South Africa's dry taps and power cuts reflect a municipal debt crisis that is squeezing State utility Eskom and straining public finances, with forecasts of more hung councils after Wednesday's local votes likely making solutions harder to find.

Eskom, the state power utility, says it is owed R122.5-billion by municipalities. Households and businesses, in turn, owe municipalities R484.5-billion — but only 63.9% is collected, according to National Treasury budget data.

Poor collection leaves many municipalities struggling to pay creditors including Eskom and the water boards, compounding the financial stress across the public sector.

When asked about the impact of the municipal debts, Eskom told Reuters "it weighs heavily on the national budget, the sovereign credit rating and borrowing costs".

COUNCIL LEADERSHIP CHANGES BRING UNCERTAINTY

Wednesday's municipal elections could further complicate efforts to tackle the debt pile. No party is expected to win an outright majority in the major metropolitan regions.

Hung councils and coalition negotiations could bring leadership changes just as municipalities face deadlines to comply with the Treasury’s repayment and reform measures.

In July, Finance Minister Enoch Godongwana froze funding to offending municipalities and imposed a compliance roadmap with deadlines stretching to November 30.

South Africa had 70 hung councils after the 2021 local elections.

"I would not be surprised if that number goes up to maybe 100," said Louw Nel, senior political analyst at Oxford Economics Africa.

Eskom said municipalities' financial obligations "remain unchanged even in the event of a new administration taking over office", but acknowledged that any leadership change "brings with it uncertainty".

RATING AGENCIES' WARNINGS

S&P Global upgraded South Africa's sovereign rating in November 2025 for the first time in nearly 20 years, citing among other factors reduced contingent liabilities as Eskom's finances improved. But it warned that municipal arrears could "pose significant risks" to the state utility's turnaround.

Moody's, which changed South Africa's outlook to positive in May, said the risk of further material contingent liabilities had diminished, but flagged growing municipal arrears to Eskom.

Persistent municipal arrears threaten those gains by weakening Eskom's cash flow, potentially increasing the risk of a need for renewed government support.

The government has provided R663-billion in guarantees to state-owned enterprises, more than half to Eskom, according to S&P Global.

"There's obviously a risk that they might have to tap into the guarantees," said Jason Lightfoot, senior portfolio manager at Futuregrowth. While that was not his base case, he said distressed municipalities were effectively shut out of commercial funding.

"Municipalities in their own right are unfundable."

FRAGILE PROCESS

Godongwana's crackdown showed early results. By end-July, 38 of 69 municipalities had concluded repayment plans and R4.2-billion had been paid toward outstanding creditor debt. But Eskom says the Treasury's enforcement measures are "not sufficient alone".

Of 71 municipalities approved for a government debt relief programme launched in April 2023, only 8 are compliant; the remaining 63 are overdue on current-account payments, the utility said.

The crisis extends beyond electricity. In Matjhabeng, a Free State mining town, residents have gone more than 20 days without water. The municipality owes its water board R9.5-billion — one of the starkest examples in the nationwide crisis.

The National Treasury said it had no immediate comment.

In July, when the government conditionally released withheld municipal funds, Godongwana said the Treasury had to balance enforcing financial rules with protecting basic services.

"National Treasury recognises that communities should not carry the immediate consequences of failures by municipal institutions," Godongwana said. "That consideration is central to the decision."