Finance Minister Nhlanhla Nene says the MTBPS will make clear government's intention to pursue a prudent fiscal policy. Photo: GCIS

JOHANNESBURG – Finance Minister Nhlanhla Nene yesterday told investors that the government would proceed to cut its headroom to rein in public spending as he readies himself to deliver the medium-term Budget policy statement (MTBPS) next month.

He said Cabinet had agreed that fiscal sustainability must remain the focus of the government's efforts in public finance management.

“Several options are under consideration to address the additional cost of the new wage agreement, as announced by the Department of Public Service and Administration,” Nene said.

“These include the updated employee-initiated severance package and early retirement to encourage qualifying public servants to exit the public service.”

The minister was speaking at the Moody's annual sub-Saharan Africa Summit. He said the MTBPS would make clear government's intention to pursue a prudent fiscal policy that stabilised the debt-to-gross domestic product ratio over the long term. Reports emerged last month that government planned to lay off thousands of workers.

Zola Saphetha, the general secretary of Nehawu, said the government was planning to retrench 30 000 or more workers and was not prepared to fill critical vacant posts.

“There is not even an attempt to deal with these austerity measures and cutbacks, which are weakening the public service, and the quest to build a capable developmental state has been relegated to the back-burner,” Saphetha said.

Moody's yesterday provided South Africa's economy with rare good news when it said the stable ratings outlook meant there was little chance of a change in its assessment soon.

However, the rating agency warned that policy uncertainty would linger until land reform laws were clearly articulated and that this fuelled a credit-negative environment.

“While we are unlikely to see any significant policy improvement until after the 2019 elections, the country is heading in the right direction and he believes the rate of change will gradually gain momentum,” said Johann Els, the head of economic research at Old Mutual Investment. 

Moody's, the last of the three big credit rating agencies to rate South Africa's investment grade, will review the country again next month.  

The agency has already cut South Africa's gross domestic forecast by half to 0.7 percent following second-quarter contraction.

Conrad Beyers of the University of Pretoria said Moody's view on South Africa's current and future economic environment would help to allay fears that the country was facing a shocking downgrade to junk status. “The management of land reform and property rights, as well as the independence of the South African Reserve Bank, lie at the heart of economic confidence in the country,” Beyers said.