Downgrade bomb drops

2019-08-14 06:01
Contract workers busy with construction of Moshoeshoe Road, one of the main road networks in the Bloemfontein township area. This project has now been temporary halted because of service delivery issues.Photo: Teboho Setena

Contract workers busy with construction of Moshoeshoe Road, one of the main road networks in the Bloemfontein township area. This project has now been temporary halted because of service delivery issues.Photo: Teboho Setena

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The beleaguered Mangaung Metro Municipality was dealt another blow to its recovery plan following a bruising ratings downgrade by the Moody’s ratings agency.

Earlier in May the rating agency strongly warned the Mangaung authority of a possible downgrade, owing to its inability to render services and collect revenues. The municipality has been under review since then with poor governance highlighted.

Last Wednesday (07/08), Moody’s announced the feared Mangaung Metro’s downgrade of three notches to B3. B3 is defined as “being speculative and a high credit risk”.

This means the municipality is still likely to meet its obligations to the general public – tax payers, voters and business alike, but raises serious doubts about attracting potential investors.

The rating agency also painted a negative outlook about the municipality, raising doubt about improving its financial performance and liquidity profile over the next year and a half to junk status.

The municipality’s financial recovery plan developed with central government in July 2018 was found not to be effective in improving its liquidity position.

According to Moody’s findings, only R192 m of old debt has been collected from government departments from July 2018 to May 2019.

Responding to the Mangaung Metro’s predicament, Qondile Khedama, spokesperson of the Mangaung Metro, said in July 2018, with support from the National Treasury, the Mangaung Metro implemented its financial recovery plan to improve financial performance.

“Part of the focal areas that will need the city’s immediate attention will be to look at the financial recovery plan again and assess the weaknesses, which have brought challenges in implementation. This include our revenue collection strategy and matters related to good governance. This is to ensure that as we go to the next assessment by Moody’s, the situation would have improved significantly,” said Khedama.

In a statement, executive mayor Olly Mlamleli promised drastic measures to restore investor confidence.

Moody’s downgrade of the Mangaung comes barely two months after strong caution over its performance by auditor general Kimi Makwetu. He cautioned in the report: “Most indicators for internal control are very poor, with both ‘leadership’ and ‘financial and performance management’ considered as in need of intervention. Poor infrastructure maintenance with, for instance, no adequate evidence that there is a budget for maintenance of water infrastructure, and no plan for road infrastructure maintenance.”

Failures of the political and administrative leadership identified were highlighted by Makwetu.

Khedama stated that Mlamleli would convene an urgent meeting with senior officials to peruse the details of the report. He said: “The city acknowledges the credit profile of the metro is adverse and shows weakness. The situation is not dire, as we are still able to attend to mandates and meet deadlines such as employee costs, third party payments and Sars.”

Moody’s downgrading of the Mangaung Metro has sparked grave concerns and sharp criticism from the Democratic Alliance.

Hardie Vivier, DA Mangaung caucus leader, blames authority’s failure to put in place the necessary systems to collect revenue among others.

“Revenue collection still stands at nothing higher than 60%, while the budgets of the Metro routinely assume a collection rate of at least 90%.

“For the past two financial years, the municipality paid R61 million to the company that failed to help it improve collection rates, as per contract, while government departments and other state institutions are some of the major defaulters.

“As was revealed just last month (July) the Free State Legislature admitted to owing Mangaung R325 449 531,57 for municipal services and property rates. The office of the mayor paid R1,7 million as a donation for the Miss Glamorous beauty contest. This money could have been used for service delivery.”

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