Treasury releases withheld distribution funds for municipalities, warns of compliance requirements

Finance Minister Enoch Godongwana announced that the National Treasury will release the remaining funds from the Local Government Equitable Share allocation for July 2026, starting Friday, July 31. He emphasized that this decision is aimed at preserving basic municipal services, not encouraging inefficient financial management.

Reasons for payment suspension

Previously, funds were withheld for several weeks because municipalities failed to meet financial management requirements. Godongwana warned that this release does not mean that municipalities have fully satisfied the requirements of the Municipal Finance Management Act, Municipal Code of Conduct on Financial Misconduct and Criminal Prosecution, or previously communicated requirements.

Identified governance shortcomings

According to the National Treasury, 'material and ongoing weaknesses' were found in the management of Unauthorised, Irregular, Fruitless, and Wasteful Expenditure (UIFWE), as well as in investigations of financial misconduct, disciplinary processes, and consequence management. Despite these deficiencies, the Treasury decided to release the funds to prevent the burden of municipal failures from falling on the public.

Conditions for fund release

Godongwana described this as a conditional release, warning municipalities that they remain under close scrutiny. The payment should be understood as a temporary measure to protect the provision of basic services while requiring affected municipalities to address the serious shortcomings identified during the Section 216(2) process. According to the Treasury, the audit revealed problems extending beyond irregular expenditure, exposing broader weaknesses in budgeting, cash flow management, financial oversight, and accountability.

Requirements for improvement

Furthermore, Godongwana expressed concern that some municipal budgets may inaccurately reflect their financial position, highlighting the need for more rigorous verification of the accuracy and funding of municipal budgets. The Treasury also found widespread instances where municipal councils and senior officials failed to investigate financial misconduct or hold officials accountable. The National Treasury will release the remaining Local Government Equitable Share transfers for July 2026 on July 31 to protect basic services while simultaneously strengthening accountability and municipal financial management.

As a result of the process, 20 municipalities received their full shares, and 49 municipalities will receive overdue payments on Friday. Of these, 21 municipalities had previously received partial payments, and 28 received no payments at all. Godongwana warned that municipalities are placed on strict compliance programs before the next Equitable Share tranche in December. Affected municipalities must submit progress reports by September 30, demonstrate improvements in October and November, and show measurable progress in investigating irregular expenditure, disciplinary measures, and consequence management.

He noted that the goal of this conditional release is twofold: it ensures the provision of basic services in the short term while simultaneously notifying affected municipalities of the need to take measurable corrective actions. The National Treasury will continue to support municipalities in improving compliance, but warned that failure to make significant progress could lead to further withholding of funding later this year and again in March 2027.

Finance Minister Enoch Godongwana stated that the National Treasury Department will disburse the remaining funds for transfers under the Uniform Distribution to local authorities for July 2026. This measure aims to prevent disruptions in the provision of basic municipal services.

Reasons for Fund Freeze

Previously, the Treasury suspended approximately R13.5 billion in transfers to 69 municipalities. The reason cited was the discovery of persistent and serious breaches of the Municipal Finance Management Act (MFMA). Although some municipalities have already received their allocations, an amount of about R7.1 billion remained unpaid for 49 municipalities.

Announcement of Fund Release

Despite this decision causing outrage among some trade unions and municipalities, who warned about the potential impact of the freeze on essential service delivery, Godongwana announced during a press briefing on Tuesday that the release of funds does not mean that the affected municipalities have complied with the Treasury's requirements. He emphasized that the decision was made to protect the public while municipalities must address their financial management issues.

Deepening Governance Issues

Godongwana clarified that the fund release occurred on July 31, 2026, as the funds had been held for nearly 30 days, with the deadline expiring on August 3. The goal of this step was to avoid negative short-term or medium-term impacts on the provision of basic municipal services. He also noted that the process uncovered deeper issues in the financial and public governance of municipalities.

