Draft adjustment approved with deficit

GMM recently placed an advert for public comment regarding intervention by the MEC under section 139 of the MFMA.

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The GMM annual draft adjustment (2019 – 2020) budget has been approved by council under stiff disapproval from the opposition parties. The draft annual budget is a legislative requirement and need to be finalised before the end of the financial year.
The following is from the council item A017/03/2019.
Section 16(1) and (2) of the Local Government: Municipal Finance Management Act (MFMA), Act 56
of 2003, stipulates the following:

  1. The Council of a municipality must for each year approve an annual budget for the municipality
    before the start of the new financial year.
  2. In order for the municipality to comply with subsection (1), the mayor of a municipality must
    table the annual budget at a council meeting at least 90 days before the start of the budget year.
    In terms of Section 9 of the Municipal Budget and Reporting Regulations, the Annual Budget and Supporting documentation of the municipality must be in a format specified in Schedule A and include all the required tables, explanatory information, taking into account any guidelines issued by
    the Minister of Finance in terms of Section 168(1) of the MFMA
    Council approved the 2018/2019 original operational revenue budget to the amount of R1,469 billion (excluding grants of R 364 million), the budget increased to R 1,625 billion. Operational expenditure increased from R1,736 to R2,519 which resulted in the deficit of R475 million for the 2019/2020 financial year.
    In section 2.2 of the Budget Medium Term Revenue and Expenditure Forecasts the following is reported:
    Consolidated overview
    The budget has been prepared in terms of guidelines as contained in Circular 93 & 94 of the MFMA. The contents and format of the budget are in line with the requirements of the Municipal Budget and Reporting Regulations and any applicable legislation.
    The 2019/2020 draft budget comprises of R 2.51 billion for operating expenditure and R 136 million for capital investment programs. The total operating income budget is R 1.93 billion resulting in an operating deficit of R 580 million.
    Municipal revenues and cash flows are expected to remain heavily under pressure as we still continue to have low income revenue growth with a continued increase in expenditure. “We do not implement the debt and credit control policy,” said DA Cllr Hein Badenhorst in response to the above quote from the council item.

The recommendation for consideration by the council read as follows:
1.That the Draft 2019/2020 Budget, comprising of an operating revenue of R 1 625 126 448, an
operating expenditure of R 2 519 612 026 and capital budget of R 136 942 850, with the indicative allocation for the two outer years, as set out in the following tables BE APPROVED in
principle in terms of Section 16 (2) of the Municipal Finance Management Act (No 56 of 2003):

  1. That it BE ACKNOWLEDGED that the draft budget is unfunded and that the funding status will improve with the interventions from the National Treasury by the implementation of the
    Financial Recovery Plan which is in progress by the Treasury.
    GMM recently placed an advert for public comment regarding intervention by the MEC under section 139 of the MFMA.
    The council has already approved a plan as proposed by Sasol but failed to implement this plan. In this plan Sasol would supply the expertise to help GMM bring about a turnaround strategy.
    DA Cllr Hein Badenhorst said “We cannot approve a budget that has a deficit, draft or no draft”
    All opposition parties opposed the draft budget stating that it is not allowed to approve a budget with a deficit. “It is also not financially viable.”

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