Johannesburg Faces Fiscal Crisis Amidst Growing Debt and Unpaid Bills

Johannesburg is grappling with a severe financial crisis, as a new report reveals the city’s alarming tendency to operate under what is termed 'fiscal fiction.' This term describes the practice of budgeting based on anticipated revenues that are not actually collected, leading to a precarious economic situation.

Rising Debt and Unpaid Bills

According to the Centre for Development and Enterprise, Johannesburg has seen its gross unpaid bills skyrocket from approximately R15 billion in 2014/15 to nearly R72 billion, growing at an annual rate of 17%. In fact, by the year 2024/25, it is projected that one in every six rands billed will go unpaid. This trend indicates a deeper structural collapse in governance and responsible budgeting.

The Doom Loop Effect

The city’s financial woes have triggered a downward spiral, known as a doom loop, where increasing defaults lead to higher tariffs for compliant customers. This cycle pushes more residents and businesses towards default, further shrinking the revenue base. As the economy stagnates, with real growth averaging only 1% annually for over a decade, the city has seen a disproportionate rise in both revenue and spending, with spending outpacing revenue growth.

Infrastructure in Jeopardy

As financial pressures mount, critical infrastructure has suffered. The city’s investment in capital projects has halved over the past decade, leaving basic services like electricity and water in jeopardy. The reliance on unpaid bills and growing debts to suppliers, particularly national utilities like Eskom and Rand Water, poses a significant threat to Johannesburg's operational sustainability. With the city's budget projections failing to align with reality, the need for decisive action becomes more urgent.

Source: www.dailymaverick.co.za