Ratings Afrika has published its latest Municipal Financial Sustainability Index, revealing the best and worst municipalities in South Africa.
The ratings agency‘s report assesses the financial positions of the country’s 100 largest municipalities, and rates them according to their respective financial performances in the latest financial year.
It comes days after Parliament showed that just 10 defaulting municipalities owed Eskom almost R10 billion, led by Maluti A Phofung in the Free State, owing R2.8 billion.
The report evaluates the operating performance, liability management, budget practices and liquidity position of each municipality and then scores them out of 100.
Worryingly, the latest index has delivered a “shocking” revelation in 2018, noting that a large portion of South Africa’s biggest municipalities are in serious financial trouble – to the extent that they would need a R22.4 billion government bailout to become financially stable again.
“The problems start mainly with inadequate budget planning and lack of financial discipline that cause these municipalities’ expenses to exceed their income, resulting in operating losses,” Ratings Afrika said.
“These losses, coupled with low revenue collection ratios cause their current liabilities to exceed their current assets.”
Only 22 municipalities out of 100 reported operating surpluses, with the remaining 78 reporting deficits. The combined profits of those with a surplus amount to only R1 billion – whereas the combined losses amount to R15.3 billion, the group said.
The profits, losses, and state of liquidity across the municipalities are laid out in the table below:
Across the eight major metros, only Cape Town and Tshwane had an operating profit (of R3.36 billion and R730 million, respectively), while the rest had a combined operating loss of R5.14 billion.
Best and worst performers
Provincially, the Western Cape has maintained its leading position for the second year in a row, after taking the top spot from KwaZulu Natal in 2016/17. KZN was the only other province to score above 50. The Free State was the worst performer – a position it has held since 2013/14.
The national average score is 41/100, the lowest it has been in the past five years.
According to Ratings Afrika, even the best-performing municipalities have experienced a weakening trend, with only three scoring above 80, compared to nine in 2012.
Mossel Bay and Swartland (Malmesbury) were the joint top scorers at 84. The table below outlines the top performing municipalities in each province:
The table below outlines the worst performing municipalities in each province:
“Given that the financial sustainability of the key local municipalities in South Africa is weak, our expectation is that the quality of service delivery is likely to deteriorate over the short to medium term,” Ratings Afrika said.
“The municipal sector is currently in a bad financial state. Correction will require decisive political leadership that looks after the interests of residents rather than its own…the current leadership in control of the majority of municipalities has demonstrated over the last five years and more to not being capable of sound governance.
“This is the main cause of deteriorating financial sustainability of the municipal sector in South Africa,” it said.