South Africa’s richest city wins Moody’s confidence despite growing debt burden

Johannesburg has secured a vote of confidence from Moody’s Ratings despite mounting financial pressures that have raised concerns over the finances of South Africa’s largest city and economic hub.

• Moody’s affirmed Johannesburg’s Ba3 credit rating and revised its outlook to positive.
• The decision comes despite the city facing a R2.1 billion ($117 million) budget gap and mounting debts.
• The agency cited Johannesburg’s resilient economy and manageable debt but flagged governance weaknesses.
• City officials said the rating restores investor confidence as reforms continue.

The ratings agency affirmed Johannesburg’s long-term issuer rating at Ba3 while revising its outlook to positive, ending a review that had previously placed the municipality at risk of a downgrade.

The decision comes even as the city battles an unfunded budget shortfall of R2.1 billion ($117 million) for the current financial year, mounting debts to state-owned utilities and the possibility of losing R8 billion ($447 million) in national funding over a disputed wage agreement.

Moody’s said Johannesburg’s rating reflects a balance between the city’s resilient economic base, broadly stable operating performance and moderate debt burden, offset by weaker governance and funding challenges.

DON'T MISS THIS: South Africa may consider government intervention in Africa's richest city amid deepening financial crisis

“The confirmation of the City of Johannesburg’s ratings reflects a balance between its solid financial and economic fundamentals, with broadly stable operating performance, and a moderate debt burden, offset by weaker governance and funding credit challenges,” the agency said.

Economic engine

Johannesburg is South Africa’s commercial capital, contributing about 15% of the country’s gross domestic product, making its financial health critical to both investors and the broader economy.

Moody’s cited the city’s diversified economy, continued access to capital markets and government grants, stable operating performance and sustainable debt profile as key factors supporting the rating.

The positive outlook also reflects Moody’s expectation that Johannesburg’s operating environment could improve alongside South Africa’s strengthening sovereign outlook after the agency upgraded the country’s credit outlook to positive in May.

DON'T MISS THIS: Africa’s richest city given 14 days to settle over $300 million power utility debt crisis or face court action

Governance remains the biggest challenge

While affirming the rating, Moody’s made it clear that governance remains Johannesburg’s biggest weakness.

The agency said an upgrade would depend on the city demonstrating sustained improvements in budgeting, financial monitoring and governance while addressing audit findings and strengthening institutional performance.

Earlier this year, Moody’s placed Johannesburg’s ratings under review after delays in publishing audited financial statements led to the suspension of the city’s debt instruments from trading on the Johannesburg Stock Exchange.

The review raised concerns over transparency, governance and the city’s continued access to debt markets.

The city has since restored compliance with JSE debt listing requirements after releasing its audited financial statements, allowing the suspension of its debt instruments to be lifted. Officials said the development demonstrated the municipality’s ability to meet its financial obligations despite the temporary disruption.

City welcomes decision

Johannesburg officials described the rating action as a sign of renewed investor confidence.

City Manager Floyd Brink said the affirmation confirms that the municipality remains financially stable while implementing reforms to improve governance and service delivery.

“The affirmation of the city’s credit rating, together with a positive outlook, is an encouraging endorsement of Johannesburg’s financial resilience and economic strength,” Brink said.

Chief Financial Officer Tebogo Moraka said the city would continue strengthening financial management and governance to improve its credit standing.

DON'T MISS THIS: Africa's richest city needs $12 billion for infrastructure repairs

“The city views this rating action as an important milestone in restoring market confidence and reaffirming Johannesburg’s position as South Africa’s economic engine,” Moraka said.

“The administration will continue implementing reforms that improve governance, strengthen financial sustainability and support long-term infrastructure investment for the benefit of residents, businesses and investors.”

Although the positive outlook improves Johannesburg’s prospects of a future ratings upgrade, Moody’s indicated that sustained governance reforms and stronger financial discipline will be necessary before any upgrade is considered.