Collapsing municipalities can have a negative impact on South Africa’s economy according to a new Bureau for Economic Research report.
Image: GCIS
Collapsing municipalities can have a profoundly negative impact on South Africa’s economy, and the situation is declining at an alarming rate, according to a Bureau for Economic Research.(BER) report.
The report follows Finance Minister Enoch Godongwana announcing earlier this week that he is withholding the July 2026 equitable share transfers to 69 municipalities due to non-compliance with the Municipal Finance Management Act (MFMA), and mismanagement of municipal funding.
The report by BER’s economics writer and researcher Claire Bisseker said that cities and towns across South Africa are failing after years of underspending on infrastructure and maintenance. “If left unchecked, the country faces a growing risk of systemic municipal failure with profound social and economic consequences.”
The report said Joburg’s foundations are cracking after a decade of protracted financial stress and underinvestment in critical infrastructure. “It’s a story that is being repeated endlessly in nearly every town across South Africa — and the situation appears to be getting worse.”
The report added that credit ratings agency Ratings Afrika’s latest annual municipal financial sustainability index (MFSI) report, based on the financial results of the 128 largest municipalities for the financial year ended June 2025, shows that the situation has continued to deteriorate “at an alarming rate.
The report said it estimates that the 128 municipalities’ combined operating deficit increased to R39bn from R35bn in 2024, and that their aggregate liquidity shortfall rose to R129bn, from R107bn in 2024 and R55bn in 2021 — a growth of almost R20bn a year over the past four years.
Ratings Afrika managing executive Leon Claassen said these trends are not merely indicators of financial distress; they are evidence of a systemic failure that is increasingly undermining service delivery, infrastructure sustainability and economic growth. “If left unchecked, South Africa faces a growing risk of systemic municipal failure with profound social and economic consequences.”
Finance Minister Enoch Godongwana announced earlier this week that he is withholding the July 2026 equitable share transfers to 69 municipalities, including four metros – Johannesburg, Nelson Mandela Bay, Buffalo City and Mangaung.
Godongwana said that it is a corrective rather than a punitive measure. “It is designed to instill fiscal discipline and ensure public money is properly managed; that unauthorised, irregular, fruitless and wasteful expenditure is addressed; and that municipal officials and office-bearers are held accountable as required by law.”
The report added that South Africa’s municipal system labours under acute financial strain, as borne out by the auditor-general’s 2024/2025 report, released in June, which flags persistent weaknesses in governance and poor financial management — on top of Moody’s fragile local government ratings and the negative trends highlighted in the Treasury’s latest local government revenue and expenditure report.
Minister Godongwana, in an address on Friday, said many councils continue to adopt unfunded budgets, fail to process unauthorised, Irregular, fruitless and wasteful expenditure (UIFWE) through their Municipal Public Accounts Committees, and neglect consequence management.
“These internal weaknesses, poor governance structures, lack of accountability, and ineffective financial oversight compound external challenges and directly undermine service delivery.”
Godongwana said despite years of "support, guidance, and training," many municipalities continue to adopt unfunded budgets; accumulate unauthorized, irregular, fruitless and wasteful expenditure (U and fail to meet statutory obligations to Eskom, water boards, SARS, the Auditor-General, and pension funds.”
Godongwana said South Africans deserve municipalities that are financially sound, accountable, and capable of delivering services. “By invoking the Constitution, we are signalling seriousness about governance, fiscal responsibility, and the rule of law.”
Godongwana saidfunds are being redirected in tranches directly to Eskom, water boards, and statutory bodies to safeguard electricity, water, and pensions.
Municipalities that demonstrate compliance will see their transfers reinstated. Compliance will be monitored rigorously. Municipal councils must process UIFWE through their MPACs, recover losses, and implement consequence management, he said.
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