JABULANI SIKHAKHANE: Municipalities find it increasingly difficult to balance books

We all live within the boundaries of a municipality. We rely, or so the constitution says, on that municipality’s supply of clean water, reliable electricity and refuse removal. Much economic activity takes place within those municipal boundaries. 

But the latest figures on municipal income and expenditure for the first half of the 2022/2023 financial year don’t inspire much confidence about National Treasury, shows that municipal finances worsened over the past decade. This at a time when municipal infrastructure is in a terrible state and local governments can barely meet the socioeconomic needs of residents. 

Data for the second quarter (October to December) of the 2022/2023 financial year shows total municipal expenditure budgets for the full-year at R557.8bn. More than half of this is accounted for by the eight metropolitan municipalities. The expenditure budget is almost double the 2012/2013 figure of R282bn (of which almost 60% was accounted for by metros). However, municipal capital budgets for the current financial year (R69.8bn) are up just 35% on the budgeted amount a decade ago (R51.8bn). Therein lies the problem. 

Back in 2012/2013 municipalities set aside more than 18c of every rand of budgeted expenditure for capital spending. For this financial year that has fallen to just under 13c in the rand. This at a time when most municipal infrastructure — electricity distribution, water reticulation and roads — is collapsing because of age (especially in major cities) and lack of maintenance. 

In recent years many residents have often experienced water cuts, for two main reasons. The first has had to do with the weak infrastructure of bulk water suppliers such as Rand Water. The other relates to aged and poorly maintained municipal water infrastructure. 

The situation is similar when it comes to electricity. In addition to Eskom's rolling blackouts, aged and poorly maintained municipal electricity distribution networks have been worsening the power crisis. This means sorting out Eskom’s generation capacity and introducing independent power producers may not necessarily end power cuts for households and businesses that are supplied by municipalities. Nor will allowing municipalities to source power directly from independent power stations. 

To reduce blackouts residents and businesses will require an upgraded municipal electricity distribution network, something that doesn’t appear to be uppermost in the minds of politicians. But even if the political will was there, municipal finances wouldn’t permit it. 

Debt relief

Other than the shift in expenditure away from capex towards consumption, municipalities are under pressure on another front. That’s the ballooning of the monies they are owed from R305.8bn in December 2022 to R83.7bn in December 2012. The biggest driver of this debt is households, which accounted for 71% of the total at end-December, compared with 63% in 2012. 

Of the December debt, only 16c out of every rand (R49bn) is collectable, according to the Treasury. That is because R256.7bn was older than 90 days. This amount included interest on the debt. The Treasury qualified its statement on the bulk of the debt not being collectable, saying it should not be read as encouragement for municipalities to write the debt off. The reality, though, is that whichever political party runs a municipality will find it difficult to collect. That’s especially the case in those municipalities where no political party governs on its own. 

The amounts municipalities owe to their suppliers has also soared more than 80% since 2012/2013. The bulk of this, R56.3bn out of the R86bn, was due to Eskom. The Treasury says the increase in what municipalities owe creditors could be an indication that they “are experiencing liquidity and cash challenges and consequently are delaying the settlement of outstanding debt owed”. 

In his budget speech in February finance minister Enoch Godongwana said Eskom would “provide incentivised relief to municipalities whose debt is unaffordable”. Relief would come with conditions, including the requirement that municipalities convert from postpaid to prepaid electricity sales. Godongwana said the Treasury would publish a circular this month, with implementation due to start on April Fools’ Day. 

Implementing Godongwana’s conditions will require political will, a scarce commodity in SA. All of which means municipal finances aren’t going to improve any time soon — delaying any possible improvement in the level and quality of public services.

• Sikhakhane, a former spokesperson for the finance minister, National Treasury and Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.