Johann Els
Johann Els

‘Public-sector wage freeze won’t stave off downgrade’

By Siphelele Dludla Time of article published Dec 4, 2019

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JOHANNESBURG - Old Mutual said yesterday that the government’s attempts to curb the public-sector wage bill, rein in the deficit and reduce the debt ratio would not be enough to stave off a potential downgrade by Moody’s next year.

The group’s chief economist Johann Els said the downgrade had become a possibility, as the National Treasury’s options for getting the Budget and debt under control would have little impact, and take more time than cutting expenditure.

“Despite what we saw in the disappointing Medium-Term Budget, expenditure cuts could still be on the cards, but they would have to be significant to make any kind of impact,” he said.

Moody’s, the only ratings agency that still has South Africa’s debt above junk, last month reviewed its outlook for the country from stable to negative, citing the unsustainable wage bill, among others.

The average wage increase across the public service was 6.8percent in 2018/19 or 2.2percent above inflation, and a cumulative 66percent increase over the past 10 years.

About 29000 public servants, members of the national executive, MPs and provincial executives all earned more than R1million last year.

On Monday, Deputy Finance Minister David Masondo said the government was planning to freeze wages across its operations to curb its escalating expenditure.

Masondo told an investor conference in Cape Town that the government’s main short-term intervention to stabilise debt was on the expenditure side.

He said the government had identified about R50billion of spending reductions in the next two years, and that the outer year of the medium-term expenditure framework would contain spending that grew no more than the consumer price inflation.

Els said cutting expenditure and lifting growth through structural policy adjustments remained the government’s most viable solutions to avoid a downgrade.

“Limiting growth in the public wage bill is probably going to be easier than cutting jobs or freezing wage increases,” he said. “This could lead to a lower Budget deficit fairly quickly.”


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