Moody's reveals weak fiscal governance despite stable credit outlook
While the city has made strides in improving its cash flow and liquidity, Moody's credit rating characterised the metro as weak in the control environment and compliance, governance and management.
'The city's financial health and liability management suffered largely because of weak accounting practices. These factors underscore the need for substantial improvements in financial management and compliance culture,' according to the credit rating agency.
These governance weaknesses, according to Moody's, severely impacted Tshwane's ability to maintain infrastructure and provide reliable municipal services.
Tshwane's credit profile reflects its high fiscal challenges and fragile liquidity position, both of which become more severe due to its limited external borrowing access.
According to Moody's credit rating, Tshwane suffered from extremely weak fiscal planning, poor budget management, and ineffective fiscal controls that are significantly impacting service delivery and long-term sustainability.
Moody's reported that the city's liquidity is projected to strengthen, with cash and cash equivalents covering 32.4% of outstanding debt in fiscal 2025.
'This strengthening will be attributed to the city's focus on cash flow management and debt reduction efforts, marking a significant milestone in Tshwane's journey to financial recovery and stability.'
However, Moody's revealed that Tshwane continues to underinvest in its capital infrastructure, with spending falling below 10% of total expenditure.
'This underinvestment, coupled with poor maintenance and asset damage, has led to water shortages and restrictions. These issues are concerning due to the social pressures and revenue collection challenges associated with water shortages.'
Moody's said Tshwane's capital expenses as a percentage of total expenses have generally been decreasing, from 8.1% in fiscal 2021 to a projected 4.3% in 2024, indicating a shift in focus towards operational expenses.
'If the city fails to achieve its projected revenues and planned debt financing, it may experience a slowdown in liquidity recovery and postpone infrastructure projects.'
Consequently, delays in capital infrastructure spending could exacerbate social pressures and strain revenue collection.
Moody's said, however, Tshwane's liquidity ratio, a key measure of financial health, improved from 2.5% in 2023 to 4.4% in 2024.
'Cash reserves also increased significantly, rising from R1.01-billion to R1.9-billion. These improvements stem largely from the city's financial recovery plan, which prioritises debt repayment, enhanced cash flow management, and stricter revenue collection efforts.'
According to Moody's, Tshwane's operating margin rose to 11.7% of operating revenue in fiscal 2024, up from 10.1% in 2023.
'This gain was largely driven by a 10% increase in operating revenue, stemming from improved service charge collections and increased electricity usage.'
Moody's said revenue-collection campaigns such as 'Reclaiming Our City' and 'Tshwane Ya Tima' have also contributed.
The agency highlighted that Tshwane has also made strides in managing its debt.
'The city's net direct and indirect debt (NDID)-to-revenue ratio dropped to 20.8% in 2024, from 22.1% in 2023, following a key bond repayment. It plans to further lower this burden to 14.6% by 2026 by refraining from borrowing, a recommendation made by the National Treasury, until liquidity improves.'
Tshwane's debt is primarily composed of bank loans (66%), with annuity bonds (20%) and municipal bonds (14%) making up the rest. The average maturity of its debt is about 12 years.
However, Moody's warns of limited national government support in the event of financial distress.
To that end, the city is working to strengthen governance and financial oversight, a major concern flagged in earlier assessments.
Moody's notes that Tshwane has begun implementing focused audits, improving transparency in financial reporting, and rebuilding internal control systems.
'The appointment of key personnel in audit and risk management functions marks progress in restoring governance credibility.'
Despite these efforts, Moody's reiterates that structural reforms and governance improvements are essential if the city is to maintain fiscal stability without reliance on extraordinary national support.
Jacqui Uys, DA Tshwane spokesperson for Finance, said Tshwane is defunding critical projects and service delivery as part of cash-saving plans.
'The ANC government is withholding service delivery as a cash-saving mechanism, underspending on what is their core mandate and really important to the residents. No government should use saving money by not delivering services as a financial rescue plan,' Uys explained.
Tshwane spokesperson Lindela Mashigo said while the metro has made positive strides in stabilising its finances, significant work remains to strengthen its fiscal position and restore long-term sustainability.
'The city has consistently honoured its financial obligations and has never defaulted on debt repayments, despite fiscal pressures,' Mashigo said.
'We remain committed to servicing our annuity loans as they fall due. Importantly, we have established a redemption fund to ensure bullet loans and bonds can be redeemed without jeopardising our liquidity.'
He added that this commitment was demonstrated in April 2023 when the city successfully repaid its R830-million CoT01 bond upon maturity.
Mashigo acknowledged that while liquidity has improved slightly, it remains constrained.
'To manage this, we've adopted a Funding Plan that informs daily monitoring of cash flows. This enables the metro to identify and correct deviations early to avoid financial instability.'
Beyond the financial recovery plan, the city has ensured that its budget is fully funded and aligned with realistically projected revenue.
'This credibility in budgeting allows us to better manage expenditure and prioritise essential services without overcommitting resources,' Mashigo explained.
Mashigo also confirmed that major creditors, including Eskom, Rand Water, and SARS, are being paid.
'A landmark court-sanctioned debt settlement agreement with Eskom will see historical debt of R6.6-billion settled over five years, with zero interest charged already reduced to R5.5-billion as of April 2025. This agreement brings certainty and predictability to our cash flow planning,' he said.
'The Rand Water account is current, and we have fully settled a VAT liability of R4.74-billion to SARS, with the final payment made in March,' Mashigo said.
Mashigo clarified that capital expenditure, including commitments, stands at 65.8% of the total budget.
'The metro continues to prioritise critical infrastructure projects, especially in the water and electricity sectors, which have suffered from historical underinvestment. Plans are also underway to invest in more resilient infrastructure as a response to potential load-shedding.'
He said credit control efforts have seen measurable success.
'Through the Tshwane Ya Tima campaign, we executed 19 773 disconnection activities in March alone, collecting over R260- million. An additional R48-million was recovered through settlement arrangements. Our collection rate as of March stands at 86%, with monthly payment levels at 87%, indicating improved revenue discipline.'
ALSO READ: Locals disagree on 'Tshwane is safest metro in SA'
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