Badly led, cash-strapped municipalities not coping
Municipal IQ economist Karen Heese said the picture was bleak for municipalities, especially for those in Limpopo, the Northern Cape and North West.
Key reasons were poor debt collection and inadequate cash-flow management, often underpinned by poor managerial capacity.
"There is patchy municipal planning capacity, provincial oversight and financial prospects for 46% of South Africa's municipalities," she said.
"The list of unfunded municipality budgets is staggering, applying to 112 of South Africa's 257 municipalities."
This raised warning flags about provincial oversight of financial planning.
Heese said just over 40% of municipalities said they had enough cash or cash equivalents to pay their creditors.
This could have a serious impact on residents and compromise service delivery through the throttling of water and electricity supplies.
Simphiwe Dzengwa, executive director of municipal finances at the South African Local Government Association, called for a thorough review of the local government business model: how municipalities do business.He said maladministration needed to be dealt with decisively and quickly through consequence-management frameworks, "not a year later when issues are raised by the auditor-general".
Dzengwa said how municipalities were graded needed to be reviewed as well.
"You have a situation where municipalities are graded according to population size and the revenue collected but not according to performance, which must be addressed."
Another reason for municipalities' poor financial health, which affected six of the country's nine provinces, was that municipalities often overestimated what they could collect in revenue.
"They end up with budgets which they can't collect revenue for. Municipalities often don't have the revenue for the services they should be delivering."
Provincial government could do more to support municipalities by ensuring oversight recommendations were implemented and that there were proper accountability frameworks and early-warning systems in place to monitor municipal performance.