National Treasury Suspends Transfers to Municipalities Due to Financial Mismanagement

The national government has allocated additional funds to local authorities; however, there is a growing number of reports that many municipalities are unable to effectively manage even the funds they already receive.

Municipal Financial Status

According to Statistics South Africa, intergovernmental and institutional grants increased by R42 billion in 2024/25, reaching R1.144 trillion, compared to R1.102 trillion the previous year. Only transfers to local authorities grew by R10 billion, totaling R167.7 billion from R157.7 billion previously.

Nevertheless, the latest Auditor-General's report showed that only 35% of municipalities are in good financial health, while 58 municipalities are in such poor condition that it raises serious doubts about their ability to continue operating as viable entities. Furthermore, 116 municipalities adopted unpaid budgets, taking on expenditure commitments of R288.17 billion without specifying funding sources.

Statistics South Africa notes that over the past 20 years, government grants to municipalities have accounted for 54% of the national government's total operating expenses, making this sector the largest expenditure item for the state.

Problems in Major Cities

The issues are not limited to small or rural municipalities. None of the eight metropolitan municipalities in South Africa received a clean audit in 2024/25. The number of metropolitan cities with an unqualified audit opinion increased from two to five during the current administration's term.

The latest Auditor-General's report identified deficiencies in annual and year-end reporting, poor bookkeeping, and excessive reliance on the audit process to detect material misstatements as the main causes of the problems. Only the City of Cape Town and eThekwini received unqualified opinions on their financial statements. The financial statements of the Johannesburg Metropolitan Municipality, including its local municipalities, received an unqualified opinion, but individual financial statements of the city were subject to a qualified audit opinion.

Details of Financial Irregularities

Poor budgeting has exacerbated the situation. The budgets for 2024/25 for the City of eThekwini, the City of Johannesburg, and the City of Tshwane were unpaid, despite the increase in government grants, with Tshwane adopting such budgets for four consecutive years.

Since 2021/22, metropolitan cities collectively incurred R21.72 billion in unauthorized expenditures and R4.65 billion in fruitless and wasteful expenditure, almost half of which relates to interest and late payment penalties. The average payment period to creditors in metropolitan cities was 121 days.

The Auditor-General directly pointed to the reasons for these figures: 'The lack of accountability in most metropolitan municipalities is evident from the slow response to resolving unauthorized, irregular, and fruitless and wasteful expenditure, as well as from inefficient accountability structures and processes,' the report states. It was also noted that metropolitan city leadership, including mayors, rarely reports to provincial legislatures.

Distribution of Grant Funding

Provincial governments continue to receive the largest share of grant funding, accounting for 64% of all transfers. Grants to provinces increased from R706.3 billion in 2023/24 to R730.6 billion in 2024/25, with Gauteng receiving the largest share, followed by KwaZulu-Natal.

Higher education received R47.8 billion, more than R45 billion the previous year, while grants for off-budget accounts and funds—including the South African Revenue Service, the National Student Financial Aid Scheme, and the National Development Agency—increased to R193.9 billion. International grants remained relatively small, amounting to R4.3 billion, less than 1% of the total grant expenditure.

By functional classification, general government services accounted for the largest portion of grant spending—R762.9 billion, followed by education and economic affairs. Only three municipalities—the City of Johannesburg (R79 billion), eThekwini (R60 billion), and the City of Cape Town (R59 billion)—provided one-third of the total municipal expenditure in 2025.

Of the total government transfers and subsidies, 71% consisted of operational grants used to fund current expenses such as salaries and service delivery, and 29% were capital grants intended for infrastructure and long-term assets. The data indicates that most transfers continue to finance day-to-day operations rather than long-term investments.

Sectoral Financial Difficulties

The increase in transfers occurs against a backdrop of severe financial difficulties. The Auditor-General found that 40% of municipalities are classified as concerning, and 25% are in a precarious financial position.

Liquidity remains one of the biggest problems in the sector: 123 municipalities lacked sufficient current assets to cover short-term liabilities, and 174 did not have enough cash reserves to pay creditors on time. The debt situation has also worsened over time. Statistics South Africa data shows that the municipal debt ratio—debt relative to assets—rose from 0.26 in 2011 to 0.38 in 2025, with the Maluti-a-Phophunga Municipality (2.70) and West Rand District Municipality (2.32) recording the most extreme figures.

Although municipalities collectively generated R620 billion in revenue in 2025, many—especially small and rural municipalities—remain heavily dependent on national government transfers, which constituted 26.2% of municipal revenue. Fifteen municipalities received over 90% of their income from grants, with the ZF Mgcawu District Municipality in the Northern Cape receiving 97% of its income from the national government.