Treasury unlocks withheld municipal funds to keep essential services running

South Africa’s struggling municipalities have received a crucial financial reprieve after the National Treasury confirmed it will release the remainder of the July 2026 equitable share that had been temporarily withheld.

The decision is designed to prevent disruptions to basic services while still holding municipalities accountable for ongoing financial failures that have plagued local government across the country.

Finance Minister Enoch Godongwana, speaking alongside Cooperative Governance and Traditional Affairs Minister Velenkosini Hlabisa on Tuesday, stressed that the release of the funding should not be mistaken for a clean bill of health.

Instead, the move reflects Treasury’s attempt to strike a careful balance between enforcing financial discipline and ensuring that residents do not suffer because of poor governance within municipalities.

Why Treasury changed course

The withheld allocations formed part of Treasury’s intervention under constitutional and municipal finance legislation after several municipalities repeatedly failed to meet key financial obligations.

Among the concerns were municipalities adopting budgets they could not afford, allowing unauthorised, irregular, fruitless and wasteful expenditure to grow, and falling behind on payments owed to Eskom, water boards, SARS, pension funds and the Auditor-General.

Although these financial shortcomings remain unresolved, Treasury acknowledged that keeping the funds back for an extended period could begin affecting the delivery of essential municipal services.

For many municipalitiesparticularly those serving poorer communitiesthe equitable share is a lifeline that helps fund services such as water, sanitation, refuse removal and other day-to-day operations. Withholding that funding indefinitely would ultimately punish residents rather than the officials responsible for financial mismanagement.

The funding comes with strict conditions

Government has made it clear that municipalities receiving the outstanding allocations remain under close scrutiny.

The release is conditional, with affected municipalities expected to demonstrate measurable progress in addressing financial weaknesses over the coming months.

Treasury will send formal letters to provincial premiers, as well as MECs responsible for finance and cooperative governance, outlining the conditions municipalities must meet if they hope to avoid another funding suspension when the next equitable share instalment is considered in December 2026.

Municipalities will also be placed under a structured compliance programme requiring regular progress reports and supporting evidence.

The first major reporting deadline falls on 30 September 2026, after which Treasury will continue monitoring improvements throughout October and November.

By the end of October, municipalities are expected to show that outstanding cases involving unauthorised, irregular, fruitless and wasteful expenditure have progressed through the required legal and disciplinary channels.

A month later, by 30 November 2026, Treasury expects even more of these cases to have moved towards final resolution through investigations, disciplinary proceedings and recovery processes.

Progress already visible, but work remains

Of the 69 municipalities originally affected by the funding intervention:

• 20 have already received their full July equitable share allocation.
• 21 have received partial payments.
• 28 had not yet received any allocation at the time of Tuesday’s announcement.

Treasury says future decisions will depend not only on whether municipalities submit reports but also on whether they can demonstrate genuine reductions in unauthorised, irregular, fruitless and wasteful expenditure and implement meaningful consequence management against those responsible.

Officials will assess whether investigations, disciplinary action, financial recoveries and criminal processes are progressing as required.

A warning ahead of December

While communities can expect municipal services to benefit from the release of the outstanding funding, the message from Treasury is unmistakable: this is an opportunitynot a pardon.

Municipalities now face several months of intensive monitoring before the next equitable share payments are due in December 2026, followed by another allocation in March 2027.

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