Gauteng municipal bad debt jumps by R1 billion in one quarter

Fred Nel MPL

Spokesperson on Local Government

Debt older than 60 days, which can be viewed as bad debt, owed to municipalities in Gauteng grew by a billion Rand, or R1 036 721 000 precisely, between 1 July 2013 and 30 September 2013.

According to the Gauteng Provincial Gazette published on 8 November 2013, Gauteng municipalities were owed a total of R39.7 billion at the end of September. This figure includes all debtors.

What is of concern is debt older than 60 days as this debt proves to be difficult to collect. It has grown from R29.7 billion at the end of June 2013 to R30.7 billion at the end of September, a growth of 3,5% compared to the previous quarter. This means that 77% of all debt owed to municipalities in Gauteng is older than 60 days.

Debt owed to the three metros constitutes 83% of debtors in arrears by more than 60 days. Debt older than 60 days owed to the Gauteng metros are as follows:

  • Johannesburg: R13 772 639 000 (78% of total debtors)
  • Tshwane: R4 149 781 000 (67,7% of total debtors)
  • Ekurhuleni: R7639977 000 (77% of total debtors)

The following categories of debtors (older than 60 days) owe the most.

61 plus days

Amount

(R ‘000)

%

Organs of State

701 040

2.2

Commercial

7 401 756

23.7

Households

18 425 352

59.0

Other

4 697 749

15.0

Total

31 225 897

100.0

 

The sharp growth in municipal debtors is an indication that debtor management within municipalities are failing and that municipalities are unable to arrest the growth in their consumer debtors. Most municipalities do not possess accurate consumer account data which makes collection of debt even more difficult.

The growth in debtors, specifically ageing debt, is especially of concern as it impacts negatively on a municipality’s ability to deliver services as well as its ability to function properly as a going concern. This is due to the pressure that is placed on cash flow as a result of debtors not paying.

The financial sustainability of municipalities is under severe strain and poses a major risk to provincial and national government. If a municipality can no longer operate due to lack of available funds provincial and national government will have to provide bailouts. National and provincial government are the inherent guarantors of local government.

Current initiatives to assist municipalities to improve their debt collection are clearly not working at the scale it is supposed to. It is therefore crucial that a plan of action is formulated as soon as possible that can assist municipalities to improve their financial management.