Municipalities facing cash flow crunch

2015-10-23 10:15

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Pietermaritzburg - Municipalities are facing a cash flow crisis with not even half having sufficient cash reserves of three months or more.

KZN Finance MEC Belinda Scott said simply throwing money at the problem was not the solution and that the cash crunch was “usually a symptom” of a broader issue facing a municipality. “Implementing sound cash management may require harsh measures but it will minimise cash flow problems, help maintain continued financial viability and invariably ensure the sustainability and survival of the municipality,” said Scott.

She said cash management requires more than “just a financial fix” but rather a “holistic approach” that focuses on making a municipality operate more efficiently. “Our analysis has revealed that only 26 municipalities had a cash coverage ratio of three months or greater. Scarily 11 municipalities had a cash coverage ratio of less than zero over the period under review. This indicates that these municipalities may not be financially sustainable,” said Scott.

Speaking to a full house at the KZN Legislature, she said during 2014/15 municipalities in KZN generated operating revenue of R46,9 billion while operating expenditure was R48,1 billion. Capital expenditure across all municipalities in the province was R11,6 billion, an underspend of R1,4 billion.

The total debt owed by municipalities was R13,2 billion, a 31% increase from 2013/14, of which R10,5 billion was outstanding in the “over 90 days” category. Scott said the treasury’s findings reflected deterioration in the cash position of a significant number of municipalities, and increasing challenges experienced by municipalities regarding the management of cash

Read more on:    pietermaritzburg  |  municipalities

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