Author: Lizelle Roos

Municipal financial distress has become more and more prevalent within South Africa, with many municipalities failing to meet their financial obligations or provide basic services.  According to the Local Government: Municipal Finance Management Act (MFMA) (Act no 56 of 2003) there are clear legal procedures to address such crisis.

The first step would be to recognize the crisis.  A municipality is considered to be in “serious financial crisis” under Section 138 of the MFMA if it:

• Cannot meet its financial commitments;
• Has persistent budget deficits;
• Receives adverse audit opinions, or
• Fails to provide basic services.

The second step would be to develop a financial recovery plan (FRP).  In terms of sections 141 – 143 of the MFMA the FRP must include the following:

• The cause of the financial crisis;
• Cost-saving measures;
• Revenue-raising initiatives;  and
• Timelines for implementation.

In the third instance, under section 139 of the Constitution, 1996, if a municipality fails to adopt or implement a FRP, the Provincial Executive may:

• Assume control of certain functions;
• Appoint an administrator; and
• Dissolve the municipal council. 

In the fourth instance the aim must be to strengthen governance and improve revenue collection.  Suggested solutions include:

• Improving billing systems;
• Training qualified officials;
• Using smart technologies;
• Exploring alternative revenue sources. 

Fifthly the Auditor-General’s Report (2024) highlighted the fact that only 38 municipalities out of 257 received clean audits.  It is therefore critical to enforce accountability.  It is imperative that municipal leaders must face consequences in the event of repeated failures to meet financial and service delivery responsibilities.

In Conclusion:
Addressing municipal financial distress requires collaboration and strong legal action as well as a commitment to reform.  The MFMA in conjunction with constitutional and judicial support offers a roadmap for restoring municipal stability.  Decisive interventions whether administrative or legal, can help restore essential services and financial health.

Disclaimer: This article is the personal opinion/view of the author(s) and does not necessarily present the views of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever, and no action should be taken on the basis thereof unless its application and accuracy have been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken based on this content without further written confirmation by the author(s).