 financial year to the R294.7bn reported at the end of March this year.
Households are responsible for the lion’s share of money owed to municipal councils with a debt of R214.4bn, up from the R173.6bn reported in the third quarter of the previous financial year.
Consumer strain
Consumers’ disposable incomes have come under severe pressure due to high inflation and interest rates that are at a 14-year high.
The Reserve Bank has raised the cost of borrowing by a cumulative 475 basis points (bps) since it began monetary policy tightening in November 2021.
The financial results of SA banks also show consumers are struggling to keep up with their credit repayments.
Of the R294.7bn owed to municipalities, R139bn is owed to SA’s eight metros, the hub of economic activity in the country. Households account for R107.8bn of this debt, while businesses owe R25.8bn and government departments owe R4.7bn.
Most of the country’s metros, except for Cape Town and Buffalo City, have been hit by political instability as political parties are forced into coalitions of convenience after failing to secure outright majorities after the 2016 and 2021 local government elections.
The City of Johannesburg and Ekurhuleni are the local authorities owed the most, while the City of Tshwane’s status is unknown as the municipality did not report on the debtors during this review period.
An increase in outstanding creditors could be an indication that municipalities are experiencing liquidity and cash challenges, and consequently are delaying the settlement of outstanding debt owed.
— Treasury
In May, the national government appointed former director-general in the presidency Cassius Lubisi to lead a team with the goal of turning around the fortunes of eThekwini Metropolitan Municipality.
Mangaung Metropolitan Municipality, which includes Bloemfontein, was last year placed under administration by the national government after experiencing “significant financial and service delivery failures” for a prolonged period.
Treasury data shows municipalities across SA owed service providers R85.7bn, with Free State, Mpumalanga, Northern Cape and North West municipalities owe the most.
“An increase in outstanding creditors could be an indication that municipalities are experiencing liquidity and cash challenges, and consequently are delaying the settlement of outstanding debt owed,” Treasury said.
Most of the money owed by municipalities is to Eskom, with councils owing the embattled power producer R58.5bn at the end of March 2022. All told, 61 municipalities have total arrear debt of more than R100m each.
Service protests
The poor financial standing of most municipalities, coupled with maladministration, has seen many service delivery strikes over the years.
According to Municipal IQ, SA had 193 service delivery protests nationwide last year.
The recent cholera outbreak in Hammanskraal has also highlighted the poor planning of local councils.
The Treasury also said that many municipalities were not budgeting, transacting and reporting directly from their core financial systems.
Instead, they were preparing budgets and reports on Excel spreadsheets and then importing the information into the core financial systems.
Wasteful
“Often this manipulation of data led to unauthorised, irregular, fruitless and wasteful [UIFW] expenditure and fraud and corruption as the controls that are built into the core financial systems are not triggered and transactions go through that should not.”
The auditor-general’s report, released a few weeks ago, highlighted the dire straits in which most municipalities find themselves.
Of the country’s 257 municipalities, only 38 received a clean audit in 2022 and irregular spending ballooned to R136bn.
The department of co-operative governance & traditional affairs (Cogta) and the Treasury are developing municipal support and intervention plans in collaboration with provinces and municipalities.
Cogta said intervention plans for the 66 municipalities categorised as dysfunctional have now been developed.
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