Systemic issues plague municipal financial management in South Africa

South Africa's municipal financial management system is plagued by systemic issues that continue to produce failures despite identifying who is at fault. The recent decision to withhold equitable-share transfers from 69 municipalities has sparked debate about financial management and accountability. These municipalities owe billions to various creditors, while receiving even more from households, businesses, and other parts of government.

Withholding the equitable share raises concerns about the delivery of basic services, as municipalities are owed R217.9 billion, but owe R97.4 billion to creditors.

The core issue lies in a broken system where debt accumulates, money stops flowing, and the system begins to struggle. Of the R217.9 billion owed to municipalities, only 4.8% falls within the 30-day payment window, while 72% is more than a year old. Nearly 90% is over 90 days old, with R133.8 billion written off as uncollectable this year alone. Most of what municipalities owe is for bulk electricity and water, with creditors unable to continue carrying unpaid debt indefinitely.

The problem is not just municipalities failing to collect revenue; it's the weakness in payment discipline across the system. National and provincial departments, which have resources and responsibility, have also failed to pay, contributing to the issue. The 30-day payment rule is meant to keep money moving and prevent financial instability, but it has been inconsistently applied.

If this discipline is not consistently observed, accountability may be shifting from one part of the system to another, rather than strengthening it.

Municipalities must pay their creditors, but so do other government entities. Public finance consequences can affect people who had no role in creating financial failures. Withholding funding from municipalities supports the delivery of essential services like water, electricity, sanitation, and refuse removal for indigent households. The risk is that consequences for financial failures may be experienced by residents waiting for basic services, rather than by those responsible for the failures.

Government has started addressing the asymmetry in payment timeframes, instructing national and provincial departments to settle undisputed municipal debt and resolve disputed accounts. However, financial discipline must be applied uniformly for sustainability. If municipalities are expected to pay creditors within 30 days, so must national and provincial government entities.