Recent media reports underscore the dire state of South Africa’s municipalities, revealing widespread mismanagement that has profound implications for residents across the country.
“Two municipalities in South Africa run so badly they’re actively hurting residents”, reports BusinessTech. “Municipal waste failures undermine South Africans’ right to a healthy environment, committee told”, Daily Maverick notes. “Municipalities blow billions in unused grants”, Moneyweb adds.
And these are but three of hundreds of similar headlines published by news platforms in recent months. If the media coverage is any indication, mismanagement at municipalities is largely to blame for many of the country’s ongoing challenges – a view, it seems, echoed by many a government committee. Annexure A of the 2025 Budget Overview, released yesterday by National Treasury, exposes numerous shortcomings within local government.
Water debt management
A key issue is water debt management. The Portfolio Committee on Water and Sanitation has recommended that the Department of Water and Sanitation, National Treasury, the South African Local Government Association (SALGA), and the Department of Co-operative Governance and Traditional Affairs collaboratively develop a comprehensive water debt management plan. This plan should explore mechanisms such as top slicing the equitable share and the Municipal Infrastructure Grant to tackle rising municipal water debt.
National Treasury responded that it is working with these departments to find “pragmatic and legislatively feasible solutions” designed to ensure municipalities prioritise debt repayments to water boards.
Treasury also plans to invoke section 216 of the Constitution against five defaulting municipalities – meaning their upcoming equitable share payments will be withheld while repayment agreements are negotiated with the relevant water boards.
The Portfolio Committee further called for a debt write-off plan for municipalities owing water boards, modelled on Eskom’s existing debt eradication framework for municipal electricity debts.
National Treasury confirmed it is engaging with the Department of Water and Sanitation on a mechanism that will allow water boards and municipalities to renegotiate repayment terms. This could involve writing off part of the municipal debt after current accounts are paid, with corresponding arrears owed by water boards to the department also being written off. Treasury clarified, however, that unlike the Eskom arrangement, this mechanism does not include transferring fiscal funding to water boards.
Eskom municipal debt relief programme scrutinised
Meanwhile, the Standing Committee on Appropriations has called on the Minister of Finance to ensure that National Treasury briefs Parliament on the Eskom Municipal Debt Relief Programme. The committee said it wants to “satisfy itself on the practicality of these conditions” and ensure that municipal balance sheets are not damaged by requirements that are impossible to implement.
Treasury described the Eskom programme as addressing unsustainable municipal debt while promoting sound financial management. Key conditions include achieving a revenue collection rate of at least 85%, implementing cost-reflective tariffs, and restricting free basic services to indigent households.
Treasury warned that non-compliance could result in termination of the programme, repayment of relief debt and arrears, and exclusion from medium-term revenue and expenditure framework grants. It also noted that Treasury provides monthly support, monitors compliance, encourages adoption of smart prepaid meters, and may enforce mandatory interventions where necessary.
“The National Treasury remains committed to balancing debt obligations with service delivery and will update Parliament accordingly,” it said.
Consequences of under-expenditure
On the issue of local government under-expenditure, the Select Committee on Appropriations recommended that National Treasury and the Department of Co-operative Governance implement specific consequence management measures after R2 billion was surrendered to the National Revenue Fund this year.
The committee expressed concern that underspending could undermine basic service delivery and negatively impact communities, calling for “clear and stricter measures” to prevent recurrence in the 2025/26 financial year.
National Treasury acknowledged these concerns, explaining that some underspending reflected the recovery of grant funds misused by municipalities for non-compliant purposes—such as using infrastructure grants for operational expenses like salaries. Although these clawbacks appear as underspending in financial reports, they serve to ensure compliance and proper use of public funds. Treasury said this situation underscores the need for stronger preventative measures.
Equitable revenue distribution challenges
Finally, the Select Committee reiterated its recommendation that National Treasury, together with the Department of Co-operative Governance and SALGA, accelerate a review of provincial and local government equitable share formulas to address a 17% funding gap in local government.
The committee underscored the importance of revisiting the vertical division of revenue given the rising number of dysfunctional and financially distressed municipalities.
National Treasury confirmed a comprehensive review of the local government fiscal framework is under way to tackle these challenges. It said the review includes considerations of geography, rurality, and local factors to ensure equitable revenue sharing.
Regarding the 17% funding gap highlighted by SALGA, Treasury noted that “data and methodological concerns” are being addressed to ensure reliable calculations. For provinces, reforms to the equitable share formula for education have been finalised but await updated Income and Expenditure Survey data from Statistics South Africa, with implementation planned for the 2026 Budget.
As Treasury works to deliver on its commitments and municipalities are called to align, South Africa’s local governments stand at a crossroads – and the stakes for millions of residents could not be higher.
