Moody’s: Joburg’s outlook limited by South Africa’s sovereign bond rating
8 November 2019
The City notes the decision by Moody’s Investors Service to affirm the City’s credit rating and maintain its outlook, despite acknowledging a “significant increase in operating revenue, resulting in a substantial improvement in the city’s liquidity position.”
In a statement released today, Moody’s noted that despite the liquidity improvements, the City of Johannesburg’s rating and outlook is “is limited by the sovereign bond rating as other Baa3 rated sub-sovereigns.”
This follows a recent decision by Moody’s to change the outlook on South Africa's Baa3 government bond rating to negative from stable.
As such, Moody’s took the decision to change the outlook to negative from stable for three metros also rated at Baa3 – namely the City of Cape Town, Nelson Mandela Metropolitan Municipality, and City of Ekurhuleni – in a move that “mirrors the weakening of the sovereign credit profile.”
It is deeply disappointing that despite Moody’s noting that the “City's strong administration has managed to implement prudent financial practices over the years,” it was unable to improve the City’s outlook as a result of the change to the national outlook.
Over the past three years, the multi-party government has worked tirelessly to improve the City’s financial health through efforts aimed at expanding the revenue base as well as carefully managing expenditure.
This is evident in the pre-audit financial statements for the 2018/19 financial year, referenced by Moody’s in its statement, which reflects a significant improvement to the City’s liquidity position, with its closing cash balance increasing from R2.2 billion at the end of 2017/18, to R5.3 billion by the close of 2018/19. This translates into a doubling in the number of days of cash coverage from 21.3 to 43 over the same period.
Indeed, the City’s pre-audit financial statements for the 2018/19 financial year show almost universal improvement to the City’s key financial ratios in the last financial year:
|
Ratio |
Benchmark |
2017/18 (Actual) |
2018/19 (Pre-audit) |
|
Current ratio |
1.5:1 – 2:1 |
0.78:1 |
1.08:1 |
|
Solvency ratio |
Above 2.1:1 |
2.1:1 |
2.1:1 |
|
Debt to Revenue |
Below 45% |
42% |
40% |
|
Remuneration as % of total operating expenditure |
25 – 40% |
26% |
26% |
|
Repairs & Maintenance as a % of PPE |
Above 8% |
4% |
4% |
|
Capital cost (interest and redemption) as a % of total operating expenditure |
6 – 8% |
6% |
6% |
|
Net Operating Surplus Margin |
Above 0% |
6% |
12% |
|
Cash / Cost coverage (days) |
1 – 3 months |
21.3 days |
43 days |
The decision by Moody’s highlights the disastrous impact of national policy and fiscal mismanagement on other spheres of government, and ultimately the residents of the City. While disappointed with the outcome, I am greatly encouraged by the recognition from Moody’s of the efforts over the past financial year to improve the City’s financial health.
I would like to express my appreciation to the City Manager and his team, as well as the members of the multi-party government led by the DA – including the IFP, ACDP, COPE, UDM and FF+, and supported by the EFF on an issue by issue basis – for their continued commitment to the responsible stewardship of the City’s limited resources. I am proud of the gains we have made over the past three years.
Issued by Funzela Ngobeni, MMC for Finance, City of Joburg, 8 November 2019
