Most South African municipalities are becoming increasingly financially unsustainable, with worsening service delivery, crumbling infrastructure and mounting debt, according to the latest Municipal Financial Sustainability Index (MFSI) released by Ratings Afrika.
The independent governance ratings agency assessed the financial performance of South Africa’s 120 largest local municipalities and eight metropolitan municipalities, using financial results for the year ending June 2025.
Its findings paint a stark picture: the average score for local municipalities has fallen from 36 out of 100 in 2021 to just 33 in 2025, reflecting what Ratings Afrika describes as a continued deterioration in municipal financial sustainability.
The report says the notable exceptions are the majority of municipalities in the Western Cape, along with Midvaal in Gauteng.
The release of the report comes shortly after the National Treasury announced it would withhold July’s equitable share transfers to 69 municipalities due to poor financial management.
With an average score of 57, the Western Cape remains by far the country’s best-performing province and is the only province where municipalities are, on average, considered financially sustainable.
By contrast, when Western Cape municipalities are excluded, the national average drops to just 27 out of 100.
Ratings Afrika says the country’s lowest-scoring municipalities are characterised by persistent operating deficits, severe cash-flow shortages, poor revenue collection and inadequate spending on repairs and maintenance. It warns that many are increasingly unable to function as going concerns.
“Without decisive and coordinated action… the situation will continue to worsen,” the report states, warning of more widespread service delivery failures, deteriorating infrastructure and declining quality of life.
The report also highlights a growing liquidity crisis. On average, municipalities collect just 83.9% of the revenue they bill, leaving around 16% uncollected each year. The Western Cape is the only province approaching the agency’s 95% benchmark, with an average collection rate of 94.5%.
Among metropolitan municipalities, Cape Town emerged as the clear outlier.
Ratings Afrika says Cape Town remains the country’s only “highly financially sustainable” metro, with an overall score of 71 – well ahead of the metro average of 40.
It attributes the City’s performance to healthy operating surpluses, substantial cash reserves and a revenue collection rate of 98%, compared with the metro average of 85.3%.
The report says Cape Town’s financial position gives it the capacity to continue investing in infrastructure while building reserves to cushion against future financial pressures.
The five highest-scoring local municipalities were Drakenstein, Hessequa, Overstrand, Saldanha Bay and Swartland – all in the Western Cape. Ratings Afrika singled out Drakenstein for recording the greatest improvement on the index over the past six years.
Reacting to the findings, Cape Town Mayor Geordin Hill-Lewis said the report validates the City’s approach to governance.
“It affirms the progress made in our vow that Cape Town will be South Africa’s beacon of hope, avoiding the tragic collapse of infrastructure and services we sadly see in other cities,” he said.
Hill-Lewis said the City’s financial position would enable it to invest a record R40 billion in infrastructure over the next three years while maintaining the country’s lowest metropolitan property rates.
He added that the infrastructure programme is expected to support around 130,000 construction-related jobs during the current term of office, with 75% of the spending directed towards lower-income communities.
Ratings Afrika concluded that the performance of Western Cape municipalities demonstrates that South Africa’s municipal funding model is not fundamentally broken, but that stronger governance, accountability and financial discipline are needed if struggling municipalities are to reverse their decline.
