Poor EC economy bites hard as consumer debts to municipalities increases to R8.2-billion

Red lights are flashing for Eastern Cape municipalities as consumer debt climbs to R8.2-billion.

Voice clip in English:  consumer_debt_to_municipalities_now-bobby-stevenson-mpl

Consumers owed Eastern Cape municipalities a massive R8.2-billion at the end of the fourth quarter of the municipal financial year (ended 30 June 2016).

The poor state of the economy in the Eastern Cape is biting hard.  In June 2015, this figure stood at R7-billion.  In December 2015 this figure stood at R7.7-billion. It is clear that debt owed to our municipalities is increasing at the frightening rate of R600-million every six months.  This is threatening the financial viability of municipalities.

While the government is fighting amongst themselves and destroying our economy in the process, consumers are drowning in debt and municipalities are sinking with them.

The situation can only worsen, as consumers battle with rising interest rates, inflation, unemployment and the threat of a ratings-downgrade.  Provincial Treasury is unlikely to be able to meet the demands for bailout requests in the current fiscal climate.

We need to get our economy moving again and create jobs so the revenue base is growing.  This is the only long-term solution to creating financially viable municipalities.

According to a reply to a legislature question I asked the MEC for Finance, Sakhumzi Somyo, the amounts of R8.2-billion are from:

  • Organs of state:  R580-million;
  • Business:  R1.8-billion;
  • Households:  R5-billion; and
  • Other:  R700-million.

For the reply, click herereply-to-question-174-iqp-28-consumer-debts-to-munis

Red lights are now flashing for municipalities.  The knock-on effect of consumer debt is that municipalities owed R1.4-billion to various suppliers for the period ending on 30 June 2016, up from R1.1-million from June 2015.    Of this, R395-million was owed for bulk services such as water (R24. 3-million) and electricity (R371-million) as well as R622-million to businesses.

Municipalities are thus retaliating unlawfully, punishing creditors by not paying them within the prescribed thirty-day period, in contravention of the Municipal Finance Management Act (MFMA).

This state of affairs is particularly unfair to small businesses that cannot be expected to bankroll municipalities’ cash flow problems.   Failure to pay timeously causes businesses to fail and further drives up the unemployment rate.

Provincial Treasury must take strong action to improve the financial management of municipalities. They must assist municipalities with revenue enhancement and cost cutting strategies.

In the Nelson Mandela Bay Metro where the DA is in government, the DA is engaged in just that.  Municipalities also have a duty to ensure that those who can pay, are vigorously pursued.

The DA has a vision of a working province where there is good financial governance.

I will continue to highlight these matters in the Portfolio Committee on Finance. — Bobby Stevenson MPL, Shadow MEC for Finance