Mboweni set for a fight with unions over cut to public-sector wage bill
At R160.2bn, wages will account for the bulk of the cuts, some of which were offset by increases in support for ailing state-owned enterprises.
Cosatu spokesperson Sizwe Pamla said the government was taking a gamble and the plan on wages could lead to a public sector strike, which would be the first one since 2010. “If push comes to shove we will have to fight,” he said.
Investors cheered the budget, with the rand strengthening 0.5% to 15.13/$ by 6pm, having traded at a day’s worst level of R15.34 before Mboweni spoke.
The currency has dropped more than 8% so far in 2020, dragged down by sales of emerging-markets assets as the spread of the coronavirus damped the global growth outlook. SA bonds also firmed on the day with the yield on the R2030, which moves inversely to the price, falling 10-basis points to 8.69%, its best level in about seven months.
Head of SA investments at Investec Asset Management, Nazmeera Moola, described the budget as an “excellent” plan, although it was one that came at a high risk when it came to implementation.
“The good news is that in recent weeks the main union federation Cosatu has been demonstrating a strong desire to help SA achieve long-term solutions to its key challenges, notably Eskom and the publicsector wage bill,” she writes in a Business Day article (Page 11).
“The concern is that communication between the government and unions appears to have been very limited to date.”
Moody’s may be concerned that despite the announced spending cuts, debt and borrowing will continue to rise.
The government expects its cost-cutting measures and an improved economy to push the deficit back to 5.7% in the fiscal year ending 2023. Debt as a proportion of GDP is set to rise to 71.6% in three years’ time, from a projected 61.6% in the current year. That ratio was about 25% a decade ago, before the government ramped up spending in response to the global financial crisis.
After the release of the medium-term budget policy framework in October 2019, Moody’s said it would wait until the February budget to assess whether the government had done enough to produce a credible plan to fix its finances. A downgrade could potentially see billions of rand being pulled by bond investors as SA falls out of key indices used for benchmarking, weakening the currency and putting upward pressure on interest rates.
“How will Moody’s react? I don’t know, but I don’t think they will rerate us on the basis of the fiscal stance,” Mboweni said. “We are determined to get it back in the outer years.”
The minister rejected assertions that the budget, which came with R14bn of tax relief via the adjustment of tax brackets to compensate for inflation, should be classified as austere. “We are not at the point of austerity. We are still spending but not at the rate of change we would have liked.”
HEAD OF SA INVESTMENTS AT INVESTEC ASSET MANAGEMENT DESCRIBED THE BUDGET AS AN EXCELLENT PLAN
HOW WILL MOODY’S REACT? I DON’T KNOW, BUT I DON ’ T THINK THEY WILL RERATE US ON THE BASIS OF THE FISCAL STANCE