South Africa: North West Treasury On Municipalities in Financial Distress

press release

Provincial Treasury engages municipalities on feedback of analysis

The MEC for Finance Motlalepula Rosho, Head of Department, Mr. Ndlela Kunene and Chief Director for Municipal Support Programme Ms. Linda Nengovhela kicked off a process of giving feedback to municipalities that are in financial distress.

The feedback analysis is a result of a five-year assessment (2015/2020) of provincial municipalities by provincial treasury in line with the provisions of Section 138 and 140 of the Municipal Finance Management Act to determine if a municipality is in serious material breach of its financial commitments.

Feedback analysis to three municipalities (Dr. Ruth Segomotsi Mompati, Naledi and Maquassi Hills) was done via virtual link and was in preparation towards the implementation of chapter 13 of the MFMA to assist municipalities to resolve their financial problems.

Based on the outcome of the assessment, thirteen (13) of the 22 municipalities in the province are said to be in financial dire straits and as a result, service delivery is on the brink of collapse.

"The municipal audit outcomes show that over half of municipalities' financial systems and governance and financial information are deficient. These widespread weaknesses leave municipalities vulnerable to financial mismanagement which subsequently turns out in to a crisis where there are no remedial actions put in place. Continued tolerance for chronic and serious financial problems undermines the confidence of the public and of investors alike. It also compromises the ability of the municipality to perform its basic functions and deliver services to residents and firms," says MEC Rosho.

She conceded that despite Provincial Treasury doing its best to provide support to municipalities, the support did not yield any desired outcome. The Province has, however, recorded marginal improvement in the financial performance of the supported municipalities.

She highlighted that amongst others challenges besetting provincial municipalities include bloated structure/organogram not being fit for purpose, appointment of incompetent people; failure to raise and collect own revenue and adoption of unfunded budgeted amongst others.

She said employing people who are not skilled and trainable has brought municipalities to untenable situations.

She further added that municipalities need to have competent and skilled managers and people who are up to the task particularly in the Budget and Treasury Office (BTO) which she referred to as the bedrock of municipal performance.

The technical team presented the feedback of the five years financial assessment and the picture presented in terms of Section 138 and 140 of the MFMA leaves much to be desired.

"The culture of planning to spend more resources than available is wrong and cannot be changed by simply adding more resources. Instilling fiscal discipline and consequence management are critical to creating financially viable municipalities. This is one area that we have left unattended and we have relegated our responsibilities and are scared to be unpopular as managers. When you lead you need to take unpopular decisions as leaders," said Rosho.

She also decried the culture of not holding managers who are failing in their duties accountable and therefore to stop the rot taking place in municipalities.

The meeting was attended by key stakeholders including the political and administrative leadership of municipalities, SALGA, COGHSTA, National Treasury who made recommendations on what needs to happen going forward in order to assist municipalities to perform their mandate to communities.

The mayors are expected to table the report to their respective councils within 30 days and provide provincial treasury with council resolution.

Given the current status quo, the collective agreed that a Financial Recovery Plan needs to be implemented to improve the financial sustainability of distressed municipalities.

Municipal leadership welcomed the feedback as a true reflection and have promised to collaborate with provincial treasury and other key role players implement the recommendations in order to turn the corner.

The Executive Council has already resolved that municipalities which are facing severe financial crisis must be placed under intervention in terms of Section 139(5) of the Constitution of RSA read together with section 139 of the MFMA.

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