Credit ratings Agency (GCR), part of Moody’s, announced it had downgraded the Buffalo City Municipality to BBB+(ZA) .
This is despite a revised outlook to Stable.
The GCR said this rating is due largely to the Municipality’s operating performance, due to difficulties in improving debtors’ collection and the deterioration of critical service infrastructure amidst economic headwinds.
The City’s liquidity limits its capacity to adequately fund capital expenditure.
However, this is tempered by BCMM’s low debt burden.
The GCR also said the City’s operating performance has remained weak despite initiatives to address structural challenges and the implementation of a Voluntary Financial Recovery Plan in fiscal 2024.
Revenue generation increased by 9.7% to ZAR10.9 billion ($652.9 million) in fiscal 2025, ending 30 June, driven by higher tariffs for electricity and water services and late-payment interest charges.
However, there has been no underlying growth in the provision of these services, as aging infrastructure, faulty meters, and vandalism have all affected the income margin.
This is concurrent with electricity losses rising to 32.2% in fiscal 2025 (fiscal 2024: 24.2%) and water losses to 41.4% (fiscal 2024: 37.7%).
Ongoing cash flow constrains remained below internal targets and well below the 95% target set by National Treasury guidelines.
Despite several initiatives introduced to improve collections, the targeted rate of 76–78% for fiscal 2026 remains insufficient to materially strengthen operating cash flows and liquidity.
This has led to a deterioration in operating balances, with a deficit of ZAR76.7 million reported in fiscal 2025, the third over the last five years.
While necessary under the current financial constraints, capital expenditure has remained at lower levels of around ZAR1.1 billion over the past two years, compared to ZAR1.7 billion in fiscal 2019.
Moreover, spending on repairs and maintenance relative to total revenue (excluding capital and transfers) was at 3.9%, well below the regulatory norm of 8%.
GCR views the underspending as a credit risk, as it impedes the Metro’s ability to deliver on significant infrastructure backlogs and drive economic development.
The Stable Outlook reflects GCR’s expectation that the ongoing Voluntary Financial Plan will help to stabilise the financial position, preventing further erosion of its liquidity profile.
Last week (11 March 2026), the withdrew the unsolicited long and short-term national scale issuer ratings of CCC(ZA) and C(ZA) on the City of Tshwane, without review.
The withdrawal was due to analytical reasons.
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