Moody’s also downgrades municipalities, SANRAL and Ekurhuleni Water Care Company
Moody's Investors Service has now also taken rating action on seven South African local governments and two government-related issuers (GRIs).
Moody’s expect the cost of serving the country’s debt to continue rising and growth to be slow.
The long term ratings of all rated municipalities were downgraded by one notch to reflect the deterioration in the operating environment, except Mangaung and its long term issuer rating was affirmed at Caa1.
The Baseline Credit Assessment (BCA) of all rated South African municipalities was downgraded one notch, except for Mangaung which was affirmed at caa2. Moody’s also maintained the negative outlooks on all rated municipalities in the country.
According to Moody’s, South Africa’s municipalities face fiscal challenges exacerbated by the coronavirus pandemic. These challenges are expected to persist over the medium term as low growth prospects in the country and the high unemployment rate will further constrain the municipalities’ capacity to collect water and electricity fees, which represent a large part of their revenues.
The affirmation of Mangaung’s BCA of caa2 and current ratings of Caa1/NP reflects the municipality’s history of debt payment delays and weak liquidity profile.
Moody’s also affirmed the long-term issuer rating of Ekurhuleni Water Care Company of B1, in line with the rating of Ekurhuleni and the negative outlook was maintained. Again this negative outlook mirrors that of its support provider, the City of Ekurhuleni.
The long-term issuer rating of the South African National Roads Agency Ltd (Sanral) was downgraded one notch and it also maintained its negative outlook. Moody’s has noted that Sanral continues to experience resistance to its projects from road users and social groups, which contributes to the agency’s weak liquidity position.
Moody’s also noted:
- Water shortages are one of the most material environmental risks to the sector.
- Growing demographic-related spending pressures exacerbated by historical infrastructure backlogs and high levels of urbanisation and population growth.
- South Africa has one of the highest inequality rates in the world and this also filters through to the local governments in the country, creating risks of on-going service delivery protests as most poor communities are largely dependent on the national government for the provision of basic services.
- Although data transparency and quality are generally good, some financial statements, along with medium-term budgets are not published on the websites of the municipalities and national treasury in a timely manner, signaling a gradual weakness in the oversight role played by the supporting government.
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