The City of Cape Town has written to the ratings agency Moody’s to clarify the outcome from a ratings report that has included the City in a general municipal governments’ downgrade due to the weak collection ratios of local government in general. The City is however of the opinion that its cash flows are resilient with a collection rate of 98,9% – a rate that is unprecedented among South African municipalities. This is in fact one of the reasons that Moody’s in a recent report on 10 June 2021 stated it was maintaining the City’s credit rating because of the metro’s ‘strong financial performance, supported by prudent financial management’.
The City has written to Moody’s for clarity on the conflicting reports and also to clarify why it is grouping the City with other municipalities that are experiencing low collection rates, the latter being the reason for Moody’s findings about South African municipalities.
As reflected in the City’s credit rating opinion issued just last month, Moody’s acknowledges that the City consistently reflects prudent and strong financial performance with a stronger liquidity position than that of its peers in South Africa also rated by Moody’s. Moody’s further acknowledged in that report that the City’s overall financial performance also remains stronger than that of its rated peers in South Africa.
The City’s cash position also remains positive to meet its ongoing creditors obligation and other future obligations such as bond repayments. In addition, the City’s cash liquidity is sufficient to continuing the roll out of the City’s 2021/22 capital programme.
The working capital is currently equal to approximately 1,9 months of expenditure. The National Treasury guidelines are that municipalities should have working capital of between one and three months of expenditure, which is within this norm and considered appropriate at this time.
According to the June Moody’s report, the credit rating agency is satisfied that the City regularly monitors its budget execution and cash flow, and is committed to reinforcing internal controls.
The City is awaiting further clarity from Moody’s on the City’s downgrade in contradiction to what was stated a month ago by Moody’s.