Ministry of Finance's decision on Johannesburg funding puts pressure on South Africa's economic hub

The National Treasury has temporarily suspended the allocation of a fair share to Johannesburg for July, which, according to BUILD One South Africa (Bosa), indicates that the economic capital of South Africa is paying for years of financial mismanagement, weak governance, and a complete lack of accountability.

Reasons for Funding Suspension

Johannesburg was placed on the National Treasury's list of municipalities due to persistent violations of the Municipal Finance Management Act (MFMA). These violations include the inability to eliminate unauthorized, irregular, fruitless, and wasteful expenditure, as well as implementing effective accountability measures.

The political movement Bosa stated that every wasted rand could have been used to repair roads, fix traffic lights, maintain water infrastructure, or provide reliable services to residents. Latest Treasury data shows that municipalities collectively incurred over 145 billion rands in irregular expenditure, 24 billion in fruitless and wasteful expenditure, and 118 billion in unauthorized expenditure since the 2021/22 financial year.

Bosa's Proposals for Reforms

Bosa's candidate for Mayor of Johannesburg, Nobuntu Khlazo-Webster, presented a reform program aimed at addressing these issues. The Bosa administration plans to implement a comprehensive financial recovery program focused on restoring the city's financial integrity by fixing the broken billing system, improving revenue collection, reducing losses and leakage, and ensuring that every collected rand is used to improve services.

Furthermore, a zero-tolerance policy towards corruption will be applied, and officials and political leaders who misuse public funds will be held accountable. Bosa also demanded that the City of Johannesburg publish a detailed report within 30 days on the accountability measures taken against officials and political leaders responsible for unauthorized, irregular, fruitless, and wasteful expenditure.

Requirements for City Governance

Johannesburg residents deserve to know who has been held accountable, what disciplinary or legal actions have been taken, and what steps are being taken to prevent similar failures from recurring. Bosa also committed to ending municipal governance fragmentation by gradually integrating city structures into a more accountable and efficient administration. In the movement's view, residents should not face a labyrinth of disparate structures while basic services continue to deteriorate.

Bosa emphasized that Johannesburg's problem is not a lack of money, but a lack of accountable leadership. The party stated that it has developed a practical plan to restore financial probity, professionalize city governance, and rebuild trust in Johannesburg, arguing that the city can only function again if leaders prioritize accountability over politics.

The National Treasury has temporarily suspended the transfer of municipal grants for July 2026 to over 60 local government structures, including Johannesburg. This decision was made because these structures failed to promptly resolve their financial issues.

Reasons for Funding Suspension

The National Treasury announced the temporary withholding of transfers due to 'persistent and serious non-compliance' with the Municipal Finance Management Act (MFMA) and related provisions, despite support provided by the Treasury through consultations, engagement, and communication.

Scale of Financial Problems

The announcement of transfer suspension affected numerous municipalities in South Africa and revealed widespread financial mismanagement. Municipalities incurred losses amounting to R24.12 billion in early and wasteful expenditure since 2021-22. Furthermore, irregular expenditure reached R145.21 billion, with R40.14 billion recorded just for the 2024-25 financial year.

Additional Financial Indicators

Since 2021-22, municipalities have disclosed R118.13 billion in unauthorized expenditure, of which R63.43 billion relates to budget items not involving cash. In 2024-25, 116 municipalities (45 percent) adopted unpaid budgets, which is higher than the figure of 113 (44 percent) in the previous year's adjusted budget.

Debt and Reporting Issues

By the end of 2024-25, municipalities owed Eskom R3.40 billion in interest and water boards R1.21 billion in interest. Moreover, 48 municipalities (20 percent) had overdue third-party deductions exceeding one month. The National Treasury noted that many municipalities failed to process instances of unidentified, irregular, fruitless, and wasteful expenditure (UIFWE) through their Municipal Public Accounts Committees (MPACs).

Consequences of Non-Compliance

The Treasury stated that non-compliance with financial legislation is not only a failure of fiduciary duties by municipal political and administrative leadership but also threatens the financial sustainability of essential service providers such as water boards and Eskom. Non-payment to third parties negatively impacts the ability of public bodies to function optimally.

Requirements for Resumption of Payments

Transfers will resume after the affected municipalities meet the necessary conditions and provide proper confirmation of their fulfillment. The Treasury expects the suspension to be short-term so as not to affect service delivery. It was emphasized that municipalities were given sufficient written notice urging them to take steps to improve their financial situation before the funds were frozen.

Expert Opinion on Local Governance

Professor Joseph Sekhampu, Director of the NWU School of Business, noted in a recent statement that the consolidated Auditor-General's report for 2024-25 showed that none of the metropolitan municipalities received an unqualified audit. Five metros have a qualified audit opinion, compared to two at the beginning of the sixth term.

