The DA’s Johannesburg caucus leader, Belinda Kayser-Echeozonjoku, has rejected finance head Dada Morero’s remarks that the city remains financially resilient despite the recent credit rating downgrade, saying its implications could not be underestimated.
“A city with an infrastructure backlog in the hundreds of millions, will undoubtedly require loans to ensure continued service delivery. The downgrade means that it becomes very difficult for the city to get and repay loans. The current executive has, in all practical senses, made another funding model for the metro more difficult to come by,” Kayser-Echeozonjoku said.
However, the metro’s group finance department spokesperson, Kgamanyane Maphologela, told Business Day: “It is not expected that the GCR credit-rating downgrade will have a negative impact on the costs of servicing existing debt. The City of Johannesburg’s liability profile is made up of two very short-dated bonds and commercial loan.
“Due to the bonds not being actively traded and not being ‘tapped’ by the city for further funding, there is no impact on the cost of borrowing of existing debt. Of our commercial loan portfolio, there is only one loan that potentially remains exposed to negative credit rating action, which must still be assessed and quantified.”
Maphologela said the negative effect of the adverse rating on the cost of funding is only expected to be on future borrowings, “but the extent thereof is not possible to ascertain at this stage.”
But Kayser-Echeozonjoku insisted the DA had consistently raised concern over the “lack of good governance” in the metro under the ANC/EFF/PA coalition, maintaining that mayor Kabelo Gwamanda “is being pulled in different directions by the ANC-EFF and PA”.
Morero has blamed slow economic growth, persistent load-shedding and an increasing population for the metro’s credit-rating downgrade, saying these factors resulted in residents and property owners struggling to pay for municipal services.
That is after GCR Ratings, an affiliate of Moody’s, informed bondholders a week ago it had downgraded Joburg’s credit rating and revised its outlook from stable to negative, highlighting cash-flow challenges plaguing the country’s economic and financial hub.
This means the city’s ability to repay its loans has been weakened, and the elevated risk will also contribute to the higher cost of borrowing for the cash-strapped metro.
The metro’s national scale long-term issuer rating was downgraded to A (za) from A+ (za), with the short-term issuer rating affirmed at A1 (za), due to continuing pressures on operating performance as evidenced in “subdued income growth, increasing expenditures and relatively weak collection rates”.
Morero said: “According to the GCR Rating Framework, a shift from A+ to A does not change the fact that the city is still viewed as high credit quality relative to other issuers or obligations in the same country and in the short term, the city is still viewed as having a high likelihood of timely payment of short-term obligations relative to other issuers or obligation in the same country. Access to funding will not be severely affected.”
The ratings agency said the municipality’s income constraints have translated into deteriorating credit protection metrics and tighter liquidity. “This continues to restrict the ratings, notwithstanding the city’s position as the economic centre of SA.”
A return to a stable outlook, in the shorter term, depends on the city’s ability to “stabilise its operating performance and liquidity reserves”.
The city, which contributes almost 20% to GDP and about 40% to Gauteng’s economy, is besieged by high joblessness, violent crime, poverty and inequality. Its revenue collection fell 86% in October, translating into more than R500m of under collection.
Morero said with the contraction in the economy, increasing joblessness and declined household revenues, “customers are struggling to honour their debts owed to the city, resulting in a growing debtors’ book”.
He said the metro, which has a budget of R80.9bn for 2023/24, has “consistently demonstrated its financial resilience as evidenced by the generation of recurring surpluses, maintenance of adequate cash balances, maintenance of stable debt ratios and the continued roll out of the capital expenditure programme”.
Kayser-Echeozonjoku said it was evident Morero “is clearly not in touch with the city’s financial state. A co-operative governance and traditional affairs oversight engagement revealed that the city’s unauthorised, irregular or and wasteful expenditure has increased by 44% all this while the city has an unfunded budget”.
“The DA will continue to monitor the governance in Johannesburg while all DA members on section 79 committees will be interrogating every detail of what happens in their respective portfolios. We cannot sit by and watch the ANC-EFF-PA coalition flush our once beautiful city down the drain,” she said.
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