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The National Treasury has reversed its controversial decision to withhold R13.5 billion in equitable share allocations to struggling municipalities, saying the move was necessary to prevent communities from bearing the brunt of governance failures within local government.

Addressing the media on Tuesday, Finance Minister Enoch Godongwana said the entire R13.5 billion would be released.

“National Treasury will commence releasing the remaining withheld July 2026 Local Government Equitable Share transfers from 31 July 2026,” he said.

 The decision comes weeks after the Treasury withheld the July 2026 transfers to 69 municipalities over persistent failures to comply with financial management and governance requirements.

The move had sparked widespread criticism from several quarters, including Parliament and the South African Local Government Association (SALGA), which said the withholding of the funds would cripple basic service delivery and punish residents rather than municipal officials responsible for financial mismanagement.

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Responding to the backlash, the Treasury last week released part of the withheld allocations.

Godongwana admitted that some of the municipalities who will get the funds continued to flout treasury regulations.

“I wish to make it clear that the decision to release the remaining transfers does not mean that the affected municipalities have satisfied the requirements of the Municipal Finance Management Act, the Municipal Regulations on Financial Misconduct Procedures and Criminal Proceedings, or the requirements previously communicated,” he said.

Treasury’s investigations, Godongwana said, had uncovered serious and ongoing weaknesses in the management of unauthorised, irregular, fruitless and wasteful expenditure, financial misconduct investigations, disciplinary processes and consequence management.

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According to Godongwana, the decision to release the money was driven by the need to protect vulnerable communities.

“The release is therefore not based on a finding of compliance. Rather, the National Treasury has decided to release funding because we have withheld it for close to 30 days and to avoid having an adverse short- to medium-term effect on the delivery of basic municipal services,” he said.

The equitable share remained a critical source of funding for municipalities, particularly those providing essential services to poor households.

“National Treasury must therefore balance its constitutional responsibility to enforce financial management requirements with the need to avoid communities carrying the immediate consequences of failures by municipal institutions and officials,” Godongwana said.

Godongwana warned that the release was conditional and that municipalities would remain under strict monitoring ahead of the December 2026 equitable share allocation.

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The Treasury has set reporting deadlines from September through November, with municipalities expected to demonstrate measurable progress in investigating financial misconduct, implementing consequence management and reducing irregular expenditure or risk having future allocations withheld once again.

Speaking at the same press briefing, Co-operative Governance and Traditional Affairs (Cogta) Minister Velenkosini Hlabisa said the department will ensure that municipalities which continue to flout financial management regulations are held to account.

 “There is a common agreement between Cogta and the National Treasury that the municipalities must comply.  The money allocated to them should be used prudently,” he said.