The Kettle Municipal Finance Index: 2026 Methodology

The Kettle Municipal Finance Index is a quantitative ranking of South African municipalities' financial health, built from audited figures the Auditor-General and National Treasury already publish.

We built the Index because the public record already holds everything needed to rank a municipality's financial health — it is simply scattered across the Auditor-General's annual local-government report, National Treasury's quarterly section 71 returns, and each municipality's own audited statements. Kettle's contribution is the method: a single, comparable score that turns those figures into a ranking a council, a provincial treasury, or a lender can act on.

The Index is the financial-performance companion to our Municipal Governance Report Card. Where the Report Card grades governance — audit outcomes, capacity, accountability, and consequence management — the Index does something narrower and more numerical. It scores the money: how much a municipality collects, how long it takes to pay, how much cash it holds, how dependent it is on grants, and how much it wastes. The two instruments answer different questions about the same municipality.

Why a financial-performance index, and why now

The sector's financial position has deteriorated to the point where a governance grade alone no longer captures the risk. Only 41 of 257 municipalities — 16 per cent — earned a clean audit in the 2023-24 cycle, on the Auditor-General of South Africa (AGSA) figures. That headline is well known. Less visible is the cash picture underneath it.

Aggregate municipal consumer debt reached R467.2 billion by 31 December 2025, and the creditors municipalities owe stood at R160.8 billion — of which R135.9 billion, or 84.5 per cent, had been outstanding for more than 90 days — on National Treasury section 71 data. A municipality can hold an unqualified audit opinion and still be unable to pay Eskom or a water board. The Index is designed to surface exactly that gap between a clean opinion and a solvent balance sheet.

A ranking also changes behaviour in a way a narrative report does not. A municipality that sees itself placed against its peers on creditor-payment days has a sharper incentive to act than one reading a national average. The Index is built to be replicated each year, so movement — up or down — is itself a signal.

The five financial ratios the Index ranks

The Index scores each municipality on five financial ratios. Each is drawn from a primary source, each is comparable across the 257 municipalities, and each maps to a distinct failure mode National Treasury and the Auditor-General have repeatedly flagged.

1. Revenue collection rate — actual cash collected as a percentage of billed revenue. National Treasury reports aggregate collection of only 72.9 per cent against billed revenue for the year ended 30 June 2025, against the 94.8 per cent collection rate municipalities assumed when they adopted their budgets. The gap between the two is the single clearest measure of a revenue base that exists on paper but not in the bank.
2. Creditor-payment days — the average number of days a municipality takes to settle what it owes, derived from outstanding creditors against monthly operating expenditure. The Municipal Finance Management Act expects payment within 30 days; with 84.5 per cent of municipal creditors outstanding beyond 90 days nationally, this ratio separates the municipalities managing within the law from those financing themselves on the backs of suppliers, Eskom, and the water boards.
3. Cash coverage — liquid cash and investments expressed as months of fixed operating expenditure the municipality could fund if revenue stopped tomorrow. National Treasury's benchmark is one to three months; a score below one month marks a municipality one shock away from failing to pay salaries.
4. Grant reliance — operating grants and subsidies as a percentage of total operating revenue. The higher the share, the thinner the municipality's own revenue effort and the more exposed it is to any change in the national transfer regime. This ratio is what distinguishes a structurally weak revenue base from a collection problem.
5. UIFW intensity — unauthorised, irregular, fruitless and wasteful (UIFW) expenditure as a percentage of total expenditure. The accumulated UIFW balance reached R64.89 billion in 2023-24 on AGSA figures. Scaling it to each municipality's spending turns an abstract national number into a per-municipality measure of financial control.

We chose five ratios deliberately, not fifteen. A municipal CFO can hold five numbers in view and act on each; a longer dashboard becomes a reporting exercise rather than a decision tool. Each ratio also resists gaming in a way a composite of softer indicators would not — every input is audited or independently reported.

How the Index is built — the methodology

The method is intentionally transparent, so any municipality can reproduce its own score and check our working. There are four steps.

