Salga Taps Outside Experts to Manage R467bn Municipal Debt Crisis

SOUTH AFRICA’S MUNICIPALITIES TURN TO EXTERNAL CONSULTANTS AS DEBT CRISIS DEEPENS

The South African Local Government Association (Salga) has issued a formal request for proposal to hire external consultants tasked with developing a comprehensive revenue management plan for the country’s 257 municipalities. The move signals an institutional acknowledgment that the scale of municipal financial dysfunction now requires specialized external expertise to address systemic revenue collection failures and mounting debt obligations.

Additional reference context is available at https://www.businessday.co.za/news/2026-08-24-salga-seeks-consultants-to-tackle-r467bn-municipal-debt/.

The consultant engagement comes as municipal consumer debt has swelled to approximately R467.2 billion, while municipalities themselves carry creditor obligations of roughly R160.8 billion. Salga’s request for proposal document identifies a direct relationship between poor revenue collection capacity and municipalities’ inability to meet financial obligations to suppliers and service providers. The distress is acute: many municipalities are collecting less than 70% of billed revenue, creating persistent cash-flow constraints and widening gaps between revenue billed and cash actually realized.

The scope of work assigned to the consultants is extensive. They will be asked to identify, quantify and support municipalities in reducing revenue leakages across water and electricity distribution, illegal connections, meter-related losses, inaccurate billing, unbilled consumption and other technical and non-technical revenue losses. Salga estimates that municipalities lose approximately R25 billion annually in water and electricity revenue alone, attributable to physical infrastructure leaks, theft, illegal connections, inaccurate or outdated meters and weaknesses in metering and billing systems. The consultants will also be expected to develop strategies for debt recovery and improved indigent management, addressing what Salga identifies as a credibility crisis in municipal indigent registers that may contain outdated information, exclude qualifying households or include beneficiaries whose circumstances have changed.

The financial crisis extends well beyond consumer debt. Eskom, the national power utility, is owed R116 billion by municipalities, a debt the power producer has warned could accelerate to R358 billion by 2031 unless immediate interventions are implemented. That mounting obligation threatens Eskom’s planned unbundling into three separate units responsible for generation, distribution and transmission. Water boards have similarly been on the receiving end of non-payment from municipal authorities, compounding the broader institutional failure in revenue collection and financial management.

The latest auditor-general report into municipal finances documents systemic dysfunction marked by weak revenue collection, escalating consumer debt, cash-flow constraints, growing creditor balances and unauthorized, irregular, fruitless and wasteful expenditure. Salga’s assessment concludes that given the scale and complexity of these challenges, municipalities require support in strengthening financial governance, institutional capacity and modernizing revenue systems.

A critical component of the consultant mandate involves verifying and correcting indigent registers. Misalignment between municipal indigent registers, Statistics South Africa socio-economic data and other government datasets limits municipalities’ ability to accurately identify qualifying households and to distinguish between customers who are genuinely unable to pay and those who are unwilling to pay. Salga argues that a credible, verified and council-approved indigent register will improve the targeting of free basic services, strengthen revenue collection from customers who can afford to pay, improve the credibility of municipal debtor balances and support more effective financial and service-delivery planning.

By contrast, a secondary but significant governance challenge involves municipalities’ difficulty accessing debt financing, development finance and capital markets. Poor revenue collection, weak balance sheets, inadequate financial controls, adverse audit outcomes and governance inefficiencies negatively affect municipal creditworthiness and the confidence of potential lenders and investors. Limited institutional capacity for project identification, planning, feasibility assessment, financial modelling, costing, risk allocation and preparation of infrastructure projects for bankability means that potentially viable infrastructure projects fail to progress from concept to investment-ready stage, limiting municipalities’ ability to diversify infrastructure funding beyond grants.

The timing of Salga’s initiative coincides with broader government reform efforts. Operation Vulindlela’s second phase targets local government reforms to fix collapsing municipal service delivery, ring-fence utility revenues for water and electricity, and review municipal funding.

The consultant drive also precedes local government elections scheduled for November, with financially troubled cities such as Johannesburg expected to be hotly contested. The City of Johannesburg, run by a coalition government since 2016, contributes 16% of national GDP and is considered indispensable to South Africa’s economy. The city recently settled a R2 billion debt to Eskom after the utility threatened to cut power to the metro, a stark illustration of what municipal payment defaults mean for essential service provision. Whether the consultant mandate can deliver measurable improvements in revenue collection before those elections, and before Eskom’s debt trajectory worsens further, remains the central accountability question facing Salga and the municipalities it represents.