On 28 March, the National Treasury published the Local Government Revenue and Expenditure Report for the 2024/2025 financial year which shows that conditional grants were underspent by municipalities. The report states that as of 31 December 2024, aggregate spending by municipalities was 44.2 per cent or R287.5 billion of the total adopted expenditure budget of R649.9 billion. R44.1 billion was allocated for direct conditional grants to municipalities, of which municipalities reported spending of R12.8 billion, or 29.1%, of the total allocation.
This is on the back of Finance Minister Enoch Godongwana on 12 March announcing that municipalities will receive R552.7 billion over the medium-term expenditure framework (MTEF) period. Conditional grants are allocated to municipalities for programmes to support the development of infrastructure, fund emergency repairs after unforeseen disasters, fund the implementation of electrification projects, fund the upgrade of informal settlements as well as developing bulk water and wastewater infrastructure. They are strictly ‘ring-fenced’ for targeted service delivery issues and cannot be used for anything else, such as salaries for instance.
Some of the conditional grants to municipalities include:
- Municipal Infrastructure Grant (MIG): A capital conditional grant used for municipal infrastructure projects.
- Consolidated Municipal Infrastructure Programme (CMIP) Grant: Another example of a grant to fund municipal infrastructure.
- Implementation of Water Services Project (Capital) Programme Grant: A grant for water services infrastructure.
The report also revealed that municipalities with better governance structures and administrative efficiency seem to manage funds more effectively, highlighting the need for targeted interventions in struggling municipalities.
Impact of underspending allocated grants
The persistent underspending of key Municipal Infrastructure Grants (MIG), especially the MDRG, suggests deep-rooted issues in municipal planning, project execution, and financial management. It also points to bureaucratic inefficiencies, poor capacity, or misalignment between funding and implementation capabilities. Moreover, the failure to spend the MDRG funds has an adverse impact beyond public service delivery. The MDRG is a significant source of funding for municipalities, and when the MDRG funds are not spent, it not only hinders service delivery but also deprives communities of much-needed development and progress.
The failure to spend MDRG funds also has a ripple effect on the local economy, as these funds are meant to stimulate economic growth and create job opportunities through the implementation of infrastructure projects.
Undermining Investor Confidence and Local Economies
For the private sector, particularly SMMEs and potential investors, municipal dysfunction is a red flag. Businesses thrive in environments where infrastructure is reliable, regulatory compliance is efficient, and basic services are accessible and consistent. Thus, underspending on grants like the MDRG and MIG raises the cost of doing business. It deters new investment and may even prompt existing businesses to scale down or relocate, especially in the manufacturing, logistics, and processing sectors that depend heavily on local infrastructure.
Is there any remedy?
Government has stated that it plans to strengthen municipal planning and budgeting, improve revenue management, and enhance capacity building for municipal staff, while also increasing public participation and oversight. Despite the establishment of institutions such as the Municipal Infrastructure Support Agency to oversee the implementation of MIG projects, their efforts have been undermined by the lack of political will and the failure of municipalities to comply with legislative and reporting requirements.
Perhaps, the District Development Model (DDM) will play a role in ensuring that there is service delivery and compliance with legislative requirements through its enhanced monitoring and evaluation mechanisms. The DDM is a strategy for improving service delivery and tackling municipal underspending by fostering collaboration and integrated planning across all three spheres of government (national, provincial, and local) within specific districts and metropolitan areas. The DDM aims to improve the coherence and impact of government service delivery by ensuring that municipalities better plan, budget, and implement projects and programs.
However, for the DDM to work, it must be complemented with:
- technical support and training for municipal staff, especially in financial management and project planning.
- enforcement of compliance mechanisms, including consequences for non-performance; as well as
- digitisation and transparency tools to track grant disbursements and project delivery in real time.
Conclusion
The issue of municipal grant underspending in South Africa is not just a numbers game—it strikes at the heart of effective governance and service delivery. When municipalities spend only a fraction of their allocated funds, it prevents communities from accessing critical infrastructure improvements and services, from emergency repairs to new water and wastewater infrastructure. This inefficiency not only stifles essential development but also ripples outward, discouraging private sector investment and burdening local economies that rely on stable, well-run municipal services.
By strengthening planning, boosting oversight, harnessing collaboration through the DDM, and generating political commitment, the government can transform underspending into a catalyst for enhanced service delivery and economic growth.
