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What Happens When Municipal Money Goes Unused in South Africa 2025

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1 hour ago

December 3, 2025

Chiraag

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When Municipal Money Is Left Unspent

In South Africa, not all money budgeted by a municipality ends up being spent. What happens to the leftovers depends heavily on what the money was meant for. That distinction matters for ordinary operating costs, long-term capital projects, and conditional grants supplied by the national or provincial government.

For most of the general operating budget, any funds that remain unspent when the financial year closes (generally 30 June) simply lapse. Municipalities must budget realistically and manage their cash flow so that what’s allocated gets used during the year.

But the rules change when it comes to capital projects or conditional grants.

Capital Projects and Conditional Grants: The Tight Rollover Rules

Money set aside for capital projects or grants earmarked for specific purposes, such as infrastructure upgrades, water services, or sanitation, works differently. If a project is already underway, with contracts or orders issued, a municipality can ask to carry over unspent funds to the next financial year. This must be approved by both the municipal council and the relevant Provincial or National Treasury.

To qualify, the funds must be committed to identifiable, in-progress projects. Municipalities must submit a formal rollover request by the end of August each year (the date may vary, but typically by late August), with a clear breakdown of projects, amounts allocated, spent, and remaining, as well as evidence that the work has begun. If the application is incomplete or late, or the funds are not cash-backed, the rollout request will be declined.

If no successful rollover application is lodged, money from conditional grants must be handed back to the National Revenue Fund (NRF) under the rules of the Municipal Finance Management Act (MFMA) and the Division of Revenue Act (DoRA).

What Unspent Cash Means for Municipal Futures

There are real consequences when municipalities consistently underspend or fail to manage grants properly. Poor spending performance often leads to negative assessments by Treasury and may jeopardise future funding allocations.

In 2024, for example, municipalities received R44.1 billion in conditional grants but had only spent around 41.7% by mid-year. By the year’s end, some of the unspent portions were already due for return.

That matters for communities. When funds meant for infrastructure upgrades or essential services are returned instead of being used, planned improvements stall. Roads stay unrepaired, water and sanitation projects get delayed, and general quality-of-life gains remain on hold.

Worse still, municipalities that routinely underperform may struggle to attract investors or keep up with rising service demands as populations grow and costs of water, electricity, and waste management climb.

Own Revenue and Reserves: A Different Story

Not all municipal income comes from grants. Some municipalities raise their own revenue through rates, tariffs, or service charges. That internally generated money can be treated differently.

Where municipalities have surplus cash or funds that remain unspent at year-end, they can retain these as cash-backed reserves or reinvest them. Such reserves are often used to smooth out future budgets or cover unexpected costs, provided all use remains in line with MFMA rules.

That flexibility offers a measure of financial stability, especially when grant funding is unpredictable or subject to strict conditions and rollover approvals.

Why This Matters Now in 2025

This year, the rules around municipal allocations remain firmly rooted in the 2025 iteration of the Division of Revenue Act and ongoing MFMA regulations. The government continues to send billions to local municipalities, a portion dedicated to conditional grants for infrastructure, capacity building, and basic services.

But the rate of underspending remains a serious concern. Recent data shows that many municipalities are failing to fully spend grant allocations, leading to significant funds being returned to the NRF. The gap between allocated funds and actual expenditure underscores persistent challenges in project planning, execution, and financial management.

As Treasury ramps up oversight and demand for accountability, municipalities will face growing pressure to deliver or risk losing both current and future funding.

For South Africans watching service delivery struggles in their towns, these financial rules and their enforcement may well determine whether promised upgrades actually reach where they matter: neighbourhood streets, water taps, and sanitation systems.