National Treasury has released the ‘Local Government Revenue and Expenditure Report’ for the third quarter of the 2023/24 financial year, which shows an underperformance of actual collections against billed revenue.

Treasury warns that this holds a significant risk for the liquidity position of most municipalities as the planned expenditure is based on a higher performance level.

The report covers the performance against the adjusted budgets of local government for the third quarter of the municipal financial year ending on March 31, and includes spending against conditional grant allocations for the same period.

Aggregate municipal consumer debts were R347.6-billion (compared to R338.2-billion reported in the second quarter of 2023/24) at period end.

A total amount of R8.3-billion, or 2.4%, has been written off as bad debt.

The largest component of this debt relates to households and represents 73%, or R253.6-billion (72.7%, or R245.8-billion, in the second quarter of the 2023/24 financial year).

The creditors’ age analysis shows that R106.7-billion is owed by municipalities at period-end, an increase of R2.4-billion compared with the R104.3-billion reported in the second quarter of 2023/24.

Treasury highlights that, of concern, are outstanding creditors of more than 30 days relating to bulk electricity and water, trade creditors and other creditors.

It points out that the analysis of the collection rates indicates that while municipalities on average have an adjustments budget of 83% collection rate, aggregated actual collection performance against billed is an under achievement of 61.5%.

At period end, aggregate spending by municipalities was 66.3%, or R411.4-billion, of the total adjusted expenditure budget of R620.7-billion.

Aggregated billing and other revenue were 73.4%, or R452.8-billion, of the total adjusted revenue budget of R616.6-billion.

Capital expenditure was R38.1-billion, or 48.3%, of the adjusted capital budget of R79-billion.

The adjusted operating expenditure budget was R541.7-billion, of which R373.3-billion, or 68.9%, was spent by period-end.

Municipalities adjusted their salaries and wages (including remuneration of councillors) budget from R154.5-billion to R153.5-billion, representing a R1-billion, or 0.7%, decrease from the adopted budget of R154.5-billion for the 2023/24 municipal financial year.

The budget for salaries and wages constitutes 28.3% of the total adjusted operating expenditure budget of R541.7-billion.

At period-end, R108.5-billion, or 70.7%, of the adjusted salary budget was spent.

According to the budgeted monthly operational and capital expenditure (capex) submitted by all municipalities, municipalities recorded an over performance of 0.04%, or R169.6-million, on billed revenue, an under performance of 4%, or R15.6-billion, on operational expenditure and an under performance of 32%, or R18-billion, on capex.

INFRASTRUCTURE CONDITIONAL GRANTS EXPENDITURE
At period-end, a total amount of R42.4-billion, or 99.6%, has been transferred to municipalities against the adjusted direct conditional grant allocation of R42.5-billion.

For the third quarter of 2023/24, in terms of the municipal financial year, National Transferring Officers (NTOs) reported expenditure of 58.8% against the total adjusted allocation for direct conditional grants, while municipalities reported expenditure of 46.8%.

Direct conditional grants allocated for the 2023/24 financial year against the infrastructure grants were adjusted to an amount of R39.6-billion following a decline of R1.7-billion during the adjusted budget process, from the original allocation of R41.4-billion.

This was predominantly owing to the fiscal consolidation reductions across all direct infrastructure grants apart from the Municipal Disaster Recovery Grant where an amount of R1.2-billion was added to the grant to fund the reconstruction and rehabilitation of municipal infrastructure damaged by the floods  that occurred between February and March 2023, Treasury explains.

Of the R39.6-billion allocated, 99.6% has been transferred to municipalities and 59.4%, or R23.6-billion, was reported as expenditure as at period end against the revised total infrastructure allocation.

At the end of the third quarter, a total adjusted amount of R2.9-billion was transferred for capacity grants and expenditure of R1.5-billion, or 50.6%, against the allocation was reported by NTOs.

This expenditure includes the unallocated conditional grant, that is, the Municipal Disaster Recovery Grant, where a portion was allocated during the financial year to respond to the flood disasters that occurred in KwaZulu-Natal and the Eastern Cape.

Low expenditure on infrastructure grants is a source of concern because this slow performance may eventually lead to unspent conditional grants that have to revert to the National Revenue Fund (NRF), Treasury warns.

The surrendering of unspent conditional grants to the NRF has negative consequences to the communities that must receive the services linked to the infrastructure to be built, it adds.