Over 250 South African municipalities in serious trouble

Over 250 municipalities in South Africa are in serious debt to the Auditor-General of South Africa (AGSA), with the National Treasury threatening to withhold further funding.

Despite the Treasury’s intervention, which prompted some municipalities to make payments, many have continued to accumulate debt.

This was revealed by South Africa’s Accountant-General, Shabeer Khan, in a presentation to the Standing Committee on the Auditor-General on 12 September 2025.

In South Africa, AGSA’s funding model is premised on the organisation being commercially viable and financially independent.

Therefore, it charges municipalities and other government bodies fees for its audit services. This model is considered crucial in ensuring AGSA’s independence.

However, as with bulk suppliers, many of South Africa’s municipalities have fallen behind on their payments to AGSA.

This has required the National Treasury to step in and assist AGSA in its debt collection efforts, with some progress made over the past year.

Khan explained that in December 2024, the National Treasury sent a letter to all 257 municipalities with outstanding debt due to AGSA.

These letters explained that the National Treasury will be mandated to take the appropriate steps if these municipalities fail to settle their debts, which could include stopping the funds to their municipality.

Khan said these letters had a positive effect, as municipalities paid the Auditor-General around R460 million.

After these letters were issued, AGSA gave the National Treasury a list of municipalities that had either not made payments or entered into payment arrangements.

The Treasury used this list to withhold funds from these municipalities, with the stipulation that the funds would be released in instalments and that the first instalment must be used to settle the municipalities’ debt.

“This condition will only be considered fulfilled upon the municipality providing evidence in the form of proof of payment(s),” Khan explained.

“Should this condition be met, then the second instalment of the equitable share will be released with its own/similar conditions until such time as all outstanding debt has been resolved.”

Khan said this intervention saw repayments to the tune of R25.3 million made to the Auditor-General and payment arrangements of around R126.23 million.

While this intervention proved partially successful, Khan said municipalities continued to accumulate debt, emphasising the need for stronger enforcement.

The AGSA’s debt book jumped from R1.35 billion to R1.83 billion between March and July 2025, with local government owing nearly a quarter – R437 million – of the total. This can be seen in the table below.

Unfunded budgets and vicious cycles

Khan explained that one of the underlying reasons for municipalities’ inability to repay their debts is their reliance on unfunded budgets.

Unfunded budgets refer to financial plans where a municipality’s expenditures exceed its expected and available revenues.

“This is really the root cause in municipalities not being able to pay their creditors timely or not being able to deliver important services as required,” Khan said. 

“And this is the importance of having funded budgets – it’s quite a key part of any budget system. There’s a lot of work behind the scenes, especially from the intergovernmental relations team, on dealing with this particular matter.”

Khan’s analysis of municipalities’ financial struggles echoes comments made by Auditor-General Tsakani Maluleke earlier this year.

Maluleke said many of South Africa’s municipalities are trapped in a vicious cycle, centred around a lack of basic management principles, that leads to poor service delivery and financial mismanagement.

She explained that this cycle starts with not applying basic management principles, which impacts municipal planning in terms of financial and performance goals.

This lack of planning leads to poor service delivery, as municipalities lack the required resources to efficiently, effectively, and consistently provide services to their citizens.

This, along with South Africa’s struggling economy, sees consumers less willing and able to pay for municipal services.

In addition, fewer companies are willing to stay in municipalities where service delivery is lacking, further depriving these cities of access to cash.

This not only worsens municipalities’ budgets but also affects their ability to deliver better and more consistent services, feeding into the vicious cycle.