Fitch Ratings says that government is unlikely to meet its goal of freezing public-sector wages over the next three years.<\/p>\n
In a research note published on Tuesday (11 May), the credit rating agency said that the government’s inability to control spending would likely lead to further budgetary issues.<\/p>\n
“Compensation of public sector workers accounts for a large share, about 35%, of government expenditure,” it said. “Ongoing negotiations on a new wage deal are likely be difficult and the government is unlikely to meet its target of agreeing on a wage freeze, leading to the risk of expenditure overruns.”<\/p>\n
The group forecast that South Africa’s GDP growth is likely to remain below 2% due to the limited scale of planned structural reform, adding that ongoing issues such as government\u2019s weak implementation record and electricity shortages will continue to hinder efforts.<\/p>\n
Commenting on the release, Nazmeera Moola, head of South African investments at asset manager Ninety One, said that ratings agencies are likely to remain sceptical about government’s ability to stick to a 0% increase.<\/p>\n
Speaking to Cape Talk<\/a><\/strong>, Moola said that there was also fundamental doubt around government’s capacity to boost growth.<\/p>\n While this was a point of concern, Moola said that the government has shown strong resolve over the last 12 months in holding the line against union demands.<\/p>\n All three major ratings agencies adopted cautious responses to this year\u2019s budget, warning that the National Treasury set a challenging fiscal roadmap.<\/p>\n The budget deficit and public debt targets are based primarily on an economic rebound and containing the public sector wage bill. Both these drivers face significant downside risks.<\/p>\n