Treasury has strategy to improve local authorities’ finances

The National Treasury will immediately roll out a new strategy to improve the financial sustainability of local governments.

This will include the drafting of guidelines that will ensure interventions in municipalities are dealt with in the same way across all provinces. 

The financial sustainability of municipalities is of grave concern, with the 2017/2018 consolidated audit outcomes showing increasing indicators of a collapse in local government finances, such as revenue management and financial sustainability. The financial health of 76% of the municipalities is concerning or requires intervention, according to the audit.

Local government is at the heart of service delivery, with municipalities having to provide basic services such as water, electricity, infrastructure and refuse removal, making its financial sustainability crucial.

Last week, the budget council, a statutory body comprising  representatives from the national government and the nine provincial finance MECs, met and endorsed a new strategy to improve the financial sustainability of local government. 

Among other things, the council engages on fiscal, budgetary and financial matters that affect provinces; legislation or policy that affects provincial finances; and any matters that affect financial management or the monitoring of finances of provinces.

“The new strategy will be rolled out immediately and will form the basis for the work of the National Treasury and provincial treasuries in supporting the financial turnaround of municipalities over the course of the term of the sixth administration,” the Treasury said in response to written questions on Monday.

The new strategy is premised on the view that municipal financial performance failures cannot be addressed in isolation, and reflects a “refinement” of previous strategies, the Treasury said.

The strategy will focus on the “four pillars of municipal sustainability”, namely financial management, governance, institutional arrangements and service delivery. It will work in parallel with the “back to basics” programme from the department of co-operative governance and traditional affairs (Cogta) and the new district-based model that will be piloted at the OR Tambo district municipality.  

The budget council also resolved that, within the context of the new strategy, it will strengthen the framework for intervention in municipalities that are in crisis. The Treasury, however, explained that the legal framework that governs interventions in municipalities, the Municipal Finance Management Act, does not need strengthening. Treasury’s assessment, rather, indicated that the low success rate with interventions in municipalities has resulted more from how interventions have been implemented than from the actual framework governing them. 

“The National Treasury is in the process of developing a guideline to deal with the different steps of a financial intervention to further strengthen the capacity of government to implement the interventions successfully. This will ensure that interventions are dealt with uniformly across provinces,” it said. 

The Treasury added that provinces are also building their own internal capacity to intervene in municipal crises, for which R10m was respectively allocated in the 2019/2020 financial year.  

“A major shortcoming in the intervention process has been the lack of consistent criteria to identify municipalities in financial distress. What constitutes financial distress in one province may not be the criteria used by another province,” the Treasury said.

The new strategy will ensure the use of a common set of criteria that will result in identifying a list of municipalities that require intervention and will also assist in determining the nature of intervention required.  

As a result of the different mandates regarding intervention, which lies with the provincial Cogta departments and the different treasuries, a memorandum of understanding will be concluded that will clarify roles and functions in the process. 

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