Joburgs’s resilience prevails amid GCR rating downgrade

​The City of Johannesburg maintains its unwavering resilience in the face of economic pressures and a recent downgrade by Global Credit Rating Company Limited (“GCR”).

“Even amid a deteriorating global economic climate, the City continues to implement its capital expenditure programme and honour all debt liabilities,” says Finance MMC, Dada Morero. 

The downgrade, which saw the City’s long-term issuer rating lowered from A+ (za) to A (za), comes amid challenging macroeconomic conditions. Subdued income growth, increasing expenditure, and relatively weak collection rates have put a strain on the City’s operating performance. 

Morero says this is compounded by affordability pressures faced by residents and commercial property owners, owing to rising inflation and interest rates, persistent nationwide load shedding, and escalating unemployment and poverty levels. 

As a result, credit protection metrics have weakened, and liquidity has tightened. The sustained increase in Unauthorised, Irregular, Fruitless, and Wasteful Expenditure (UIFWE) in its Management and Governance (M&G) profile has garnered negative attention from GCR.

However, the City is actively implementing a UIFW reduction strategy, with significant decreases anticipated in the 2022–23 fiscal year. The MMC says the City is working hard to turn the tide. 

“We have noted all the issues that have been raised by the credit agency and are working to strengthen our credit control actions, which will ensure that we increase revenue collection,” he says. 

Despite these challenges, Johannesburg has exhibited remarkable financial fortitude, marked by consistent surpluses, robust cash reserves, and stable debt ratios. Morero says the City remains committed to prudent fiscal management.

A comprehensive financial plan is in place, focusing on optimising expenditure composition, enhancing revenue management strategies, improving operational efficiencies, and maintaining a sustainable balance sheet with effective internal control measures. 

The shift in rating from A+ to A, as per GCR’s Rating Framework, positions the City as a high-quality issuer relative to others in the country. The City’s ability to service debt and manage the risk of default remains robust, with no defaults on obligations reported. 

“The City’s ability to service debt and manage the risk of default remains very robust, as we have not defaulted on any of our obligations. Liquidity management is one of our main focuses during these very tough global economic periods where customers are struggling to pay due to high interest rates coupled with a high unemployment rate,” Morero explains. 

“While acknowledging the need for continuous improvement in fiscal management, governance, and compliance, Johannesburg is resolute in its dedication to fortifying its financial position and investing in development,” he adds. 

MMC Morero says as South Africa faces challenging economic times and potential decreased allocations to local government from the national fiscus, the City is committed to safeguarding financial sustainability and self-funding capabilities.

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