Measuring municipal financial distress

The state manages billions of rands of taxpayers money, much of it meant for spending on social justice and development programmes. A system of public finance set in law governs how national, provincial and local governments should manage our public finances.

South Africa has one of the most transparent systems of public finance in the world, but that has not put paid to corruption, mismanagement, non-compliance with the law, and weak enforcement. These problems will only corrode and endanger the project of building a capable developmental state, if not addressed.

Public Finance Watch (PFW) aims to bridge the gap between the public and a subject that affects everyone but may seem technical and remote to many people.

Our research tries to understand three main issues:

How well is the public finance management system working?
What problems affect its performance?
What is being done about them, and are those interventions working?

This first issue of PFW looks at the current problem of financial distress affecting many municipalities.

We examine the National Treasury's (NT) recently published framework for measuring financial distress. The framework can be potentially used to detect problems, plan remedial action, and track recovery. PFW correlates the NT data with other public datasets to determine whether it can be used predictively to flag the probability of financial crisis and trigger mandatory corrective intervention.

The results so far are interesting.

Public Finance Watch is a University-based research project that produces and publishes data-driven research on public finance management accessible to the public.