Treasury and COGTA Enforce MFMA Compliance on Unfunded Municipal Budgets

Posted 28 July 2026 Written by Acts Online
Category Public Finance & Municipal Law

Brought to you by SAnews: In terms of the Local Government: Municipal Finance Management Act, No. 56 of 2003 (MFMA) and the annual Division of Revenue Act, National Treasury and the Department of Cooperative Governance and Traditional Affairs (COGTA) have prohibited municipalities from adopting unfunded budgets, following the temporary withholding of unconditional equitable share transfers to 69 non-compliant local councils.

On 7 July 2026, National Treasury invoked statutory withholding provisions against 69 municipalities across all nine provinces due to persistent and severe non-compliance with the Local Government: Municipal Finance Management Act, No. 56 of 2003 and its supporting regulations, following prior intergovernmental support and advisory engagements.

Adopting an unfunded budget—wherein projected expenditure exceeds verifiable and collectable revenue—violates fundamental fiscal management mandates under the MFMA. COGTA noted that unfunded budgeting remains a primary driver of municipal financial distress, causing recurring defaults on statutory and service provider obligations, including liabilities owed to the South African Revenue Service (SARS), Eskom, and regional water boards.

Key Compliance Directives and Reporting Deadlines

To establish municipal fiscal stability ahead of the Municipal Elections scheduled for November 2026, COGTA and National Treasury outlined specific administrative mandates:

  • Revenue-Aligned Budgeting: Municipal councils are strictly required to align all operational and capital expenditure directly with available and collectible revenue streams.
  • Prioritisation of Statutory Obligations: Municipalities receiving equitable share allocations must prioritize clearing outstanding arrear debts owed to SARS, bulk electricity providers, and regional water boards.
  • Financial Reporting Submissions: Municipalities are directed to ensure 100% compliance with the statutory deadline of 31 August 2026 for the submission of Annual Financial Statements (AFS), building on the 98% submission rate achieved in the preceding financial year.

What this means for you, your business, or your clients

  • For yourself: Property owners and individual ratepayers should ensure prompt settlement of rates and municipal utility bills, as local council compliance and revenue collections directly govern municipal access to federal equitable share transfers and sustained utility services.
  • For your business: Commercial entities, service providers, and contractors supplying local government must evaluate municipal credit risks, as municipalities operating on unfunded budgets face mandatory Treasury transfer holds that disrupt procurement payments.
  • For your clients: Municipal and public sector clients must ensure draft budgets are fully funded by verified revenue sources, settle outstanding organ-of-state debts, and submit complete Annual Financial Statements by 31 August 2026 to restore equitable share disbursements.

Originally published at https://www.sanews.gov.za/south-africa/municipalities-urged-end-practice-adopting-unfunded-budgets

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