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CAPE TOWN - Moody’s Investors Service published a research report on the water supply crisis in South Africa.

Daniel Mazibuko, a Moody’s Associate Analyst who is the author of the report made note that the water supply crisis will result in a credit negative for Cape Town. Moody’s rates the debt Baa3, the lowest investment level and which is equivalent with South Africa’s sovereign rating.

The report states that the Municipal water revenue contributed about 10 % ( R3.9bn) of Cape Town’s operating income in 2017. However, The City revenue will reduce when the city has to use spending to ensure supplies. 

This will lead an increase expenditure on crisis management and water supply projects, Mazibuko said in the report. Mazkibuko added that two main industries that will be effected the most out of this crisis will be tourism and agriculture.

This was result in lower employment and tax income, he said. 

“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,” Mazibuko wrote. “If the crisis persists, it remains to be seen how the city will cope with the unfolding crisis’ potentially wide-ranging consequences on the city’s finances and economy.” said Mazibuko. 

Mazibuko notes that due to implementing water projects the city ,increased the 2018 total capital expenditure budget to R7bn ($538 million) from R5.9bn ($454 million) in 2017.

" Opposition to a proposed “drought charge,” which would have augmented the budget, eliminated that option", said Mazibuko.  Cape Town’s policy of maintaining a strong liquidity ratio and conservative debt management, with a debt burden of only 11% of operating revenue, will help lessen the effects of borrowing required to implement capital projects over the next three years, Mazibuko said.

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