Tshwane residents likely to pay for metro’s plummeting finances as Moody’s downgrades

Residents were likely to be on the other receiving end of the Tshwane metro’s plummeting financial standing with high chances of an increase in rates and taxes.

This was according to the chief economist at Efficient Group Dawie Roodt.

Roodt said low revenue collection and increasing expenditure by the metro would possibly see the residents having to pay more for services.

This after Moody’s rating agency downgraded the metro’s long-term global scale issuer rating to B1 (high credit risk) from Ba3 (significant credit risk).

The downgrade by the agency meant that the metro was likely to default on paying long-term loans.

Roodt said the ratings hindered the municipality’s chances of securing loans.

“Increasing the possibility that Tshwane metro may default on paying their loans means people will stop lending them money and also means that people who lend them money run at a risk of losing it.”

He said not having access to such loans could affect the metro’s ability to deliver services.

Roodt said getting the metro’s finances stable could see an increase in rates and taxes.

“One of the ways municipalities react to such situations when their finances are in a bad state because of mismanagement is to increase rates and taxes. the increase might not even help to alleviate the metro’s financial burdens but make them worse.

“People are getting tired of paying high rates while complaining about lack of quality services. More people are migrating off the grid because they cannot keep up with an increase in rates such as electricity,” he said.

“The municipality without having money to ensure that they render services would see service delivery deteriorating.”

Roodt said the municipality needed to make sure that it rendered quality services to encourage people to pay, otherwise, the finances would not get better any time soon.

“Most importantly, they need to spend less, much less that is their best solution to their financial problems and manage their finances better with controls in place.”

Low revenue collection and increasing operating expenditure were some of the reasons behind Moody’s decision.

The metro’s finances continue to remain in the woods as Moody’s investment rating agency downgraded the municipality ability to pay long-term loans to a high credit risk, last week.

This was accompanied by its outlook remaining negative for the municipality as the rating agency expected the metro to run at a 1.4% deficit for the next three years.

Given the persistently low growth in the country, Moody’s said it expected the municipality’s operating performance to remain weak.

The rating agency cited the metro’s negative operating results in the financial year 2020 to a weak liquidity position.

“The city’s operating deficit significantly increased to 7% of operating revenue according to the 2020 unaudited financial statements.”

Possible increase in operating expenditure such as employee costs, bulk purchases and bad debt provisions were also some of the reasons behind Moody’s negative outlook.

“Operating expenditure grew by 16% according to the 2020 unaudited financial statements, reflecting a significant increase in salary costs and higher bad debt provisions.”

According to Moody’s, salary adjustments for municipal workers of a 6.25% annual wage increase and implementation of a benchmarking agreement which followed protests underscored some weaknesses in the city’s budget planning. The increase was estimated to cost the municipality multi-millions of rands.

It also cited that lack of management response in phasing these additional costs in the past three years was also worrisome.

“The metro’s cash and cash equivalent including short-term investment declined from R2.2-billion in June 2020 to R1.1-billion in February 2021.”

The metro’s cash reserves balance was at R341-million down from R969-million in February, which means about R628-million was used in a period of two months.

Meanwhile, the metro pinned further downgrades to the administrators who vacated office last October.

Finance MMC Mare-Lise Fourie said they were disappointed by Moody’s downgrade.

“Tshwane’s long-term national scale rating from Aa3.za to Baa2.za – a significant downgrade of five notches.

“This is just further proof of the impact and contribution to the financial ruin of the city by the irregularly appointed ANC administrators during 2020.”

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