South Africa’s wage freeze plan will mean tough negotiations

Ratings agency Fitch says the proposed public service salary freeze will face much opposition.

South Africa’s plan to freeze public sector wages announced by the finance minister will face opposition from labour unions, ratings firm Fitch said on 29 October.

In a detailed commentary, Fitch Ratings said the success of the plan “will depend crucially on difficult negotiations with public sector trade unions”.

In his Medium-Term Budget Policy Statement, Finance Minister Tito Mboweni pledged to freeze the wages of the country’s 1.3 million civil servants as part of the government’s plan to narrow a massive budget deficit and bring down debt.

Freezing civil servants' salaries will put the governing party on a collision course with its labour union allies. Public sector unions have already taken the government to court for failure to pay wage increases due in April.

Fitch, which rates South Africa’s debt at BB with a negative outlook, said: “Tensions within the governing African National Congress will also hamper policy-making and exceptionally high inequality raises social pressure for additional spending,” adding that despite the Economic Reconstruction and Recovery Plan released by President Cyril Ramaphosa in mid-October, growth will remain weak.

Treasury cut its growth forecasts for 2020 to a 7.8 percent contraction, while the budget deficit has widened to 15.7 percent of GDP.