10 KZN municipalities at risk of buckling under pressure from interest rate hike – Salga

Salga KZN chairperson, Thami Ntuli.

Salga KZN chairperson, Thami Ntuli.

Published Jul 25, 2022


Durban - The South African Local Government Association (Salga) in KwaZulu-Natal has warned that 10 municipalities in the province are susceptible to buckling under the pressure of the recently hiked interest rates.

On Friday last week, the governor of the South African Reserve Bank, Lesetja Kganyago, announced the hike (from 4.75% to 5.5%), pushing the cost of borrowing to the highest level since the Covid-19 pandemic battered the country in March 2020.

In response to this, Salga’s chairperson in KwaZulu-Natal, Thami Ntuli, said this move spells disaster for some of their municipality which are struggling and have a low revenue base, yet they have loans with banks which are linked to the rates.

Furthermore, he said this hike will make it hard for some municipalities to honour their debt obligations.

“Salga in KZN sampled 15 out of 54 municipalities and checked their exposure to interest rate hikes. What is apparent is that five of the 15 municipalities had investments with monthly compounded interest. Therefore they somewhat benefit from interest rate increases.

“Ten of the 15 municipalities had financial instruments (external loans) with financial institutions, which is linked to interest rates. Three out of the 15 municipalities had external loans not linked to interest rates (fixed rates),” Ntuli said.

Judging from this sampling, Ntuli who is King Cetshwayo district municipality mayor, said it is estimated that 70% of municipalities in the province are exposed by the recent hikes.

“It is therefore estimated that 70% of municipalities in KZN and possibly in the country have loans that have interest rates hike exposure. The quarterly reports required by the Treasury would need to offer more detail on this, and government needs to monitor this trend as it could potentially harm development.

“The interest rates hike imposes a high instalment on municipalities and as a result, municipalities will have to divert funds meant for service delivery to service financial instruments,” Ntuli added.

Ntuli said what would make matters even worse for these municipalities if that they are owed billions in rates services by the national government departments as well as provincial ones.

“The timing of these hikes could have not been worse for municipalities because it is compounded by record high government debt. Government debt for municipal services in KZN has just passed the R2.5 billion mark for the first time in history.

“When government and businesses fail to pay or delay paying for the water, lights, rates and refuse removal services they receive, municipalities often have to secure commercial banks loans to ensure that projects do not grind to a halt.”

According to Ntuli, the national government (he singled out the departments of Public Works and Rural Development) owes R600 million while the KZN government owes the rest.

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