This is what the Finance MMC in the City of Johannesburg, Dr Rabelani Dagada, said of the recent credit rating downgrade by Standard and Poor’s and the effects it will have on the City in particular.
Executive Mayor Herman Mashaba’s ambition to grow the City’s economy by 5 per cent per annum by the end of his term in 2021, now seems all but impossible. The City’s growth percentage is currently hovering at around 2 per cent.
The downgrade will possibly filter down to the City with its ratings also to be downgraded, Dagada said. The MMC maintained that the only obstacle that could stop the anticipated growth would be a downgrade.
Read: Interactive Map: What SA can learn from other countries junk status
“The rand will lose value, inflation will increase and the interest rate will go up,” Dagada said.
He cited this as reasons he expects why customers, the City’s ratepayers, will struggle to pay their rates and taxes. “This is a big problem because the revenue of the City will likely reduce.”
The City, Dagada said, has always had a bigger economic growth than Gauteng province and the country, but if revenue declines, the possibility of initiating capital projects, like building infrastructure, declines along with it.
“I have seen that when the City spends more on capital projects, it tends to far exceed the national and provincial economic growth. But now, this might not happen,” he said.
Dagada believes that Joburg will remain the gateway to Africa, but fears lower growth. He believes that the South African Revenue Service (Sars) will not collect as much tax next year, prompting increased company tax and ultimately, capital flight.
Mashaba has also been contacted for comment and the story will be updated as soon as it is received.
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