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EXPLAINER-Why South Africa's public wage bill is a problem

CAPE TOWN, Oct 28 (Reuters) - South Africa plans to freeze public-sector wages for the next three years to help cut its salary bill and contain a yawning budget deficit.

The proposal raises the risk of widespread strikes by the 1.3 million-strong public-sector workforce.

Here is why the government wage bill is a problem.

WHAT IS THE PUBLIC WAGE BILL?

South Africa spends around a third of its budget on the salaries of its civil servants, including national and provincial officials, doctors, teachers and police.

In the fiscal year that started in April, the government projects it will spend around 639 billion rand ($39.54 billion) on their wages.

HOW DID IT GET SO LARGE?

After the end of apartheid in 1994, the governing African National Congress (ANC) sought to empower millions of disadvantaged black people, including by placing them in public- sector jobs. Government spending on salaries more than tripled between 2007 and 2019.

The main reason was above-inflation wage deals with powerful unions, which are allied with the ANC and can shut down parts of the economy if they don’t get their way.

Civil servants’ salaries rose by about 40% in real terms over the past decade, while their number grew by 180,000. The fastest wage increases were in high-skilled professions, including doctors and teachers.

HOW WILL GOVERNMENT MAKE THE CUTS?

The Treasury is seeking nearly 311 billion rand in wage bill reductions by 2023/24. It has chosen not to implement pay increase this year that were agreed in 2018. It has further proposed a wage freeze for the next three years.

Previous efforts to cut compensation costs, including offering early retirement, have not been successful.

Some analysts think the government won’t be able to deliver the promised cuts because the ANC needs its union allies to help mobilise support at local elections next year.

ARE THE PROPOSED CUTS ENOUGH?

Even if the cuts materialise, the budget deficit will remain high at 10.1% of GDP in the next fiscal year, from 15.7% in the current year. The debt-to-GDP ratio will still exceed 92% in 2023/24.

Public-sector pay would still account for a greater share of government spending than it does in many advanced and emerging economies in Europe and Asia.

The problem for South Africa is that it has so little revenue to spare after the coronavirus crisis ravaged the economy. ($1 = 16.1622 rand) (Reporting by Olivia Kumwenda-Mtambo, editing by Larry King)

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