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The credit ratings agency said the city’s proactive approach to tackling revenue collection challenges and controlling expenditure growth demonstrated its strong governance and effective budget management.
Moody’s Investors Service has upgraded Cape Town’s credit rating from stable to positive, highlighting the city’s progress in improving its revenue collection. It affirmed Cape Town’s Ba3 long-term issuer and senior unsecured debt ratings, which is one notch below SA’s sovereign rating of Ba2, itself two notches below investment grade.
The credit ratings agency said the city’s proactive approach to tackling revenue collection challenges and controlling expenditure growth demonstrated its strong 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.
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.
City of Cape Town mayor Geordin Hill-Lewis told Business Day on Sunday that the upgrade was a positive development for the city. He hoped the positive rating would help bring down the city’s cost of capital “so that we can borrow slightly more cheaply and be able to do even more.
Addressing the city’s infrastructure rollout programme, Hill-Lewis said it was mainly focused on water and sanitation, improving and upgrading infrastructure and installing new infrastructure in poorer communities.He said it was necessary to prepare the city for the rapid population growth it was experiencing.
Moody’s based its rating on the city’s consistently strong and improving operating and financial performance, which it said demonstrated resilience in its liquidity positions. The city has low debt levels, albeit debt is expected to gradually increase in the medium term.
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Moody’s noted a track record of improved management policies and practices, which should help the city maintain sound financial metrics despite infrastructure spending. The city’s liquidity would help it maintain a moderate debt burden despite a big investment plan of R49bn over five years in infrastructure projects, including water, sanitation, transportation and electricity.
