National Treasury on local government revenue and expenditure for 1 July 2025 to 31 December 2025

National Treasury has published the Section 71 report on local government revenue and expenditure for the second quarter of the 2025/26 financial year. The report assesses the financial performance of municipalities against their adopted budgets for the period ending 31 December 2025 and includes spending against conditional grant allocations during the same period. The publication also incorporates non-financial performance information from metropolitan municipalities in line with MFMA Circular No. 88 indicators.

The Section 71 report promotes transparency in reporting and strengthens in-year management and oversight of municipal finances. It also serves as an early warning mechanism for municipal councils, provincial legislatures and municipal management to monitor financial performance and implement corrective measures where necessary. National and provincial treasuries continue to prioritise improving the credibility of data submitted by municipalities, with monthly analysis conducted and any identified errors communicated to municipalities for correction.

Key trends

Aggregate trends

• Municipalities budgeted for total revenue of R706.6 billion for the 2025/26 financial year and realised R360.7 billion by 31 December 2025, representing 51 per cent performance. Municipalities spent R312 billion against the adopted budget of R698.1 billion, representing 44.7 per cent performance, which includes operating and capital expenditure.
• Total operating expenditure amounted to R283.9 billion in the second quarter against an adopted budget of R619.2 billion, representing 45.8 per cent performance.
• Total capital expenditure reached R28.1 billion against the adopted budget of R78.9 billion, representing 35.6 per cent performance. The target for capital expenditure by 31 December 2025 was R36.3 billion, resulting in an underperformance of R8.2 billion (22.5 per cent). Historically, capital expenditure tends to accelerate in the fourth quarter, although incorrect reporting has also distorted performance where some municipalities reported negative capital expenditure.
• Salaries and wages, including remuneration of councillors, were budgeted at R172.8 billion for the 2025/26 financial year. Expenditure by the end of the second quarter amounted to R80.2 billion, representing 46.4 per cent performance. Salaries and wages account for 27.9 per cent of the total adopted operating expenditure budget of R619.2 billion.
• A total of 50 municipalities reported negative cash balances during the second quarter of the 2025/26 financial year. While municipalities budgeted for a collection rate of 78.6 per cent by the second quarter, actual collection against billed revenue was only 69 per cent.
• Aggregate municipal consumer debt stood at R467.2 billion as at 31 December 2025, compared to R405.1 billion in the second quarter of the 2024/25 financial year. A total of R5.4 billion (1.1 per cent) was written off as bad debt.
• Households account for the largest share of outstanding debt at R335.3 billion, representing 71.8 per cent of the total outstanding debt. Commercial entities owe municipalities R94.7 billion (20.3 per cent), while organs of state owe R27.6 billion (5.9 per cent).
• Debt outstanding for more than 90 days amounts to R406.8 billion, representing 87.1 per cent of the total outstanding debt of R467.2 billion. Municipalities are urged to rigorously implement credit control and debt collection policies to recover outstanding debt regardless of the period it has been outstanding.
• There is a direct relationship between municipalities’ ability to collect outstanding debt and their ability to pay creditors. Delays in collecting revenue negatively affect municipal cash flow and lead to delayed payments to suppliers.
• Creditors owed by municipalities amounted to R160.8 billion as at 31 December 2025, compared to R127.9 billion during the same period in the 2024/25 financial year. Of this amount, R135.9 billion (84.5 per cent) has been outstanding for more than 90 days.
• The largest creditors include bulk electricity at R87.9 billion (54.7 per cent), trade creditors at R35.5 billion (22.1 per cent) and bulk water at R27.3 billion (17 per cent). The amount owed for bulk electricity increased by R19.2 billion (28 per cent) compared to the second quarter of the previous financial year.
• At a provincial level, municipalities in the Free State have the highest outstanding creditors older than 90 days at R39.9 billion, followed by Mpumalanga at R31.8 billion and Gauteng at R27 billion. The increase in outstanding creditors suggests that many municipalities are experiencing liquidity and cash flow challenges and are unable to settle their debts within the required 30-day period.

Non-financial information in terms of MFMA Circular No. 88

• The second quarter Section 71 report incorporates financial and non-financial performance indicators from MFMA Circular No. 88, covering 112 indicators reported by metropolitan municipalities.
• Through successive rounds of feedback, the quality and completeness of performance information submitted by metropolitan municipalities has improved, although some data quality issues are still being addressed.
• The inclusion of these indicators supports greater transparency, accountability and value-for-money assessments by institutionalising a standardised set of performance measures relating to municipal service delivery and operational effectiveness.
• These indicators were developed through consultation with national sector departments and municipal administrators responsible for implementing service delivery programmes.

Conditional grants

• The Division of Revenue Act (DoRA) allocated R176.8 billion in direct transfers to local government for the 2025/26 financial year, compared to R169.8 billion in 2024/25. Over the medium term, direct transfers account for 9.7 per cent of national government’s non-interest expenditure and 9.8 per cent when indirect transfers are included.
• The R176.8 billion allocation includes unconditional transfers in the form of the Equitable Share and related allocations amounting to R106 billion, direct conditional grants for capacity building amounting to R1.7 billion, and infrastructure grants amounting to R52.1 billion, including the Urban Settlements Development Grant (USDG) of R9.2 billion and the Urban Development Financing Grant (UDFG) of R1 billion. Indirect conditional grants total R7.8 billion.
• By 31 December 2025, R30.4 billion or 68.4 per cent of the R44.4 billion allocated to municipalities in direct conditional grants (excluding USDG) had been transferred. National government departments reported expenditure of R19.7 billion, representing 44.2 per cent of the allocation and 64.6 per cent of the transferred amount.
• Municipalities reported expenditure of only 39.1 per cent of the allocation, indicating that several municipalities were not adequately prepared to implement planned projects for the 2025/26 financial year. Contributing factors include supply chain management inefficiencies and capacity constraints.
• To support infrastructure development and basic service delivery, R52.1 billion was allocated in infrastructure conditional grants for the 2025/26 financial year, with R55 billion and R54.8 billion allocated in the outer years of the Medium-Term Expenditure Framework.
• By the end of the second quarter, R28.9 billion or 67.9 per cent of infrastructure grants had been transferred to municipalities, while R19 billion or 44.5 per cent had been spent against an allocation of R42.7 billion (excluding USDG and UDFG).
• In 2025/26, R1.8 billion was allocated in capacity-building and other grants aimed at strengthening municipal management, planning, technical, budgeting and financial management capacity.
• The Municipal Disaster Response Grant (MDRG) allocated R199.2 million to municipalities in the Eastern Cape, KwaZulu-Natal, Limpopo and North West provinces to address the impact of floods that damaged property, roads, stormwater infrastructure, water and sanitation systems, electricity infrastructure and other municipal facilities.
• Capacity-building grants have generally underperformed, except for the Expanded Public Works Programme (EPWP) grant, which recorded expenditure of 46.5 per cent by the end of the second quarter. The Infrastructure Skills Development Grant and the Financial Management Grant recorded expenditure of 40.5 per cent and 39.4 per cent respectively.

Further details on the report are available on the National Treasury website: https://www.treasury.gov.za

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