Director at Third Republic and municipal analyst, Paul Berkowit, says rating downgrades on municipalities means higher interest payment on debt which leaves little left for service delivery projects.
His comments come in light of the upcoming local government elections (LGE) in November.
In July, rating agency Moody’s downgraded five of the country’s municipalities to junk status. Affected municipalities include the City of Cape Town, Nelson Mandela Metro, City of Johannesburg, Ekurhuleni, uMhlathuze and Tshwane.
Moody’s cited uncertainty in the strength of the municipalities’ revenue collection and increasing financial pressures as reasons for the downgrades.
Berkowitz says responsible and accountable leadership is necessary to avert further downgrades.
“Municipalities’ financial positions are probably the weakest and the worst that they’ve ever been in the last 20 years and the trend and the trajectory still seems to be downwards. So, it’s very worrying. It’s obvious we would hope that a change of government or a new administration, maybe different, maybe the same ones, different collisions outcomes. But the financial situation for municipalities is difficult and the downgrades mean that it becomes a bit of a vicious circle because municipalities will pay higher interest rates the more their ratings are downgraded.”
Ratings agency Moody’s downgrades 5 South African municipalities:
