Moody’s downgrade signals dysfunctional government in the City, says opposition

THE City says it has written to the credit ratings agency Moody's to clarify the outcome of what it terms a “conflicting” report after it was named among the municipalities downgraded to junk status on Friday.

The City's surprise down-grading came after Moody's cited uncertainty about the strength of the City's revenue collection and increasing financial pressures.

The City was named along with the City of Ekurhuleni, the Nelson Mandela Metropolitan municipality and the City of Johannesburg.

Deputy mayor Ian Neilson said in the City's credit rating opinion issued last month, Moody's acknowledged that the City consistently reflected “prudent and strong” financial performance, with a stronger liquidity position, and also acknowledged that the City's overall financial performance remained stronger than those of its rated peers in South Africa.

Sandra Dickson of Stop CoCT said the City seemed to have “fallen victim” to its own conflicting messages.

Dickson said the credit rating opinion by Moody's on June 10, stated that the City borrowed R1.1 billion in the 2020 financial year.

She said the report further stated that the City planned to borrow R2.5bn in fiscal 2022 and a further R4.5bn in fiscal 2023.

“As a result, the City's net direct debt will increase to R8.9 billion by fiscal 2023, with net direct and indirect debt as a percentage of operating revenue rising to 18%.

“This probably set off alarm bells with Moody's as the CoCT is providing to borrow but no clear reason for it is given.''

The June report goes on to say that the liquidity of the City is good – another contradiction, Dickson said.

''It appears that Moody's is seeing what STOP CoCT sees. The poor economic growth against the background of instability in the country and the ongoing increases in tariffs each year is seriously putting the City's financials at risk,” she said.

Neilson said the City's cash position also remained positive to meet its ongoing creditor's obligation and other future obligations such as bond repayments.

In addition, the City's cash liquidity was sufficient to continue the roll-out of the City's 2021/22 capital programme.

The working capital is currently equal to approximately 1.9 months of expenditure.

“The National Treasury guidelines are that municipalities should have working capital of between one and three months of expenditure, which is within this norm and considered appropriate at this time,” he said.

The Good party's secretarygeneral Brett Herron said the downgrade was disappointing but not surprising.

“The downgrade is a direct result of poor leadership and leadership in conflict amongst themselves and with their administration and its management.

“These are the outcomes of poor leadership and the DA must take responsibility for allowing their flagship government to become dysfunctional,” Herron said.