Nhlanhla Nene. Picture: FREDDY MAVUNDA
Nhlanhla Nene. Picture: FREDDY MAVUNDA

The government wants credit-worthy municipalities to borrow more so they can invest in the infrastructure necessary for service delivery.

Finance Minister Nhlanhla Nene announced in his budget speech on the Treasury on Tuesday that the government was to review its policy on borrowing by creditworthy municipalities.

Municipalities presently do have the power to borrow but according to an expert on municipal finance the appetite has not been strong and there have been constraints.

This was something Treasury wanted to tackle by introducing more flexible financing models and opening up new areas of funding.

In the past municipalities were able to pledge the revenue stream from their conditional grants as security for their loans but the take-up was slow.

Now Treasury wants to encourage financially healthy municipalities to borrow to invest in capital assets such as bulk water and electricity infrastructure in order to fast-track delivery.

Cities finance most of their budgets from their own revenue and the finance minister said the government was committed to strengthening their ability to raise additional finance. “This is a precondition if they are to be able to invest in the infrastructure needed to overcome the spatial inequalities of apartheid and ensure true transformation,” he said.

The minister told MPs that Treasury was working closely with metropolitan municipalities to accelerate the investment in strategic projects that would bring greater integration and begin to reverse apartheid’s legacy of spatial inequality.

Development charges 

An amendment to the Municipal Fiscal Powers and Functions Act would be tabled in Parliament in 2018 to allow for the improved regulation of development charges. These are charges municipalities impose on the private sector to install bulk infrastructure for which they previously took responsibility.

Nene also said a new grant would be introduced in the 2019 medium-term expenditure framework to support the turnaround strategies of municipalities that have been poor performers but which had demonstrated a commitment to implementing reforms to turn themselves around.

The minister also noted that Treasury was working with other government departments to ensure that key regulatory structural reforms were introduced to raise growth.