A new Bureau for Economic Research (BER) report highlights the severe financial strain on South Africa's municipalities, warning of systemic failure risks if current trends continue.

The report, released amid Finance Minister Enoch Godongwana's decision to withhold equitable share transfers to 69 non-compliant municipalities, reveals that the combined operating deficit of the 128 largest municipalities surged to R39bn in 2025 from R35bn in 2024.Liquidity shortfalls also rose to R129bn, reflecting a worrying R20bn annual increase over four years.The findings align with Ratings Afrika's municipal financial sustainability index, which underscores deteriorating fiscal health.

Godongwana's measures aim to enforce fiscal discipline, redirect funds to critical services like electricity and water, and hold municipalities accountable for unauthorized spending.

The report criticizes persistent governance weaknesses, including unfunded budgets and poor financial management, which undermine service delivery and economic growth.Experts warn that without intervention, the crisis could escalate, threatening social and economic stability across the country.