Metro debt ‘not so big’

2013-09-02 00:00

ETHEKWINI Metro, which pays close to R1 billion a year to service its nearly R10 billion debt, has refuted claims that it is the most heavily indebted city in South Africa.

This follows an SA Cities Network (SACN) report that said on a percentage basis the city was the most indebted in the country.

SACN, a non-profit organisation, is a joint-government initiative involving nine of the country’s largest municipalities and is owned by and accountable to its members.

The council has put its recent debt ratio at nearly 10% less than what the report states and has told ratepayers not to be concerned that the debt ratio could lead to rising rates.

But the Democratic Alliance is adamant that paying nearly R1 billion per annum to service the city’s debt is not sustainable and the city could face a financial crossroads soon.

The SACN 2013 annual report, released to Parliament in August, compares various fiscal performance indicators between 2008 and 2012 in nine cities throughout South Africa. It found eThekwini to be the most heavily indebted with borrowings to operating revenue being just below 50%. The report said eThekwini has “little room for manoeuvre, as they have reached or are approaching the borrowing level norm of 50%”.

The city’s operating revenue, otherwise known as operating budget, stood at just over R23 billion in 2012, putting city debt at more than R10 billion.

But the council said their debt ratio in 2013 is in fact only 39,2% or R9,887 billion.

Municipal spokesperson Thabo Mofokeng said the city borrows “only to finance its capital expenditure programme”.

The city’s 2013/14 Integrated Development Plan says it will take the council 23 to 37 years to clear the current backlog in water and electricity provision, for more than 73 000 and 300 000 households respectively.

“Ninety percent of the capital budget is spent on basic service delivery type infrastructure expenditure [which includes] electricity, water and roads. No operational expenditure is ever financed from loans,” said Mofokeng.

He said the debt ratio falls well within the norms applied by National Treasury (50%) and the more conservative Credit Rating Agency (40%), and is “deemed to be satisfactory”. The debt servicing costs and repayment of loans only represents seven percent of the budget (R980 million per annum), “which is reasonable and affordable”.

Johan Viljoen, a consultant who specialises in assisting municipalities with implementing accounting standards and involved in compiling the SACN report, said: “Debt is good. It allows municipalities to expand their infrastructure and National Treasury encourages this. If the cost of servicing the debt goes up, however, this can be an issue.”

He said it is difficult to raise debt once the 50% barrier has been met.

While housing for the massive indigent community is financed through the provincial government, ultimately medium- to high-income residents carry every­thing else.

According to the SACN report, residents living in homes valued above R500 000 and R1 million have seen their rates increase by 27% and 26% respectively between 2009 and 2012.


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