The snowballing municipal debt across South Africa is almost five times as high as it was seven years ago, with little sign of slowing down.
National Treasury earlier this week released its local government report for the second quarter of the 2025-26 financial year.
The report is considered an “early-warning mechanism” of financial performance, detailing progress in expenditure as well as debt owed to and by municipalities.
Negative cash flows at 20% of municipalities
Treasury’s report stated that municipalities had adopted budgets totalling R689.1 billion and had spent R312 billion of that so far in operating and capital expenses.
Treasury grants R176.8 billion towards municipal budgets via the Division of Revenue Act and other conditional grants, with much of the remainder coming from revenue collection.
Of the 257 municipalities in the country, 50 reported negative cash flow balances for the second quarter of the year.
Treasury warned of under-collection of revenue. Municipalities targeted a collection rate of 78% at the adoption of the budgets, but were lagging behind at 69%.
“Municipalities’ financial sustainability depends on their ability to collect outstanding debt from consumers.
“Municipalities must rigorously implement credit-control and debt-collection policies to collect outstanding debt regardless of the period for which it has been outstanding,” stated Treasury.
The report shows that 28% of all combined municipal operating budgets were allocated to salaries and wages.
Debt spiraling
In the 2018-19 financial year, national municipal debt totalled R72.4 billion and has increased dramatically since.
Combined totalled municipal consumer debt sat at R467.2 billion as of 31 December 2025, up from R405.1 billion at the same time the previous year.
Residential customers were liable for R335.3 billion, while R94.7 billion was owed by business entities – a 72% to 21% split.
The report adds that government owes R27.6 billion to its municipalities – equivalent to 6% of the total debt.
Municipalities wrote off just R5 billion in debt during the period reported.
While municipalities are owed, they have not paid creditors to the value of R160.8 billion, with 84.5% of those invoices more than 90 days in arrears.
Gauteng owes creditors and service providers R27 billion, while Mpumalanga and the Free State owe R31.8 billion and R39.9 billion, respectively.
Treasury warning
Explaining the nature of formulating a budget and the consequences of inadequate cash flows, Treasury warned that overspending or failure to meet revenue collection targets would affect service delivery.
“When preparing their annual budgets, it is common amongst most municipalities to overstate or inflate revenue projections, either to reflect a surplus, or on the surface to show that excess expenditure requirements are adequately covered by revenues to be collected,” stated Treasury.
“Therefore, the revenue estimates are seldom underpinned by realistic or realisable revenue assumptions, resulting in municipalities not being able to collect this revenue, resulting in difficulties in cash flow.
“Should such situations arise, municipalities must adjust expenditures downwards to ensure that there is sufficient cash to meet these commitments,” Treasury concluded.
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