An assessment of the financial health of the South African metropolitan municipal regions

Local government in South Africa is in crisis, and the situation is getting worse. The majority of municipalities are experiencing serious issues, including poor service delivery, limited provision and maintenance of infrastructure and inadequate financial management. The measurement of municipal financial health is a growing research field, and several measurement tools have been developed over the last two decades. These existing indexes have not succeeded in comprehensively capturing the full extent of financial management in the local government sphere. The measurement of financial health is important in order to track and compare the performance of municipalities. The objective of this study was to apply the financial health index (FHI) as developed by the authors for all eight metropolitan municipalities in South Africa. This FHI focuses on four sub-indexes, namely income and expenditure, liquidity ratios, solvency ratios, and profitability ratios. The data of this FHI were obtained from the 2018/19 local government financial statements as published by the Auditor General. The main results of the study are that six of the eight metropolitan municipalities have improved their FHI with a relatively low average index of 60.1. The City of Cape Town has the highest FHI at 69.2, while the worst performing metro was Mangaung Municipality, with an FHI of only 51.0. The FHI has proven to be useful, not only in creating an index but also in identifying the main financial problems and assisting in the formulation of turnaround strategies for municipalities.