The National Treasury is cracking down on municipalities that are underperforming on their budgets after figures from the second quarter of the 2025/26 financial year pointed to underspending by many, including in the critical water management sector.
Released in a report last week, the data shows that the country’s eight metros — Joburg, Tshwane, Ekurhuleni, Cape Town, eThekwini, Nelson Mandela Bay, Buffalo City and Mangaung — collectively spent only 31.5% of their R5.8bn budget on treatment works, pipelines and reservoirs, bulk water supply infrastructure and network upgrades by the end of the three months to December 31 2025.
“At this stage of the financial year it’s very low; it should be 50% plus. It’s an indication that projects on the ground are slow with regard to the implementation,” Sifiso Mabaso, director for local government budget analysis at the Treasury, told Business Day.
“It can be caused by various factors. It can be a disruption on site, or it can be the contractor that is performing poorly, not meeting targets. It can be because of a seasonal element, like rain. Or it might be that the party started very late in implementing the project.”
Buffalo City had spent 56.9% of its 2025/26 capital expenditure budget for water management by the end of the second quarter, while Nelson Mandela Bay reported spending only a paltry 3.4%, and the City of Johannesburg was at 15.8%. The City of Cape Town reported 27.6%, Mangaung was at 37.6%, Ekurhuleni 40.8%, eThekwini 41.8% and Tshwane 102.6%, according to the Treasury’s data.
The numbers reflect not just underspending but, in some cases, reporting challenges, Mabaso said.
“There are quite a number of challenges in the system that we are also trying to fix and put measures in place in trying to correct the system. There’s a problem with reporting, you can see clearly, but also there’s an issue of performance regarding those numbers.”
Altogether, municipalities budgeted for total revenue of R706.6bn for 2025/26 and realised R360.7bn, or 51%, by end-December.
They spent R312bn, or 44.7%, at the end of the second quarter — both operating and capital expenditure — compared with the adopted budget of R698.1bn.
Operating expenditure — the money spent on day-to-day costs, including administration — was R283.9bn, or 45.8% of the adopted budget of R619.2bn. Capital expenditure on long-term assets or infrastructure projects was R28.1bn, or 35.6% of the adopted budget of R78.9bn.
Read: Technical skills dry up in SA water boards
“The observation over the previous years is that performance against the capital budget starts at a slow rate and spikes in the fourth quarter of the financial year. However, incorrect reporting also distorts the performance, where some municipalities reported negative capital expenditure,” the Treasury said.
The report shows that municipalities fail to properly prioritise the revenue at their disposal, exposing human capital constraints in local government, said engineer Tshidi Mndzebele, CEO of engineering firm Avenir Holdings.
“There are genuine capacity constraints within municipalities, particularly when it comes to specialised engineering and asset management systems,” she told Business Day. “And water is one of those specialised systems. They cannot have municipal managers or even technical teams within municipalities who do not have the right technical capacity or technical capabilities to use the money in the right projects.
“I believe that the money is there. South Africa is allocating significant resources to local government, if you look at the report, but institutional capacity, capability, project readiness and technical capacity are not keeping pace with the money allocation.”
Asked to respond to Mndzebele’s suggestion that the numbers suggest the main problem facing municipalities is not lack of funding but rather a shortfall in financial management, engineering and project management capacity, Mabaso concurred.
“She is spot on. That’s also what we are picking up in the system — that there are capacity challenges. Mind you, these are metros, and we don’t necessarily expect that in a metro, maybe in small municipalities, perhaps,” he said.
In his budget speech last month, finance minister Enoch Godongwana said many municipalities were in financial and operational distress, demanding a more targeted response from the Treasury.
The department is implementing reforms, with budgets being reduced when there is a failure to meet targets. The municipal infrastructure grant is also being reformed to address persistent underspending, misuse of funds and capacity constraints.
The Treasury has already published a consequence management framework that guides municipalities on what they need to do to enforce consequence management, Mabaso said.
“Given that we have all these instruments in the system but we don’t see the picture improving, now the Treasury is enforcing section 216 of the constitution … once we’ve identified that there’s persistent non-compliance with the law,” he said.
Section 216 empowers the Treasury to enforce compliance by stopping funds to organs of state that commit serious, persistent material breaches of financial measures.
Mabaso said: “What the minister was referring to is section 216 as a last resort to say to a municipality, ‘demonstrate to us that you are taking action against these irregularities within your space. Fail to do that, and the Treasury is going to stop all the transfers until you give us a progress report and demonstrate you are dealing with these matters.’”
Resolving South Africa’s water crisis will require the same public-private partnership that finally helped end years of electricity load-shedding, Mndzebele said.
“There is technical expertise in South Africa. We are ready to work together with the government now. I’m saying, get the right people around the table, get the engineers, get the technical people who will be able to add value so that we collectively see results and solutions,” she said, adding that many private sector players are put off by long delays in payments by municipalities for services.
Recent research by Business Day found that engineers or water specialists account for just 21% of non-executive directors across seven water boards.
The DA says 105 of the 144 water service authorities in South Africa have problems, including capital underspending on water and sanitation.
“We see delays, we see price escalations, and the City of Johannesburg is a good example,” said spokesperson for the sector Stephen Moore. He cited the Brixton tower and reservoir project in Joburg, which was initially scheduled to be completed last April but came on line only recently.
“If capital budgets are not spent, the old infrastructure will keep failing faster and faster. That pattern is also indicative in the water-specific grants, the regional bulk infrastructure grant and the water services infrastructure grant,” he said.
“The actual spending by municipalities is lagging, and wastewater may be the most worrying part of all, because the numbers suggest that wastewater expenditure is particularly weak in a number of municipalities.”
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