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- Moody's said higher financing needs have not been matched by larger financing flows at the Tshwane Metropolitan Municipality.
- Tshwane is expected to close the 2021 fiscal year in June with a cash deficit of more than R1 billion, which is 3% of its operating revenue.
- Tshwane's liquidity situation was unlikely to stabilise in the near term, with the debt burden likely to increase from 40.8% of revenue.
International credit ratings agency Moody's downgraded the Tshwane Metropolitan Municipality on Monday, citing liquidity concerns at one of South Africa's richest and most populous municipalities.
Moody's has 11 tiers of junk status, the highest of which is Ba1. It has ranked Tshwane at Caa2, which is fourth from the very bottom.
As the local government elections draw closer, the finances of South Africa's 257 municipalities are expected to come under sharper focus.
Auditor-General Tsakani Maluleke reported earlier this month that the combined irregular expenditure of all municipalities over the past year amounted to R26 billion.
Tshwane is one of Gauteng's three metros and home to the executive seat of government and is expected to be a key battlefield in the upcoming local government elections.
The Moody's report said contrary to the agency's previous expectations, higher financing needs have not been matched by larger financing flows at the Tshwane Metropolitan Municipality.
"The four-notch downgrade of Tshwane's long-term global-scale rating reflects the sharp deterioration in the city's liquidity, pointing to a significant risk of default on its financial obligations," the report said.
Moody's said the city's access to external borrowing was constrained, hence its failure to secure new borrowing so far in 2021.
"The Caa2 rating reflects Moody's view that the fiscal and liquidity challenges faced by the city will persist as it continues to struggle to balance its operations in a difficult operating environment in South Africa," the report said.
The report added that Tshwane is expected to close the end of 2021 fiscal year in June with a cash deficit of more than R1 billion, which amounts to around 3% of operating revenue.
"Throughout the year, revenue collection has been weaker than expected, largely due to the coronavirus impact on the local economy. This has coincided with a marked increase in expenditure as Tshwane implemented salary increases (28%+ increase in salary costs in 2020)," Moody's added.
Moody's said Tshwane's options for funding included loans, but that these have not materialised yet. The city may have to rely on its sinking fund, which Moody's estimates at R717 million.
The report said Tshwane's liquidity situation was unlikely to stabilise in the near term, with the debt burden likely to increase from 40.8% of revenue in the 2021 fiscal year.
