With Operation Vulindlela having entered its second phase, which focuses on structural reforms and economic recovery for municipalities over the next three years, National Treasury admits in it 2026 Budget that implementation has been slow and that work is underway to unblock structural reform delays.

Treasury attributes government’s slow progress on structural reforms to the complexity that is inherent with reforms, including the associated legislative and administrative processes.

In the energy sector, limited availability and administrative delays have slowed allocations of grid capacity and policy uncertainty has affected key enabling areas such as wheeling and trading of electricity. In transport, litigation has slowed the conclusion of the port private-sector participation transaction.

Similarly, delays in finalising policy matters and procurement arrangements weigh on private investment, Treasury states, adding that the pace of legislative processes in the water sector is notably slow.

However, Treasury confirms in the 2026 Budget presented on February 25 that work is underway to unblock these delays.

“Technical support continues to be provided to conclude the corporatisation of the National Ports Authority. Outstanding regulatory processes on the Network Statement, designing of private-sector projects in logistics, and submission of market rules for the competitive electricity market to the regulator are being completed.

“In the electricity sector, a dedicated task team has been established to create a fully independent State-owned transmission entity. Ongoing interventions to address delays and overcome obstacles will support an improved GDP outlook in the years ahead,” Treasury assures.

Finance Minister Enoch Godongwana emphasised that reforms in local government, including shifting to performance-linked utility models for water and electricity services, would strengthen financial sustainability, accountability and transparency.

He added that spatial and housing reforms focused on restructuring cities to ensure that people had access to affordable housing located close to centres of economic activity. “This is a systemic effort to remove the structural blockages that have held back growth for many years.”

LOCAL GOVERNMENT FOCUS

In presenting the 2026 Budget, Treasury confirms that there are three key reforms targeted for local government – legislative, governance and technological.

At the legislative level, the Municipal Finance Management Act (MFMA) Amendment Bill, which is scheduled for public comment in early 2026, forms the legal backbone of the reform package. It will support the local government fiscal framework by enforcing funded budgets, strengthening expenditure controls and consequence management, and clarifying the treatment of irregular expenditure to focus on financial losses.

The Bill will strengthen monitoring and intervention tools for the national and provincial Treasuries, including more effective financial recovery measures and clearer safeguards during interventions.

In terms of governance, the State is strengthening its intervention framework for municipalities in severe financial distress. Currently, 29 municipalities are under mandatory financial recovery plans in terms of Section 139 of the Constitution, with seven recovery plans having been reviewed and amended in 2024/25 and four new plans having been developed in 2025/26.

Treasury confirms that implementation progress has been slower than anticipated and a key weakness is that responsibility for implementing the financial recovery plans rests with the troubled municipalities themselves.

“Without addressing deep-rooted dysfunction, municipalities are unlikely to lead themselves out of financial crisis. The forthcoming MFMA amendments will provide more decisive powers for the design and enforcement of financial recovery plans, ensuring earlier intervention and consequence management.”

Unauthorised, irregular, fruitless and wasteful expenditure in municipalities reached R236-billion in 2023/24 – comprising R81.6-billion unauthorised, R137-billion irregular and R17.7-billion fruitless and wasteful expenditure.

After years of support measures to strengthen financial governance, Treasury has invoked Section 216 of the Constitution against persistently noncompliant municipalities, which enables Treasury to halt national transfers to those in consistent breach of the MFMA. This provision was applied against 75 municipalities.

Treasury explained it was a decisive intervention necessary to restore good financial governance and financial integrity, protect public resources and ensure sustainable service delivery.

In line with Operational Vulindlela, the 2026 division of revenue marks a decisive shift to active structural intervention to reverse poor performance in provinces and municipalities.

Operational Vulindlela Phase 1, which was announced as a joint initiative between members of the Presidency and Treasury, has since 2019 targeted reforms in transport, electricity, water, telecommunications and visas.

Some of the reforms under Operational Vulindlela Phase 2 targeted at local government include shifting to a utility model for water and electricity services, which emphasises running these services like businesses that are accountable to government and the public.

To date, government has provided performance-based grants to seven municipalities to strengthen management accountability, financial transparency, cash flows and infrastructure maintenance under the Metro Trading Services Reform initiative.

Additionally, the National Assembly has passed the Public Service Amendment Bill, which marks a step towards standardising and professionalising the appointment of senior officials in local government.