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Financial Recovery Plan

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In December 2019, the Mangaung Metropolitan Municipality was placed under a mandatory constitutional intervention by the Provincial Executive, making it the first metropolitan municipality to be put in this position. The intervention was prompted by the repeated failure of the municipality to manage its finances prudently and to implement the voluntary financial recovery plan developed for the municipality by the National Treasury in 2018. On the 19th of December 2019, the Executive Council of the Free State Provincial Government subsequently intervened and resolved on a mandatory intervention as provided for in terms of Section 139(5)(a) and (c) of the Constitution of the Republic of South Africa.

A preliminary assessment of the situation reveals that the prevailing crisis is the result of long-standing leadership, governance and managerial weaknesses and failures. The Free State Provincial Executive appointed a Provincial Intervention Team in December 2019 to manage the process. The Municipal Finance Management Act, 2003 (Act No. 56 of 2003), requires that in a mandatory intervention, the Municipal Finance Recovery Services Unit within the National Treasury develops a financial recovery plan for the municipality.

The financial recovery plan will be used as an instrument to guide the municipality and the Provincial Intervention Team in addressing the financial crisis in the metro as well as to ensure that the metro regains its financial health within the shortest timeframe whilst ensuring that all issues which adversely affect the financial health of the municipality are comprehensively addressed. The managerial autonomy of senior municipal officials has subsequently been limited by the Provincial Executive through EXCO Resolution No 7/2020. This will allow the Provincial Intervention Team leader and the team to give effect to the financial recovery plan and the overall recovery process.

The financial recovery plan adopts a strategic, focused approach which is time-bound yet comprehensive enough to ensure that the underlying causes of the crisis are adequately addressed. To achieve this objective, the draft financial recovery plan presents a phased approach to recovery, differentiating between issues to be addressed in the short, medium and long term. The recovery plan is divided into three distinct but interdependent phases. These include a Rescue Phase (Phase 1) which focuses primarily on cash and restoring the cash position of the municipality, followed by a Stabilisation Phase (Phase 2) which expands on the financial indicators to be monitored and emphasises key governance and institutional issues which must simultaneously be addressed and finally, a Sustainability Phase (Phase 3) to ensure that indicators are developed that will give effect to the long term financial sustainability of the municipality. The approach is designed to ensure that financial recovery is not only achieved, but more importantly, that progress is institutionalised and sustained within the Mangaung Metropolitan Municipality.