South Africa targets wage freeze as COVID-19 stifles economy

South Africa plans to freeze public sector wages for the next three years to help cut its salary bill as part of measures to arrest a yawning budget deficit, raising the risk of widespread strikes by its 1.3 million-strong public sector workforce.

South Africa plans to freeze public sector wages for the next three years to help cut its salary bill as part of measures to arrest a yawning budget deficit, raising the risk of widespread strikes by its 1.3 million-strong public sector workforce. Africa's most industrialised economy was already in recession before the COVID-19 pandemic struck in March, and restrictions on households and businesses to curb the spread of the coronavirus have exacerbated its socio-economic woes.

The consolidated budget deficit is projected at 15.7% of gross domestic product (GDP) for fiscal 2020/21 ending next March - more than twice last fiscal year's 6.4% shortfall and the widest gap in the post-apartheid era. The economy is seen contracting 7.8% in 2020, while public debt is seen ballooning to more than three quarters of GDP.

"Our job is not to tremble in fear at the storm blast, neither at plagues nor at the wide-open mouth of the hippopotamus," Finance Minister Tito Mboweni said, who earlier this year likened the country's rising debt to a hippo "eating our children's inheritance". "Armed with a strong sense of direction, steadfastness, resolution and determination, we face these perils head-on. Our compass points towards fiscal sustainability and we must all face the same way," Mboweni added.

To narrow the deficit, the Treasury is seeking nearly 311 billion rand ($19 billion) in wage bill reductions by 2023/24 as part of spending cuts. It is pinning its economic recovery hopes on more spending on infrastructure investment, the cornerstone of President Cyril Ramaphosa's growth plan. In order to achieve these targets, the Treasury said in its medium-term budget policy statement that it had chosen not to implement wage hikes for this year that were agreed in 2018.

"Furthermore, the budget guidelines propose a wage freeze for the next three years to support fiscal consolidation," it said. South Africa has 1.3 million public sector employees, whose collective wages now make up 11% of GDP, up from 9% in 2004/05.

More than 80% of the total compensation reductions will be made in the education, health and peace and security sectors, the Treasury said. But the wage-freeze plan is likely to put the African National Congress (ANC)-led government on a collision course with its labour union alliance partners. Unions affiliated to the trade union federation Cosatu have already taken the government to court, challenging its failure to honour the pay increases for the last year of the 2018 three-year wage deal.

The Treasury said the government was working to formulate its position on pay ahead of the next round of wage negotiations. Apart from spending more to contain the spread of the coronavirus and cushion its impact on the poor, the government is also facing growing needs from struggling state-owned companies such as South African Airways (SAA).

The Treasury said 10.5 billion rand will be allocated to SAA, which is currently not flying, to help the airline implement its business rescue plan. ($1 = 16.1622 rand) (Additional reporting and writing by Olivia Kumwenda-Mtambo; Editing by Tim Cocks and Hugh Lawson)

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