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South Africa plans wage freeze to lower budget deficit

Credit: REUTERS/© Mike Hutchings / Reuters

South Africa plans to slash its wage bill over the next three years, including a proposed pay freeze, as it earmarks massive expenditure cuts to reign in a soaring budget deficit, the Treasury said on Wednesday.

Adds details, background

JOHANNESBURG, Oct 28 (Reuters) - South Africa plans to slash its wage bill over the next three years, including a proposed pay freeze, as it earmarks massive expenditure cuts to reign in a soaring budget deficit, the Treasury said on Wednesday.

The consolidated budget deficit is projected at 15.7% of gross domestic production (GDP) in the current 2020/21 fiscal year, up from a 6.4% of GDP shortfall in the previous year.

The economy is seen contracting 7.8% in 2020, while public debt is seen ballooning to more than three quarters of GDP

South Africa has proposed a public sector wage freeze for the next three years as it looks to reduce its massive salary bill as part of measures to arrest a ballooning budget deficit, the Treasury said on Wednesday.

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 production (GDP) in the current 2020/21 fiscal year, up from a 6.4% of GDP in the previous year. The deficit will be the highest in the post-apartheid era.

The economy is seen contracting 7.8% in 2020, while public debt is projected at more than three quarters of GDP – with the Treasury warning that the probability of a debt trap has increased.

To narrow the deficit, the Treasury is targeting a total of nearly 311 billion rand in wage bill reductions by 2023/24 as part of the expenditure cuts.

It is pinning an economic recovery on increased spending on infrastructure investment – the cornerstone of President Cyril Ramaphosa's growth plan.

"To achieve these targets, which are essential for fiscal sustainability, government has not implemented the third year of the 2018 wage agreement," the Treasury said in the medium-term budget policy statement.

"Furthermore, the budget guidelines propose a wage freeze for the next three years to support fiscal consolidation."

South Africa has 1.3 million public sector employees, with compensation now equivalent to 11% of GDP, up from 9% in 2004/05.

(Reporting by Olivia Kumwenda-Mtambo, Mfuneko Toyana, Wendell Roelf Editing by Tim Cocks)

((tim.cocks@thomsonreuters.com;))

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