Weaker cash flow and a large financial deficit has seen the Tshwane municipality being downgraded by Moody’s credit agency. The capital city’s debt is higher than the median of any other metro in the country.
The city however had adequate financial management and according to Moody’s had an above average ability to clear its short-term debt without straining cash resources.
The ‘eye-opening’ report, tabled and debated by the council during last week’s monthly ordinary council sitting, was welcomed by acting mayor Terrence Mashego, who said the executive would refer it to the administration of the city to study and to come up with ways to remedy the situation.
Downgrading Tshwane, Moody’s said Tshwane’s relative position reflected debts and debt service levels that were higher than the median of its national peers. This, Moody’s said, was not solely down to the city’s own doing but also resulted from the downgrading of South Africa by one notch in November last year, following the weakening of the country’s credit profile.
“The city’s downgrading is a third-tier investment grade rating whose status presented above-average creditworthiness relative to peer metros. The city’s rating could improve if the country’s credit profile strengthened.”
Although, according to Moody’s, the metro’s capital expenditure plans reflected debt levels that would remain high in the medium-term. The capital’s large and diversified economic base as well as its robust revenue growth and consistent operating transfers would continue to support its national scale issuer ratings.
The upgrade of Tshwane could however require evidence of its capacity to realise structural improvements in its financial and debt metrics. The incorporation of two municipalities with relatively weak fiscal capacity, Nokeng Tsa Taemane and Kungweni, also increased pressure on spending by Tshwane.
Tshwane last year recorded a deficit of R1.4 billion which was financed through the borrowing of R1.6bn, resulting in a slight increase in debt levels to 44% of operating revenue from 43% in 2013, the Moody’s report stated.
“Capital transfers from the national government will cover the bulk 60% and only 9% will be financed from own funds. New borrowing will have a muted impact on debt levels which will remain flat at 44% of operating revenues by June 30 2017,” the Moody’s report stated.
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