The sovereign rating agency Moody’s downgraded four Metropolitan cities by one notch last week Friday. This follows the downgrade that the City of Tshwane got in June 2021. Moody’s had forecasted the city of Tshwane to have a R1 billion cash deficit resulting in a Caa2 ranking. The City of Ekurhuleni, The City of Cape Town, The Nelson Mandela Metropolitan Municipality and the City of Johannesburg joins the City of Tshwane as the latest downgrades dished out by Moody’s.
A lack of confidence in the metropolitan’s abilities to secure finance to service debt and manage revenue for its operations resulted in the downgrade which added yet another blow to the current circumstances many of these Metros are facing.
Moody’s expect these Municipalities to have a bigger deficit which stem mainly from the lack of revenue collection and irregular expenditure which the Auditor General reported in June. These metros have many services to render which cost a lot of money while they are not collecting enough revenue to sufficiently render these service.
Low levels of revenue will put pressure on the municipalities’ cash flows and operational balances for financial year 2021 and 2022. Moody’s expect this pressure to continue which will lead to budget cuts and lack of capital expenditure.
Saveshen Pillay, director at Credit Ratings Analytics noted that this could lead to higher municipal rates and taxes which the consumer and will have to bare.