Treasury sounds alarm on municipal finances, but here’s a plan to fix service delivery

Treasury officials have warned that the financial instability of South African municipalities is hindering the delivery of essential services such as water and electricity. However, Dr. Duncan Pieterse, Director-General of the National Treasury, announced a comprehensive reform package at the RMB Morgan Stanley Big Five Investor Conference in Cape Town.

Pieterse emphasized the importance of reforms in electricity and local government to attract investment and enhance service delivery to households and businesses. He acknowledged the challenges of implementing such reforms, as they are often contentious, but remained firm in his resolve to see them through.

The financial health of local governments has steadily declined, and many municipalities struggle to provide adequate services such as water and electricity. In response, National Treasury is implementing a four-pronged reform package. The first step involves enforcing compliance and addressing mismanagement of public funds. This includes withholding equitable share transfers to 69 municipalities as a corrective measure, which has reportedly succeeded in incentivizing municipalities to sign payment agreements with their creditors and put procedures in place to manage irregular expenditure.

Next, Pieterse outlined efforts to improve the management of basic services and revenue collection. Two key projects have been launched: the Metro Trading Services reform and the smart meters grant programme. These initiatives aim to enhance service quality, boost infrastructure investment, and streamline municipal revenue collection.

Additionally, changes to the grant framework are being introduced to strengthen infrastructure delivery in municipalities, with the publication of public-private partnership regulations planned to unlock private sector investment.

To address legislative and regulatory issues, National Treasury plans to publish amendments to the Municipal Finance Management Act later in the year. These amendments aim to identify financial stress early, impose firmer action when failure persists, and clarify responsibility for corrective measures within municipalities. Lastly, the focus will shift to implementing longer-term structural changes to South Africa’s local government system.

The Department of Cooperative Governance and Traditional Affairs is drafting a new white paper on local government, and the National Treasury is reviewing the current fiscal framework. These structural reforms are essential for increasing investment, job creation, and economic growth in the country.