debtor management

Debtor Management Relentless Problem for Municipalities

Apr 26, 2016

Debtor management is still a big problem for most of South Africa’s municipalities, as bad debts continue to prevent them from generating consistent cash flows.

This is what the Global Credit Ratings’ Local Authority Industry Bulletin revealed, which assesses the finances of local government. With the local elections coming up in just under four months, the way municipalities manage their finances will be under the microscope, with increasing service demand.

“Municipalities are facing a challenging environment, with a rising demand for services from a growing population, coinciding with a much more constrictive economic environment,” said Mr Eyal Shevel of Global Credit Ratings.

Debtor Management

Debtor management significantly contributed to a number of municipalities failing to provide services, Shevel said.

“In general, the debtor’s book remains a concern as ultimately the financial strength of municipalities is more a factor of their cash generation than the amounts they bill.”

Income Growth

Encouragingly, income growth was widely reported by the metros, smaller municipalities and top 19 cities. eThekwini and Cape Town reported the firmest income growth among the metros – a stronger economic performance resulting in a quicker increase in service profits.

The Gauteng metros – Johannesburg, Tshwane and Ekurhuleni reported 8%-10% overall income growth, mainly stimulated by internal sources, like service income and property rates.

Municipal Financial Stability

Ratings Afrika released a municipal financial stability index last week, showing that most of the 100 biggest municipalities were struggling financially. The index assesses the municipalities’ budgeting practices, liability management, operating performance and liquidity position.

60 out of 100 municipalities assessed scored on average below 50% – 42 scoring under 35%. With a score of 75%, the City of Cape Town is the most financially stable of all the major metros, according to the index. Next is the Eastern Cape’s Buffalo City with 73%, and Ekurhuleni with 70%.

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