The local government financial crisis in South Africa has reached a critical point, prompting the National Treasury to conduct one of its most serious constitutional interventions. A decision was made to temporarily suspend the allocation of the fair share for July 2026 to 69 municipalities after discovering systematic and serious violations of public finance laws.
Scale of the Decision's Impact
This unprecedented step affects municipalities across all nine provinces, covering both small rural councils and large metropolitan governments, including Johannesburg, Buffalo City, Mangaung, and Nelson Mandela Bay.
Reasons for Treasury Intervention
At the heart of the Treasury's decision is an alarming financial picture. Since the 2021/22 fiscal year, municipalities have accumulated R24.12 billion in wasteful and extravagant expenditures, R145.21 billion in irregular expenditure, and R118.13 billion in unauthorized expenditure. These figures indicate weak financial control, poor management, and insufficient accountability within the local government system.
Billions of rand have been spent outside established procurement procedures, allocated without approved budgets, or lost due to expenses that could have been avoided with reasonable prudence. The Treasury asserts that this intervention aims to prevent the worsening of the crisis for communities already facing unreliable water supply, power outages, deteriorating road conditions, and failing sanitation systems.
Compliance Requirements
The Treasury stated that municipalities have shown 'persistent and serious non-compliance' with the Municipal Finance Management Act (MFMA), despite years of engagement, technical support, and previous measures aimed at improving financial governance. The Treasury emphasized that the suspension is a corrective, not punitive, measure, and its goal is to incentivize municipalities to comply with applicable financial management legislation. Allocated funds may be returned once municipalities demonstrate compliance with imposed conditions.
The intervention is implemented in accordance with Section 216(2) of the Constitution, which grants the National Treasury the authority to halt fund transfers to a state entity committing serious or persistent breaches of established financial management measures. The objective is to ensure proper management of public funds, eliminate unauthorized, irregular, wasteful, and extravagant spending, and hold municipal officials and political leaders accountable where provided for by law.
Years of Ignoring Warnings
Despite the attention drawn by the Treasury's announcement, this intervention did not happen suddenly. For many years, the Auditor-General of South Africa (AGSA) repeatedly warned about the degradation of local finances, weakening governance structures, and the growing inability of municipalities to provide basic services.
In issuing the Municipal Audit Results for the 2021/22 fiscal year, Auditor-General Tsakani Maluleke described the local government sector as being caught in a cycle of financial instability and institutional dysfunction. She noted that local government is characterized by dysfunctional municipalities, financial mismanagement, council and administrative instability, and the deterioration of municipal infrastructure, leading to a decline in living standards and service delivery failures.
Three years later, her assessment has changed little. Presenting the Overall Local Government Report for 2024/25, Maluleke indicated that municipalities continue to struggle with weak governance, deteriorating infrastructure, and worsening financial health. She added that mayors and sixth administration councils have achieved limited progress in strengthening governance and improving service delivery, while residents and businesses continue to face unreliable services, environmental hazards, and aging infrastructure.
Financial Reporting Issues
The Auditor-General's report also highlighted a serious issue with financial reporting. According to the latest report, 195 municipalities, or 76%, submitted annual financial statements containing material misstatements, and 99 municipalities, accounting for 39%, ultimately received modified audit opinions. Without corrections made during the audit, only 24% of municipalities would have received unqualified audit opinions.
Political analyst Professor Nthwanano Mthethwa believes that the Treasury's intervention reflects years of deeply entrenched governance failures that were repeatedly identified by the Auditor-General without significant consequences for those responsible. He noted that the lack of accountability measures allowed the same problems to recur year after year.
Losses from Preventable Expenditure
Among the three categories of financial misconduct, wasteful and extravagant expenditure showed one of the most alarming surges. In the 2018/19 fiscal year, municipalities recorded approximately R2 billion in such expenses. By 2020/21, they incurred another R1.96 billion in new losses, with over R11 billion remaining unresolved from historical cases.
This trend accelerated in the current local government administration. In 2021/22, municipalities recorded R4.74 billion in wasteful and extravagant expenditure, while only 38 out of 257 South African municipalities achieved a clean audit. This amount rose to R7.41 billion in 2022/23. The Treasury estimates the cumulative total at R24.12 billion since the 2021/22 fiscal year.
Unlike irregular expenditure, which is usually related to non-compliance with procurement processes, wasteful and extravagant expenditure represents money spent unnecessarily and which could have been reasonably prevented. The Auditor-General links these losses to recurring failures in municipalities, pointing to poor payment practices, non-competitive and uneconomical procurement methods, low value and benefit from spent money, and weaknesses in project management.
State of Financial Sustainability
The Treasury's latest assessment confirms this concern. According to the department, 116 municipalities adopted unfunded budgets in the 2024/25 fiscal year, taking on expenditure commitments of approximately R288.17 billion without sufficient revenue to fund these budgets. Such budgets create immediate financial pressure, often leading to unpaid creditors, deteriorating infrastructure maintenance, and increasing reliance on emergency financial interventions.
According to the Auditor-General's latest report, the financial position of many municipalities continues to deteriorate: only 35% were assessed as having a sound financial position, 40% as being in a worrying financial position, and 25% as being in a precarious financial position. The consequences extend far beyond accounting reports, as 174 municipalities lacked sufficient cash reserves to pay creditors, and 123 municipalities lacked enough current assets to cover short-term liabilities.
These financial weaknesses increasingly affect the constitutional obligation of municipalities to provide basic services such as water, sanitation, electricity distribution, waste collection, stormwater management, and local road maintenance. Since much of this work is funded by grants, such as the Municipal Infrastructure Grant, sound financial management is crucial for sustaining infrastructure investment. Mthethwa insisted that the intervention should not be limited to freezing funds but should include personal accountability for those responsible for financial misconduct.
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