Unspent funds to be returned to National Treasury.
South African municipalities were allocated R44.1 billion in direct conditional grants for the 2024 fiscal year, but only spent R12.8 billion, or 29.1%.
Municipalities have long struggled to spend their conditional grants, often forcing unspent funds to be returned to the National Treasury. This was highlighted by a panel during a National Treasury webinar on Tuesday called From Your Pocket to Public Services: Tracking Municipal Budgets.
Conditional grants are funds allocated by the national government to municipalities to be used for particular services or projects, such as infrastructure development (roads, water, sanitation), housing, electrification, and public transport upgrades.
Section 21 of the Division of Revenue Act states that any conditional allocation or portion not spent by the end of the financial year reverts to the National Revenue Fund (NRF) unless the roll-over of the allocation is approved.
Panellist Zinzi Mphahlele – manager of budget and reporting, Polokwane Municipality – noted that one of the reasons municipal budgets go unspent is because of a lack of preparation.
“You find that project preparation is not necessarily ready when funds are received. There are also a lot of delays in terms of the supply chain management processes. It’s slow and there are a lot of challenges.”
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Conversely, in some cases grants are transferred late, sometimes only in the final quarter, leaving little time for implementation.
She said another issue is that municipalities at times lack internal capacity – such as engineers and procurement officers – which hampers project delivery.
“However, the biggest reason for unspent funds is the political instability and the frequent leadership changes that derail service delivery.”
According to the latest Section 71 Local Government Report released quarterly by National Treasury, municipal performance for the second quarter of the 2024/25 fiscal year, concerning conditional grants, indicates very slow progress.
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The report highlights areas of slow spending, suggesting possible interventions such as halting funds and reallocating them to municipalities that demonstrate quicker expenditure. This approach aims to ensure that resources are used effectively and that the grants contribute meaningfully to service delivery and infrastructure development.
It notes that as at 31 December 2024, the three provinces that performed the worst are the Free State, Gauteng, and the Western Cape, with expenditure rates of 37.7%, 30.4%, and 31.6%, respectively.
Each of these provinces showed spending below 40% of their total allocation six months into the financial year.
“This level of underperformance is concerning, as these provinces are crucial to the national economy and the provision of key public services,” reads the report.
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How can municipalities make sure they spend their conditional grants
The report finds that metros could improve governance by tightening oversight, ensuring administrative stability, and curbing political interference.
It also calls for better project planning, faster procurement processes, and stronger financial sustainability.
These improvements, it says, are key to making sure grants are spent effectively and deliver lasting gains in infrastructure and service delivery.
“With grant spending either you use it or you lose it,” says Mphahlele.
“Grant performance is not just a line item, it’s a red flag. It tells the Treasury that this municipality is not ready to deliver and the Treasury will take back the money. If we lose that grant money, we lose infrastructure and future funding.”
This article was republished from Moneyweb. Read the original here.