First, we extract each ratio from its primary source. Revenue collection, cash coverage, grant reliance, and creditor balances come from National Treasury's section 71 returns and the audited annual financial statements; UIFW comes from the AGSA general report and the related municipal disclosures. Where a municipality's figures are under audit dispute, we use the audited number and flag the difference rather than substituting our own estimate.

Second, we normalise each ratio to a 0-to-100 scale against a fixed regulatory or sector benchmark — not against the best performer. Creditor-payment days are scored against the 30-day legal expectation; cash coverage against the one-to-three-month Treasury benchmark; collection rate against full recovery. Anchoring to a standard rather than to peers means a municipality cannot rise simply because the sector around it is failing.

Third, we weight the five normalised scores. Liquidity carries the most weight, because an illiquid municipality cannot deliver services regardless of its other ratios. Collection rate and creditor-payment days follow, then grant reliance, then UIFW intensity — which we weight as a control-quality signal rather than a direct solvency measure. The weighting is published in full alongside each year's release so the result is auditable, not editorial.

Fourth, we band the weighted score into five tiers — sound, stable, strained, distressed, and critical — and rank within each tier. The bands matter more than the precise ordinal position: the distance between rank 90 and rank 110 is rarely meaningful, but the line between strained and distressed is.

What the 2026 Index shows

Three patterns dominate the 2026 ranking. None is a surprise on its own; the value is in seeing them resolve to a per-municipality score rather than a national aggregate.

The collection-liquidity spiral is the most common path into the bottom two tiers. A municipality bills more than it collects — the 72.9 per cent aggregate against a budgeted 94.8 per cent — then funds the shortfall by stretching creditors, which is why national creditor balances of R160.8 billion sit overwhelmingly beyond 90 days. The low collection rate and the long payment days are not two problems; they are one problem measured at two points.

Unfunded budgets concentrate in the distressed and critical tiers. The Auditor-General found that 113 municipalities adopted unfunded budgets in 2023-24, and that 86 of those carried a three-year pattern of deficits and overdrafts. A municipality that plans to spend money it has not raised will, with near certainty, score poorly on cash coverage and creditor-payment days the following year — which is why an unfunded budget is the most reliable leading indicator the Index carries.

Control quality tracks solvency more loosely than expected. UIFW intensity does not move in lockstep with the liquidity ratios. Some municipalities with heavy accumulated UIFW remain liquid; some with clean expenditure records are nonetheless cash-starved. That is why the Index treats UIFW as a separate, lower-weighted control signal rather than folding it into a single solvency measure — and why the AGSA's finding that municipalities dealt with R12.04 billion of historical irregular expenditure — condoned, recovered, in recovery or written off — against R3.16 billion left undealt with, is a control-discipline story, not a cash story.

A clean audit certifies that the numbers are right. It says nothing about whether the municipality can pay its bills. The Index measures the second question, which is the one residents feel first.

How to read your municipality's position

The Index is built to be used, not merely cited. For an accounting officer, a provincial treasury, or a lender assessing exposure, the practical reading runs in three moves.

• Read the band before the rank. A municipality in the strained tier needs a different response from one in the critical tier, regardless of the exact position within the band.
• Find the binding ratio. A weak overall score is almost always driven by one or two ratios, not all five. The collection rate and creditor-payment days are the most common culprits; fixing the binding ratio moves the score furthest.
• Track the direction, not just the level. Because the Index is reproduced each year on the same method, year-on-year movement is the clearest signal of whether a turnaround is working or a decline is accelerating.

Read against our Municipal Governance Report Card, the Index closes a common blind spot. A municipality with a strong governance grade but a weak Index score is a well-run institution with a structural revenue problem — a policy and tariff question. A municipality with a weak governance grade but a stronger Index score is often coasting on grants and has not yet felt the cash consequence of its control failures. The combination tells you which lever to pull first.

Kettle compiled the 2026 Index from the most recent AGSA general report on local government and National Treasury's section 71 returns to 31 December 2025. We will reproduce it annually on the same method, so the ranking becomes a time series rather than a snapshot. The point is not to name and shame; it is to give the municipalities that want to recover a defensible measure of where they stand and what to fix first.