People often quickly assign blame for failures but less frequently consider the reasons why the system continues to lead to the same mistakes. The recent decision to suspend equivalent participation transfers for 69 municipalities has sparked legitimate discussions regarding municipal financial management, accountability, and the consequences of being unable to pay creditors.
Municipalities have billions in debt to Eskom, water utilities, and other creditors, while they themselves owe even more to households, businesses, and, in some cases, other state entities. There is also serious concern about what the suspension of equivalent participation means for the provision of basic services.
We tend to characterize inefficient municipalities as corrupt, incompetent, or underfunded. While all these explanations may apply in individual cases, they might be masking something more fundamental. South Africa has created a system where everyone owes money to everyone else, cash flows stop, and ultimately the system itself begins to struggle to function.
The 69 municipalities illustrate this problem. They are owed R217.9 billion, yet they owe R97.4 billion to creditors, mainly Eskom and water utilities. On paper, the municipalities appear to be net creditors worth over R120 billion. However, this apparent position says little about their ability to meet immediate obligations.
Of the R217.9 billion owed to the municipalities, only 4.8% falls within the 30-day payment term, while 72% is older than one year. Nearly 90% exceeds 90 days, and R133.8 billion has already been written off this year as uncollectible. Thus, the balance sheet may show an asset, but most of that asset does not convert into cash.
The obligation remains real. Over R60 billion of the municipalities' debt relates to wholesale electricity and water supply, where creditors cannot indefinitely carry unpaid debt. The money the municipalities expect to receive is often outdated, disputed, or uncollectible, whereas the obligations they must meet are immediate and enforceable. This is why the problem cannot simply be characterized as the municipalities' inability to collect revenue.
Households represent R158 billion, and a significant portion of this reflects social and economic difficulties. But commercial enterprises still owe R46 billion, representing clients who can often pay but are not compelled to do so. More importantly, state bodies themselves owe municipalities R11.6 billion, almost 90% of which is older than 90 days.
The issue is not just that poor households cannot pay their municipal bills. It is also that payment discipline has weakened throughout the entire system, including among institutions that possess the resources and responsibility to pay.
The 30-day payment rule exists for a reason. It is intended to maintain the flow of money through the public sector and prevent a chain reaction of unpaid liabilities that undermines the financial stability of state institutions. However, this discipline has been applied inconsistently for many years. Therefore, suspending equivalent participation funding resolves one point of failure in the system, where the core payment problem is much broader.
Of course, there must be consequences when municipalities fail to pay their creditors. Financial discipline is necessary, and municipalities cannot afford to accumulate debt indefinitely, expecting other parts of government to absorb the consequences. But if national and provincial departments do not adhere to the same 30-day rule, we must question whether we are applying accountability to strengthen the system or merely shifting pressure from one part to another.
This is especially important because public finances differ from private ones. When a private company fails to pay its creditors, the consequences primarily fall on the company and those responsible for its management. In public finance, the consequences can spread much further, reaching people who played no role in creating the financial crisis.
When people hear that the government has suspended funding to municipalities, the instinctive reaction is often that consequences should finally follow poor financial management. This instinct is understandable. But equivalent participation is not just another line item in the municipal budget. It supports the provision of basic services, including free basic water, electricity, sanitation, and waste removal for needy households.
In these 69 municipalities, 3.7 million needy households depend on this funding. The danger is that a sanction intended to correct institutional failure may ultimately be felt by the resident waiting for clean water, electricity, or waste collection, rather than the official whose decisions contributed to the failure.
Given that Eskom and water utilities have debts exceeding R60 billion, the risk of power outages and water restrictions could directly transfer from municipal balances to households. The question is not whether consequences are necessary, but how carefully we monitor where they land.
When payment obligations have accumulated across various sectors of government over many years, stricter enforcement in one part of the system alone cannot restore the system as a whole. The Committee on Finance and Fiscal Policy raised this concern specifically with the government, pointing out that the 30-day payment rule is systemic but violated by others. Encouragingly, there is now movement towards eliminating this asymmetry, as national and provincial departments have been instructed to settle undisputed municipal debt, finalize payment agreements, and resolve disputed accounts.
This is a step in the right direction, as financial discipline cannot be sustainable if it is applied selectively. If municipalities are expected to pay Eskom and water utilities within 30 days, then the national and provincial government must also pay municipalities within 30 days. If consequences are needed to ensure this discipline, they must be capable of applying to the entire system, not concentrated in its weakest point.
The lesson from the 69 municipalities must be broader than just whether municipalities should pay their creditors. Of course, they should. A more important conversation is whether we are willing to admit that the public finance system is interconnected, and that a failure in one part to pay another ultimately creates pressure somewhere else.
A system where municipalities cannot collect what they are owed, cannot pay what they owe, and are then sanctioned for inability to pay, is not a functioning system. Similarly unsustainable is a system where the government demands financial discipline from municipalities while the government itself accumulates billions in unpaid municipal bills.
Thus, South Africa's task is not simply to force municipalities to pay their bills. The task is to restore a culture of payment and accountability across the entire public sector so that money can circulate in the system as intended, and institutions can fulfill obligations upon which other institutions depend.
