Treasury flags big problems at municipalities – including a R30 billion jump in debt

The underspending of grant allocations, accumulating customer and municipal debt, and inadequate progress in revenue collection across South Africa’s 257 municipalities remain a cause of concern for the National Treasury.

This was outlined by the Treasury discussing the recently released Local Government Revenue and Expenditure report for the second quarter of the 2023/24 financial year (up until 31 December 2023).

Municipal spending

Municipal spending on both operating and capital budgets accounted for 46.3%, or R283.5 billion, of the total approved expenditure budget of R612 billion.

Revenue from billing and other sources reached 50.3%, or R310.9 billion, of the total approved revenue budget of R618.5 billion.

Municipalities also set aside R154.5 billion for salaries and wages. This marks a R7.9 billion, or 5.4%, rise from the R146.6 billion budget allocated for the 2022/23 municipal financial year. By 31 December 2023, R72.8 billion, or 47.2% of the allocated budget for salaries, had been used.

Treasury warned that grave underspending in this regard could have dire consequences on respective municipalities, especially in terms of councils fulfilling their service delivery mandates.

Underspending grants

Regarding conditional grants as of December 31, the Treasury said R27.8 billion or 63.5% of the R43.7 billion allocated to municipalities had been transferred to local councils for 2023/24.

Looking at four grants (the Municipal Infrastructure Grant, Integrated Urban Development Grant Water, Municipal Disaster Recovery Grant and the Public Transport Network Grant), these all have a spending performance of below 50% (between 25% – 49.3%).

Treasury said that low expenditure on grants “is a source of concern because this slow performance may eventually lead to unspent conditional grants that have to revert to the National Revenue Fund (NRF).”

“The surrendering of unspent conditional grants to the NRF has negative consequences to the communities that must receive the services linked to the infrastructure to be built,” added Treasury.

Notably, Gauteng’s metros are some of the municipalities that have received warnings over their underspending of grant allocations – with Treasury threatening to cut the funds.

Municipal customer debt

Looking at revenue owed to municipalities, aggregate municipal consumer debts jumped by over R30 billion over the quarter to R338.2 billion (compared to R306.7 billion in Q1).

A total amount of R6.4 billion (1.9%) has been written off as bad debt.

The report shows that while municipalities have budgeted for a 75.6% collection rate, their aggregated actual collection performance for billed accounts is only 58.4%. 

“The underperformance of actual collections against billed revenue holds a significant risk for the liquidity position of most municipalities as the planned expenditure is based on a higher performance level,” said Treasury.

However, Treasury said that it is important to note that revenue estimates are “seldom underpinned by realistic or realisable revenue assumptions; resulting in municipalities not being able to collect this revenue, [which results] in difficulties in cash flow.”

On top of this, a total of R104.3 billion is owed by municipalities – an increase of R2.9 billion from first quarter of 2023/24.

Read: ‘Under-resourced’ health departments underspend by R3 billion