Johannesburg - Analysts have welcomed the three-year wage settlement in the public sector, saying it is compatible with the figures incorporated into this year’s budget and the three-year expenditure framework.
The budget provides for the public sector wage bill to rise by an average of 6.6 percent in each of the three years through March 2018.
The Public Sector Co-ordinating Bargaining Council said 47 meetings were held, resulting in 308 hours spent on negotiations before the agreement was reached on Tuesday.
The salary adjustment for this year is 7 percent, based on the average projected consumer price index (CPI) of 4.8 percent plus 2.2 percent.
The wage increase for the second year will be based on the average projected CPI plus 1 percent. The wage increase for 2017/2018 will also be based on the same formula as in the previous year.
Expenditure on public servants’ wages has surged to R445 billion since 2009 and accounts for almost 36 percent of total government spending, according to the Treasury.
Peter Attard Montalto, an analysts at the London-based Nomura International, noted how quickly a deal was reached in the negotiations, thereby avoiding a crippling strike.
He said: “Unions cannot have suddenly ‘agreed’ with the government on the tightness of the budget. We suspect the government may have given reassurances about cutting down on layoffs for this kind of increase (contrary to what it has told rating agencies from recent rating reports). Because of the dominance of Cosatu-related unions in the discussions, there may have been political considerations.”
Citi Research economist Gina Schoeman said though the previous wage deal was criticised by rating agencies for being overly inflationary, she believed agencies would be more accepting this time, given how quickly industrial action damaged gross domestic product growth.
“In other words, a slightly more costly expenditure line item for three years is worth avoiding the cost of the uncertainty that would come with annual wage negotiations and risk of strikes,” she said.
Azar Jammine, the chief director at Econometrix, said the wage settlement not only enhanced the likelihood the country would not receive further credit rating downgrades over the coming year, but it also removed one of the important factors inhibiting business confidence in the short to medium term.
He said there had been a spectre of possible further credit ratings downgrades in the event the government gave way to the unions, thereby threatening the ability to attain the three-year fiscal deficit reduction programme needed to constrain rising public debt.
Jammine said the chance of a downgrade had diminished.
Moody’s said last week its credit rating for South Africa took account of the country’s power shortages and growth challenges, and would probably remain unchanged for the next 12 to 18 months.