Intergovernmental Fiscal Relations and Grant-Loan Linkages

Four decades of Apartheid has left South Africa with one of the most unequal income distributions in the world. This inequality is reflected in the access to infrastructure services across different population groups and geographical regions. A major challenge to the new government is to address this inequality and ensure that everybody has access to at least basic levels of infrastructure services. A first step in this process is restructuring and redefining the role of local governments. South Africa is embarking on a process of decentralization in the hope that placing greater responsibilities with local governments will facilitate infrastructure service delivery. An analysis of local government revenue and expenditure shows a fairly decentralized system already in place, although income disparities force certain local governments to rely more on grant transfers than others. Policy should, and does, focus on ways in which local governments can be strengthened fiscally and institutionally in order to enhance service delivery capacity. This thesis outlines the evolution of local governments in South Africa, details the backlog which exists in infrastructure services, the cost of upgrading existing and providing ne