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World

South Africa's wage freeze plan hinged on ‘difficult’ negotiations, says Fitch

  • The success of the plan "will depend crucially on difficult negotiations with public sector trade unions,"
  • Freezing civil servants' salaries will put the governing party on a collision course with its labour union allies.
29 Oct 2020

CAPE TOWN: South Africa's plan to freeze public sector wages, announced by the finance minister in a budget speech, will face opposition from labour unions, ratings firm Fitch said on Thursday.

The success of the plan "will depend crucially on difficult negotiations with public sector trade unions," said Fitch Ratings in a detailed commentary after publishing a brief statement late last night.

Finance Minister Tito Mboweni pledged on Wednesday to freeze the wages of the country's 1.3 million civil servants as part of the government's plan to narrow a yawning budget deficit and bring down debt.

Freezing civil servants' salaries will put the governing party on a collision course with its labour union allies. Public sector unions have already taken the government to court for failure to pay wage increases due in April.

"Tensions within the governing African National Congress will also hamper policy-making and exceptionally high inequality raises social pressure for additional spending," Fitch said.

Fitch, which rates South Africa's debt at BB with a negative outlook, added: "Despite the Economic Reconstruction and Recovery Plan released by the president, Cyril Ramaphosa, in mid-October, growth will remain weak."

Treasury cut its growth forecasts for 2020 to a 7.8% contraction, while the budget deficit is seen widening to 15.7% of GDP.