R900 million in conditional grants suspended for KZN municipalities

The National Treasury has suspended nearly R900 million in conditional grants allocated to 25 municipalities in KwaZulu-Natal (KZN) due to poor financial management and non-performance. This decision follows an audit review that found significant underspending and inefficiencies in the management of these funds.

KwaZulu-Natal’s Finance MEC Francois Rodgers announced that R861.4 million in grant funding has been halted after several warnings and interventions failed to yield improvements.

“We are incredibly disappointed by the underspending and poor financial governance on the part of these municipalities, as this impacts service delivery,” said Rodgers.

Conditional grants

Auditor-General Flags Poor Financial Performance

Earlier this month, the Auditor-General of South Africa raised serious concerns regarding the financial performance of several municipalities in KZN. The report pointed to mismanagement, failure to meet spending targets, and a lack of accountability in the administration of public funds.

Following this, assessments conducted by Provincial and National Treasury officials confirmed that many municipalities had failed to meet the objectives of various funding programs, leading to the suspension of grants under several key initiatives.

Suspended Grant Programs

The following conditional grant programs have been affected by the suspension:

• Energy Efficiency Demand Side Management (EEDSM)

• Expanded Public Works Programme (EPWP)

• Informal Settlements Upgrading Partnership Grant (ISUPG)

• Integrated National Electrification Programme (INEP)

• Municipal Infrastructure Grant (MIG)

• Neighbourhood Development Partnership Grant (NDPG)

• Public Transport Network Grant (PTNG)

• Regional Bulk Infrastructure Grant (RBIG)

• Rural Roads Asset Management Systems Grant (RRAMS)

• Water Services Infrastructure Grant (WSIG)

These grants are essential for the provision of services such as water, electricity, infrastructure, and public transport. However, Treasury found that many municipalities were failing to effectively utilize the funds allocated to them.

Attempts to Rectify the Situation

Before resorting to suspending the grants, National Treasury engaged with affected municipalities to determine the root causes of underspending and to give them an opportunity to improve.

According to the statement from Treasury:

“The decision to suspend the flow of funds follows attempts to rectify the situation with the municipalities. Unfortunately, it became clear that the only appropriate action required in this regard is to reduce the municipalities’ allocation.”

Why Were the Grants Suspended?

Treasury’s Neighbourhood Development Partnership Programme and several other government departments had already established that many KZN municipalities would not be able to fully utilize their grants for the 2024/25 financial year.

These departments formally approached the Treasury, requesting that portions of the conditional grant allocations be stopped under Section 18 of the Division of Revenue Act (DoRA), 2024.

Treasury initially sought explanations from 34 municipalities in KZN regarding their failure to manage conditional grants effectively. The municipalities were required to justify their poor financial management in line with Section 38(2)(b) of the Municipal Finance Management Act.

Following an analysis of their responses, Treasury decided to suspend funding for 25 municipalities for the 2024/25 financial year.

“This decision will be gazetted in line with the requirements of DoRA, as amended,” Treasury confirmed.

Impact on Service Delivery

The suspension of these funds could have serious implications for residents in affected municipalities. Many communities rely on these grants for basic infrastructure development, water and sanitation projects, and electrification.

Local governments now face the challenge of delivering essential services without the financial support of these grants. Residents may experience delays in crucial projects, such as:

• Water supply system upgrades

• Road repairs and maintenance

• Housing and informal settlement improvements

• Public transport network expansions

Way Forward: Restoring Accountability

In order for these municipalities to regain funding, they must demonstrate better financial management, compliance with regulations, and improved service delivery performance. Treasury has urged local governments to implement strict financial controls to prevent further mismanagement of funds.

The suspension serves as a warning to other municipalities across South Africa that failure to meet financial obligations could result in severe consequences.

For now, residents and local officials await further developments as Treasury continues to monitor and evaluate the situation.