Johannesburg - The City of Joburg says it remains unfazed by this week’s downgrading of its credit rating amid a tough economic climate and other rate collection challenges affecting its finances.
In a statement issued on Tuesday following the downgrade, MMC for finance, Dada Morero, said that the city was resilient enough to move past the recent challenges.
On Monday, Global Credit Rating Company Limited (GCR), an affiliate of Moody’s Investors
Service, downgraded the City of Joburg’s credit rating and revised its outlook from stable to negative, highlighting cash flow challenges in South Africa’s economic and financial hub.
“Bondholders are hereby advised that the credit rating agency, Global Credit Rating Company Limited (GCR), has downgraded the city’s national scale long-term issuer rating to A (za) from A+ (za), with the shortterm issuer rating affirmed at A1 (za) and the outlook revised from stable to negative.
“GCR noted that the rating downgrade and negative outlook for the city reflect ongoing pressures on operating performance, evidenced in subdued income growth, increasing expenditures, and relatively weak collection rates. The 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 South Africa,” the ratings agency said.
However, reacting to the news, Morero said that this would not deter the city from finding solutions to the negative outlook.
“The City of Joburg remains resilient despite the downgrade by GCR and the economic pressures that face property owners.”
GCR said that the city of gold, as it had been called, would struggle to pay back its loans and there would be a higher cost involved for future loans.
“As the economic centre of South Africa, the city has consistently demonstrated its financial resilience, as evidenced by the generation of recurring surpluses, the maintenance of adequate cash balances, the maintenance of stable debt ratios, and the continued roll out of the capital expenditure programme. The city has honoured all its debt liabilities and will continue to do so. All of this has been achieved within the context of a deteriorating global economic environment,” Morero said. He added that the city would offset these challenges in a variety of ways as it returned to a more positive state anchored by a strong financial position with a surplus of R1.167 billion and a positive cash balance of R3.8bn, which were key to the city’s economic revival.
“We have noted all the issues that have been raised by the credit agency, and are working to strengthen our credit control actions, which will ensure that we increase our revenue collection,” Morero said.
GCR noted that the rating downgrade and negative outlook for the city reflected ongoing pressures on operating performance, evidenced in subdued income growth, increasing expenditures, and relatively weak collection rates.
This had been compounded by rolling blackouts, which had seen the rest of the country move between stages 4 and 6 for prolonged periods of time, as well as property owners who found it hard to service some of their properties in what had become a difficult period for all South Africans.
GCR said the city would continue to experience a population that was increasing faster than economic growth, which translated into rising unemployment and poverty levels, which further placed a burden on the city’s infrastructure and service delivery programmes.
The agency said that it further noted that a return to a stable outlook in the short term depended on the city’s ability to stabilise its operating performance and liquidity reserves.
The Star