Capital expenditure by municipalities was described by the Treasury on Monday as a "significant under-performance".

Municipalities are also starting to show signs of cash challenges.

The National Treasury said this in the report on local government’s revenue and expenditure for the second quarter of the 2016/17 financial year‚ as well as spending on conditional grants for the same period. The report covers the second quarter of the municipal financial year ending on 31 December 2016.

Outlining the key trends‚ the Treasury said:

1. On aggregate‚ municipalities spent 41.6 per cent‚ or R164.2 billion‚ of the total adopted expenditure budget of R394.5 billion as at 31 December 2016 (second quarter results for the 2016/17 financial year). In respect of revenue‚ aggregate billing and other revenue amounted to 48.2 per cent or R189.4 billion of the total adopted revenue budget of R393 billion.

2. In the period under review‚ capital expenditure amounted to R22.4 billion or 32.2 per cent of the adopted capital budget of R69.4 billion‚ significant underperformance for the first quarter.

3. Of the adopted operating expenditure budget amounting to R325.1 billion‚ R141.9 billion or 43.6 per cent was spent by 31 December 2016.

4. Municipalities have adopted the budget for salaries and wages expenditure at R92.1 billion for the 2016/17 municipal financial year. This represents 28.3 per cent of their total operational expenditure budget of R325.1 billion. At 31 December 2016 spending on salaries is R43.8 billion or 47.6 per cent.

5. Aggregated year-to-date total expenditure reported by metropolitan municipalities amounts to R100.2 billion or 43.3 per cent. The aggregated adopted capital budget for metros in the 2016/17 financial year was R37.4 billion of which they have spent 30.4 per cent or R11.4 billion.

The Treasury said that when billed revenue is measured against their adopted budgets‚ the performance of metros shows surpluses for water‚ electricity and waste water management but a deficit for waste management for the second quarter of 2016/17.

This does not take into account the collection rate:

- Water revenue billed was R12.8 billion against expenditure of R11.4 billion;

- Electricity revenue billed was R38.6 billion against expenditure of R33 billion;

- The revenue billed for waste water management was R5.2 billion against expenditure of R3.1 billion‚ and

- Levies for waste management billed were R4.2 billion against expenditure R4.3 billion.

Metropolitan municipalities are owed R57 billion (R56.9 billion reported in the first quarter) in outstanding debt as at 31 December 2016. Treasury said this represents a decrease of R7.4 billion‚ or 11.5 per cent as compared to the second quarter of the 2015/16 financial year.

The City of Johannesburg is still owed the largest amount at R17.7 billion (R17.0 billion in the first quarter). This is followed by Ekurhuleni Metro at R12.7 billion (R12.9 billion in the first quarter)‚ City of Tshwane at R8.4 billion (R8.1 billion in the first quarter) and Cape Town at R7.6 billion (R7.3 billion in the first quarter).

Households in metropolitan areas are reported to account for R36.9 billion or 64.7 per cent of outstanding debt to metros‚ followed by businesses which account for R16.9 billion or 29.7 per cent.

Debt owed by government agencies is approximately R1.7 billion or 3 per cent of the total outstanding debt owed to metros.

The Treasury also noted that municipalities owed their creditors R34.3 billion as at 31 December 2016‚ an overall increase of R6.9 billion on the R27.4 billion reported in the second quarter of 2015/16.

Free State has the highest percentage of outstanding creditors greater than 90 days at 84 per cent‚ followed by Mpumalanga at 77.4 per cent and North West at 74.3 per cent.

"The year-on-year increase in outstanding creditors could be an indication that municipalities are experiencing liquidity and cash challenges and consequently are delaying the settlement of outstanding debt owed‚" Treasury commented.

-  TMG Digital.