Johannesburg is on the verge of financial collapse, owing billions to Eskom and state water utilities and facing looming power cuts due to unpaid bills.
Johannesburg is starting a new financial year with a multibillion-rand budget that’s not fully funded, potentially deepening a crisis that’s already left it unable to pay for power and fuel supplies.
South Africa’s biggest city is facing an unfunded budget gap of about R2.1 billion for the year starting July 1, according to a framework seen by Bloomberg News. The National Treasury attributed the shortfall to city revenue projections that appear overstated relative to audited results, according to the document.
The metro forecasts an overall budget deficit of R7 billion for this fiscal year.
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The Treasury advised city authorities to narrow the gap by improving revenue collection and rationalising the 6-kilolitre free water allowance for non-indigent households. It also recommended resolving affordability concerns over the second phase of a personnel finance agreement, which requires a binding decision by the city council before the final budget can be approved, the framework shows.
The Treasury declined to comment, citing confidentiality, while the city didn’t respond to multiple requests for comment.
Johannesburg is on the verge of financial collapse, owing billions to Eskom and state water utilities and facing looming power cuts due to unpaid bills.
READ | Eskom threatens to cut off scores of Joburg suburbs as City fails to pay electricity bill
Finance Minister Enoch Godongwana has also threatened to stop R8 billion in state funding because the city signed a R10.3 billion wage deal that he says is illegal and unaffordable.
READ | Godongwana plans to stop transfer of funds to Joburg after it adopted unfunded budget
Run by an ANC-led alliance, Johannesburg has descended deeper into dysfunction in recent months and is expected to be among the fiercest battlegrounds in the November 4 municipal vote.
The deterioration in its finances has alarmed business and the government because the city is South Africa’s economic hub, contributing about 16% to the nation’s gross domestic product. A financial collapse would reverberate across nation, impacting growth and tax revenue.
The city council discussed the turnaround framework on June 24, with several councilors stressing implementation is key to recovery and calling for metro authorities to provide regular, transparent updates.
The blueprint showed the city had just five days of cash to cover costs in March, far short of the Treasury’s minimum 30-day benchmark for the new financial year. It comprises six pillars including measures to protect and grow the city’s revenue base, strengthen financial governance and stabiliSe labor relations.
READ | Busisiwe Mavuso | Johannesburg is not poor. It is badly managed. That must change
Godongwana’s warning that he may withdraw funding adds to a litany of mismanagement and corruption scandals that have beset the city. If he carries out the threat, Johannesburg’s finances are likely to deteriorate further, possibly requiring the appointment of an administrator by the provincial government.
Moody’s Ratings in April placed the city’s Ba3 credit rating on review for a possible downgrade after the Johannesburg Stock Exchange suspended the municipality’s debt securities over its failure to publish audited financial statements.
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