City’s cash flow, debt collection levels healthy, but not immune to the SA reality

21 November 2021

The ratings agency Moody’s has confirmed the City of Cape Town’s ratings of Ba3 and Aa3.za with a negative outlook. The City has thus managed to retain its previous rating. The Moody’s ratings review pertains to South African metros, all who received a negative outlook due to the macro-economic environment. Moody’s has considered the macro-economic pressures such as the financial strain on households in Cape Town as well as in South Africa and low national economic growth. Moody’s however emphasises: ‘City of Cape Town’s rating confirmation reflects its resilient financial performance for the fiscal year estimates ended 30 June 2021 and Moody’s expectation that a positive operating balance will be maintained in the medium-term. Following the review Moody’s has concluded that the City has good access to external funding and maintains sufficient liquidity levels.’ Read more below:

‘The City welcomes the confirmation of its good governance and sound financial management which continues to be key building blocks of this city’s resilience in the face of profound challenges. The City continues to look at all interventions to ensure it remains a sustainable and healthy organisation that is able to deliver on its core mandate which is the provision of services for the wellbeing of all who live in Cape Town,’ said the City’s Chief Financial Officer, Kevin Jacoby.

According to Moody’s: ‘The confirmation of Cape Town’s rating reflects the city’s resilient operating performance and liquidity position, in the challenging operating environment. Cape Town achieved an estimated gross operating balance (GOB) of 7% of operating revenues for the fiscal year ended 2021. This is expected to moderate to an average GOB/operating revenue 5% in the next two years. Their cash position covers most of its immediate obligations, with Cape Town’s FY2021 estimated current ratio (current assets/current liabilities) at 2x.

‘This resilience in operating performance and liquidity position places the city in a favourable position to raise external funding. The metro is also characterised by good governance and budget planning, which should help them in managing budget pressure going forward.’

Moody’s warns: ‘Even though the country has moved down to the lowest level of lockdown, municipal debtors’ receivables have been increasing by up to 25% for major cities during FY2021, reflecting the financial strain that the low growth environment has had on household income and thus revenue collection. With water and electricity supply deteriorating significantly nationwide, municipal water and electricity bulk purchase costs are expected to rise further, placing upward pressure on operating expenditure. These economic constraints are expected to moderate operating performance over the next two years.’

End

Published by:
City of Cape Town, Media Office