City of Cape Town may take out R2.5bn loan to help cover projects
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Cape Town - The City of Cape Town says it may take out a R2.5 billion loan later in the current financial year (2020/2021) due to the financial impact of the Covid-19 pandemic.
Deputy mayor and Mayco member for finance, Ian Neilson, said the loan would only be taken up should the cash-flow position of the City require it.
“Any loan taken up will be to fund existing capital expenditure identified in the capital budget, approved by the council after a public participation was followed,” he said.
In its adjustment budget that was tabled earlier this month, the City stated that the loan would cover part of the External Financing Fund capital projects of R5.2bn. The strategy sees the City using its surplus cash flow to negate the recovery of a depreciation charge of R500 million a year over a seven-year period.
This is done to offset revenue increases due to loans not taken up previously.
Professor Johan Burger, of the School for Public Leadership at Stellenbosch University, said: “The City is the only financially sustainable metro municipality in the country, according to a recent Ratings Africa report. They can therefore borrow at decent rates. But the only other option would be a dramatic increase in rates and taxes, which would be very unpopular.”
Last week the City passed its adjustment budget tabled in council that outlines projects that could not be completed and roll-over of funds it received from the national and provincial government. A total of R520m is to be rolled over.
According to the City’s Human Settlements directorate, the budget cuts are set to affect at least 15 projects in formal housing and informal settlement upgrade programmes.
Stellenbosch University’s School of Public Leadership director, Professor Zwelinzima Ndevu, said: “What worries me is how they are planning to pay back the loan because that financial burden will fall on the ratepayers.”
Economist Dawie Roodt said: “If they are borrowing for the long term, this would sustain infrastructure projects if they are borrowing because they cannot meet obligations, it’s a bad idea.”