State looks at ways to ease municipalities' R138bn debt burden

Finance Minister Nhlanhla Nene. (Photo: Bloomberg)
Finance Minister Nhlanhla Nene. (Photo: Bloomberg)

Cape Town – Municipalities are owed more than R138bn by government departments, businesses and households, Parliament heard this week during deliberations of Local Government Week.

The programme was held over three days and recommendations were made to address the challenge of municipal debt which is posing a threat to the viability of municipalities, Parliament said in a statement it issued on Friday.

“The general view was that the culture of non-payment must be eradicated to ensure viability of municipalities, especially non-payment by households that are able to pay,” the statement read.

Parliament said it is necessary for National Treasury to issue a directive instructing provincial and national departments to pay their debts.

Delegates also recommended that the Tax Administration Act be amended to allow deductions of municipal debts before refunds are made by the South African Revenue Service.

“Delegates also emphasised the need to establish district debt collection agencies to aid municipalities in collecting debt.”

In turn, Finance Minister Nhlanhla Nene previously told city managers at a seminar in April that some South African cities are on the brink of collapse, Bloomberg reported.

In a written response to a question by Congress of the People MP William Madisha, Nene said this is a trend Treasury observed regarding financial management challenges at municipalities.

“If not properly addressed (it) could lead to collapse as evidenced by the experience of other cities elsewhere.”

He explained that the “root causes” of collapse are mainly linked to governance challenges – the common underlying driver of service delivery and financial challenges, he said.

95 municipalities in financial distress

Treasury will be releasing its annual report on the state of local government finances and financial management soon, said Nene. A total of 95 municipalities are in financial distress, according to the 2016/17 report.

Some municipalities are unable to pay their creditors and are struggling to pay for bulk water and electricity.

“Although these municipalities are cause for immediate concern, it should be noted that all of our municipalities – including metropolitan municipalities - have significant room to improve performance on many of the indicators tracked in the state of local government finances and financial management,” Nene warned.

Delegates of Local Government Week agreed on the need for guidelines when it comes to writing off municipal debt to protect the poor. The guidelines are not like a blanket write-off of debt which would exacerbate the culture of non-payment, Parliament said in the statement.

Recommendations were made by the delegation to develop a common national Municipal Support and Intervention Framework for municipalities that need assistance.

“The finalisation of the Monitoring and Intervention Bill is also important to provide guidance in this regard,” Parliament said.

Nene also shared steps government and Treasury are taking to help municipalities in financial distress. These include the Integrated Urban Development Framework (IUDF), which focuses on support for different categories of municipalities.

“With the IUDF, the Cities Support Programme, which is coordinated by the National Treasury, is working closely with our metropolitan municipalities,” he said.

Further, the Department of Cooperative Governance has rolled out a “complementary programme” for intermediate cities. The design of a small towns' programme is being finalised in consultation with the South African Local Government Association, said Nene.

“These programmes strongly complement the systemic support and reform programmes such as Back to Basics and Municipal Financial Management reforms.”

Treasury is also collaborating with the Department of Cooperative Governance to prioritise municipalities which are in financial distress and failing to deliver services.

Former finance minister Malusi Gigaba announced in the mini budget in October that Treasury was working on a funding mechanism and recovery plans for municipalities facing financial crisis, Nene added.

The purpose of the grant is to be a “short-term intervention that will fund the turnaround of struggling municipalities”, Nene said referring to the Division of Revenue Bill. 

“This will provide some financial relief to municipalities that require financial support to improve their current situation,” he said.

Nene said the grant allocation is not meant to fund a complete financial recovery, but rather for the implementation of corrective action by municipalities.

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