THE high number of vacancies or instability at senior management level within some of South Africa’s municipalities poses a risk to the financial and operational management at those municipalities, Global Credit Ratings (GCR) head analyst for the municipal sector, Marc Joffe, said on Wednesday.

Mr Joffe said he expected operational and financial challenges facing South African municipalities to persist despite the notable progress they had made in the roll-out of basic services and infrastructure developments.

The challenges, he noted, were made worse by growing populations and urbanisation, specifically in metropolitan areas and secondary cities.

Official figures showed economic hubs such as Gauteng experienced increases in inhabitant numbers over the past few years. Gauteng is South Africa’s most populous province, home to almost a quarter (12.3-million) of the 52-million people living in the country.

“These challenges have been aggravated of late by ongoing concerns facing South Africa, particularly surrounding economic policies, a rise in the number and intensity of annual wage negotiations, and a sustained high unemployment rate,” Mr Joffe said.

The recent downgrade of South Africa’s sovereign debt rating had affected the government’s financial flexibility, he said, and this could have ramifications for the municipal sector, as a substnatial portion of local government funding is sourced from national and provincial government transfers.

“The challenging economic environment, compounded by above-inflation tariff increases being implemented across a number of municipal services (such as electricity) … has placed increasing pressure on consumer affordability,” Mr Joffe said.

“As such, a continued rise in consumer debtors and potential nonrecovery thereof poses a significant threat to the financial position of a number of municipalities.”

National Treasury figures showed South Africa’s metropolitan municipalities were owed R46.1bn by consumers in the quarter to June 30 this year.

High costs, including of electricity and fuel, are expected to continue burdening consumers next year.

Mr Joffe also said there had been a generally sharp deterioration in key liquidity ratios in the municipal sector in recent years, indicating significant cash-flow strain, particularly for smaller municipalities.

Stringent management of cash flow and a possible delay or reprioritisation of certain capital projects might be required in the short term to shore up cash balances and improve liquidity metrics, Mr Joffe said.

GCR said the impact of further downgrades of South Africa’s credit rating would also probably adversely affect the credit profile of municipalities given its close link to government and, in turn, drive borrowing costs higher.

Rating agencies have downgraded South Africa’s credit ratings mainly on political and social concerns, the weakening economy and rising government debt levels. Analysts widely expect another downgrade in January.

 

 

Source: http://www.bdlive.co.za