Moody's Ratings (Moody's) has upgraded the City of Cape Town’s credit rating from Ba3 to Ba2, with the outlook regarded as stable.

Moody’s notes that the upgrade reflects what it calls the city’s strong financial management practices, which underpin its ability to maintain a consistently robust operating performance and very strong liquidity, despite a backdrop of tight financial conditions and a low-growth environment.

The ratings agency adds that Cape Town has undertaken various initiatives aimed at enhancing revenue collection and managing expenditure growth, strengthening its credit profile.

Cape Town will also invest R23-billion in infrastructure over the next two years to enhance resilience against climate risks.

“These initiatives, in our view, help to address vulnerabilities that have weighed on the rating, primarily related to rising liquidity pressures and significant shortfalls in revenue collection,” notes Moody’s in its report.

“Transfers from the national government support the city's budget, but Cape Town generates 82% of its revenue from its own sources, such as taxes and service charges.

“With persistent operating surpluses, we expect Cape Town's debt burden to remain moderate compared to international peers.

“Strengthened tax collection rates will support structural revenue growth, increasing the city's self-funding capacity and reducing borrowing needs versus planned requirements.

“Although Cape Town plans to borrow R10-billion over 2025–2026 for water and electricity infrastructure projects, we expect its debt burden to remain contained at only 16% of operating revenue in fiscal 2025.”

Cape Town Mayor Geordin Hill-Lewis has welcomed the upgrade.

“It’s a moment of celebration and is something we have worked towards for a long time.

“Cape Town is already making vital multibillion-rand investments in better water, sanitation, electricity, roads and other infrastructure. Now, this latest ratings upgrade will enable us to do even more for less by bringing down the costs of borrowing for ratepayers and strengthening the city’s ability to cost-effectively fund our record infrastructure investment.

“Our city has long motivated for ratings agencies not to tar Cape Town with the same financial brush as other cities, where finances are collapsing,” says Hill-Lewis.

The City of Cape Town’s ten-year infrastructure pipeline is valued at an estimated R120-billion, to be funded by a blended finance model leveraging its own balance sheet, as well as finance from local and international markets, he adds.