Moody’s Investors Service has improved Cape Town’s credit rating from stable to positive, citing the City’s success in strengthening revenue collection.
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It confirmed Cape Town’s Ba3 long-term issuer and senior unsecured debt ratings, which are one notch below South Africa’s sovereign rating of Ba2, which is itself two notches below investment grade.
The credit rating agency stated that the City’s proactive approach to addressing revenue collection difficulties and regulating expenditure increases reflected solid governance and effective budget management.
‘The positive outlook reflects our view that Cape Town’s financial performance could further strengthen over the next 12-18 months, surpassing our baseline forecasts,’ the agency said.
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Moody’s stated that the City’s initiatives such as the use of prepaid electricity meters from residential properties were expected to further diminish the risks of nonpayment or late payment, which the ratings agency regards as a persistent challenges for SA municipalities.
‘In our view, the city’s progress in improving revenue collection should contribute to consolidating its financial performance and mitigate the reliance on debt for its substantial investment programme,’ the agency said.
Moody’s based its rating on the city’s consistently solid and rising operating and financial performance, citing stability in its liquidity situations. The city has modest debt levels, yet debt is predicted to steadily rise in the medium term.
Moody’s recognised a track record of better management rules and processes, which could help the city maintain strong financial metrics despite infrastructure investment.
Despite a five-year investment plan of R49 billion in infrastructure projects such as sanitation, water supply, transportation, and power, the City’s liquidity would allow it to maintain a moderate debt burden.
‘Despite the challenges posed by increasing investment needs for better water management and drought risk mitigation, Cape Town’s progress in improving revenue collection should bolster its self-funding capabilities, thereby containing future debt accumulation,’ Moody’s said in its statement.
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Picture: Murray Swart