According to Professor Sekhampu, total water losses in eight metropolitan municipalities amounted to nearly R10 billion, electricity losses exceeded R17 billion, and the average creditor payment period reached 121 days. He suggested that the dominant explanation for local government problems in South Africa has always been that many municipalities are too small, poor, and administratively fragile to operate effectively. However, according to the professor, the findings regarding the metros point to a different governance issue: metropolitan municipalities are not primarily constrained by resource scarcity, as they manage R336 billion—about 54% of local government expenditure—and serve almost 25 million people, possessing the institutional and financial capacity expected of large urban governments, yet continuing to face serious management breakdowns.

The National Treasury has temporarily suspended the transfer of the fair share for July 2026 to 69 municipalities across all nine provinces. This measure aims to ensure financial discipline, eliminate instances of improper financial management, and enhance accountability among municipal officials and officers.

Reasons for funding suspension

The decision was made after municipalities systematically and seriously failed to comply with the Municipal Finance Management Act (MFMA) and related provisions, despite repeated support, guidance, and engagement from the Treasury. In a statement on Tuesday, the Treasury noted that the temporary withholding of funds is intended to instill financial discipline, guarantee proper management of public money, resolve the issue of unauthorized, irregular, fruitless, and wasteful expenditure (UIFWE), and hold officials accountable where legally prescribed.

Procedure and scope

The municipalities affected by this decision are located in all nine provinces. The Treasury emphasized that the affected municipalities were provided with sufficient written notification and an opportunity to justify why their funds should not be frozen. They were also given a platform to submit written explanations.

The temporary withholding is implemented in accordance with Section 216(2) of the Constitution, combined with Section 38 of the Local Government: Municipal Finance Management Act 56 of 2003. The Treasury stressed that this measure is corrective, not punitive, and does not foresee an impact on service delivery, as the withholding is temporary.

Financial irregularities and reporting

The Treasury reported that despite extensive assistance provided to municipalities through MFMA circulars, individual meetings, and training sessions, many continued to fail to meet financial management requirements. These violations include adopting budgets without funding, inability to address UIFWE issues, and failure to meet established financial obligations.

The Treasury warned that non-compliance with legislation constitutes not only a dereliction of fiduciary duties by municipal political and administrative leadership but also threatens the financial stability of major suppliers, including water boards and Eskom. Furthermore, non-payment to third parties hinders the effective operation of state bodies such as the Auditor-General of South Africa (AGSA), the South African Revenue Service (SARS), and the Financial Sector Conduct Authority (FSCA).

Accountability for UIFWE

It was noted that some municipalities failed to comply with the requirements of Section 32 of the MFMA regarding the handling of UIFWE cases. This section obliges municipal councils to recover UIFWE from responsible persons unless the council committee determines after an investigation that the expenditure is irrecoverable and it will be written off. The responsible body is the Municipal Public Accounts Committee (MPAC).

The Treasury stated that some municipalities did not conduct proper UIFWE investigations, failed to determine responsibility, did not recover losses where appropriate, and did not implement corrective measures. This means that MPACs are functioning inefficiently. It was also pointed out that some municipalities failed to demonstrate the implementation of consequence management measures, including disciplinary action, investigations, recovery processes, and referral to the police when required, which is an obligation under Chapter 15 of the MFMA and the Municipal Rules on Procedures for Financial Misconduct and Criminal Proceedings 2014.

Scale of financial losses

The results of the AGSA's Consolidated Audit Report on Local Government for 2024/25 largely confirmed the Treasury's findings regarding persistent weaknesses in municipal financial management. According to the Treasury, since 2021/22, municipalities have incurred losses amounting to R24.12 billion in fruitless and wasteful expenditure. From 2021 to 2022, municipalities and their structures suffered R145.21 billion in irregular expenditure, including R40.14 billion in 2024 and 2025 alone. Since 2021 to 2022, municipalities have disclosed R118.13 billion in unauthorized expenditure, with R63.43 billion (54%) relating to non-cash budget items.

The Treasury added that budget reliability continues to decline: in 2024 and 2025, 116 municipalities (45%) adopted unfunded budgets, compared to 113 municipalities (44%) in the previous adjusted budget. By the end of the 2024 and 2025 financial year, municipalities were required to pay R3.40 billion in Eskom interest and R1.21 billion in water board interest. Additionally, payment delays extended to third-party deductions, with 48 municipalities (20%) having overdue third-party deductions for more than one month. The Treasury concluded that this once again demonstrates a persistent refusal to adhere to the legal framework, including the Local Government: Municipal Finance Management Act 2003 (Act No. 56 of 2003).

Fund transfers will resume once the affected municipalities meet the necessary conditions and provide proof of implementing compliance measures.