The Need for Active Debt Management in Financially Challenged Municipalities in the Free State Province

Abstract

In terms of section 155(4) of the Constitution of the Republic of South Africa, 1996, all municipalities (metropolitan, district and local municipalities) are expected to raise their own revenues in addition to the transfers they receive from national government. This principle is an important feature of any democratic local government system, creating a revenue-service link between the municipality and its customers that empowers customers to hold the municipality directly accountable for the services it provides. However, municipalities’ own revenue collection has been significantly declining as a result of greater reliance placed on intergovernmental transfers as a revenue source. It is of concern that in many cases, the funds dedicated to service delivery, development and growth are being mismanaged by municipal officials, and in many instances due to political interference. Therefore, the purpose of the study was to identify debt management, its consequences, and the development of an integrated debt management model for municipalities in the Free State Province. This article provides a theoretical review of debt management, legislative frameworks for local government financial administration as well as the challenges facing municipalities in financial distress within the Free State Province regarding debt management. The article concludes by discussing the integrated debt management model as a result of conclusions drawn from the theoretical and the empirical study. The article argues that the integrated debt management model as an intervention can be operationalised to assist financially challenged municipalities in the Free State Province with current debt management challenges.