The Ekurhuleni Metro will become the sixth municipality to receive a credit rating, a tool that will assist it in raising additional finance, through loans or even muni-cipal bonds, under the Municipal Finance Management Act.
In October, Cape Town was rated “positive” with A+ long-term and A1 short-term ratings by CA Ratings, risk analysts in the municipal area.
The other councils are “stable”: Johannesburg and Nelson Mandela (Port Elizabeth) metropoles received short-term ratings of A1 and long-term ratings of A; Tshwane received a short-term rating of A1 and a long-term rating of A+; and Buffalo City (East London) received A- and A2 ratings respectively.
Cape Town has yet to decide whether to follow in the footsteps of Johannesburg, the first council to issue its own bonds. In April, Johannesburg’s bond, valued at R700-million and redeemable in 2013, was 3,8 times oversubscribed, according to Jonews, the City of Johannesburg’s official website. The aim is to raise R6-billion on markets.
But, it will take some time before municipal bond issues or private placements become popular in other metros. Although municipalities may issue bonds, these are not linked to government benchmark bonds nor are they government-guaranteed, according to the Act, which was launched in 50 top councils in mid-2004 and will be phased in over four years at all 284 municipalities.
“It will become more popular as municipalities have more resources through further financial incomes like taxes,” said Walter de Wet, head of research at Pan-African Investment and Research Services. De Wet noted that, against the backdrop of surpluses at many municipalities, the question remained: “Why raise more cash if you can’t spend what you have?”
According to the recent intergovernmental fiscal review, Cape Town has spent only 60,9% of its capital budget; Ekurhuleni, on Gauteng’s East Rand, has spent 70,4%; and eThekwini has spent 90%. Municipal debt stands at R40-billion, but is increasing at a slower rate. This, the treasury indicated, was a sign that billing and debt recovery systems are being improved.
The financial ratings take into account economic activity, political stability and overall strategic planning.
For Johannesburg’s rating in April, CA Ratings, taking into account the long-term strategy Joburg 2030, noted that operating performance had improved after the deficit of R273-million in 2003 was turned into a R337-million surplus in 2004.
Cape Town’s positive rating came after the council received its first unqualified audit for the past financial year. The rating highlights the city’s revenue growth to R9,3-billion by June 2005, its 2020 vision, development plan and diverse economic base ranging from tourism and property to the services sector.
But Cape Town is under spending pressure and migration is continuing.
CA Ratings analyst Leon Claasen said before the Eighties, South African councils issued bonds, which were very popular with life officers. While local government was bedevilled by challenges, he said that the six metropoles and some larger councils such as Stellenbosch and Buffalo City are in a good position to raise extra funds through bonds or private placements.