Requirements for Municipalities

According to the minister, the Treasury's assessment showed that the difficulties extend beyond isolated cases of Unauthorised, Irregular, Inefficient, and Wasteful Expenditure (UIFWE). The process outlined in section 216(2) also highlighted the need for closer scrutiny of the accuracy and funding of municipal budgets. The minister pointed to weaknesses identified by the Treasury in budget formulation, cash flow management, financial oversight, and consequence management. It was noted that some municipalities failed to adequately investigate UIFWE cases, implement disciplinary procedures, and take corrective measures.

Conditions for Further Funding

Godongwana stated that the National Treasury Department will pay closer attention not only to the conduct of those responsible for initial expenditures but also to officials and structures responsible for investigating, reporting, and taking action on these expenditures. The fund release is conditional, and municipalities are still obliged to take steps to resolve the issues identified by the Treasury. He added that progress will be measured not only by the reduction of UIFWE balances but also by the implementation of consequence management processes. Municipalities will be required to submit reports and supporting documentation within the compliance program, with the first reporting deadline set for September 30, 2026. The minister warned that the Treasury will continue to monitor the municipalities, and failure to demonstrate progress could lead to further action on future allocations.

President Cyril Ramaphosa issued an ultimatum to troubled municipalities, warning that officials unable to properly manage water infrastructure and services could face criminal prosecution and even personal liability. These measures come amid intensified government efforts to counter the deepening water crisis in South Africa.

Financial Commitments and Goals

The President announced a major financial investment of R156 billion, which will be directed towards developing water supply and sanitation infrastructure over the next three years. The goal of this step is to rectify a long-standing situation characterized by deteriorating infrastructure, constant supply interruptions, and low quality of service provision, which is causing growing dissatisfaction among the public and businesses.

In his weekly Monday dispatch, Ramaphosa emphasized that access to safe and reliable water remains one of the government's most urgent priorities, noting that the country can no longer afford delays in resolving accumulated problems in this sector.

Strategy and New Programs

Ramaphosa stated that the allocated R156 billion is part of a broader program of public infrastructure investment. This investment aligns with the overall strategy to enhance water security and improve access to water in underserved areas. A key element of this strategy is the recently launched National Water Access Acceleration Programme.

This programme will focus on providing water through decentralized supply schemes, such as borehole drilling projects, groundwater development, and rainwater harvesting systems. The programme was officially launched in Hammanskraal, Gauteng province, a community that has suffered from water supply issues for years and experienced a cholera outbreak in 2023.

Acknowledging Deficiencies and Control Measures

Despite acknowledging the progress made since the start of democracy in expanding water access, Ramaphosa admitted that the government has failed to maintain infrastructure and ensure reliable services in many municipalities. He noted that in too many municipalities, the government has been unable to adequately and timely provide infrastructure maintenance and management of water services.

To address these complexities, the National Water Crisis Committee was established at the beginning of this year, coordinating interventions at all levels of government. This committee is responsible for strengthening municipal water and sanitation systems, increasing infrastructure investment, reforming institutions, and combating corruption in the sector.

Legislative Changes and Accountability

Furthermore, Ramaphosa announced legislative reforms, including a draft amendment to the Municipal Services Act. This bill is expected to strengthen enforcement measures and introduce greater accountability for municipal officials. The President warned that the government will not hesitate to take action against municipalities and officials who fail to comply with environmental and water legislation.

He specified that in cases of non-compliance with environmental and water legislation by municipalities or officials, the government will apply existing enforcement mechanisms, including directives, criminal proceedings, and, where permitted by law, personal liability.

Call to Action and Vision for the Future

Ramaphosa named water security as one of the government's most pressing priorities, stating that communities continuing to face water shortages have every right to demand action. He stressed that households and businesses experiencing scarcity and outages are tired of waiting, just as underserved communities are waiting for taps to be installed after 32 years of democracy.

Comparing the situation to efforts to reduce power outages, Ramaphosa noted that resolving the water crisis requires coordinated action, emergency interventions, and long-term structural transformations. His ultimate goal is not just to overcome the current crisis but to realize Madiba's vision that all South Africans can enjoy their constitutional right to water access, and that this right is secured for future generations.