National Treasury has allocated R552.7 billion to local government over the 2025 Medium-Term Expenditure Framework (MTEF) period in a bid to boost service delivery, financial sustainability, and governance at municipal level.
According to the newly released Municipal Budget Circular for the 2025/26 Medium-Term Revenue and Expenditure Framework (MTREF), the funding includes R332.4 billion in the local government equitable share, R52.9 billion from the general fuel levy shared with metropolitan municipalities, and R167.4 billion in direct conditional grants.
A key initiative is the consolidation of municipal financial support into a new Local Government Financial Management Capability Development Programme.
The integrated support plan will include multi-year grants, pre-grant capacity assessments, and a scorecard system to monitor progress and improve service delivery.
The Treasury confirmed that the smart prepaid meters grant will continue as an indirect grant, receiving R2.3 billion over the MTEF.
“As indicated in the 2024/25 financial year, the National Treasury now oversees the smart meters grant as an indirect grant through a transversal contract to regulate distribution quality and costs. This grant aims to enhance energy efficiency and support the integration of renewable energy to better meet consumer needs,” it said in the circular.
“Over the 2025 MTEF period, the grant will continue to support municipal debt relief efforts by focusing on municipalities already enrolled in the program. Over time, the grant is expected to expand to additional municipalities, aiming to enhance financial sustainability and management. This grant is allocated R2.3 billion over the 2025 MTEF.”
Several changes have also been made to conditional grant allocations, according to the circular.
These include the creation of an Urban Development Financing Grant (UDFG), realignment of infrastructure grants to prioritise water, sanitation, electricity, and waste management, and the merging or discontinuation of overlapping funding streams to reduce administrative burdens.
The circular also outlined reforms to the conditional grant system following a 2024 review.
These reforms aim to streamline the grant framework, promote flexibility, and ensure that funds are used more effectively.
Measures include merging related grants, introducing performance-based incentives, and reducing reliance on national grants, particularly in large metros.
On Local Economic Development, National Treasury cautioned against over-reliance on conditional grants and emphasized the importance of municipalities efficiently delivering basic services such as electricity, water, and sanitation to attract investment and stimulate job creation.
Following the 2024 Medium-Term Budget Policy Statement (MTBPS), National Treasury also proposed a series of changes to local government allocations in an effort to improve infrastructure investment, financial sustainability, and service delivery across municipalities, according to the circular.
Among the adjustments is a R245 million shift over the medium-term expenditure framework (MTEF) period from the Municipal Infrastructure Grant (MIG) to the Integrated Urban Development Grant (IUDG), prompted by Alfred Duma Local Municipality’s qualification to participate in the IUDG.
Additionally, R494 million in 2025/26 will be reallocated from the direct component of the MIG to its indirect component to address wastewater infrastructure issues affecting 21 municipalities.
A notable development is the introduction of a new Urban Development Financing Grant (UDFG), which will be funded through the metro component of the Neighbourhood Development Partnership Grant (R924 million over the MTEF) and 80% of the Programme and Project Preparation Support Grant (R981 million).
The UDFG is expected to channel additional funding into key urban development initiatives.
The Urban Settlement Development Grant (USDG) will also see an expanded Trading Services Component in 2025/26, broadening its scope to include electricity and solid waste management alongside water and sanitation. A minimum of 56% of the USDG allocation must now go towards these critical services, tied to metro-approved investment plans.
In 2025/26, an additional R450 million will be injected from the Public Employment Programme, while infrastructure funding via the UDFG will be directed towards major metropolitan projects.
The City of Johannesburg is set to receive R578 million in 2026/27 and R533 million in 2027/28 for a wastewater project, and eThekwini Metro will receive R56 million in 2025/26, followed by R109 million and R101 million in subsequent years for a non-revenue water project.
To streamline funding plans, the non-metro portion of the NDPG and the remaining 20% of the PPPSG will be merged into a single grant, with a combined baseline of R1.4 billion over the MTEF.
Meanwhile, the Public Transport Network Grant (PTNG) for Cape Town’s MyCiTi programme will be reduced by R435 million in 2025/26, but will increase by R425 million and R660 million in 2026/27 and 2027/28 respectively, in line with updated implementation and cash flow projections.
Drakenstein Local Municipality, on the other hand, is expected to benefit from an additional R225 million in 2026/27 through the Regional Bulk Infrastructure Grant (RBIG), a move consistent with revised project timelines under the 2024 Division of Revenue Amendment Act.
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