Analysis of Expenditures
Given the numbers provided in the 2022/23 medium-term and expenditure framework, the municipality will adhere to its allocated budget during the MTREF. Even if the budget is financed, there is evidence that this municipality is not producing sufficient money to support its operational expenditures, not to mention the issue that the operating budget contributes no revenue to the capital program.
In addition, it should be remembered that the operational budget includes noncash expenses like depreciation and loan impairment. These purchases will not lead to a cash outflow immediately. It should be emphasized, however, that noncash items will ultimately result in cash outflows, such as when a completely depreciated asset must be replaced. Considering such a state of affairs, municipalities are urged to plan or aim for a balanced budget at a minimum. While a balanced budget is not always regarded as a funded budget, this will contribute significantly to the financed budget concept over time.
Then, it seems reasonable to say that the town remains dedicated to a substantial capital program, a considerable percentage of which is supported by federal funding. The 2022/23 capital budget of R67,4 million is 8% more than the 2021/22 adjustment budget, except for rollover resources of R2,2 million (Intsika Yethu Municipality, 2022). The majority of the increase is attributable to the following reductions in grants. First, it is the enhancement of INEP from R6 300 000 to R9 980 000. Second, it is the increase of R45 353 000 in MIG to R48 873 000 (Intsika Yethu Municipality, 2022).
Sources of Revenue
A significant portion of the financial plan (R56 million) will be covered by national grants over the MTREF, with no projected borrowings, and the primary source of financing will be national government grants. The municipality should be cognizant of the reality that the capital program, particularly when funded by locally produced money, exerts a tremendous strain on Intsika Yethu Municipality’s financial stability. This might have a substantial influence on the entity’s long-term viability.
Financial feasibility and sustainability are two of the most important pillars that must be maintained to guarantee that municipalities fulfill their constitutional commitment to provide high-quality fundamental services to South African people. Municipalities should, to the greatest extent feasible, adopt budgets within their financial means. In other words, expected construction and operational expenditures should be paid from predicted future income streams, thus minimizing the need to spend small savings that may be invested to develop assets for the town in the future.
However, while the planned budget is currently financed, it will have an adverse effect on the municipality’s expected cash situation. There is a steady decline that is primarily attributable to the city budget’s inability to generate sufficient financial assets to fulfill the suggested capital and operating programs of the town, which includes between R11.4 million and R11.9 million from own sources of income throughout each of the financial years covered by the MTREF (Intsika Yethu Municipality, 2022). In accordance with the formats established by the municipality budgeting and reporting requirements, capital transactions and payments are removed from the operating statements since their inclusion would skew the operational surplus/deficit computation.
The proportion of revenue rises by 9% for the 2022/23 fiscal year compared to the Adjustments Budget for 2021/22. This is mostly due to the rise in Equitable Share distribution and the rise in Real Estate and Service Fee rates. In each of the two subsequent years of the MTREF, revenue grows by 4.4% and 4.5%, respectively (Intsika Yethu Municipality, 2022). The municipality derives a significant portion of its income from tariffs and service charges. However, the proportion is quite modest when compared to other cities. During the MTREF era, rates and service fee revenues account for between 3.7% and 3.8% of the overall revenue mix.
Reference
Intsika Yethu Municipality. (2022). Medium term revenue and expenditure framework 2022/2023 to 2024/2025. Intsika Yethu Municipality. Web.