South Africa’s largest municipalities are sliding deeper into financial distress after years of underspending on infrastructure and maintenance, raising the risk of broader municipal failure with serious economic and social consequences, according to a report by independent governance ratings agency Ratings Afrika.

Ratings Afrika’s latest annual municipal financial sustainability index, based on the financial results of the country’s 128 largest municipalities for the year ended June 2025, showed that the combined operating deficit of those municipalities widened to ZAR39bn ($2.4bn) from ZAR35bn in 2024.

Their aggregate liquidity shortfall rose to ZAR129bn from ZAR107bn in 2024 and ZAR55bn in 2021, an increase of almost ZAR20bn a year over the past four years, according to the report.

“These trends are not merely indicators of financial distress; they are evidence of a systemic failure that is increasingly undermining service delivery, infrastructure sustainability and economic growth,” Ratings Afrika managing executive Leon Claassen said. “If left unchecked, South Africa faces a growing risk of systemic municipal failure with profound social and economic consequences.”

Finance Minister Enoch Godongwana has withheld July 2026 equitable share transfers to 69 municipalities, including the metros of Johannesburg, Nelson Mandela Bay, Buffalo City and Mangaung, using powers under Section 216(2) of the Constitution.

Godongwana said the move was “a corrective rather than a punitive measure” intended to “instil fiscal discipline and ensure public money is properly managed; that unauthorised, irregular, fruitless and wasteful expenditure is addressed; and that municipal officials and office-bearers are held accountable as required by law”.

The BER said South Africa’s municipal system was under acute financial strain, citing the auditor-general’s 2024/25 report, Moody’s fragile local government ratings and negative trends in National Treasury’s latest local government revenue and expenditure data.

Ratings Afrika estimated that local municipalities’ average financial sustainability score fell to 33 out of 100 in 2025 from 36 in 2021. Excluding the Western Cape, the average dropped to 27 from 31 over the same period.

The Western Cape remained the only province with an average score above 50, rising to 57 from 56 a year earlier. The five highest-scoring municipalities — Drakenstein, Hessequa, Overstrand, Saldanha Bay and Swartland — were all in the province and each scored more than 70 points.

Johannesburg’s decline has been particularly severe, with its score falling to 35 in 2025 from 48 in 2021. The BER said the city had cycled through 11 mayors since 2016, disrupting budgets, appointments, oversight and long-term planning.

“This level of political instability is not just a headline problem — it disrupts budgets, appointments, oversight and long-term planning,” independent economist Nomvuyo Guma said in a BER explainer.

Johannesburg’s financial stress has been compounded by weak controls and poor revenue collection. Its revenue collection rate is 75%-82%, compared with a metro average of 86% and Cape Town’s 96.6%, while consumer arrears have risen to ZAR57bn.

The city’s fruitless and wasteful expenditure trebled to ZAR943mn from ZAR322mn in 2024/25, partly because of late-payment penalties, while more than two-thirds of every rand in the budget is tied up in staff costs, bulk water and electricity purchases, and debt and finance charges.

“The issue is not necessarily workers,” Guma said. “It’s the rigidity of the operating budget when revenue collection weakens and fixed costs rise.”

By March 2026, Johannesburg had spent only 49% of its capital expenditure budget for 2025/26, well below its 70% target. National Treasury regards any figure below 85% as a warning sign.

“One can trace any service delivery failure and its economic and public-health impact back to financial stress and deferred maintenance,” Guma said. “This is how underspending today becomes tomorrow’s burst pipes, failed substations and collapsing roads.”

Guma said Treasury was right to resist unconditional bailouts but warned that Johannesburg’s problems could not be treated as localised.

“The Treasury is right to resist the idea that a large city can spend badly, collect poorly, defer maintenance and then expect a bailout without consequences,” she said. “But it would also be reckless to pretend that Joburg’s deterioration can be contained within its municipal boundaries. A failed Joburg would weaken Gauteng, undermine national growth, erode confidence in urban governance and raise the cost of doing business in the country’s commercial heart.”

Rise Mzansi’s Songezo Zibi, who chairs parliament’s standing committee on public accounts, said the core problem was political leadership and accountability.

“Where they are ignorant, they will similarly employ ignorant, incapable people as a municipal manager or chief financial officer,” he said. “Where they are corrupt, they will appoint corrupt fellow travellers and remove, through violent victimisation, those who want to do the right thing.”

DA mayoral candidate for Johannesburg Helen Zille said the city’s decline could still be reversed through sound financial management and governance.

“Joburg is very badly broken, and a lot will have to be fixed,” she said. “It’s going to be difficult and risky, but that doesn’t mean we have to shy away from it, because it’s still reversible — but it won’t be for long.”

Zibi warned that the local government elections could be South Africa’s final chance to change course.

“Things are close to a state of collapse as it is,” he said, “and giving a fresh five-year mandate to crooks will send us over the cliff.”