The outcome of the ANCs long-awaited KwaZulu-Natal conference was a win for the Thuma Mina crowd. (Delwyn Verasamy/M&G)
The Johannesburg budget is premised on the long-term financial development plan (FDP), formulated as part of the Integrated Development Plan (IDP) and budget cycle for 2013/14. The FDP aims to ensure continued financial sustainability and effective financial planning through prudent borrowing, generation of annual operating surplus, and the creation of cash reserves to increase the level of infrastructural spending. “The annual review of the FDP takes into account our continued commitment towards spending R100-billion on infrastructure replacements and expansion over a 10-year period,” said Finance MMC Geoffrey Makhubo.
The 2015/2016 budget was prepared mindful of the tough economic environment in the rest of the world. The domestic economy continues to be affected by electricity supply constraints, labour market disruptions, skills shortages, budget deficit and exchange rate risks to the economy. “These constraints are anticipated to continue in the medium term, with the South African Reserve Bank forecasting that recovery to 3% growth is unlikely before 2017.”
Over the past decade, Johannesburg has accounted for 20% of the population growth in South Africa, but has also contributed 17% to the incremental GDP of South Africa. GDP growth for Johannesburg is forecasted to reach 4.3% by 2016 by comparison to a forecasted growth rate of 2.7% for South Africa.
In November 2014, ratings agency Moody’s downgraded South Africa’s sovereign long-term rating on the back of a deteriorating credit profile, prompting the downgrade of Johannesburg’s long-term issuer and debt ratings from “A1.za” to “A2.za”, with a stable outlook. In January 2015 Fitch rating agency reaffirmed Johannesburg’s long-term rating at “AA-(zaf)” with a stable outlook.
Fitch reported that it “expects activity generated by the implementation of the City’s R100-billion, 10-year investment plan to support the performance of the City of Johannesburg’s (CoJ) economy, and to lead to an average GDP growth of 3% per annum over the medium term, supporting revenue collection”.
In preparing this budget, the City’s financial department has been particularly cognisant of the impact of the current economic environment on consumers. “Many Johannesburg residents are concerned with electricity and water tariffs, but these tariffs are largely ‘pass-through costs’, beyond the control of the City and determined by external agencies. These increases will further erode household disposable incomes and put pressure on the ability of consumers to pay for services,” said Makhubo.
In light of these pressures, Makhubo said — and he made this point several times — “I want to emphasise that consumers themselves can take steps within their own households to reduce their consumption, to prudently manage their financial resources and prioritise paying for services.”
The total annual budget of R52.6-billion for the 2015/16 financial year is made up of a R42.7-billion operating expenditure and R9.9-billion for capital expenditure. “However, we will appropriate a three-year capital budget of R29-billion, to 2017/18. We remain the only state institution that appropriates a three-year capital budget,” said Makhubo.