Moody’s downgrades five South African municipalities due to rising liquidity

Ratings agency Moody’s has downgraded five South African municipalities warning of rising liquidity pressures as a result of shortfalls in revenue collection.

Moody’s says Johannesburg, Cape Town, Nelson Mandela Bay, Ekurhuleni and uMhlathuze municipalities are likely to draw down on cash reserves, eroding their capacity to absorb future shocks.

A ratings analyst says the downgrades will likely push up the cost of borrowing resulting in higher municipal rates.

Director at Credit Ratings Analytics, Saveshen Pillay says: “The rationale for these downgrades are as a result of the operating environment over the last 12 months and the COVID-19  pandemic. The recent unrest in the country is also likely to have knock-on effects for consumer, business and investor confidence.”