South African Treasury Warns of Fiscal Crisis Over State Wages

South African Treasury Warns of Fiscal Crisis Over State Wages

South Africa can’t implement a pay deal with public servants because it would precipitate a fiscal crisis, Finance Minister Tito Mboweni said.

The government and labor unions will square off in the Labour Appeal Court on Dec. 2 over Mboweni’s proposal to freeze wages that have surged 51% since 2008. Last week, Fitch Ratings and Moody’s Investors Service cut South Africa’s debt assessments deeper into junk, saying the state may struggle to stick to its plan to rein in spending.

“What government and the South African economy cannot now afford, and what is not just and equitable under the current circumstances, is for civil servants to claim yet further inflation-beating and private sector outperforming salary increases off an already high base,” Mboweni said in court documents.

South Africa’s government reneged on a three-year pay deal earlier this year and Mboweni said last month it will freeze wages for the coming three years. The government and unions usually negotiate page for three years at a time and the current agreement will end in March 2021.

The Congress of South African Trade Unions, the nation’s largest worker federation, has warned the dispute over salaries could lead to the unraveling of its alliance with the ruling African National Congress.

Mboweni said Zambia’s financial woes provided a cautionary tale and South Africa can ill afford to go down the same path. Zambia this month defaulted on its Eurobonds, the first African nation to do so since the onset of the coronavirus pandemic.

The South African government would be compelled to borrow more than 78 billion rand ($5.1 billion) if the court backs the labor unions in their fight to have the wage agreement implemented, Public Service and Administration Minister Senzo Mchunu said in the court documents.

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