Fixing local government finances key to better municipal services

By Monei Seleho 

The recent launch of the Metro Trading Services Reform by the National Treasury marks an important step towards restoring the functionality of municipalities and reversing the decline in service delivery and financial sustainability.

Among other interventions, the reforms aim to improve governance and operational performance, the latter being key to ensuring that communities have access to water, sanitation, electricity and waste management services.

These reforms have become even more critical, considering the financial and operational challenges facing many municipalities where there is evidence of declining and uneven performance. Municipalities sit at the centre of South Africa’s development agenda. Development does not happen in policy documents alone; it happens in communities. As such, municipalities are at the frontline of service delivery, economic inclusion, and social stability. Access to clean water, reliable electricity, refuse removal, and functioning infrastructure directly shapes the quality of life of residents and the economic prospects of local communities.

Yet, despite a robust legislative and policy framework, the reality on the ground remains deeply concerning. Many municipalities are under severe financial strain. Weak revenue collection, a deteriorating culture of payment, rising consumer debt, and ageing infrastructure continue to undermine their ability to deliver services sustainably.

South Africa has, over the years, established comprehensive legislation and institutional frameworks to support municipal finance, including the Municipal Finance Management Act 56 of 2003 (MFMA); the Municipal Systems Act 32 of 2000; the Municipal Property Rates Act 6 of 2004; revenue regulations; credit control policies; and governance standards. Despite policy intent, practical implementation of these policies is not uniform and requires significant improvement.

From Nedbank’s engagements across the sector, three recurring challenges consistently emerge: inefficient, fragmented, and outdated revenue management systems; weak enforcement of credit control and consequence management; and persistent revenue leakages coupled with a breakdown in payment culture, particularly where service reliability and public trust have deteriorated.

What begins as a revenue management challenge can quickly escalate into broader financial distress reflected in growing debtor books, cash flow pressures, deteriorating balance sheets, and ultimately compromised service delivery. Strengthening municipal financial sustainability requires effective revenue management, implementation discipline, and collective action.

In this ecosystem, financial institutions such as Nedbank can partner with municipalities to strengthen financial sustainability by providing not only capital, but also robust revenue collection solutions, including digital payment platforms that improve collection rates and cash flow. Ultimately, communities must also contribute by restoring a culture of payment for services rendered.

 Beyond striving for financial stability, municipalities require a multifaceted approach that focuses on human capital development, improved financial practices, and a stronger commitment to transparent, accountable governance. Operational capability, leadership stability and technical and financial expertise are also needed.

When these elements are aligned, municipalities are better positioned to invest in infrastructure maintenance and expansion, improve service delivery, strengthen financial resilience, and restore trust between government and communities.

Sustainable service delivery starts with efficient revenue collection. Strengthening the municipal revenue value chain and reinforcing financial discipline will be critical to ensuring that municipalities can fulfil their service delivery mandates and advance South Africa’s broader development goals.

There are already examples of municipalities demonstrating what is possible when leadership, governance, and accountability align. Municipalities such as the City of uMhlathuze and the Midvaal Local Municipality have shown how focused interventions can strengthen financial sustainability and improve service delivery outcomes.

At a recent Nedbank Public Sector Roundtable on strengthening municipal financial performance, these municipalities shared how they improved revenue collection, tightened credit control measures, reduced revenue leakages, and implemented systems that deliver measurable results. They are also instilling a culture of payment that includes mechanisms like tight credit control, carrying out disconnections, and imposing penalties for overdue accounts.

The outcomes include improved cash flow and liquidity, reduced reliance on grants, increased financial sustainability, better service delivery, reduced irregular expenditure, healthier balance sheets, and greater capacity to fund essential infrastructure and services. They have also been receiving clean audits – an impressive performance worth emulating by other municipalities. Clean audits generally reflect strong performance across several areas.

Importantly, they have also succeeded in rebuilding trust with households and businesses, resulting in an improved culture of payment within their communities. Their experience demonstrates that restoring municipal financial sustainability is achievable when there is visionary leadership, institutional discipline, and a genuine commitment to service delivery.

As South Africa advances its industrialisation ambitions, the importance of effective local governance cannot be overstated. The path forward requires municipalities to recalibrate priorities, strengthen financial management, and break the cycle of financial distress and governance failures that continue to undermine development.

Ultimately, sustainable municipalities are fundamental to sustainable economic growth, inclusive development, and improved quality of life for all South Africans.

Monei Seleho is the Head of the Public Sector Division at Nedbank Business and Commercial Banking