Water crisis could trigger Cape Town junk status

Cape Town risks having its municipal bonds cut to junk by Moody’s because of its water crisis.

"Two of Cape Town’s main industries‚ tourism and agriculture‚ are likely to decline [because of the water crisis]‚ reducing employment‚ gross value added and tax income‚" Moody’s associate analyst Daniel Mazibuko wrote in a research note released on Monday.

"Other effects include threats to public health from poor sanitation and‚ more generally‚ to social order‚ which is significant given Cape Town’s marked income inequality."

Moody’s rates Cape Town along with SA as one rung above junk at Baa3‚ and has the city on review for a downgrade.

Cape Town hopes to respond to the crisis by increasing its capital budget to R7bn in 2018 from R5.9bn in 2017. But its proposal to augment its budget via a "drought charge" has hit widespread opposition.

If the crisis persists‚ it is unlikely Cape Town will be able to maintain its conservative debt management policies‚ Moody’s warned.

In 2017‚ Cape Town derived R3.9bn from water bills‚ which equated to 10% of its operating income.

"The city will lose a portion of this revenue and will have increased operational costs from crisis management policies and programmes‚ and implementation of water supply projects."

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