National Treasury is temporarily withholding the July 2026 equitable share transfers to dozens of South African municipalities to instil strict fiscal discipline and root out financial misconduct.
The intervention follows what the department described as “persistent and serious non-compliance” with the Municipal Finance Management Act (MFMA).
“National Treasury is in the process of temporarily withholding the July 2026 equitable share transfers to selected municipalities to instil fiscal discipline and ensure that public money is properly managed; that Unauthorised, Irregular, Fruitless and Wasteful Expenditure [UIFWE] is addressed; and that municipal officials and office-bearers are held accountable where required by law.
“The decision follows persistent and serious non-compliance with the MFMA and its supporting regulations, despite support provided by the National Treasury through guidance, engagement, and formal or informal communication” the department announced in a statement on Tuesday.
The municipalities span the country’s nine provinces and include metro municipalities City of Johannesburg, Buffalo City, Nelson Mandela Bay and Mangaung.
“The temporary withholding of funds is taken in terms of section 216(2) of the Constitution, read with section 38 of the Local Government: Municipal Finance Management Act 56 of 2003 (MFMA).
“It is important to note that this is a corrective rather than punitive measure. Because the withholding of the funds will be for a short-term period, the National Treasury does not foresee any impact on service delivery,” the statement continued.
Forewarning
The affected municipalities were given “sufficient notice” ahead of the withholding of funds and were also encouraged to furnish reasons to the department why funds should not be withheld.
“Prior to the withholding of funds, National Treasury has provided support to municipalities through the issuance of MFMA Circulars which guide municipalities on what they must do to ensure compliance with specific provisions of the MFMA and its regulations; through one-on-one municipal engagements; and various training interventions either directly with the municipalities or through national or provincially facilitated forums.
“Despite these support interventions, many municipalities are still failing to comply with the provisions of the MFMA and its supporting regulations insofar as they relate to adopting funded budgets, addressing UIFWE and ensuring that statutory commitments are met when due,” the statement noted.
The department warned of the broader economic consequences of mismanagement, pointing out that municipal failures directly destabilise critical national entities and bulk utility providers.
“Non-compliance with the legislation is not only a dereliction of fiduciary duties by the political and administrative leadership of municipalities, but it is also threatening the financial sustainability of bulk suppliers (water boards and Eskom).
“In addition, failure to pay third parties negatively impacts on the ability of statutory bodies to continue operating optimally. The statutory bodies referred to are the Auditor-General of South Africa [AGSA], the South African Revenue Services [SARS], and the Financial Sector Conduct Authority [FSCA],” the statement read.
Consequence management
National Treasury also highlighted lapses in consequence management, noting that many Municipal Public Accounts Committees (MPACs) are failing to function effectively.
Additionally, some municipalities “failed to show that consequence management is being implemented, including on a timely basis”.
“Some of the municipalities have failed to properly deal with UIFWE as the MFMA requires municipalities to investigate such expenditure, determine accountability, recover losses where appropriate and take corrective action.
“National Treasury has found that many municipalities have not processed UIFWE cases through their MPACs which are responsible for overseeing accountability in some municipalities. This means MPACs are not functioning effectively,” the department said.
Turning to the AGSA’s 2024/25 Consolidated general report on Local Government Audit Outcomes, the department noted that:
• Since 2021-22, municipalities have incurred a total of R24.12 billion in fruitless and wasteful expenditure;
• Since 2021-22, municipalities and their municipal entities have incurred irregular expenditure of R145.21 billion; R40.14 billion was incurred in 2024-25 alone;
• Since 2021-22, municipalities have disclosed a total of R118.13 billion in unauthorised expenditure, R63.43 billion (54 per cent) of which was on non-cash budget items;
• Budget credibility continued to deteriorate. In 2024-25, 116 municipalities (45 per cent) adopted unfunded budgets – up from 113 (44 per cent) in the previous year’s adjusted budget;
• By the 2024-25 year-end, municipalities owed interest of R3.40 billion to Eskom and R1.21 billion to water boards; and
• Late payments also extended to payments of contributions and third-party deductions. A total of 48 municipalities (20 per cent) had third-party deductions that were overdue for more than one month.
“This further demonstrates persistent failure to comply with the legal framework, including the Local Government: Municipal Finance Management Act, 2003 (Act No. 56 of 2003).
“Transfers will resume once the affected municipalities meet the required conditions and submit proper proof of the conditions being met.
“National Treasury will keep working with municipalities, provincial treasuries, and cooperative governance structures to strengthen sound financial management,” the statement concluded. – SAnews.gov.za
