Finance Minister Enoch Godongwana has announced that National Treasury is undertaking its first comprehensive modernisation of the Municipal Finance Management Act (MFMA) in 23 years.

Godongwana was delivering his Medium-Term Budget Policy Statement (MTBPS) in Parliament on October 21.

Changes to the legislation will focus on funded budgets, improved revenue management, clearer accountability and earlier intervention when municipalities experience financial distress.

Regarding its division of revenue for local government, Treasury is allocating an additional R21.8-billion to the local government equitable share to cover higher bulk costs of free basic water, sanitation, electricity and refuse removal.

The department is also increasing the general fuel levy allocation by R13.4-billion, restoring the metros's share to 23% over the medium term, and R20.5-billion to the provincial equitable share to help provinces meet their higher costs in health and education.

Godongwana also noted that municipalities had to demonstrate that their budgets were genuinely funded.

“It reinforces revenue collection while protecting basic services for poor households and enhances Treasury oversight and professional financial management.

“It also introduces stronger mechanisms to investigate financial misconduct and recover losses, together with a clearer framework for financial recovery and intervention in distressed municipalities,” he said.

Further, Godongwana said Treasury would take stronger action to address municipal noncompliance. He added that he has suspended the next equitable share transfer to 69 municipalities that had persistently failed to pay their creditors.

By the end of July, he noted that 37 of them concluded council-approved repayment plans, and to date, R4.2-billion had been paid to creditors.

INFRASTRUCTURE DELIVERY REFORM PROGRAMMES
Treasury has also noted the importance of reforming infrastructure delivery through the Metro Trading Services (MTS) programme as it aims to strengthen the management of trading services such as municipal water and sanitation, electricity and solid waste.

“[The MTS programme] seeks to ensure that revenue from these services is ring-fenced and reinvested in the infrastructure required to deliver them effectively and incentivises metropolitan municipalities to do so,” it said.

Since the programme was launched in March, seven of the eight metropolitan municipalities have taken steps to access the incentive funding by strengthening management accountability and financial transparency in their trading services.

Further, government is piloting the Municipal Utility Reform programme to extend performance-based utility reforms to non-metropolitan municipalities to aid the trading services reforms for metropolitan municipalities.

Participating municipalities will be required to adopt council resolutions linked to performance indicators as conditions to access infrastructure funding.

Municipalities will have to demonstrate measurable improvements in the management, delivery and sustainability of municipality utility services to access the funding, with Treasury expecting this programme to help improve the performance and financial sustainability of municipal water and electricity services over the next five years.

“Lessons from the pilot will inform the potential expansion of the approach to other non-metropolitan municipalities and broader reforms to municipal infrastructure funding and the conditional grant system,” Treasury said.

Treasury has also completed a review of infrastructure conditional grants, which it initiated in October 2025, and the review assessed how the grant system can better support more effective infrastructure delivery and improved services.

Treasury said the review found that the grant system is effective at transferring and spending funds but it still does not consistently translate into timely infrastructure delivery.

The review recommends linking grant allocations more closely to infrastructure delivery by improving project readiness, aligning project pipelines with available implementation capacity and strengthening project-level monitoring and accountability.

Government will pilot the review recommendations for select grants, including the provincial roads maintenance grant, human settlements development grant and health facility revitalisation grant.