Despite concerns about instability stemming from coalition governance, the Sovereign Africa Ratings has accorded the City of Tshwane a stable outlook for the long-term ratings following its recent assessment of the metro’s creditworthiness.
The local rating agency said the stable outlook applied to both the international and national long-term scale ratings.
On the other hand, the agency’s recently released report pointed out that the outlook for the short-term ratings was negative.
The City’s latest ratings came on the back of the Moody’s ratings agency report which gave the municipality an improved outlook from negative to stable.
In April, Finance MMC Jacqui Uys commented that rating by Moodys was a positive development that would assist the City in the process of stabilising its finances.
Uys, however, didn’t respond to a request for comment on the assessment conducted by the local rating agency.
Sovereign Africa Ratings report said: “The City of Tshwane is assigned a long-term international scale issuer rating of CCC and national scale issuer rating of CCC+(za), and a short-term issuer rating of C both on international and national scale issuer ratings.”
It further noted that the stable outlook on the long-term rating indicates that the agency expects the City’s economic strengths to remain largely unchanged in the foreseeable future.
“The short-term ratings are primarily driven by the city's relatively weak debt and contingent liability profile, characterised by high levels of outstanding debt and an unstable revenue base. Additionally, the unstable liquidity position further weakens the short-term outlook, raising concerns about the City's immediate ability to meet its financial obligations,” the report said.
Of concern to the agency was the City's weak internal controls despite a recent improvement from an adverse to a qualified audit by the Auditor–General (AG) for 2022/23 financial year.
“These shortcomings hinder revenue collection, which in turn negatively impacts the city's financial base and liquidity,” it said.
The City, however, previously said the 2023 qualified audit report by the AG marked a step in the right direction for stabilising its finances.
Sovereign Africa Ratings’s report highlighted the City’s management and governance as being relatively weak due to instability attributed to coalition governance and with continued flouting of Municipal Finance Management Act policies and regulations.
Also highlighted in the report were the high costs and poor electricity service as among challenges causing Tshwane's unstable finances.
“Residents and businesses experience high electricity costs and unreliable service delivery, partly due to load shedding as well as outages due to infrastructure failure. This incentivises customers to find alternative solutions including going off-grid,” the report said.
One of the challenges emanated from the non-payment of municipal services said to create a cash flow shortage for the city.
The report said: “Tshwane, like many South African municipalities, has a poor track record of collecting fees for services rendered. This creates a vicious cycle where residents are less likely to pay if they believe services will be rendered in any case. Sovereign Africa Ratings has, however, noted the City’s initiatives to cut power for customers with high arrears.”
On a positive note, Sovereign Africa Ratings mentioned that Tshwane's budget shows signs of stability with some areas for improvement.
“Sovereign Africa Ratings considers the city's budgetary performance adequate. Operating expenditures are projected to increase steadily from R44.5 billion in 2023/24 to R52 billion in 2025/26. There was a slight surplus of R87.5 million in 2023/24, which is expected to continue in 2024/25,” according to the report.
Additionally, it noted that the City did well in terms of overall structure and financial transparency.
“This suggests that even if they are now experiencing debt and cash flow challenges, they have a sound strategy in place for handling their finances,” it said.
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