Municipalities have a profound responsibility — they must provide clean water, collect waste, build new roads and maintain existing ones. (David Harrison)
When taps run dry or refuse piles up, the frustration is immediate. But behind most service breakdowns lies a financial breakdown. Municipalities have a profound responsibility — they must provide clean water, collect waste, build new roads and maintain existing ones, and other essentials, often with limited resources affected by the socio-economic climate.
The World Bank’s report Unlocking Subnational Finance confirms what South African municipalities know only too well. Our municipal debt stock is just 0.8% of GDP, compared to around 7% in middle-income countries. Put simply, most municipalities cannot borrow to invest in infrastructure.
Municipalities in South Africa have a relatively well-established legal and regulatory framework for borrowing, and have successfully accessed commercial finance, but these achievements are largely confined to a few of the largest cities. Despite the framework, the overall volume of municipal debt is limited and has stagnated in recent years due to a deterioration in the financial health of municipalities.
A handful of metros account for nearly all municipal borrowing, while the rest depend almost entirely on transfers from the national government. Even then, funds are not always spent – in 2023-24, the treasury reported that 23% of infrastructure budgets went unspent, largely because of capacity constraints.
This is not about a lack of effort. Municipalities face a web of challenges: billing systems that don’t always capture the full value of services delivered, customer queries that go unresolved and difficulties attracting skilled professionals, especially in smaller towns. On top of this, many households simply do not prioritise municipal bills over food or other basics. These realities weaken municipal revenue and, in turn, service delivery.
There is no quick fix — but there is a clear path.
Municipalities that improve collection rates and reduce revenue leakages are better positioned to plan ahead, invest in infrastructure and even attract new financing.
Municipalities need to work on:
- Closing revenue gaps through improved billing and collection;
- Modernising collection processes and information with up-to-date property valuations and fair, workable tariff systems; and
- Strengthening financial skills and systems, so municipalities can plan and deliver projects with confidence.
I have seen the results. For one of the metros with which we worked, the revenue increased from just over R2.3 billion to nearly R4 billion at its peak after focused interventions. We helped fix billing gaps, optimised meter readings, detected illegal connections, improved query handling and enhanced credit-control processes.
These interventions not only provide much-needed revenue to run municipalities and ensure services are delivered as per citizens’ expectations but also build the credibility the municipalities need to secure further investment.
However, finance alone won’t solve the problem. Municipalities need capacity. This includes skilled people and sound processes and systems to enhance operational excellence citizens expect of local government. In some municipalities, our teams have ensured that they are available outside office hours to reconnect services within hours after a resident has made a payment, showing them that the system can respond quickly and fairly. These actions build trust with communities and make collections easier as residents become more willing to support their municipalities.
Systemic reform is also needed. Most municipalities struggle to access capital markets because they are perceived as high-risk borrowers. Investors are concerned about inconsistent revenue collection, weak financial management, underspending of allocated budgets and governance challenges.
Smaller municipalities, in particular, struggle with limited capacity, outdated billing systems, unclear long-term planning and myriad other inconsistencies which make it difficult for lenders to assess their ability to repay loans. Capital markets remain out of reach without reliable and trackable financial statements, cash flows and confidence in how funds will be used and paid back.
A more enabling framework would change this. Clear borrowing rules would define which projects are eligible for financing, how debt levels are monitored and what processes ensure accountability.
The experience with municipal public-private partnerships (PPPs) in South Africa is extremely limited, largely due to regulatory constraints. An analysis conducted in the 2025 Unlocking Subnational Finance report showed that there have only been two municipal water PPPs, and only one involved significant investment, which was ultimately provided by the Development Bank of Southern Africa after private investors pulled out. This was attributed to regulatory factors, such as the relevant minister’s power to limit tariff increases, which makes private investment in such PPPs unattractive.
Guarantees and risk-sharing mechanisms — for example, partial national guarantees or pooled municipal credit facilities — would reduce investor risk and make lending viable. Strengthening governance and financial reporting would give investors confidence that borrowed funds were properly managed.
Achieving this requires more coordinated effort — municipalities must modernise revenue systems, plug leaks and maintain transparent financial records. National and provincial governments must provide clear policy guidance and risk-sharing tools.
With these foundations, municipalities could plan multi-year investments or secure loans for infrastructure projects, while communities see tangible improvements: reliable water supply, functional and safe roads and consistent waste removal.
In short, unlocking capital markets is not about simply giving municipalities access to loans; it’s about creating the conditions where borrowing becomes a practical and sustainable tool to fund better services.
The World Bank is clear — unlocking subnational finance is about getting the basics right. Our mission is to empower municipalities to cross that threshold — by plugging leaks, strengthening revenue streams and modernising financial systems. Because when municipalities get it right, they don’t just borrow better — they deliver better. And that is what South Africa urgently needs.
Thabiso Ndebele is managing director of Ntiyiso Revenue Consulting.