Home South African State of municipalities a concern: National Treasury report reveals deepening debt crisis

State of municipalities a concern: National Treasury report reveals deepening debt crisis


Municipalities across the country are in a perilous state, facing escalating consumer debt crises and battling to service their own bills.

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MUNICIPALITIES across the country are in a perilous state, facing escalating consumer debt crises and battling to service their own bills.

This is according to the latest report on the state of municipalities’ finances compiled by the National Treasury.

The Treasury has released the local government revenue and expenditure report for the fourth quarter of the 2022/23 financial year, which covers the performance of municipalities against the adjusted budgets for the fourth quarter of the municipal financial year ending on June 30, 2023.

The report details the debt owed to municipalities, by municipalities to their suppliers and the spending of grants among key areas.

The report, especially the debt, has raised the concerns of economic experts.

The escalating consumer debt crises facing municipalities come in the wake of the Treasury proposing a raft of radical measures to curb government spending and warning about the country’s deteriorating pubic finances.

According to Sunday media reports, the measures include a freeze on advertising new appointments, a reduction in spending and a call for departments to fund public servants’ increases “within the departmental baseline”.

The National Treasury report said aggregate municipal consumer debts amounted to R313.2 billion compared with R255.4bn reported in the fourth quarter of 2021/22. The government debt, it continued, accounted for 5.6% or R17.6bn compared with the R17.1bn reported in the fourth quarter of 2021/22 of the total outstanding debtors.

“Comparable to the previous financial years, households still represent the largest component of debt owed to municipalities at 73.6% or R230.5bn (71.2% or R181.8 billion in the fourth quarter of the previous financial year). The outstanding debt is inclusive of debt older than 90 days, interest on arrears and other recoveries.

“Metropolitan municipalities are owed R163.5 billion (R117.5 billion reported in the fourth quarter of 2021/22) in outstanding debt as of June 30, 2023. The largest contributors were the Cities of Johannesburg at 29.6%, Ekurhuleni at 20% and eThekwini at 15.4%,” it said.

Households in metropolitan areas, the report said, account for R127.5bn or 77.9% of outstanding debt, followed by businesses that account for R30bn or 18.4%. Debt owed by the government was at R4.9bn or 3% of the total outstanding debt owed to metros.

It said secondary cities were owed R62.8bn in outstanding consumer debt. “Similar to the metros, most of the debt was owed by households, which amounted to R43.4billion or 69.1%, of the total outstanding debt. An analysis by customer group indicates an amount of R55.6billion or 88.5%, has been outstanding for more than 90 days.”

The report said the municipalities were also in a financial hole with their creditors. “Municipalities owed their creditors R100 billion as at June 30, 2023 and provinces with the highest percentage of outstanding municipal creditors in the category greater than 90 days include the Free State at 89.8%, the Northern Cape at 87.3%, Mpumalanga at 79.8% and North West at 78.5%.

“The increasing outstanding creditors could be an indication that municipalities are experiencing liquidity and cash flow challenges and consequently are delaying the settlement of outstanding debt owed,” it said.

The report also touched on the spending on grants, saying it found that threats made by business forums and incapacity contributed to the underspending on grants in the 2022/23 financial year. “These factors also contributed to the under-performance of conditional grants in the second quarter and resulted in most municipalities having their allocations reduced during the adjustment budget process,” it said.

Economist Professor Irshad Kaseeram said this was a complex problem and a throwback from the apartheid days when fewer black Africans were urbanised, where it was easier to manage payments of services and service delivery.

“In the democratic era large influx to urban areas, the government is at a loss to manage service delivery, services are unaffordable for the majority given the state’s inability to create jobs and promote growth at the rate of 6-7% to solve inequality, poverty and unemployment. Middle-class areas are now not being efficiently serviced.

“It’s unsustainable to continue providing services that are not paid for. All mentioned stakeholders need to do their bit to make the system work.”

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