The latest findings from ratings agency, RatingsAfrika, show that six of South Africa’s eight major metropolitan municipalities are financially unsustainable and in need of critical government intervention.
The group monitors and assesses the financial viability of approximately 100 local councils and eight metro councils each year. According to the local pressThe firm’s latest findings show that the country’s municipal sector has deteriorated over the past year, adding that it is on the verge of collapse.
Only one metro is an exception to this rule, he said: the Western Cape, where municipalities are generally financially stable. Municipalities in the Free State and North West are in the worst condition.
“The South African municipal sector (with the exception of the Western Cape) is on the verge of financial collapse. The government must recognize this and start taking the necessary steps to save the country,” the group said.
Municipalities do not have the money to pay service providers and provide services to residents. For the year to June 2021, the 108 municipalities tracked by Ratings Afrika had a combined total of R23 billion and a cumulative deficit of R54 billion.
RatingsAfrika said the government should step in and bail out these municipalities – however, it warned that this could come at a cost to taxpayers, who would inevitably have to foot the bill.
Municipal failure
The dismal state of municipalities in South Africa has been well documented by the Auditor General and has been a big topic of discussion among investors, analysts and economists.
The Auditor General previously noted that only 28% of municipalities submitted quality financial statements for auditing, and only 11% received no-fault audits. The Free State and North West provinces have not had a single clean audit between them.
Only 5% of municipalities are financially stable and around 64 are dysfunctional due to poor governance, weak institutional capacity, poor financial management, corruption and political instability.
The report described a death spiral: endemic corruption and mismanagement in many municipalities lead to lack of funds and increasingly poor service delivery, the latter situation reinforcing a culture of non-payment of municipal tariffs and service charges which, in turn, exacerbates the financial deterioration of municipalities and further affects service delivery.
According to financial services firm Allan Gray, many municipalities are failing to meet the basic needs of their constituents, including providing them with adequate access to water, sanitation, housing and electricity.
As a result, trust in the system has eroded and the risk of social unrest – such as that seen in July 2021 in KwaZulu Natal and parts of Gauteng – is high.
“Although the downward trend in municipal health has been well documented in the press, the sheer scale of the rot is still alarming: unwarranted, irregular, unauthorized, wasteful and wasteful spending amounted to $189 billion. rands,” said Allan Gray.
Speaking at a recent PSG annual conference, former finance minister Tito Mboweni pointed out that without fixing dysfunctional municipalities, dangerous roads and reducing dependence on Eskom, South Africa can overlook economic growth. significant.
turn the tide
Current Finance Minister Enoch Godongwana has acknowledged that the government is facing a deteriorating situation at the local government level, with more and more municipalities struggling financially.
During his speech on the budget vote in May 2022, he said the National Treasury, in partnership with Cogta, would seek to use local government support mechanisms to implement “intense” interventions to change things in the area.
This will include programs to improve the results of municipal audits with a specific target on those with the highest levels of irregular, wasteful and wasteful spending to guide intervention under Section 139(7) of the Constitution .
“There are 43 municipalities that meet the criteria to be placed under mandatory intervention. I have already written to the premiers of all the provinces in October last year to identify these municipalities and that the process of mandatory intervention must begin in earnest,” he said.
Restoring the financial health of municipalities would improve residents’ quality of life, encourage economic activity and investment, as well as encourage the payment of taxes and duties, he said.
Read: Parts of South Africa have now collapsed: expert
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