Cape Town's Moody's credit rating mirrors sovereign rating
This week Moody's Investors Service announced a downgrade of the South African credit rating by one notch from A3 to Baa2. Moody's has made the decision to keep a negative outlook on the rating, over what it described as "policy uncertainty" ahead of the elective conference of the African National Congress at the end of the year.
It also cited the weakening of the National Government's credit profile as a significant reason for the downgrade.
As a result of the sovereign downgrade, the City of Cape Town's rating has been affected, together with other South African municipalities, and the municipality has moved from a rating of Aa2 to Aa3.
The change in our credit rating mirrors the sovereign rating and is wholly due to the sovereign downgrade. It is no reflection on the City's financial situation.
This is reinforced by Moody's themselves who, according to their report, state that: "the centralised architecture of the local public sector in South Africa establishes close operational and financial linkages between the National Government and municipalities. Large cities and medium-sized municipalities are exposed, at varying degrees, to the country's macroeconomic performance and socio-economic conditions".
The report further states that: "the five metropolitan cities rated by Moody's in the country - which include Cape Town - display comparatively rich economic bases, sound financials and good governance practices. Still, their budgetary structure and relative size mean that economic conditions in these cities are strongly correlated to the country's macroeconomic performance and socio-economic conditions".
The recent release of the City's annual financial results for the past financial year indicates clearly that the City's financial position remains strong, and has in fact improved. The stronger the City's financial position, the more resources can be allocated to our residents - particularly to those most in need of assistance - keeping in line with this administration's pro-poor policies.
The City adheres to prudent policy strategies with respect to financial, debt and liquidity management. A well-established and focused management team provides stability to the City's strategic planning and operations. Budget execution and cash flows are regularly monitored and the administration is committed to reinforcing internal controls.
In September the City received a record R1,7 billion from our ratepayers. This is further proof that our cash position is strong. All of the City's reserve funds are fully cash-backed and there is adequate cash to cover our working-capital requirements.
Statement issued by Alderman Ian Neilson, Executive Deputy Mayor of Cape Town, October 3 2012
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