The poor state of the economy in the Eastern Cape is beginning to bite hard and is threatening the financial viability of municipalities with debt owed to municipalities up a staggering 45% or R2, 146-billion when one compares December 2015 with December 2014. A massive total of R7,781 443-billion is now owed by consumers to municipalities in the Eastern Cape. Government departments owe a whopping R392-million.
This emerged from a quarterly report on the state of municipal budgets, tabled in a recent Finance Portfolio meeting in Bhisho.
Red lights are now flashing for municipalities. The situation can only worsen this year as consumers battle with rising interest rates, inflation and unemployment.
Given the tight fiscal space in which the province is operating, Provincial Treasury is unlikely to be able to meet the demands for bailout requests. We need to get our economy moving again and create jobs so the revenue base is growing. This is the only long-term solution to creating financially viable municipalities.
Treasury needs to monitor the financial sustainability of municipalities very closely as some of them already have negative cash balances. They also need to assist municipalities with revenue enhancement and cost-cutting strategies.
On the other hand, R1,4-billion is owed to various suppliers by municipalities, compared to R830-million in 2014 — an increase of R582-million or 70%. Of this, R369 million is owed for bulk services such as water and electricity.
Municipalities are thus retaliating unlawfully, punishing creditors by not paying them within the prescribed thirty-day period, in contravention of the Municipal Finance Management Act (MFMA).
This state of affairs is particularly unfair to small businesses that cannot be expected to bankroll municipalities’ cash flow problems. Failure to pay timeously causes businesses to fail and further drives up the unemployment rate.
At this critical stage in our provincial economy, good financial management is a prerequisite, along with the enforcement of the MFMA.
Municipalities have a duty to ensure that those who can pay are vigorously pursued.
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