The City of Tshwane came under criticism over its resolution to request a R1 billion loan from Absa Bank to supplement its operational budget.
ANC’s councillor France Boshielo rapped on the knuckles the multiparty coalition government for being keen to secure a bank loan while it failed to increase municipal workers’ salaries.
He said the ANC caucus will only support the approval of short-term debt facility if it entails the payment of employees' overdue salary increase and acceleration of the delivery of basic services such as urban management services, water provision and fixing roads.
This was during last week’s council sitting at Tshwane House when the municipality asked council to approve a report seeking to secure a loan totalling R1bn with Absa bank.
In a council report by the mayoral committee it was indicated that the short-term debt facilities will assist the City to meet its cash flow requirements in respect of the 2023/24 financial year.
The City evoked Section 45 of the Local Government: Municipal Finance Management Act allowing it to obtain council approval to enter into a short term debt agreement with Absa and secure a R1bn, which is a loan of R 800 million in cash and R 200 million in the form of guarantee.
The Act provides that a municipality may incur short term debt only in accordance with and subject to the provisions of the Act and only when necessary to bridge shortfalls within a financial year during which the debt is incurred, in expectation of specific and realistic anticipated income to be received within that financial year.
While the report was passed with the majority votes, the ANC rejected the move to borrow money from the bank.
Boshielo said: “We note that this debt is payable within the current financial year and the interest rate will be charged at prime plus 2% calculated daily and compounded monthly.
We also note that an unutilised facility fee amounting to 65 basis point will be levied on the unutilised portion of primary lending facility.”
He said the City must utilise 75% of the prime lending facility daily to avoid paying the unutilised facility fee.
“This will mean that the municipality will have to utilise money from this facility even in cases wherein there is no necessity of doing so just to avoid paying unutilised facility fee. This is the potential risk for the financial mismanagement and abuse of this short-term debt,” he said.
He said loan won’t be in the best interest of the municipality and Tshwane residents for council to approve the short-term loan agreement without clearly spelling out how this loan will be utilised and how it will be repaid.
“There is no concrete plan which is presented to this council to enable councillors to make an informed decision. The ANC cannot agree to approve what is tantamount to a blank cheque. This is a clear indication that the DA-led coalition lacks the requisite capacity to provide political guidance over the fiscus and the finance of the City,” Boshielo said.
He said granting a short-term loan to the “unstable coalition government” has a potential to plunge the municipality into a deep financial crisis.
“We believe that it is an ill-conceived idea to address the current liquidity challenges through short-term debt with interest rate charged at prime plus 2%. This short-term loan facility is tantamount to postponing an inevitable financial calamity to a later date,” he said.
Following the report approval city manager Johann Mettler was authorised to sign all necessary agreements or documents related to the Absa loan.