Johannesburg, South Africa’s wealthiest city and economic hub, received a vote of confidence from Moody’s Ratings, despite a history of political dysfunction and wasted expenditures that led the government to threaten to withdraw funding.
The city’s credit ratings reflect “its strong operational performance, moderate debt levels, and a large and diversified local economy, supported by prudent financial management and rigorous monitoring of budget execution and cash flow,” wrote Moody’s analysts Irena Krizkovska and Marie Diron following a review of the city’s finances conducted last month.
“Over the years, the city has consistently maintained positive operating margins and moderate-to-low liquidity ratios,” the analysts noted, acknowledging, however, that Johannesburg faces pressures due to infrastructure delays and population growth, which have led to rising debt.
Moody’s assessment — which did not constitute a rating action — appears to diverge from the view of the South African government and business leaders. In August, Finance Minister Enoch Godongwana demanded explanations for $1.38 billion in “unauthorized, irregular, fruitless, and wasteful expenditures”, warning that the city risks losing government funding if the money is not recovered.
In September, business leaders indicated that they have been discussing with the government ways to help save Johannesburg from decline. The city, which will host G20 heads of state next month, had $12.5 billion in backlogs last year related to maintenance and upgrades in the water, energy, and road infrastructure sectors, according to documents reviewed by Bloomberg.
The deterioration of Johannesburg’s water, energy, and road infrastructure has become a political flashpoint and a symbol of how the unstable coalition government is contributing to the decline of some of the country’s largest cities. The metropolis, home to 5 million people, accounts for about 16% of South Africa’s GDP and hosts the national stock exchange and many of its largest companies.
Currently, the city is governed by a coalition led by the African National Congress (ANC). The Democratic Alliance (DA), the second-largest party nationally and in the City Council, seeks to regain control in next year’s municipal elections, highlighting the city’s dysfunction.
Johannesburg holds a long-term credit rating of Ba3 from Moody’s, with a stable outlook. While three notches below investment grade, it is higher than any other South African city except Cape Town, rated Ba2, on par with the national government.
Source: Bloomberg
