Several SA municipalities downgraded to junk status

The agency said that, “Based on currently available information, very weak growth is likely to result in more marked decline in their collection rate than Moody’s previously expected”.

Several SA municipalities downgraded to junk status

Several SA municipalities downgraded to junk status photo credit: Canva

The credit rating agency, Moody, has downgraded several South African municipalities to junk status on Friday citing uncertainty about the quality of their revenue collection and mounting financial challenges.

The City of Cape Town is among the three municipalities that were downgraded to junk status, the other two are Nelson Mandela Metropolitan Municipality and the City of Johannesburg.

In the report, Moody’s stated that the downgrade was due to liquidity pressure as a result of material shortfalls in revenue collection and weak growth.

“In this environment, the reviews for further downgrade reflect high uncertainty about the RLG’s (regional and local governments) capacity to secure financing well in advance of debt and other payments being due,” reads the report.

The rating may be surprising to some, as Moody’s had just last month acknowledged that the City consistently reflects prudent and strong financial performance with a stronger liquidity position than that of its peers in South Africa.

Moody’s also acknowledged that the City’s overall financial performance remains stronger that of its peers. In the latest report by Moody, they stated that on average, rated municipalities generate more than 80% of their operating revenues from fees for services provision.

The agency said that, “Based on currently available information, very weak growth is likely to result in more marked decline in their collection rate than Moody’s previously expected”.

Deputy Mayor and mayco member for finance, Ian Neilson, said they were awaiting clarification from Moody’s on the City’s downgrade being in contradiction to what they stated a month ago.

“The City of Cape Town has written to the rating agency Moody’s to clarify the outcome from a ratings report that has included the City in a general municipal governments’ downgrade due to the weak collection ratios of local government in general.

“The City is however of the opinion that its cash flows are resilient with a collection rate of 98,9% – a rate that is unprecedented among South African municipalities. This is in fact one of the reasons that Moody’s in a recent report on 10 June 2021 stated it was maintaining the City’s credit rating because of the metro’s ‘strong financial performance, supported by prudent financial management’.”

Sources: MSN, Newsline

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