Metros' financial sustainability weakens - local rating agency

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  • Local rating agency Ratings Afrika found South Africa's eight metropolitan municipalities' financial sustainability is weakening.
  • Cape Town appears to be the only metro they consider sustainable, while they found Mangaung "seriously unsustainable".
  • The Covid-19 pandemic is expected to worsen the situation.

The Mangaung Municipality's financial management has been "disastrous" over the past five years, and there is concern about its financial viability, a local rating agency has found.

In its annual Municipal Financial Sustainability Index, Ratings Afrika found most of South Africa's eight metros "are displaying a weakening financial sustainability trend".

And this was before the Covid-19 pandemic hit.

The index is based on the eight metropolitan municipalities' operating performance, liquidity management, debt governance, budget practices, affordability and infrastructure development for the financial year which ended June 2019.

"Cape Town is the only metro that strengthened its financial sustainability significantly over the past five years, and is the only one which can be considered sustainable with the capacity to absorb financial shocks," read Ratings Afrika's statement.

"Mangaung's financial sustainability on the other hand has deteriorated to such a low level that it can be considered seriously unsustainable and perhaps even dysfunctional, as reflected by regular media coverage of its failed service delivery".

ALSO READ | SA's municipalities on a slippery slope as funds dry up, service delivery stutters

Ratings Afrika found though there was a declining trend in the municipalities' sustainability scores, they were of sufficient size and have substantial revenue bases to trade themselves out of their financial situations, Mangaung being the exception.

"It would of course require a focused effort with properly prepared operating and capital budgets and strict financial management and discipline to turn the negative trend into a positive one," read the statement.

"Mangaung might be the exception, as its revenue base is the smallest of all the metros and its financial situations are so desperate currently that it probably would need financial assistance from the central or provincial government to return it to a sound footing".

Ratings Afrika noted the financials they have used were from before the Covid-19 pandemic and the impact of the pandemic would change things dramatically.

It stated the R20 billion additional funding allocated to the municipal sphere would be "hopelessly inadequate to cover the loss of revenue by the metros".

Ratings Afrika predicted the pandemic would have a prolonged effect on municipalities' finances, for up to two years, while only Cape Town had the capacity to weather the coronavirus storm successfully.

The Auditor-General of South Africa (AGSA) recently published its report on the audit outcomes for municipalities in the 2018-2019 financial year.

The report titled "Not much to go around, yet not the right hands at the till" presented a grim picture of municipal governance in the country's municipalities.

Of South Africa's 257 municipalities, only 20 (8%) managed to achieve clean audits in 2018/2019, 91 (35%) achieved unqualified with findings audit reports, 83 (32%) qualified with findings and two (1%) adverse findings, 33 (13%) got disclaimed with findings, while 28 municipalities' audit findings were outstanding.

Presenting the report to the National Council of Provinces in June, Deputy Auditor-General Tsakani Maluleke described the report as "the story of many dysfunctional municipalities" and said it illustrated "repeated accountability failures".

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