It’s crucial tripartite alliance agree on wage bill, economist says
SOEs 'increases the risk of a wider-than-expected deficit', said Moody’s Investor Service vice-president Lucie Villa.
Moody’s expect the cost of serving the country’s debt to continue rising and growth to be slow.
Against the backdrop of yesterday’s council meeting between the ANC, SA Communist Party and Congress of South African Trade Unions (Cosatu) alliance – where the sensitive wage bill was expected to be among issues tabled for discussion – an economist warned it was crucial they reached a consensus.
“If the government fails to contain the rise in the wage bill and compensation spending increases … we estimate the fiscal deficit would reach 7.5% of GDP [gross domestic product] in 2020 and 7.1% in fiscal year 2021,” said Moody’s Investor Service vice-president Lucie Villa.
“The authorities have yet to negotiate any moderation in wages with the country’s unions, which will likely be challenging.
“Moreover, uncertainty regarding the success of negotiations to reduce the wage bill … and potential contingent liabilities from state-owned enterprises [SOEs] mean risks to budget forecasts are elevated.”
SOEs “increases the risk of a wider-than-expected deficit”.
“Even if the government achieves its planned spending restraint, its projected primary deficit of 1.1% of GDP by fiscal 2022 would still be too wide to stabilise the debt burden, given weak growth projections and our expectation of a further rise in the interest bill,” said Villa.
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