According to governance rating agency, Ratings Afrika, the Midvaal Municipality in Gauteng and Mossel Bay Municipality in the Western Cape have emerged as the most financially sustainable municipalities in South Africa.
Ratings Afrika recently published its Municipal Financial Sustainability Index (MFSI), evaluating the financial health of 104 major local municipalities along with 8 metros in the country.
Each municipality received a score out of 100 based on six key components:
Operating performance
Liquidity management
Debt governance
Budget position
Affordability
Infrastructure development
Financial sustainability, as defined by Ratings Afrika, refers to a municipality's ability to provide services, develop and maintain infrastructure, and absorb financial shocks without resorting to unplanned rate hikes or service reductions.
While some municipalities, particularly in the Western Cape, demonstrated relatively strong ratings, many others struggled significantly, highlighting the ongoing challenges faced by many municipalities around the country.
Ratings Afrika noted that the Western Cape stood out with an average MFSI score of 53, the highest among provinces.
Conversely, provinces like the Free State and Mpumalanga scored the lowest, with an average of 23 each in 2023. Despite this, the Free State showed improvement compared to previous years, while Mpumalanga's performance declined.
There were notable improvements in provinces like the North West, Eastern Cape, and Limpopo, indicating a potential turnaround with careful management.
However, the overall financial situation remains concerning, with municipalities collectively experiencing operating deficits exceeding R27 billion. These deficits hinder their ability to provide adequate services and invest in critical infrastructure.
Furthermore, liquidity shortfalls have become increasingly severe, reaching R84.5 billion in 2023, leading to delays in payments to service providers.
Despite these challenges, there are municipalities like Midvaal, Mossel Bay, Saldanha Bay, Swellendam, and Swartland that have achieved high scores on the MFSI, demonstrating the possibility of maintaining financial sustainability through effective financial management practices.
Conversely, municipalities like Amahlathi in the Eastern Cape and Mangaung in the Free State have struggled with low scores, primarily due to poor financial liquidity and inadequate infrastructure investment.
Ratings Afrika pointed out the need for municipalities, provinces, and the national government to prioritise governance and financial management reforms to address these issues.
It stressed the importance of generating operating surpluses and positive working capital balances to improve service delivery, infrastructure investment, and overall financial resilience.
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