Local Government Revenue and Expenditure: First Quarter Local Government Section 71 Report For The Period: 1 July 2017 - 30 September 2017
National Treasury has today released local government's revenue and expenditure for the first quarter of the 2017/18 financial year, as well as spending on conditional grants for the same period. This report covers the first quarter of the municipal financial year ending on 30 September 2017.
The report is part of the In-year Management, Monitoring and Reporting System for Local Government (IYM), which enables provincial and national government to exercise oversight over municipalities, and identify possible problems in implementing municipal budgets and conditional grants.
In-year reporting is institutionalised with most municipalities that consistently produce quarterly financial reports. The reporting facilitates transparency, better in-year management as well as the oversight of budgets. This makes these reports management tools and early warning mechanisms for councils, provincial legislatures and officials in order to monitor and improve municipal performance.
1. On aggregate, municipalities spent 18.5 per cent, or R77.0 billion, of the total adopted budget of R416.9 billion as at 30 September 2017 (first quarter results for the 2017/18 financial year). In respect of revenue, aggregate billing and other revenue amounted to
23.8 per cent, or R98.5 billion, of the total adopted revenue budget of R413.2 billion.
2. Of the adopted operating expenditure budget amounting to R346.3 billion, R69.6 billion or
20.1 per cent was spent by 30 September 2017.
3. Municipalities have adopted the budget for salaries and wages expenditure at R111.1 billion, which is R18.6 billion more than the adjusted budget of R92.5 billion for the 2016/17 municipal financial year. This constitutes 32.1 per cent of their total operational expenditure budget of R346.3 billion. At 30 September 2017, spending is 22.4 per cent, or R24.9 billion.
4. In the period under review, capital expenditure amounted to R7.4 billion, or 10.5 per cent, of the adopted capital budget of R70.6 billion. This is significant underperformance for the first quarter.
5. Aggregated year-to-date total expenditure for metros amounts to R48.4 billion, or 20.1 per cent, of their adopted budget expenditure of R241.3 billion. The aggregated adopted capital budget for metros in the 2017/18 financial year is R37.9 billion, of which 8.3 per cent, or R3.1 billion, has been spent as at 30 September 2017.
6. When billed revenue is measured against their adopted budgets, the performance of metros shows surpluses across all four core services for the first quarter of 2017/18. This does not take into account the collection rate:
Water revenue billed was R8.0 billion against expenditure of R6.2 billion;
Electricity revenue billed was R20.2 billion against expenditure of R17.9 billion;
The revenue billed for waste water management was R1.6 billion against expenditure of R1.2 billion, and
Levies for waste management billed were R2.2 billion against expenditure R1.8 billion.
7. As at 30 September 2017, aggregated revenue for secondary cities is 23.0 per cent or R13.4 billion of their total adopted budget revenue of R58.4 billion for the 2017/18 financial year. The year-to-date operating expenditure level of the secondary cities is 16.5 per cent or R9.8 billion of the total adopted operating budget of R51.4 billion for the 2017/18 financial year.
8. Capital spending levels are low at an average of 9.6 per cent or R746 million of the adopted capital budget of R7.8 billion.
9. The performance against the adopted budget for the four core services for the secondary cities for the first quarter 2017/18 also shows surpluses against billed revenue without taking into account the collection rate:
Water revenue billed was R1.7 billion against expenditure of R1.2 billion;
Electricity revenue billed was R4.5 billion against expenditure of R3.5 billion;
The revenue billed for waste water management was R778 million against expenditure of R354 million; and
Levies for waste management billed were R642 million against expenditure of R262 million.
10. Aggregate municipal consumer debts amounted to R143.6 billion (compared to R128.4 billion reported in the fourth quarter) as at 30 September 2017. A total amount of R140.1 million, or 0.1 per cent, has been written off as bad debt. Government accounts for 5.7 per cent, or R8.2 billion (R7.4 billion reported in the fourth quarter of 2016/17). The largest component relates to households which account for 70.8 per cent, or R101.6 billion (64.8 per cent or R83.1 billion in the fourth quarter).
11. It needs to be acknowledged that not all the outstanding debt of R143.6 billion is realistically collectable, as these amounts are inclusive of debt older than 90 days (historic debt that has accumulated over an extended period), interest on arrears and other recoveries.
