Despite mounting debt, South Africa's richest city gains Moody's confidence

Written by Omnia Hassan

Johannesburg, South Africa's economic heart, has maintained the confidence of credit rating agency Moody's, a move observers consider an indicator of the city's economic strength despite financial challenges, chief among them high debt and a widening budget deficit.

Moody's affirms rating and raises outlook

Moody's announced that it has affirmed the long-term credit rating for the City of Johannesburg at Ba3, while raising the outlook from stable to positive, ending a review period that had raised concerns about a potential downgrade.

The decision comes despite the city facing an unfunded budget deficit of approximately 2.1 billion rand ($117 million), along with accumulated financial obligations to public utility companies, and the risk of losing government funding estimated at around 8 billion rand due to disputes related to wage agreements.

A strong economy supports the city's standing

Moody's explained that its decision was based on the strength and diversity of the local economy, as well as stable operational performance, manageable debt levels, and the city's ability to access capital markets and benefit from government grants.

Johannesburg is South Africa’s largest economic engine, contributing approximately 15% to the country’s gross domestic product, making its financial stability a key factor in attracting investment and bolstering market confidence.

Governance is the biggest challenge to promotion.

Despite the positive outlook, Moody's stressed that the governance file remains the city's main weakness, emphasizing that any future rating upgrade will remain contingent on achieving sustainable financial management reforms, strengthening oversight and transparency, and improving financial audit results.

Johannesburg faced pressure in recent months due to the delay in publishing its audited financial statements, which led to the suspension of trading of its debt instruments on the Johannesburg Stock Exchange, before it regained compliance with listing requirements after publishing its financial statements and lifting the suspension.

Confidence message for the markets

City officials welcomed Moody's decision, considering it reflects the robustness of the local economy and the success of financial and administrative reform efforts.

City Manager Floyd Brink affirmed that the rating is a testament to Johannesburg's resilience and its ability to meet its financial obligations, while CFO Tiyebogo Moraka indicated that the municipality will continue to implement governance reforms and strengthen financial discipline, with the aim of improving its credit rating and supporting long-term investment in infrastructure projects.

While the positive outlook enhances the city's chances of achieving a higher rating in the coming years, Moody's emphasizes that success will remain contingent on the continuation of reforms and the consolidation of fiscal sustainability, thereby preserving Johannesburg's position as the richest and most economically significant city in South Africa.