TESTING THE AMENDED MUNICIPAL FINANCIAL HEALTH INDEX (MFHI): AN ASSESSMENT OF THE FINANCIAL PERFORMANCE OF ALL METROPOLITAN MUNICIPAL REGIONS IN SOUTH AFRICA

The level of municipal management, including financial management, in South Africa has been declining over the last two decades, requiring an urgent turn-around strategy. More than two-thirds of South African municipalities are struggling to provide essential services; and, measurement of financial health of municipalities is a growing area of research due to the lack of financial management sustainability. A few financial management measurement tools have been developed in the past, but none of them fully capture the scope of financial management at the local government sphere. It is essential to measure financial health in order to monitor and compare the performance of municipalities. This article aims to apply an amended and updated version of the 2021 Municipal Financial Health Index (MFHI) to the eight metropolitan municipalities in South Africa. The MFHI focuses on four sub-indices, namely: Revenue and expenditure; Liquidity ratio; Solvency ratios; and, Capital investment index. The data for this MFHI is taken from the 2020/2021 and 2021/22 Local Government Financial Statements released by Auditor-General South Africa. The main results show that only four of the eight metropolitan municipalities had improved their MFHI with a relatively low average index score of only 55.9, which is much lower than the average index score of 60.1 in the 2018/19 financial year. Once again, the City of Cape Town had the highest overall MFHI score of 67.20, while the worst-performing metro was the City of Ekurhuleni, with a low MFHI score of 49.1. The MFHI as a measurement model has proven helpful in comparing financial situations at municipalities and identifying critical financial challenges. The MFHI is also important in developing much-needed recovery strategies for local governments in South Africa. The article makes five recommendations, thus: Strengthening of financial management and control; Application of MFMA's Code of Conduct in financial systems; Enhancing dependence on own source of income for financial sustainability; Improving asset management; and, Increasing focus on infrastructure development.