National Treasury has published the local government revenue and expenditure report for the third quarter of the 2020/21 financial year, highlighting an escalation in municipal consumer debt.
This report covers the performance against the adjusted budgets of local government for the third quarter of the municipal financial year ending March 2021 and includes spending against conditional grant allocations for the same period.
In aggregate, municipalities spent 65.3% or R322.9 billion of the total adjusted expenditure budget of R494.5 billion. Aggregated billing and other revenue amounted to 73.5% or R358.6 billion of the total adjusted revenue budget of R488 billion.
Capital expenditure amounts to R34.6 billion or 48.9% of the adjusted capital budget of R70.8 billion.
Aggregated year-to-date total expenditure for metros amounts to R185.1 billion or 66.5% of their adjusted expenditure budget of R278.4 billion. The lowest spending is reported by eThekwini at 58.8%, the report stated.
When billed revenue is measured against their adjusted budgets, the performance of metros reflects a shortfall on water services for the third quarter of the 2020/21 financial year. This comparison excludes secondary costs incurred or actual revenues collected:
- Billed water revenue totalled R18.7 billion against an expenditure of R20.3 billion (deficit);
- Billed energy sources revenue totalled R58.3 billion against an expenditure of R52.3 billion (surplus);
- Billed wastewater management revenue totalled R5.4 billion against an expenditure of R5.2 billion (surplus), and
- Billed waste management revenue totalled R8 billion against an expenditure of R6.6 billion (surplus).
Aggregated revenue billed for secondary cities is 88.8% or R60.6 billion of their total adjusted revenue budget of R68.2 billion for the 2020/21 financial year.
The performance against the adopted budget for the four core services for the secondary cities for the third quarter 2020/21 also shows surpluses against billed revenue without taking into account secondary costs incurred or actual revenues collected:
- Billed water revenue totalled R9.1 billion against an expenditure of R7.9 billion;
- Billed electricity revenue totalled R20.9 billion against an expenditure of R19.1 billion;
- Billed wastewater management revenue totalled R3.1 billion against an expenditure of R2.3 billion; and
- Billed waste management revenue totalled R2.7 billion against an expenditure of R1.9 billion.
Capital spending levels are at an average of 62.5% or R4.9 billion of the adjusted capital budget of R7.8 billion.
“It must be noted that sustained low capital spending has potentially serious implications for the government’s ability to meet the targets for expanded access to water, sanitation, electricity and housing, as well as job creation,” Treasury said.
Aggregate municipal consumer debts amounted to R230.7 billion compared to R230.5 billion reported in the second quarter of 2020/21. A total amount of R73.7 billion has been written off as bad debt.
The government accounts for 6.7% or R15.5 billion (R20.7 billion reported in the 2020/21 second quarter) of the total outstanding debtors.
Similar to in previous financial years, households still represent the largest component of debt owed to municipalities at 72.5% or R167.3 billion – 72.2% or R166.5 billion in the second quarter of the current financial year.
Treasury stressed that not all the outstanding debt of R230.7 billion is realistically collectable, as these amounts are inclusive of debt older than 90 days, interest on arrears and other recoveries.
If consumer debt is limited to below 90 days, then the actual realistically collectable amount is estimated at R36.5 billion, it said.
Metropolitan municipalities are owed R115.4 billion, up from R111.2 billion in the second quarter of 20/21. Households in metropolitan areas are reported to account for R84.2 billion or 73% of outstanding debt, followed by businesses which account for R25.6 billion or 22.2% and debt owed by organs of state at R5.0 billion or 4.4% of the total outstanding debt owed to metros.
For the secondary cities, R46.8.4 billion reported as in outstanding consumer debt. The majority of debt is owed by households amounting to R35.9 billion or 76.75 of the total outstanding debt. An amount of R41.7 billion or 89% has been outstanding for more than 90 days.
Municipalities owed their creditors R65.5 billion as of 31 March 2021, a decrease of R1.7 billion when compared to the R67.3 billion reported in the second quarter of 2020/21.
“Of concern is outstanding creditors in excess of 30 days relating to bulk electricity and water, trade creditors and loan repayments,” Treasury said.
It noted that municipalities in the Free State have the most outstanding creditors greater than 90 days at R15.4 billion, followed by Mpumalanga at R12.3 billion and Gauteng at R6.6 billion.
The total balance on borrowing for all municipalities equates to R68.3 billion as of 31 March 2021.
This includes long term loans of R48.6 billion, long term marketable bonds of R10.7 billion and long term non-marketable bonds of R5.9 billion. The balance represents other short and long term financing instruments.
The report is prepared by using figures from the Municipal Standard Chart of Accounts (mSCOA) data strings.
However, Treasury expressed concern over the credibility of the information contained in the mSCOA data strings, citing incorrect use of the mSCOA and municipal accounting practices by municipalities.
A large number of municipalities are not budgeting, transacting and reporting directly in or from their core financial systems, it said. Instead, they prepare their budgets and reports on an excel spreadsheet and then import the excel spreadsheets into the system.
“Often this manipulation of data lead to unauthorised, irregular, fruitful 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.”
Treasury said that municipalities are not locking their adopted budgets or their financial systems at month-end to ensure prudent financial management.