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The financial running of local municipalities has yet again come under scrutiny. This follows Ratings Afrika publishing its annual Municipal Financial Sustainability Index (MFSI), focussing on the financial results of the 100 largest local municipalities, and the eight metros in South Africa.
The analyses are based on the municipal financial year ending in June 2021.
It should be noted that the MFSI is a scoring model that evaluates six financial components, namely the operating performance, liquidity management, debt governance, budget practices, affordability, and infrastructure development of a municipality; and scores these components out of 100.
Furthermore, the MFSI is a numerical expression of Ratings Afrika’s definition of municipal financial stability. With this said, the analysts for the report were Leon Claassen and Charl Kocks, and their findings do not paint a pretty image.
“The results of the latest MFSI once again confirms the disastrous trend Ratings Afrika has been warning of since 2011. The South African Municipal sector (except for the Western Cape) is about to collapse financially, and it is time for the government to acknowledge it seriously and start taking the necessary steps to save the country from disaster.”
According to Ratings Afrika’s findings, residents and businesses are suffering from poor service delivery and economic growth is jeopardised by the inability to maintain and develop infrastructure.
“Government needs to realise in more practical terms that well-run, efficient municipalities that provide high-quality services to its residents and support local businesses, are the underpin to economic growth and prosperity in the country,” affirmed the agency.
Moreover, it was highlighted that providers of electricity and water are dependent on payments to remain viable themselves.
According to Ratings Afrika, the two key forces that drive a municipality’s financial sustainability are the generation of operating surpluses and positive working capital balances. “Through gross financial mismanagement and unsound governance, the majority of South African municipalities are still operating at deficits.”
According to Ratings Afrika, for the municipal financial 2021 results, the aggregate operating deficits for the 108 municipalities included in the index amount to R23 billion.
The losses have over time culminated in huge working capital (liquidity) shortfalls for most of the municipalities. In fact, according to Ratings Afrika, the liquidity shortfall is now R54 billion – up from R51 billion in 2020.
“It is no wonder that services are breaking down in most municipalities and that infrustructre is crumbling at a pace previously unheard of. South Africa faces a calamity of major proportions if this lack of sustainability is not dealt with effectively and as a matter of urgency,” declared the ratings agency.
Furthermore, despite numerous challenges, Ratings Afrika said there were still municipalities performing well. Not only did these municipalities showcase sound financial management, but also adhere to good budgetary practices, strict financial control and good revenue control
The highest scoring municipalities by province in 2021 are:
While the above-mentioned municipalities should be commended for their dedication, there are those which reflect an extremely low financial stability and according to Ratings Afrika, they are a cause of concern.
The results of the lowest scoring municipality in the Ratings Afrika Index are:
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To read Ratings Afrika’s full report, click here.