"To put it simply, the debt ratio provides an indication as to how much municipalities rely on borrowed money to finance their assets," StatsSA says.So what did they find?
"Municipal debt – which includes both non-current and current liabilities – totalled R211 billion in 2016. With total assets worth R737 billion, that translates to a debt ratio of 29%. In other words, 29c of every rand used to finance municipal operations was in the form of debt," StatsSA explained.The debt for the 2015 financial year had stood at R196 billion, meaning debts rose by around R15 billion in 2016. Gauteng was named as the province with the highest debt ratio, with a ratio of 39%. The Western Cape followed in second place, with a ratio of 33%. The Free State took third place in the rankings of the most in-debt provinces, with their ratio matching the national average. But who took the place of the least in-debt? Limpopo and the Eastern Cape tied in last place, with both having a ratio of 17%. You can see the provincial rankings below:
"National Treasury has stated that municipalities should not have a debt ratio higher than 45%. So at the aggregate level, it seems that municipalities [on average] are in a healthy state in terms of their debt load," the group says,It is expected, however, that municipalities that include economic hub cities may have higher debt ratios. StatsSA explains that this is because they have more income and therefore can pay back bigger loans.
"Larger municipalities are perceived to be more stable financially and thus should carry a smaller risk of defaulting on loans. As a result, it should be relatively easier for them to borrow money," StatsSA says.