National Treasury has defended its decision to withhold R13.5 billion in equitable share allocations from 69 municipalities over persistent financial mismanagement, while warning that national and provincial government departments could face similar sanctions if they continue failing to pay billions owed to municipalities.
Speaking during a media briefing on Wednesday, Treasury’s Deputy Director-General for Intergovernmental Relations, Ogalaletseng Gaarekwe, said the funds would be released in phases once municipalities demonstrated compliance with conditions imposed by Treasury.
The intervention follows Treasury’s decision to freeze July 2026 equitable share transfers to municipalities that repeatedly failed to comply with the Municipal Finance Management Act (MFMA), including adopting unfunded budgets, failing to address unauthorised, irregular, fruitless and wasteful expenditure (UIFWE), and defaulting on payments to creditors such as Eskom, water boards, the South African Revenue Service (SARS) and pension funds.
Gaarekwe said municipalities had been given sufficient notice before the funds were withheld.
“The first set of letters went to municipalities on June 22 and 25. At that stage we wrote to 99 municipalities and 30 responded in the manner we required, which is why we did not withhold their money. The remaining 69 did not meet the requirements,” she said.
She said municipalities that adopted unfunded budgets were required to commit to ending the practice.
“What we expected was for municipalities to say, ‘We commit from now on, we will not table unfunded budgets moving forward, whether it’s an adjustment budget or the main budget.’ It was just a commitment we needed,” she said.
Municipalities that owe billions to creditors have also been instructed to submit signed repayment agreements before Treasury releases portions of the withheld allocations.
“What we are requesting from those municipalities is for them to give us the payment plan that has been signed by themselves together with those creditors. Once they give us that, we will release a portion of the money, probably one-third.
“Once they have paid the creditors and they give us proof, we release the remaining money. Essentially it means your money can be withheld for a short period only. It depends on how fast the municipality acts. It could be a week, two weeks or a month,” she said.
Gaarekwe said municipalities had also been required to submit plans outlining how they would reduce unauthorised, irregular, fruitless and wasteful expenditure after many failed to honour commitments made earlier this year.
“So they had made commitments, and some of them, the reason why the number has reduced to 69 because we have withheld for 69, is that some did not honour the commitments they made during that time with regards to this unauthorised, irregular, fruitless and wasteful expenditure,” she said.
She said Treasury had withheld R13.5 billion from municipalities’ approximately R110 billion equitable share allocation for the current financial year, with the City of Johannesburg accounting for the largest share at about R3.6 billion.
Despite the intervention, Gaarekwe insisted that service delivery should not be affected, saying municipalities generate most of their operational revenue through their own income streams.
She said the latest intervention mirrored a similar process implemented last year, when withheld allocations were released shortly after municipalities complied with Treasury’s conditions.
“Learning from the experience of last year, because even last year this time we withheld funds for a number of municipalities, I can assure you that by early August we had already released the money for everyone.
“So it depends on how fast the municipalities sort out the payment plans, send us those payment plans and release the major portion of those funds to them.”
“Once we release a portion, they go straight and pay that particular pension fund and the Auditor-General, and once they have done that, we release the whole amount for them to continue.”
“We are not expecting this to impact service delivery,” she said.
Gaarekwe also revealed that Treasury has widened its compliance drive to national and provincial government departments that owe municipalities billions of rand in unpaid rates and service charges.
She said national departments were formally placed on notice in February, while provinces received similar letters in April, requiring them to submit payment plans by the end of May.
“What we have done since then with the departments is that national departments received letters in February to say, ‘Pay your accounts or otherwise National Treasury will withhold your funds.’ In April we sent letters to all provinces,” she said.
Although provinces submitted responses, Gaarekwe said many remained locked in disputes over outstanding municipal accounts.
“There are a lot of disputed amounts. We are saying to them, on the accounts that you are not disputing, give us a payment plan and it should be reasonable to the extent that it should be paid within this current financial year. It should not be paid over a number of years.”
She revealed that one province had proposed settling a R700 million debt over seven years, which Treasury rejected.
“We had one province proposing to pay R700 million over seven years, which is unreasonable.”
She said Treasury was also requiring provinces and departments to provide proof of signed payment plans with municipalities, similar to the conditions imposed on municipalities.
At the same time, Treasury is working with departments to verify municipal accounts before payments are made after identifying billing discrepancies.
“There needs to be a data cleansing process. In some instances, you find a municipality billing a department that does not have offices in that municipality.
“We are correcting the behaviour in municipalities, and we want that to extend to departments across all three spheres of government,” she said.
Gaarekwe added that the intervention had already helped prevent the collapse of two water boards by ensuring municipalities entered into repayment arrangements with creditors.
“If a water board cannot provide services, communities won’t get water. This process has helped to keep them operational,” she said.
She stressed that while National Treasury was enforcing compliance through financial controls, the responsibility for consequence management remained with municipal councils and oversight structures, which must hold officials accountable for financial misconduct.
“We’ve only withheld R13.5 billion. It will depend on the responsiveness of the municipalities,” she said.
