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Fitch has kept Joburg's credit ratings steady, in a move that in the midst of the recession "says the business of the City is indeed in a healthy state".
DESPITE the tough economic times, Fitch Ratings has confirmed that the City has once again achieved a long-term national credit rating of AA-(zaf) for 2009.
"We are extremely delighted by this positive rating that will reassure investors and our citizens alike of our capability to prudently manage our finances during this global economic recession," said the member of the mayoral committee for finance, Parks Tau. "We understand the difficulties faced by everyone but believe that with time and responsible behaviour, payment levels will improve."
The City had an AA-(zaf) for 2008, and like last year, has achieved a short-term rating of F1+(zaf) again this year, moving steadily from a rating of F2(zaf) in 2003. The rating refers to the relative ability of an entity to meet its financial commitments. Examples of these commitments may be a loan and the interest on that loan. The "(zaf)" indicates a national rating scale.
Johannesburg has shown steady improvement in its Fitch credit rating over the past six years - its long-term national credit rating was A-(zaf) in 2003.
The best long-term rating for a city is AAA(zaf), while the best short-term rating is F1+(zaf). The F1(zaf) rating refers specifically to the city's ability to pay its short-term debt.
In February this year, Joburg received its third consecutive unqualified report from the auditor-general and in May 2009 announced a budget of R26,3-billion, the biggest municipal budget in the country.
"The story of our credit rating has been an incredible one of gradual but continuous improvement over the last five years and to receive this positive outlook in the midst of the recession says the business of the City is indeed in a healthy state," said the City manager, Mavela Dlamini.
"This position challenges all in our communities and customers alike to do their bit in retaining a positive position in the global economic environment and we truly do appreciate role efforts too."
Tau said that Fitch expected Joburg's economy to "fare better than the expected 1,5 percent contraction at the national level". The international ratings agency expects the City to fend off the recession as a result of public sector works related to the 2010 FIFA World Cup™, and tourism.
Credit crunch and budget
In May this year, the City approved its 2009/10 Integrated Development Plan and Medium Term Budget. At the same time, it has undertaken several large infrastructure development projects - the Rea Vaya Bus Rapid Transit system, preparations for the World Cup, the refurbishment of ageing infrastructure, and the provision of essential services to cater for a rapidly growing population.
The economic conditions have meant that although the City annually reviews its budget, this year has been unique. "While it is a common practice in the City to review the funding plan annually as part of the budget process, the current year is unique in view of the credit crunch and the general economic conditions," Tau said.
The re-evaluation meant that some of the City's 2009/10 projects had been extended, and instead of being completed in the coming year, would be completed over a longer period, said the director of budget in the City, Nthabiseng Mokete.
These projects were across the board, confirmed Mokete, from City Power, Joburg Water, Joburg Roads and City Parks, through to the inner city. Some R670-million had been diverted to the preparations for the World Cup.
Mokete said that some projects, like public space upgrades and beautification of the inner city, had not yet begun, and would be delayed for the moment.
Service delivery
She said the City had striven to "minimise the impact on service delivery".
"We had to stress test all the assumptions around payment levels, affordability, revenue collection and also look at appropriate ways to raise funding in this environment. Very importantly we are committed to keeping our debt stock at about 55 percent of revenue under the circumstances and interest below 7 percent of costs."
Debt stock to revenue is normally at 50 percent, while interest to costs is normally at 7 percent. Mokete confirmed that revenue for the 2008/09 year, which ends in June 2009, was down almost R500-million.
While remaining committed to meeting its service delivery and socio-economic pledges, the City had taken heed of President Jacob Zuma's August call for several immediate measures, in particular, paying small, medium and micro enterprises and other businesses within 30 days, so as to continue supplying basic services, said Nthatisi Modingoane, the deputy director of communications in the City.
In this regard, it encouraged residents, businesses and the government to pay their accounts timeously to ensure unbroken service delivery. "In conclusion, the City remains not only committed to rendering service effectively but also to meet all its financial obligations on time," added Modingoane.
"I would like to take this opportunity to urge the residents of Johannesburg, businesses and the government to pay their accounts on time to enable us to render services effectively and enable us to meet our obligations to our loyal suppliers."
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