Municipal debt rising

2016-07-06 06:00

MUNICIPALITIES in the Free State have the highest liability record of unpaid monies to suppliers and other creditors when compared to other municipalities countrywide. This is according to Statistics South Africa, which released the results of the financial census of municipalities last Thursday (30/06).

Stats SA revealed that by 30 June 2015, municipalities countrywide owed their suppliers and other creditors R197 billion, 11,6% more than in 2014. The municipalities in the Free State (15 in total) showed the highest percentage increase in these liabilities between 2014 and 2015.

The increases in the Free State were 40,4%, followed by the North-West (18,3%), Gauteng (17,2%) and Mpumalanga (13,9%). The provinces which contributed the least to the increase in total liabilities between 2014 and 2015 were KwaZulu-Natal (0,5%), the Western Cape (3,9%), the Eastern Cape (5,6%) and Limpopo (6,6%).

The municipalities’ dismal failure to pay suppliers and creditors is in stark opposition to government’s undertaking to pay creditors and service suppliers within 90 days upon delivery of such services.

Stats SA painted a bleak picture of municipalities’ prospects of creating sustainable jobs, as the majority have been found to operate on a deficit due to their inability to collect revenue for services rendered to citizens.

The report indicates that the largest contributor to municipal revenue was grants and subsidies received (31,0%), followed by electricity sales (28,3%), property rates received (14,7%), other revenue (11,2%) (which consists of fines, licences and permits, public contributions and donations), water sales (8,5%), sewerage and sanitation charges (3,7%) and refuse removal charges (2,8%).

The results show negative expenditure patterns by municipalities (including the Mangaung Metro) after they had spent a total of R289,3 billion in 2015.

Stats SA’s results also reveal a worrying aspect of the Mangaung Metro’s financial management over the past few months. The results show that the metro’s cash coverage ratio has dropped significantly.

This is mainly attributed to non-payment for services rendered to provincial government departments, abnormal increases in Bloem Water bulk supply tariffs, as well as the failure to transfer an intercompany loan payment which was supposed to be made by Centlec to the Mangaung Metro. It was also found that electricity made up approximately 40% of the revenue for Mangaung which, compared to other revenue sources, accounts for the biggest portion.

“This undesirable situation poses a huge risk to the financial health of the city,” Stats SA warns in a statement.

The results showed that the largest contributor to municipalities’ total operating expenditure was employee-related costs (25,6%), followed by electricity purchases (21,7%), depreciation and amortisation (9,3%), other expenditures (9,1%) (which consist of collection costs, loss on disposal of property, plant and equipment and impairment loss), bad debts (7,3%), general expenditure (5,4%) (which consists of accommodation, travel and subsistence costs, audit fees, bank charges, consultancy and professional fees, fuel and oil, hiring of equipment, insurance costs, subscriptions and membership fees and telecommunication costs), water purchases (5,4%), contracted services (5,0%), repairs and maintenance (5,0%), interest paid (2,7%), grants and subsidies paid (2,4%) and remuneration of councillors (1,2%).

Visit for the full statistical release.


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