‘Difficult trade-offs’ coming to keep South Africa afloat

 ·17 May 2023

Finance Minister Enoch Godgonwana says that South Africa is going to need to make some trade-offs to address the rising fiscal challenges and ensure public finances are restored.

One of the most notable challenges is the decision regarding the public sector wage bill, as one-third of the national budget is spent on the salaries and benefits of public servants and political office bearers.

Speaking on Wednesday (16 May) during a budget vote debate, the minister said that some of the downside risks outlined in his earlier national budget speech have – unfortunately for the budget – come to fruition.

Godongwana said that key among these is the outcome of the public sector wage negotiations, which the budget did not pre-empt.

“The result is that the macro-fiscal position presented in the budget has changed adversely and significantly. The risks into the future remain high,” he said.

On 31 March, the government and trade unions in the Public Coordinating Bargaining Council (PSCBC) agreed on a two-year wage deal following protest action by public servants.

The agreement means that in 2023, there will be a 7.5% increase for public sector workers and in 2024, the growth will be determined based on the National Treasury’s forecast for the Consumer Price Index (CPI).

Godongwana said that in 2025/26, the public sector wage bill is set to rise to over R760 billion; however, the recent wage agreement has placed upward pressure on the wage bill, said the minister.

“This means that in the current financial year, the National Treasury must identify over R37.4 billion in savings to cushion the blow on the fiscal framework,” said Godongwana.

To achieve this, the minister said that it would involve executing ‘difficult trade-offs’ and may entail a rationalisation of staffing levels and deployment of headcount management strategies as a means to curb the wage bill.

“Simply put, and as I indicated in the Budget Speech, a higher-than-budgeted wage agreement means less space for the recruitment of staff,” said the finance minister.

During his speech, the minister also provided a bleak update on the current and future economic situation in South Africa.

Godongwana said that, according to the International Monetary Fund (IMF), the world is entering a ‘perilous place’ wherein economic growth remains low by historical standards and financial risks have risen while the globe waits for inflation to turn a corner.

He said, however, that the country’s persistent and severe load shedding has added to this strain, with it being a binding constraint to production, investment and employment.

“As such, real GDP growth in the final quarter of 2022 was worse than anticipated, contracting by 1.3 per cent. The result is that GDP growth in 2022 was weaker than expected, at 2%,” said Godognwana.

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