12. If consumer debt is limited to below 90 days, then the actual realistically collectable amount
is estimated at R31.9 billion. This should not be interpreted that the National Treasury by implication suggests that the balance must be written-off by municipalities.
13. Metropolitan municipalities are owed R72.8 billion (R64.9 billion reported in the fourth quarter) in outstanding debt as at 30 September 2017. This represents an increase of R7.9 billion when compared to the previous quarter's publication. The largest contributors are the City of Johannesburg, which is owed the largest amount at R18.8 billion, followed by Ekurhuleni Metro at R14.4 billion, City of Tshwane at R10.9 billion, and eThekwini at R9.3 billion.
14. Households in metropolitan areas are reported to account for R55.3 billion, or 76.0 per cent, of outstanding debt to metros, followed by businesses, which account for R13.9 billion or
19.1 per cent. Debt owed by government agencies is approximately R1.9 billion, or 2.6 per cent, of the total outstanding debt owed to metros.
15. Secondary cities are owed R29.3 billion (R27.2 billion reported in the fourth quarter of 2016/17) in outstanding consumer debt. The majority of debt is owed by households, which amount to R19.2 billion, or 65.6 per cent, of the total outstanding debt. Out of the total debt of R29.3 billion, R24.2 billion, or 82.6 per cent, has been outstanding for more than 90 days.
16. Municipalities owed their creditors R42.9 billion as at 30 September 2017, an increase of R8.3 billion when compared to the R34.6 billion reported in the first quarter of 2016/17.
17. The Free State has the highest percentage of outstanding creditors greater than 90 days at
85.0 per cent, followed by Limpopo at 76.4 per cent, and the North West at 71.3 per cent. The year-on-year increase in outstanding creditors could be an indication that municipalities are experiencing liquidity and cash challenges.
18. The aggregated year-to-date actual collection rate is 81.2 per cent, compared to an adopted budgeted collection rate of 90.3 per cent. This represents an aggregated under- performance of 9.1 per cent. It is suspected that the reported collection rate is distorted, owing to reporting inconsistencies on cash flow movements of municipalities.
19. Metros budgeted for a collection rate of 92.3 per cent, and achieved an actual collection of
90.6 per cent, which is 1.7 per cent below the target. The secondary cities reported 62.8 per cent collection against an adopted collection rate of 88.1 per cent, which is 25.3 per cent below the budgeted collection rate.
20. The total balance on borrowing for all municipalities equates to R68.5 billion as at 30 September 2017. This includes long term loans of R44.3 billion, long term marketable bonds of R13.6 billion, short term non-marketable bonds of R5.5 billion, other short term loans of R3.2 billion, and long term non-marketable bonds of R1.4 billion. The balance represents other short and long term financing instruments.
21. As at 30 September 2017, the total investments made by municipalities equates to R32.7 billion. This is R4.1 billion more than the R28.6 billion reported in the fourth quarter of 2016/17. Investments include bank deposits of R24.0 billion, guaranteed endowment policies (sinking funds) of R5.8 billion, negotiable certificates of deposits at banks of R1.5 billion, listed corporate bonds of R1.3 billion, and some smaller investments.
22. According to the Division of Revenue Act, 2017 (Act No.3 of 2017), an amount of R31.8 billion of conditional grants will be transferred to and spent within the local government sphere.
23. The overall expenditure reported by municipalities, as at 30 September 2017, is 39.1 per cent, or R4.4 billion against the R11.3 billion transferred to municipalities. In terms of the total allocation, the aggregate expenditure is 13.9 per cent, or R4.4 billion, of R31.8 billion allocated to municipalities as direct conditional grants.
24. The highest performing direct infrastructure grants to municipalities during the first quarter is the Regional Bulk Infrastructure Grant (RBIG) with reported performance of 18.3 per cent, the Municipal Infrastructure Grant (MIG) with reported performance of 15.6 per cent, and the Integrated National Electrification Programme (INEP) grant with reported performance of
15.3 per cent.
25. The lowest spending grant under the infrastructure grants during the first quarter is the Neighbourhood Development Partnership Grant (NDPG), with expenditure of 8.3 per cent, or R55 million against the allocation of R663 million.
Further details on this report can be accessed on the National Treasury's website: www.treasury.gov.za.
Issued by: National Treasury